ZTO Express (Cayman) Inc.
Annual Report 2023

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 20-F(Mark One)☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACTOF 1934OR☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2023OR☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from toOR☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934Date of event requiring this shell company reportCommission file number 001-37922ZTO Express (Cayman) Inc.(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)Building One, No. 1685 Huazhi Road, Qingpu District, Shanghai, 201708 People’s Republic of China(Address of Principal Executive Offices)Huiping Yan, Chief Financial OfficerBuilding One, No. 1685 Huazhi Road, Qingpu District, Shanghai, 201708 People’s Republic of China Phone: (86 21) 5980 4508 Email: hp.yan@zto.com(Name, Telephone, Email 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 TradingSymbol(s) Name of Each Exchange on Which RegisteredAmerican depositary shares, each representing oneClass A ordinary share par value US$0.0001 pershareZTONew York Stock ExchangeClass A ordinary shares, par value US$0.0001 pershare2057The Stock Exchange of Hong Kong LimitedTable of ContentsSecurities registered or to be registered pursuant to Section 12(g) of the Act:None(Title of Class)Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None(Title of Class)Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report.As of December 31, 2023, there were 812,866,663 ordinary shares outstanding, par value $0.0001 per share, being the sum of 606,766,663 Class A ordinary shares,and 206,100,000 Class B ordinary shares.Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☒ Yes ☐ NoIf 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 SecuritiesExchange Act of 1934. ☐ Yes ☒ NoIndicate 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 thepreceding 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 past90 days. ☒ Yes ☐ NoIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-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 ☐ NoIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. Seedefinition of “accelerated filer and large accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act:Large Accelerated Filer ☒Accelerated Filer ☐Non-Accelerated Filer ☐Emerging Growth Company ☐If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to usethe 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 StandardsCodification 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 overfinancial 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 auditreport. ☒If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filingreflect 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 anyof the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:U.S. GAAP ☒International Financial Reporting Standards as issued by the International Accounting Standards Board ☐Other ☐If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.☐ Item 17 ☐ Item 18If 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 of1934 subsequent to the distribution of securities under a plan confirmed by a court. ☐ Yes ☐ NoTable of ContentsiTABLE OF CONTENTSPageINTRODUCTION1FORWARD-LOOKING STATEMENTS4Part I5EXPLANATORY NOTE5Item 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS10Item 2.OFFER STATISTICS AND EXPECTED TIMETABLE10Item 3.KEY INFORMATION11Item 4.INFORMATION ON THE COMPANY66Item 4A.UNRESOLVED STAFF COMMENTS104Item 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS104Item 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES116Item 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS130Item 8.FINANCIAL INFORMATION133Item 9.THE OFFER AND LISTING134Item 10.ADDITIONAL INFORMATION135Item 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK151Item 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES152Part II154Item 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES154Item 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OFPROCEEDS MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS154Item 15.CONTROLS AND PROCEDURES154Item 16A.AUDIT COMMITTEE FINANCIAL EXPERT155Item 16B.CODE OF ETHICS155Item 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES155Item 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES155Item 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS156Item 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT156Item 16G.CORPORATE GOVERNANCE156Item 16H.MINE SAFETY DISCLOSURE156Item 16I.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS156Item 16J.Insider Trading Policies157Item 16K.Cybersecurity157Part III158Item 17.FINANCIAL STATEMENTS158Item 18.FINANCIAL STATEMENTS158Item 19.EXHIBITS158SIGNATURES160Table of Contents1INTRODUCTIONZTO Express (Cayman) Inc., which we refer to as ZTO, is not a Chinese operating company but rather a Cayman Islands holdingcompany. ZTO conducts its operations in China both through its subsidiaries and through contractual arrangements with ZTO Express Co., Ltd.,which we refer to as ZTO Express. PRC laws and regulations restrict and impose conditions on foreign direct investment in companies involved inthe provision of domestic mail delivery services. Therefore, we operate that part of our business in China through ZTO Express and its subsidiaries.We rely on contractual arrangements among Shanghai Zhongtongji Network Technology Co. Ltd., or Shanghai Zhongtongji Network, one of ourPRC subsidiaries, ZTO Express and the shareholders of ZTO Express to consolidate the financial results of ZTO Express with ours under U.S.GAAP. These contractual arrangements enable us to direct the activities of ZTO Express, receive the economic benefits that could potentially besignificant to ZTO Express in consideration for the services provided by Shanghai Zhongtongji Network, and hold an exclusive option to purchaseall or part of the equity interests in ZTO Express when and to the extent permitted by PRC law. Because of these contractual arrangements, we arethe primary beneficiary of ZTO Express and hence consolidate its financial results with ours under U.S. GAAP. Revenues contributed by ZTOExpress accounted for 97.7%, 90.4% and 81.4% of our total revenues for the fiscal years 2021, 2022 and 2023, respectively. As used in this annualreport, “ZTO” refers to ZTO Express (Cayman) Inc., and “we,” “us,” “our company” or “our” refer to ZTO Express (Cayman) Inc. and itssubsidiaries. Investors in our ADSs and/or Class A ordinary shares thus are not purchasing equity interest in ZTO Express but instead arepurchasing equity interest in ZTO Express (Cayman) Inc., a Cayman Islands holding company.Our corporate structure is subject to risks associated with our contractual arrangements with ZTO Express. The contractual arrangement isperceived as replicating foreign investment in China-based companies where PRC regulations prohibit direct foreign investment in the operatingcompanies. ZTO and its investors may never have a direct ownership interest in ZTO Express or in the businesses that are conducted by ZTOExpress or its subsidiaries. Uncertainties with respect to the legal system in the jurisdiction where we operate could limit our ability to enforcethese contractual arrangements, and these contractual arrangements have not been tested in a court of law. If the PRC government finds that theagreements that establish the structure for operating our business do not comply with PRC laws and regulations, or if these regulations or theirinterpretations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. This mayresult in ZTO Express being deconsolidated, which would materially and adversely affect our operations, and our ADSs and/or Class A ordinaryshares may decline significantly in value or become worthless. ZTO, our PRC subsidiaries, ZTO Express, and investors of ZTO face uncertaintyabout potential future actions by the PRC government that could affect the enforceability of the contractual arrangements with ZTO Express and,consequently, significantly affect the financial performance of ZTO Express and our company as a whole. The PRC regulatory authorities coulddisallow the contractual arrangement, which would likely result in a material adverse change in our operations, and our Class A ordinary shares orour ADSs may decline significantly in value or become worthless. For a detailed description of the risks associated with our corporate structure,please refer to risks disclosed under “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure.”We face various legal and operational risks and uncertainties associated with being based in or having the majority of our operations inChina and the complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on offeringsconducted overseas by and foreign investment in China-based issuers, the use of VIEs, anti-monopoly regulatory actions, and oversight oncybersecurity and data privacy, as well as the lack of PCAOB inspection on our auditors, which may impact our ability to conduct certainbusinesses, accept foreign investments, or remain listed on a United States or other foreign exchange. These risks could result in a material adversechange in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors,or cause the value of such securities to significantly decline. For a detailed description of risks related to doing business in China, see “Item 3. KeyInformation—D. Risk Factors—Risks Related to Doing Business in China.”Table of Contents2ZTO, our Cayman Islands holding company, may transfer cash to our wholly-owned Hong Kong subsidiaries (through intermediateholding companies in the British Virgin Islands) by making capital contributions or providing loans, and our Hong Kong subsidiaries may transfercash to our PRC subsidiaries by making capital contributions or providing loans to them. Because ZTO and its subsidiaries control ZTO Expressthrough contractual arrangements, they are not able to make direct capital contribution to ZTO Express. However, they may transfer cash to ZTOExpress by loans or by making payment to ZTO Express for inter-group transactions. As of December 31, 2023, ZTO had made cumulative capitalcontribution and loans to its Cayman, BVI, and Hong Kong subsidiaries of RMB20,592.6 million. For the years ended December 31, 2021, 2022and 2023, no shareholder loans were provided by ZTO to our PRC subsidiaries, no dividends or distributions were made to ZTO by oursubsidiaries, and dividends of US$208.4 million, US$202.3 million and US$299.3 million were paid by ZTO to its shareholders. Historically, ZTOpaid dividends to its shareholders primarily using proceeds from offshore financing activities. As ZTO is a Cayman Islands holding company withno material operations of its own, its ability to pay dividends may depend upon dividends paid by our PRC subsidiaries in the future. For moredetailed discussion of how cash is transferred between ZTO, our subsidiaries and ZTO Express, see “Cash Transfers and Dividend Distribution” atthe outset of Part I.Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:●“ADSs” are to our American depositary shares, each of which represents one Class A ordinary share;●“ADRs” are to the American depositary receipts that evidence our ADSs;●“China” or the “PRC” are to the People’s Republic of China, excluding, for the purposes of this annual report only, the Hong KongSpecial Administrative Region, the Macau Special Administrative Region and the Taiwan Region;●“consolidated affiliated entities” are to the VIE and its subsidiaries in China;●“delivery service fees” are to service fees directly charged by network partners from parcel senders in connection with expressdelivery services rendered. The full delivery service fees collected by pickup outlets upfront from the senders typically comprise (i)the pickup service fees; (ii) the network transit fees payable to our company; and (iii) the last-mile delivery fees payable to thedelivery outlets operated by other network partners;●“Hong Kong” or “HK” are to the Hong Kong Special Administrative Region of the PRC;●“HK$” or “Hong Kong dollars” are to the legal currency of Hong Kong;●“Hong Kong Listing Rules” are to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, asamended or supplemented from time to time;●“Hong Kong Stock Exchange” are to The Stock Exchange of Hong Kong Limited;●our “network partners” are to business partners that own and operate pickup and delivery outlets in our network and operate expressdelivery services under our “Zhongtong” or “ZTO” brand;●“network transit fees” are to fees payable by our network partners to us in connection with the services we provide to them, whichmainly include parcel sorting and parcel line-haul transportation;●“ordinary shares” are to our Class A and Class B ordinary shares, par value US$0.0001 per share;●our “parcel volume” in any given period are to the number of parcels collected by our network partners using our waybills in thatperiod;●“RMB” or “Renminbi” are to the legal currency of China;●“unit cost per parcel” are to the sum of cost of revenues and total operating expenses of the applicable period divided by our totalparcel volume during the same period;Table of Contents3●“US$” or “U.S. dollars” are to the legal currency of the United States;●“VIE” are to ZTO Express Co., Ltd., a PRC entity in which we do not have equity interests but whose financial results areconsolidated into our consolidated financial statements in accordance with U.S. GAAP;●“we,” “us,” “our company” or “our” are to ZTO Express (Cayman) Inc. and its subsidiaries. We conduct our operations in Chinathrough (i) our PRC subsidiaries and (ii) the VIE, with which we have maintained contractual arrangements, and its subsidiaries. TheVIE and its subsidiaries are PRC companies conducting operations in China, and their financial results have been consolidated intoour consolidated financial statements under U.S. GAAP for accounting purposes;●“ZTO” are to ZTO Express (Cayman) Inc.; and●“ZTO Express” are to ZTO Express Co., Ltd. or, depending on the context, ZTO Express Co., Ltd. and its subsidiaries.Table of Contents4FORWARD-LOOKING STATEMENTSThis annual report on Form 20-F contains forward-looking statements that relate to our current expectations and views of future events.These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievementsto be materially different from those expressed or implied by the forward-looking statements. These statements are made under the “safe harbor”provisions of the U.S. Private Securities Litigations Reform Act of 1995.You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,”“estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition,results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:●our goals and strategies;●our future business development, financial conditions and results of operations;●the expected growth of the express delivery industry in China;●our expectations regarding demand for and market acceptance of our services;●our expectations regarding our relationships with network partners, direct and end customers, suppliers and our other stakeholders;●competition in our industry; and●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 reportcompletely and with the understanding that our actual future results may be materially different from what we expect. Other Sections of this annualreport discuss factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment.New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of allfactors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from thosecontained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annualreport 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, weundertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events orotherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.Our reporting currency is the Renminbi. This annual report contains translations of RMB and Hong Kong dollar amounts into U.S. dollarsat specific rates solely for the convenience of the reader. Unless otherwise stated, all translations of RMB and Hong Kong dollars into U.S. dollarsand from U.S. dollars into RMB in this annual report were made at a rate of RMB7.0999 to US$1.00 and HK$7.8109 to US$1.00, the respectiveexchange rates on December 29, 2023 set forth in the H.10 statistical release of the Federal Reserve Board. We make no representation that anyRMB, Hong Kong dollar or U.S. dollar amounts referred to in this annual report could have been, or could be, converted into U.S. dollars, RMB orHong Kong dollars, as the case may be, at any particular rate or at all.Table of Contents5PART IEXPLANATORY NOTEZTO is a Cayman Islands holding company with no equity ownership in ZTO Express, its consolidated affiliated entity. We conduct ouroperations in China through (i) our PRC subsidiaries and (ii) ZTO Express, with which we have maintained contractual arrangements. Investors inour ADSs thus are not purchasing equity interest in ZTO Express in China but instead are purchasing equity interest in a Cayman Islands holdingcompany. If the PRC government finds that the agreements that establish the structure for operating certain of our businesses do not comply withPRC laws and regulations, or if these regulations or their interpretations change in the future, we could be subject to severe penalties or be forced torelinquish our interests in those operations. ZTO, our PRC subsidiaries, ZTO Express, and investors of ZTO face uncertainty about potential futureactions by the PRC government that could affect the enforceability of the contractual arrangements with ZTO Express and, consequently,significantly affect the financial performance of ZTO Express and our company as a whole. The PRC regulatory authorities could disallow the VIEstructure, which would likely result in a material adverse change in our operations, and our Class A ordinary shares or our ADSs may declinesignificantly in value.PRC government’s authority in regulating our operations and its oversight and control over offerings conducted overseas by, and foreigninvestment in, China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors.Implementation of industry-wide regulations in this nature may cause the value of such securities to significantly decline. For more details, see“Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight anddiscretion over our business operation could result in a material adverse change in our operations and the value of our ADSs and ordinary shares.”Risks and uncertainties arising from the legal system in the jurisdiction where we operate, including risks and uncertainties regarding theenforcement of laws and quickly evolving rules and regulations in the jurisdiction where we operate, could result in a material adverse change inour operations and the value of our Class A ordinary shares or ADSs. For more details, see “Item 3. Key Information—D. Risk Factors—RisksRelated to Doing Business in China—Uncertainties with respect to the legal system in the jurisdiction where we operate could adversely affect us.”Our Holding Company Structure and Contractual ArrangementsZTO Express (Cayman) Inc. is a holding company with no material operations of its own. We conduct our operations primarily throughour PRC subsidiaries and ZTO Express, the consolidated affiliated entity, and its subsidiaries. Our domestic mail delivery services in China havebeen conducted through ZTO Express in order to comply with the PRC laws and regulations, which prohibit or restrict control of companiesinvolved in the provision of domestic mail delivery services. Revenues contributed by ZTO Express accounted for 97.7%, 90.4% and 81.4% of ourtotal revenues for the fiscal years 2021, 2022 and 2023, respectively. Investors in our ADSs and/or Class A ordinary shares are not purchasingequity interest in ZTO Express in China but instead are purchasing equity interest in a holding company incorporated in the Cayman Islands.Table of Contents6The following chart illustrates our company’s organizational structure, including our principal subsidiaries and the VIE as of March 31,2024:(1)ZTO Express Co., Ltd., or ZTO Express, is the VIE, with which we have maintained contractual arrangements. To the knowledge of ourcompany, Meisong Lai, Jianfa Lai, Jilei Wang, Xiangliang Hu, Shunchang Zhang, Jianying Teng, Xuebing Shang, Baixi Lan and JianchangLai are beneficial owners of the shares of our company and hold 34.35%, 12.00%, 10.00%, 7.05%, 6.00%, 5.02%, 4.40%, 1.40% and 1.06%equity interests in ZTO Express, respectively. Among them, Meisong Lai and Jilei Wang are also directors of our company. The remaining18.72% equity interest in ZTO Express are held by 34 other shareholders. None of these 34 shareholders hold more than 4.00% of the equityinterest in ZTO Express. As of March 31, 2024, ZTO Express directly wholly owned 69 subsidiaries.Table of Contents7A series of contractual agreements, including voting rights proxy agreement, equity pledge agreement, exclusive call option agreement,powers of attorney, spouse consent letters and exclusive consulting and services agreement and its supplemental agreement, have been entered intoby and among Shanghai Zhongtongji Network, our wholly owned subsidiary, ZTO Express, the consolidated affiliated entity, and the shareholdersof ZTO Express. The following is a summary of the currently effective contractual arrangements:(i)voting rights proxy agreement, pursuant to which each of the shareholders of ZTO Express irrevocably appointed Meisong Lai,Shanghai Zhongtongji Network’s designated person, as their attorney-in-fact to exercise all applicable shareholder rights, including, but not limitedto: (i) calling for and attending shareholders meetings as the proxy of the shareholders; (ii) exercising voting rights and all other shareholder’srights provided under PRC laws and the articles of association of ZTO Express, including but not limited to, selling, transferring, pledging ordisposing all or a portion of the shares held by such shareholder or the assets of ZTO Express; (iii) voting on all matters submitted to shareholdersmeetings, including but not limited to, the election of directors and senior management officers who shall be appointed by shareholders; and(iv)exercising other voting rights granted to the shareholders by the articles of association of ZTO Express, as may be amended from time to time;(ii)equity pledge agreement, pursuant to which each of the shareholders of ZTO Express pledged all of their equity interests in ZTOExpress to guarantee their and ZTO Express’s performance of their obligations under the contractual arrangements, including the exclusiveconsulting and services agreement, its related agreements and the equity pledge agreement;(iii)exclusive call option agreement, pursuant to which each of the shareholders of ZTO Express irrevocably granted ShanghaiZhongtongji Network an exclusive option to purchase, or have its designated entity or person to purchase, at its discretion, to the extent permittedunder PRC law, all or part of the shareholders’ equity interests in ZTO Express;(iv)powers of attorney, pursuant to which the shareholders of ZTO Express each irrevocably appointed Shanghai Zhongtongji Network’sdesignated person, Meisong Lai, as the attorney-in-fact to exercise all of applicable shareholder’s voting and related rights with respect to suchshareholder’s equity interests in ZTO Express;(v)consent letter, pursuant to which each of the spouses of six key shareholders of ZTO Express unconditionally and irrevocably agreedthat the spouse is aware of the abovementioned exclusive call option agreement, voting right proxy agreement, irrevocable powers of attorney,equity pledge agreement and the exclusive consulting and services agreement, and has read and understood the contractual arrangements; and(vi)exclusive consulting and services agreement and its supplemental agreement, pursuant to which Shanghai Zhongtongji Network hasthe exclusive right to provide ZTO Express with the technical support and consulting services required by ZTO Express’s business. ShanghaiZhongtongji Network owns the exclusive intellectual property rights created as a result of the performance of this agreement. ZTO Express agreesto pay Shanghai Zhongtongji Network an annual service fee, at an amount equal to 100% of the net income of ZTO Express and its affiliates.For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure —Agreementsthat enable us to direct the activities of ZTO Express” and “—Agreement that allows us to receive economic benefits from ZTO Express.”However, the contractual arrangements may not be as effective as direct ownership in providing us with the ability to direct the activitiesof ZTO Express, and we may incur substantial costs to enforce the terms of the arrangements. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with the VIE and its shareholders for a substantial portion of ourbusiness operations, which may not be as effective as direct ownership in providing us with the ability to direct the operational activities” and“Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—The shareholders of the VIE may have potential conflictsof interest with us, which may materially and adversely affect our business and financial condition.”Table of Contents8There are also substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations and rulesregarding the status of the rights of ZTO with respect to its contractual arrangements with ZTO Express and its shareholders. If we or ZTO Expressare/is found to be in violation of any existing or future PRC laws or regulations, or fail to obtain or maintain any of the required permits orapprovals, the PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures. See “Item 3. KeyInformation—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish thestructure for operating certain of our operations in China do not comply with PRC regulations relating to the relevant industries, or if theseregulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish ourinterests in those operations,” “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Our current corporatestructure, business operations and future capital raising activities may be affected by the PRC Foreign Investment Law, the Overseas Listing TrialMeasures and the recently amended PRC Company Law,” “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the legal system in the jurisdiction where we operate could adversely affect us” and “Item 3. Key Information—D.Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight and discretion over our business operationcould result in a material adverse change in our operations and the value of our ADSs and ordinary shares.”Permissions Required from the PRC Authorities for Our OperationsWe conduct our business primarily through our PRC subsidiaries, ZTO Express and its subsidiaries in China. Our operations in China aregoverned by PRC laws and regulations. As of the date of this annual report, our PRC subsidiaries, ZTO Express and its subsidiaries have obtainedthe requisite licenses and permits from the PRC government authorities that are material for the business operations of our holding company, ZTOExpress and its subsidiaries in the PRC, including, among others, the Courier Service Operation Permit and Road Transportation Operation Permit.Given the uncertainties of interpretation and implementation of the laws and regulations and the enforcement practice by the governmentauthorities, we may be required to obtain additional licenses, permits, filings or approvals for the functions and services of our platform in thefuture. For more detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Any lack ofrequisite approvals, licenses or permits applicable to our business operation or those of our network partners may have a material and adverseimpact on our business, financial condition and results of operations.”Permissions Required from the PRC Authorities for Overseas Financing ActivitiesOn February 17, 2023, the China Securities Regulatory Commission, or the CSRC, promulgated the Circular of the People’s Republic ofChina on Administrative Arrangements for Filing of Overseas Offering and Listing of Domestic Enterprises and the Trial Administrative Measuresof the Overseas Securities Offering and Listing by Domestic Companies together with five relevant guidelines. The Trial Administrative Measuresof the Overseas Securities Offering and Listing by Domestic Companies became effective on March 31, 2023. Pursuant to these measures, PRCdomestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filingprocedure with the CSRC and report the required information. According to the these administrative arrangements, issuers that have already beenlisted in an overseas market by March 31, 2023, such as our company, are not required to make any immediate filing. However, under the OverseasListing Trial Measures, such issuers will be required to complete certain filing procedures with the CSRC in connection with future securitiesofferings and listings outside of China, including follow-on offerings, issuance of convertible bonds, offshore relisting after going-privatetransactions, and other equivalent offering activities. In addition, such issuers are required to file a report to the CSRC after the occurrence andpublic disclosure of certain material corporate events, including but not limited to conversion of listing status in overseas markets (such asswitching from secondary listing to dual primary listing). There remain substantial uncertainties about the interpretation, application andimplementation of the Overseas Listing Trial Measures. If we fail to obtain required approval or complete other review or filing procedures, underthe Overseas Listing Trial Measures or otherwise, for any future securities offerings and listings outside of mainland China, we may face sanctionsby the CSRC or other PRC regulatory authorities, which may include fines and penalties on our operations in mainland China, limitations on ouroperating privileges in mainland China, restrictions on or prohibition of the payments or remittance of dividends by our subsidiaries in China,restrictions on or delays to our future financing transactions offshore, or other actions that could have a material and adverse effect on our business,financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. See “Item 3. Key Information—D.Risk Factors—Risks Related to Doing Business in China—The approval of or filing to the CSRC or other PRC government authorities may berequired in connection with our offshore offerings and future capital raising activities under PRC law, and, if required, we cannot predict whetheror for how long we will be able to obtain such approval” and “—Our business is subject to complex and evolving laws and regulations regardingcybersecurity, privacy, data protection and information security in China. Failure to protect confidential information of our end customers orconsumers could damage our reputation and substantially harm our business and results of operations.”Table of Contents9The Holding Foreign Companies Accountable ActPursuant to the Holding Foreign Companies Accountable Act, if the SEC determines that we have filed audit reports issued by a registeredpublic accounting firm that has not been subject to inspections by the Public Company Accounting Oversight Board (United States), or thePCAOB, for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in theover-the-counter trading market in the United States. On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination thatthe PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in mainland China and Hong Kong,including our auditor.In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of this annualreport on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB issued a report that vacated its December16, 2021 determination and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigatecompletely registered public accounting firms. As of the date of this annual report, the PCAOB has not issued any new determination that it isunable to inspect or investigate completely registered public accounting firms headquartered in any jurisdiction. For this reason, we do not expectto be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F.Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong,among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely accountingfirms in mainland China and Hong Kong and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an auditreport on our financial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuerfollowing the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as aCommission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to theprohibition on trading under the HFCAA. For more details, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business inChina—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements andthe inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections” and“Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our ADSs may be prohibited from trading in the UnitedStates under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely auditors located in China. The delisting of theADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”Cash Transfers and Dividend DistributionZTO, our Cayman Islands holding company, may transfer cash to our wholly-owned Hong Kong subsidiaries (through intermediateholding companies in the British Virgin Islands), by making capital contributions or providing loans, and our Hong Kong subsidiaries may transfercash to our PRC subsidiaries by making capital contributions or providing loans to them.Because ZTO and its subsidiaries control ZTO Express through contractual arrangements, they are not able to make direct capitalcontribution to ZTO Express. However, they may transfer cash to ZTO Express by loans or by making payment to ZTO Express for inter-grouptransactions.The following table sets forth the amount of the transfers for the periods presented.Year Ended December 31, 2021 2022 2023(RMB in millions)Capital contributions and loans from Parent to Cayman, BVI, and Hong Kongsubsidiaries, and collection of loans from Cayman, BVI, and Hong Kong subsidiariesto Parent 1,250 2,580 (1,561)Capital contributions from Hong Kong subsidiaries to PRC subsidiaries 3,671 2,282 840Amounts received by subsidiaries of Parent from ZTO Express* 15,974 20,739 17,986Note:(1)* The cash flows between the subsidiaries of Parent and ZTO Express included the following: transportation fees, service fees and rentalexpenses.Table of Contents10As of December 31, 2023, ZTO had made cumulative capital contribution and loans to its Cayman, BVI, and Hong Kong subsidiaries ofRMB20,592.6 million.In 2021, 2022 and 2023, no shareholder loan was provided by ZTO to our PRC subsidiaries.For the years ended December 31, 2021, 2022 and 2023, no dividends or distributions were made to ZTO by our subsidiaries. For theyears ended December 31, 2021, 2022 and 2023, dividends of US$208.4 million, US$202.3 million and US$299.3 million were paid toshareholders of ZTO of record as of designated record dates.Historically, ZTO paid dividends to its shareholders primarily using proceeds from offshore financing activities. As ZTO is a CaymanIslands holding company with no material operations of its own, its ability to pay dividends may depend upon dividends paid by our PRCsubsidiaries in the future. Our PRC subsidiaries in turn generate income from their own operations, and in addition enjoy substantially all economicbenefit and receive service fees from ZTO Express pursuant to the exclusive business cooperation agreement with ZTO Express. Under PRC law,each of our subsidiaries and ZTO Express in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund certainstatutory reserve funds until such reserve funds reach 50% of its registered capital. In addition, each of our subsidiaries and ZTO Express in Chinamay allocate a portion of its after-tax profits based on PRC accounting standards to a surplus fund at its discretion. The statutory reserve funds andthe discretionary funds are not distributable as cash dividends. Remittance of dividends by a wholly foreign-owned company out of China issubject to examination by the banks designated by the State Administration of Foreign Exchange and declaration and payment of withholding tax.Additionally, if our PRC subsidiaries and ZTO Express incur debt on their own behalf in the future, the instruments governing their debt mayrestrict their ability to pay dividends or make other distributions to us. Our PRC subsidiaries did not and will not be able to pay dividends until itgenerates accumulated profits and meets the requirements for statutory reserve funds. For more details, see “Item 3. Key Information—D. RiskFactors—Risks Related to Doing Business in China—PRC regulation of loans to and direct investment in PRC entities by offshore holdingcompanies and governmental control of currency conversion may delay or prevent us from loaning to or making additional capital contributions toour PRC subsidiaries and the consolidated affiliated entities in China, which could materially and adversely affect our liquidity and our ability tofund and expand our business” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Governmentalcontrol of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.” Except theseregulatory requirements, there are not any other statutory restrictions and limitations on our ability to distribute earnings from our PRC subsidiariesto the parent company and U.S. investors or the ability of ZTO Express to settle amounts owned under the VIE agreements.ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERSNot applicable.ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLENot applicable.Table of Contents11ITEM 3. KEY INFORMATIONA. Our Selected Consolidated Financial DataThe following summary consolidated statements of comprehensive income data for the years ended December 31, 2021, 2022 and 2023,summary consolidated balance sheet data as of December 31, 2022 and 2023 and summary consolidated cash flow data for the years endedDecember 31, 2021, 2022 and 2023 have been derived from our audited consolidated financial statements included elsewhere in this annual report.The summary consolidated statements of comprehensive income data for the years ended December 31, 2019 and 2020, the summary consolidatedbalance sheet data as of December 31, 2019, 2020 and 2021 and the summary consolidated cash flow data for the years ended December 31, 2019and 2020 have been derived from our audited consolidated financial statements that are not included in this annual report. Our consolidatedfinancial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America, orU.S. GAAP.You should read the summary consolidated financial information in conjunction with our consolidated financial statements and relatednotes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our historical results are notnecessarily indicative of our results expected for future periods.Years Ended December 31,20192020202120222023 RMB RMB RMB RMB RMB US$(in thousands, except for share and per share data)Selected Consolidated Comprehensive Income Data:Revenues 22,109,946 25,214,290 30,405,839 35,376,996 38,418,915 5,411,191Cost of revenues (15,488,778) (19,377,184) (23,816,462) (26,337,721) (26,756,389) (3,768,559)Gross profit 6,621,168 5,837,106 6,589,377 9,039,275 11,662,526 1,642,632Operating income (expenses):Selling, general and Administrative (1,546,227) (1,663,712) (1,875,869) (2,077,372) (2,425,253) (341,590)Other operating income, net 387,890 580,973 789,503 774,578 770,651 108,544Total operating expenses (1,158,337) (1,082,739) (1,086,366) (1,302,794) (1,654,602) (233,046)Income from operations 5,462,831 4,754,367 5,503,011 7,736,481 10,007,924 1,409,586Other income (expenses):Interest income 585,404 442,697 363,890 503,722 706,765 99,546Interest expense— (35,307) (126,503) (190,521) (289,533) (40,780)(Loss)/gain from fair value changes of financial instruments— (877) 52,909 46,246 164,517 23,172(Loss)/gain on disposal of equity investees and subsidiary (2,860) 1,086 2,357 69,598 5,485 773Impairment of investment in equity investee (56,026) — — (26,328) — —Unrealized gain from investment in equity investee 754,468—————Foreign currency exchange gain/(loss) 13,301 (127,180) (56,467) 147,254 93,543 13,175Income before income tax and share of loss in equity methodinvestments 6,757,118 5,034,786 5,739,197 8,286,452 10,688,701 1,505,472Income tax expense (1,078,295) (689,833) (1,005,451) (1,633,330) (1,938,600) (273,046)Share of (loss)/gain in equity method investments (7,556) (18,507) (32,419) 5,844 4,356 614Net Income 5,671,267 4,326,446 4,701,327 6,658,966 8,754,457 1,233,040Net loss/(income) attributable to noncontrolling interests 2,878 (14,233) 53,500 150,090 (5,453) (768)Net income attributable to ZTO Express (Cayman) Inc. 5,674,145 4,312,213 4,754,827 6,809,056 8,749,004 1,232,272Net income attributable to ordinary shareholders 5,674,145 4,312,213 4,754,827 6,809,056 8,749,004 1,232,272Net earnings per share/ADS attributable to ordinary shareholders Basic 7.24 5.42 5.80 8.41 10.83 1.53Diluted 7.23 5.42 5.80 8.36 10.60 1.49Weighted average shares used in calculating net earnings per ordinaryshare/ADS Basic 784,007,583 796,097,532 819,961,265 809,442,862 807,739,616 807,739,616Diluted 784,331,120 796,147,504 819,961,265 820,273,531 838,948,683 838,948,683Other comprehensive income (loss), net of tax of nil: Foreign currency translation adjustment 104,004 (771,291) (146,533) 155,432 (104,052) (14,655)Comprehensive income attributable to ZTO Express (Cayman) Inc. 5,778,149 3,540,922 4,608,294 6,964,488 8,644,952 1,217,617Table of Contents12As of December 31,20192020202120222023 RMB RMB RMB RMB RMB US$(in thousands)Selected Consolidated Balance Sheet Data: Current assets: Cash and cash equivalents 5,270,204 14,212,778 9,721,225 11,692,773 12,333,884 1,737,191Short-term investment 11,113,217 3,690,402 2,845,319 5,753,483 7,454,633 1,049,963Advances to suppliers 438,272 589,042 667,855 861,573 821,942 115,768Prepayments and other current assets 1,964,506 2,334,688 3,142,368 3,146,378 3,772,377 531,328Non-current assets: Property and equipment, net 12,470,632 18,565,161 24,929,897 28,813,204 32,181,025 4,532,603Goodwill 4,241,541 4,241,541 4,241,541 4,241,541 4,241,541 597,409Total assets 45,890,502 59,204,750 62,772,343 78,523,586 88,465,221 12,460,066Liabilities and equity Current liabilities: Short-term bank borrowings— 1,432,929 3,458,717 5,394,423 7,765,990 1,093,817Other current liabilities 3,552,288 4,487,084 5,794,380 6,724,743 7,236,716 1,019,271Total liabilities 7,487,105 10,105,052 13,844,762 24,051,116 28,184,813 3,969,748Total liabilities and equity 45,890,502 59,204,750 62,772,343 78,523,586 88,465,221 12,460,066Years Ended December 31,20192020202120222023 RMB RMB RMB RMB RMB US$(in thousands)Selected Consolidated Cash Flow Data: Net cash provided by operating activities 6,304,186 4,950,749 7,220,217 11,479,308 13,360,967 1,881,851Net cash used in investing activities (3,664,213) (3,549,341) (8,756,533) (16,041,890) (12,252,751) (1,725,762)Net cash (used in) /provided by financing activities (1,982,306) 8,337,407 (2,903,985) 7,058,202 (769,836) (108,429)Effect of exchange rate changes on cash, cash equivalents and restrictedcash (3,207) (656,137) (150,430) 338,106 109,843 15,471Net increase/(decrease) in cash, cash equivalents and restricted cash 654,460 9,082,678 (4,590,731) 2,833,726 448,223 63,131Cash, cash equivalents and restricted cash at beginning of year 4,622,954 5,277,414 14,360,092 9,769,361 12,603,087 1,775,107Cash, cash equivalents and restricted cash at end of year 5,277,414 14,360,092 9,769,361 12,603,087 13,051,310 1,838,238Table of Contents13Condensed Consolidating Financial Information of ZTO Express (Cayman) Inc.The following table presents the condensed consolidating balance sheet data for ZTO Express (Cayman) Inc., the VIE and VIE’s subsidiaries, andother entities as of the dates presented. For the purpose of this presentation, (i) the intercompany transactions among entities within our subsidiaries oramong entities within the VIE and VIE’s subsidiaries were eliminated; and (ii) the equity method is used to account for ZTO Express (Cayman) Inc.’sinvestments in our subsidiaries and our subsidiary’s investment in the VIE, as presented below under “Investments in consolidated subsidiaries, VIE andother equity investees.”As of December 31, 2023ZTO ExpressVIE and VIE’sConsolidated (Cayman) Inc. Subsidiaries subsidiaries Elimination TotalRMB(in thousands)AssetsCurrent assets:Cash and cash equivalents 8,881 9,516,208 2,808,795— 12,333,884Restricted cash— 569,244 117,324— 686,568Accounts receivable, net— 213,351 359,207— 572,558Financing receivables, net — 180,021 955,424— 1,135,445Short-term investment 1,020,094 5,886,266 548,273— 7,454,633Inventories— 7,669 20,405— 28,074Advances to suppliers— 739,690 82,252— 821,942Prepayments and other current assets— 1,662,952 2,109,425— 3,772,377Amounts due from related parties outside the consolidated group— 124,640 23,427— 148,067Investments in equity investees including subsidiaries and VIE, and amounts duefrom subsidiaries and VIE 64,660,093 15,134,775 10,556,052 (90,350,920)—Investment in equity investees 1,144,479 2,058,375 252,265 — 3,455,119Property and equipment, net— 26,252,559 5,928,466— 32,181,025Land use rights, net— 4,402,516 1,234,585— 5,637,101Intangible assets, net— 23,240—— 23,240Operating lease right-of-use assets— 36,546 635,647— 672,193Goodwill— 84,430 4,157,111— 4,241,541Deferred tax assets— 579,011 300,761— 879,772Long-term investment 69,629 11,601,252 500,000— 12,170,881Long-term financing receivables, net— 73,589 891,191— 964,780Other non-current assets— 567,080 134,678— 701,758Amounts due from related parties outside the consolidated groups-non-current— 584,263—— 584,263TOTAL ASSETS 66,903,176 80,297,677 31,615,288 (90,350,920) 88,465,221LiabilitiesCurrent liabilitiesShort-term bank borrowings— 400,000 7,365,990— 7,765,990Accounts payable— 664,358 1,892,652— 2,557,010Advances from customers— 36,626 1,709,101— 1,745,727Income tax payable— 134,963 198,294— 333,257Amounts due to related parties outside the consolidated group— 37,662 197,021— 234,683Amounts due to related parties within the consolidated group— 13,302,933— (13,302,933)—Operating lease liabilities, current— 4,978 181,275— 186,253Dividends payable 1,548——— 1,548Other current liabilities 70,333 2,735,803 4,430,580— 7,236,716Non-current operating lease liabilities— 31,568 424,311— 455,879Deferred tax liabilities— 556,229 81,971— 638,200Convertible senior bond 7,029,550——— 7,029,550TOTAL LIABILITIES 7,101,431 17,905,120 16,481,195 (13,302,933) 28,184,813EquityOrdinary shares 525 17,845,730 600,000 (18,445,730) 525Additional paid-in capital 24,201,745 600,000 3,918,356 (4,518,356) 24,201,745Treasury shares, at cost (510,986)——— (510,986)Retained earnings 36,301,185 44,419,495 10,620,516 (55,040,011) 36,301,185Accumulated other comprehensive loss (190,724) (956,110)— 956,110 (190,724)Non-controlling interests— 483,442 (4,779)— 478,663Total Equity 59,801,745 62,392,557 15,134,093 (77,047,987) 60,280,408TOTAL LIABILITIES AND EQUITY 66,903,176 80,297,677 31,615,288 (90,350,920) 88,465,221Table of Contents14As of December 31, 2022ZTO ExpressVIE and VIE’sConsolidated (Cayman) Inc. Subsidiaries subsidiaries Elimination TotalRMB(in thousands)AssetsCurrent assets:Cash and cash equivalents 70,937 8,869,361 2,752,475— 11,692,773Restricted cash— 895,483—— 895,483Accounts receivable, net— 197,573 621,395— 818,968Financing receivables, net— 104,295 847,054— 951,349Short-term investment 2,487,775 2,995,363 270,345— 5,753,483Inventories— 12,386 28,151— 40,537Advances to suppliers— 810,023 51,550— 861,573Prepayments and other current assets— 1,948,516 1,197,862— 3,146,378Amounts due from related parties outside the consolidated group— 288,745 25,738— 314,483Investments in equity investees including subsidiaries and VIE, andamounts due from subsidiaries and VIE 57,207,495 13,136,215 6,554,502 (76,898,212)—Investment in equity investees 1,116,085 2,490,767 343,692 — 3,950,544Property and equipment, net— 22,897,182 5,916,022— 28,813,204Land use rights, net— 4,225,420 1,217,531— 5,442,951Intangible assets, net— 29,437—— 29,437Operating lease right-of-use assets— 101,696 706,810— 808,506Goodwill— 84,430 4,157,111— 4,241,541Deferred tax assets— 313,539 436,558— 750,097Long-term investment— 6,622,660 699,885— 7,322,545Long-term financing receivables, net— 166,948 1,128,807— 1,295,755Other non-current assets— 434,390 382,449— 816,839Amounts due from related parties outside the consolidated groups-non-current— 577,140—— 577,140TOTAL ASSETS60,882,29267,201,56927,337,937 (76,898,212)78,523,586LiabilitiesCurrent liabilitiesShort-term bank borrowings—— 5,394,423— 5,394,423Accounts payable— 594,928 1,607,764— 2,202,692Notes payable— 200,000—— 200,000Advances from customers— 18,781 1,355,910— 1,374,691Income tax payable— 62,449 165,973— 228,422Amounts due to related parties outside the consolidated group— 9,368 39,770— 49,138Amounts due to related parties within the consolidated group— 12,365,223— (12,365,223)—Operating lease liabilities, current— 12,919 216,799— 229,718Dividends payable 1,497——— 1,497Other current liabilities 63,273 1,752,693 4,908,777— 6,724,743Non-current operating lease liabilities— 87,720 422,629— 510,349Deferred tax liabilities— 254,128 92,344— 346,472Convertible senior bond 6,788,971——— 6,788,971TOTAL LIABILITIES 6,853,741 15,358,209 14,204,389 (12,365,223) 24,051,116EquityOrdinary shares 535 17,155,492 600,000 (17,755,492) 535Additional paid-in capital 26,717,727 600,000 3,918,356 (4,518,356) 26,717,727Treasury shares, at cost (2,062,530)——— (2,062,530)Retained earnings 29,459,491 32,950,608 8,617,859 (41,568,467) 29,459,491Accumulated other comprehensive loss (86,672) 690,674— (690,674) (86,672)Non-controlling interests— 446,586 (2,667)— 443,919Total Equity 54,028,551 51,843,360 13,133,548 (64,532,989) 54,472,470TOTAL LIABILITIES AND EQUITY 60,882,292 67,201,569 27,337,937 (76,898,212)78,523,586Table of Contents15 As of December 31, 2021 ZTO Express VIE and VIE’s Consolidated(Cayman) Inc.SubsidiariessubsidiariesEliminationTotalRMB(in thousands)AssetsCurrent assets:Cash and cash equivalents 621,034 8,169,249 930,942— 9,721,225Restricted cash— 27,736—— 27,736Accounts receivable, net— 262,167 671,277— 933,444Financing receivables, net— 133,541 977,920— 1,111,461Short-term investment 196,462 2,328,857 320,000— 2,845,319Inventories— 52,747 30,214— 82,961Advances to suppliers— 612,842 55,013— 667,855Prepayments and other current assets— 1,218,172 1,924,196— 3,142,368Amounts due from related parties outside the consolidated group— 96,288 37,702— 133,990Investments in equity investees including subsidiaries and VIE, and amounts due fromsubsidiaries and VIE 47,472,836 10,685,659 402,488 (58,560,983) —Investment in equity investees 1,027,241 2,402,827 300,380 — 3,730,448Property and equipment, net— 19,063,363 5,866,534— 24,929,897Land use rights, net— 4,141,241 1,194,308— 5,335,549Intangible assets, net— 35,634—— 35,634Operating lease right-of-use assets— 26,407 870,831— 897,238Goodwill— 84,430 4,157,111— 4,241,541Deferred tax assets— 284,139 650,709— 934,848Long-term investment— 1,214,500—— 1,214,500Long-term financing receivables, net— 295,953 1,117,003— 1,412,956Other non-current assets— 377,643 384,630— 762,273Amounts due from related parties outside the consolidated groups-non-current— 611,100—— 611,100TOTAL ASSETS 49,317,573 52,124,495 19,891,258 (58,560,983) 62,772,343LiabilitiesCurrent liabilitiesShort-term bank borrowings 637,260— 2,821,457— 3,458,717Accounts payable— 400,880 1,556,649— 1,957,529Notes payable— 45,000 129,920— 174,920Advances from customers— 12,752 1,213,797— 1,226,549Income tax payable— 86,789—— 86,789Amounts due to related parties outside the consolidated group— 8,352 14,434— 22,786Amounts due to related parties within the consolidated group— 3,095,386— (3,095,386)—Operating lease liabilities, current— 12,022 238,973— 250,995Acquisition consideration payables— 22,942—— 22,942Dividends payable 708——— 708Other current liabilities 42,358 3,196,742 2,555,280— 5,794,380Non-current operating lease liabilities— 22,351 533,740— 556,091Deferred tax liabilities— 179,813 112,543— 292,356TOTAL LIABILITIES 680,326 7,083,029 9,176,793 (3,095,386) 13,844,762EquityOrdinary shares 535 15,084,658 600,000 (15,684,658) 535Additional paid-in capital 28,229,026 600,000 3,923,412 (4,523,412) 28,229,026Treasury shares, at cost (2,067,009)——— (2,067,009)Retained earnings 22,716,799 28,414,359 6,162,247 (34,576,606) 22,716,799Accumulated other comprehensive loss (242,104) 680,921— (680,921) (242,104)Non-controlling interests— 261,528 28,806— 290,334Total Equity 48,637,247 45,041,466 10,714,465 (55,465,597) 48,927,581TOTAL LIABILITIES AND EQUITY 49,317,573 52,124,495 19,891,258 (58,560,983) 62,772,343Table of Contents16The following table presents the condensed consolidating operations data for ZTO Express (Cayman) Inc., the VIE and VIE’s subsidiaries,and other entities for the periods presented. For the purpose of this presentation, (i) the intercompany transactions among entities within oursubsidiaries or among entities within the VIE and VIE’s subsidiaries were eliminated; and (ii) the equity method is used to account for the interestsof ZTO Express (Cayman) Inc. in earnings of our subsidiaries, and the interests of our subsidiary in earnings of the VIE, as presented below under“Share of profit/(loss) in subsidiaries, consolidated VIE, and equity method investments.”For the Year Ended December 31, 2023ZTO ExpressVIE and VIE’sConsolidated (Cayman) Inc. Subsidiaries subsidiaries Elimination TotalRMB(in thousands)Revenue— 19,966,654 31,276,014 (12,823,753) 38,418,915Cost of revenues— (12,858,581) (27,791,654) 13,893,846 (26,756,389)Gross profit— 7,108,073 3,484,360 1,070,093 11,662,526Operating (expenses)/incomeSelling, general and administrative (260,613) (1,292,702) (962,378) 90,440 (2,425,253)Other operating income, net 52,968 1,857,145 21,071 (1,160,533) 770,651Other income/(expenses) (23,907) 605,560 99,124— 680,777Income before income tax and share of profit/(loss) insubsidiaries, consolidated VIE, and equity methodinvestments (231,552) 8,278,076 2,642,177— 10,688,701Income tax expense (26,270) (1,318,961) (593,369)— (1,938,600)Share of profit/(loss) in subsidiaries, consolidated VIE, andequity method investments 9,006,826 2,054,159 (44,856) (11,011,773) 4,356Net income 8,749,004 9,013,274 2,003,952 (11,011,773) 8,754,457 For the Year Ended December 31, 2022ZTO ExpressVIE and VIE’sConsolidated (Cayman) Inc. Subsidiaries subsidiaries Elimination TotalRMB(in thousands)Revenue— 17,157,364 31,981,790 (13,762,158) 35,376,996Cost of revenues— (12,735,655) (28,097,911) 14,495,845 (26,337,721)Gross profit— 4,421,709 3,883,879 733,687 9,039,275Operating (expenses)/incomeSelling, general and administrative (197,209) (1,285,856) (685,546) 91,239 (2,077,372)Other operating income, net 59,881 1,411,343 128,280 (824,926) 774,578Other income/(expenses) (25,490) 685,980 (110,519)— 549,971Income before income tax and share of profit/(loss) insubsidiaries, consolidated VIE, and equity methodinvestments (162,818) 5,233,176 3,216,094— 8,286,452Income tax expense (19,987) (855,788) (757,555)— (1,633,330)Share of profit/(loss) in subsidiaries, consolidated VIE, andequity method investments 6,991,861 10,742 (4,898) (6,991,861) 5,844Net income 6,809,056 4,388,1302,453,641 (6,991,861) 6,658,966Table of Contents17 For the Year Ended December 31, 2021ZTO ExpressVIE and VIE’sConsolidated (Cayman) Inc. Subsidiaries subsidiaries Elimination TotalRMB(in thousands)Revenue— 15,651,997 29,721,135 (14,967,293) 30,405,839Cost of revenues— (10,882,964) (27,900,791) 14,967,293 (23,816,462)Gross profit— 4,769,033 1,820,344— 6,589,377Operating (expenses)/incomeSelling, general and administrative (251,146) (1,203,138) (492,962) 71,377 (1,875,869)Other operating income, net 54,620 253,530 552,730 (71,377) 789,503Other income/(expenses) 29,865 272,703 (66,382)— 236,186Income before income tax and share of profit/(loss) insubsidiaries, consolidated VIE, and equity methodinvestments (166,661) 4,092,128 1,813,730— 5,739,197Income tax expense (23,101) (407,123) (575,227)— (1,005,451)Share of profit/(loss) in subsidiaries, consolidated VIE, andequity method investments 4,944,589 1,227,540 (979) (6,203,569) (32,419)Net income 4,754,827 4,912,545 1,237,524 (6,203,569) 4,701,327The following table presents condensed consolidating cash flow data for ZTO Express (Cayman) Inc., the VIE and VIE’s subsidiaries, andother entities for the years ended presented. For the purpose of this presentation, the intercompany transactions among entities within oursubsidiaries or among entities within the VIE and VIE’s subsidiaries were eliminated. For the Year Ended December 31, 2023ZTO ExpressVIE and VIE’sConsolidated (Cayman) Inc. Subsidiaries subsidiaries Elimination TotalRMB(in thousands)Net cash provided by/(used in) operating activities 26,445 14,596,176 (1,261,654)— 13,360,967Net cash (used in)/provided by investing activities 3,027,005 (13,182,500) (536,180) (1,561,076) (12,252,751)Net cash(used in)/provided by financing activities (3,096,040) (1,206,350) 1,971,478 1,561,076 (769,836) For the Year Ended December 31, 2022ZTO ExpressVIE and VIE’sConsolidated (Cayman) Inc. Subsidiaries subsidiaries Elimination TotalRMB(in thousands)Net cash provided by operating activities 15,638 10,658,257 805,413 — 11,479,308Net cash (used in)/provided by investing activities (4,911,571) (12,189,004) (1,521,688) 2,580,373 (16,041,890)Net cash provided by/(used in) financing activities 4,222,198 2,878,569 2,537,808 (2,580,373) 7,058,202 For the Year Ended December 31, 2021ZTO ExpressVIE and VIE’sConsolidated (Cayman) Inc. Subsidiaries subsidiaries Elimination TotalRMB(in thousands)Net cash provided by operating activities 88,876 6,155,051 976,290 — 7,220,217Net cash provided by/(used in) investing activities 1,679,330 (10,808,233) (877,285) 1,249,655 (8,756,533)Net cash (used in)/provided by financing activities (4,518,056) 2,808,514 55,212 (1,249,655) (2,903,985)B. Capitalization and IndebtednessNot applicable.C. Reasons for the Offer and Use of ProceedsNot applicable.Table of Contents18D. Risk FactorsSUMMARY OF RISK FACTORSInvesting in our Class A ordinary shares and/or ADSs involves significant risks. You should carefully consider all of the information inthis annual report before making an investment in our Class A ordinary shares and/or ADSs. The following list summarizes some, but not all, ofthese risks.Risks Related to Our Business and Industry●Our business and growth are highly dependent on the development of the e-commerce industry and the emergence of New Retail inChina.●Our business operations have relied on, and are likely to continue to be significantly influenced by, certain third-party e-commerceplatforms.●We face risks associated with our network partners and their employees and personnel.●We face intense competition, which could adversely affect our results of operations and market share.●Any service disruptions experienced by our sorting hubs or the outlets operated by our network partners may adversely affect ourbusiness operations.●Our technology systems are critical to our business operations and growth prospects, and failure to continue to improve, andeffectively utilize, our technology systems or develop new technologies could harm our business operations, reputation and growthprospects.●We operate in a labor-intensive industry and an overall contraction in the availability of workers in the labor market or any laborunrest may negatively affect our business.●We engage outsourcing firms to provide personnel for our operations. We have limited control over these personnel and may be liablefor violations of applicable PRC labor laws and regulations accordingly.●We face risks associated with parcels handled and transported through our network and risks associated with transportation.●Our past growth rates may not be indicative of our future growth, and if we are unable to manage our growth or execute our strategieseffectively, our business and prospects may be materially and adversely affected.Table of Contents19Risks Related to Our Corporate Structure●ZTO is a Cayman Islands holding company with no equity ownership in the VIE and we conduct our operations in China primarilythrough (i) our PRC subsidiaries and (ii) the VIE, with which we have maintained contractual arrangements. Investors in our ADSsand/or Class A ordinary shares thus are not purchasing equity interest in our operating entities in China but instead are purchasingequity interest in a Cayman Islands holding company. If the PRC government finds that the agreements that establish the structure foroperating our business do not comply with the PRC laws and regulations, or if these regulations or their interpretations change in thefuture, we could be subject to severe penalties or be forced to relinquish our interests in those operations. Our holding company, ourPRC subsidiaries, the VIE, and investors of ZTO face uncertainty about potential future actions by the PRC government that couldaffect the enforceability of the contractual arrangements with the VIE and, consequently, significantly affect the financialperformance of the VIE and our company as a whole. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related to OurCorporate Structure⸺⸺If the PRC government finds that the agreements that establish the structure for operating certain of ouroperations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or the interpretationof existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in thoseoperations” on pages 41-42 of this annual report.Risks Related to Doing Business in China●Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on ourbusiness and operations. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related to Doing Business in China⸺⸺Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on ourbusiness and operations” on page 45 of this annual report.●PRC government’s significant authority in regulating our operations and its oversight and control over securities offerings conductedoverseas by, and foreign investment in, China-based issuers could significantly limit or completely hinder our ability to offer orcontinue to offer securities to investors. Implementation of industry-wide regulations in this nature may cause the value of suchsecurities to significantly decline. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related to Doing Business in China⸺⸺The PRC government’s significant oversight and discretion over our business operation could result in a material adversechange in our operations and the value of our ADSs and ordinary shares” on page 46 of this annual report.●Risks and uncertainties arising from the legal system in the jurisdiction where we operate, including risks and uncertainties regardingthe enforcement of laws and quickly evolving rules and regulations in the jurisdiction where we operate, could result in a materialadverse change in our operations and the value of our ADSs. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related toDoing Business in China⸺⸺Uncertainties with respect to the legal system in the jurisdiction where we operate could adverselyaffect us” on page 46 of this annual report.●We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financingrequirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a materialand adverse effect on our ability to conduct our business. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related toDoing Business in China⸺⸺We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund anycash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to make payments to uscould have a material and adverse effect on our ability to conduct our business” on page 48 of this annual report.●The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statementsand the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of suchinspections. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related to Doing Business in China⸺⸺The PCAOB hadhistorically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inabilityof the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections” onpage 57 of this annual report.Table of Contents20●Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect orinvestigate completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially andadversely affect the value of your investment. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related to DoingBusiness in China⸺⸺Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOBis unable to inspect or investigate completely auditors located in China. The delisting of the ADSs, or the threat of their beingdelisted, may materially and adversely affect the value of your investment” on page 57 of this annual report.Risks Related to Our Shares and ADSs●The trading prices of our ADSs and Class A ordinary shares have been and are likely to continue to be volatile, which could result insubstantial losses to holders of our Class A ordinary shares and/or ADSs.●Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourageothers from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view asbeneficial.●We are a “controlled company” within the meaning of the NYSE Listed Company Manual and, as a result, may rely on exemptionsfrom certain corporate governance requirements that provide protection to shareholders of other companies.RISKS RELATED TO OUR BUSINESS AND INDUSTRYOur business and growth are highly dependent on the development of the e-commerce industry and the emergence of New Retail in China.We generate a significant portion of our parcel volume by serving end customers that conduct business on various e-commerce platformsin China, and our end customers rely on our services to fulfill orders placed by consumers on such platforms. In December 2023, more than 90% ofour total parcel volume was attributable to e-commerce platforms. Our business and growth are therefore highly dependent on the viability andprospects of the e-commerce industry in China.Any uncertainties relating to the growth, profitability and regulatory regime of the e-commerce industry in China could have a significantimpact on us. The development of the e-commerce industry in China is affected by a number of factors, most of which are beyond our control.These factors include:●the growth of broadband and mobile internet penetration and usage in China;●the consumption power and disposable income of e-commerce consumers in China, as well as changes in demographics andconsumer tastes and preferences;●the availability, reliability and security of e-commerce platforms;●the selection, price and popularity of products offered on e-commerce platforms;●the potential impact of health epidemics, such as the COVID-19 pandemic, on our business operations and the economy in China andelsewhere generally;●the emergence of alternative channels or business models that better suit the needs of consumers in China;●the development of fulfillment, payment and other ancillary services associated with e-commerce;●the continued integration of online and offline retail channels by large e-commerce platforms and various retail merchants to reducecustomer acquisition costs and enhance customers’ shopping experience, a phenomenon knows as “New Retail”; and●changes in laws and regulations, as well as government policies, that govern the e-commerce industry in China.Table of Contents21The e-commerce industry is highly sensitive to changes in macroeconomic conditions, and e-commerce spending tends to decline duringrecessionary periods. Many factors beyond our control, including inflation and deflation, fluctuations in currency exchange rates, volatility of stockand property markets, interest rates, tax rates and other government policies and changes in unemployment rates can adversely affect consumerconfidence and spending behavior on e-commerce platforms, which could in turn materially and adversely affect our growth and profitability. Inaddition, unfavorable changes in domestic and international politics, including military conflicts, political turmoil and social instability, may alsoadversely affect consumer confidence and spending, which could in turn negatively impact our growth and profitability.Our business operations have relied on, and are likely to continue to be significantly influenced by, certain third-party e-commerce platforms.Our end customers include many e-commerce merchants who sell products on third-party e-commerce platforms, such as the Alibabaecosystem. Although such third-party e-commerce platforms are not our direct customers or end customers, they have significant influence overhow transactions take place on their e-commerce platforms, including how purchase orders are fulfilled by indicating to consumers the preferredexpress delivery companies for orders placed. As a result, our business operations have been and for the foreseeable future will continue to besignificantly influenced by decisions made by such third-party e-commerce platforms. For example, in order to maintain and foster our cooperationwith Alibaba, we may have to accommodate the demands and requirements from various players in the Alibaba ecosystem, such as the adoption ofdigital waybills initiated by Cainiao Network, a central logistics information system and solutions provider affiliated with Alibaba. Such demandsand requirements may increase the cost of our business or weaken our connection with our end customers.In May 2018, Alibaba and Cainiao Network entered into a strategic transaction with us. Pursuant to the transaction terms, certain investorsled by Alibaba and Cainiao Network invested US$1.38 billion in our company in exchange for approximately 10% of our equity interest at thattime and obtained certain shareholder rights in our company. The transaction was completed in June 2018. However, Alibaba has also invested, andmay invest in the future, in our competitors. Alibaba may encourage merchants on its platforms to choose other investees’ services over ours for itsown business reasons. Alibaba has also built an in-house delivery network to serve its e-commerce platforms and may devote more resources todeveloping its in-house delivery network. If Alibaba encourages the use of other delivery networks or its own delivery network over ours, ourbusiness may be negatively impacted, and our results of operations may be materially and adversely affected.We face risks associated with our network partners and their employees and personnel.As of December 31, 2023, we had over 31,000 pickup/delivery outlets and over 6,000 direct network partners under our ZTO brand. Werely on these network partners to directly interact with and serve end customers. However, the interests of a network partner may not be entirelyaligned with ours or with those of our other network partners at all times. We manage our business relationships with direct network partnersthrough contractual agreements, which provide for performance incentives along with periodic evaluations. Our direct network partners may sub-contract part of their business to their cooperation partners, which we refer to as our indirect network partners. The sub-contracting to indirectnetwork partners is subject to our consent. However, we may not be able to manage the network partners as effectively as if we had full ownershipof them or operated their business directly. In particular, we do not enter into agreements with our indirect network partners and are thereforeunable to exert a significant degree of influence over them.Our network partners and their employees have a significant number of direct interactions with our end customers, and their performanceis directly associated with our brand. We do not directly supervise the employees of our network partners in providing services to end customers.Our existing network-wide service standards and periodic training to the personnel of our network partners may not be sufficient for us toeffectively monitor, maintain and improve their service quality or their general conduct towards end customers. In the event of any unsatisfactoryperformance or unlawful behavior by our network partners and/or their employees towards end customers, we may experience service disruptionsand our reputation may be materially and adversely affected. We may voluntarily, or upon the request of applicable authorities, conductinvestigations on such event and adopt remediation/preventive measures. Such efforts may not be limited to the relevant parties, but applicablethroughout our network, which could cause temporary diversion from the ordinary course of our and our network partners’ business. Furthermore,our network partners may fail to implement sufficient control over the pickup and delivery personnel who work at the outlets in connection withtheir conduct, such as proper collection and handling of parcels and delivery service fees, adherence to customer privacy standards and timelydelivery of parcels. As a result, we or our network partners may suffer financial losses, incur liabilities and suffer reputational damage in the eventof theft or late delivery of parcels, embezzlement of delivery service fees, mishandling of customer privacy, misconduct or unlawful behaviortowards end customers, or any other behavior that reflects adversely on our business and reputation.Table of Contents22Suspension or termination of a network partner’s services in a particular geographic area may result in a significant interruption or failureto provide services in the corresponding geographic area. A network partner may suspend or terminate its services voluntarily or involuntarily dueto various reasons, including a disagreement or dispute with us, failure to make a profit, failure to obtain requisite approvals, failure to maintainlicenses or permits or to comply with other governmental regulations, and events beyond our or its control, such as inclement weather, naturaldisasters, transportation interruptions or labor unrest or shortage. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Businessand Industry—Any service disruptions experienced by our sorting hubs or the outlets operated by our network partners may adversely affect ourbusiness operations.” Due to the intense competition in China’s express delivery industry, our existing network partners may also choose todiscontinue their cooperation with us and work with our competitors instead. We may not be able to promptly replace these network partners orfind alternative ways to provide services in a timely, reliable and cost-effective manner, or at all. As a result of any service disruptions associatedwith our network partners, our customer satisfaction, reputation, operations and financial performance may be materially and adversely affected.We face intense competition, which could adversely affect our results of operations and market share.We operate in a highly competitive and consolidating industry. We compete primarily with leading domestic express delivery companies,including YTO Express, STO Express, Yunda Express, J&T Express, SF Express, JD Logistics, and the express delivery services provided byChina Post, such as EMS. We compete with them based on a number of factors, including network stability, business model, operationalcapabilities, infrastructure capacity, cost control and service quality. We have historically experienced a decline in the delivery service marketprices and we may continue to face downward pricing pressure. If we and our network partners cannot effectively control our costs to remaincompetitive, our market share and revenue may decline. Additionally, if we have to subsidize our network partners to increase our networkpartners’ competitiveness, our gross margin may decline. Our competitors may attempt to gain market share by lowering their rates, especiallyduring economic slowdowns or in key regional markets. Such rate reductions may limit our ability to maintain or increase our rates and operatingmargins and inhibit our ability to grow our business.In addition, major e-commerce platforms, such as Alibaba, Pinduoduo and JD.com, may choose to build or further develop theirrespective in-house delivery capabilities to serve their logistics needs and compete with us, which may significantly affect our market share andtotal parcel volume. Furthermore, as we diversify our service offering and further expand our customer base, we may face competition fromexisting or new players in new sectors we choose to enter. In particular, we or our network partners may face competition from existing or new last-mile delivery service providers which may expand their service offerings to include express delivery or adopt a business model disruptive to ourbusiness and compete with our network partners for delivery personnel. Similarly, existing players in an adjacent or sub-market may choose toleverage their existing infrastructure and expand their services to serve our customers. If these players succeed in doing so, our market share maysuffer and our business and financial performance may be significantly and adversely affected.Certain of our current and potential competitors, as well as international logistics operators with a presence in China, may havesignificantly greater resources, longer operating histories, larger customer bases and greater brand recognition than us. Other current and potentialcompetitors may be acquired by, receive investment from, or enter into strategic relationships with, established and well-financed companies orinvestors which would help enhance their competitiveness. Moreover, competitors may adopt more aggressive pricing policies or devote greaterresources to marketing and promotional campaigns than us. We may not be able to compete successfully against current or future competitors, andcompetitive pressures may have a material and adverse effect on our business, financial condition and results of operations.Table of Contents23Any service disruptions experienced by our sorting hubs or the outlets operated by our network partners may adversely affect our businessoperations.Our daily operations rely heavily on the orderly performance of our sorting hubs and the pickup and delivery outlets operated by ournetwork partners. Any service disruption at our sorting hubs or the pickup and delivery outlets as a result of a failure or disruption of the automatedfacilities, under-capacity during peak parcel volume periods, force majeure, third-party sabotage, disputes, employee delinquency or strike,government inspections or regulatory orders mandating service halt or temporary or permanent shutdown would adversely impact our businessoperations. For example, any ad hoc regulatory inspection by local authorities, such as environmental safety, work safety, equipment safety, firesafety and security checks, on any of our facilities or our network partners’ service outlets may cause business disruptions and suspensions, delaythe processing and delivery of parcels and penalties. The outbreak of an epidemic, such as the outbreak of COVID-19, may also cause a significantdisruption to our business. For instance, our headquarters, dozens of our sorting hubs and thousands of service outlets across the country suspendedoperations from time to time in 2022 due to COVID-19 resurgences caused by the Omicron variants, resulting in delays and stoppages of expressdelivery and a lower-than-expected parcel volume in 2022. The heavy rainfalls and floods in Hebei province in July and August 2023 causedtemporary closure of our facilities, sorting hubs and service outlets in Hebei province. If we are required by governmental authorities to implementchanges to our facilities or relocate any of our facilities or our network partners’ service outlets, our and our network partners’ operating costs mayincrease as a result. In the event of service disruptions at our sorting hubs or outlets, parcel sorting or parcel pickup and delivery may be delayed,suspended or stopped. Such parcels would need to be redirected to other nearby sorting hubs or outlets, and such rerouting of parcels will likelyincrease risks of delay and delivery errors. At the same time, increased parcel sorting or pickup and delivery pressure on nearby sorting hubs oroutlets may negatively impact their performance and result in adverse effects to our entire network. Any of the foregoing events may result insignificant operational interruptions and slowdowns, customer complaints and reputational damage.Our technology systems are critical to our business operations and growth prospects, and failure to continue to improve, and effectively utilize,our technology systems or develop new technologies could harm our business operations, reputation and growth prospects.The satisfactory performance, reliability and availability of our technology systems is critical to our ability to deliver high-qualitycustomer services. We rely on the Zhongtian system, a set of centralized technology systems that we developed, which comprises our operationalmanagement system, our network management system, our settlement system, our finance system and other systems and mobile apps connectingour network partners to efficiently operate our network. These integrated systems support the smooth performance of certain key functions of ourbusiness, such as order tracking, fleet dispatch and management, route planning, and fee settlement. In addition, the maintenance and processing ofvarious operating and financial data is essential to the day-to-day operation of our business and formulation of our strategies. Therefore, ourbusiness operations and growth prospects depend, in part, on our ability to maintain and make timely and cost-effective enhancements and upgradeto our technology systems and to introduce innovative additions to meet changing operational needs. Continued investment in informationtechnology and equipment to enhance operational efficiency and reliability is part of our growth strategy. While we have significantly increased ourspending on technology, such investment may not be sufficient to fully support our expanding business needs. Failure to maintain sufficientspending on technology systems could cause economic losses and put us at a disadvantage to our competitors. We can provide no assurance that wewill be able to keep up with technological improvements or that technologies developed by others (including our competitors) will not render ourservices less competitive or attractive. Any issues impairing the functionality and effectiveness of our systems could result in unanticipated systemdisruptions, slower response time and impaired user experiences, as well as delays or inaccuracies in reporting operating and financial information.Any interruptions caused by telecommunications failures, computer viruses, hacking, or other attempts to harm our technologyinfrastructure could result in the unavailability or slowdown of our centralized system and significantly impact workflows throughout our entirenetwork. We can provide no assurance that our current security mechanisms will be sufficient to protect our technology systems from any third-party intrusions, viruses or hacker attacks, information or data theft or other similar activities. Any such occurrences could disrupt our services,damage our reputation and harm our results of operations.Table of Contents24We operate in a labor-intensive industry and an overall contraction in the availability of workers in the labor market or any labor unrest maynegatively affect our business.Our business is labor-intensive. As of December 31, 2023, we had a total of 23,554 employees and over 63,000 outsourced personnel. Afailure by us or our network partners to maintain a stable and dedicated workforce may result in disruption or delays in the services provided to endcustomers. We and our network partners often need to hire additional or temporary workers to handle the significant increase in parcel volumefollowing special promotional events such as promotional campaigns on June 18, November 11 and December 12 of each year or during other peakseasons throughout the year. During these periods we have observed an increasingly competitive and tight labor market. In general, this hasresulted in, and we expect will continue to result in, increased labor costs driven by higher salaries, social benefits and employee headcounts.Further, we and our network partners compete with other companies in our industry as well as other labor-intensive industries for labor,and such competition may affect the overall stability of our workforce and the performance of our network. For example, emerging disruptivebusiness models like intra-city delivery, which enables senders and recipients within the same city to achieve rapid point-to-point delivery; oromni-channel delivery, which fulfills the logistics demands for omni-channel retailers and consumers, are likely to compete for pickup and deliverypersonnel with our network partners and service outlets. Some of our network partners or outlets may be pressured to increase compensation andsocial welfare benefits for their employees, which may result in lower profitability and insufficient cashflow for our network partners or serviceoutlets. If our network partners or service outlets are unable to offer competitive salaries and benefits, or pay their employees on time or in full,they may lose their personnel, resulting in insufficient delivery resources, disgruntled employees, and lower delivery service quality in certain partsof our network.We and our network partners have been involved in labor disputes and penalties in the past, though none of these, whether individually orin the aggregate, has had a material adverse impact on us. We and our network partners expect to continue to be involved in labor disputes fromtime to time, including involvement in various legal or administrative proceedings related to such disputes. Any labor unrest directed against us orour network partners could directly or indirectly prevent or hinder our normal business operations, and, if not resolved in a timely manner, lead todelays in fulfilling our customer orders and decreases in our revenue. Historically, we have experienced an incident where an employee strike ofone of our network partners caused a prolonged service suspension in a southern city of China, and we cannot assure you that similar incidentswould not happen in the future. We and our network partners cannot always predict or control labor unrest, especially those involving labor notdirectly employed by us. Further, labor unrest may have a negative effect on general labor market conditions or result in changes to labor laws,which in turn could materially and adversely affect our business, financial condition and results of operations.We engage outsourcing firms to provide personnel for our operations. We have limited control over these personnel and may be liable forviolations of applicable PRC labor laws and regulations accordingly.We engage outsourcing firms to provide a large number of personnel to work at our network facilities. As of December 31, 2023, over63,000 outsourced personnel were active in our operations. We enter into agreements with outsourcing firms and do not have any direct contractualrelationship with outsourced personnel, resulting in limited control over them. If any outsourced personnel fail to operate in accordance withinstructions, policies and business guidelines set forth by outsourcing firms based on our requirements, our market reputation, brand image andresults of operations could be materially and adversely affected.Table of Contents25Our agreements with the outsourcing firms may provide that we are not liable to the outsourced personnel. However, if the outsourcingfirms violate any PRC labor laws or regulations or their employment agreements with the personnel, such personnel may file a claim against us asthey provide their services at our network facilities. As a result, we may incur legal liability, and our market reputation and brand image as well asour business, financial condition and results of operations could be materially and adversely affected.We face risks associated with parcels handled and transported through our network and risks associated with transportation.We handle a large volume of parcels across our network, and face challenges with respect to the protection and inspection of these parcels.Parcels in our network may be stolen, damaged or lost for various reasons, and we and/or our network partners may face actual or alleged liabilityfor such incidents. In addition, we may fail to detect unsafe or prohibited/restricted items. There have been incidents in the past where our networkpartners failed to strictly implement parcel screening procedures and allowed controlled items to be mailed through our network. Further, unsafeitems processed and transported through our network, such as flammables and explosives, toxic or corrosive items and radioactive materials, maydamage other parcels in our network, injure their recipients, harm our personnel and result in property damage. Failure to prevent prohibited orrestricted items from entering our network may result in administrative or criminal penalties as well as civil liability for personal injury andproperty damage.The transportation of parcels involves inherent risks. We have a large number of vehicles and personnel involved in our transportationoperations at all times, who are subject to risks associated with transportation safety, including transportation related injuries and losses. Forexample, our vehicles and personnel may be involved in traffic accidents from time to time, resulting in personal injury and loss or damage toparcels carried by them. In addition, frictions or disputes may occasionally arise from the direct interaction of our personnel with parcel sendersand recipients, which may result in personal injury or property damage if such incidents escalate. The insurance policies we carry may not fullycover the damages caused by transportation related injuries or losses.Any of the foregoing could disrupt our services, cause us to incur substantial expenses and divert the time and attention of ourmanagement. We and our network partners may face claims and incur significant liabilities if found liable or partially liable for any injuries,damages or losses. Claims against us may exceed the amount of our insurance coverage or may not be covered by insurance at all. Governmentauthorities may also impose significant fines on us or require us to adopt costly preventive measures. Furthermore, if our services are perceived tobe unsafe by our end customers, e-commerce platforms and consumers, our business volume may be significantly reduced, and our business,financial condition and results of operations may be materially and adversely affected.Our past growth rates may not be indicative of our future growth, and if we are unable to manage our growth or execute our strategieseffectively, our business and prospects may be materially and adversely affected.Our past growth rates may not be indicative of our future growth. Our revenue growth in recent years was partly attributable to businessacquisition, such as the acquisition of China Oriental Express Co., Ltd. The acquired business of China Oriental Express Co., Ltd. provides freightforwarding services, and our revenue generated from such services amounted to RMB1,529.6 million, RMB1,212.7 million and RMB906.8 million(US$127.7 million) in 2021, 2022 and 2023, respectively, accounting for 5.0%, 3.4% and 2.4% of our total revenues during the same periods,respectively. We plan to further expand our network in response to increasing customer and consumer needs, but we may not succeed in doing so.Even if we are able to expand our network as planned, we may not be able to continue to integrate and optimize a larger network. In addition, ascustomer and consumer needs at both the national and regional levels are continuously changing, we may not be able to successfully anticipate orrespond to such changes. For example, we may experience shortages in our delivery capacity if our expansion fails to accurately and timely matchincreased customer and consumer demand. Furthermore, our anticipated future growth will likely place significant demands on our managementand operations. Our success in managing our growth will depend, to a significant degree, on the ability of our executive officers and other membersof our senior management to carry out our strategies effectively, our ability to balance the interests between us and our network partners as well asamong our network partners, and our ability to adapt, improve and develop our financial and management information systems, controls andprocedures. In addition, we will likely have to successfully recruit, train and manage more employees and improve and expand our sales andmarketing capabilities. If we are not able to manage our growth or execute our strategies effectively due to any of the foregoing reasons, ourexpansion may not be successful, and our business and prospects may be materially and adversely affected.Table of Contents26Our long-term growth and competitiveness are highly dependent on our ability to control costs and maintain or raise prices.To maintain competitive pricing and enhance our profit margins, we must continually control our costs. Effective cost-control measureshave a direct impact on our financial condition and results of operations. We have adopted various cost control measures and will continue to addnew ones as necessary and appropriate. For example, transportation costs can be reduced through the choice of appropriate vehicles andoptimization of transportation routes, and labor costs can be reduced through automation. However, the measures we have adopted or will adopt inthe future may not be as effective as expected in improving our financial condition and results of operations. We do not intend to compete with ourcompetitors by introducing aggressive pricing policies, which we consider detrimental to our long-term growth. Delivery services fees charged byour network partners to parcel senders have declined over time, partially as a result of market competition. Our gross profit per parcel is alsoaffected by a variety of other factors, such as an increase or decline in the average weight of parcels handled by us, an increase in the adoption ofdigital waybills, which have a lower charge rate than traditional paper waybills, an increase or a decrease in delivery services directly provided tocertain enterprise customers, and changes in our operating model. For example, the direct shipping model, whereby some parcels are directlyshipped by certain volume-qualified network partners to our destination sorting hubs without going through our origination sorting hubs, reducesoverall delivery time and operating costs and also lowers our revenues. If we are not able to effectively control our cost and adjust the level ofnetwork transit fees based on operating costs and market conditions, our profitability and cash flow may be adversely affected.We face challenges in diversifying our service offerings and expanding our customer base.We intend to further diversify our service offerings and expand our customer base to increase the number of revenue sources in the future.New services or new types of customers may involve risks and challenges that we do not currently face. Such new initiatives may require us todevote significant financial and managerial resources and may not perform as well as expected. We may not be able to successfully addresscustomer demand and preferences and our existing network and facilities may not be adaptable enough to accommodate new services or customers.For example, different service offerings will likely require different equipment specifications and service standards, which may require significanttime and costs to implement. We may also be inexperienced with operating models and cost structures associated with new types of customers wemay choose to pursue. In addition, we may not be able to provide services of sufficient quality, which may result in complaints or liability claimsagainst us, all of which would harm our overall reputation and financial performance. We may also selectively invest in emerging businessopportunities in adjacent logistics markets, such as less-than-truckload shipping, leverage our existing network and infrastructure to directly engagein related businesses, or explore new business initiatives which may create synergies with our existing businesses. We cannot assure you that suchendeavors will be profitable or that we will be able to recoup our investments with respect to any new services or new types of customers in time orat all.Damage to our brand image and corporate reputation could materially and adversely impact our business.We believe our brand image and corporate reputation will play an increasingly important role in enhancing our competitiveness andmaintaining our growth. Many factors, some of which are beyond our control, may negatively impact our brand image and corporate reputation ifnot properly managed. These factors include our ability to provide superior services to our end customers, successfully conduct marketing andpromotional activities, manage relationships with and among network partners, manage complaints and negative publicity, and maintain a positiveperception of our company, our peers and the express delivery industry in general. For instance, one of our business outlets in Chengdu, Sichuanprovince, was found to have transported puppies and kittens in an inhumane way as part of pet blind box sales on e-commerce sites in May 2021,which caused damage to our brand image. Any actual or perceived deterioration of our service quality, which is based on an array of factorsincluding customer satisfaction, number of complaints and number of accidents, may subject us to damages, including the loss of importantcustomers. Any negative publicity against us or our peers may harm our corporate reputation and may result in changes to government policies andthe regulatory environment. If we are unable to promote our brand image and protect our corporate reputation, we may not be able to maintain andgrow our customer base and our business and our growth prospects may be adversely affected.Table of Contents27Our business and the business of our network partners are subject to a broad range of PRC laws and regulations. If we or our network partnersare deemed to be not in compliance with any of these laws and regulations, our business, reputation, financial condition and results ofoperations may be materially and adversely impacted.Our business is subject to governmental supervision and regulation by the PRC governmental authorities, including but not limited to, theState Post Bureau and the Ministry of Transportation. Together, these governmental authorities promulgate and enforce regulations that cover manyaspects of our day-to-day operations. See “Item 4. Information on the Company—B. Business Overview—Regulation.” For example, the PRCPostal Law indicates that express delivery companies cannot engage in “posting and mail delivery business exclusively operated by postalenterprises.” However, PRC law does not provide a specific definition for “posting and mail delivery business exclusively operated by postalenterprises.” If such term is specifically defined in the future and if the parcels that we deliver fall into the defined category, we may be consideredin violation of such regulation. Further, certain of our network partners may commence express delivery services while still in the process ofobtaining Courier Service Operation Permits, and since they use our brand in their businesses, we may be subject to fines or receive order ofrectification as a result. Incidents like the foregoing ones may materially and adversely impact our business, reputation, financial condition andresults of operations.The Interim Regulations on Express Delivery, which were promulgated by the State Council on March 2, 2018, took effect on May 1,2018 and were amended on March 2, 2019, imposed or revised a number of requirements on us in operating our express delivery business,including the following: (i) we are required to timely file records with the local postal administrations for opening express delivery terminal outlets;(ii) in case we intend to suspend operating express delivery services, we shall make public announcement in advance, submit a written notice to thepostal administrative departments, return the Courier Service Operation Permit and make proper arrangements for undelivered express parcels; (iii)we shall not sell, reveal or illegally provide any client information and we shall take remedial measures and report to the local postaladministrations in case any client information is revealed or may be revealed; (iv) we shall verify the identity of senders and register their identityinformation when receiving express parcels and shall not receive their express parcels where senders refuse to furnish identity information orfurnish false identity information; (v) we shall refuse to accept prohibited parcels, shall cease sorting, transporting and delivering any parcels whichare suspected of containing prohibited items and shall promptly submit a report to governmental authorities and assist in investigations; (vi) weshall formulate our emergency plans, carry out emergency drills and exercises regularly and report emergencies to the local postal administrations;and (vii) clients may claim compensation from us for any delay, missing, damage or shortage of express parcels handled by our network partners,since they use our trademark, corporate name and express waybill. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Express Delivery Services.” The operation of our express delivery service is subject to this regulation. Failure to complywith these regulations result in requirement to rectify, fines, suspension of business for remediation or revocation of Courier Service OperationPermits.Pursuant to the Administrative Provisions concerning the Running of Cargo Vehicles with Out-of-Gauge Goods, which were promulgatedby the PRC Ministry of Transport on August 19, 2016, took effect on September 21, 2016 and were amended on August 11, 2021, cargo vehiclesrunning on public roads shall not carry cargo weighing more than the limits prescribed by this regulation and their dimensions shall not exceedthose as set forth by the same regulation. The operation of our truck fleet is subject to this regulation.We expect to gradually reduce the number of non-compliant trucks, the non-compliant trucks may be banned and we may be required tomodify non-compliant trucks or purchase new ones to replace them. Otherwise, we may be subject to additional penalties under this regulation ifwe continue to operate trucks that exceed the limits set forth in the regulation.Table of Contents28Pursuant to the PRC E-commerce Law which was promulgated by the Standing Committee of the National People’s Congress on August31, 2018, and took effect on January 1, 2019, we are subject to certain requirements in e-commerce business, including the following: (i) inproviding express logistics services for e-commerce activities, the providers thereof shall abide by laws and administrative regulations, and complywith the service standards and time limits they have promised; (ii) while handing over commodities to consignees, express logistics serviceproviders shall remind consignees to examine the commodities immediately on the spot; in the event that the commodities are received by othersfor consignees, such express logistics service providers shall obtain the consent of consignees; and while senders handing over commodities toexpress logistics service providers, such express logistics service provider shall, in accordance with the laws and regulations, examine whether thepostal articles are prohibited or restricted from express delivery in the presence of senders; and (iii) express logistics service providers are requiredto use environmental-friendly packaging materials in accordance with the provisions in an effort to reduce the consumption of packaging materialsand implement the recycling measures. While offering express logistics services, the providers thereof may agree to be entrusted by e-commerceoperators to collect payments for goods on a commission basis. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Express Delivery Services.” The operation of our express delivery service is subject to this law. If we are found to be notcompliant with the requirements, and we may be required to rectify. In order to adapt to the evolving e-commerce industry, which could have asignificant impact on us, we may need to develop or upgrade existing business model. If our efforts to comply with laws and regulationsconcerning e-commerce business are unsuccessful, our business, financial condition and results of operation may be materially and adverselyaffected.In addition, our network partners have full discretion over their daily operations and make localized decisions with respect to theirfacilities, vehicles and hiring and pricing decisions. Their operations are regulated by various PRC laws and regulations, including localadministrative rulings, orders and policies that are pertinent to their localized express delivery business. For example, local regulations may specifythe models or types of vehicles to be used in parcel pickup and delivery services or require the network partners to implement heightened parcelsafety screening procedures, which could materially drive up the operating costs and delivery efficiency of the pickup and delivery outlets.Existing and new laws and regulations may be enforced from time to time and uncertainties exist regarding the interpretation andimplementation of current and any future PRC laws and regulations applicable to us and/or our network partners. If the PRC government requiresadditional approvals or licenses, imposes additional restrictions on our or our network partners’ operations, or tightens enforcements of existing ornew laws or regulations, it has the authority, among other things, to levy fines, confiscate income, revoke business licenses, and require us or ournetwork partners to discontinue the relevant business operations. Any of these actions by the PRC authorities may have a material and adverseeffect on our business reputation, financial condition and results of operations. Since our network partners use our brand in their businesses, if theyare found to be noncompliant with PRC laws and regulations, our business, reputation, financial condition and results of operations may bematerially and adversely impacted.Any lack of requisite approvals, licenses or permits applicable to our business operations or those of our network partners may have a materialand adverse impact on our business, financial condition and results of operations.We and our network partners are required to hold a number of licenses and permits in connection with our business operation, including,but not limited to, Courier Service Operation Permits and Road Transportation Operation Permits.Table of Contents29Under PRC laws, an enterprise that operates and provides express delivery services must obtain a Courier Service Operation Permit listingout all the regions it and its branches are allowed to operate in. Such enterprise needs to make a filing with the postal authority to update or renewits Courier Service Operation Permit to include any additional regions it plans to expand into. The consolidated affiliated entities engaging in theexpress delivery services need to obtain the Courier Service Operation Permits, which based on our geographical coverage would cover themajority part of China. The consolidated affiliated entities are required to timely make all required filings with the postal authorities including toupdate or renew their Courier Service Operation Permits with respect to the regions they operate in. Failure to make such filings may result in acorrection order or fines. In addition, an enterprise engaging in road freight transportation is required to obtain a Road Transportation OperationPermit from the relevant county-level road transportation administrative bureau unless the vehicles used are ordinary freight vehicles with a totalmass of 4.5 tons or less. Similarly, our network partners also need to obtain necessary licenses and permits to operate express delivery andtransportation business. Failure to obtain such licenses and permits may result in suspension of operation, fines or other penalties by governmentauthorities. In addition, companies that apply for the Courier Service Operation Permit are subject to certain service capability requirements. If anyof the consolidated affiliated entities are found to obtain the Courier Service Operation Permits by improper means such as fraud or bribery, suchentities may be subject to a fine ranging from RMB10,000 to RMB30,000, their Courier Service Operation Permits may be revoked by the postaladministration department and they cannot re-apply to obtain the permit for a period of three years.After obtaining the Courier Service Operation Permit, an enterprise is further required to maintain its express delivery service operationsduring the validity of such permit. As of the date of this report, we are in the process of applying to renew several Courier Service OperationPermits. Where the permit-holder does not operate any express delivery services for a period of time over six months without due grounds afterobtaining the Courier Service Operation Permit, or suspends its business for more than six months without authorization, the postal administrativedepartments may cancel the Courier Service Operation Permit of such holder.We are currently not aware of any such cancellation or notice ofcancellation. If we become subject to such cancellation, our business, results of operations, financial condition and prospects could be adverselyaffected.New laws and regulations may be enforced from time to time to require additional licenses and permits other than those we currently have.For instance, the PRC E-commerce Law establishes additional standards in the express delivery industry. The PRC Foreign Investment Law,promulgated on March 15, 2019 and effective on January 1, 2020, replaced the trio of existing laws regulating foreign investment in China,together with their implementation rules and ancillary regulations. Further, the State Council also promulgated the Interim Regulations on ExpressDelivery on March 2, 2018. The Interim Regulations on Express Delivery, which took effect on May 1, 2018 and were amended on March 2, 2019,stipulate additional requirements and filing procedures for courier service operators in operating new express delivery terminal outlets. See “Item 4.Information on the Company—B. Business Overview—Regulation—Regulations Relating to Express Delivery Services.” As a result, substantialuncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to our businesses.If the PRC government considers that we or our network partners were operating without the proper approvals, licenses or permits or promulgatesnew laws and regulations that require additional approvals or licenses or imposes additional restrictions on the operation of any part of ourbusiness, it has the authority, among other things, to levy fines, confiscate our income, revoke our business licenses, and require us to discontinueour that business or impose restrictions on the affected portion of our business. Any of these actions by the PRC government may have a materialand adverse effect on our results of operations.Any deficiencies in China’s telecommunication and internet infrastructure could impair the functioning of our technology system and theoperation of our business.Our business depends on the performance and reliability of the telecommunication and internet infrastructure in China. The availabilityand reliability of our website, mobile applications, customer service hotline and technology systems depend on telecommunication carriers andother third-party providers for digital data transmission and storage capacity, including bandwidth and server storage, among other things. If we areunable to enter into and renew agreements with these providers on acceptable terms, or if any of our existing agreements with such providers areterminated as a result of our breach or otherwise, our ability to provide our services to our customers could be adversely affected. We haveexperienced service interruptions in the past due to service interruptions at the underlying external telecommunications service providers, such asinternet data centers and broadband carriers. Frequent service interruptions could frustrate customers and discourage them from using our services,which could cause us to lose customers and harm our operating results.Table of Contents30We may not be able to maintain our corporate culture, which has been a key to our success.Since our inception, our corporate culture has been defined by our mission, vision and values, and we believe that our culture has beencritical to our success. In particular, our corporate culture has helped us serve our customers, attract, retain and motivate employees and networkpartners, and create value for our shareholders. We face a number of challenges that may affect our ability to maintain our corporate culture,including:●failure to identify and promote people to leadership positions in our organization who share our culture, values and mission;●the increasing number and geographic diversity of our network partners;●competitive pressure to move in directions that may divert us from our mission and values;●the continued challenges resulting from a constantly evolving business environment;●potential pressure from public markets to focus on short-term results instead of long-term value creation; and●the increasing need to develop expertise in new areas of business that affect us.If we are not able to maintain our corporate culture or if our culture fails to deliver the long-term results we expect to achieve, ourbusiness, financial condition, results of operations and prospects may be materially and adversely affected.Our business and results of operations may be materially and adversely affected if we are unable to provide high quality services to networkpartners and our end customers.The success of our business largely depends on our ability to maintain and further enhance our service quality. We provide our networkpartners, who are our direct customers, with access to our line-haul transportation and sorting network. Together with our network partners, weprovide complete door-to-door express delivery services to our end customers, which consist mainly of e-commerce merchants and other expressdelivery service users. If we or our network partners are unable to provide express delivery services in a timely, reliable, safe and secure manner,our reputation and customer loyalty could be negatively affected. If our customer service personnel fail to satisfy individual customer needs andrespond effectively to customer complaints, we may lose potential or existing end customers and experience a decrease in customer orders, whichcould have a material adverse effect on our business, financial condition and results of operations.We face risks associated with the financial services we provide to network partners.We provide financial services to qualified network partners. A qualified network partner must meet certain criteria set by us, such ashaving a legal and stable income or source of income and engaging in operation activities that are legal and meet the national industrial policies andrequirements. Under PRC laws, an enterprise must obtain business licenses with corresponding business scope and/or approvals or filings from thegovernmental authorities related to operating and providing financial services, and our company is compliant with the laws and regulations in thePRC in all material aspects during the 2021, 2022 and 2023 with regard to the provision of such financial services. In connection with the financialservices we provide to qualified network partners, we have obtained the requisite business licenses and/or approvals under PRC laws andregulations through various PRC subsidiaries. We have entered into agreements with qualified network partners and have committed and willcontinue to commit our own capital, which has had, and may continue to have, a negative impact on our cash flow. However, we cannot assure youthat the consolidated affiliated entities have timely made all required filings with the governmental authorities including to update or renew theirbusiness licenses, approvals or filings, and the failure may subject us to a correction order or fines.Table of Contents31The risk of payment defaults and other credit risks are inherent to our financial services business. We cannot assure you that ourmonitoring of credit risk issues is or will be sufficient to result in lower delinquencies. Furthermore, our ability to manage the quality of these loansand the associated credit risks will also impact the results of operations of our financial services business. A deterioration in the overall quality ofour loan portfolio and the increasing exposure to credit risks may occur due to a variety of reasons, including factors beyond our control, such as aslowdown in the growth of the global or Chinese economy or a liquidity or credit crisis in the global or Chinese finance sector, which maymaterially and adversely affect our businesses, operations or liquidity of our network partners, or their ability to repay or roll over their debt. Anysignificant deterioration in the asset quality of our financial services business and significant increase in associated credit risks may materially andadversely affect our business, financial condition and results of operations.Customer demand is difficult to forecast accurately, and we may fail to make accurate planning and spending decisions to match actualcustomer demand.We make planning and spending decisions, including capacity expansion, procurement commitments, personnel hiring and other resourcerequirements based on our estimates of customer demand. The parcel volume we generate from end customers can vary significantly andunexpectedly, reducing our ability to accurately estimate future customer demand. In particular, we may potentially experience capacity andresource shortages in fulfilling customer orders following special promotional events such as promotional campaigns on June 18, November 11 andDecember 12 of each year or during other peak seasons throughout the year. Failure to meet customer demand in a timely fashion or at all mayadversely affect our financial condition and results of operations.Our business depends on the continuing efforts of our management. If we lose their services, our business may be severely disrupted.Our business operations depend on the continuing efforts of our management team, particularly members of our senior managementnamed in this annual report. If one or several members of our management team were unable or unwilling to continue their employment with us,we may not be able to replace them in a timely manner, or at all. We may incur additional expenses to recruit and retain qualified replacements. Inaddition, our management may join a competitor or form a competing company. We can provide no assurance that we will be able to successfullyenforce our contractual rights included in employment agreements with our management team, in particular in China, where almost all of theseindividuals reside. As a result, our business may be negatively affected due to the loss of one or more members of our management, and ourfinancial condition and results of operations may be materially and adversely affected.If we are unable to attract, train and retain qualified personnel, our business may be materially and adversely affected.We intend to hire and retain additional qualified employees to support our business operations and planned expansion. Our future successdepends to a significant extent on our ability to attract, train and retain qualified personnel, particularly management and operational personnel withexpertise in the express delivery industry, the e-commerce industry or other areas we may choose to expand into. Our experienced mid-levelmanagers are instrumental in executing our business plans, implementing our business strategies and supporting our business operations andgrowth, and we cannot assure you that we will be able to attract or retain these qualified personnel.We have made, and may need to continue to make, substantial capital expenditures, and we will face risks that are inherent to such investments.In order to implement our strategies and expansion plan, we made significant capital expenditures on the acquisition of land use rights,construction of facilities and upgrading of delivery infrastructure in connection with the growth of our business. We paid an aggregate ofapproximately RMB9.3 billion, RMB7.4 billion RMB6.7 billion (US$0.9 billion) in 2021, 2022 and 2023, respectively, for purchases of propertyand equipment and purchases of land use rights. To facilitate our future expansion, including the entry into new sectors, we may need to continue tomake substantial capital expenditures.Table of Contents32Significant capital expenditures are associated with certain inherent risks. We may not have the resources to fund investments that we havecommitted to making. Even if we have sufficient funding, the assets that best suit our needs may not be available at reasonable prices or at all. Forexample, land resources may be scarce in an area that best fits our network expansion plan due to local zoning plans or other regulatory controls. Inaddition, we are likely to incur capital expenditures earlier than all of the anticipated benefits, and the return on these investments may be lower, ormay be realized more slowly, than we expected. In addition, the carrying value of the related assets may be subject to impairment, which mayadversely affect our financial condition and operating results.Our results of operations are subject to seasonal fluctuations.We experience seasonality in our business, mainly correlating to the seasonality patterns associated with e-commerce in China. Forexample, our customers generally record fewer purchase orders during national holidays in China, particularly during the Chinese New Yearholiday season in the first quarter of each year. Furthermore, when e-commerce platforms hold special promotional campaigns, which they do forexample on June 18, November 11 and December 12 of each year, we typically observe peaks of parcel volume immediately following thesecampaigns. Our financial condition and results of operations for future periods may continue to fluctuate. As a result, our results of operations andthe trading price of our Class A ordinary shares and/or ADSs may fluctuate from time to time due to seasonality.Fluctuations in the price or availability of fuel and uncertainty in third-party transportation capacity may adversely affect our line-haultransportation costs and operational results.Fuel costs and transportation expenses incurred in connection with the use of third-party transportation services represent 13%, 17% and19% of our line-haul transportation costs in 2021, 2022 and 2023, respectively. The availability and price of fuel and third-party transportationcapacity are subject to political, economic, and market factors that are outside of our control. In the event of a significant increase in fuel prices andthird-party transportation service charges, our transportation expenses may rise, and our gross profit may decrease if we are unable to adopteffective cost control-measures or pass on incremental costs to our customers. For example, fuel price increases due to international factors, such asthe Ukraine-Russia conflict and the Israeli-Palestinian conflict, may adversely impact our gross profit margin. As a result, our operating margin andthe market price of our Class A ordinary shares and/or ADSs may be adversely affected.We may not be able to obtain additional capital when desired, on favorable terms or at all.We need to make continued investments in equipment, land, facilities and technological systems to remain competitive. Due to theunpredictable nature of the capital markets and our industry, we cannot assure you that we will be able to raise additional capital on terms favorableto us, or at all, if and when required, especially if we experience disappointing operating results. If adequate capital is not available to us asrequired, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our infrastructure or respond tocompetitive pressures could be significantly limited. If we cannot raise required capital when needed, we may be unable to meet the demands ofexisting and prospective customers, which would adversely affect our business, financial condition and results of operations. If we do raiseadditional funds through the issuance of equity or convertible debt securities, the ownership interests of our shareholders could be significantlydiluted. These newly issued securities may have rights, preferences or privileges senior to those of existing shareholders.Our income from equity investments is generally case based and non-recurring in nature, which could affect our financial results.In 2019, we had unrealized gain from investment in equity investee of RMB754.5 million, which resulted from an observable price changein a follow-on offering by Cainiao Network in the fourth quarter of 2019. Gain on disposal of equity investees and unrealized gain from investmentin equity investee are on a case-by-case basis and are generally non-recurring in nature. There is no guarantee that we will realize gains from ourequity investments in the future, and there is no assurance that our investments will generate positive returns. Our financial results would beadversely affected if we fail to generate income from our equity investments or incur loss from such investments.Table of Contents33A severe or prolonged downturn in the Chinese or global economy could materially and adversely affect our business and our financialcondition.COVID-19 had a severe and negative impact on the Chinese and the global economy from 2020 through 2022, and the globalmacroeconomic environment still faces numerous challenges. The growth rate of the Chinese economy has been slowing since 2010 and theChinese population began to decline in 2022. The Federal Reserve and other central banks outside of China have raised interest rates. The Russia-Ukraine conflict, the Hamas-Israel conflict and the attacks on shipping in the Red Sea have heightened geopolitical tensions across the world. Theimpact of the Russia-Ukraine conflict on Ukraine food exports has contributed to increases in food prices and thus to inflation more generally.There have also been concerns about the relationship between China and other countries which may potentially have economic effects. Inparticular, there is significant uncertainty about the future relationship between the United States and China with respect to a wide range of issuesincluding trade policies, treaties, government regulations and tariffs. Economic conditions in China are sensitive to global economic conditions, aswell as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe orprolonged slowdown in the global or Chinese economy may materially and adversely affect our business, results of operations and financialcondition. See “Item 3. Key Information⸺⸺D. Risk Factors⸺⸺Risks Related to Our Business and Industry⸺⸺We face risks related to severeweather conditions and other natural disasters, health epidemics and other outbreaks, such as the outbreak of COVID-19, which could significantlydisrupt our operations and adversely affect our business, financial condition or results of operations.”We have limited insurance coverage which could expose us to significant costs and business disruption.We have limited insurance coverage. For example, we are not legally required to maintain insurance for parcel shipments. We do notmaintain business interruption insurance or general third-party liability insurance, nor do we maintain key-man life insurance. We cannot assureyou that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under our currentinsurance policies on a timely basis, or at all. If we incur any loss that is not covered by our insurance policies, or the compensated amount issignificantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.We rely on certain key operating metrics to evaluate the performance of our business, and real or perceived inaccuracies in such metrics mayharm our reputation and negatively affect our business.We rely on certain key operating metrics, such as parcel volume and unit cost per parcel, to evaluate the performance of our business. Ouroperating metrics may differ from estimates published by third parties or from similarly titled metrics used by our competitors due to differences inmethodology and assumptions. We calculate these operating metrics using internal company data that has not been independently verified. Forexample, our parcel volume data is derived based on the number of parcels collected by our network partners using our waybills. If we discovermaterial inaccuracies in the operating metrics we use, or if they are perceived to be inaccurate, our reputation may be harmed, and our evaluationmethods and results may be impaired, which could negatively affect our business. If investors make investment decisions based on operatingmetrics we disclose that are inaccurate, we may also face potential lawsuits or disputes.Our business is subject to complex and evolving laws and regulations regarding cybersecurity, privacy, data protection and information securityin China. Failure to protect confidential information of our end customers or consumers could damage our reputation and substantially harmour business and results of operations.We have access to a large amount of confidential information in our day-to-day operations. Each waybill contains the names, addresses,phone numbers and other contact information of the sender and recipient of a parcel. The content of the parcel may also constitute or revealconfidential information. The proper use and protection of confidential information is essential to maintaining customer trust in us and our services.Table of Contents34Our technology systems also process and store a significant amount of confidential information and data for the proper functioning of ournetwork. Security breaches and hacker attacks on our system might result in a compromise to the technology that we use to protect confidentialinformation. We may not be able to prevent third parties, especially hackers or other individuals or entities engaging in similar activities, fromillegally obtaining confidential information in our possession. Such individuals or entities may engage in various other illegal activities using suchinformation. Further, as parcels move through our network from pickup to delivery, a large number of personnel handle the flow of parcels andhave access to significant amounts of confidential information. Some of these personnel may misappropriate the confidential information despitethe security policies and measures we have implemented. In addition, most of the delivery and pickup personnel are not our employees, whichmakes it more difficult for us to implement sufficient and effective control over them.Practices regarding the collection, use, storage, transmission and security of personal information have recently come under increasedpublic scrutiny. On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which tookeffect on September 1, 2021. The PRC Data Security Law, among other things, provides for a security review procedure for the data activities thatmay affect national security. On December 28, 2021, the Cyberspace Administration of China and twelve other government authoritiespromulgated the new Measures for Cybersecurity Review, or Cybersecurity Review Measures, which took effect on February 15, 2022, to replacethe original measures promulgated in 2020. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators thatprocure internet products and services, and network platform operators engaging in data processing activities, must be subject to the cybersecurityreview if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulate that the network platformoperators holding over one million users’ personal information shall declare to the Cybersecurity Review Office for a cybersecurity review beforeany public offering at a foreign stock exchange. On August 17, 2021, the State Council promulgated the Regulations on the Security Protection ofCritical Information Infrastructure, which became effective on September 1, 2021. Pursuant to the Regulations on the Security Protection ofCritical Information Infrastructure, critical information infrastructure shall mean any important network facilities or information systems of theimportant industry or field such as public communication and information service, energy, transportation, water conservancy, finance, publicservices, e-government affairs and national defense science, technology and industry, as well as other important network facilities and informationsystems which, in case of destruction, loss of function or leak of data, may result in serious damage to national security, the national economy andthe people’s livelihood and public interests. In addition, the administration departments of each critical industry and sector shall be responsible toformulate eligibility criteria and determine the critical information infrastructure operator in the respective industry or sector. The operators shall beinformed about the final determination as to whether they are categorized as critical information infrastructure operators. As of the date of thisannual report, no detailed rules or implementation has been issued by any administration department of any such critical industry and sector.Furthermore, the exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRCgovernmental authorities may have certain discretion in the interpretation and enforcement of these laws. Therefore, it is uncertain whether wewould ultimately be deemed as a critical information infrastructure operator under PRC law. It also remains uncertain whether the future regulatorychanges would impose additional restrictions on companies like us. As of the date of this annual report, we have not received any official letter ordocument issued by the competent governmental authorities identifying us as a critical information infrastructure operator under the Regulations onthe Security Protection of Critical Information Infrastructure, we have not been involved in any investigations on cybersecurity review made by theCyberspace Administration of China on such basis and we have not received any inquiry, notice, warning, or sanctions in such respect. We mayneed to declare to the Cybersecurity Review Office for a cybersecurity review and we may not be able to ascertain the results of such a declaration.If we are unable to comply with the cybersecurity, data privacy and critical information infrastructure requirements in a timely manner, or at all, wemay be subject to government enforcement actions and investigations, fines, penalties, suspension of our non-compliant operations, or removal ofour app from the application stores, among other sanctions, which could materially and adversely affect our business and results of operations.Table of Contents35On July 7, 2022, the Cyberspace Administration of China promulgated the Measures on Security Assessment of Cross-border DataTransfer which became effective on September 1, 2022. The Measures on Security Assessment of Cross-border Data Transfer shall apply to thesecurity assessment of the provision of important data and personal information collected and generated by data processors in the course of theiroperations within the territory of the PRC by such data processors to overseas recipients. Pursuant to such measures, a data processor shall apply tothe national cyberspace administration for the security assessment of the outbound data transfer through the local provincial cyberspaceadministration, if it intends to provide data abroad under any of the following circumstances: (i) the data processor provides important data abroad;(ii) the critical information infrastructure operator or the data processor that has processed the personal information of over one million peopleprovides personal information abroad; (iii) the data processor that has provided the personal information of over 100,000 people or the sensitivepersonal information of over 10,000 people cumulatively since January 1 of the previous year provides personal information abroad; (iv) any othercircumstance where an application for the security assessment of outbound data transfer is required by the national cyberspace administration. If weare required for the security assessment of outbound data transfer, we face uncertainties as to whether such assessment or any other specific relatedactions can be timely completed, or at all. If we fail to comply with such requirements may subject us to suspension of services, fines, and revokingbusiness permits or business licenses, among other things.Apps are specially regulated by the Administrative Provisions on Mobile Internet Applications Information Services (Revised in 2022),promulgated by the Cyberspace Administration of China, last amended on June 14, 2022 and became effective on August 1, 2022. Theseprovisions set forth the requirements on the app information service and the app distribution service. The Cyberspace Administration of China andits local branches shall be responsible for the supervision and administration of nationwide and local app information content respectively. We arecurrently in compliance with these provisions in all material aspects and we may still have to invest certain cost to ensure our app operationcontinuous compliance with the regulatory requirements.In August 2021, the Standing Committee of the NPC promulgated the PRC Personal Information Protection Law, which integrates thescattered rules with respect to personal information rights and privacy protection and took effect on November 1, 2021. We update our privacypolicies from time to time to meet the latest regulatory requirements of PRC government authorities and adopt technical measures to protect dataand ensure cybersecurity in a systematic way. Nonetheless, the PRC Personal Information Protection Law elevates the protection requirements forpersonal information processing, and many specific requirements of this law remain to be clarified by the Cyberspace Administration of China,other regulatory authorities, and courts in practice. We may be required to make further adjustments to our business practices to comply with thepersonal information protection laws and regulations.On February 17, 2023, the CSRC promulgated the Overseas Listing Trial Measures, which became effective on March 31, 2023. Pursuantto the Overseas Listing Trial Measures, overseas offering and listing by domestic companies shall strictly abide by the laws, administrativeregulations and state rules concerning national security in the areas of foreign investment, cybersecurity, data security and etc., and duly fulfill theirobligations to protect national security. If the intended overseas offering and listing necessitates a national security review (for example, acybersecurity review), the national security review procedures must be completed before the application for such offering and listing is submittedto overseas regulators and foreign stock exchanges. If we are not able to comply with the requirements under the laws, administrative regulationsand rules concerning national security in spheres of foreign investment, cybersecurity, data security and other aspects in a timely manner, or at all,our future capital raising activities may be materially and adversely affected.In general, compliance with the existing PRC laws and regulations, as well as additional laws and regulations that PRC regulatory bodiesmay enact in the future, related to data security and personal information protection, may be costly and result in additional expenses to us, andsubject us to negative publicity, which could harm our reputation and business operations. There are also uncertainties with respect to how suchlaws and regulations will be implemented and interpreted in practice.Any failure or perceived failure by us to prevent information security breaches or to comply with privacy policies or privacy-related legalobligations could cause our customers to lose trust in us and our services. Any perception that the privacy of information is unsafe or vulnerablewhen using our services, could damage our reputation and substantially harm our business.We may fail to successfully enter necessary or desirable strategic alliances or make acquisitions or investments, and we may not be able toachieve the anticipated benefits from these alliances, acquisitions or investments we make.We may selectively pursue strategic alliances and potential strategic acquisitions that are complementary to our business and operations,including opportunities that can help us further expand our service offering and improve our technology systems.Table of Contents36Strategic alliances with third parties could subject us to a number of risks, including risks associated with sharing proprietary information,non-performance or default by counterparties, and increased expenses in establishing these new alliances, any of which may materially andadversely affect our business. We may have limited ability to control or monitor the actions of our strategic partners. To the extent a strategicpartner suffers any negative publicity as a result of its business operations, our reputation may be negatively affected by virtue of our associationwith such party.To consolidate and optimize our delivery capacity in key geographic areas in China, we conducted certain asset and equity acquisitionsfrom 2014 to 2016. In 2017, we acquired the core business of China Oriental Express Co., Ltd. and its subsidiaries. In June 2018, we made astrategic investment of approximately US$168 million to acquire an approximately 15% equity stake in Cainiao Post, Cainiao Network’s networkof last-mile delivery stations. We have recorded goodwill as a result of certain acquisitions. If these companies do not subsequently generate theanticipated financial performance or if any goodwill impairment test triggering event occurs, we may need to revalue or write down the value ofgoodwill and other intangible assets in connection with such acquisitions, which would harm our results of operations. No impairment charge forthe goodwill was recognized for the years ended December 31, 2021, 2022 and 2023. Furthermore, we continually review our equity methodinvestments in equity investees to determine whether a decline in fair value below the carrying value is “other-than-temporary” and impairmentloss needs to be recognized. The primary factors that we consider include the duration and severity of the decline in fair value, the financialcondition, operating performance and the prospects of the equity investee and other company specific information such as recent rounds offinancing. If the condition or performance of the equity investees has changed in the future, we may have to record additional impairment chargesin future accounting periods. If we need to recognize significant impairment losses on equity investments, our results of operations will bematerially and adversely affected.In addition, we may consider strategically acquiring other companies, businesses, assets or technologies that are complementary to ourbusiness and operations as part of our growth strategy. The strategic acquisition and subsequent integration of new businesses is likely to requiresignificant managerial and financial resources and could result in a diversion of resources from our existing business, which in turn could have anadverse effect on our growth and business operations. Acquired businesses or assets may not generate the financial results we expect and may beloss making over time. The cost and duration of integrating newly acquired businesses could also materially exceed our expectations. We may notbe able to successfully integrate the businesses and assets we have acquired or to timely and effectively train and integrate the employees into ouroperations. Any such negative developments could have a material adverse effect on our business, financial condition and results of operations.If we cannot obtain sufficient cash when we need it, we may not be able to meet our payment obligations under our notes.In August 2022, we have issued US$1 billion in aggregate principal amount of convertible senior notes due 2027, or the 2027 Notes. The2027 Notes bear interest at a rate of 1.50% per year, payable semiannually in arrears on March 1 and September 1 of each year, beginning onMarch 1, 2023. The 2027 Notes will mature on September 1, 2027, unless earlier redeemed, repurchased or converted in accordance with theirterms prior to such date. The holders may require us to repurchase for cash all or part of 2027 Notes on September 2, 2025, or upon a fundamentalchange, at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest. In connectionwith the offering of the 2027 Notes, we have entered into capped call transactions with certain counterparties. The cap price of the capped calltransactions is initially US$36.48 per ADS and is subject to adjustment under the terms of the capped call transactions. We may not have sufficientfunds to pay the interest or fulfill other obligations under these notes.We derive most of our revenues from, and hold most of our assets through, our subsidiaries. As a result, we may rely in part upondistributions and advances from our subsidiaries in order to help us meet our payment obligations under the notes and our other obligations. Oursubsidiaries are distinct legal entities and do not have any obligation, legal or otherwise, to provide us with distributions or advances. We may facetax or other adverse consequences, or legal limitations, on our ability to obtain funds from these entities. In addition, our ability to obtain externalfinancing in the future is subject to a variety of uncertainties, including:●our financial condition, results of operations and cash flows;●general market conditions for financing activities by internet companies; and●economic, political and other conditions in the PRC and elsewhere.Table of Contents37If we are unable to obtain funding in a timely manner or on commercially acceptable terms, we may not be able to meet our paymentobligations under our notes. If we fail to pay interest on the notes, we will be in default under the indenture governing the notes, which in turn mayconstitute a default under existing and future agreements governing our indebtedness.Our business is subject to the risks associated with international expansion initiatives.Our current operations are almost exclusively in China, but we also offer express delivery services in certain key overseas markets. Weintend to continue to explore and enter into other international expansion initiatives in the future. These initiatives are likely to involve countrieswhere we have limited operational experience and subject us to various risks, including changes in local economic and political conditions, changesin international laws and regulations, changes in tariffs, trade restrictions, trade agreements and taxation, and difficulties in managing or overseeingoperations outside China. The occurrence or consequences of any of these risks may restrict our ability to operate in the affected country and/ordecrease our profitability of our operations in that country. We will also be exposed to increased risk of loss from foreign currency fluctuations andexchange controls, as well as longer accounts receivable payment cycles. We may also fail to alter or adjust our business practices in time to avoidor reduce adverse effects from any of the foregoing risks.We may not be able to prevent others from unauthorized use of our intellectual property, which could harm our business and competitiveposition.We regard our trademarks, domain names, trade secrets, proprietary technologies and other intellectual property as critical to our business.We rely on a combination of intellectual property laws and contractual arrangements to protect our proprietary rights. We may fail to register,maintain and enforce intellectual property rights in the market where we operate if we do not provide sufficient evidence required by governmentalauthorities. The interpretation and enforcement of the laws and regulations and the enforcement practices by the governmental authorities may bechanged if the laws and regulations change. Confidentiality agreements and license agreements may be breached by counterparties, and there maynot be adequate remedies available to us for any such breach. Accordingly, we may not be able to effectively protect our intellectual property rightsor to enforce our contractual rights in the market where we operate. Policing any unauthorized use of our intellectual property is difficult and costlyand the steps we have taken may be inadequate to prevent the misappropriation of our intellectual property. In the event that we resort to litigationto enforce our intellectual property rights, such litigation could result in substantial costs and a diversion of our managerial and financial resources.We cannot provide any assurance that we will prevail in such litigation. In addition, our trade secrets may be leaked or otherwise become availableto, or be independently discovered by, our competitors. Any failure in protecting or enforcing our intellectual property rights could have a materialadverse effect on our business, financial condition and results of operations.Our business and reputation may be harmed by unethical or anticompetitive business conduct within or in connection with our network.There has been and may continue to be unethical or anticompetitive conduct, misconduct or unlawful behavior by our employees within,or in connection with, our network, such as with respect to the procurement of resources and the pricing of delivery service charges. The existingprotocols and disciplinary measures governing the business conduct of our employees and our customers may not be sufficient to prevent them ortheir personnel from acting unethically or anticompetitively. Such conduct may include the mishandling of funds or accepting unlawful kick-backsduring our raw material or equipment procurement. We are also aware of certain e-commerce merchants placing fabricated orders, such as parcelswith valueless content, to themselves or to their designated parties with the intent to generate inflated sales records and consumer reviews andcreate perceived popularity among online consumers. These fabricated orders do not directly impact our revenues as our network partners aregenerally able to collect service charges from these merchants. It is extremely difficult for us and our network partners to distinguish these ordersfrom genuine orders through the ordinary parcel screening procedures. We may be subject to heightened compliance costs or loss of business due toreduced e-commerce business volume if the PRC government cracks down on these unethical practices. We also have little control over thirdparties involved in unethical or anticompetitive business conduct targeted at or in connection with our network, such as non-compliance with laws,third-party sabotage or allegations intended to harm us or our network partners. We may incur substantial monetary losses and our reputation maysuffer as a result to such conduct. We may also incur significant liabilities and penalties arising from such unethical conduct and may be required toallocate significant resources and incur material expenses to prevent such unethical or anticompetitive conduct in the future.Table of Contents38We are regularly subject to claims, lawsuits and other proceedings that may adversely affect our reputation, business and results of operations.We are regularly subject to claims, lawsuits, arbitration proceedings, government investigations and other legal and regulatory proceedingsin the ordinary course of business, including those involving personal injury, property damage, labor and employment, commercial disputes, usercomplaints, intellectual property disputes, compliance with regulatory requirements and other matters. We may become subject to additional typesof claims, lawsuits, government investigations and legal or regulatory proceedings as our business grows and as we deploy new business offerings.We are also regularly subject to claims, lawsuits, arbitration proceedings, government investigations and other legal and regulatory proceedingsseeking to hold us liable for the actions of retailers, merchants and riders on our platforms. The results of any such claims, lawsuits, arbitrationproceedings, government investigations or other legal or regulatory proceedings cannot be predicted with certainty. Any claims against us, whethermeritorious or not, could be time-consuming, result in costly litigation, be harmful to our reputation, require significant management attention anddivert significant resources. It is possible that the resolution of one or more such proceedings could result in substantial damages, settlement costs,fines and penalties that could adversely affect our reputation and brand, business, financial condition and results of operations. In addition, theresolution or settlement of any legal proceeding that involve our industry, whether we are a party to such legal proceeding or not, could also harmour business, financial condition and results of operations.In addition, we were named as a defendant in certain putative shareholder class action lawsuits in the United States. See “Item 8. FinancialInformation—A. Consolidated Statements and Other Financial Information—Legal Proceedings.” All of these cases were voluntarily dismissedwithout prejudice in 2021 other than one case in which the court rendered a judgment in 2021 in favor of us and the other defendants. We may beinvolved in more class action lawsuits in the future. Such lawsuits could divert a significant amount of our management’s attention and otherresources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend thelawsuits. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. Inaddition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect onour financial condition and results of operations.Claims, lawsuits and other regulatory actions under competition laws may subject us to penalties, constraints on our business and damage toour reputation.The PRC government strengthened enforcement against monopoly agreements, concentration of undertakings, abuse of dominant marketposition and other anti-competitive activities in recent years. We may incur significant expenses and devote significant resources and efforts towardensuring compliance with the existing and new laws, regulations, rules and other regulatory requirements that may be enforced from time to time.If we fail to comply with the competition laws, regulations, rules and other regulatory requirements, we may also be subject to investigations,penalties, sanctions, claims, lawsuits and other legal and regulatory proceedings, which could materially and adversely affect our business,operations, reputation, brand, the trading prices of our ADSs, Shares and/or other securities.The title defects with respect to or encumbrances on certain land and buildings or failure to obtain requisite approvals, licenses or permits incarrying out our property construction may cause interruptions to our business operations.As of March 31, 2024, we have not obtained land use rights certificates with respect to an aggregate gross land area of approximately139,000 square meters of sorting hubs and property ownership certificates with respect to an aggregate gross floor area of approximately 1,113,000square meters of buildings. We are in the process of applying for the registration of the land use right and property ownership certificates pursuantto the applicable contracts for assignment of state-owned construction land use right, but we are unable to estimate the time required to completesuch registration and obtain such certificates. We have also used some new buildings before we finish filing of as-built inspection on suchbuildings. Furthermore, although it is customary for express delivery services providers to construct buildings on industrial land as their offices,delivery and sorting hubs or outlets, depending on the attitude and supervision of the government authority, we could be asked to use the buildingin line with the approved usage specified on certain licenses of such buildings.Table of Contents39In connection with the construction of structures on our property, we are required to obtain requisite licenses, permits, certificates andapprovals, including but not limited to, land use rights certificates/real estate certificates, construction land planning permits, construction worksplanning permits, construction work commencement permits and completion certificates from the government authorities in China. If we fail toobtain or renew such certificates, permits, registrations, filings, approvals and licenses in a timely manner, we may be subject to penalties andsanctions, including fines, rectification orders, construction suspension orders and demolition orders, all of which may adversely affect ourconstruction efforts. We have not been in full compliance with certain construction and land use requirements under PRC laws and regulations. Forexample, we have commenced certain construction projects prior to obtaining requisite permits and put completed buildings into use before passingthe requisite inspection and acceptance tests. Our non-compliance with these requirements has resulted in penalties imposed by the governmentauthorities.Any of the foregoing risks could result in significant disruption to our operations and result in additional costs, which could adverselyaffect our business, financial condition and results of operations.Our use of certain leased properties could be challenged by third parties or governmental authorities, which may cause interruptions to ourbusiness operations.As of March 31, 2024, for a small portion of our leased sorting hubs and offices, we have not been provided by the lessors with theapplicable certificates, approvals or any other documentation proving their right to lease those properties to us. If our lessors are not the owners ofthe properties and they have not obtained consents from the owners or their lessors or permits from the governmental authorities, our leases couldbe invalidated. If this occurs, we may have to renegotiate the leases with the owners or other parties who have the right to lease the properties, andthe terms of the new leases may be less favorable to us. To our knowledge, some of the lessors of the leased delivery and pickup outlets have notprovided our network partners with their property title certificates, approvals or other documentation proving their right to lease those properties. Ifour network partners were to find replacement premises for their outlets due to any lease deficiencies, the daily operations of such outlets may benegatively affected. In addition, a substantial portion of our leasehold interests in leased properties have not been registered with the PRCgovernmental authorities as required by PRC laws. The failure to register leasehold interests may expose us to potential fines.Furthermore, some of our leased properties do not have title certificates or approvals and, the owner or lessor of such property may nothave the right to lease such property to us. For example, certain properties we lease in Beijing for our sorting hub and office do not have a titlecertificate due to lack of appropriate approval during its construction, and the owner of such property had received notice from governmentauthorities indicating that the construction was illegal. Although the authorities have not mandated the owner to dismantle the property, our use ofthe leased property may be affected in the future. In the event that our use of properties is successfully challenged, we may be subject to fines andforced to relocate. In addition, we may become involved in disputes with the property owners or third parties who otherwise have rights to orinterests in our leased properties. We are currently using our best efforts to find an alternative location in Beijing, including purchasing a new pieceof land, to mitigate the risk arising from such title deficiency. However, we can provide no assurance that we will be able to find suitablereplacement sites on terms acceptable to us on a timely basis, or at all, or that we will not be subject to material liability resulting from third parties’challenges on our use of such properties. As a result, our business, financial condition and results of operations may be materially and adverselyaffected.Failure to renew our current leases or locate desirable alternatives for our facilities could materially and adversely affect our business.We lease properties to operate some of our offices and sorting hubs and some of our network partners lease properties to operate theirpickup and delivery outlets. We and our network partners may not be able to successfully extend or renew such leases upon expiration, oncommercially reasonable terms or at all, and may be forced to relocate the affected operations. Such relocation may disrupt our operations andresult in significant relocation expenses, which could adversely affect our business, financial condition and results of operations. We may not beable to locate desirable alternative sites for our facilities as our business continues to grow and failure in relocating our operations when requiredcould adversely affect our business and operations. In addition, we compete with other businesses for premises at certain locations or of desirablesizes. Even if we or our network partners are able to extend or renew the respective leases, rental payments may significantly increase as a result ofthe high demand for the leased properties.Table of Contents40We may be penalized if we fail to comply with regulations on commercial franchising.We are engaged in commercial franchising, which refers to the business activities where an enterprise that possesses the registeredtrademarks, enterprise logos, patents, proprietary technology or any other business resources allows such business resources to be used by anotherbusiness operator through contract and the franchisee follows the uniform business model to conduct business operation and pay franchising feesaccording to the contract. We and our network partners are therefore subject to regulations on commercial franchising. See “Item 4. Information onthe Company—B. Business Overview—Regulation—Regulations Relating to Commercial Franchising.” Under the relevant regulations, we arerequired to file our cooperation arrangements with network partners with the PRC Ministry of Commerce or its local counterparts. As of March 31,2024, we have not received any order from any governmental authorities to make such filing.If the authorities determine that we have failed to report franchising activities in accordance with the regulations, we may be subject toreport within a specified time limit and fines ranging from RMB10,000 to RMB50,000 and if we fail to comply within the rectification perioddetermined by the competent governmental authority, we may be subject to an additional fine ranging from RMB50,000 to RMB100,000 and thegovernmental authority may issue a public reprimand.We are uncertain about the recoverability of our input value-added tax, which may affect our financial positions in the future.As of December 31, 2021, 2022 and 2023, our input value-added tax, or VAT, amounted to RMB2,290.9 million, RMB2,296.2 million andRMB2,704.2 million (US$380.9 million), respectively. Input VAT can be deducted from output VAT payable. The VAT recoverable is mainly thenet difference between output and input VAT. We did not encounter any disputes with the relevant taxation authorities on the amounts of VATrecoverable during 2021, 2022 and 2023. However, we cannot guarantee the recoverability of input VAT in the future because the rules, regulationsand policies governing VAT may change in the future, which may have an impact on VAT recoverable. If we fail to recover our input VAT, ourfinancial positions would be adversely affected.According to PRC laws and regulations, the tax authorities shall order to rectify loss of invoices or unauthorized destruction of invoicesand may impose a fine of no more than RMB10,000; if the circumstances are serious, a fine ranging from RMB10,000 to RMB30,000 shall beimposed; any illegal income shall be confiscated. We may be required to rectify and pay fines if the aforementioned circumstances occur.Economic sanctions and anti-corruption laws imposed by the United States and other jurisdictions may expose us to potential compliance risksand any actual or alleged illegal or corrupt activities could damage our reputation, and materially and adversely affect our business, financialcondition, and results of operations.Sanctions laws prohibit us from doing business in or with certain countries or governments, and with certain persons or entities that havebeen sanctioned by the United States or other governments and international or regional organizations, such as the United Nations SecurityCouncil. Although our primary market is China, we intend to expand our international business in the future, which may increase our exposure tointernational sanctions. For example, we have limited control over the activities of our international business partners and investees, which mayprovide delivery services into jurisdictions that are subject to sanctions. Any U.S. affiliate and any U.S. person employees will be subject tocompliance with all U.S. economic sanctions requirements. We have implemented internal controls to monitor our compliance with applicableeconomic sanctions, but there can be no assurance that we are able to prevent or detect inadvertent business dealings with sanctioned parties or thedelivery of parcels to higher-risk or prohibited end-uses. We also cannot predict with certainty the interpretation or implementation of any sanctionlaws or policies. While we do not believe that we are in violation of any applicable sanctions or that any of our activities are currently sanctionableunder applicable laws, some of our activities or the activities of our affiliates could be exposed to penalties under these laws. Any alleged sanctionsviolations may adversely affect our reputation, business, results of operations and financial condition.Table of Contents41In addition, we and our employees are subject to anti-corruption laws in China and globally, including the Foreign Corrupt Practices Act.Our operations in China subject us to risks of unauthorized payments or offers of payments by our directors, officers, employees, consultants,agents or other business partners of our company and its affiliates. While we have designed and adopted policies and procedures to ensurecompliance by us and our directors, officers, employees, consultants, agents and business partners with applicable anti-corruption laws andregulations, there can be no assurance that these policies will be followed at all times, and they may not effectively detect and prevent all illegal,fraudulent, corrupt or collusive activity or misconduct by our directors, officers, employees, consultants, agents or business partners. Any actual oralleged illegal, fraudulent, corrupt or collusive activity or misconduct by us or our directors, officers, employees consultants, agents or businesspartners, whether related to our business activities or not, could subject us to adverse media coverage, regulatory inquiries, investigations andpotential administrative, civil and criminal sanctions and other negative collateral consequences, all of which may adversely affect our reputationand materially and adversely affect our business, financial condition and results of operations. We may also be held liable under successor liabilityfor violations committed by companies in which we invest or that we acquire.We face risks related to severe weather conditions and other natural disasters, health epidemics and other outbreaks, such as the outbreak ofCOVID-19, which could significantly disrupt our operations and adversely affect our business, financial condition or results of operations.Our business could be adversely affected by severe weather conditions and natural disasters, such as snowstorms, earthquakes, fire,typhoons or floods, or an outbreak of COVID-19, avian influenza, severe acute respiratory syndrome, influenza A (H1N1), H7N9 or anotherepidemic. Any of these occurrences could cause severe disruptions to our daily operations and may warrant a temporary closure of our facilities.Such closures may disrupt our business operations and adversely affect our results of operations. Our operation could also be disrupted if oursuppliers, customers or business partners were affected by such natural disasters or health epidemics. For example, outbreaks of COVID-19beginning in 2020 resulted in the temporary closure of many corporate offices, retail stores and manufacturing facilities across China, and ourheadquarters, dozens of our sorting hubs and thousands of service outlets across the country also suspended operations from time to time in 2022due to COVID-19 resurgences caused by the Omicron variants.RISKS RELATED TO OUR CORPORATE STRUCTUREIf the PRC government finds that the agreements that establish the structure for operating certain of our operations in China do not complywith PRC regulations relating to the relevant industries, or if these regulations or the interpretation of existing regulations change in thefuture, we could be subject to severe penalties or be forced to relinquish our interests in those operations.Under current PRC laws and regulations, foreign enterprises or individuals may not invest in or operate domestic mail delivery services.According to the Negative List for Foreign Investment Access, foreign investment is prohibited in the establishment of any postal enterprise and inthe establishment of any domestic mail delivery services. Postal enterprises refer to the China Post Group and its wholly owned enterprises orcontrolled enterprises providing postal services, as well as other services including but not limited to mail delivery, postal remittances, savings andissuance of stamps and production and sale of philatelic products.We are a Cayman Islands company and our PRC subsidiaries are considered foreign-invested enterprises. Accordingly, none of our PRCsubsidiaries is eligible to operate domestic mail delivery services in China. It is also practically and economically not possible to separate thedelivery of mail from the delivery of non-mail items in our day-to-day services. To ensure strict compliance with the PRC laws and regulations, weconduct such business activities through ZTO Express, the consolidated affiliated entity, and its subsidiaries. Shanghai Zhongtongji Network, ourwholly owned subsidiary in China, has entered into a series of contractual arrangements with ZTO Express and its 43 shareholders, which allowsus to (i) direct the activities of ZTO Express, (ii) receive substantially all of the economic benefits of ZTO Express, and (iii) have an exclusiveoption to purchase all or part of the equity interests and assets in ZTO Express when and to the extent permitted by PRC law. Because of thesecontractual arrangements, we have the ability to direct the activities of and are the primary beneficiary of ZTO Express and hence consolidate itsfinancial results as the VIE under U.S. GAAP.Table of Contents42ZTO is a Cayman Islands holding company with no equity ownership in ZTO Express. We conduct our operations in China primarilythrough our PRC subsidiaries and ZTO Express with which we have maintained contractual arrangements. Investors in our Class A ordinary sharesor the ADSs thus are not purchasing equity interest in ZTO Express in China but instead are purchasing equity interest in a Cayman Islands holdingcompany. If the PRC government deems that our contractual arrangements with ZTO Express do not comply with PRC regulatory restrictions onforeign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change or are interpreted differentlyin the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations. We may not be able to repay ourindebtedness, and our shares may decline in value or become worthless, if we are unable to assert our contractual control rights over the assets ofZTO Express which contribute to 81.4% of our revenues in 2023. Our holding company in the Cayman Islands, ZTO Express and investors of ZTOface uncertainty about potential future actions by the PRC government that could affect the enforceability of the contractual arrangements withZTO Express and, consequently, significantly affect the financial performance of ZTO Express and our company as a group.If the PRC government finds that our contractual arrangements do not comply with its restrictions on foreign investment in domesticexpress delivery services of mail, or if the PRC government otherwise finds that we, ZTO Express, or any of its subsidiaries are in violation of PRClaws or regulations or lack the necessary permits or licenses to operate our business, the PRC regulatory authorities would have broad discretion indealing with such violations or failures, including, without limitation:●revoking the business licenses and/or operating licenses of such entities;●discontinuing or placing restrictions or onerous conditions on our operation through any transactions between our PRC subsidiariesand the consolidated affiliated entities;●imposing fines, confiscating the income from our PRC subsidiaries or the consolidated affiliated entities, or imposing otherrequirements with which such entities may not be able to comply;●requiring us to restructure our ownership structure or operations, including terminating the contractual arrangements with the VIEand deregistering the equity pledges of the VIE, which in turn would affect our ability to consolidate, derive economic interests from,or direct the activities of the VIE;●restricting or prohibiting our use of the proceeds of any of our financing outside China to fund our business and operations in China;or●restricting or prohibiting our future capital raising activities by the CSRC.Any of these actions could cause significant disruption to our business operations and severely damage our reputation, which in turn couldmaterially and adversely affect our business, financial condition and results of operations. If any of these occurrences results in our inability todirect the activities of the VIE that most significantly impact its economic performance, and/or our failure to receive the economic benefits fromthe VIE, we may not be able to consolidate the entity in our consolidated financial statements in accordance with U.S. GAAP.We rely on contractual arrangements with the VIE and its shareholders for a substantial portion of our business operations, which may not beas effective as direct ownership in providing us with the ability to direct the operational activities.We have relied and expect to continue to rely on contractual arrangements with ZTO Express and its shareholders to operate domesticexpress delivery services, including delivery of mail. For a description of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.” These contractual arrangements may not be as effective as direct ownership in providing us with the ability todirect the activities of the VIE. For example, the VIE and its shareholders could breach their contractual arrangements with us by, among otherthings, failing to conduct its operations in an acceptable manner or taking other actions that are detrimental to our interests.Table of Contents43If we had direct ownership of ZTO Express, we would be able to exercise our rights as a shareholder to effect changes in the board ofdirectors of ZTO Express, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management andoperational level. However, under the current contractual arrangements, we rely on the VIE and its shareholders to perform of their obligationsunder the contracts to exercise our ability to direct the activities of the VIE. The shareholders of the VIE may not act in the best interests of ourcompany or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate certainportion of our business through the contractual arrangements with the VIE. If any dispute relating to these contracts remains unresolved, we willhave to enforce our rights under these contracts through the operations of PRC law and arbitration, litigation and other legal proceedings andtherefore may be subject to the uncertainties with respect to the legal system in the jurisdiction where we operate. Therefore, our contractualarrangements with the VIE may not be as effective in ensuring our ability to direct the activities of the relevant portion of our business operationsas compared to if we had direct ownership over the VIE.Any failure by the VIE or its shareholders to perform their obligations under our contractual arrangements with them would have a materialand adverse effect on our business.If the VIE or its shareholders fail to perform their respective obligations under the contractual arrangements, we may incur substantialcosts and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seekingspecific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective under PRC law. For example, if theshareholders of ZTO Express refuse to transfer their equity interest in ZTO Express to us or our designee if we exercise the purchase optionpursuant to these contractual arrangements, or if they otherwise act in bad faith toward us, then we may have to take legal actions to compel themto perform their contractual obligations. Due to the significant number of shareholders in ZTO Express, we may not be able to obtain consent andcooperation from all the shareholders in further actions with respect to ZTO Express, such as the transferring the shareholders’ respective equityinterests in ZTO Express to our designee. In addition, if any third parties claim any interest in such shareholders’ equity interests in ZTO Express,our ability to exercise shareholders’ rights or foreclose the share pledge according to the contractual arrangements may be impaired. For example,even though we have obtained spousal consents from spouses of our six key shareholders of ZTO Express, who collectively hold 73.8% of theequity interests in ZTO Express, we have not required spousal consents to be entered into by the rest of the shareholders of the VIE. With respect tothose shareholders, we cannot assure you that our WFOE will be able to exercise or enforce its rights in full under our contractual arrangements inthe event of a dispute between the shareholder and his or her spouse. If these or other disputes between the shareholders of the VIE and third partieswere to impair our ability to direct the activities of ZTO Express, our ability to consolidate the financial results of the VIE would be affected, whichwould in turn result in a material adverse effect on our business, operations and financial condition. All the agreements under our contractualarrangements are governed by PRC law and provide for the resolution of disputes through arbitration in China. Accordingly, these contracts wouldbe interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. Changes in the PRC lawsand regulations could limit our ability to enforce these contractual arrangements. There remain significant uncertainties regarding the ultimateoutcome of such arbitration should legal action become necessary. In addition, under PRC law, rulings by arbitrators are final, parties cannot appealthe arbitration results in courts, and if the losing parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing partiesmay only enforce the arbitration awards in PRC courts through arbitration award recognition proceedings, which would require additional expensesand delay. In the event we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process ofenforcing these contractual arrangements, we may not be able to direct the activities of the VIE, and our ability to conduct our business may benegatively affected.The shareholders of the VIE may have potential conflicts of interest with us, which may materially and adversely affect our business andfinancial condition.The shareholders of ZTO Express may have potential conflicts of interest with us. These shareholders may breach, or cause the VIE tobreach, or refuse to renew, the existing contractual arrangements we have with them and the VIE, which would have a material and adverse effecton our ability to effectively control the VIE and receive economic benefits from it. For example, the shareholders may be able to cause ouragreements with ZTO Express to be performed in a manner adverse to us by, among other things, failing to remit payments due under thecontractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will actin the best interests of our company or such conflicts will be resolved in our favor. If we cannot resolve any conflict of interest or dispute betweenus and these shareholders, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantialuncertainty as to the outcome of any such legal proceedings.Table of Contents44Our current corporate structure, business operations and future capital raising activities may be affected by the PRC Foreign Investment Law,the Overseas Listing Trial Measures and the recently amended PRC Company Law.The PRC Foreign Investment Law replaced the existing laws regulating foreign investment in China, namely, the PRC Equity JointVenture Law, the PRC Cooperative Joint Venture Law and the PRC Wholly Foreign-owned Enterprise Law, together with their implementationrules and ancillary regulations. The PRC Foreign Investment Law stipulates four forms of foreign investment, including (i) a foreign investor,individually or collectively with other investors, establishes a foreign-invested enterprise within China; (ii) a foreign investor acquires stock shares,equity, property shares, or other like rights and interests of an enterprise within China; (iii) a foreign investor, individually or collectively with otherinvestors, invests in a new project within China; and (iv) a foreign investor invests through means stipulated in laws or administrative regulationsor other methods prescribed by the State Council. Though it does not explicitly classify contractual arrangements as a form of foreign investment,there is no assurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment activitiesunder the definition in the future. In addition, the definition contains a catch-all provision that includes investments made by foreign investorsthrough means stipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leewayfor future laws, administrative regulations or provisions promulgated by the State Council to provide for contractual arrangements as a form offoreign investment. In any of these cases, it will be uncertain whether our contractual arrangements will be deemed to be in violation of the marketaccess requirements for foreign investment under the PRC laws and regulations. Furthermore, if future laws, administrative regulations orprovisions prescribed by the State Council mandate further actions to be taken by companies with respect to existing contractual arrangements, wemay face substantial uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take timely and appropriatemeasures to cope with any of these or similar regulatory compliance challenges could materially and adversely affect our current corporatestructure, corporate governance and business operations.The Overseas Listing Trial Measures was promulgated and became effective on March 31, 2023, under which PRC domestic companiesthat seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filing procedure with the CSRCand report the required information. According to the Circular of Overseas Listing and Offering, issuers that have already been listed in an overseasmarket by March 31, 2023, such as our company, are not required to make any immediate filing. However, under the Overseas Listing TrialMeasures, such issuers will be required to complete certain filing procedures with the CSRC in connection with future securities offerings andlistings outside of mainland China, including follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions,and other equivalent offering activities. In addition, such issuers are required to file a report to the CSRC after the occurrence and public disclosureof certain material corporate events, including but not limited to conversion of listing status in overseas markets (such as switching from secondarylisting to dual primary listing). There may be updates and changes in the interpretation, application and implementation of the Overseas ListingTrial Measures. In addition, the CSRC requires the issuer to explain its contractual arrangements and requires the PRC legal counsel of the issuer toverify and explain the issues regarding the contractual arrangements pursuant to the Overseas Listing Trial Measures. Pursuant to the “Reply to theReporter’s Question by the CSRC Responsible Officers” which was published on February 17, 2023, for the overseas listing of VIE-structuredenterprises, the filing management will adhere to the principles of marketization and legalization, and strengthen regulatory coordination, and theCSRC will seek the opinions of the competent authorities, put the overseas listing of VIE-structured enterprises which meet the compliancerequirements on file, and support the development and growth of enterprises using two markets and two resources. Though it does not prohibit theoverseas listing of VIE-structured enterprises, the compliance requirements of VIE-structured enterprises were not explicitly listed or defined.Therefore, it still leaves leeway for future laws, administrative regulations or provisions promulgated by the CSRC regarding to the overseas listingof VIE-structured enterprises. If the CSRC deems that we have failed to meet the filing or reporting requirements or our contractual arrangementsdo not comply with current compliance requirements or future laws, administrative regulations or provisions, our corporate structure, businessoperations and future capital raising activities will be materially and adversely affected.The PRC Company Law, promulgated by the Standing Committee of the National People’s Congress on December 29, 1993, was mostrecently amended on December 29, 2023 and will become effective on July 1, 2024. The PRC Company Law provides new requirements forcompanies established within the territory of the PRC, such as the time limit for contribution of capital, changes to corporate governance matters,among others, which also applies to foreign investment enterprises in the PRC. If we fail to meet the new requirements under the recently amendedPRC Company Law, our corporate structure and business operations will be materially and adversely affected.Table of Contents45Contractual arrangements in relation to the VIE may be subject to scrutiny by the PRC tax authorities and they may determine that we or ourPRC variable interest entity owe additional taxes, which could negatively affect our financial condition and the value of your investment.Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge bythe PRC tax authorities within ten years after the taxable year when the transactions are conducted. We could face material and adverse taxconsequences if the PRC tax authorities determine that the VIE contractual arrangements were not entered into on an arm’s length basis in such away as to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust income of ZTO Express in theform of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction of expense deductions recordedby ZTO Express for PRC tax purposes, which could in turn increase its tax liabilities without reducing our PRC subsidiaries’ tax expenses. Inaddition, the PRC tax authorities may impose late payment fees and other penalties on ZTO Express for the adjusted but unpaid taxes according tothe applicable regulations. Our financial position could be materially and adversely affected if the VIE’s tax liabilities increase or if it is required topay late payment fees and other penalties.We may lose the ability to use and benefit from assets held by the consolidated affiliated entities that are material to the operation of a certainportion of our business if the entity goes bankrupt or becomes subject to a dissolution or liquidation proceeding.As part of our contractual arrangements with ZTO Express, the consolidated affiliated entities hold certain assets that are material to theoperation of a certain portion of our business, including sorting hub premises and sorting equipment. If ZTO Express goes bankrupt and all or partof their assets become subject to liens or the rights of third-party creditors, we may be unable to continue some or all of our business activities,which could materially and adversely affect our business, financial condition and results of operations. Under the contractual arrangements, ZTOExpress may not, in any manner, sell, transfer, mortgage or dispose of their assets or legal or beneficial interests in the business without our priorconsent. If ZTO Express undergoes a voluntary or involuntary liquidation proceeding, the independent third-party creditors may claim rights tosome or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financialcondition and results of operations.RISKS RELATED TO DOING BUSINESS IN CHINAChanges in China’s economic, political or social conditions or government policies could have a material adverse effect on our business andoperations.Substantially all of our assets and operations are located in China. Accordingly, our business, financial condition, results of operations andprospects may be influenced to a significant degree by political, economic and social conditions in China generally. The Chinese economy differsfrom the economies of most developed countries in many respects, including the level of government involvement, level of development, growthrate, control of foreign exchange and allocation of resources. Although the Chinese government has implemented measures emphasizing theutilization of market forces for economic reform, the reduction of state ownership of productive assets, and the establishment of improvedcorporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the government. In addition, theChinese government continues to play a significant role in regulating industry development by imposing industrial policies. The Chinesegovernment also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy, and providing preferential treatment to particular industries or companies.While the Chinese economy has experienced significant growth over the past decades, growth has been uneven, both geographically andamong various sectors of the economy, and the rate of growth has been slowing since 2012. Any adverse changes in economic conditions in China,in the policies of the Chinese government or in the laws and regulations in China could have a material adverse effect on the overall economicgrowth of China. Such developments could adversely affect our business and operating results, lead to a reduction in demand for our services andadversely affect our competitive position. The Chinese government has implemented various measures to encourage economic growth and guidethe allocation of resources. Some of these measures may benefit the overall Chinese economy but may have a negative effect on us. For example,our financial condition and results of operations may be adversely affected by government control over capital investments or changes in taxregulations. In addition, in the past the Chinese government has implemented certain measures, including interest rate adjustment, to control thepace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and operatingresults.Table of Contents46The PRC government’s significant oversight and discretion over our business operation could result in a material adverse change in ouroperations and the value of our ADSs and ordinary shares.We conduct our business primarily in China. Our operations in China are governed by PRC laws and regulations. The PRC governmenthas significant oversight and discretion over the conduct of our business, and may intervene or influence our operations as the government deemsappropriate to advance regulatory and societal goals and policy positions. The PRC government has recently published new policies thatsignificantly affected certain industries and we cannot rule out the possibility that it will in the future release regulations or policies that directly orindirectly affect our industry or require us to seek additional permission to continue our operations, which could result in a material adverse changein our operation and/or the value of our ADSs and ordinary shares. Therefore, investors of ZTO and our business face potential uncertainty fromactions taken by the PRC government affecting our business.Uncertainties with respect to the legal system in the jurisdiction where we operate could adversely affect us.We conduct our business primarily through our subsidiaries and the consolidated affiliated entities in China. Our operations in China aregoverned by the laws and regulations of China. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments inChina. As a civil law jurisdiction, the legal system of China is based on written statutes. Prior court decisions may be cited for reference but havelimited precedential value.The laws and regulations of China have significantly enhanced the protections afforded to various forms of foreign investments inmainland China for the past decades. However, because certain laws and regulations are relatively new, and because of the limited volume ofpublished decisions, the interpretation and enforcement of these laws and regulations may evolve.Furthermore, the legal system of China is based in part on government policies and China is geographically large and divided into variousprovinces and municipalities. As such, different regulations and policies may have different and varying applications and interpretations in differentparts of China, and it is possible that we may not be aware in a timely manner that we have been identified to be in violation of these policies andrules until sometime after the occurrence of the violation. In addition, certain administrative and court proceedings in China may result insubstantial costs and diversion of resources and management attention.PRC government has complex regulatory requirements on the conduct of our business and it has recently promulgated certain regulationsand rules to exert more oversight over offerings that are conducted overseas and/ or foreign investment in China-based issuers. Such action couldsignificantly limit or hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantlydecline.The approval of or filing to the CSRC or other PRC government authorities may be required in connection with our offshore offerings andfuture capital raising activities under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain suchapproval.The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, adopted by six PRC regulatory agencies in2006 and amended in 2009, requires an overseas special purpose vehicle formed for listing purposes through acquisitions of PRC domesticcompanies and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing and trading of such special purposevehicle’s securities on an overseas stock exchange. The interpretation and application of the regulations may be promulgated in the future, and ouroffshore offerings may ultimately require approval of the CSRC. If the CSRC approval is required, it is uncertain whether we can or how long itwill take us to obtain the approval and, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or delay inobtaining the CSRC approval for any of our offshore offerings, or a rescission of such approval if obtained by us, would subject us to sanctionsimposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in China, restrictions orlimitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our business,financial condition, and results of operations.Table of Contents47On July 6, 2021, the PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordancewith the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervision on overseaslistings by China-based companies and proposed to take effective measures, such as promoting the construction of regulatory systems to deal withthe risks and incidents faced by China-based overseas-listed companies. Official guidance and related implementation rules of these opinions havenot been issued yet. We cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements onus.On February 17, 2023, the CSRC issued the Overseas Listing Trial Measures, which became effective on March 31, 2023, under whichPRC domestic companies that seek to offer and list securities in overseas markets, either in direct or indirect means, are required to fulfill the filingprocedure with the CSRC and report the required information. According to the Circular of Overseas Listing and Offering, issuers that have alreadybeen listed in an overseas market by March 31, 2023, such as our company, are not required to make any immediate filing. However, under theOverseas Listing Trial Measures, such issuers will be required to complete certain filing procedures with the CSRC in connection with futuresecurities offerings and listings outside of mainland China, including follow-on offerings, issuance of convertible bonds, offshore relisting aftergoing-private transactions, and other equivalent offering activities. In addition, such issuers are required to file a report to the CSRC after theoccurrence and public disclosure of certain material corporate events, including but not limited to conversion of listing status in overseas markets(such as switching from secondary listing to dual primary listing). The interpretation, application and implementation of the Overseas Listing TrialMeasures may be enacted in the future. The Overseas Listing Trial Measures also stipulates that overseas offering and listing by domesticcompanies shall strictly abide by the laws, administrative regulations and state rules concerning national security in the areas of foreign investment,cybersecurity, data security and etc., and duly fulfill their obligations to protect national security. If the intended overseas offering and listingnecessitates a national security review (for example, a cybersecurity review), the national security review procedures shall be completed before theapplication for such offering and listing is submitted to overseas regulators and foreign stock exchanges. Therefore, we may incur significant time,costs and resources to comply with these newly implemented regulatory requirements under the Overseas Listing Trial Measures and faceuncertainties as to such approvals, filings and reporting obligations.We may be required to go through these approval, filing and reporting procedures with the CSRC and other regulatory authorities for ouroffshore offerings and future capital raising activities, including the cybersecurity review under the Cybersecurity Review Measures anddeclaration of security assessment on data cross-border transfer under the Measures on Security Assessment of Cross-Border Data Transfer, it isuncertain whether we can or how long it will take us to obtain such approval or complete such procedures and any such approval could berescinded. Any failure to obtain or delay in obtaining such approval or completing such procedures for our offshore offerings and future capitalraising activities, or a rescission of any such approval if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatoryauthorities. These regulatory authorities may impose fines and penalties on our operations in China, limit our ability to pay dividends outside ofChina, limit our operating privileges in China, delay, restrict or prohibit our future capital raising activities, delay or restrict the repatriation of theproceeds from our offshore offerings into China or take other actions that could materially and adversely affect our business, financial condition,results of operations, and prospects, as well as the trading price of our shares. The CSRC or other PRC regulatory authorities may also take actionsrequiring us, or making it advisable for us, to halt our offshore offerings before settlement and delivery of the shares offered. Consequently, ifinvestors engage in market trading or other activities in anticipation of and prior to settlement and delivery, they do so at the risk that settlementand delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate new rules or explanations requiring that weobtain their approvals or accomplish the required filing or other regulatory procedures for our prior offshore offerings, we may be unable to obtaina waiver of such approval requirements, if and when procedures are established to obtain such a waiver. Any uncertainties or negative publicityregarding such approval requirement could materially and adversely affect our business, prospects, financial condition, reputation, and the tradingprice of the shares.Table of Contents48We may rely on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we mayhave, and any limitation on the ability of our PRC subsidiaries to make payments to us could have a material and adverse effect on our abilityto conduct our business.ZTO is a Cayman Islands holding company and may rely principally on dividends and other distributions on equity from its PRCsubsidiaries for cash requirements, including for services of any debt it may incur. Our subsidiaries’ ability to distribute dividends is based upontheir distributable earnings. Current PRC regulations permit our PRC subsidiaries to pay dividends to their respective shareholders only out of theiraccumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of the VIE is required toset aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital.These reserves are not distributable as cash dividends. If our PRC subsidiaries incur debt on their own behalf in the future, the instrumentsgoverning the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our PRC subsidiaries todistribute dividends or other payments to their respective shareholders could materially and adversely limit our ability to grow, make investmentsor acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currencyconversion may delay or prevent us from loaning to or making additional capital contributions to our PRC subsidiaries and the consolidatedaffiliated entities in China, which could materially and adversely affect our liquidity and our ability to fund and expand our business.We are an offshore holding company conducting our operations in China through our PRC subsidiaries and the consolidated affiliatedentities. We may make loans to our PRC subsidiaries and the consolidated affiliated entities, or we may make additional capital contributions to ourPRC subsidiaries, or we may establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, or we may acquireoffshore entities with business operations in China in an offshore transaction.Most of these ways are subject to PRC regulations and approvals or registration. For example, loans by us to our wholly owned PRCsubsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration ofForeign Exchange. If we decide to finance our wholly owned PRC subsidiaries by means of capital contributions, these capital contributions aresubject to registration with the State Administration for Market Regulation of the PRC or its local branch, reporting of foreign investmentinformation with the Ministry of Commerce, or registration with other governmental authorities in China. Due to the restrictions imposed on loansin foreign currencies extended to PRC domestic companies, we are not likely to make such loans to the consolidated affiliated entities, which arePRC domestic companies. Further, we are not likely to finance the activities of the consolidated affiliated entities by means of capital contributionsdue to regulatory restrictions relating to foreign investment in PRC domestic enterprises engaged in certain businesses.Table of Contents49The State Administration of Foreign Exchange promulgated the Circular on Reforming the Management Approach Regarding the ForeignExchange Capital Settlement of Foreign-Invested Enterprises, or SAFE Circular 19, effective on June 1, 2015, in replacement of the SupplementaryCircular of the Comprehensive Department of the State Administration of Foreign Exchange on the Relevant Operating Issues Concerning theImprovement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-Invested Enterprises, the Circular fromthe State Administration of Foreign Exchange on Issues Relating to the Improvement of Business Operations with Respect to the Administration ofForeign Exchange Capital Payment and Settlement of Foreign-invested Enterprises, and the Circular from the State Administration of ForeignExchange on Issues concerning the Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals ofForeign - invested Enterprises in Certain Areas. According to SAFE Circular 19, the flow and use of the RMB capital converted from foreigncurrency-denominated registered capital of a foreign-invested company is regulated such that RMB capital may not be used for the issuance ofRMB entrusted loans, the repayment of inter-enterprise loans or the repayment of banks loans that have been transferred to a third party. AlthoughSAFE Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a foreign-invested enterprise to be usedfor equity investments within China, 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 the StateAdministration of Foreign Exchange will permit such capital to be used for equity investments in China in actual practice. The StateAdministration of Foreign Exchange promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing theForeign Exchange Settlement Management Policy of Capital Account, or SAFE Circular 16, effective on June 9, 2016, which reiterates some of therules set forth in SAFE Circular 19, but changes the prohibition against using RMB capital converted from foreign currency-denominatedregistered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition against using such capital to issue loans to non-associated enterprises. Violations of SAFE Circular 19 and SAFE Circular 16 could result in administrative penalties. SAFE Circular 19 and SAFECircular 16 may significantly limit our ability to transfer any foreign currency we hold to our PRC subsidiaries, which may adversely affect ourliquidity and our ability to fund and expand our business in China. On October 23, 2019, the State Administration of Foreign Exchangepromulgated the Notice for Further Advancing the Facilitation of Cross-border Trade and Investment, which allows all foreign-invested companiesto use Renminbi converted from foreign currency-denominated capital for equity investments in China, as long as the equity investment is genuine,does not violate applicable laws, and complies with the negative list on foreign investment. On December 4, 2023, the State Administration ofForeign Exchange promulgated the Notice on Further Deepening Reforms to Facilitate Cross-Border Trade and Investment, which furtherfacilitated the foreign exchange receipts and payment, expanded capital account-related facilitation policies, and optimized the foreign exchangeadministration for the capital account. However, since this regulation is newly promulgated, it is unclear how the State Administration of ForeignExchange and competent banks will carry this out in practice.In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holdingcompanies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary governmentapprovals on a timely basis, or at all, with respect to future loans to our PRC subsidiaries or consolidated affiliated entities or future capitalcontributions by us to our PRC subsidiaries. As a result, uncertainties exist as to our ability to provide prompt financial support to our PRCsubsidiaries or consolidated affiliated entities when needed. If we fail to complete such registrations or obtain such approvals, our ability to use theproceeds we received from our initial public offering and to capitalize or otherwise fund our PRC operations may be negatively affected, whichcould materially and adversely affect our liquidity and our ability to fund and expand our business.Fluctuations in exchange rates could have a material and adverse effect on our results of operations and the value of your investment.The conversion of Renminbi into foreign currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. TheRenminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. The value of the Renminbi against the U.S. dollar andother currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things.We cannot assure you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult topredict how market forces or PRC or U.S. government policy will impact the exchange rate between the Renminbi and the U.S. dollar in the future.Any significant appreciation or depreciation of the Renminbi may materially and adversely affect our revenues, earnings and financialposition, and the value of, and any dividends payable on, our Class A ordinary shares and/or ADSs. For example, to the extent that we need toconvert U.S. dollars we receive into Renminbi to fund our operations, appreciation of the Renminbi against the U.S. dollar would have an adverseeffect on the Renminbi amount we would receive from the conversion. Conversely, a significant depreciation of the Renminbi against the U.S.dollar may significantly reduce the U.S. dollar equivalent of our earnings, which in turn could adversely affect the valuation of our Class Aordinary shares and/or ADSs.Table of Contents50Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations. To date, we have entered intosome hedging transactions, such as foreign currency deposits, foreign currency forward contract and options, in an effort to reduce our exposure toforeign currency exchange risk. While we may decide to enter into more hedging transactions in the future, the availability and effectiveness ofthese hedges may be limited, and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may bemagnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, fluctuations inexchange rates may have a material adverse effect on your investment.Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittanceof currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islandsholding company primarily relies on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have.Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and tradeand service-related foreign exchange transactions, can be made in foreign currencies without prior approval of the State Administration of ForeignExchange by complying with certain procedural requirements. Specifically, under the existing exchange restrictions, without prior approval of theState Administration of Foreign Exchange, cash generated from the operations of our PRC subsidiaries in China may be used to pay dividends toour company. However, approval from or registration with appropriate governmental authorities is required where Renminbi is to be converted intoforeign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. As a result,we need to obtain the approval of the State Administration of Foreign Exchange to use cash generated from the operations of our PRC subsidiariesand variable interest entity to pay off their respective debt in a currency other than Renminbi owed to entities outside China, or to make othercapital expenditure payments outside China in a currency other than Renminbi. For example, People’s Bank of China announced that fromNovember 28, 2016, buying, paying or making capital expenditure of more than US$5 million or its equivalent must be reported as large-amounttransaction to the State Administration of Foreign Exchange. Once reported to the State Administration of Foreign Exchange, such large-amounttransactions are subject to examination of authenticity and compliance by the PRC Ministry of Commerce, the National Development and ReformCommission, the State Administration of Foreign Exchange, People’s Bank of China or other competent authorities. Although the StateAdministration of Foreign Exchange issued a statement stating that amounts from legitimate business transactions and capital reduction would notbe affected, the PRC government may at its discretion restrict access to foreign currencies for current account transactions in the future. If theforeign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not beable to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.Table of Contents51Certain PRC regulations may make it more difficult for us to pursue growth through acquisitions.Among other things, on August 8, 2006, the PRC Ministry of Commerce issued the Regulations on Mergers and Acquisitions of DomesticEnterprises by Foreign Investor, which took effect on September 8, 2006 and were amended on June 22, 2009, established additional proceduresand requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex. Such regulationrequires, among other things, that the PRC Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreigninvestor acquires control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if (i) any important industry isconcerned, (ii) such transaction involves factors that have or may have impact on the national economic security; (iii) such transaction will lead to achange in control of a domestic enterprise which holds famous trademarks or PRC time-honored brands; or (iv) certain thresholds under theProvisions on Thresholds for Prior Notification of Concentrations of Undertakings, issued by the State Council on August 3, 2008 with latestamendment released on September 18, 2018, were triggered. In addition, the Provisions on the Review of Concentrations of Undertakingspromulgated by the State Administration for Market Regulation, which became effective on April 15, 2023, further stipulates the detailed rules ofdeclaration and examination of concentration of business operators. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee ofthe National People’s Congress, which became effective on August 1, 2008, and recently amended on June 24, 2022, requires that transactionswhich are deemed concentrations and involve parties with specified turnover thresholds must be declared to the PRC Ministry of Commerce beforethey can be completed. In addition, the Notice of the General Office of the State Council on the Establishment of the Security Review System forMergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated on February 3, 2011 and became effective after 30 days ofpromulgation, require acquisitions by foreign investors of PRC companies engaged in military related or certain other industries that are crucial tonational security be subject to security review before consummation of any such acquisition. We may pursue potential strategic acquisitions that arecomplementary to our business and operations. Complying with the requirements of these regulations to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval or clearance from the PRC Ministry of Commerce, may delay orinhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share. If we fail tocomply with the Anti-Monopoly Law and other rules and provisions related to mergers and acquisitions in PRC, we may be subject toinvestigations, penalties and sanctions, including fines and termination of the mergers and acquisitions. Historically, certain subsidiariescommenced merger and acquisition transactions prior to filing a declaration. It remains uncertain whether such other subsidiaries or us will besubject to investigations, penalties and sanctions by the government authorities.PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficialowners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ability to increase their registered capital or distribute profits to us, or may otherwise adversely affect us.On July 4, 2014, the State Administration of Foreign Exchange has promulgated the Circular on Relevant Issues Concerning ForeignExchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles, orSAFE Circular 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents’ Financing andRoundtrip Investment Through Offshore Special Purpose Vehicles, or SAFE Circular 75, which ceased to be effective upon the promulgation ofSAFE Circular 37. SAFE Circular 37 requires PRC residents (including PRC individuals and PRC corporate entities) to register with localbranches of the State Administration of Foreign Exchange in connection with their direct or indirect offshore investment activities. SAFE Circular37 is applicable to our shareholders who are PRC residents and may be applicable to any offshore acquisitions that we make in the future.Table of Contents52Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE Circular 37 made, direct or indirectinvestments in offshore special purpose vehicles, or SPVs, will be required to register such investments with local branches of the StateAdministration of Foreign Exchange. In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its filedregistration with the local branch of the State Administration of Foreign Exchange with respect to that SPV, to reflect any material change.Moreover, any subsidiary of such SPV in China is required to urge the PRC resident shareholders to update their registration with the local branchof the State Administration of Foreign Exchange. If any PRC shareholder of such SPV fails to make the required registration or to update thepreviously filed registration, the subsidiary of such SPV in China may be prohibited from distributing its profits or the proceeds from any capitalreduction, share transfer or liquidation to the SPV, and the SPV may also be prohibited from making additional capital contribution into itssubsidiary in China. The Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment, or SAFENotice 13, became effective on June 1, 2015. Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign directinvestment and outbound overseas direct investment, including those required under SAFE Circular 37, will be filed with qualified banks instead ofthe State Administration of Foreign Exchange. The qualified banks will directly examine the applications and accept registrations under thesupervision of the State Administration of Foreign Exchange.All of our shareholders that we are aware of being subject to the regulations promulgated by the State Administration of Foreign Exchangehave completed all necessary initial registrations with the local branch of the State Administration of Foreign Exchange or qualified banks asrequired by SAFE Circular 37. We cannot assure you, however, that all of these individuals may thereafter continue to make required filings orupdates on a timely manner, or at all. We can provide no assurance that we are or will in the future continue to be informed of the identities of PRCresidents holding a direct or indirect interest in our company. Any failure or inability by such individuals to comply with the regulationspromulgated by the State Administration of Foreign Exchange may subject us to fines or legal sanctions, such as restrictions on our cross-borderinvestment activities or our PRC subsidiaries’ ability to distribute dividends to, or obtain foreign exchange-denominated loans from, our companyor prevent us from making distributions or paying dividends. As a result, our business operations and our ability to make distributions to you couldbe materially and adversely affected.Furthermore, the interpretation and implementation of the foreign exchange regulations has been constantly evolving, these regulations,and any future regulation concerning offshore or cross-border transactions, may be interpreted, amended and implemented by the governmentalauthorities in the future. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchangeactivities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our financial condition andresults of operations. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company,as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreignexchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.Table of Contents53Any failure to comply with PRC regulations regarding the registration requirements for employee stock incentive plans of overseas publiclylisted companies may subject the PRC plan participants or us to fines and other legal or administrative sanctions.Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly listed companies maysubmit applications to local branches of the State Administration of Foreign Exchange for the foreign exchange registration with respect to offshorespecial purpose companies. In the meantime, our directors, executive officers and other employees who are PRC citizens or who are non-PRCresidents residing in the PRC for a continuous period of not less than one year, subject to limited exceptions, and who have been granted incentiveshare awards by us, may follow the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating inStock Incentive Plan of Overseas Publicly-Listed Company, promulgated by the State Administration of Foreign Exchange on February 15, 2012,or the 2012 SAFE Notices. Pursuant to the 2012 SAFE Notices, PRC citizens and applicable non-PRC citizens who reside in China for acontinuous period of not less than one year who participate in any stock incentive plan of an overseas publicly listed company, subject to a fewexceptions, are required to register with the State Administration of Foreign Exchange through a domestic qualified agent, which could be the PRCsubsidiaries of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution must be retainedto handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests. We and our executiveofficers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one year and who have beengranted options are subject to these regulations as our company became an overseas listed company upon the completion of our initial publicoffering. Failure to complete registrations of the State Administration of Foreign Exchange may subject them to fines of up to RMB300,000 forentities and up to RMB50,000 for individuals, and legal sanctions and may also limit our ability to contribute additional capital into our PRCsubsidiaries and limit our PRC subsidiaries’ ability to distribute dividends to us. We also face regulatory uncertainties that could restrict our abilityto adopt additional incentive plans for our directors, executive officers and employees under PRC law. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Employee Stock Incentive Plan of Overseas Publicly-Listed Company.”The State Taxation Administration has issued certain circulars concerning employee share options and restricted shares. Under thesecirculars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax.Our PRC subsidiaries have obligations to file documents related to employee share options or restricted shares with the tax authorities and towithhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or we fail to withhold theirincome taxes according to the laws and regulations, we may face sanctions imposed by the tax authorities or other PRC governmental authorities.See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Employee Stock Incentive Plan ofOverseas Publicly-Listed Company.”It may be difficult for overseas securities regulators to conduct investigations or collect evidence within China.Shareholder claims or regulatory investigations that are common in the United States (including securities law class actions and fraudclaims) may be difficult to pursue as a matter of law or practicality in China. For example, in China, there are significant legal and other obstaclesto providing information needed for regulatory investigations or litigation initiated outside China and vice versa. Although the authorities in Chinamay establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-bordersupervision and administration, such cooperation with the securities regulatory authorities in the Unities States may not be efficient in the absenceof a mutual and practical cooperation mechanism. Furthermore, according to Article 177 of the PRC Securities Law, which became effective onMarch 1, 2020, no overseas securities regulator may directly conduct investigations or collect evidence and no entities or individuals may providedocuments or materials in connection with securities activities without proper authorization as stipulated under Article 177. While detailedinterpretation of or implementation rules under Article 177 have yet to be promulgated, the inability of an overseas securities regulator to directlyconduct investigations or collect evidence within China may further increase difficulties faced by you in protecting your interests.Table of Contents54If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequencesto us and our non-PRC shareholders or ADS holders.Under the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with its “de factomanagement body” within the PRC is considered a “resident enterprise” and will be subject to the enterprise income tax on its global income at therate of 25%. The implementation rules define the term “de facto management body” as the body that exercises full and substantial control andoverall management over the business, productions, personnel, accounts and properties of an enterprise. On April 22, 2009, the State TaxationAdministration of the PRC issued the Circular of the State Taxation Administration on Issues Concerning the Identification of Chinese-ControlledOverseas Registered Enterprises as Resident Enterprises in Accordance with the Actual Standards of Organizational Management, as amended onNovember 8, 2013 and December 29, 2017 and partially invalid, known as STA Circular 82, which provides certain specific criteria fordetermining whether the “de facto management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Althoughthis circular only applies to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individualsor foreigners, the criteria set forth in the circular may reflect the general position of the State Taxation Administration on how the “de factomanagement body” text should be applied in determining the tax resident status of all offshore enterprises. According to STA Circular 82, anoffshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax resident by virtue ofhaving its “de facto management body” in China and will be subject to PRC enterprise income tax on its global income only if all of the followingconditions are met: (i) the primary location of the day-to-day operational senior management and senior management department’s performance oftheir duties is in the PRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval byorganizations or personnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board andshareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually residein the PRC.We believe that ZTO is not a PRC resident enterprise for PRC tax purposes. See “Item 4. Information on the Company—B. BusinessOverview—Regulation—Regulations Relating to Tax—Enterprise Income Tax.” However, the tax resident status of an enterprise is subject todetermination by the PRC tax authorities and further interpretation of the term “de facto management body.” If the PRC tax authorities determinethat ZTO is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividendswe pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. In addition, nonresident enterprise shareholders(including our ADS holders) may be subject to PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if suchincome is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC resident enterprise, dividends payable to our non-PRCindividual shareholders (including our ADS holders) and any gain realized on the transfer of ADSs or ordinary shares by such shareholders may besubject to PRC tax at a rate of 20% unless a reduced rate is available under an applicable tax treaty. Further interpretations may make it clear onwhether non-PRC shareholders of ZTO would be able to claim the benefits of any tax treaties between their country of tax residence and the PRCin the event that ZTO is treated as a PRC resident enterprise.Table of Contents55We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.On February 3, 2015, the State Taxation Administration of the PRC issued a Public Notice Regarding Certain Corporate Income TaxMatters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or STA Public Notice 7, which was recently amended on December29, 2017. According to STA Public Notice 7, where a non-resident enterprise indirectly transfers equities and other properties of a PRC residententerprise to evade its obligation of paying enterprise income tax by implementing arrangements that are not for bona fide commercial purpose,such indirect transfer shall be re-identified and recognized as a direct transfer of equities and other properties of the PRC resident enterprise. STAPublic Notice 7 provides clearer criteria than STA Circular 698 for assessment of reasonable commercial purposes and has introduced safe harborsfor internal group restructurings and the purchase and sale of equity through a public securities market. STA Public Notice 7 also brings challengesto both foreign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. PRC taxable assets includeassets attributed to an establishment or place of business in China, real properties located in China, and equity investments in PRC residententerprises, with respect of which gains from their transfer by a direct holder, being a non-PRC resident enterprise, would be subject to PRCenterprise income taxes. Where a non-resident enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseasholding company, which is an indirect transfer, the non-resident enterprise as either the transferor or the transferee, or the PRC entity that directlyowns the taxable assets, may report such indirect transfer to the tax authority. Using a “substance over form” principle, the PRC tax authority maydisregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was clearly established for the purpose ofreducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, andthe transferee or other person who is obligated to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10% for thetransfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if thetransferee fails to withhold the taxes and the transferor fails to pay the taxes. According to the Announcement of the State Taxation Administrationon Matters Concerning Withholding of Income Tax of Non-resident Enterprises at Source, or STA Announcement 37, which became effective onDecember 1, 2017 and amended on June 15, 2018, the withholding party shall, within seven days of the day on which the withholding obligationoccurs, declare and remit the withholding tax to the competent tax authority at its locality. Where the withholding party fails to withhold and remitthe income tax payable or is unable to perform its obligation in this regard, the non-resident enterprise that earns the income shall, declare and paythe tax that has not been withheld to the competent tax authority at the place where the income occurs, and complete the Withholding Statement ofthe People’s Republic of China for Enterprise Income Tax.We face uncertainties as to the reporting and other implications of certain past and future transactions where PRC taxable assets areinvolved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments. Our company may be subject to filingobligations or taxed if our company is the transferor in such transactions and may be subject to withholding obligations if our company is thetransferee in such transactions, under STA Public Notice 7 and STA Announcement 37. For transfer of shares in our company by investors that arenon-PRC resident enterprises, our PRC subsidiaries may be requested to assist in the filing under STA Public Notice 7. As a result, we may berequired to expend valuable resources to comply with STA Public Notice 7 and STA Announcement 37 or to request the transferors from whom wepurchase taxable assets to comply with these circulars, or to establish that our company should not be taxed under these circulars, which may havea material adverse effect on our financial condition and results of operations.Table of Contents56Discontinuation of any of the preferential tax treatments or imposition of any additional taxes could adversely affect our financial conditionand results of operations.Some of our subsidiaries and consolidated affiliated entities are entitled to a favorable statutory enterprise income tax rate of 15% or 10%because of their qualifications as a high and new technology enterprise, or as a key software enterprise, or as enterprises within the Catalogue ofEncouraged Industries in Western Regions or because of favorable local tax treatment for various terms. The PRC Enterprise Income Tax Law andits implementation rules permit certain “high and new technology enterprises strongly supported by the state,” which hold independent ownershipof core intellectual property to enjoy a preferential enterprise income tax rate of 15% subject to certain qualification criteria. Shanghai ZhongtongjiNetwork, our wholly owned subsidiary, has enjoyed a preferential enterprise income tax rate of 15% as a high and new technology enterprise since2017. It recently renewed this status for another three-year period in November 2023. We cannot assure you that Shanghai Zhongtongji Networkwill continue to qualify as a high and new technology enterprise when it is subject to review in the future. Should Shanghai Zhongtongji Networklose this qualification for any reason, it will no longer enjoy the 15% preferential tax rate, and its applicable enterprise income tax rate mayincrease to 25%. If Shanghai Zhongtongji Network does not maintain its status as a high and new technology enterprise, our financial condition andresults of operation could be materially and adversely affected. In addition, in 2023, six of the consolidated affiliated entities located in themunicipalities or provinces of Sichuan, Guizhou, Yunnan and Shaanxi benefitted from a 15% preferential income tax rate as qualified enterpriseswithin the Catalogue of Encouraged Industries in Western Regions. The preferential income tax rate will expire as of December 31, 2030.Furthermore, Shanghai Zhongtongji Network was recognized as a key software enterprise status in 2023 and thus was entitled to a preferential taxrate of 10% for the fiscal year of 2022.We may be required to register our operating offices outside of our residence addresses as branch offices under PRC law.Under PRC law, a company setting up premises for business operations outside its residence address shall register and obtain businesslicenses for branch offices at the competent local administration for market regulation. We may expand our delivery network in the future toadditional locations in China, and we may not be able to register branch offices which operate outside our company’s residence address in a timelymanner due to a multiple procedural requirements and relocation of branch offices from time to time. If the PRC regulatory authorities determinethat we are in violation of the laws and regulations, we may be subject to penalties, including fines, confiscation of income and suspension ofoperation. If we become subject to these penalties, our business, results of operations, financial condition and prospects could be adverselyaffected.Our failure to fully comply with PRC labor-related laws may expose us to potential penalties.Companies operating in China are required to participate in various government sponsored employee benefit plans, including certainsocial insurance, housing funds and other welfare-oriented payment obligations, and contribute to the plans in amounts equal to certain percentagesof salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time atlocations where we operate our businesses. The requirement of employee benefit plans has not been implemented consistently by the localgovernments in China given the different levels of economic development in different locations. We did not pay, or were not able to pay, certainpast social security and housing fund contributions in strict compliance with the PRC regulations for and on behalf of our employees due todifferences in local regulations and different implementation or interpretation by local authorities in the PRC and varying levels of acceptance ofthe housing fund system by our employees. Although we have recorded accruals for estimated underpaid amounts in our financial statements, wemay be subject to fines and penalties for our failure to make payments in accordance with the applicable PRC laws and regulations. We may berequired to make up the contributions for these plans as well as to pay late fees and fines. We have not made any accruals for the interest onunderpayments and penalties that may be imposed by the PRC government authorities in the financial statements. If we are subject to late fees orfines in relation to the underpaid employee benefits, our financial condition and results of operations may be adversely affected.Table of Contents57The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and theinability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as anauditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United Statespursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. The auditor islocated in mainland China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before2022.As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB toconduct inspections of auditors in China in the past has made it more difficult to evaluate the effectiveness of our independent registered publicaccounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOBinspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland Chinaand Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, ifthe PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China andHong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed withthe Securities and Exchange Commission, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections again,which could cause investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information andthe quality of our financial statements.Our ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigatecompletely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect thevalue of your investment.Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has notbeen subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a nationalsecurities 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 orinvestigate completely registered public accounting firms headquartered in mainland China and Hong Kong and our auditor was subject to thatdetermination. In May 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annualreport on Form 20-F for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB removed mainland China and Hong Kongfrom the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. As of the date of this annualreport, the PCAOB has not issued any new determination that it is unable to inspect or investigate completely registered public accounting firmsheadquartered in any jurisdiction. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after wefile this annual report on Form 20-F.Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China 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 accountingfirms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on ourfinancial statements filed with the Securities and Exchange Commission, we would be identified as a Commission-Identified Issuer following thefiling of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from beingtraded 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. Although our Class A ordinary shares have been listed on the Hong Kong Stock Exchangeand the ADSs and Class A ordinary shares are fully fungible, we cannot assure your that an active trading market for our Class A ordinary shareson the Hong Kong Stock Exchange will be sustained or that the ADSs can be converted and traded with sufficient market recognition and liquidity,if our shares and ADSs are prohibited from trading in the United States. A prohibition of being able to trade in the United States wouldsubstantially impair your ability to sell or purchase our ADSs when you wish to do so, and the risk and uncertainty associated with delisting wouldhave a negative impact on the price of our ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptableto us, or at all, which would have a material adverse impact on our business, financial condition, and prospects.Table of Contents58RISKS RELATED TO OUR SHARES AND ADSSThe trading prices of our ADSs and Class A ordinary shares have been and are likely to continue to be volatile, which could result insubstantial losses to holders of our Class A ordinary shares and/or ADSs.The trading prices of our ADSs and Class A ordinary shares have been and are likely to continue to be volatile and could fluctuate widelyin response to a variety of factors, many of which are beyond our control. For example, the low and high closing prices of our ADSs on NYSE in2023 were US$19.83 and US$29.44, respectively. Likewise, the low and high closing prices of our Class A ordinary shares on the Hong KongStock Exchange in 2023 were HK$152.80 and HK$234.80, respectively.Fluctuation in the trading prices of our listed securities may occur due to broad market and industry factors, including the performance andfluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in Hong Kongand/or the United States. Furthermore, stock markets in general have experienced extreme price and volume fluctuations that have often beenunrelated or disproportionate to the operating performance of companies like us. Volatility or a lack of positive performance in the trading price ofour listed securities may also adversely affect our ability to retain key employees, most of whom have been granted options or other equityincentives. In addition to market and industry factors, the price and trading volume for our listed securities may be highly volatile for factorsspecific to our own operations, including the following:●variations in our revenues, earnings and cash flow;●announcements of new investments, acquisitions, strategic partnerships or joint ventures by us or our competitors;●announcements of new offerings, solutions and expansions by us or our competitors;●changes in financial estimates by securities analysts;●detrimental adverse publicity about us, our services or our industry;●additions or departures of key personnel;●release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; and●potential litigation or regulatory investigations.Any of these factors may result in large and sudden changes in the volume and price at which our ADSs or Class A ordinary shares willtrade.Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage othersfrom pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.We have a dual-class share structure such that our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. Inrespect of matters requiring the votes of shareholders, on a poll holders of Class A ordinary shares are entitled to one vote per share, while holdersof Class B ordinary shares are entitled to ten votes per share based on our dual-class share structure. Our ADSs represent underlying Class Aordinary shares. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class Aordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of anyClass B ordinary shares by a holder thereof to any person or entity which is not an affiliate of such holder or upon a change of ultimate beneficialownership of any Class B ordinary shares to any person who is not an affiliate of the holder of such Class B ordinary shares, such Class B ordinaryshares shall be automatically and immediately converted into the equal number of Class A ordinary shares.Table of Contents59As of the date of this annual report, Zto Lms Holding Limited, a British Virgin Islands company wholly beneficially owned by The LMSFamily Trust, with Mr. Meisong Lai as the settlor and Mr. Meisong Lai and his family members as beneficiaries, holds 206,100,000 Class Bordinary shares. Mr. Meisong Lai exercises the power to vote these shares which, due to the disparate voting powers associated with our dual-classshare structure, constitutes 77.7% of the aggregate voting power of our company as of March 31, 2024. Consequently, Mr. Meisong Lai hasdecisive influence over matters such as decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election ofdirectors and other significant corporate actions. He may take actions that are not in the best interest of us or our other shareholders. Thisconcentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving ourother shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our listedsecurities. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potentialmerger, takeover or other change of control transactions that holders of Class A ordinary shares and/or ADSs may view as beneficial.We are a “controlled company” within the meaning of the NYSE Listed Company Manual and, as a result, may rely on exemptions fromcertain corporate governance requirements that provide protection to shareholders of other companies.We are a “controlled company” as defined under the NYSE Listed Company Manual because Mr. Meisong Lai, our chairman of the boardof directors and chief executive officer, beneficially owns more than 50% of our total voting power. For so long as we remain a “controlledcompany” under that definition, we are permitted to elect to rely, and may rely, on exemptions from certain corporate governance rules, includingan exemption from the rule that a majority of our board of directors must be independent directors or that we have to establish a nominatingcommittee and a compensation committee composed entirely of independent directors. In the event that we elect to rely on one or more of theseexemptions, you will not have the same protection afforded to shareholders of companies that are subject to these corporate governancerequirements.Techniques employed by short sellers may drive down the market price of our listed securities.Short selling is the practice of selling securities that a seller does not own but rather has borrowed from a third party with the intention ofbuying identical securities back at a later date to return to the lender. Short sellers hope to profit from a decline in the value of the securitiesbetween the sale of the borrowed securities and the purchase of the replacement shares, as short sellers expect to pay less in that purchase than theyreceived in the sale. As it is in short sellers’ interest for the price of the security to decline, many short sellers publish, or arrange for the publicationof, negative opinions and allegations regarding the issuer and its business prospects in order to create negative market momentum and generateprofits for themselves after selling a security short. These short attacks have, in the past, led to selling of shares in the market.Public companies listed in the United States that have substantially all of their operations in China have been the subject of short selling.Such short selling was often driven by short seller reports, which often were based on allegations including inadequacies in internal control and/orcorporate governance or a lack of adherence thereto and accounting irregularities and mistakes. Any such allegations may be followed by periodsof instability in the market price of our ADSs and negative publicity. As a result, many of these companies are now conducting internal andexternal investigations into the allegations and, in the interim, are subject to shareholder lawsuits and/or SEC enforcement actions.We have been, and continue to be, the subject of unfavorable allegations made by short sellers. In March 2023, Grizzly Research LLCpublished two short seller reports against us. The audit committee of the board of directors of our company has conducted an independent review ofthe allegations raised in the short seller reports, with the assistance of independent professional advisors, including independent counsel andforensic accounting experts. The independent investigation is substantially complete. Based on findings of the independent investigation, the AuditCommittee has concluded that the allegations in the short seller reports are not substantiated. Regardless of whether such allegations are proven tobe true or untrue, we may have to expend a significant amount of resources to investigate such allegations and/or defend ourselves, including inconnection with class actions or regulatory enforcement actions derivative of such allegations. While we would strongly defend against any suchshort seller attacks, we may be constrained in the manner in which we can proceed against the short sellers by principles of freedom of speech,applicable state law or issues of commercial confidentiality. Such a situation could be costly and time-consuming, and could divert management’sattention from the day-to-day operations of our company. Even if such allegations are ultimately proven to be groundless, allegations against uscould negatively impact the market price of our securities and our business operations.Table of Contents60We have granted, and may continue to grant, share incentives, which may result in increased share-based compensation expenses.We adopted share incentive plans for the purpose of granting share-based compensation awards to employees, directors and consultants toincentivize their performance and align their interests with ours. We account for compensation costs for all share options using a fair value-basedmethod and recognize expenses in our consolidated statements of comprehensive income in accordance with U.S. GAAP. In June 2016, we alsoestablished an employee shareholding platform to allow our employees in the PRC to receive share incentives. We account for shared-basedcompensation for these share incentive awards using a fair value-based method and recognize expenses in our consolidated statements ofcomprehensive income in accordance with U.S. GAAP. We will incur additional share-based compensation expenses in the future as we continue togrant share incentives using the ordinary shares reserved for this platform. See “Item 6. Directors, Senior Management and Employees—B.Compensation of Directors and Executive Officers—2016 Share Incentive Plan” and “Item 6. Directors, Senior Management and Employees—B.Compensation of Directors and Executive Officers—Employee Shareholding Platform.” We believe the granting of share-based compensation is ofsignificant importance to our ability to attract and retain key personnel and employees, and we will continue to grant share-based compensation toemployees in the future. As a result, our expenses associated with share-based compensation may increase, which may have an adverse effect onour results of operations.If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendationsregarding our Class A ordinary shares and/or ADSs, the market price for our Class A ordinary shares and/or ADSs and trading volume coulddecline.The trading market for our Class A ordinary shares and/or ADSs will be influenced by research or reports that industry or securitiesanalysts publish about our business. If one or more analysts who cover us downgrade our Class A ordinary shares and/or ADSs, the market pricefor our Class A ordinary shares and/or ADSs would likely decline. If one or more of these analysts cease to cover us or fail to regularly publishreports on us, we could lose visibility in the financial markets, which in turn could cause the market price of or trading volume for our Class Aordinary shares and/or ADSs to decline.The sale or availability for sale of substantial amounts of our listed securities could adversely affect their respective market price.Sales of substantial amounts of our Class A ordinary shares and/or ADSs in the public market, or the perception that these sales couldoccur, could adversely affect the market price of such securities and could materially impair our ability to raise capital through equity offerings inthe future. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or theavailability of these securities for future sale will have on the market price of our Class A ordinary shares and/or ADSs.Conversion of our convertible senior notes may dilute the ownership interest of the existing shareholders.The conversion of some or all of 2027 Notes will dilute the ownership interests of existing shareholders and existing ADS holders. Anysales in the public market of the ADSs and/or Class A ordinary shares issuable upon such conversion may increase the opportunities to create shortpositions with respect to the ADSs, which could adversely affect prevailing trading prices of our Class A ordinary shares and/or the ADSs. Inaddition, the existence of the 2027 Notes may encourage short selling by market participants because the conversion of the 2027 Notes coulddepress the price of our Class A ordinary shares and/or the ADSs. The prices of our Class A ordinary shares and/or the ADSs could be affected bypossible sales of our Class A ordinary shares and/or the ADSs by investors who view the convertible senior notes as a more attractive means ofequity participation in us and by hedging or arbitrage trading activity, which we expect to occur involving our Class A ordinary shares and/or theADSs.In connection with the offering of the 2027 Notes, we have entered into capped call transactions with certain counterparties in order toreduce the potential dilution with respect to our ADSs upon such conversion and/or offset any cash payments that we will be then required to makein excess of the principal amount of the converted notes. Such strategy with respect to the capped call transactions is subject to the risks describedunder “If we cannot obtain sufficient cash when we need it, we may not be able to meet our payment obligations under our notes.” Furthermore, ifthe market price per ADS, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions, therewould nevertheless be dilution upon conversion of the notes to the extent that such market price exceeds the cap price of the capped calltransactions (subject to our ability to elect, subject to certain conditions, to settle the capped call transactions in cash, in which case we would notreceive any ADSs from the option counterparties upon settlement of the capped call transactions).Table of Contents61Provisions of our convertible senior notes could discourage an acquisition of us by a third-party.Certain provisions of the 2027 Notes could make it more difficult or more expensive for a third-party to acquire us, or may even prevent athird-party from acquiring us. For example, upon the occurrence of certain transactions constituting a fundamental change, holders of the 2027Notes will have the right, at their option, to require us to repurchase all of their notes or any portion of the principal amount of such notes. In theevent of a fundamental change, we may also be required to increase the conversion rate for conversions in connection with such fundamentalchanges. By discouraging an acquisition of us by a third-party, these provisions could have the effect of depriving our shareholders of anopportunity to sell their securities at a premium over prevailing market prices.Negative publicity may harm our brand and reputation and have a material adverse effect on our business.Negative publicity about us, including our services, management, business model and practices, compliance with applicable rules,regulations and policies, or our network partners may materially and adversely harm our brand and reputation and have a material adverse effect onour business. We cannot assure you that we will be able to defuse any such negative publicity within a reasonable period of time, or at all.Additionally, allegations, directly or indirectly against us, may be posted on the internet by anyone on a named or anonymous basis, and can bequickly and widely disseminated. Information posted may be inaccurate, misleading and adverse to us, and it may harm our reputation, business orprospects. The harm may be immediate without affording us an opportunity for redress or correction. Our reputation may be negatively affected asa result of the public dissemination of negative and potentially inaccurate or misleading information about our business and operations, which inturn may materially adversely affect our relationships with our customers, employees or business partners, and adversely affect the price of ourClass A ordinary shares and/or ADSs.Because the amount, timing, and whether or not we distribute dividends at all is entirely at the discretion of our board of directors, investorsmay need to mainly rely on price appreciation of our Class A ordinary shares and/or ADSs for return on their investments.On March 19, 2024, our board of directors approved a cash dividend of US$0.62 per ADS and ordinary share for the fiscal year 2023 toholders of ADSs and ordinary shares of record as of the close of business on April 10, 2024.On March 19, 2024, our board of directors approved a semi-annual cash dividend policy, under which, starting from 2024, we will declareand distribute a recurring cash dividend semi-annually, in which the aggregate amount of the semi-annual dividend distributions for each year isequivalent to no less than 40% of our distributable profit in such fiscal year, or as otherwise authorized by our board of directors. Based on ourcurrent policy, the amounts of dividends will vary based on the existence and amount of net profits that we can generate. In addition, the amount,timing, and whether or not we actually distribute dividends at all remains entirely at the discretion of our board of directors. Our board of directorshas discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. Our board of directors may revise ourdividend policy or it may choose to cancel our dividend policy entirely. In addition, our shareholders may by ordinary resolution declare adividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, a Cayman Islands company may paya dividend out of either profit or share premium account provided that in no circumstances may a dividend be paid if this would result in thecompany 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 paydividends, the timing, amount and form of future dividends, if any, will depend on our future results of operations and cash flow, our capitalrequirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictionsand other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our Class A ordinary shares or ADSswill likely depend entirely upon any future price appreciation of our Class A ordinary shares or ADSs. There is no guarantee that our ADSs willappreciate in value or even maintain the price at which you purchased our Class A ordinary shares or ADSs. You may not realize a return on yourinvestment in our Class A ordinary shares or ADSs, and you may even lose your entire investment in our Class A ordinary shares or ADSs.Table of Contents62Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holdersof our Class A ordinary shares and ADSs.Our memorandum and articles of association contain provisions that have the potential to limit the ability of others to acquire control ofour company or cause us to engage in change-of-control transactions. For example, such provisions include a dual-class share structure that givesgreater voting power to the Class B ordinary shares beneficially owned by our founder. These provisions could have the effect of depriving ourshareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtaincontrol of our company in a tender offer or similar transaction. Subject to our memorandum and articles of association and in compliance with theHong Kong Listing Rules and the Codes on Takeovers and Mergers and Share Buy-backs, our board of directors has the authority, without furtheraction by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relativeparticipating, 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, in the formof ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company ormake removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our Class A ordinary sharesand/or ADSs may fall and the voting and other rights of the holders of our ordinary shares and/or ADSs may be materially and adversely affected.You may face difficulties in protecting your interests, and your ability to protect your rights through Hong Kong or 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 memorandumand articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights ofshareholders to take actions against the directors, actions by minority shareholders and the fiduciary duties of our directors to us under CaymanIslands 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 partfrom comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courtsare of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of ourdirectors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in theUnited States or in Hong Kong. In particular, the Cayman Islands has a less developed body of securities laws than the United States or HongKong. For example, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than theCayman Islands. In addition, with respect to Cayman Islands companies, plaintiffs may face special obstacles, including but not limited to thoserelating to jurisdiction and standing, in attempting to assert derivative claims in state or federal courts of the United States.Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law to inspect corporaterecords (other than copies of our memorandum and articles of association, our register of mortgages and charges and any special resolution passedby our shareholders) or to obtain copies of lists of shareholders of these companies. Our directors have discretion under our memorandum andarticles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but arenot obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish anyfacts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements forcompanies incorporated in other jurisdictions such as the United States and Hong Kong. We have elected to follow home country practice in lieu ofthe corporate governance requirements of the New York Stock Exchange with respect to the adoption of our 2024 Share Incentive Plan without theapproval of our shareholders. In this respect, and in other respects if we choose to follow home country practice with respect to corporategovernance matters, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S.domestic issuers.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 byour management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporatedin the United States or Hong Kong.Table of Contents63Certain judgments obtained against us by our shareholders may not be enforceable.We are a Cayman Islands exempted company. We conduct our operations in China and substantially all of our assets are located in China.In addition, many of our directors and senior management named in this annual report reside outside the United States or Hong Kong, and most ofthe assets of these persons are located outside the United States or Hong Kong. As a result, it may be difficult or impossible for shareholders tobring an action against us or against these individuals in the United States or Hong Kong in the event that shareholders believe that their rights havebeen infringed under the U.S. federal securities laws, Hong Kong securities laws or otherwise. Even if shareholders are successful in bringing anaction of this kind, the laws of the Cayman Islands and of China may render them unable to enforce a judgment against our assets or the assets ofour directors and officers.Holders of our ADSs may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.Holders of ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlyingClass A ordinary shares represented by the ADSs in accordance with the provisions of the deposit agreement. Holders of ADSs may not call ashareholders’ meeting, and do not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. Underour memorandum and articles of association, an annual general meeting shall be called by not less than 21 days’ notice in writing and any othergeneral meeting (including an extraordinary general meeting) shall be called by not less than 14 days’ notice in writing. Under the depositagreement, ADS holders must vote by giving voting instructions to the depositary. If we ask for ADS holders’ instructions, then upon receipt ofsuch voting instructions, the depositary will try to vote the underlying Class A ordinary shares in accordance with these instructions. If we do notinstruct the depositary to ask for ADS holders’ instructions, the depositary may still vote in accordance with instructions given by ADS holders, butit is not required to do so. ADS holders will not be able to directly exercise their rights to vote with respect to the underlying Class A ordinaryshares represented by the ADSs unless they withdraw the Class A ordinary shares and become the registered holders of such Class A ordinaryshares prior to the record date for the general meeting.When a shareholders’ meeting is convened, holders of ADSs may not receive sufficient notice of a shareholders’ meeting to permitwithdrawal of the underlying Class A ordinary shares represented by their ADSs to allow them to cast their votes with respect to any specificmatter. If we ask for ADS holders’ instructions, the depositary will notify ADS holders of the upcoming vote and will arrange to deliver our votingmaterials to the ADS holders. We have agreed to give the depositary at least 30 days’ prior notice of our shareholder meetings. Nevertheless, thedepositary and its agents may not be able to send voting instructions to holders of ADSs or carry out their voting instructions in a timely manner.We will make all reasonable efforts to cause the depositary to extend voting rights to holders of ADSs in a timely manner, but we cannot assure thatholders of ADSs will receive the voting materials in time to ensure that they can instruct the depositary to vote their ADSs. Furthermore, thedepositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or forthe effect of any such vote. As a result, holders of ADSs may not be able to exercise their rights to vote and may have no legal remedy if theunderlying Class A ordinary shares represented by their ADSs are not voted as they requested.Holders of our ADSs may be subject to limitations on transfer of their ADSs.Our ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to timewhen it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number ofreasons, including in connection with corporate events such as an offering of rights, during which time the depositary needs to maintain an exactnumber of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and publicholidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of thedepositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any governmentor governmental body, or under any provision of the deposit agreement, or for any other reason.Table of Contents64We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisionsapplicable to United States domestic public companies.Because we are a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules andregulations in the United States that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing ofquarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation ofproxies, consents, or authorizations in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiringinsiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short periodof time; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD.We are required to file with the SEC an annual report on Form 20-F within four months of the end of each fiscal year. In addition, weintend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of the New York StockExchange. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the informationthat 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 byU.S. domestic issuers. As a result, investors may not be afforded the same protections or information, which would be made available to investors,were they investing in a U.S. domestic issuer.As a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. However, NYSErules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governancepractices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. Wehave elected to follow home country practice in lieu of the corporate governance requirements of the New York Stock Exchange with respect to theadoption of our 2024 Share Incentive Plan without the approval of our shareholders. In this respect, and in other respects if we choose to followhome country practice in the future, our shareholders may be afforded less protection than they otherwise would under the NYSE corporategovernance listing standards applicable to U.S. domestic issuers.We incur increased costs as a result of our listing on the Hong Kong Stock Exchange.As a public company listed on the Hong Kong Stock Exchange, we are subject to laws, rules and regulations in Hong Kong that areapplicable to us. As a dual-listed company in Hong Kong and the United States, we have to comply with laws and regulations on both markets.However, Hong Kong and the United States have different regulatory regime governing matters related to listed companies and in certain caseshave fairly different requirements on certain matters. We have been and will continue to incur additional costs and expenses in complying with thecomplex regulatory systems on both markets, in particular, after the conversion to dual-primary listing on the Hong Kong Stock Exchange effectiveas of May 1, 2023. Failure to comply with any regulatory requirements could result in material adverse impact on the trading of our Class Aordinary shares or the ADSs and reputation and subject us to administrative penalties.There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for anytaxable year, which could result in adverse U.S. federal income tax consequences to U.S. Holders of our ADSs or Class A ordinary shares.We will be considered a passive foreign investment company, or PFIC, for any taxable year if either (i) 75% or more of our gross incomefor such year consists of certain types of “passive” income (the “income test”); or (ii) 50% or more of the value of our assets (generally determinedon the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income (the“asset test”).Although the law in this regard is unclear, we treat our consolidated VIE and its subsidiaries as being owned by us for United Statesfederal income tax purposes because we control their management decisions and we are entitled to substantially all of the economic benefits, and,as a result, we consolidate their results of operations in our U.S. GAAP financial statements and treat them as being owned by us for United Statesfederal income tax purposes. If it were determined, however, that we are not the owner of our consolidated VIE and its subsidiaries for U.S. federalincome tax purposes, we may be treated as a PFIC for the current taxable year and in future taxable years.Table of Contents65Assuming that we are the owner of the VIE for U.S. federal income tax purposes, and based upon our income and assets, and the marketprice of our ADSs, we do not believe we were a PFIC for the taxable year ended December 31, 2023 and we do not anticipate being or becoming aPFIC in the current taxable year or in the foreseeable future. While we do not anticipate being or becoming a PFIC in the current or foreseeabletaxable years, no assurance can be given in this regard because the determination of whether we will be or become a PFIC is a factualdetermination made annually that will depend, in part, upon the composition of our income and assets. Fluctuations in the market price of our ClassA ordinary shares and/or ADSs may cause us to be or become a PFIC for the current or future taxable years because the value of our assets forpurposes of the asset test, including the value of our goodwill and other unbooked intangibles, may be determined by reference to the market priceof our Class A ordinary shares and/or ADSs from time to time (which may be volatile). If our market capitalization subsequently declines, we maybe or become classified as a PFIC for the current taxable year or future taxable years.If we are a PFIC in any taxable year, a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—United States FederalIncome Tax Considerations”) may incur significantly increased United States federal income tax on gain recognized on the sale or other dispositionof the ADSs or Class A ordinary shares and on the receipt of distributions on the ADSs or Class A ordinary shares to the extent such distribution istreated as an “excess distribution” under the United States federal income tax rules, and such U.S. Holder may be subject to burdensome reportingrequirements. Further, if we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we will generallycontinue to be treated as a PFIC for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares. For moreinformation, see “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations”.The different characteristics of the capital markets in Hong Kong and the U.S. may negatively affect the trading prices of our Class A ordinaryshares and/or ADSs.As dual-listed company, we are subject to Hong Kong and NYSE listing and regulatory requirements concurrently. The Hong Kong StockExchange and NYSE have different trading hours, trading characteristics (including trading volume and liquidity), trading and listing rules, andinvestor bases (including different levels of retail and institutional participation). As a result of these differences, the trading prices of our Class Aordinary shares and our ADSs may not be the same, even allowing for currency differences. Fluctuations in the price of our ADSs due tocircumstances peculiar to the U.S. capital markets could materially and adversely affect the price of our Class A ordinary shares, or vice versa.Certain events having significant negative impact specifically on the U.S. capital markets may result in a decline in the trading price of our Class Aordinary shares notwithstanding that such event may not impact the trading prices of securities listed in Hong Kong generally or to the same extent,or vice versa.Exchange between our Class A ordinary shares and our ADSs may adversely affect the liquidity and/or trading price of each other.Our ADSs are currently traded on the NYSE. Subject to compliance with U.S. securities law and the terms of the deposit agreement,holders of our Class A ordinary shares may deposit Class A ordinary shares with the depositary in exchange for the issuance of our ADSs. Anyholder of ADSs may also withdraw the underlying Class A ordinary shares represented by the ADSs pursuant to the terms of the deposit agreementfor trading on the Hong Kong Stock Exchange. In the event that a substantial number of Class A ordinary shares are deposited with the depositaryin exchange for ADSs or vice versa, the liquidity and trading price of our Class A ordinary shares on the Hong Kong Stock Exchange and ourADSs on the NYSE may be adversely affected.The time required for the exchange between Class A ordinary shares and ADSs might be longer than expected and investors might not be ableto settle or effect any sale of their securities during this period, and the exchange of Class A ordinary shares into ADSs involves costs.There is no direct trading or settlement between the NYSE and the Hong Kong Stock Exchange on which our ADSs and our Class Aordinary shares are respectively traded. In addition, the time differences between Hong Kong and New York, unforeseen market circumstances orother factors may delay the deposit of Class A ordinary shares in exchange of ADSs or the withdrawal of Class A ordinary shares underlying theADSs. Investors will be prevented from settling or effecting the sale of their securities during such periods of delay. In addition, there is noassurance that any exchange of Class A ordinary shares into ADSs (and vice versa) will be completed in accordance with the timelines thatinvestors may anticipate.Table of Contents66Furthermore, the depositary for the ADSs is entitled to charge holders fees for various services including for the issuance of ADSs upondeposit of Class A ordinary shares, cancelation of ADSs, distributions of cash dividends or other cash distributions, distributions of ADSs pursuantto share dividends or other free share distributions, distributions of securities other than ADSs and annual service fees. As a result, shareholderswho exchange Class A ordinary shares into ADSs, and vice versa, may not achieve the level of economic return the shareholders may anticipate.An active trading market for our Class A ordinary shares on the Hong Kong Stock Exchange might not be sustained and trading prices of ourClass A ordinary shares might fluctuate significantly.We cannot assure you that an active trading market for our ordinary shares on the Hong Kong Stock Exchange will be sustained. Thetrading price or liquidity for our ADSs on the NYSE might not be indicative of those of our Class A ordinary shares on the Hong Kong StockExchange.In 2014 and 2016, the Hong Kong Stock Exchange collaborated with Shanghai Stock Exchange and Shenzhen Stock Exchange separatelyto create an inter-exchange trading mechanism called Stock Connect that allows international and mainland Chinese investors to trade eligibleequity securities listed in each other’s markets through the trading and clearing facilities of their home exchange. Stock Connect allows mainlandChinese investors to trade directly in eligible equity securities listed on the Hong Kong Stock Exchange, known as Southbound Trading; withoutStock Connect, mainland Chinese investors would not otherwise have a direct and established means of engaging in Southbound Trading. We havebeen included in the Stock Connect since March 4, 2024, which allows eligible mainland Chinese investors to trade directly our Class A ordinaryshares listed on the Hong Kong Stock Exchange and increases the liquidity of our Class A ordinary shares on the Hong Kong Stock Exchange. Ifan active trading market of our Class A ordinary shares on the Hong Kong Stock Exchange is not sustained, the market price and liquidity of ourClass A ordinary shares could be materially and adversely affected.There is uncertainty as to whether Hong Kong stamp duty will apply to the trading or conversion of our ADSs.In connection with our initial public offering of Class A ordinary shares in Hong Kong, we have established a branch register of membersin Hong Kong, which we refer to as the Hong Kong share register. Our Class A ordinary shares that are traded on the Hong Kong Stock Exchange,including those issued in our initial public offering of Class A ordinary shares in Hong Kong and those that may be converted from ADSs, areregistered on the Hong Kong share register, and the trading of these Class A ordinary shares on the Hong Kong Stock Exchange will be subject tothe Hong Kong stamp duty. To facilitate ADS-ordinary share conversion and trading between NYSE and the Hong Kong Stock Exchange, we alsomoved a portion of our issued Class A ordinary shares from our register of members maintained in the Cayman Islands to our Hong Kong shareregister.Under the Hong Kong Stamp Duty Ordinance, any person who effects any sale or purchase of Hong Kong stock, defined as stock thetransfer of which is required to be registered in Hong Kong, is required to pay Hong Kong stamp duty. The ad valorem stamp duty is currently setat a total rate of 0.2% of the greater of the consideration for, or the value of, shares transferred, with 0.1% payable by each of the buyer and theseller.To the best of our knowledge, Hong Kong stamp duty has not been levied in practice on the trading or conversion of ADSs of companiesthat are listed in both the United States and Hong Kong and that have maintained all or a portion of their ordinary shares, including ordinary sharesunderlying ADSs, in their Hong Kong share registers. However, it is unclear whether, as a matter of Hong Kong law, the trading or conversion ofADSs of these dual-listed companies constitutes a sale or purchase of the underlying Hong Kong-registered ordinary shares that is subject to HongKong stamp duty. We advise investors to consult their own tax advisors on this matter. If Hong Kong stamp duty is determined by the competentauthority to apply to the trading or conversion of our ADSs, the trading price and the value of your investment in our Class A ordinary sharesand/or ADSs may be affected.ITEM 4. INFORMATION ON THE COMPANYA. History and Development of the CompanyWe commenced our express delivery service business through Shanghai Zhongtongji Express Service Co., Ltd. in Shanghai, China inJanuary 2009. This entity operated express delivery services in Shanghai, Anhui Province, Jiangsu Province and Zhejiang Province, and authorizedand cooperated with third-party business partners to operate ZTO-branded express delivery services elsewhere in China.Table of Contents67In January 2013, the shareholders who owned Shanghai Zhongtongji Express Service Co., Ltd., together with 15 network partners locatedin the cities and provinces mentioned above, established ZTO Express as a holding company.In January 2014, ZTO Express acquired businesses and assets of Shanghai Zhongtongji Express Service Co., Ltd. and eight networkpartners that were wholly owned by some of the shareholders who formed ZTO Express.In October 2015, ZTO Express and its wholly owned subsidiaries acquired express delivery businesses from 16 network partners and theirrespective shareholders in exchange for equity interests in ZTO and cash.In April 2015, ZTO was incorporated under the laws of the Cayman Islands as our offshore holding company to facilitate financing andoffshore listing. Upon its incorporation, ZTO issued 600,000,000 ordinary shares to the British Virgin Islands holding vehicles of the thenshareholders of ZTO Express, in proportion to these shareholders’ then respective share percentage in ZTO Express. ZTO established ZTO ExpressLimited in British Virgin Islands as its wholly-owned subsidiary in April 2015. ZTO Express Limited subsequently established ZTO Express (HongKong) Limited as its wholly owned subsidiary in May 2015.In July 2015, ZTO Express (Hong Kong) Limited established a wholly owned PRC subsidiary, Shanghai Zhongtongji Network. Due to thePRC legal restrictions on foreign ownership in companies that provide mail delivery services in China, we carry out our express delivery businessthrough ZTO Express, a domestic PRC company, equity interests in which are held by PRC citizens and companies established in Shanghai China.Zhongtongji Network entered into a series of contractual arrangements, including an exclusive call option agreement, an equity pledgeagreement, a voting rights proxy agreement, as described in more detail below, irrevocable powers of attorney and an exclusive consulting andservices agreement and its supplemental agreement, with ZTO Express and its shareholders, and obtained spousal consent letters by the spouses ofsix key shareholders of ZTO Express. These shareholders are Messrs. Meisong Lai, Jianfa Lai, Jilei Wang, Xiangliang Hu, Shunchang Zhang andXuebing Shang, collectively holding 73.8% of the equity interests in ZTO Express.As a result of these contractual arrangements, we are able to direct the activities of, and are the primary beneficiary of, ZTO Express. ZTOExpress is therefore the consolidated affiliated entity, or the VIE, which generally refers to an entity in which we do not have any equity interestsbut whose financial results are consolidated into our consolidated financial statements in accordance with U.S. GAAP because we have effectivefinancial control over, and are the primary beneficiary of, that entity. We treat ZTO Express and its subsidiaries as the consolidated affiliatedentities under U.S. GAAP and have consolidated their financial results in our consolidated financial statements in accordance with U.S. GAAP.However, those contractual arrangements may not be as effective in providing us with the ability to direct the operational activities as directownership.On October 27, 2016, our ADSs commenced trading on the NYSE under the symbol “ZTO.” We raised from our initial public offeringapproximately $1.4 billion in net proceeds after deducting underwriting commissions and the offering expenses payable by us.In May 2018, Alibaba and Cainiao Network entered into a strategic transaction with us. Pursuant to the transaction terms, investors led byAlibaba and Cainiao Network invested US$1.38 billion in our company in exchange for approximately 10% of our equity interest at that time andobtained certain shareholder rights in our company. The transaction was completed in June 2018.In June 2018, we made a strategic investment of approximately US$168 million to acquire an approximately 15% equity stake in CainiaoPost, Cainiao Network’s network of last-mile delivery stations. Our strategic investment in Cainiao Post was done in conjunction with four otherleading express delivery companies in China, including YTO Express, STO Express, Yunda Express, and Best Inc., in the aggregate amount ofapproximately US$495 million.On September 29, 2020, our Class A ordinary shares commenced trading on the Main Board of the Hong Kong Stock Exchange under thestock code “2057.” We raised approximately HK$11.1 billion (US$1.4 billion) from the public offering of Class A ordinary shares in connectionwith our secondary listing in Hong Kong, after deducting underwriting commissions and the offering expenses payable by us.On May 1, 2023, our voluntary conversion of our secondary listing status to primary listing on the Hong Kong Stock Exchange becameeffective, and ZTO became a dual-primary listed company on the Main Board of the Hong Kong Stock Exchange and the NYSE.Table of Contents68Our principal executive offices are located at Building One, No.1685 Huazhi Road, Qingpu District, Shanghai, 201708, People’s Republicof China. Our telephone number at this address is +86 21 5980-4508. Our registered office in the Cayman Islands is located at the offices of MaplesCorporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. SEC maintains an internet site that containsreports, proxy and information statements, and other information regarding issuers that file electronically with the SEC on www.sec.gov. You canalso find information on our website http://ir.zto.com. The information contained on our website is not a part of this annual report.B. Business OverviewWe are a leading express delivery company in China. Through our network and together with our network partners, we provide domesticand international express delivery services supplemented by other value-added services.We have developed an extensive and reliable delivery network in China. As of December 31, 2023, our network infrastructure consists of99 sorting hubs with 464 automation lines, over 3,900 line-haul routes serviced by over 10,000 line-haul vehicles that we own and operate, andapproximate 6,000 direct network partners operating over 31,000 pickup/delivery outlets and over 110,000 last-mile posts. Our network coversover 99% of cities and counties in China.Service Offerings by Us and Our Network PartnersWe mainly provide express deliveries in China of parcels weighing under 50 kilograms with expected delivery time ranging from 24 to 72hours. Our delivery time has improved over time.The following chart sets out the services provided by us and our network partners.Key Category Service OfferingsDomestic ExpressExpress Delivery● Intra-city Delivery● Inter-city DeliveryEnterprise CustomerServices● Customized one-stop express delivery solution for keyaccountsAncillary Services(1)● Cash-on-Delivery Service● Alternative Address Pick-up & Delivery● Proof-of-delivery Collection● Parcel Interception Service● Reverse Logistics● OthersRegional● Hong Kong/Taiwan Door-to-Door Express ServiceInternational ExpressCross-border● International express services to key overseas markets incooperation with business partners(1)Alternative Address Pick-up & Delivery service enables the sender to change the pick-up and destination address. Proof-of-delivery Collectionservice is a kind of service where we collect the receipt signed by the recipient upon successfully delivering a parcel and send it to the sender.Parcel Interception Service allows senders to intercept and redirect a parcel before it is scheduled for delivery or delivered to its destination.As to Reverse Logistics service, the senders, such as the merchants on e-commerce platforms, may entrust us to pick up goods from thedesignated addresses, such as consumer’s home and retail stores, and deliver the goods to the designated addresses, such as factories andwarehouses.Table of Contents69Express delivery service processThe following diagram illustrates the process for the completion of a typical domestic delivery order in our network.The full delivery fees collected by pickup outlets upfront from the senders typically comprise (i) the pickup service fees, (ii) the networktransit fees payable to our company; and (iii) the last-mile delivery fees payable to network partners who operate the delivery outlets, andindividual couriers. After collection, pickup outlets would keep the pickup service fees, and pay the network transit fees and the last-mile deliveryfees to our company. We would then pass the last-mile delivery fees on to the applicable network partners who in turn would settle with individualcouriers accordingly. Since the third quarter of 2020, we have started to credit a portion of the last-mile delivery fees directly into thecorresponding individual couriers’ electronic accounts maintained in our settlement system. The specific proportion is determined by the networkpartners, subject to the dollar amount per delivery set by us.Step 1: Parcel Pickup. A pickup outlet operated by our network partner arranges for a courier to collect the parcel from the sender (suchas a merchant on an e-commerce platform or an enterprise customer) once the pickup outlet has received a delivery order. Unless the senderchooses pay-at-arrival service, the pickup outlet collects the full delivery service fee upfront from the sender at the time of pickup. All collectedparcels are then forwarded to our regional sorting hub once or twice per day depending on parcel volume. Typically, parcels that are picked upbefore 6 p.m. will be shipped to our sorting hub on the same day. Each parcel is assigned a waybill with a unique tracking number and barcodewhich, together with our automated systems, allows us to track the status of each individual parcel throughout the entire pickup, sorting anddelivery process.Step 2: Parcel Sorting and Line-Haul Transportation. Upon the receipt of parcels shipped from various pickup outlets from locations inits coverage area, the sorting hub sorts, further packs and dispatches parcels to the destination sorting hub. We provide line-haul transportationservices between sorting hubs. Barcodes on each waybill attached to the parcels are scanned as they go through each sorting and transportationgateway, allowing us to keep track of the delivery service status of each parcel.Table of Contents70Step 3: Parcel Delivery. Our destination sorting hub unloads and sorts the parcels, which are then delivered to the recipients by thedelivery outlets operated by our network partners. Once the recipient signs the waybill to confirm receipt, a full-service cycle is completed, andsettlement of the delivery service fee promptly ensues in our network payment settlement system.Express delivery service pricingThe network transit fees that we charge our network partners for the express delivery services we provide to them primarily consist of (i) afixed amount for a waybill attached to each parcel and (ii) a variable amount per parcel for sorting and line-haul transportation based on parcelweight and route distance. We evaluate our pricing and make adjustments from time to time based on our operating costs, market conditions andcompetition as well as our service quality. For our direct network partners at the provincial level, we provide fee discounts to those whosignificantly outperform the performance targets that we set.Our service pricing is also affected by the pricing adopted by our network partners, who have full discretion over the pricing of theirservices; their pricing is reflected in the amount of full delivery service fees they collect upfront from senders. Our network partners determine theirpricing mainly based on their total costs, which primarily consist of the network transit fees we charge, the last-mile delivery fees payable to thedelivery network partners, and the outlet operating costs. We provide guidelines to set the last-mile delivery fees together with network partnersoperating delivery outlets, where the guidelines are based on a variety of factors including the economic environment, market conditions andbusiness conditions of the outlets. We are able to monitor the “fee sharing” mechanism between pickup and delivery outlets as the guidelines areimplemented and the fees are payable through our system. Our network partners also consider other factors including market conditions andcompetition as well as their service quality. We do not set any explicit limitations on pricing and allow pricing latitude to our network partners sothat they can effectively respond to the competitive dynamics in their local markets with tailor-made pricing based on the business volume andlong-term prospect of each sender. Historically, the delivery service fees our network partners are able to charge have declined over time, partiallyas a result of competitive pressure.Other logistics servicesBuilding on our core express delivery business, we are striving to become an integrated logistics service provider. We are expanding ourservice offerings with a goal to build an ecosystem featuring express delivery, less-than-truckload logistics, cross-border business, warehousing,aviation, commerce and more. For example, we provide less-than-truckload (LTL) logistics services with a focus on heavy cargo and internationalexpress delivery services in Southeast Asia, Africa and other regions. We also provide customers with integrated logistics solutions forwarehousing, distribution and transportation. Furthermore, we provide freight forwarding services through the acquired business of China OrientalExpress Co., Ltd. and its subsidiaries, which is a major freight forwarding and international logistics services provider in Hong Kong andShenzhen. Furthermore, we are also expanding into the air cargo business.Our Network and InfrastructureOur network consists of (i) our directly operated core sorting hubs and line-haul transportation network and (ii) network partner-operatedoutlets, as well as last-mile posts, across China.Sorting hubsOur sorting hubs are connected by the line-haul transportation network we operate. Each sorting hub collects parcels from outlets withinits coverage area, sorts parcels according to their destination and dispatches them to the appropriate destination sorting hub. As of December 31,2023, we operated 91 sorting hubs and our business partners operated 8 sorting hubs.The sorting hubs operated by our business partners are located in remote areas in China and we work closely with independent third-partyowners to effectively operate those hubs. In addition to the sorting hubs, our network partners also operate sorting facilities in certain remote areasin China.Of the 91 sorting hubs we operate, 69 are located on premises we own, for 35 of which we also lease additional areas, and 22 are locatedon leased premises. We plan to make long-term investments in land and facilities on premises we own to support the stability of our operations.From time to time, we also provide temporary warehousing services to certain key account customers to store their products close to their targetdemographics.Table of Contents71We have continually adopted new technology solutions in automation hardware and software to enhance the efficiency of our operations.For example, we adopted telescopic conveyor belts for loading and unloading trucks in 2015, as well as fully integrated dynamic-weighingmachines capable of measuring the dimensions and weight of parcels simultaneously at a high speed without having to stop the flow of packages.In addition, we work with technology companies and academic institutions to customize and upgrade existing design concepts. For example, wehave successfully collaborated with the Chinese Academy of Sciences in the Academy’s development of several variations of automated sortingequipment since 2015. We have also developed and continually re-engineered sophisticated software (including data-enabled algorithm, real-timeanalytics and recalibration) to support high-speed sorting in order to ensure fast and reliable package data capturing and dispatch, and to reducesorting errors and costs of re-work. In particular, we utilize an image-based learning algorithm in our safety inspection of packages to recognizeprohibited or illegal items during our inspection process and to reduce human error. The number and capacity of our automated sorting linesincreased substantially from 8 in 2016 (all of which were for small parcels) to 464 in 2023 (203 of which were for large parcels and the remaining261 for small parcels).Line-haul transportation networkWe connect our sorting hubs with approximately 3,900 line-haul routes. Our line-haul transportation network is serviced primarily by (i)our own fleet, and (ii) certain independent third-party vehicles. We control the route planning and vehicle dispatch of our entire line-haultransportation network.As of December 31, 2023, our own fleet consisted of over 10,000 trucks, of which approximately 9,200 are high capacity 15 to 17-meter-long trailer models. We also contract other independent third-party transportation companies to fulfil additional capacity needs, most of which aresingle trip transportation when we foresee a low return trip truckload. We carefully review the operating history, fleet condition, reliability andother criteria of the bidders to select only suitable providers.In order to further improve our operating efficiencies as volume increases, we have systematically increased the proportion of highcapacity 15- to 17-meter-long trailer models within our fleet from 39% in 2016 to 92% in 2023 to optimize unit output and reduce cost. Moreover,we have established a systematic data- and technology-driven program to improve trailer designs to reduce costs as well as enable digital trackingfor real-time analytics of our vehicles. Further, we also helped develop improved vehicle parts and patented trailer designs. For example, ourpatented design of curved aluminum trailer is not only lighter but also more aerodynamic compared with traditional square-shaped steel containers.The higher capacity of these trailers (145m3 rather than 127m3) and their lighter weight (6,700kg/ea rather than 9,000kg/ea) contributes to theincreased fuel economy of our trailers and further contributes to a reduction in transportation cost. This allows us to better manage our movingassets by assessing real-time operating conditions such as vehicle speed and estimated fuel consumption and estimating normal wear and tear inorder to schedule proper maintenance intervals.We assess incoming volume (including maximum stress level) and simulated route planning (including road conditions) to inform ourchoice between deploying our own line-haul resources or supplementing capacity with third-party transportation services. We combine theprogramming interface of third-party map applications with our big data of parcel traffic and volume to feed our intelligent service routingalgorithm to model the rate and direction of parcel flow, dynamically predict future capacity demands, and make adjustments in allocation ofpersonnel and transport resources. Hence, we are able to reduce inefficiency in parcel handling, increase fleet load rates and achieve optimaltransportation time and costs.Pickup and delivery outlets and last-mile postsThe pickup and delivery outlets are all operated by our network partners and are not owned by us. Our network partners primarily providepickup and last-mile delivery services through the outlets managed by them, although certain larger outlets also have regional sorting anddispatching capabilities. Each outlet has its own designated geographical scope of operation and can generally only take orders originating withinthat area. Our network partners also generally arrange the transportation between pickup/delivery outlets and our sorting hubs. As of December 31,2023, our network had over 31,000 pickup and delivery outlets nationwide, covering over 99% of China’s cities and counties.Table of Contents72We have encouraged our network partners to invest early and secure physical presence with last-mile capabilities and consumer access byestablishing last-mile posts. We currently have over 110,000 last mile posts across China. A last mile post is on average a 35-60 square meter spacelocated near residential areas or office buildings or on university campuses where the couriers can leave delivery packages for recipients to pick upinstead of delivering in person. A last mile post can be multifunctional and serve different purposes including receiving outgoing packages,collecting fees from couriers who leave packages for pickup (including processing packages left by competitors’ couriers) and realizing retailprofit, thereby achieving greater overall labor and facility costs efficiencies.Our Network Partner ModelOur network partners own and operate the pickup and delivery outlets under our brand and form an important part of our network system.The diagram below illustrates our network partner model.As of December 31, 2023, we had approximately 6,000 network partners with whom we have directly entered into agreements prescribingthe terms and conditions of their operations of pickup and delivery outlets under our brand. We refer to such network partners as our direct networkpartners. These agreements with direct network partners are generally for a term of three years and each direct network partner may elect tonegotiate with us for renewal of the agreement upon expiration if it wishes to remain in our network. Our network partners pay us network transitfees for the express delivery services we provide to them. The network transit fees that we charge our network partners for the express deliveryservices we provide to them primarily consist of (i) a fixed amount for a waybill attached to each parcel and (ii) a variable amount per parcel forsorting and line-haul transportation based on parcel weight and route distance. We have the right to impose monetary penalties on our directnetwork partners for failure to adhere to the terms of the agreements. A direct network partner is also required to place a deposit with us as aperformance guarantee. We have authorized our direct network partners to conduct their express delivery business exclusively under our“Zhongtong” or “ZTO” brand and mandate the unified application of our logos on outlets, personnel uniforms, transportation vehicles andpackaging materials.Table of Contents73Each of our direct network partners is authorized by us to operate within a designated area, the size of which ranges from a township to anentire province. Depending on the size of, and the business volume in, their respective authorized areas, many of our direct network partnerssubcontract a portion of their business to third parties with our consent. We do not directly enter into agreements with those third parties and referto them as our indirect network partners. Indirect network partners are also authorized to operate ZTO-branded express delivery business.Our Zhongtian system provides the technological infrastructure for the management of our network partners. The Zhongtian systemconsists of our operational management system, network management system, settlement system, finance system and other integrated systems andmobile apps connecting our network partners. In particular, our Zhongtian system tracks each delivery order and calculates the network transit feespayable to us, and the last-mile delivery fees payable to our direct network partners and, where applicable, our indirect network partners. Startingfrom May 2018, we use Alipay, in addition to bank cards, to handle the settlement of payments from our network partners to us and among ourdirect network partners. All of our direct network partners may use Alipay accounts or bank cards through our Zhongtian system to settle networktransit fees, waybill fees or last-mile delivery fees with us. We require direct network partners to make prepayments from their respectiveZhongtian accounts to our ZTO Alipay account or bank account through our Zhongtian system. Our direct network partners’ Zhongtian accountsreflect the prepayment balance, which will be debited upon each settlement of payment. The prepaid amount is used to settle network transit feesand waybill fees from our network partners to us and settle last-mile delivery fee from us to direct network partners.All of our direct network partners and most of our indirect network partners work with us exclusively. A small number of our indirectnetwork partners may process packages for other express delivery companies. This is typically limited to situations where an outlet is located in aremote or isolated area or newly established markets. Such exceptions to our exclusivity requirement are necessary in order to support the outlet’sstart-up volume.We control the qualification of new network partners and we provide extensive ongoing training to our network partners. We alsoperiodically review the performance of our network partners on parcel volume, local market share, service quality and parcel safety/security scores.We consider the conditions and forecast of the local market to set guidance for those indicators. We also set guidance and review the performanceof certain pickup and delivery outlets with large parcel volume. For our direct network partners at the provincial level, we provide fee discounts tothose who significantly outperform the performance targets that we set.If a direct network partner repeatedly fails to meet applicable performance targets set by us, we may unilaterally terminate our agreementwith such direct network partner, which has only occurred in isolated cases historically. In those cases, we would introduce qualified buyers vettedby us or, in the cases where the exiting direct network partner has already identified a buyer itself, we would review the buyer’s credentials anddecide whether to accept or reject it. In the case of voluntary departure by a direct network partner, it may choose to sell the outlet operatingbusiness to a buyer, where the foregoing review process would also apply. Moreover, under the agreement with us, the network partner mayprovide a three-month notice of termination and the agreement would be terminated upon mutual agreement between the parties. A network partnerwho discontinues cooperation with us may join a third-party express delivery network.Under the agreement with us, the network partner also has the right to unilaterally terminate the agreement within seven days from thedate of execution of the agreement with notice to us; provided that, if the network partner has started to use our network resources, has begun toprovide services to customers, or has exercised other major rights under the agreement, the network partner shall not terminate the agreementaccordingly. The network partner’s major rights under the agreement are entitlements to the following products or services provided by us: (1)electronic documents or software in relation to enterprise management system; (2) guidance on the use of express delivery networks, businessoperation model and employee training; (3) sufficient, continuous and quality-guaranteed material supply; (4) advertising support; and (5) networktransit service.We provide our network partners latitude in their pricing decisions. The network partners have full discretion over their daily operationsand can make localized decisions with respect to facilities, vehicles and recruitment to meet their operational needs.We also provide financial services to qualified network partners. We select qualified network partners based on certain criteria set by us,such as having legal and stable income or source of income and engaging in operation activities that are legal and meet the national industrialpolicies and requirements. To provide such financial services, we enter into agreements with qualified network partners under which the materialterms (e.g. loan amount, maturity date, guarantee or pledge and event of default (as applicable)) of such financial services are stipulated. We haveobtained the requisite business licenses and/or approvals under PRC laws and regulations in order to provide such financial services to qualifiednetwork partners.Table of Contents74We had a financing receivables balance of RMB2,524.4 million, RMB2,247.1 million and RMB2,100.2 million (US$295.8 million) as ofDecember 31, 2021, 2022 and 2023. No material default occurred as of December 31, 2023.Our CustomersThe following chart illustrates parcel and fund flows to and from our direct and end customers.Our direct customers are our direct network partners, who, along with our indirect partners, own and operate pickup and delivery outlets.We provide our direct network partners with access to our line-haul transportation and sorting network, which form the infrastructure of their andour indirect partners’ express delivery services. In addition, we also directly serve some enterprise customers, including vertical e-commerce andtraditional merchants, in connection with the delivery of their products to consumers.Together with our network partners, we mainly serve e-commerce merchants and other express service users as our end customers. Asignificant portion of our end customers are merchants on China’s e-commerce platforms. Our enterprise customers are typically larger, nationwidebrands with customized requirements for express delivery services. For certain enterprise customers, we provide direct pickup services withoutgoing through the pickup outlets of our network partners. We collect the full amount of delivery service fees from our enterprise customers and paya portion of these fees to the delivery outlets of our network partners for last-mile delivery services provided by them. Depending on theavailability and capacity of our personnel at the relevant locations, orders from some enterprise customers may also be picked up through ournetwork partners.Customer ServiceWe believe our high-quality customer service enhances our customer loyalty and brand image. Our network partners directly interact withour end customers, and we provide ongoing training and conduct regular performance reviews to ensure they provide quality customer services.Table of Contents75We also operate a call center network providing real-time assistance during business hours, seven days a week. Our automated systemcontinues to respond to inquiries outside of business hours and forwards complicated inquiries to our live call center representatives for furtherhandling during business hours. Our call center network is localized with branch offices in over 32 provinces in China with mostly local hires toleverage their local knowledge. All branches can be reached via a unified number and use a centralized call system and database. Our call systemautomatically directs incoming calls to the local branch near the caller’s location for localized handling. We have over 700 call centerrepresentatives who adhere to the same customer service standards nationwide and their local knowledge adds to our customer serviceeffectiveness. We provide regular trainings to our representatives and periodically review callers’ level of satisfaction with the service they receivedfrom us. At the end of each call, each caller is asked to grade the quality of our customer service and a designated call-back team follows up on allincidences of dissatisfaction.Information Technology and Intellectual PropertyWe have built our proprietary technology systems with open-source and mainstream technologies and have refined and tailored thosetechnologies to suit our operational needs. We design and utilize our technology systems to enhance the efficiency and scalability of our networkand these systems play an important role in the success of our business. The principal components of our technology system include:Zhongtian System—Our centralized Zhongtian system, which we developed ourselves, serves as the technology backbone for our expressdelivery management and network operation. The Zhongtian system has hundreds of modules with numerous functionalities and features coveringall scenarios of our business and operations, consisting of our operational management system, network management system, settlement system,finance system and other integrated systems and mobile apps connecting our network partners:●Parcel sorting, transportation and tracking management. Our parcels are sorted and dispatched based on routing logic through theZhongtian system. With this system, that is compatible with the digital waybill technology, we can track each parcel processedthrough the vast network based on a unique waybill barcode assigned to each parcel. As the parcel moves through each gateway, itsbarcode is scanned, and its route and other delivery information are captured in the Zhongtian system. We also monitor the capacityof our sorting hubs on the Zhongtian system and monitor the real-time movement of each on-duty truck with GPS and GeographicInformation System technology that is synchronized with the Zhongtian system.●Settlement payment calculation. The Zhongtian System tracks each delivery order and, according to pre-set formulae, calculates thenetwork transit fees payable to us as well as last-mile delivery fees payable to the network partners.●Platform integration. The Zhongtian system is connected to the order systems of major e-commerce platforms and vertical e-commerce websites in China. Merchants can therefore seamlessly place delivery orders to the outlets via the Zhongtian system.●Mobile application. The Zhongtian system also supports our mobile application so that pickup and delivery personnel are able tohandle functions such as digital waybill printing, order pickup, parcel tracking, receipt signing on mobile devices. The mobilesolutions are user centric and comprehensive in meeting the varied needs of different personnel.●Customer service support. Our call center representatives have access to the Zhongtian system’s database to provide better and moreeffective customer service. The automated customer service functions on our website and our WeChat official account allow endcustomers to track parcels and search outlet locations with the data support from the Zhongtian system.●Management of sale of accessories. Our network partners make online purchases of accessories, such as (i) portable bar code readers,(ii) thermal paper used for digital waybill printing, and (iii) ZTO-branded packing materials and uniforms, from us utilizing theaccessories management module available on the Zhongtian system. Our network partners can log on to our system and place ordersfor waybills, packing materials, portable barcode scanners and other accessories. We then send out the accessories to our networkpartners once we have processed the orders received.●Data analytics and decision support. The Zhongtian system collects and provides valuable operational data such as parcel volume,hub utilization and parcel delivery speed to analyze and enhance our and our network partners’ performance. It provides a dashboardavailable to our core management team with various data and analytical tools. By utilizing the dashboard, our management canmonitor and evaluate our business in real-time.Table of Contents76We have leased a high-grade data center in Zhejiang province to support our core operational systems, such as Zhongtian, and ourtransportation management system. Our server center in Shanghai mainly provides the network infrastructure for our managerial, data backup andother non-core functions. We have adopted security policies and measures, including encryption technology, to protect our software, proprietarydata and customer information. Our system is configured with multiple layers of security to prevent unauthorized access to our software anddatabases, and we implement security protocols for communication among applications. We utilize a system of firewalls to prevent unauthorizedaccess to our internal systems. Exchange of critical data on our website and public and private interfaces use the Secure Sockets Layer networkingprotocol, a standard security technology for establishing encrypted network communications. We regularly back up our databases, includingcustomer data, with both on-site and off-site storage. Encryption is used to secure sensitive information when it is in transit or being stored.Since 2016, we have established a digital product innovation system with eight major digital product lines, covering end-to-end online andoffline processes for customer engagement, customer care, franchisee enablement, sorting hub operations, transportation, finance, smart mobilityequipment and e-collaboration. This system enables around 200 applications throughout our information technology platform.We have been developing a suite of technologies focusing on applying new features to enable fast digital product iteration, such as micro-service architecture, deep learning and AI, big data, private and hybrid cloud, DevOps, among others. We have also developed proprietaryalgorithms for order dispatchment and forecasting, as well as capabilities for real-time monitoring of information systems, automatic failuredetection and recovery and high-throughput processing of 100-million orders in a single day.We regard our trademarks, copyrights, patents, domain names, know-how, proprietary technologies, and similar intellectual property ascritical to our success. As of December 31, 2023, we owned over 200 computer software copyrights in China for various aspects of our operations,maintained over 600 trademark registrations and 200 patents inside China. As of December 31, 2023, we had registered nine domain names,including zto.cn, among others.In addition, we demonstrate the wide use of our technology resources, including Application Programming Interfaces (APIs), in variousdigital services, such as the ZTO Open Platform at zop.zto.com, an express delivery service technology docking platform which shares ZTO’svarious service interfaces, and ZTO Security Response Center at sec.zto.com, an online platform for persons inside and outside the ZTO network toreport security vulnerabilities to better protect customer information and enhance network security. We share with the public our achievements inimproving digitization and intelligization in our operations through our annual ZTO Tech Open Day.CompetitionThe express delivery industry in China is fragmented and we compete primarily with leading domestic express delivery companiesincluding YTO Express, STO Express, Yunda Express, J&T Express, SF Express, JD Logistics and the express delivery services provided by ChinaPost such as EMS. We also face competition from emerging players in our industry or existing players in adjacent markets who may choose toleverage their existing infrastructure and expand their services into express delivery. We believe that our core value framework, superior scale,distinct partner network, best-in-class operational capabilities and cost efficiencies provide us with a competitive advantage. Entry into the expressdelivery industry requires significant initial investment into network construction and partner attraction. However, certain more established e-commerce companies may establish or further improve their proprietary delivery infrastructure and compete with us. Furthermore, as we look tooffer additional products and services and expand our customer base, we may face competition from established players in new sectors we maychoose to enter.ProcurementWe have adopted centralized procurement for selecting, bidding and purchasing land use rights, certain sorting equipment, line-haultransportation vehicles and consumables such as waybills, barcode scanners and uniforms. We hold bidding processes where possible to selectproducts and services with the best value. We provide favorable payment terms in exchange for discounts and to promote long-term stablerelationships with reliable suppliers. We work with manufacturers and research institutions to design and modify equipment to best fit our needs.Compared with off-the-shelf products available in the market, our tailor-made equipment generally has lower procurement and maintenance costsand higher operational efficiency.We also leverage the scale of our network and assist our network partners to negotiate better procurement terms with their suppliers.Table of Contents77Security and SafetyWe have established parcel security screening protocols to inspect parcels before we accept them for sorting and delivery. We havecategorized prohibited items for land and air transport into a few classes, such as flammables and explosives, gunpowder, gasoline, opium andpoultry. All senders are required to identify the content of their parcels. We require the pickup team to visually inspect items sent by end customers.We also have other measures such as X-ray screening of parcels for safety hazards or prohibited items. We have penalty measures in place forsorting hubs that handle pickup or delivery of prohibited items.Workplace safety and transportation safety are important to our business. We have implemented safety protocols for our sorting hubs andground transportation fleet to ensure safety and minimize accidents. We provide periodic training to our employees to recognize hazards, mitigaterisk and avoid injury of themselves and others at work.We have introduced and localized driver safety programs from overseas with the support of our vehicle insurance company China PacificInsurance. In 2017, we equipped our line-haul vehicles with AI enabled smart devices that can decipher images, recognize unsafe gestures, andcommunicate with our home office data processing center that would automatically send escalating alarms to rectify unsafe driving behaviors.Branding and MarketingWe strive to enhance our brand awareness through the provision of high-quality services and marketing initiatives. We were awarded asone of the Top 50 Chinese Logistics Companies in 2020 and 2022, respectively, by China Association of Logistics and Networks and as one ofChina’s Top 500 Private Enterprises (ranked 210) in 2022 by National Federation of Industry and Commerce. We were also awarded the 2022China Federation of Logistics and Purchasing Science and Technology Award. We were awarded as one of National Civilized Units inTransportation Industry by the PRC Ministry of Transportation for the year of 2020. We were also awarded as Advanced Group in ExpressDelivery Industry to Fight the COVID-19 Epidemic and 2020 Express Industry Special Donation Contribution Award for Poverty Alleviation byChina Express Association. We were awarded as one of 2019-2020 Municipal Civilized Units by the Shanghai Municipal People’s Government.We won the China Express Golden Parcels Contribution Award for Ten Years in 2020, the 2019 China Express Volume and Quality DoubleUpgrade Award and 2019 China Express Social Responsibility Award. We won the Data Service Award at the 9th China Big Data ApplicationGolden Bell Award in 2019 for our intelligent customer service products and systems. Mr. Meisong Lai, our chairman, was awarded the RamCharan Management Practice Award in 2019 by the Chinese edition of Harvard Business Review, recognizing excellent management practices. Wewere awarded as one of the 2019 Shanghai Top 100 Enterprises (ranked 61). Shanghai Zhongtongji Network won the Third Prize of Science andTechnology Progress Award of China Federation of Logistics and Purchasing in 2020 and was awarded as one of Shanghai’s Top 100 Enterprises inthe Software and Information Technology Service Industry in 2019.We were named as one of the Top 50 Chinese Logistics Companies in 2022 and 2023, respectively, by China Association of Logistics andNetworks. We were also named as one of China’s Top 500 Private Enterprises (ranked 341) and one of China’s Top 100 Private Enterprises inService Industry in 2023 by National Federation of Industry and Commerce. We were with the awarded 2023 China Federation of Logistics andPurchasing Science and Technology Award, 2023 Shanghai May Day Labor Award by Shanghai Federation of Trade Unions, 2023 China’s Top 500Brand Value (ranked 196) by Brand Finance, 2023 Leading Enterprise of Shanghai Productive Service Industry by Shanghai Productive ServiceIndustry Promotion Association, The 21st National Youth Civilization Award and 2022 National Postal Express Industry Youth Production SafetyDemonstration Post by State Post Bureau.We employ a variety of programs and marketing activities to promote our brand and our services. We regularly attend trade fairs, such asthe China Beijing International Fair for Trade in Services, and speak at industry forums. We also operate a news feed channel and leverage variousmobile social network applications, such as WeChat, to distribute business updates and corporate news. Our offline marketing activities includetraditional media such as billboard and public relations activities. In addition, we require our network partners to apply our logos on personneluniforms, transportation vehicles and packaging materials in a consistent and unified manner in order to further enhance our brand recognitionduring interactions with our end customers.We train and guide our network partners to market their products to our end customers and maintain customer relationships. Ourdesignated team maintains enterprise customer relationships directly through regular dialogue. In general, we and our network partners strive tocontinually improve our service qualities to elevate our brand and attract and retain more customers.Table of Contents78Corporate Social ResponsibilityWe are committed to leveraging our technology and logistics infrastructure to benefit society. Since our founding, we have been highlycommitted to environmental, social and corporate responsibility matters, including environmental sustainability, employee care, poverty alleviationand more.Environmental Sustainability. We have established a dedicated team to lead the formulation, implementation and supervision ofenvironmental protection measures throughout our network. To reduce the negative impact of packaging consumables on the environment, wecontinue to promote the use of green and recyclable packaging and biodegradable packaging. We also take the initiatives to recycle packagingmaterials, and guide end consumers to reuse packaging cartons. Moreover, we have been committed to reducing the harmful impact oftransportation on environment. Each of our line-haul vehicles is equipped with positioning equipment to monitor if there is any abnormality in thetransportation process together with Geographic Information System to help plan proper transportation routes. We have also used high-capacitytrailers in order to improve energy efficiency and reduce pollutant emissions. Meanwhile, we encourage our network partners to use eco-friendlytransportation vehicles such as new-energy vehicles and battery-powered cars for pickup and delivery. Furthermore, we vigorously promote the useof energy-saving and environmentally friendly equipment in our operation, including sorting, transportation and delivery.Employee care. We strive to provide employees with welfare benefits and a broad range of career development opportunities. We haveestablished a sound talent cultivation mechanism and created an online-offline combined training platform. We have also organized and carried outvocational skills competitions and other activities for employees to improve professional skills. We have set up a management trainee programwhich aims to cultivate future leaders of the company through a three-year training plan. We also strive to help our employees balance their workand life. We have organized various recreational and sports activities to enrich the cultural life of employees.Poverty alleviation. We have actively explored the rural market, and implemented an initiative of “bringing express delivery services intovillages” by improving the last-mile logistics infrastructure and promoting the coverage of logistics services in rural areas. We have promoted atwo-way circulation channel for agricultural products to the city and industrial products to the countryside, which aims to help stimulateconsumption in rural areas and increase the income of rural residents.Environmental protection. We have published an annual ESG report since 2019, detailing our key initiatives and development in areaspertaining to environmental, social and corporate governance issues. The ESG reports are available at http://zto.investorroom.com/.We are subject to a number of regulations on environmental protection in China. For example, pursuant to the PRC Law on EnvironmentImpact Assessment, our construction project is required to undergo an environmental impact assessment, and an environmental impact assessmentreport must be submitted to the governmental authorities in charge of ecological environment for approval before the commencement ofconstruction, as applicable. In accordance with the Administrative Regulations on the Environmental Protection of Construction Projects and theInterim Measures on the Administration of Acceptance Inspection of Construction Project Environmental Protection, after the completion of aconstruction project, we are required to obtain a completion acceptance on environmental protection for the project from the competent departmentof environmental protection or carry out the acceptance inspection by ourselves, as the case may be.InsuranceWe maintain various insurance policies to safeguard against risks and unexpected events. We have purchased compulsory motor vehicleliability insurance and commercial insurance such as automobile third-party liability insurance, vehicle loss insurance and driver/passenger liabilityinsurance. We also provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance andmedical insurance to our employees.Table of Contents79We do not purchase insurance for items delivered by us. Instead, some of our end customers may opt for damage or loss coverage inconnection with our priority handling services, in which cases we will remit the insurance portion of their payments to third party insuranceproviders. We do not maintain business interruption insurance; nor do we maintain product liability insurance or key-man insurance. We considerthat the coverage from the insurance policies maintained by us is adequate for our present operations and is in line with the industry norm. Ourmanagement evaluates the adequacy of our insurance coverage from time to time and purchase additional insurance policies as needed.RegulationThis section sets forth a summary of the most significant rules and regulations that affect our business activities in China or ourshareholders’ rights to receive dividends and other distributions from us.Regulations Relating To Foreign InvestmentIndustry Catalogue Relating to Foreign InvestmentThe PRC Ministry of Commerce and the National Development and Reform Commission jointly promulgated the Negative List forForeign Investment Access on December 27, 2021, which became effective on January 1, 2022, and the Catalogue of Industries for EncouragingForeign Investment (2022 Edition) on October 26, 2022, which became effective on January 1, 2023. These regulations set forth the industries inwhich foreign investments are encouraged, restricted, or prohibited. Industries that are not listed in any of the above three categories are generallyopen to foreign investment unless specifically restricted by other PRC regulations. Establishment of wholly foreign-owned enterprises is generallyallowed in encouraged and permitted industries. Foreign investors are not allowed to invest in industries in the prohibited category.We are mainly engaged in express delivery services, which may involve domestic express delivery services of mail. According to theNegative List for Foreign Investment Access, foreign investments in domestic express delivery services of mail are prohibited. Therefore, weprovide domestic express delivery services of mail through the consolidated affiliated entities in China.Our PRC subsidiaries also operate in certain industries which fall into the encouraged category, such as road transportation and technicalsupport and consulting services. Our subsidiary Shanghai Zhongtongji Network is registered in accordance with PRC law and mainly engages intechnical support and consulting services, which are encouraged under the Catalogue of Industries for Encouraging Foreign Investment (2022Edition).Regulations Relating to the PRC Foreign Investment and the PRC CompaniesPursuant to the PRC Foreign Investment Law, adopted by the PRC National People’s Congress and effective on January 1, 2020, Chinawill grant national treatment to foreign-invested entities, except for those foreign-invested entities that operate in “restricted” or “prohibited”industries prescribed in the Negative List for Foreign Investment Access.According to the PRC Foreign Investment Law, “foreign investment” refers to investment activities directly or indirectly conducted byone or more natural persons, business entities, or other organizations of a foreign country (collectively referred to as “foreign investors”) withinChina. Although the PRC Foreign Investment Law does not explicitly classify contractual arrangements as a form of foreign investment, there is noassurance that foreign investment via contractual arrangement would not be interpreted as a type of indirect foreign investment activities under thedefinition in the future. In addition, the definition contains a catch-all provision that includes investments made by foreign investors through meansstipulated in laws or administrative regulations or other methods prescribed by the State Council. Therefore, it still leaves leeway for future laws,administrative regulations or provisions promulgated by the State Council to provide for contractual arrangements as a form of foreign investment.See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Our current corporate structure, business operationsand future capital raising activities may be affected by the PRC Foreign Investment Law, the Overseas Listing Trial Measures and the recentlyamended PRC Company Law.”Table of Contents80The PRC Foreign Investment Law also provides that the State establishes a foreign investment information report system. Foreigninvestors or the foreign investment enterprise shall submit investment information to the competent commerce department through the enterpriseregistration system and the enterprise credit information publicity system and the foreign investors or the foreign investment enterprise could beimposed a fine ranging from RMB100,000 to RMB500,000 by the competent commerce department for failing to report investment information asrequired to the foreign investment information report system.Pursuant to the Measures for Information Reporting on Foreign Investment, promulgated by the PRC Ministry of Commerce and the StateAdministration for Market Regulation, and became effective on January 1, 2020, where a foreign investor carries out investment activities in Chinadirectly or indirectly, the foreign investor or the foreign investment enterprise shall submit the investment information to the competent commercedepartment. The Implementation Regulation for the PRC Foreign Investment Law, promulgated by the State Council and became effective onJanuary 1, 2020, provides that foreign investment enterprises established in accordance with the PRC Equity Joint Venture Law, the PRC WhollyForeign-owned Enterprise Law, and the PRC Cooperative Joint Venture Law prior to implementation of the PRC Foreign Investment Law shall,within the five-year period following the implementation of the PRC Foreign Investment Law, adjust their organization form, organization structurepursuant to the provisions of the PRC Company Law, the PRC Partnership Enterprise Law and related laws, and complete change registration inaccordance with the law. With effect from January 1, 2025, where an existing foreign investment enterprise has not adjusted its organization formor organization structure and complete the change registration in accordance with the law, the market regulatory authorities shall not process theapplication(s) for any other registration matter(s) of the said foreign investment enterprise, and shall publicly announce the relevant information.Companies established and operating in the PRC shall be subject to the PRC Company Law, which was promulgated by the StandingCommittee of the National People’s Congress on December 29, 1993, recently amended on December 29, 2023 and will become effective onJuly 1, 2024. The PRC Company Law provides for the establishment, corporate structure and corporate management of companies, which alsoapplies to foreign investment enterprises in the PRC. The major revisions made by the recently amended PRC Company Law includedimprovement of the system for the establishment and winding-up of companies, optimization of organizational structures of companies,improvement of the capital system of companies, strengthening the responsibilities of the controlling shareholder and managerial staff, enhancingthe social responsibilities of companies, among others. As of the date of this annual report, the recently amended PRC Company Law has not takeneffect.Regulations Relating To Express Delivery ServicesThe PRC Postal Law, which was most recently amended on April 24, 2015, sets out the fundamental rules on the establishment andoperation of an express delivery company. Pursuant to the Postal Law, an enterprise that operates and provides express delivery services must runits express delivery business by obtaining a Courier Service Operation Permit. In order to apply for a business permit for express delivery services,a company must meet all the requirements as a corporate legal person and satisfy certain prerequisites with respect to its service capacity andmanagement system, and its registered capital must be no less than RMB500,000 to operate within a province, autonomous region, or municipalitydirectly under the central government, no less than RMB1,000,000 in the case of cross-provincial operation, and no less than RMB2,000,000 tooperate international express delivery services.Filing with the postal administrative department is required where an express delivery company sets up branches. The requirements for theestablishment of a branch of express delivery company are specified in the Administrative Measures for Courier Service Market, which waspromulgated by the Ministry of Transportation on July 12, 2008 and most recently amended on December 17, 2023. These measures stipulate thatwhere any express delivery company establishes its branches, it must file with the postal administrative department and report the business licensesinformation of such branches to the postal administrative department. The Postal Law stipulates that if an express delivery company fails tocomplete such required filing with the governmental authority, it may be ordered to rectify and to pay general fines of no more than RMB10,000. Ifthe non-compliance situations are severe, a fine ranging from RMB10,000 to RMB50,000 can be imposed, and the offender may face suspension ofits business operation before completing the rectification.Table of Contents81Pursuant to (i) the Postal Law, (ii) the Administrative Measures for Courier Service Market, (iii) the Administrative Measures on CourierService Operation Permits, which was most recently amended on November 28, 2019, and (iv) the Interim Regulations on Express Delivery, whichwas mostly recently amended on March 2, 2019, any entity engaging in express delivery services must obtain a Courier Service Operation Permitfrom the State Post Bureau or its local counterpart and is subject to their supervision and regulation. If an entity operates express delivery serviceswithout obtaining a Courier Service Operation Permit in accordance with the above measures and regulations, it may be compelled to makecorrections, subject to the confiscation of its earnings generated from its unlicensed operating express delivery services, imposed a fine rangingfrom RMB50,000 to RMB100,000 or where the circumstances are severe, ranging from RMB100,000 to RMB200,000, and/or ordered to suspendits business operation for rectification or even cancellation of its Courier Service Operation Permit. If a permit-holder who ceases its businessoperation for over six months within the effective period of the Courier Service Operation Permit, it will be ordered by the postal administrationdepartments to return the Courier Service Operation Permit, and if it refuses or fails to do so on time, the postal administration departments shallpublicly announce the annulment of the Courier Service Operation Permit.Enterprises engaged in express delivery services other than Postal Bureau Agencies may not engage in post and mail delivery businesswhich are exclusively operated by Postal Bureau Agencies, and may not deliver any official documents of state-owned organizations. The expressdelivery business must operate within the permitted scope and under the valid terms of the Courier Service Operation Permit. The Courier ServiceOperation Permit is valid for 5 years upon its issuance and comes with an annual reporting obligation. The Circular on Implementing theAdministrative Measures for the Courier Market and Strengthening the Administration of Courier Service Operations, which was issued by theState Post Bureau on February 7, 2013, further clarifies that the postal administrative department must examine whether an entity operates expressdelivery service within the permitted business scope and geographic scope of its Courier Service Operation Permit, and the geographic examinationmust be carried out down to the district-level within cities. Pursuant to the Administrative Measures for Courier Service Market, failure to conductexpress delivery services within the published operation scopes would subject the express delivery company to a correction order, a warning, or anotice of criticism by the postal administrative department, and may impose a fine of 1 to 10 times the amount of the express delivery service fees.Moreover, in accordance with the Administrative Measures on Courier Service Operation Permits, an enterprise engaged in express deliveryservices must submit an annual reporting on its business licensing of courier services with the postal administrative authority which issued itsCourier Service Operation Permit prior to 30 April each year. Where an express delivery service company fails to submit its annual report to thepostal administrative authority in a timely manner, it may be ordered by the postal administrative authorities to make correction, and may besubject to a fine of up to RMB10,000. Where an express delivery service company conceals any facts or commits fraud in its annual report, suchexpress delivery service company may be ordered by the postal administrative authorities to make correction and imposed a fine ranging fromRMB10,000 to RMB30,000.In accordance with the Decision of the State Council on Issues concerning Cancelling and Adjusting a Batch of AdministrativeExamination and Approval Items on February 24, 2015, a company operating express delivery services must apply for and obtain the CourierService Operation Permit prior to the application of its business license, and the competent industrial and commercial administration will examinewhether such company has obtained a Courier Service Operation Permit.In accordance with the Administrative Measures for Courier Service Market, if two or more enterprises engaged in express deliverybusiness use a unified trademark, corporate name, express waybill and supporting information system, they shall enter into written agreements toclarify their respective rights and obligations, abide by common service arrangement, and implement unified management in terms of servicequality, safety assurance, business processes, environmental protection and employee rights protection, among others. The owner of the trademark,corporate name, express waybill, and supporting information system is referred to as the headquarters express delivery enterprise. If theheadquarters express delivery enterprise adopts unreasonable management measures, resulting in the inability of the enterprises that use itstrademark, corporate name, express waybill and supporting information system to operate express delivery business to provide express deliveryservices to users, the headquarters express delivery enterprise will be subject to a correction order, a warning, or a notice of criticism by the postaladministrative department, and may be subject to a fine ranging from RMB3,000 to RMB10,000. For serious circumstances, a fine ranging fromRMB10,000 to RMB30,000 may be imposed, and the related documents shall be forwarded to the local authorities if there is suspicion of unfaircompetition or illegal pricing.Table of Contents82Companies engaging in express delivery service must establish and implement a system for the examination of parcels or articles receivedfor delivery. Pursuant to the PRC Postal Law and Measures for the Supervision and Administration of Postal Security in the Postal Industry issuedby the Ministry of Transport on January 2, 2020, which became effective on February 15, 2020 and most recently amended on December 20,2023,express delivery companies must examine the postal articles so as to inspect whether the postal articles are prohibited or restricted from expressdelivery. Express delivery companies must also examine whether the names, nature and quantity of the postal articles have been properly disclosedon delivery form. Any failure to establish or implement such inspection system, or any unlawful acceptance or delivery of prohibited or restrictedparcels/articles may result in the sanctions to the in-charge persons bearing direct responsibility and other persons subject to direct liability of theexpress delivery companies and the suspension of the company’s business operation for rectification or even cancellation of its Courier ServiceOperation Permit.According to the Interim Regulations on Express Delivery, express delivery operators shall obtain the Courier Service Operation Permitfor express delivery. Express delivery operators and their branches may open express delivery terminal outlets which are required to file with thelocal postal administrations in the places where they are located for record within 20 days from the date of opening their express delivery terminaloutlets. The delivery terminal outlets are not required to obtain a business license. Where an express delivery service operator fails to file with thelocal postal administrations for opening their express delivery terminal outlets, such express delivery service company may be compelled to makecorrections, imposed a fine ranging up to RMB50,000 and/or ordered to suspend business for rectification. In case an express delivery servicecompany intends to suspend operating express delivery services, it shall (i) make public announcement ten days in advance, (ii) submit a writtennotice to the postal administrative departments, (iii) return the Courier Service Operation Permit and (iv) make proper arrangement on undeliveredexpress parcels. Failure to comply with such requirement may be compelled to make corrections, imposed a fine ranging up to RMB50,000 and/orordered to suspend business for rectification. According to the Interim Regulations on Express Delivery, express delivery operators shall also verifythe identity of senders and register their identity information when receiving express parcels. Where senders refuse to furnish their identityinformation or furnish false identity information, express delivery operators shall not receive their express parcels. According to the InterimRegulations on Express Delivery, the Postal Law and the Anti-Terrorism Law, if any express delivery operator fails to verify the identity of sendersyet registers their identity information, or identifies that the senders provide false identity information, but still receives the express parcels, suchexpress delivery operator may be subject to a fine ranging from RMB100,000 to RMB500,000 or ordered to suspend business operation untilcancellation of its express delivery services certificate, and the personnel directly in charge and other persons directly liable may be subject to afine ranging up to RMB100,000. The Interim Regulations on Express Delivery also indicates that two or more express delivery operator may use aunified trademark, corporate name or express waybill to conduct the express delivery business. The express delivery operators shall enter into awritten agreement to define their respective rights and obligations, carry out unified management of service quality, safety guarantee and businessprocess, and provide unified express mail tracking, inquiry and complaint handling services for clients. Where the legitimate rights and interests ofany client have been jeopardized due to the delay, missing, damage or shortage of express parcels, the client may request the express deliveryoperator to which the trademark, corporate name or express waybill belongs to offer compensation, or request the actual express delivery providerto pay compensation. ZTO Express and 59 of its subsidiaries have obtained the Courier Service Operation Permits to operate express deliveryservices. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Any lack of requisite approvals, licensesor permits applicable to our business operations or those of our network partners may have a material and adverse impact on our business, financialcondition and results of operations.”Pursuant to the PRC E-commerce Law, we are subject to certain requirements in e-commerce business, including but not limit to thefollowing: while handing over commodities, express logistics service providers shall remind consignees to examine the commodities immediatelyon the spot; where the commodities are received by others for consignees, such providers shall obtain the consent of consignees. Express logisticsservice providers shall use environmental-friendly packaging materials in accordance with the provisions in an effort to reduce the consumption ofpackaging materials and implement the recycling measures. While offering express logistics services, the providers thereof may agree to beentrusted by e-commerce operators to collect payments for goods on a commission basis. The operation of our business is subject to the PRC E-commerce Law. If our express delivery services are not in compliance with the law, we may be required to rectify. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business and the business of our network partners are subject to a broad rangeof PRC laws and regulations. If we or our network partners are deemed to be not in compliance with any of these laws and regulations, ourbusiness, reputation, financial condition and results of operations may be materially and adversely impacted.”Table of Contents83Regulations Relating To Road Transportation Operation PermitPursuant to the Regulations on Road Transportation promulgated by the State Council on April 30, 2004 and most recently amended onJuly 20, 2023, and the Provisions on Administration of Road Freight Transportation and Stations (Sites) issued by the Ministry of Transport onJune 16, 2005 and most recently amended on November 10, 2023, the business operations of road freight transportation refer to commercial roadfreight transportation activities that provide public services. The road freight transportation includes general road freight transportation, specialroad freight transportation, road transportation of large articles, and road transportation of hazardous cargos. Special road freight transportationrefers to freight transportation using special vehicles with containers, refrigeration equipment, or tank containers, etc. The Provisions onAdministration of Road Freight Transportation and Stations (Sites) set forth detailed requirements with respect to vehicles and drivers.Under the Provisions on Administration of Road Freight Transportation and Stations (Sites), and Regulations on Road Transportation, anenterprise engaging in the business of operating road freight transportation must obtain a Road Transportation Operation Permit from thecompetent authority of transportation, and each vehicle used for road freight transportation must have a Road Transportation Certificate from thesame authority, unless the vehicles used are ordinary freight vehicles with a total mass of 4.5. Furthermore, anyone engaging in the business ofoperating stations (sites) shall complete filing with the competent authority of transportation no later than 15 days after the actual operation. Theincorporation of a subsidiary of road freight transportation operator that intends to engage in road transportation business is subject to the sameapproval procedure. If it intends to establish a branch, it should file with the competent authority of transportation where the branch is to beestablished.Although the Road Transportation Operation Permits have no limitation with respect to geographical scope, several provincialgovernments in China, including Shanghai and Beijing, promulgated local rules on administration of road transportation, stipulating that permittedoperators of road freight transportation registered in other provinces should also make record-filing with the local road transportationadministrative bureau where it carries out its business.In 2023, ZTO Express and five of its subsidiaries have obtained Road Transportation Operation Permits to operate general road freighttransportation or station (sites). Shanghai Zhongtongji Logistics Co., Ltd. and 19 of its subsidiaries have obtained Road Transportation OperationPermits to operate general road freight transportation or station (sites). See “Item 3. Key Information—D. Risk Factors—Risks Related to OurBusiness and Industry—Any lack of requisite approvals, licenses or permits applicable to our business operations or those of our network partnersmay have a material and adverse impact on our business, financial condition and results of operations.”Regulations Relating To Cargo VehiclesPursuant to the Administrative Provisions concerning the Running of Cargo Vehicles with Out-of-Gauge Goods promulgated onAugust 19, 2016, took effect on September 21, 2016 and amended on August 11, 2021, cargo vehicles running on public roads shall not carry cargoweighing more than the limits prescribed by this regulation and their dimensions shall not exceed those as set forth by the same regulation. Vehicleoperators who violate this regulation may be subject to a fine of up to RMB30,000 for each violation. In the event of more than three violations inany year, the regulatory authority may suspend the operating license of the vehicle operator and/or revoke the business operation registration of thevehicle. In the event more than 10% of the total vehicles of any road transportation enterprise are not in compliance with this regulation inany year, such road transportation enterprise shall suspend its business for rectification and its road transportation license may be revoked.The operation of our truck fleet is subject to this regulation. If our trucks are not in compliance with this regulation, we may be required tomodify such trucks to reduce their length or purchase new ones to replace them. Otherwise, we may be subject to penalties under this regulation ifwe continue to operate those trucks that exceed the limits set forth in the regulation. See “Item 3. Key Information—D. Risk Factors—RisksRelated to Our Business and Industry—Our business and the business of our network partners are subject to a broad range of PRC laws andregulations. If we or our network partners are deemed to be not in compliance with any of these laws and regulations, our business, reputation,financial condition and results of operations may be materially and adversely impacted.”Table of Contents84Regulations Relating To International Freight Forwarding BusinessAdministrative Provisions on International Freight Forwarders promulgated on June 29, 1995 and its detailed rules regulate the business ofinternational freight forwarding. According to the provisions and its detailed rules, the minimum amount of registered capital must be RMB5million for an international freight forwarder by sea, RMB3 million for an international freight forwarder by air and RMB2 million for aninternational freight forwarder by land or for an entity operating international express delivery services. An international freight forwarder must,when each time applying for setting up a branch, increase its registered capital (or the excess amount over its minimum registered capital) byRMB500,000. Under the Measures on Filing of International Freight Forwarders (Interim) announced on March 2, 2005 and amended on August18, 2016, all international freight forwarders and their branches registered with the state industrial and commercial administration must be filedwith the PRC Ministry of Commerce or its authorized organs.Regulations Relating To Use Of Unmanned Aerial Vehicles For Commercial Flight ActivitiesOn March 21, 2018, Civil Aviation Administration promulgated the Administrative Measures for Commercial Flight Activities of CivilUnmanned Aerial Vehicles (Interim), pursuant to which a Civil Unmanned Aerial Vehicle Business License shall be obtained for the use ofunmanned aerial vehicles for commercial flight activities, and no commercial flight activities shall be conducted without an Unmanned AerialVehicle Operation Permit.On August 4, 2020, Ministry of Transport promulgated the Provisions on the Administration of Business Licensing for General Aviationwhich became effective on January 1, 2021, which provides that General Aviation Business License shall be obtained for the use of generalaviation aircraft, including civil unmanned aerial vehicle, for commercial flight activities. General aviation enterprise shall submit the annual reportof the previous year to the regional civil aviation administration of their domicile through the general aviation management system beforeMarch 31 of each year, in the event failing to submit the annual report of the previous year within the specified time, or the content of the annualreport does not meet the requirements, such general aviation enterprise may be ordered to rectify within a specified time and be imposed a fine upto RMB30,000 if such general aviation enterprises refuse to rectify. According to the General Aviation Business Licensing Work Guide (SecondEdition), enterprise that has obtained the Civil Unmanned Aerial Vehicle Business License on or before December 31, 2020 does not need to applyfor a new version of the General Aviation Business License and the Civil Unmanned Aerial Vehicle Business License continue to be valid until thenew version of the electronic license of the General Aviation Business License is launched. On May 31, 2023, the State Council and CentralMilitary Commission promulgated the Interim Regulations on the Flight Management of Unmanned Aircraft which became effective on January 1,2024, pursuant to which an Air Operator Certificate is required for using civil unmanned aircraft for flight activities. No General Aviation BusinessLicense or operation certificate is required for the engagement in commercial general aviation flight activities after obtaining an Air OperatorCertificate. Two subsidiaries of ZTO Express have obtained the Remotely Piloted Aircraft System (RPAS) Air Operator Certificate.Regulations Relating To Commercial FranchisingCommercial franchising refers to the business activities where an enterprise that possesses the registered trademarks, enterprise logos,patents, proprietary technology or any other business resources allows such business resources to be used by another business operator throughcontract and the franchisee follows the uniform business model to conduct business operations and pay franchising fees to the franchisor accordingto the contract. We and our network partners are therefore subject to regulations on commercial franchising, including the AdministrativeRegulations on Commercial Franchising Operations promulgated by the State Council on February 6, 2007, which took effect on May 1, 2007, andAdministrative Measures on the Record Filing of Commercial Franchises issued by the PRC Ministry of Commerce on December 12, 2011, whichtook effect on February 1, 2012 and were revised on December 29, 2023. Under these regulations, a franchisor must carry out a record filing withthe PRC Ministry of Commerce or its local counterparts within 15 days of the first conclusion of a franchising contract and must report the status ofits franchising contracts in the previous year during the first quarter of each year after the record filing. The PRC Ministry of Commerce announcesthe names of franchisors who have completed filing on the government website and makes prompt updates. If the franchisor fails to comply withthese regulations, the PRC Ministry of Commerce or its local counterparts have the discretion to take administrative measures against thefranchisor, including fines and public announcements. These regulations also set forth requirements on the contents of franchising contracts. ZTOExpress has signed cooperation contracts with its direct network partners. If we are deemed as a franchisor who fails to comply with thestipulations of filing with the competent commerce authority, we may be imposed a fine ranging from RMB10,000 to RMB100,000. As ofDecember 31, 2023, we have not made any filings with local counterparts of the PRC Ministry of Commerce or received any governmental order tomake such filings. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We may be penalized if we failto comply with regulations on commercial franchising.”Table of Contents85Regulations Relating To Personal Information Security And Consumer ProtectionOn August 20, 2021, the Standing Committee of the National People’s Congress promulgated the Personal Information Protection Law,which took effect on November 1, 2021. Pursuant to the Personal Information Protection Law, “personal information” refers to any kind ofinformation related to an identified or identifiable individual as electronically or otherwise recorded but excluding the anonymized information.The processing of personal information includes the collection, storage, use, processing, transmission, provision, disclosure and deletion ofpersonal information. This law applies to the processing of personal information of individuals within the territory of the PRC, as well as personalinformation processing activities outside the territory of the PRC, for the purpose of providing products or services to natural persons locatedwithin the PRC, for analyzing or evaluating the behaviors of natural persons located within the PRC, or for other circumstances as prescribed bylaws and administrative regulations. A personal information processor may process the personal information of this individual only under thefollowing circumstances: (i) where consent is obtained from the individual; (ii) where it is necessary for the execution or performance of a contractto which the individual is a party, or where it is necessary for carrying out human resource management pursuant to employment rules legallyadopted or a collective contract legally concluded; (iii) where it is necessary for performing a statutory responsibility or statutory obligation;(iv) where it is necessary in response to a public health emergency, or for protecting the life, health or property safety of a natural person in the caseof an emergency; (v) where the personal information is processed within a reasonable scope to carry out any news reporting, supervision by publicopinions or any other activity for public interest purposes; (vi) where the personal information, which has already been disclosed by an individualor otherwise legally disclosed, is processed within a reasonable scope; or (vii) any other circumstance as provided by laws or administrativeregulations. In principle, the consent of an individual must be obtained for the processing of his or her personal information, except under thecircumstances of the aforementioned items (ii) to (vii). Where personal information is to be processed based on the consent of an individual, suchconsent shall be a voluntary and explicit indication of intent given by such individual on a fully informed basis. If laws or administrativeregulations provide that the processing of personal information shall be subject to the separate consent or written consent of the individualconcerned, such provisions shall prevail. In addition, the processing of the personal information of a minor under 14 years old must obtain theconsent by a parent or a guardian of such minor and the personal information processors must adopt special rules for processing personalinformation of minors under 14 years old.The Administrative Provisions on the Security of Personal Information of Express Service Users, promulgated by State Post Bureau onMarch 26, 2014 and most recently amended on February 13, 2023, provide for the protection of the personal information of users of express orexpress delivery services, and the supervision on the express operations of postal enterprises and express delivery companies. In accordance withthese provisions, the state postal administrative department and its local counterparts are the supervising and administering authority responsiblefor the security of the personal information of users of express or express delivery services, and postal enterprises and express delivery companiesmust establish and refine systems and measures for the security of such information. Specifically, express delivery companies must enter intoconfidentiality agreements with its employees regarding the information of its clients or users to specify confidentiality obligations Where expressdelivery companies are interfacing delivery information or authorizing the usage of order numbers with third parties such as e-commerce platformsor operators of the express electronic waybill integration system, such express delivery companies shall request e-commerce platforms or operatorsof the express electronic waybill integration system to de-identify the electronic express waybill information and to ensure normal operation ofdelivery service. If there is a risk to personal information security for delivery service users or inability to provide delivery services, the expressdelivery companies shall not interface the delivery information or authorize the order number resources. Under the circumstances where the unifiedtrademark, corporate name or express waybill is utilized to operate express delivery business, the owner of trademark, corporate name or expresswaybills shall implement unified management of the information security of the enterprises using its trademark, corporate name or express waybill,and shall bear corresponding responsibilities in accordance with the laws in the event of personal information security incidents involving deliveryservice users. A user of express delivery services may further seek remedies by following the Measures on Settling the Complaints of the PostalUsers issued by State Post Bureau, which took effect on September 1, 2014. The Postal Users Complaints Settling Center implements the regime ofmediation to handle the complaints from users on the quality of the express delivery services. According to the Interim Regulations on ExpressDelivery, an express delivery service company shall not sell, reveal or illegally provide any information of client that has been exposed during theprovision of express services. In case the information of client is revealed or may be revealed, the express delivery service company shall takeremedial measures immediately and report to the local postal administrations. If we fail to comply with such requirement, we may be subject topenalties including a fine ranging from RMB10,000 to RMB100,000, suspension of business for rectification or revoke of its Courier ServiceOperation Permit. We believe we are currently in compliance with the above provisions or measures with regard to the security of personalinformation in all material aspects.Table of Contents86Regulations Relating To Cybersecurity, Privacy, Data Protection And Information SecurityOn December 28, 2012, to enhance the legal protection of information security and privacy on the internet, the Standing Committee of theNational People’s Congress promulgated the Decision of the Standing Committee of the National People’s Congress on Strengthening NetworkInformation Protection, which requires network service providers to take measures to ensure confidentiality of information of users. On July 16,2013, the Ministry of Industry and Information Technology promulgated the Provisions on Protection of Personal Information ofTelecommunication and Internet Users to regulate the collection and use of users’ personal information in the provision of telecommunicationservice and internet information service in China. On August 29, 2015, the Standing Committee of the National People’s Congress promulgated theNinth Amendment to the PRC Criminal Law, which became effective on November 1, 2015 and amended the standards of crime of infringingcitizens’ personal information and reinforced the criminal culpability of unlawful collection, transaction, and provision of personal information. Itfurther provides that any network service provider that fails to fulfill the obligations related to internet information security administration asrequired by applicable laws and refuses to rectify upon orders will be subject to criminal liability. On November 7, 2016, the Standing Committeeof the National People’s Congress promulgated the PRC Cybersecurity Law, which requires, among others, that network operators take securitymeasures to protect the network from interference, damage and unauthorized access and prevent data from being divulged, stolen or tampered with.Network operators are also required to collect and use personal information incompliance with the principles of legitimacy, properness andnecessity, and strictly within the scope of authorization by the subject of personal information unless otherwise prescribed by laws or regulations.The PRC Civil Code, promulgated on May 28, 2020 and became effective on January 1, 2021, also provides specific provisions regarding theprotection of personal information.On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which took effecton September 1, 2021. The PRC Data Security Law, among other things, provides for a security review procedure for the data activities that mayaffect national security. Furthermore, the 2020 Measures, set forth the cybersecurity review mechanism for critical information infrastructureoperators, and provided that critical information infrastructure operators who procure internet products and services that affect or may affectnational security shall be subject to a cybersecurity review.The Cybersecurity Review Measures took effect on February 15, 2022, and has replaced the 2020 Measures and further restated andexpanded the applicable scope of the cybersecurity review. Pursuant to the Cybersecurity Review Measures, critical information infrastructureoperators that procure internet products and services, and network platform operators engaging in data processing activities, must be subject to thecybersecurity review under the Cybersecurity Review Measures if their activities affect or may affect national security. The Cybersecurity ReviewMeasures further stipulate that network platform operators holding over one million users’ personal information shall declare to the CybersecurityReview Office for a cybersecurity review before any public offering at a foreign stock exchange. On August 17, 2021, the State Councilpromulgated the Regulations on the Security Protection of Critical Information Infrastructure, which became effective on September 1, 2021.Pursuant to the Regulations on the Security Protection of Critical Information Infrastructure, critical information infrastructure shall mean anyimportant network facilities or information systems of the important industry or field such as public communication and information service,energy, transportation, water conservancy, finance, public services, e-government affairs and national defense science, technology and industry, aswell as other important network facilities and information systems which, in case of destruction, loss of function or leak of data, may result inserious damage to national security, the national economy and the people’s livelihood and public interests.Table of Contents87On July 6, 2021, the PRC government authorities made public the Opinions on Strictly Cracking Down Illegal Securities Activities inAccordance with the Law. These opinions emphasized the need to strengthen the administration over illegal securities activities and the supervisionon overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of regulatory systemsto deal with the risks and incidents faced by China-based overseas-listed companies. On November 14, 2021, the Cyberspace Administration ofChina released the Regulations on the Network Data Security Management for public comments, which stipulates, among others, that a priorcybersecurity review is required for listing abroad of data processors which process over one million users’ personal information, and the listing ofdata processors in Hong Kong which affects or may affect national security. On July 7, 2022, the Cyberspace Administration of China promulgatedthe Measures on Security Assessment of Cross-border Data Transfer which became effective on September 1, 2022. The Measures on SecurityAssessment of Cross-border Data Transfer shall apply to the security assessment of the provision of important data and personal informationcollected and generated by data processors in the course of their operations within the territory of the PRC by such data processors to overseasrecipients. Pursuant to such measures, a data processor shall apply to the national cyberspace administration for the security assessment of theoutbound data transfer through the local provincial cyberspace administration, if it intends to provide data abroad under any of the followingcircumstances: (i) the data processor provides important data abroad; (ii) the critical information infrastructure operator or the data processor thathas processed the personal information of over one million people provides personal information abroad; (iii) the data processor that has providedthe personal information of over 100,000 people or the sensitive personal information of over 10,000 people cumulatively since January 1 of theprevious year provides personal information abroad; (iv) any other circumstance where an application for the security assessment of outbound datatransfer is required by the national cyberspace administration. Any failure to comply with such requirements may subject us to suspension ofservices, fines, or revoking business permits or business licenses, among other things. The Cybersecurity Review Measures required that networkplatform operators holding over one million users’ personal information submit to the Cybersecurity Review Office for a cybersecurity reviewbefore any public offering on a foreign stock exchange. On December 24, 2021, the CSRC issued the Draft Overseas Securities Offering andListing Measures and the Draft Overseas Securities Offering and Listing Regulations, which had a comment period that expired on January 23,2022. On February 17, 2023, the CSRC promulgated the Overseas Listing Trial Measures, which stipulate that overseas offering and listing bydomestic companies shall strictly abide by the laws, administrative regulations and state rules concerning national security in the areas of foreigninvestment, cybersecurity, and data security, and duly fulfill their obligations to protect national security. If the intended overseas offering andlisting necessitates a national security review (for example, a cybersecurity review), the national security review procedures shall be completedbefore the application for such offering and listing is submitted to overseas regulators and foreign stock exchanges. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The PRC government’s significant oversight and discretion over our businessoperation could result in a material adverse change in our operations and the value of our ADSs and ordinary shares” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of or filing to the CSRC or other PRC government authorities maybe required in connection with our offshore offerings and future capital raising activities under PRC law, and, if required, we cannot predictwhether or for how long we will be able to obtain such approval.”On January 23, 2019, the Office of the Central Cyberspace Affairs Commission, the Ministry of Industry and Information Technology, theMinistry of Public Security, and the State Administration for Market Regulation jointly issued the Notice on Special Governance of IllegalCollection and Use of Personal Information via Apps, which restates the requirement of legal collection and use of personal information,encourages app operators to conduct security certifications, and encourages search engines and app stores to clearly mark and recommend thosecertified apps. On November 28, 2019, the Cyberspace Administration of China, the Ministry of Industry and Information Technology, the Ministryof Public Security and the State Administration for Market Regulation jointly issued the Measures to Identify Illegal Collection and Usage ofPersonal Information by Apps, which lists six types of illegal collection and usage of personal information, including: (i) failure to publish rules onthe collection and usage of personal information, (ii) failure to expressly state the purpose, manner and scope of the collection and usage ofpersonal information, (iii) collecting and using personal information without obtaining consents from users, (iv) collecting personal informationirrelevant to the services provided, in violation of the necessary principle, (v) providing personal information to other parties without obtainingconsent and (vi) failure to provide the function of deleting or correcting personal information as required by law or failure to publish the methodsfor complaints and reports or other information. On July 22, 2020, the Ministry of Industry and Information Technology issued the Notice onCarrying out Special Rectification Actions in Depth against the Infringement on Users’ Rights and Interests by Apps to urge app service providers,among others, to strengthen the protection of users’ personal information in relation to the download and usage of apps. On March 12, 2021, theCyberspace Administration of China, the Ministry of Industry and Information Technology, the Ministry of Public Security and the StateAdministration for Market Regulation jointly promulgated the Rules on the Scope of Necessary Personal Information for Common Types ofMobile Internet Applications, which became effective on May 1, 2021, to further provide guidance over personal information security and privacyprotection.Table of Contents88In addition to the regulations above, Apps are specially regulated by the Administrative Provisions on Mobile Internet ApplicationsInformation Services (Revised in 2022), promulgated by the Cyberspace Administration of China, last amended on June 14, 2022 and becameeffective on August 1, 2022. These provisions set forth the requirements on the app information service and the app distribution service. TheCyberspace Administration of China and its local branches shall be responsible for the supervision and administration of nationwide and local appinformation content respectively. According to these provisions, app providers shall strictly fulfill their responsibilities of information securitymanagement, and perform the duties including but not limited to: (i) conduct real identity information authentication based on mobile phonenumbers, ID numbers or unified social credit codes for users who apply for registration when app providers provide users with services such asinformation release, instant messaging, etc.; (ii) be responsible for the results of the presentation of information, shall not produce or disseminateillegal information, and shall consciously prevent and resist harmful information; (iii) not induce users to download apps by means of falseadvertisement, bundled downloads, or other acts, or via machine or manual click farming and comment control, or by using illegal and harmfulinformation; (iv) immediately take remedial measures, promptly notify users and report to the competent authorities in accordance with regulationswhen an app has risks such as security defects and vulnerabilities; (v) perform the obligation of ensuring data security, establish a sound whole-process data security management system, take technical measures to ensure data security and other security measures, strengthen risk monitoring,and shall not endanger national security or public interests, or damage the legitimate rights and interests of others when carrying out app dataprocessing activities; and (vi) formulate and disclose management rules, and sign service agreements with registered users to clarify the rights andobligations of both parties. We are subject to the above provisions or measures relevant to app operation and believe that we are currently incompliance with the law in all material aspects. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business is subject to complex and evolving laws and regulations regarding cybersecurity, privacy, data protection and information security inChina. Failure to protect confidential information of our end customers or consumers could damage our reputation and substantially harm ourbusiness and results of operations.”Regulations Relating To Overseas ListingOn February 17, 2023, the CSRC promulgated the Overseas Listing Trial Measures, which became effective on March 31, 2023.The Overseas Listing Trial Measures will comprehensively improve and reform the existing regulatory regime for overseas offering andlisting of PRC domestic companies’ securities and will regulate both direct and indirect overseas offering and listing of PRC domestic companies’securities by adopting a filing-based regulatory regime.According to the Overseas Listing Trial Measures, PRC domestic companies that seek to offer and list securities in overseas markets,either in direct or indirect means, are required to fulfill the filing procedure with the CSRC and report the required information. The OverseasListing Trial Measures provides that no overseas offering and listing shall be made under any of the following circumstances: (i) such securitiesoffering and listing is explicitly prohibited by provisions in laws, administrative regulations and state rules; (ii) the intended securities offering andlisting may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law;(iii) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller, havecommitted crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist marketeconomy during the latest three years; (iv) the domestic company intending to make the securities offering and listing is currently underinvestigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or(v) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other shareholder(s) that arecontrolled by the controlling shareholder(s) and/or actual controller.Table of Contents89The Overseas Listing Trial Measures also provides that If the issuer both meets the following criteria, the overseas securities offering andlisting conducted by such issuer will be deemed as indirect overseas offering by PRC domestic companies: (i) 50% or more of any of the issuer’soperating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recentfiscal year is accounted for by domestic companies; and (ii) the main parts of the issuer’s business activities are conducted in mainland China, or itsmain place(s) of business are located in mainland China, or the majority of senior management staff in charge of its business operations andmanagement are PRC citizens or have their usual place(s) of residence located in mainland China. Where an issuer submits an application for initialpublic offering to overseas regulators, such issuer must file with the CSRC within three business days after such application is submitted. TheOverseas Listing Trial Measures also requires subsequent reports to be filed with the CSRC on material events, such as change of control orvoluntary or forced delisting of the issuer(s) who have completed overseas offerings and listings. Furthermore, overseas offering and listing bydomestic companies shall strictly abide by the laws, administrative regulations and state rules concerning national security in the areas of foreigninvestment, cybersecurity, data security and etc., and duly fulfill their obligations to protect national security. If the intended overseas offering andlisting necessitates a national security review (for example, a cybersecurity review), the national security review procedures shall be completedbefore the application for such offering and listing is submitted to overseas regulators and foreign stock exchanges. A domestic company that seeksto offer and list securities in overseas markets shall, as per requirement by competent authorities under the State Council, take such measures astimely rectification, commitment and divestiture of relevant business and assets, to eliminate or avert any impact on national security resulting fromsuch overseas offering and listing. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our business issubject to complex and evolving laws and regulations regarding cybersecurity, privacy, data protection and information security in China. Failure toprotect confidential information of our end customers or consumers could damage our reputation and substantially harm our business and results ofoperations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The approval of or filing to the CSRC orother PRC government authorities may be required in connection with our offshore offerings and future capital raising activities under PRC law,and, if required, we cannot predict whether or for how long we will be able to obtain such approval.”On February 24, 2023, the CSRC, PRC Ministry of Finance, the National Administration of State Secret Protection and the NationalArchives Administration of China promulgated the Provisions on Strengthening Confidentiality and Archives Administration of OverseasSecurities Offering and Listing by Domestic Companies, which became effective on March 31, 2023. According to these provisions, PRC domesticcompanies that seek overseas offering and listing, and the securities companies and securities service providers that advise them shall institute asound confidentiality and archives administration system and take necessary measures to fulfill confidentiality and archives administrationobligations. A domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to individuals orentities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secretsor working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecyadministrative department at the same level. A domestic company that plans to, either directly or through its overseas listed entity, publicly discloseor provide to individuals and entities including securities companies, securities service providers and overseas regulators, any other documents andmaterials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill the procedures stipulated by applicablenational regulations. Any entities or individuals that violate the Law of the People’s Republic of China on Guarding State Secrets, the ArchivesLaw of the People’s Republic of China and other applicable laws and regulations in the process of overseas offering and listing shall be held legallyliable by competent authorities, and referred to the judicial organ to be investigated for criminal liability if suspected of committing a crime.Table of Contents90Regulations Relating To Financial ServicesPursuant to the Guiding Opinions of the China Banking Regulatory Commission and the People’s Bank of China on the Pilot Operation ofMicrocredit Loan Enterprises promulgated by the China Banking Regulatory Commission and the People’s Bank of China on May 4, 2008, toapply for the establishment of a microcredit loan enterprise, the applicant shall submit a formal application to the competent administrativedepartments at the provincial level, and upon the approval, the applicant shall register with the local branch of the industrial and commercialadministration to obtain the business license.Pursuant to the Notice of the China Banking and Insurance Regulatory Commission on Issuing the Interim Measures for the Supervisionand Administration of Financial Leasing Enterprises promulgated by the China Banking and Insurance Regulatory Commission on May 26, 2020,provincial-level local financial regulatory authority shall establish a mechanism for consultation with administrations for market regulation tostrictly control the registration of financial leasing enterprises and their branches.Pursuant to the Notice of the General Office of the China Banking and Insurance Regulatory Commission on Strengthening theSupervision and Administration of Commercial Factoring Enterprises promulgated by the China Banking and Insurance Regulatory Commissionon October 18, 2019 with the amendment on June 21, 2021, each financial regulatory authority shall coordinate with administrations for marketregulation in strictly controlling the registration of commercial factoring enterprises before promulgation of the administrative measures for marketaccess of commercial factoring enterprises. If the newly establishment of a commercial factoring enterprise is necessary, the financial regulatoryauthority shall set up a consultation mechanism with administrations for market regulation.Regulations Relating To PricingIn China, the prices of a few numbers of products and services are set by the government. According to the Pricing Law promulgated onDecember 29, 1997, which became effective on May 1, 1998, operators must, as required by the government departments in charge of pricing,mark the prices explicitly and indicate the service items, pricing structures and other related standards clearly. Operators may not charge any feesthat are not explicitly indicated. Operators must not commit unlawful pricing activities, such as colluding with others to manipulate the marketprice, using false or misleading prices to deceive consumers, or conducting price discrimination against other business operators. Failure to complywith the Pricing Law may subject business operators to administrative sanctions such as warning, ceasing unlawful activities, requiringcompensation, confiscating illegal gains, fines. The business operators may be ordered to suspend business for rectification or having their businesslicenses revoked if the violations are severe. We are subject to the Pricing Law as a service provider and believe that our pricing activities arecurrently in compliance with the laws in all material aspects.Regulations Relating To LeasingWe lease properties for our offices, sorting hubs, pickup and delivery outlets and other facilities. Pursuant to the Law on Administration ofUrban Real Estate which took effect on January 1, 1995 with the latest amendment on August 26, 2019, which became effective on January 1,2020, lessors and lessees are required to enter into a written lease contract, containing such provisions as the term of the lease, the use of thepremises, rental price, liability for repair, and other rights and obligations of both parties. Both lessor and lessee are also required to file forregistration and record the lease contract with the real estate administration department. Pursuant to implementing rules stipulated by certainprovinces or cities, if the lessor and lessee fail to go through the registration procedures, both lessor and lessee may be subject to fines.The PRC Civil Code superseded the PRC Contract Law and became effective on January 1, 2021. According to the foregoing regulations,the lessee may sublease the leased premises to a third party, subject to the consent of the lessor. Where the lessee subleases the premises, the leasecontract between the lessee and the lessor remains valid. The lessor is entitled to terminate the lease contract if the lessee subleases the premiseswithout the consent of the lessor. In addition, if the lessor transfers the premises, the lease contract between the lessee and the lessor will stillremain valid.The PRC Civil Code superseded the PRC Property Law and became effective on January 1, 2021. Pursuant to the foregoing regulations, ifthe mortgaged property is leased before the mortgage contract is executed, the previously established tenancy will not be affected by thesubsequent mortgage, but where the mortgaged property is leased after the creation and registration of the mortgage interest, the tenancy cannotchallenge the registered mortgage.Table of Contents91Regulations Relating To Land Use Right And ConstructionCertain of our offices, sorting hubs and other facilities, together with the land use rights attached, are obtained or built by us or boughtfrom third parties. Pursuant to the PRC Land Administration Law promulgated on June 25, 1986 with the latest amendment on August 26, 2019,which became effective on January 1, 2020, and the PRC Property Law which has been superseded by the PRC Civil Code since January 1, 2021,any entity that needs land for the purposes of construction must obtain land use right and must register with local counterparts of Ministry ofNatural Resources. Land use right is established at the time of registration. We have not obtained title certificates of land use rights to certain piecesof land currently used by us. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—The title defects withrespect to or encumbrances on certain land and buildings or failure to obtain requisite approvals, licenses or permits in carrying out our propertyconstruction may cause interruptions to our business operations.”According to the Measures for Control and Administration of Grant and Assignment of Right to Use Urban State-owned Landpromulgated by the Ministry of Housing and Urban-Rural Development on December 4, 1992 with the amendment on January 26, 2011, and thePRC Law on Urban and Rural Planning promulgated by the National People’s Congress on October 28, 2007 and became effective on January 1,2008 with the latest amendment on April 23, 2019, the Measures for Administration of Permission for Commencement of Construction Workspromulgated by the Ministry of Housing Construction and Urban-Rural Development with the latest amendment on March 30, 2021, theAdministrative Measures for Archival Filing on Inspection Upon Completion of Buildings and Municipal Infrastructure promulgated by theMinistry of Housing and Urban-Rural Development with the latest amendment on October 19, 2009, and the Regulations on the QualityManagement of Construction Engineering promulgated by the State Council on January 30, 2000 and most recently amended on April 23, 2019,after obtaining land use right, the owner of land use right must obtain construction land planning permit, construction works planning permit fromthe municipal planning authority, and a construction permit from the construction authority in order to commence construction. After a building iscompleted, an examination of completion by the governmental authorities and experts must be organized. We have not been fully in compliancewith certain construction requirements under PRC laws and regulations, such as commencing construction projects before obtaining the requisitepermits and putting the constructions into use before passing the requisite inspection and acceptance. See “Item 3. Key Information—D. RiskFactors—Risks Related to Our Business and Industry—The title defects with respect to or encumbrances on certain land and buildings or failure toobtain requisite approvals, licenses or permits in carrying out our property construction may cause interruptions to our business operations.”Regulations Relating To Environmental ProtectionPursuant to the PRC Law on Environment Impact Assessment promulgated on October 28, 2002 and most recently amended on December29, 2018, and the Administrative Regulations on the Environmental Protection of Construction Projects promulgated on November 29, 1998 withthe latest amendment on July 16, 2017, each construction project is required to undergo an environmental impact assessment, and an environmentalimpact assessment report must be submitted to the governmental authorities in charge of ecological environment for approval before thecommencement of construction. In the event that there is a material change in respect of the location, scale, nature of the construction project, theproduction techniques employed or the measures adopted for preventing pollution and preventing ecological damage of a given project, a newenvironmental impact assessment report must be submitted for approval. Moreover, in accordance with the Administrative Regulations on theEnvironmental Protection of Construction Projects, after the construction of a construction project for which an environmental impact report orenvironmental impact statement is required, the construction unit shall make an acceptance check of the matching environmental protectionfacilities and prepare an acceptance report according to the standards and procedures stipulated by the competent administrative department ofenvironmental protection under the State Council. Subject to the Administrative Regulations on the Environmental Protection of ConstructionProjects, and the Interim Measures on the Administration of Acceptance Inspection of Construction Project Environmental Protection whichbecame effective on November 20, 2017, except those construction projects requiring water, noise and solid waste pollution prevention facilities,which are still subject to acceptance by the environmental authorities, the constructing entities may organize the acceptance inspection upon thecompletion by themselves for other construction projects. Failure to comply with the above-mentioned regulations may subject an enterprise tofines, suspension of the construction and other administrative liabilities.Regulations Relating To Intellectual Property RightsThe PRC government has adopted comprehensive governing laws for intellectual property rights, including copyrights, patents,trademarks and domain names.Table of Contents92Copyright. Copyright in China, including copyrighted software, is principally protected under the PRC Copyright Law and itsimplementation rules and the Regulations on the Protection of Computer Software. The PRC Copyright Law was promulgated by the StandingCommittee of the National People’s Congress on September 7, 1990 and was most recently amended on November 11, 2020. According to the PRCCopyright Law, the state copyright authority shall be responsible for the copyright administration nationwide, while the local copyright authority ator above the country level shall be responsible for copyright administration within its own administrative area. Copyright in China shall includepersonal rights and economic rights, including but not limited to the right of publication, the right of modification, the right of reproduction, theright of performance, etc. An author’s right of authorship, right of modification and right of protecting the integrity of the work shall continue inperpetuity. The Implementing Regulations of the PRC Copyright Law, promulgated by the State Council and recently amended on January 30,2013, stipulates the detailed rules on the protection of various types of copyrights in China. The Regulations on the Protection of ComputerSoftware, promulgated by the State Council and most recently amended on January 30, 2013, provides rules on copyrighted software. Under theseregulations, the term of protection for copyrighted software is 50 years.Patent Patents in China are principally protected under the PRC Patent Law, promulgated by the Standing Committee of the NationalPeople’s Congress and recently amended on October 17, 2020, and its implementation rules, promulgated by the State Council and recentlyamended on December 11, 2023. For the purposes of the PRC Patent Law, the protectable invention-creations refers to inventions, utility modelsand designs. The patent administrative department under the State Council (i.e. The National Intellectual Property Administration) is responsiblefor the administration of patent-related work nationwide, including examining and approving patent applications. The patent administrativedepartments of provinces, autonomous regions and municipalities are responsible for patent administration within their respective administrativeareas. Inventions and utility models must meet three conditions: novelty, inventiveness and practical applicability. The duration of a patent right iseither 10 years, 15 years or 20 years from the date of application, depending on the type of patent right.Trademark The PRC Trademark Law, promulgated by the Standing Committee of the National People’s Congress and recently amendedon April 23, 2019, and its implementation rules, promulgated by the State Council and recently amended on April 29, 2014 protect registeredtrademarks in China. The PRC Trademark Office of the National Intellectual Property Administration is responsible for the registration andadministration of trademarks throughout China. The trademark applied for registration shall have distinctive characteristics for identification, andshall not conflict with the prior legitimate rights of others. The PRC Trademark Law has adopted a “first-to-file” principle with respect totrademark registration. Where registration application for a trademark that is identical or similar to another trademark which has already registeredor given preliminary examination, the application for such trademark may be rejected. Trademark registration is effective for a renewable ten-yearperiod, unless otherwise revoked.Domain Name. Domain names in China are protected under the Administrative Measures on the Internet Domain Names promulgated bythe Ministry of Industry and Information Technology, on August 24, 2017. The Ministry of Industry and Information Technology is the majorregulatory authority responsible for the administration of the PRC internet domain names, under supervision of which the China Internet NetworkInformation Center, is responsible for the daily administration of CN domain names and Chinese domain names. The communicationadministrations of provinces, autonomous regions and municipalities shall supervise and administer domain name services within their respectiveadministrative area. Our domain name registration is handled through domain name service agencies established under the applicable regulations,and we become domain name holders upon successful registration.Regulations Relating To EmploymentPursuant to the PRC Labor Law, promulgated by National People’s Congress and most recently amended on December 29, 2018, and thePRC Labor Contract Law, promulgated by the Standing Committee of the National People’s Congress on June 29, 2007 and amended on December28, 2012, employers must execute written labor contracts with full-time employees. All employers must comply with local minimum wagestandards. Violation of the PRC Labor Law and the PRC Labor Contract Law may result in the imposition of fines and other administrative andcriminal liability in the case of serious violation.Table of Contents93Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurancefunds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternityinsurance plan, and a housing provident fund, and contribute to such plans or funds in amounts equal to certain percentages of salaries, includingbonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businessesor where they are located. According to the PRC Social Insurance Law, promulgated by National People’s Congress on October 28, 2010 and mostrecently amended on December 29, 2018, and Interim Regulations on Levying Social Insurance Premiums, promulgated by National People’sCongress on January 22, 1999 and most recently amended on March 24, 2019, an employer that fails to make social insurance contributions may beordered to rectify the non-compliance and pay the required contributions within a stipulated deadline and be subject to a late fee of up to 0.05% perday. If the employer still fails to rectify the failure to make social insurance contributions within the stipulated deadline, it may be subject to a fineranging from one to three times of the amount overdue and/or subject to a late fee of 0.2% per day. According to the Regulations on Managementof Housing Fund, promulgated by National People’s Congress on April 3, 1999 and most recently amended on March 24, 2019, an enterprise thatfails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulateddeadline; otherwise, an application may be made to a local court for compulsory enforcement. In the event of failure to pay certain past socialsecurity and housing fund contributions in accordance with the applicable PRC laws and regulations for and on behalf of our employees, we maybe subject to fines and penalties and may be required to make up the contributions for the social security and housing fund contributions as well asto pay late fees. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our failure to fully comply withPRC labor-related laws may expose us to potential penalties.”Regulations Relating To Foreign ExchangeThe principal regulations governing foreign currency exchange in China are the Foreign Exchange Administration Regulations, mostrecently amended on August 5, 2008. Payments of current account items, such as profit distributions and trade and service-related foreign exchangetransactions, can usually be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, by complyingwith certain procedural requirements. By contrast, approval from or registration with appropriate governmental authorities is required whereRenminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated loans.SAFE Circular 19 took effect as of June 1, 2015 and partially modified or repealed on June 9, 2016 and December 30, 2019 and March 23,2023. Pursuant to SAFE Circular 19, the foreign exchange capital of foreign-invested enterprises is subject to the discretional foreign exchangesettlement, which means the foreign exchange capital in the capital account of foreign-invested enterprises upon the confirmation of rights andinterests of monetary contribution by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the banks) maybe settled at the banks based on the actual operation needs of the enterprises. The proportion of discretionary settlement of foreign exchange capitalof foreign-invested enterprises is temporarily 100%. The State Administration of Foreign Exchange can adjust such proportion in due time basedon the circumstances of international balance of payments.On June 9, 2016, the State Administration of Foreign Exchange promulgated SAFE Circular 16. SAFE Circular 16 was recently amendedon December 4, 2023, which reiterates some of the rules set forth in SAFE Circular 19 and removed certain restrictions previously provided underseveral SAFE circulars, including removal of restriction on conversion by a foreign-invested enterprise of foreign currency registered capital intoRMB and use of such RMB capital. However, SAFE Circular 16 continues to prohibit foreign-invested enterprises from, among other things, usingRMB funds converted from their foreign exchange capitals for expenditure beyond their business scope, and providing loans to non-affiliatedenterprises except as permitted in the business scope.On January 26, 2017, the State Administration of Foreign Exchange issued the Notice of State Administration of Foreign Exchange onImproving the Review of Authenticity and Compliance to Further Promoting the Reform of Foreign Exchange Administration, or SAFE Circular 3,which stipulates several capital control measures with respect to the outbound remittance of profit from domestic entities to offshore entities.Moreover, pursuant to SAFE Circular 3, domestic entities shall make detailed explanations of the sources of capital and utilization arrangements,and provide board resolutions, contracts and other proof when completing the registration procedures in connection with an outbound investment.On October 23, 2019, the State Administration of Foreign Exchange issued the Notice of the State Administration of Foreign Exchange on FurtherFacilitating Cross-border Trade and Investment, which, among other things, expanded the use of foreign exchange capital to domestic equityinvestment area.Table of Contents94Regulations Relating To PRC Mergers & AcquisitionsOn August 8, 2006, the PRC Ministry of Commerce issued the Regulations on Mergers and Acquisitions of Domestic Enterprises byForeign Investor, which took effect on September 8, 2006 and were amended on June 22, 2009, provided that the scenarios qualify as an acquisitionof a domestic enterprise by a foreign investor. These regulations requires an overseas special purpose vehicle formed for listing purposes throughacquisitions of PRC domestic companies and controlled by PRC persons or entities to obtain the approval of the CSRC prior to the listing andtrading of such special purpose vehicle’s securities on an overseas stock exchange. According to the Measures for Reporting of Information onForeign Investment, which was issued by the PRC Ministry of Commerce and the State Administration for Market Regulation and took effect onJanuary 1, 2020, to acquire the equity of a non-foreign-invested enterprise within the territory of China, a foreign investor shall submit the initialreport through the enterprise registration system when it applies for the registration of changes to the acquired enterprise. The Anti-Monopoly Lawpromulgated by the Standing Committee of the National People’s Congress, which became effective on August 1, 2008, and recently amended onJune 24, 2022, requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must be declaredto the PRC Ministry of Commerce before they can be completed. According to the Provisions on Thresholds for Prior Notification ofConcentrations of Undertakings, issued by the State Council on August 3, 2008 with latest amendment released on September 18, 2018, where theconcentration of business operators satisfies any of the following threshold, the business operators shall file a declaration to the anti-monopolyenforcement authority of the State Council in advance, otherwise, no concentration shall be carried out: (i) the total amount of the global turnoverrealized by all business operators participating in the concentration during the last fiscal year exceeds RMB10 billion with at least two businessoperators each achieving a turnover of more than RMB400 million within China during the last fiscal year; (ii) the total amount of the turnoverwithin China achieved by all business operators participating in the concentration during the last fiscal year exceeds RMB2 billion with at least twobusiness operators each achieving a turnover of more than RMB400 million within China during the last fiscal year. The Provisions on the Reviewof Concentrations of Undertakings promulgated by the SAMR, which became effective on April 15, 2023, further stipulates the detailed rules ofdeclaration and examination of concentration of business operators. In addition, the Notice of the General Office of the State Council on theEstablishment of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors promulgated onFebruary 3, 2011 and became effective after 30 days of promulgation, require acquisitions by foreign investors of PRC companies engaged inmilitary related or certain other industries that are crucial to national security be subject to security review before consummation of any suchacquisition. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Certain PRC regulations may make itmore difficult for us to pursue growth through acquisitions.” These regulations may be interpreted or implemented in the context of an overseasoffering in the future. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulations relating to theestablishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries toliability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase their registeredcapital or distribute profits to us, or may otherwise adversely affect us.”Regulations Relating To Anti-Unfair Competition Law and Anti-Monopoly LawIn accordance with the PRC Anti-Unfair Competition Law which was promulgated by the Standing Committee of the National People’sCongress on September 2, 1993 and recently amended on April 23, 2019, when carrying out production or business activities, business operatorsshall abide by the principles of voluntariness, equality, fairness, honesty and credibility, and abide by laws and recognized business ethics. Pursuantto the PRC Anti-Unfair Competition Law, business operators may not engage in improper activities to undermine their competitors, including butnot limited to, causing market obfuscation, commercial bribery, misleading or false publicity, infringing upon trade secrets, improper prize-attachedsale activities, defamation of goodwill and internet unfair competition. Failure to comply with such regulations could result in variousadministrative penalties, including fines, confiscation of illegal gains and cessation of business activities. When the legitimate rights and interestsof a business operator are damaged by unfair competition, it may file a lawsuit in the People’s Court. If the damage suffered by the businessoperator is difficult to assess, the amount of damages shall be the profit obtained by the infringer through the infringement. The infringer shall alsobear all reasonable expenses paid by the infringed business operator to stop the infringement. In contrast, if a business operator violates theprovisions of the PRC Anti-Unfair Competition Law, engages in unfair competition and causes damage to another business operator, it shall beliable for damages.Table of Contents95The Anti-Monopoly Law was promulgated by the Standing Committee of the National People’s Congress, which took effect on August 1,2008 and most recently amended and took effect on August 1, 2022. The Anti-Monopoly Law prohibits monopolistic conduct, such as entering intomonopoly agreements, abuse of dominant market position and concentration of undertakings that have the effect of eliminating or restrictingcompetition and other anti-competitive activities. The Anti-Monopoly Law provides, among others, that business operators shall not use data,algorithms, technology, capital advantages and platform rules to exclude or limit competition, and also requires the government authorities tostrengthen the examination of concentration of undertakings in areas related to national welfare and people’s well-being. On February 7, 2021, theAnti-Monopoly Guidelines published by the Anti-Monopoly Committee of the State Council has been operating as a compliance guidance underthe existing anti-monopoly laws and regulations for operators of the internet platform economy. The Anti-Monopoly Guidelines specified thecircumstances where an activity of an internet platform will be identified as monopolistic act as well as concentration filing procedures for businessoperators, including those involving variable interest entities.Regulations Relating To Dividend DistributionAccording to the PRC Foreign Investment Law, foreign investment enterprises in China may pay dividends freely in RMB or any otherforeign currency according to law. In addition, according to the PRC Company Law, foreign investment enterprises, same as domestic enterprises,are required to set aside at least 10% of their after-tax profits (if any) each year to the company’s statutory reserves, until the accumulative amountof such fund reaches 50% of its registered capital. Although the statutory reserves can be used, among other ways, to increase the registered capitaland eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividendsexcept in the event of liquidation. Further, the foreign investment enterprises may allocate a portion of their after-tax profits based on PRCaccounting standards as discretionary reserve funds. These reserve funds are not distributable as cash dividends.Regulations Relating To Foreign DebtsThe foreign debt in PRC is regulated by various laws and regulations, including the Interim Provisions on the Management of ForeignDebts promulgated by the National Development and Reform Commission, the PRC Ministry of Commerce and the State Administration ofForeign Exchange on January 8, 2003 and recently amended on July 26, 2022, the Statistical Monitoring of Foreign Debts Tentative Provisionspromulgated by the State Administration of Foreign Exchange on August 27, 1987 and recently amended on November 29, 2020 and theAdministrative Measures for Registration of Foreign Debts promulgated by the State Administration of Foreign Exchange on April 28, 2013 andrecently amended on June 9, 2016, a shareholder loan in the form of foreign debt made to a PRC subsidiary shall be registered by the StateAdministration of Foreign Exchange or its local branches within 15 business days after entering into the foreign debt contract. Pursuant to theInterim Provisions on the Management of Foreign Debts, the sum of the accumulated amount of medium and long-term foreign debts and thebalance of short-term foreign debts borrowed by a foreign invested enterprise shall not exceed the difference between the total investment and theregistered capital of the foreign invested enterprise. On January 5, 2023, the National Development and Reform Commission issued AdministrativeMeasures for Review and Registration of Medium-term and Long-term Foreign Debts of Enterprises, requiring enterprises that borrowing debtswith a maturity of more than one year from overseas by domestic companies and overseas companies or branches controlled by domesticcompanies to apply for foreign debt review and registration, to report and release relevant information, to optimize the use of foreign debts, tomanage risks in an effective manner, and to cooperate with supervision and inspection. Before borrowing foreign debt, an enterprise shall obtainthe Certificate of Review and Registration of Enterprise Borrowing Foreign Debt and complete the review and registration procedures. Noborrowing of foreign debts shall be allowed without review and registration. Further, an enterprise shall, within ten business days after borrowingeach foreign debt, report the information to the review and registration authority via the network system; and report the corresponding informationabout the foreign debt borrowed within ten business days after the expiration of Certificate of Review and Registration of Enterprise BorrowingForeign Debt. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—PRC regulation of loans to and directinvestment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from loaningto or making additional capital contributions to our PRC subsidiaries and the consolidated affiliated entities in China, which could materially andadversely affect our liquidity and our ability to fund and expand our business.”Table of Contents96Regulations Relating To Offshore FinancingSAFE Circular 37 requires PRC residents to register with local branches of the State Administration of Foreign Exchange in connectionwith their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRCresidents’ 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 tothe special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division orother material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required registration, thePRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying outsubsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capitalinto its PRC subsidiary. Furthermore, failure to comply with the various registration requirements described above could result in liability underPRC law for evasion of foreign exchange controls. All of our shareholders that we are aware of being subject to regulations promulgated by theState Administration of Foreign Exchange have completed all necessary initial registrations with the local branch of the State Administration ofForeign Exchange or qualified banks as required by SAFE Circular 37.On February 13, 2015, the State Administration of Foreign Exchange released Circular of the State Administration of Foreign Exchangeon Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies, which was partially abolished onDecember 30, 2019, under which local banks will examine and handle foreign exchange registration for overseas direct investment, including theinitial foreign exchange registration and amendment registration, starting from June 1, 2015.On March 11, 2020, the People’s Bank of China and the State Administration of Foreign Exchange jointly released the Notice onAdjusting Macro-Prudential Adjustment Parameters of Full-Caliber Cross-Border Financing, which raised the macro prudential adjustmentparameter from 1 to 1.25. On January 7, 2021, the People’s Bank of China and the State Administration of Foreign Exchange jointly released theNotice on Adjusting Macro-Prudential Adjustment Parameters of Cross-Border Financing, which debased the macro prudential adjustmentparameter from 1.25 to 1.Regulations Relating To Employee Stock Incentive Plan Of Overseas Publicly-Listed CompanyPursuant to the 2012 SAFE Notices, which was promulgated by the State Administration of Foreign Exchange on February 15, 2012,individuals participating in any stock incentive plan of any overseas publicly listed company who are PRC citizens or non-PRC citizens who residein China for a continuous period of not less than one year, subject to a few exceptions, are required to register with the State Administration ofForeign Exchange through a domestic qualified agent, which could be a PRC subsidiary of such overseas listed company, and complete certainother procedures. In addition, an overseas entrusted institution must be retained to handle matters in connection with the exercise or sale of stockoptions and the purchase or sale of shares and interests. We and our executive officers and other employees, who are PRC citizens or non-PRCcitizens who reside in China for a continuous period of not less than one year with the exception of diplomatic agents of foreign countries in Chinaand the representatives of any international organization in China and have been granted options, are subject to these regulations as our companybecame an overseas listed company upon the completion of our initial public offering. Failure by such individuals to complete their registrationswith the State Administration of Foreign Exchange may subject them to fines and other legal sanctions. See “Item 3. Key Information—D. RiskFactors—Risks Related to Doing Business in China—Any failure to comply with PRC regulations regarding the registration requirements foremployee stock incentive plans of overseas publicly listed companies may subject the PRC plan participants or us to fines and other legal oradministrative sanctions.”The State Taxation Administration has issued certain circulars concerning employee share options or restricted shares. Under thesecirculars, our employees working in China who exercise share options or are granted restricted shares will be subject to PRC individual income tax.Our PRC subsidiaries have obligations to file documents related to employee share options or restricted shares with the tax authorities and towithhold individual income taxes of those employees who exercise their share options. If our employees fail to pay or we fail to withhold theirincome taxes according to the laws and regulations, we may face sanctions imposed by the tax authorities or other PRC governmental authorities.Table of Contents97Regulations Relating To TaxDividend Withholding TaxPursuant to the PRC Enterprise Income Tax Law which was recently amended on December 29, 2018, and its implementation rules, whichbecame effective on January 1, 2008 and was amended on April 23, 2019, if a non-resident enterprise has not set up an organization orestablishment in China, or has set up an organization or establishment but the income derived has no actual connection with such organization orestablishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%. Pursuant to the Arrangement between MainlandChina and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, which waspromulgated by the State Taxation Administration on August 21, 2006, the withholding tax rate in respect to the payment of dividends by a PRCenterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of 10% if the Hong Kong enterprise directly holds at least 25% of thePRC enterprise. The Notice of the State Taxation Administration on the Issues concerning the Application of the Dividend Clauses of TaxAgreements, which was promulgated by the State Taxation Administration on February 20, 2009, sets forth the requirements for a Hong Kongresident enterprise to enjoy the reduced withholding tax. Furthermore, the Administrative Measures for Convention Treatment for Non-residentTaxpayers, which became effective on January 1, 2020, require that non-resident taxpayers claiming treaty benefits shall be handled in accordancewith the principles of “self-assessment, claiming benefits, retention of the relevant materials for future inspection.” Where a non-resident taxpayerself-assesses and concludes that it satisfies the criteria for claiming treaty benefits, it may enjoy treaty benefits at the time of tax declaration or atthe time of withholding through a withholding agent, simultaneously gather and retain the materials pursuant to the provisions of these Measuresfor future inspection, and subject to subsequent administration by tax authorities. Accordingly, ZTO Express (Hong Kong) Limited may be able toenjoy the 5% withholding tax rate for the dividends they receive from ZTO Express, if they satisfy the conditions prescribed under the Notice ofthe STA on the Issues concerning the Application of the Dividend Clauses of Tax Agreements and other tax rules and regulations. However,according to these rules and regulations, if the tax authorities consider the transactions or arrangements we have are for the primary purpose ofenjoying a favorable tax treatment, the tax authorities may adjust the favorable withholding tax in the future.Enterprise Income TaxUnder the PRC Enterprise Income Tax Law, enterprises are classified as resident enterprises and nonresident enterprises. PRC residententerprises typically pay an enterprise income tax at the rate of 25%. How the PRC Enterprise Income Tax Law applies to the tax residence statusof ZTO and our offshore subsidiaries is subject to further interpretations.Under this law, an enterprise established outside China with its “de facto management bodies” located within China is considered a“resident enterprise,” meaning that it is treated in a manner similar to a PRC domestic enterprise for enterprise income tax purposes. Theimplementing rules of the FIT Law define de facto management body as a managing body that in practice exercises “substantial and overallmanagement and control over the production and operations, personnel, accounting, and properties” of the enterprise.According to STA Circular 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue ofhaving a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the criteriaspecified in STA Circular 82 are met. In addition, the State Taxation Administration issued the Bulletin of the State Taxation Administration onPrinting and Distributing the Administrative Measures for Income Tax on Chinese-controlled Resident Enterprises Incorporated Overseas (TrialImplementation) on July 27, 2011 and amended on June 15, 2018 by the Announcement of the State Taxation Administration on Revising CertainTaxation Normative Documents, providing more guidance on the implementation of STA Circular 82. According to the Bulletin of the StateTaxation Administration on Issues concerning the Determination of Resident Enterprises Based on the Standards of Actual ManagementInstitutions issued by the State Taxation Administration on January 29, 2014, a Chinese-controlled offshore incorporated enterprise that satisfies theconditions prescribed under STA Circular 82 for being recognized as a PRC tax resident must apply for being recognized as a PRC tax resident tothe competent tax authority at the place of registration of its main investor within the territory of China.Table of Contents98We do not believe that we meet all of the conditions outlined in the immediately preceding paragraph. We believe that ZTO and ouroffshore subsidiaries should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as setforth in STA Circular 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRCtax authorities and further interpretations with respect to the term “de facto management body” as applicable to our offshore entities, we may betreated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, and we may therefore be subject to PRC incometax on our global income. We are actively monitoring the possibility of “resident enterprise” treatment for the applicable tax years and areevaluating appropriate organizational changes to avoid this treatment, to the extent possible.In the event that ZTO or any of our offshore subsidiaries is considered to be a PRC resident enterprise: ZTO or our offshore subsidiaries,as the case may be, may be subject to the PRC enterprise income tax at the rate of 25% on our worldwide taxable income; dividend income thatZTO or our offshore subsidiaries, as the case may be, received from our PRC subsidiaries may be exempt from the PRC withholding tax; anddividends or interest paid to our overseas shareholders or ADS holders who are non-PRC resident individuals/enterprises as well as gains realizedby such shareholders or ADS holders from the transfer of our shares or ADSs may be regarded as PRC-sourced income and as a result be subject toPRC withholding tax at a rate of 20% to individuals or up to 10% to enterprises, subject to any reduction or exemption set forth in any applicabletax treaties. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—If we are classified as a PRC residententerprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders orADS holders.”Under STA Public Notice 7, issued by the State Taxation Administration on February 3, 2015, and was recently amended onDecember 29, 2017, an “indirect transfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may bere-characterized and treated as a direct transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and wasestablished for the purpose of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subjectto PRC enterprise income tax. In respect of an indirect offshore transfer of assets of a PRC establishment, the gain is to be regarded as effectivelyconnected with the PRC establishment and would consequently be subject to PRC enterprise income tax at a rate of 25%. Where the underlyingtransfer relates to the immoveable properties in China or to equity investments in a PRC resident enterprise, which is not effectively connected to aPRC establishment of a non-resident enterprise, a PRC enterprise income tax at 10% would apply, subject to available preferential tax treatmentunder applicable tax treaties or similar arrangements, and the party who is obligated to make the transfer payments has the withholding obligation.According to STA Announcement 37, the withholding party shall, within seven days of the day on which the withholding obligation occurs, declareand remit the withholding tax to the competent tax authority at its locality. Where the withholding party fails to withhold and remit the income taxpayable or is unable to perform its obligation in this regard, the non-resident enterprise that earns the income shall, declare and pay the tax that hasnot been withheld to the competent tax authority at the place where the income occurs, and complete the Withholding Statement of the PRC forEnterprise Income Tax. There may be further laws and regulations as to the implementation details of STA Public Notice 7 and STAAnnouncement 37. If STA Public Notice 7 or STA Announcement 37 was determined to be applicable to some of our transactions involving PRCtaxable assets, our offshore subsidiaries conducting the transactions might be required to spend valuable resources to comply with STA PublicNotice 7 and STA Announcement 37 or to establish that the transactions should not be taxed under STA Public Notice 7 or STA Announcement 37.See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We face uncertainty with respect to indirect transfersof equity interests in PRC resident enterprises by their non-PRC holding companies.”Where the payers fail to withhold any or sufficient tax, the non-PRC residents, as the transferors, are required to declare and pay suchtaxes to the tax authorities on their own within the statutory time limit. Failure to comply with the tax payment obligations by the non-PRCresidents will result in penalties, including full payment of taxes owed, fines ranging from fifty percent to five times the amount of unpaid orunderpaid tax and default interest on those taxes.Under the PRC Enterprise Income Tax Law and its implementation rules, certain high and new technology enterprises that independentlyown core intellectual property and meet statutory criteria are permitted to enjoy a reduced 15% enterprise income tax rate. The AdministrativeMeasures for the Certification of High and New Technology Enterprises, issued by the State Taxation Administration, the Ministry of Science andTechnology and the Ministry of Finance on January 29, 2016, specifies the criteria and procedures for the qualification and certification of the highand new technology enterprises.Table of Contents99Under the Circular on Issues Concerning Tax Policies for In-depth Implementation of Western Development Strategies, or Circular 58 andthe Bulletin of the State Taxation Administration on Issues of Enterprise Income Tax Concerning In-depth Implementation of Western RegionDevelopment Strategy promulgated on April 6, 2012, or Circular 12, from January 1, 2011 to December 31, 2020, the primary business of theenterprise is listed in one of the industry items provided in the Catalogue of Encouraged Industries in Western Regions and annual primary businessrevenue of which accounts for more than 70% of the total enterprise revenue, may pay enterprise income tax at the reduced tax rate of 15% subjectto the examination and confirmation of the competent tax authority. Afterwards, the State Taxation Administration abolished the examination andconfirmation procedures of the competent tax authority for the preferential treatment under Circular 12. The Ministry of Finance, the State TaxationAdministration and the National Development and Reform Commission promulgated the Announcement on Continuation of the Enterprise IncomeTax Policy for the Western Region Development, or Circular 23, from January 1, 2021 to December 31, 2030, the primary business of theenterprise is listed in the one of industry items provided in the Catalogue of Encouraged Industries in Western Regions and primary businessrevenue of which accounts for more than 60% of the total enterprise revenue, may pay enterprise income tax at the reduced tax rate of 15% subjectto the examination and confirmation of the competent tax authority. Circular 23 came into force as from January 1, 2021 and the policy onenterprise income tax in Circular 58 shall cease to be implemented with effect from the same day.In order to encourage the development of the enterprises in software industry, the State Taxation Administration, the Ministry of Finance,the National Development and Reform Commission and the Ministry of Industry and Information Technology issued the Circular on IssuesConcerning Preferential Policies on Enterprise Income Tax for Software and Integrated Circuit Industries on May 4, 2016 and the Announcementon Enterprise Income Tax Policies for Promoting High Quality Development of Integrated Circuit Industry and Software Industry on December 11,2020, which specifies the criteria and procedures for the qualification and certification of the key software enterprise. The key software enterprisesencouraged by the State are entitled to be exempted from enterprise income tax from the first to the fifth year from the profit-making year and besubject to enterprise income tax at a reduced tax rate of 10% for subsequent years.Preferential tax rates are also available to enterprises in certain regions of China. According to the Circular on Preferential EnterpriseIncome Tax Policies for the Hainan Free Trade Port issued by the Ministry of Finance and the State Taxation Administration on June 23, 2020,enterprise income tax is reduced to 15% through December 31, 2024 for enterprises registered in Hainan Free Trade Port if their primarybusinesses fall within the “encouraged” category of the policy. According to the Circular of Taxation on the Preferential Enterprise Income TaxPolicies and Catalogue for Hengqin New Area of Guangdong Province, Pingtan Comprehensive Experimental Area of Fujian Province and QianhaiShenzhen-Hong Kong Modern Service Industry Cooperation Zone of Shenzhen City issued by the Ministry of Finance and the State TaxationAdministration on March 25, 2014, enterprise income tax was reduced to 15% through December 31, 2020 for enterprises registered in HengqinNew Area of Guangdong Province, Pingtan Comprehensive Experimental Area of Fujian Province and Qianhai Shenzhen-Hong Kong ModernService Industry Cooperation Zone of Shenzhen City if their primary businesses fall within the “encouraged” category of the policy. According tothe Circular on Extending the Preferential Enterprise Income Tax Policies for the Shenzhen Qianhai Shenzhen-Hong Kong Modern ServiceIndustry Cooperation Zone issued by the Ministry of Finance and the State Taxation Administration on May 27, 2021, the aforementioned taxbenefit of 15% on eligible enterprises incorporated in the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone of ShenzhenCity was extended through December 31, 2025.PRC Value-Added TaxPursuant to the PRC Interim Value-Added Tax Regulations promulgated by the State Council on December 13, 1993 and recentlyamended on November 19, 2017, and its implementation rules promulgated by the Ministry of Finance on December 18, 2008 and recentlyamended on October 28, 2011, subject to applicable exceptions, taxpayers selling goods, providing labor services of processing, repairs ormaintenance, or selling services, intangible assets or real property in China, or importing goods to China shall pay VAT. A taxpayer is allowed tooffset the qualified input VAT paid on taxable purchases against the output VAT chargeable on the revenue from services provided.Table of Contents100Pursuant to the Pilot Proposals for the Collection of Value-Added Tax in Lieu of Business Tax promulgated by the State TaxationAdministration and the Ministry of Finance on November 16, 2011, starting from January 1, 2012, the PRC government has been graduallyimplementing a pilot program in certain provinces and municipalities, levying a 11% VAT on revenue generated from transportation services in lieuof the business tax. Pursuant to the Circular on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu ofBusiness Tax issued afterwards, or Circular 36, business tax shall be completely replaced by the VAT from May 1, 2016 and the VAT rateapplicable to VAT taxpayers ranges from 6% to 17%. Pursuant to Circular of Taxation on Adjusting Value-added Tax Rates, or Circular 32, issuedby the Ministry of Finance and the State Taxation Administration, and the Announcement on Policies for Deepening the VAT Reform, or Circular39, issued by the Ministry of Finance, the State Taxation Administration and the General Administration of Customs on March 20, 2019, effectiveon April 1, 2019, the VAT rate applicable to VAT taxpayers were adjusted to a range from 6% to 13%, among which taxable activities related totransportation and postal services shall be subject to a VAT rate of 9%. Under Circular 39 and the then effective Announcement on Relevant Value-added Tax Policies for Promoting the Relief and Development of Stranded Industries in Service Sector issued by the Ministry of Finance and theState Taxation Administration on March 3, 2022, during the period from April 1, 2019 to December 31, 2022, industry taxpayers of manufacturingand living service industries can enjoy an extra 10% for deduction of the tax payable, which is calculated based on the input VAT filed with the taxbureau. Under the Announcement on Clarifying the Value-added Tax Reduction and Exemption Policy for Small-scale VAT Taxpayers and OtherPolicies issued by the Ministry of Finance and the State Taxation Administration on January 9, 2023, taxpayers in productive service industries areallowed to deduct the tax payable by 5% of the deductible input tax from January 1, 2023 to December 31, 2023. In addition, under Circular 39,qualifying taxpayers who meet certain requirements are eligible for the newly increased unutilized input VAT refund. The refund of newlyincreased unutilized input VAT for the current period shall be calculated as per the following formula: refundable amount of newly increasedunutilized input VAT for the current period = newly increased unutilized input VAT x the input component ratio x 60%.Pursuant to the Announcement to Further Step up the Application of End-of-Period Excess Input Value Added Tax Credit Refund Policiesand the Announcement on Expanding the Scope of Industries Eligible for the Policy of Full Refund of Incremental VAT Credits, promulgated bythe Ministry of Finance and the State Taxation Administration respectively on March 21, 2022 and June 7, 2022, the end-of-period VAT creditrefund policy shall be enhanced for “transport, warehousing and postal” and “residential services, repairs and other services” sectors. Under theseannouncements, monthly refund of newly added unutilized input VAT and one-off refund of existing unutilized input VAT may be granted toenterprises, whose VAT taxable sales derived from engaging in activities in the “transport warehousing and postal “and “residential services, repairsand other services” industries under the Industrial Classification of National Economic Activities account for more than 50% of their total VATtaxable sales amount.Pursuant to the then effective Announcement on the VAT Exemption Policy for Express Courier Services promulgated by the Ministry ofFinance and the State Taxation Administration on April 29, 2022, from May 1, 2022 to December 31, 2022, taxpayers were exempt from value-added tax on income derived from providing express collection and delivery services for essential daily necessities to residents. The specific scopeof express collection and delivery services shall be implemented in accordance with the Notice on Comprehensively Implementing the PilotProgram of Replacing Business Tax with Valued-Added Tax.C. Organizational StructureFor the chart illustrating our company’s organizational structure, see “Our Holding Company Structure and Contractual Arrangements” atthe outset of Part I.The following is a summary of the currently effective contractual arrangements by and among Shanghai Zhongtongji Network, our whollyowned subsidiary, ZTO Express, the consolidated affiliated entity, and the shareholders of ZTO Express.Table of Contents101Agreements that enable us to direct the activities of ZTO ExpressVoting Rights Proxy Agreement. On August 18, 2015, ZTO Express and the shareholders of ZTO Express entered into a voting rightsproxy agreement with Shanghai Zhongtongji Network. Pursuant to the voting rights proxy agreement, each of the shareholders of ZTO Expressirrevocably appointed Meisong Lai, Shanghai Zhongtongji Network’s designated person, as their attorney-in-fact to exercise all applicableshareholder rights, including, but not limited to: (i) calling for and attending shareholders meetings as the proxy of the shareholders; (ii) exercisingvoting rights and all other shareholder’s rights provided under PRC laws and the articles of association of ZTO Express, including but not limitedto, selling, transferring, pledging or disposing all or a portion of the shares held by such shareholder or the assets of ZTO Express; (iii) voting on allmatters submitted to shareholders meetings, including but not limited to, the election of directors and senior management officers who shall beappointed by shareholders; and (iv)exercising other voting rights granted to the shareholders by the articles of association of ZTO Express, as maybe amended from time to time. Shanghai Zhongtongji Network and Meisong Lai both have the right to execute documents in connection with andperform other obligations under the equity pledge agreement and exclusive call option agreement. Any conduct of Shanghai Zhongtongji Networkor Meisong Lai in connection with ZTO Express will be deemed as conduct of the shareholders of ZTO Express. Any documents executed byShanghai Zhongtongji Network or Meisong Lai in connection with ZTO Express will be deemed to be executed by the shareholders of ZTOExpress. Each of the shareholders of ZTO Express agreed to acknowledge, accept and approve such conduct of or execution by ShanghaiZhongtongji Network and Meisong Lai. The voting rights proxy agreement will remain in force for an unlimited term, unless all the parties to theagreement mutually agree to terminate the agreement in writing. The authorization and appointment above are premised on Shanghai ZhongtongjiNetwork’s designated person being a PRC citizen and Shanghai Zhongtongji Network’s consent of such authorization and appointment. If and onlyif Shanghai Zhongtongji Network sends a written notice to the shareholders of ZTO Express to replace its designated person, the shareholders ofZTO Express shall promptly appoint the replaced designated person as their new attorney-in-fact under their power of attorney. Otherwise, thevoting rights proxy agreement shall be binding on the legal assignees or heirs of all parties subject to the laws and regulations applicable at thattime, and the authorization and appointment by the shareholders of ZTO Express’s shall not be revoked.Equity Pledge Agreement. On August 18, 2015, Shanghai Zhongtongji Network, ZTO Express and the shareholders of ZTO Expressentered into an equity pledge agreement and this agreement shall be binding on the legal assignees or heirs of all parties subject to the laws andregulations applicable at that time. Pursuant to the equity pledge agreement, each of the shareholders of ZTO Express pledged all of their equityinterests in ZTO Express to guarantee their and ZTO Express’s performance of their obligations under the contractual arrangements, including theexclusive consulting and services agreement, its related agreements and the equity pledge agreement. If ZTO Express or its shareholders breachtheir contractual obligations under this agreement, Shanghai Zhongtongji Network, as pledgee, will have the right to dispose of the pledged equityinterests in ZTO Express and priority in receiving the proceeds from such disposal. The shareholders of ZTO Express also agreed that, during theterm of the equity pledge agreement, they will not dispose of the pledged equity interests or create or allow any encumbrance on the pledged equityinterests. During the term of the equity pledge agreement, subject to specified exceptions therein, Shanghai Zhongtongji Network has the right toreceive all of the dividends and profits distributed on the pledged equity interests. The equity pledges became effective in September 2015, whichwas when the pledge of equity interests contemplated in the equity pledge agreement were registered with the administration for market regulationin accordance with the PRC Property Rights Law in force at that time, and will remain effective until ZTO Express and its shareholders havecompleted all of their obligations under the contractual arrangements or discharged all of their obligations under the contractual arrangements.Table of Contents102Exclusive Call Option Agreement. On August 18, 2015, Shanghai Zhongtongji Network, ZTO Express and the shareholders of ZTOExpress entered into an exclusive call option agreement. Pursuant to the exclusive call option agreement, each of the shareholders of ZTO Expressirrevocably granted Shanghai Zhongtongji Network an exclusive option to purchase, or have its designated entity or person to purchase, at itsdiscretion, to the extent permitted under PRC law, all or part of the shareholders’ equity interests in ZTO Express. The purchase price shall be thelower of (i)the amount that the shareholders contributed to ZTO Express as registered capital for the equity interests to be purchased, or (ii)thelowest price permitted by applicable PRC law. In addition, ZTO Express granted Shanghai Zhongtongji Network an exclusive option to purchase,or have its designated entity or person to purchase, at its discretion, to the extent permitted under PRC law, all or part of ZTO Express’s assets atthe lowest price permitted by applicable PRC law. Without the prior written consent of Shanghai Zhongtongji Network, among other applicableissues, the shareholders of ZTO Express may not increase or decrease the registered capital, dispose or cause the management of ZTO Express todispose of its material assets (other than those disposal during ordinary operation), terminate or cause the management of ZTO Express to terminateany material contract or enter into any contract that is in conflict with its existing material contracts, appoint or remove any directors, supervisors orother management members, cause ZTO Express to distribute or announce to distribute dividends to the shareholders, amend its articles ofassociation, provide any loans or guarantees to any third parties or acquire any loans or guarantees from any third parties, and shall guarantee thecontinuance of ZTO Express. The exclusive call option agreement will remain effective until all equity interests in ZTO Express held by itsshareholders and all assets of ZTO Express are transferred or assigned to Shanghai Zhongtongji Network or its designated entity or person. Theexclusive call option agreement shall be binding on the legal assignees or heirs of all parties subject to the laws and regulations applicable at thattime.Irrevocable Powers of Attorney. Pursuant to the powers of attorney dated August 18, 2015, the shareholders of ZTO Express eachirrevocably appointed Shanghai Zhongtongji Network’s designated person, Meisong Lai, as the attorney-in-fact to exercise all of applicableshareholder’s voting and related rights with respect to such shareholder’s equity interests in ZTO Express, including but not limited to: (i) callingfor and attending shareholders meetings as the proxy of the shareholders; (ii) exercising voting rights and all other shareholder’s rights providedunder PRC laws and the articles of association of ZTO Express, including but not limited to, selling, transferring, pledging or disposing all or aportion of the shares held by such shareholder or the assets of ZTO Express; (iii) voting on all matters submitted to shareholders meetings,including but not limited to, the election of directors and senior management officers that shall be appointed by shareholders; and (iv) exercisingother voting rights granted to the shareholders by the articles of association of ZTO Express, as may be amended from time to time. ShanghaiZhongtongji Network and Meisong Lai both have the right to execute documents in connection with and perform other obligations under the equitypledge agreement and exclusive purchase option agreement. Any conduct of Shanghai Zhongtongji Network or Meisong Lai in connection withZTO Express will be deemed as conduct of the shareholders of ZTO Express. Any documents executed by Shanghai Zhongtongji Network orMeisong Lai in connection with ZTO Express will be deemed to be executed by the shareholders of ZTO Express. Each of the shareholders of ZTOExpress agreed to acknowledge, accept and approve such conduct of or execution by Shanghai Zhongtongji Network and Meisong Lai. Each powerof attorney will remain in force until the voting rights proxy agreement expires or is terminated.Spousal Consents. Each of the spouses of six key shareholders of ZTO Express, namely Meisong Lai, Jianfa Lai, Jilei Wang, XiangliangHu, Shunchang Zhang and Xuebing Shang, signed a spousal consent letter. These six key shareholders collectively hold 73.8% equity interest inZTO Express. Under the spousal consent letters, each signing spouse unconditionally and irrevocably agreed that the spouse is aware of theabovementioned exclusive call option agreement, voting right proxy agreement, irrevocable powers of attorney, equity pledge agreement and theexclusive consulting and services agreement, and has read and understood the contractual arrangements. Each signing spouse has committed not toimpose any adverse assertions upon the validity and existence of such contractual arrangement based on the existence or termination of the maritalrelationship with the VIE shareholder or exert any impediment or adverse influence over the VIE shareholder’s performance of any contractualarrangement.Table of Contents103Agreement that allows us to receive economic benefits from ZTO ExpressExclusive Consulting and Services Agreement. Under the exclusive consulting and services agreement and its supplemental agreementbetween Shanghai Zhongtongji Network and ZTO Express, dated August 18, 2015 and August 10, 2020, respectively, Shanghai ZhongtongjiNetwork has the exclusive right to provide ZTO Express with the technical support and consulting services required by ZTO Express’s business.Shanghai Zhongtongji Network owns the exclusive intellectual property rights created as a result of the performance of this agreement. ZTOExpress agrees to pay Shanghai Zhongtongji Network an annual service fee, at an amount equal to 100% of the net income of ZTO Express and itsaffiliates. Notwithstanding the forgoing, ZTO Express and Shanghai Zhongtongji Network agree and confirm that the amount of the service feesshall be determined by Shanghai Zhongtongji Network and subject to any adjustment at the discretion of Shanghai Zhongtongji Network withoutthe consent of ZTO Express. This agreement will remain effective for an unlimited term, unless Shanghai Zhongtongji Network and ZTO Expressmutually agree to terminate the agreement in writing, or the agreement is required to be terminated by applicable PRC law. ZTO Express is notpermitted to unilaterally terminate the agreement in any event unless required by applicable law.In the opinion of Global Law Office, our PRC legal counsel:●the current ownership structure of ZTO Express and Shanghai Zhongtongji Network is not in violation of applicable PRC laws andregulations currently in effect; and●the contractual arrangements among Shanghai Zhongtongji Network, ZTO Express and its shareholders governed by PRC law arevalidly executed and binding in accordance with their terms, and do not result in violation of any applicable PRC laws andregulations currently in effect.However, our PRC legal counsel, Global Law Office, also advised that there are substantial uncertainties regarding the interpretation andapplication of current and future PRC laws, regulations and rules. Accordingly, the PRC regulatory authorities or courts may take a view that iscontrary to or otherwise different from the above opinion of Global Law Office, our PRC legal counsel. It is uncertain whether any new PRC lawsor regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. If the PRC government findsthat the agreements that establish the structure for operating our express delivery business do not comply with PRC government restrictions onforeign investment in our businesses, we could be subject to severe penalties including being prohibited from continuing operations and ourcorporate structure, business operations and future capital raising activities may be materially and adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure foroperating certain of our operations in China do not comply with PRC regulations relating to the relevant industries, or if these regulations or theinterpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in thoseoperations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the legalsystem in the jurisdiction where we operate could adversely affect us.”D. Property, Plant and EquipmentAs of March 31, 2024, we had an aggregate gross floor area of approximately 11,221,000 square meters of sorting hubs that we operate,among which approximately 8,160,000 square meters were used for sorting purposes. The lease terms of the buildings we leased from third partiesranged from 1 to 16 years. We had not obtained the title certificates of land use rights from the authorities with respect to an aggregate gross landarea of approximately 139,000 square meters of sorting hubs, and the title certificates with respect to 53 buildings.The areas of properties are based on figures specified in the land use right certificates or lease agreements, where available, or ouroperational records. We lease properties from third parties on an as is basis.We are also planning to acquire land use rights in appropriate locations to establish new sorting hubs and expand existing ones in thecoming years. We believe that we will be able to obtain adequate facilities through acquisition or lease to accommodate our future expansion plans.Table of Contents104ITEM 4A. UNRESOLVED STAFF COMMENTSNone.ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTSYou should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidatedfinancial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-lookingstatements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated inthese forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” or inother parts of this annual report on Form 20-F.A. Operating ResultsGeneral Factors Affecting Our Results of OperationsDemand from China e-commerce industry for express delivery servicesWe have benefited from the rapid growth of China’s e-commerce industry and its demand for more express delivery services, and ourbusiness and growth depend on and contribute to the viability and prospects of the e-commerce industry in China. We anticipate that the demandfor express delivery services will continue to grow.Market conditions and our market positionThe market conditions, the competitive landscape and our market position in the express delivery industry will affect the pricing of ourservices and in turn, our revenue and operating income.Operating leverage of our network partner modelOur business model is highly scalable and flexible. It enables us to expand our business operation efficiently by leveraging the resourcesand operating capabilities of our network partners with minimum capital requirements and operating expenditures. In addition, we can proactivelyadjust our network capacity to address peak demands and respond to seasonality. For instance, we have the ability to allocate sorting capacityamong adjacent sorting hubs, and our network partners have flexibility to add temporary workers. The scalability of our business model has helpedus expand geographic coverage and capture incremental growth in parcel volume, as well as improve operating efficiencies.Our continued investment in infrastructure, technology and peopleWe continue to invest in our sorting hubs and line-haul fleets, as well as technology infrastructure and people, particularly talent in overallmanagement, business operation and information technology. We expect our continued investments to further improve our parcel handling capacity,increase market penetration, and enhance customer services and operational efficiency.Our ability to broaden service offerings and diversify customer baseOur results of operations are also affected by our ability to introduce new service offerings and expand and further penetrate our customerbase. We are exploring new service offerings to capture existing and new market growth opportunities, including cross-border e-commerce, less-than-truckload logistics and backhaul trucking logistics of agricultural products. We also plan to expand our customer base across differentsegments and industries.Table of Contents105Key Line Items and Specific Factors Affecting Our Results of Operations RevenuesRevenuesYear Ended December 31,202120222023 RMB % RMB % RMB US$ % (in thousands)Express delivery services 27,450,922 90.3 32,575,698 92.1 35,488,060 4,998,389 92.4Freight forwarding services 1,529,601 5.0 1,212,677 3.4 906,802 127,720 2.4Sale of accessories 1,231,283 4.0 1,384,674 3.9 1,876,624 264,317 4.9Others 194,033 0.7 203,947 0.6 147,429 20,765 0.3Total revenues 30,405,839 100.0 35,376,996 100.0 38,418,915 5,411,191 100.0We derive a substantial part of our revenues from express delivery services that we provide to our network partners, which mainly includeparcel sorting and line-haul transportation. We charge our network partners a network transit fee for each parcel that is processed through ournetwork. Such fees represented 83.2%, 85.1% and 91.4% of our total express delivery services revenues in 2021, 2022 and 2023, respectively. Inaddition, we also directly provide express delivery services to certain enterprise customers, including vertical e-commerce and traditionalmerchants, in connection with the delivery of their products to end consumers. Revenues from our express delivery services to such enterprisecustomers accounted for 16.8%, 14.9% and 8.6% of our total express delivery services revenues in 2021, 2022 and 2023, respectively. We alsogenerate revenues from the sale of ancillary materials, such as portable barcode readers, thermal paper and ZTO-branded packing materials anduniforms, to our network partners.Our revenues are primarily driven by our parcel volume and the network transit fee we charge our network partners for each parcel goingthrough our network.In general, our parcel volume is affected by the various factors driving the growth of China’s e-commerce industry, as we generate themajority of our parcel volume by having our network partners serving end customers that carry out business on various e-commerce platforms inChina. Our parcel volume is also affected by our ability to scale our network to meet increases in demand and the ability of our network partnersand us to provide high-quality services to our end customers at a competitive price. Our annual parcel volume increased from 22,289 million in2021 to 24,389 million in 2022 and further to 30,202 million in 2023.We determine the level of pricing of our network transit fee based on the operating costs of our business while also considering otherfactors, including market conditions and competition as well as our service quality. The network transit fees we charge our network partners areprimarily measured by (i) a fixed amount for a waybill attached to each parcel and (ii) a variable amount per parcel for sorting and line-haultransportation based on the parcel weight and route distance. The delivery service fees we charge the enterprise customers are also based on parcelweight and route distance.Our network partners generally charge each parcel sender a delivery services fee directly. They have full discretion over the pricing oftheir services after taking into consideration certain of their costs, including the network transit fees we charge them and other factors, includingmarket conditions and competition as well as their service quality. There has historically been decline in the delivery services fees charged by ournetwork partners to parcel senders partially due to decreasing unit operational costs and market competition. We have been able to adjust the levelof network transit fees based on market conditions and our operating costs.We recognize revenues from express delivery services over time as we perform the services. We act as the principal rather than the agentfor express delivery service provided to enterprise customers based on analysis of our revenue arrangements using a control model. In the majorityof our arrangements, we consider the pickup outlets operated by our network partners to be our customers. Our revenues recorded for thosearrangements do not include the last-mile delivery fee because we act as an agent for last-mile delivery services and we are only arranging forservices to be provided by the last-mile network partner.We also provide freight forwarding services through the acquired business of China Oriental Express Co., Ltd. and its subsidiaries, whichwe refer to as the COE Business, a freight forwarding and international logistics services provider in Hong Kong and Shenzhen. Revenue fromfreight forwarding services is recognized over time when services are rendered. Our freight forwarding revenue is primarily driven by our freightvolume. We determine and periodically review and adjust our fee levels based on the prevailing market conditions, operating costs and servicelevel.Table of Contents106Cost of RevenuesIn addition to the level of network transit fees we charge our network partners, our profitability also depends on our ability to control ourcosts as we expand. Our cost of revenues mainly consists of (i) line-haul transportation cost, (ii) sorting hub cost, (iii) freight forwarding cost, (iv)cost of accessories sold, and (v) other costs. The following table sets forth the components of our cost of revenues, in absolute amounts and aspercentages of our revenues for the periods indicated:Year Ended December 31,202120222023 RMB % RMB % RMB US$ %(in thousands)Line-haul transportation cost 11,487,810 37.8 12,480,170 35.3 13,591,627 1,914,341 35.4Sorting hub cost 6,774,595 22.3 7,845,491 22.2 8,253,522 1,162,484 21.5Freight forwarding cost 1,326,557 4.4 1,137,140 3.2 854,533 120,358 2.2Cost of accessories sold 349,647 1.1 463,448 1.3 513,391 72,310 1.3Other costs 3,877,853 12.7 4,411,472 12.4 3,543,316 499,066 9.2Total cost of revenues 23,816,462 78.3 26,337,721 74.4 26,756,389 3,768,559 69.6Line-haul transportation cost primarily includes (i) payment for services by outsourced fleets, (ii) truck fuel costs and tolls incurred by thevehicles we own, (iii) employee compensation and other benefits for drivers of the vehicles we own, (iv) air transportation cost and (v) depreciationand maintenance costs of the vehicles we own. Total line-haul transportation cost accounted for 37.8%, 35.3% and 35.4% of our revenues in 2021,2022 and 2023, respectively. Since 2019, we increased usage of the vehicles that we own ourselves with an increasing number of higher-capacitytrailer trucks, especially during the peak season, resulting in improved transportation cost efficiencies.Sorting hub cost includes (i) labor costs, (ii) land lease costs, (iii) depreciation of property and equipment and amortization of land userights and (iv) other operating costs. Total sorting hub cost accounted for 22.3%, 22.2% and 21.5% of our revenues 2021, 2022 and 2023,respectively.Freight forwarding costs relate to the freight forwarding services provided by the COE Business we acquired on October 1, 2017.Cost of accessories sold, which mainly includes cost of accessories that we sell to our network partners, such as (i) portable bar codereaders, (ii) thermal paper used for digital waybill printing, and (iii) ZTO-branded packing materials and uniforms, accounted for 1.1%, 1.3% and1.3% of our revenues in 2021, 2022 and 2023, respectively. Cost of accessories sold as a percentage of our revenues from sale of accessories was28.4%, 33.5% and 27.4% in 2021, 2022 and 2023, respectively.Other costs, which mainly include (i) information technology related cost, (ii) dispatching costs paid to network partners associated withserving enterprise customers, and (iii) business tax surcharges, accounted for 12.7%, 12.4% and 9.2% of our revenues in 2021, 2022 and 2023,respectively.To maintain competitive pricing and enhance profit per parcel, we must continue to control our costs and improve our operating efficiency.We have adopted various cost-control measures. For example, fuel cost can be reduced through the use of more fuel-efficient vehicles, and unittransportation cost can be reduced by adding cost efficient, high-capacity line-haul trucks to our fleet and a gradual shift to a direct shipping modelby selected network partners, and labor costs can be contained through wider implementation of automated sorting equipment.Table of Contents107Selling, General and Administrative ExpensesOur selling, general and administrative expenses, which consist primarily of (i) salaries and other benefits for management and employees,(ii) depreciation and rental costs for office facilities, and (iii) legal, finance, and other corporate overhead costs, accounted for 6.2%, 5.9% and6.3% of our revenues in 2021, 2022 and 2023, respectively. Our selling, general and administrative expenses also included share-basedcompensation expenses of RMB248.0 million, RMB179.0 million and RMB255.0 million (US$35.9 million) in 2021, 2022 and 2023, respectively,which accounted for 0.8%, 0.5% and 0.7% of our revenues in the corresponding periods. We expect that our selling, general and administrativeexpenses will continue to increase as we hire additional personnel and incur additional costs in connection with the expansion of our businessoperations, enhancement of management capabilities and grant of share incentives.Results of OperationsThe following table sets forth a summary of our consolidated results of operations for the periods indicated, both in absolute amounts andas percentages of our total revenues. This information should be read together with our consolidated financial statements and related notes includedelsewhere in this annual report. The operating results in any period are not necessarily indicative of the results that may be expected for any futureperiod.Year Ended December 31,202120222023 RMB % RMB % RMB US$ %(in thousands except percentages)Revenues 30,405,839 100.0 35,376,996 100.0 38,418,915 5,411,191 100.0Cost of revenues (23,816,462) (78.3) (26,337,721) (74.4) (26,756,389) (3,768,559) (69.6)Gross profit 6,589,377 21.7 9,039,275 25.6 11,662,526 1,642,632 30.4Operating income (expenses)(1)Selling, general and administrative (1,875,869) (6.2) (2,077,372) (5.9) (2,425,253) (341,590) (6.3)Other operating income, net 789,503 2.6 774,578 2.2 770,651 108,544 2.0Total operating expenses (1,086,366) (3.6) (1,302,794) (3.7) (1,654,602) (233,046) (4.3)Income from operations 5,503,011 18.1 7,736,481 21.9 10,007,924 1,409,586 26.1Other income (expenses)Interest income 363,890 1.2 503,722 1.4 706,765 99,546 1.9Interest expense (126,503) (0.4) (190,521) (0.5) (289,533) (40,780) (0.8)Gain from fair value changes of financial instruments 52,909 0.2 46,246 0.1 164,517 23,172 0.4Gain on disposal of equity investees and subsidiary 2,357 — 69,598 0.2 5,485 773 0.0Impairment of investment in equity investee — — (26,328) (0.1)———Foreign currency exchange (loss)/gain, before tax (56,467) (0.2) 147,254 0.4 93,543 13,175 0.2Income before income tax, and share of loss inequity method investments 5,739,197 18.9 8,286,452 23.4 10,688,701 1,505,472 27.8Income tax expense (1,005,451) (3.3) (1,633,330) (4.6) (1,938,600) (273,046) (5.0)Share of (loss)/gain in equity method investments (32,419) (0.1) 5,844 0.0 4,356 614 0.0Net Income 4,701,327 15.5 6,658,966 18.8 8,754,457 1,233,040 22.8Net loss/(income) attributable to noncontrollinginterests 53,500 0.2 150,090 0.4 (5,453) (768) 0.0Net income attributable to ZTO Express (Cayman)Inc. 4,754,827 15.6 6,809,056 19.2 8,749,004 1,232,272 22.8(1)Our operating income (expenses) in 2021, 2022 and 2023 includes RMB248.0, RMB179.0 million and RMB255.0 (US$35.9 million),respectively, of share-based compensation expenses, accounting for 0.8%, 0.5% and 0.7% of our total revenues in the same periods,respectively.Table of Contents108Year Ended December 31, 2023 Compared to Year Ended December 31, 2022RevenuesOur revenues increased by 8.6% to RMB38.4 billion (US$5.4 billion) in 2023 from RMB35.4 billion in 2022. The increase was mainlydriven by a 23.8% increase in parcel volume to 30,202 million in 2023 from 24,389 million in 2022 as a result of an increase in our market share. Itwas also largely offset by a 11.3% decrease in unit price per parcel mainly resulting from increase in volume incentives. KA revenue includingdelivery fees from direct sales organizations, established to serve core express KA customers, decreased by 37.3% through either re-engagement ofpartner outlets for fulfilment or rationalization due to loss-making. Revenue from freight forwarding services decreased by 25.2% compared to2022, mainly due to post-pandemic e-commerce price decline. Revenue from sales of accessories, largely consisting of the sales of thermal paperused for digital waybills, increased by 35.5% in line with parcel volume growth.Cost of RevenuesOur total cost of revenues increased by 1.6% to RMB26.8 billion (US$3.8 billion) in 2023 from RMB26.3 billion in 2022. This increaseprimarily resulted from increases in line-haul transportation cost by 8.9% to RMB13.6 billion (US$1.9 billion), sorting hub operating cost by 5.2%to RMB8.3 billion (US$1.2 billion), and cost of accessories sold by 10.8% to RMB513.4 million (US$72.3 million), partially offset by the decreasein other costs by 19.7% to RMB3,543.3 million (US$499.1 million).Line-haul transportation cost. Our line-haul transportation cost was RMB13.6 billion (US$1.9 billion) in 2023, an increase fromRMB12.5 billion in 2022. The line-haul transportation cost per parcel decreased 6 cents to RMB0.45. The decrease was primarily due to bettereconomies of scale, optimized line-haul route planning and decreased fuel price.Sorting hub cost. Our sorting hub cost increased by 5.2% to RMB8.3 billion (US$1.2 billion) in 2023 from RMB7.8 billion in 2022. Theincrease was mainly due to (i) RMB242.3 million (US$34.1 million) increase in labor-associated costs, a net result of wage increases partiallyoffset by automation-driven efficiency improvement, and (ii)RMB245.7 million (US$34.6 million) increase in depreciation and amortization costsassociated with automated equipment and other facilities. With standardization in operating procedures, improved performance evaluation system,the unit sorting cost decreased 15.0% or 5 cents.Cost of accessories sold. Our cost of accessories sold increased by 10.8% to RMB513.4 million (US$72.3 million) in 2023 fromRMB463.4 million in 2022.Other costs. Other costs decreased to RMB3,543.3 million (US$499.1 million) in 2023 from RMB4,411.5 million in 2022, primarily dueto (i) RMB904.7 million (US$127.4 million) decrease in dispatching costs associated with serving enterprise customers, offset by (ii) RMB137.2million (US$19.3 million) increase in IT cost.Gross ProfitOur gross profit increased by 29.0% to RMB11.7 billion (US$1.6 billion) in 2023 from RMB9.0 billion in 2022, primarily attributable to23.8% parcel volume growth and 18.0% unit cost productivity gain partially offsetting overall unit price per parcel decline of 11.3% due tocompetition. The parcel volume growth resulted mainly from an increase in our market share. On the other hand, our cost productivity improvedduring the period primarily because of the continued adoption of cost efficient and innovative measures in transportation and sorting, such as theuse of high-capacity trucks and automated sorting equipment. As a result, our gross profit margin increased to 30.4% in 2023 from 25.6% in 2022.Operating ExpensesOur total operating expenses increased by 27.0% to RMB1,654.6 million (US$233.0 million) in 2023 from RMB1,302.8 million in 2022.Table of Contents109Selling, general and administrative expenses. Our selling, general and administrative expenses increased by 16.7% to RMB2,425.3million (US$341.6 million) in 2023 from RMB2,077.4 million in 2022. The increase was primarily due to (i) RMB115.9 million (US$16.3 million)increase in compensation and benefit expenses, (ii) RMB85.6 million (US$12.1 million) provision of losses from a credit loan provided toShanghai Shuangcaiji Intelligent Technology Co., Ltd, an equipment supplier, (iii) RMB80.2 million (US$11.3 million) in headquarter facilityexpenses, and (iv) RMB74.8 million (US$10.5 million) depreciation and amortization costs associated with equipment and facilities.Other operating income, net. We had a net other operating income of RMB770.7 million (US$108.5 million) in 2023, compared withRMB774.6 million in 2022. Other operating income mainly consisted of (i) RMB397.0 million (US$55.9 million) of government subsidies and taxrebates, (ii) RMB277.4 million (US$39.1 million) of VAT super deduction, and (iii) RMB122.0 million (US$17.2 million) of rental income.Other Income and ExpensesInterest income. Interest income increased to RMB706.8 million (US$99.5 million) in 2023 from RMB503.7 million in 2022, primarilydue to the increased average daily balance of cash and interest-earning bank deposits.Interest expense. Our interest expense increased to RMB289.5 million (US$40.8 million) in 2023 from RMB190.5 million in 2022,primarily due to increased short-term bank borrowings during 2023.Foreign currency exchange gain. Our foreign currency exchange gain decreased from the gain of RMB147.3 million in 2022 to the gain ofRMB93.5 million (US$13.2 million) in 2023, mainly due to the decrease in the onshore U.S. dollar-denominated bank deposits, partially offset bythe appreciation of U.S. dollar against Renminbi.Income Tax ExpenseOur income tax expense was RMB1,938.6 million (US$273.0 million) in 2023, representing an increase of 18.7% from RMB1,633.3million in 2022. Our effective tax rate in 2023 was 18.1%, compared to 19.7% in 2022 due to an income tax refund of RMB207.1 million receivedin the third quarter by Shanghai Zhongtongji Network, a wholly-owned subsidiary of the Company, for being recognized as a “Key SoftwareEnterprise” that was qualified for a preferential tax rate of 10% for tax year 2022.Net IncomeOur net income increased to RMB8,754.5 million (US$1,233.0 million) in 2023 from RMB6,659.0 million in 2022 primarily as a result ofthe foregoing.Year Ended December 31, 2022 Compared to Year Ended December 31, 2021For a detailed description of the comparison of our operating results for the year ended December 31, 2022 to the year endedDecember 31, 2021, see “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Results of Operations—Year EndedDecember 31, 2022 Compared to Year Ended December 31, 2021” of our annual report on Form 20-F filed with the Securities and ExchangeCommission on April 20, 2023.TaxationWe generate the majority of our operating income from our PRC operations. Income tax liability is calculated based on a separate returnbasis as if we had filed separate tax returns for all the periods presented.The Cayman Islands and the British Virgin IslandsUnder the current laws of the Cayman Islands and the British Virgin Islands, we are not subject to tax on our income or capital gains.Table of Contents110Hong KongUnder the current Hong Kong Inland Revenue Ordinance, our subsidiaries domiciled in Hong Kong have introduced a two-tiered profitstax rate regime which is applicable to any year of assessment commencing on or after April 1, 2018. The profits tax rate for the first HK$2 millionof profits of corporations will be lowered to 8.25%, while profits above that amount will continue to be subject to the tax rate of 16.5%. Under theHong Kong tax laws, we are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends fromour Hong Kong subsidiary to us are not subject to any Hong Kong withholding tax.PRCUnder the PRC Enterprise Income Tax Law, our PRC subsidiaries and the consolidated affiliated entities are in principle subject toenterprise income tax at a statutory rate of 25%. This 25% rate applies to most of our subsidiaries and consolidated affiliated entities established inChina. Some of our subsidiaries and consolidated affiliated entities are entitled to a favorable statutory tax rate of 10% or 15% because of theirqualifications as a high and new technology enterprise, or as a key software enterprise, or as enterprises within the Catalogue of EncouragedIndustries in Western Regions or because of favorable local tax treatment for various terms. In addition, some of our subsidiaries and consolidatedaffiliated entities are entitled to a favorable tax treatment in relation to their research and development expenses, such as the increased pre-tax superdeduction ratio for research and development expenses.See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Tax—Enterprise Income Tax”for descriptions of these preferential tax policies.Under Circular 36, our PRC subsidiaries and the consolidated affiliated entities are subject to VAT, at a rate of 6% to 17% on proceedsreceived from customers and are entitled to a refund for VAT already paid or borne on the goods or services purchased by it and utilized in theproduction of goods or provisions of services that have generated the gross sales proceeds. Pursuant to Circular 32 and Circular 39, the VAT rateapplicable to VAT taxpayers were adjusted to a range from 6% to 13%, among which taxable activities related to transportation and postal servicesshall be subject to a VAT rate of 9%. Under Circular 39 and the then effective Announcement on Relevant Value-added Tax Policies for Promotingthe Relief and Development of Stranded Industries in Service Sector issued by the Ministry of Finance and the State Taxation Administration onMarch 3, 2022, during the period from April 1, 2019 to December 31, 2022, taxpayers of manufacturing and living service industries enjoyed anextra 10% for deduction of the tax payable, which is calculated based on the input VAT filed with the tax bureau. Under the Announcement onClarifying the Value-added Tax Reduction and Exemption Policy for Small-scale VAT Taxpayers and Other Policies issued by the Ministry ofFinance and the State Taxation Administration on January 9, 2023, taxpayers in productive service industries are allowed to deduct the tax payableby 5% of the deductible input tax from January 1, 2023 to December 31, 2023. In addition, under Circular 39, qualifying taxpayers who meetcertain requirements are eligible for the newly increased unutilized input VAT refund. The refund of newly increased unutilized input VAT for thecurrent period shall be calculated as per the following formula: refundable amount of newly increased unutilized input VAT for the current period =newly increased unutilized input VAT x the input component ratio x 60%.Pursuant to the Announcement to Further Step up the Application of End-of-Period Excess Input Value-Added Tax Credit Refund Policiesand the Announcement on Expanding the Scope of Industries Eligible for the Policy of Full Refund of Incremental VAT Credits, promulgated bythe Ministry of Finance and the State Taxation Administration respectively on March 21, 2022 and June 7, 2022, the end-of-period VAT creditrefund policy shall be enhanced for “transport, warehousing and postal” and “residential services, repairs and other services” sectors. Under theseannouncements, monthly refund of newly added unutilized input VAT and one-off refund of existing unutilized input VAT may be granted toenterprises, whose VAT taxable sales derived from engaging in activities in the “transport, warehousing and postal” and “residential services,repairs and other services” industries under the Industrial Classification of National Economic Activities account for more than 50% of their totalVAT taxable sales amount.Pursuant to the then effective Announcement on the VAT Exemption Policy for Express Courier Services promulgated by the Ministry ofFinance and the State Taxation Administration on April 29, 2022, from May 1, 2022 to December 31, 2022, taxpayers were exempt from value-added tax on income derived from providing express collection and delivery services for essential daily necessities to residents. The specific scopeof express collection and delivery services shall be implemented in accordance with the Notice on Comprehensively Implementing the PilotProgram of Replacing Business Tax with Valued-Added Tax.Table of Contents111Critical Accounting EstimatesWe prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make judgments, estimates andassumptions that affect our reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the end of each fiscalperiod and our reported amounts of revenue and expenses during each fiscal period. We continually evaluate these judgments and estimates basedon our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future basedon available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters thatare not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual resultscould differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.Financing Receivables, Net of AllowanceFinancing receivables are primarily generated from the financial services we provided to qualified network partners. Financing receivablesare recorded at the principal net of allowance for credit losses and include accrued interest receivable as of the balance sheet date. The financingperiods granted by us to the borrowers generally range from 1 to 60 months.Allowance for credit losses relating to financing receivables represents our best estimate of the losses inherent in the outstanding portfolioof loans. Judgment is required to determine the allowance amounts and whether such amounts are adequate to cover potential credit losses, andperiodic reviews are performed to ensure such amounts continue to reflect the best estimate of the losses inherent in the outstanding portfolio ofloans.We have developed a forward looking current expected credit loss model based on the conditions of collaterals and guarantees forfinancing receivables, historical experiences, credit quality of the borrowers, current economic conditions and the borrowers’ operating results,reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from the borrowers.We had a financing receivables balance of RMB2,247.1 million and RMB2,100.2 million (US$295.8 million) as of December 31, 2022and 2023. No material default occurred in 2021, 2022 and 2023. RMB99.1 million and RMB150.0 million (US$21.1 million) of allowance ofcredit losses relating to financing receivables were recorded as of December 31, 2022 and 2023, respectively. The expected credit loss recognizedfor financing receivables was RMB19.7 million, RMB35.5 million and RMB50.9 million (US$7.2 million) for the years ended December 31, 2021,2022 and 2023, respectively.The table below sets forth the maturity profiles of our financing receivables before provision of credit losses as of December 31, 2023. Within One to Two to Over three December 31, 2023one yeartwo yearsthree yearsyearsTotal Balance (RMB in thousands) 2,250,274 1,228,630 585,654 435,990 —Percentage of Total Balance 100.0 54.6 26.0 19.4 —Recently Issued Accounting PronouncementA list of recently issued accounting pronouncements that are relevant to us is included in Note 2(aa) “Recently issued accountingpronouncement” to our audited consolidated financial statements included elsewhere in this annual report.Table of Contents112B. Liquidity and Capital ResourcesThe following table sets forth the movements of our cash, cash equivalents and restricted cash for the periods presented:Year Ended December 31,202120222023 RMB RMB RMB US$(in thousands)Summary Consolidated Cash Flow Data: Net cash provided by operating activities 7,220,217 11,479,308 13,360,967 1,881,851Net cash used in investing activities (8,756,533) (16,041,890) (12,252,751) (1,725,762)Net cash (used in)/provided by financing activities (2,903,985) 7,058,202 (769,836) (108,429)Effect of exchange rate changes on cash, cash equivalents and restricted cash (150,430) 338,106 109,843 15,471Net increase/(decrease) in cash, cash equivalents and restricted cash (4,590,731) 2,833,726 448,223 63,131Cash, cash equivalents and restricted cash at beginning of year 14,360,092 9,769,361 12,603,087 1,775,107Cash, cash equivalents and restricted cash at end of year 9,769,361 12,603,087 13,051,310 1,838,238Our principal sources of liquidity have been proceeds from cash flows from operating activities and financing activities in the past threeyears.●In September 2020, we raised approximately HK$11.1 billion (US$1.4 billion) from the public offering of Class A ordinaryshares in connection with our secondary listing in Hong Kong, after deducting underwriting commissions and the offeringexpenses payable by us.●In September 2022, we completed an offering of US$1 billion in aggregate principal amount of convertible senior notes due2027, or the 2027 Notes. The 2027 Notes bear interest at a rate of 1.50% per year, payable semiannually in arrears on March 1and September 1 of each year, beginning on March 1, 2023. The 2027 Notes will mature on September 1, 2027, unless earlierredeemed, repurchased or converted in accordance with their terms prior to such date. The holders may require us to repurchasefor cash all or part of 2027 Notes on September 2, 2025, or upon a fundamental change, at a repurchase price equal to 100% ofthe principal amount of the notes to be repurchased, plus accrued and unpaid interest. In connection with the offering of the 2027Notes, we have entered into capped call transactions with certain counterparties. The cap price of the capped call transactions isinitially US$36.48 per ADS and is subject to adjustment under the terms of the capped call transactions.As of December 31, 2021, 2022 and 2023, our cash and cash equivalents, restricted cash and short-term investments were RMB12.6billion, RMB18.3 billion, and RMB20.5 billion (US$2.9 billion), respectively. Our cash and cash equivalents primarily consist of cash on hand andhighly liquid investments, which are unrestricted as to withdrawal or use or have maturities of three months or less when purchased. Restrictedcash represents secured deposits held in designated bank accounts for issuance of bank acceptance notes, settlement of derivatives andcommencement of construction. Short-term investment primarily comprises of interest rate swaps, dual currency notes/deposits, time deposits withmaturities between three months and one year, and investments in wealth management products with variable interest rates. As of December 31,2023, approximately 91.8% of our cash and cash equivalents, restricted cash and short-term investments were held by subsidiaries and affiliatedentities incorporated in China, and approximately 85.4% of our cash and cash equivalents, restricted cash and short-term investments weredenominated in Renminbi.We believe that our existing cash and cash equivalents and anticipated cash flow from operations are sufficient to fund our operatingactivities, capital expenditures and other obligations for at least the next 12 months. However, we may decide to enhance our liquidity position orincrease our cash reserve for future expansions and acquisitions through additional financing activities. The issuance and sale of additional equitywould result in further dilution to our existing shareholders. The incurrence of indebtedness would result in increased fixed obligations and couldresult in operating covenants that may restrict our operations and ability to make distributions. However, financing may not be available in amountsor on terms acceptable to us, if at all.Table of Contents113Although we consolidate the results of the consolidated affiliated entities, we only have access to the assets or earnings of the consolidatedaffiliated entities through our contractual arrangements with ZTO Express. See “Item 4. Information on the Company—C. OrganizationalStructure.” For restrictions and limitations on our liquidity and capital resources as a result of our corporate structure, see “Item 5. Operating andFinancial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure.” In addition, we would need to accrue andpay withholding taxes if we were to distribute funds from our subsidiaries and the consolidated affiliated entities in China to our offshoresubsidiaries. Shanghai Zhongtongji Network distributed a dividend to ZTO Express (Hong Kong) Limited for 2023 and we recorded a deferred taxliability of RMB202.5 million as of December 31, 2023.In utilizing the proceeds we receive from the public offering of Class A ordinary shares in relation to our secondary listing on the MainBoard of the Hong Kong Stock Exchange and other cash received from subsequent transactions that we hold offshore, we may make additionalcapital contributions to our PRC subsidiaries, establish new PRC operating entities, make loans to our PRC operating entities, or acquire offshoreentities with business operations in China in offshore transactions. Most of these uses are subject to PRC regulations and approvals.Operating ActivitiesNet cash provided by operating activities in 2023 was RMB13.4 billion (US$1.9 billion), which was mainly attributable to the followingfactors: (i) our express delivery services and other revenue streams generated net cash inflow of RMB38.8 billion (US$5.5 billion), while theaggregate cash outflow for transportation cost, sorting hubs operation cost, cost of accessories sold and other costs amounted to RMB15.8 billion(US$2.2 billion); (ii) RMB8.8 billion (US$1.2 billion) paid for labor related costs, including salaries, social insurances and other benefits; (iii) cashoutflow of income tax of RMB1.7 billion (US$235.5 million); (iv) cash inflow of interest income of RMB899.5 million (US$126.7 million); (v)cash inflow of subsidy of RMB674.4 million (US$95.0 million); and (vi) cash outflow of RMB594.0 million (US$83.7 million) as otheradministrative costs.Net cash provided by operating activities in 2022 was RMB11.5 billion, which was mainly attributable to the following factors: (i) ourexpress delivery services and other revenue streams generated net cash inflow of RMB35.9 billion, while the aggregate cash outflow fortransportation cost, sorting hubs operation cost, cost of accessories sold and other costs amounted to RMB14.5 billion; (ii) cash inflow of interestincome of RMB306.2 million; (iii) cash inflow of subsidy of RMB619.5 million; (iv) RMB9.1 billion paid for labor related costs, includingsalaries, social insurances and other benefits; (v) cash outflow of income tax of RMB1.3 billion; and (vi) cash outflow of RMB521.2 million asother administrative costs.Net cash provided by operating activities in 2021 was RMB7.2 billion, which was mainly attributable to the following factors: (i) ourexpress delivery services and other revenue streams generated net cash inflow of RMB30.0 billion, while the aggregate cash outflow fortransportation cost, sorting hubs operation cost, cost of accessories sold and other costs amounted to RMB13.8 billion; (ii) cash inflow of interestincome of RMB321.1 million; (iii) cash inflow of subsidy of RMB683.2 million; (iv) RMB8.4 billion paid for labor related costs, includingsalaries, social insurances and other benefits; (v) cash outflow of income tax of RMB1.1 billion; and (vi) cash outflow of RMB487.0 million asother administrative costs.Investing ActivitiesNet cash used in investing activities in 2023 was RMB12.3 billion (US$1.7 billion), primarily due to (i) purchase of short-term investmentproducts of RMB11.3 billion (US$1.6 billion), while maturity of short-term investment products amounted to RMB9.8 billion (US$1.4 billion); (ii)purchase of long-term investment products of RMB10.1 billion (US$1.4 billion), while maturity of long-term investment products amounted toRMB5,240.7 million (US$738.1 million); (iii) purchase of property and equipment of RMB6.5 billion (US$919.6 million), including the purchaseof sorting hub facilities, office furnishing and furniture, trucks and sorting equipment; (iv) cash received from disposal of equity investees andsubsidiaries and others of RMB476.9 million (US$67.2 million); and (v) purchase of land use rights in an amount of RMB140.9 million (US$19.9million).Net cash used in investing activities in 2022 was RMB16.0 billion, primarily due to (i) purchase of short-term investment products ofRMB9.6 billion, while maturity of short-term investment products amounted to RMB6.7 billion; (ii) purchase of property and equipment ofRMB7.1 billion, including the purchase of sorting hub facilities, office furnishing and furniture, trucks and sorting equipment; (iii) purchase oflong-term investment products of RMB6.4 billion, while maturity of long-term investment products amounted to RMB284 million; (iv) purchase ofland use rights in an amount of RMB345.0 million; and (v) cash received from disposal of equity investees and subsidiaries of RMB330.8 million,while payment for investments in equity investees amounted to RMB94.4 million.Table of Contents114Net cash used in investing activities in 2021 was RMB8.8 billion, primarily due to (i) purchase of short-term investment products ofRMB13.2 billion, while maturity of short-term investment products amounted to RMB14.1 billion; (ii) purchase of property and equipment ofRMB8.4 billion, including the purchase of sorting hub facilities, office furnishing and furniture, trucks and sorting equipment; (iii) purchase of landuse rights in an amount of RMB967.3 million; and (iv) payment for investments in equity investees of RMB569.8 million, while disposal of equityinvestees and subsidiaries amounted to RMB100.5 million.Financing ActivitiesNet cash used in financing activities in 2023 was RMB769.8 million (US$108.4 million), which was mainly attributable to the followingfactors: (i) payment of dividends of RMB2.1 billion (US$291.9 million); and (ii) proceeds from short-term borrowings in an amount of RMB12.3billion (US$1.7 billion), partially offset by the repayment of short-term borrowings of RMB9.9 billion (US$1.4 billion); and (iii) share repurchaseof RMB1,006.5 million (US$141.8 million).Net cash provided by financing activities in 2022 was RMB7.1 billion, which was mainly attributable to the following factors: (i) issuanceof convertible bonds net of issuance cost paid and capped call option of RMB6.4 billion; (ii) payment of dividends of RMB1.3 billion; (iii)proceeds from short-term borrowings in an amount of RMB7.7 billion, partially offset by the repayment of short-term borrowings of RMB5.9billion; and (iv) share repurchase of RMB84.5 million.Net cash provided by financing activities in 2021 was RMB2.9 billion, which was mainly attributable to the following factors: (i) paymentof dividends of RMB1.4 billion; (ii) share repurchase of RMB3.8 billion; and (iii) proceeds from short-term borrowings in an amount of RMB6.9billion, partially offset by the repayment of short-term borrowings of RMB4.9 billion.Material Cash RequirementsOur material cash requirements as of December 31, 2023 and any subsequent interim period primarily include our capital expenditures,capital commitments, operating lease commitments, investment commitments, short-term debt obligations, convertible senior notes obligations anddividend payment.In connection with the purchases of property and equipment, purchases of land use rights, the expansion of our truck fleet and the upgradeof our equipment and facilities, we incurred capital expenditures of an aggregate of approximately RMB9.3 billion, RMB7.4 billion, and RMB6.7billion (US$939.4 million) in 2021, 2022 and 2023, respectively. We intend to fund our future capital expenditures with our existing cash balance,proceeds from our public offering of Class A ordinary shares in relation to our listing on the Main Board of the Hong Kong Stock Exchange,issuance of the 2027 Notes and other financing alternatives. We will continue to make capital expenditures to support the growth of our business.Our capital commitments primarily relate to commitments on construction of office building, sorting hubs and warehouse facilities. Our capitalcommitments as of December 31, 2023 amounted to RMB4.6 billion (US$647.0 million). All of these capital commitments will be fulfilled basedon the construction progress.Our operating lease commitments consist of the commitments under the lease agreements for our office space, sorting hubs and warehousefacilities. We lease office space, sorting hubs and warehouse facilities under non-cancellable operating lease agreements that expire at various datesthrough October 2037. As of December 31, 2023, we also had operating lease liabilities amounting to RMB714.9 million (US$100.7 million),certain of which were secured by the rental deposits and all of which were unguaranteed.Our investment commitments primarily consist of our commitment to make capital contributions to certain equity investees. We wereobligated to pay RMB20.2 million (US$2.8 million) for certain investment in equity investees as of December 31, 2023 with payment due withinthree years.As of December 31, 2023, we had outstanding principal amount of short-term bank borrowings of RMB7.8 billion (US$1.1 billion),among which RMB6.7 billion (US$937.8 million) were unsecured and unguaranteed. In 2023, we entered into bank loan contracts and discountednotes arrangements with several banks with an aggregate amount of RMB12.3 billion (US$1.7 billion). The weighted average interest rate ofborrowings drawn was 1.6% in 2023.Table of Contents115Our convertible senior notes obligations represent the principal amount and cash interests in connection with our 2027 Notes. Holders ofthe 2027 Notes have the right to require us to repurchase their notes on September 2, 2025. In addition, the terms of the 2027 Notes containprotections concerning the holders’ right to require us to repurchase their notes upon the occurrence of a fundamental change (as defined in theterms of the 2027 Notes), as well as provisions regarding our ability to redeem the existing notes in case of certain changes in tax law or at any timeif less than 10% of the aggregate principal amount of the 2027 Notes originally issued remains outstanding at such time. For details, please see“Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—If we cannot obtain sufficient cash when we need it, wemay not be able to meet our payment obligations under our notes.”On March 19, 2024, our board of directors approved a cash dividend of US$0.62 per ADS or share for 2023 to holders of ADSs andordinary shares of record as of the close of business on April 10, 2024.We intend to fund our existing and future material cash requirements with our existing cash balance and other financing alternatives. Wewill continue to make cash commitments, including capital expenditures, to support the growth of our business.We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We donot have retained or contingent interests in assets transferred. We have not entered into contractual arrangements that support the credit, liquidity ormarket risk for transferred assets. We do not have obligations that arise or could arise from variable interests held in an unconsolidated entity, orobligations related to derivative instruments that are both indexed to and classified in our own equity, or not reflected in the statement of financialposition.Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as ofDecember 31, 2023.Holding Company StructureZTO is a holding company with no material operations of its own. We conduct our operations primarily through our wholly ownedsubsidiaries and the consolidated affiliated entities in China. As a result, our ability to pay dividends may depend upon dividends paid by ourwholly owned subsidiaries in the future. If our wholly owned subsidiaries or any newly formed subsidiaries incur debt on their own behalf in thefuture, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly owned subsidiaries arepermitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance with PRC accounting standards andregulations. Under PRC law, each of our wholly owned PRC subsidiaries and the consolidated affiliated entities is required to set aside at least 10%of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Although the statutoryreserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of therespective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. Remittance of dividends by awholly foreign-owned company out of China is subject to examination by the banks designated by the State Administration of Foreign Exchange.C. Research and Development, Patents and Licenses, Etc.See “Item 4. Information on the Company—B. Business Overview—Information Technology and Intellectual Property.”D. Trend InformationOther than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events forthe period since January 1, 2024 that are reasonably likely to have a material effect on our revenues, income, profitability, liquidity or capitalresources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.E. Critical Accounting EstimatesFor our critical accounting estimates, see “Item 5. Operating And Financial Review And Prospects—A. Operating Results—CriticalAccounting Estimates.”F. Safe HarborSee “Forward-Looking Statements” on page 4 of this annual report.Table of Contents116ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEESA.Directors and Senior ManagementThe following table sets forth information regarding our directors and executive officers as of the date of this annual report.Directors and Executive Officers Age Position/TitleMeisong Lai53Founder, Chairman of the Board of Directors and Chief Executive OfficerJilei Wang58Director and Vice President of Infrastructure ManagementHongqun Hu55Director and Chief Operating OfficerXudong Chen*40DirectorXing Liu53DirectorFrank Zhen Wei52DirectorQin Charles Huang54DirectorHerman Yu53DirectorTsun-Ming (Daniel) Kao58DirectorFang Xie59DirectorHuiping Yan57Chief Financial OfficerJianchang Lai53Vice President of Overseas OperationsJingxi Zhu43Vice President of Information TechnologyJianfeng Zhang41Vice President of Public Relations*Pursuant to the investment agreement we entered into with Alibaba and Cainiao Network, Mr. Xudong Chen was appointed as our director.Mr. Meisong Lai is our founder and has served as chairman of our board of directors since May 2013 and chief executive officer since ourinception. Mr. Lai is the deputy chairman of the China Express Delivery Association. Mr. Lai is a prominent figure in China’s express deliveryindustry and has been deeply involved in the industry for over 20 years. Mr. Lai has attended the “Lakeside University” in China, a seniorexecutive training program founded by Jack Ma, founder and then chairman of Alibaba. Mr. Meisong Lai is a brother-in-law to Mr. Jianchang Lai.Mr. Jilei Wang has been our director since May 2013 and has served as our vice president of infrastructure management since October2012. From October 2009 to March 2012, Mr. Wang served as a deputy general manager of Beijing ZTO Daying Logistics Co., Ltd., our thennetwork partner in Beijing.Mr. Hongqun Hu has been our director since May 2022 and has served as our chief operating officer since June 2017. Mr. Hu has thirtyyears of experience in the financial services industry. Prior to joining us, Mr. Hu served as the chairman of Zhejiang Tonglu Rural CommercialBank from March 2016 to February 2017, and the governor and chairman of Zhejiang Tonglu Rural Cooperation Bank from March 2008 to March2016, respectively. Mr. Hu graduated from the advanced class in modern executive business administration from Zhejiang University in China inJanuary 2006 and graduated from Ningbo University in China with a major in finance in July 2003.Table of Contents117Mr. Xudong Chen has been our director since June 2023. Mr. Chen has been a Director for Strategic Investment at Alibaba Group sinceMay 2023. From November 2019 to April 2023, Mr. Chen was a Director for Strategic Investment at Cainiao Network. From September 2013 toNovember 2019, Mr. Chen successively served as an associate, senior associate, vice president, and executive director for private equity investmentat HOPU Investments. From July 2012 to August 2013, Mr. Chen served as an associate at investment banking department of Deutsche BankSecurities in New York. From July 2006 to October 2008, Mr. Chen worked at investment banking department of China International CapitalCorporation as an analyst. Mr. Chen has been a non-executive director of Quantium Solutions International Pte. Ltd. since June 2022. Mr. Chenreceived his MBA degree from Ross School of Business at University of Michigan in 2012, and his bachelor’s degree in economics from FudanUniversity in 2006.Mr. Xing Liu has served as our director since May 2013. Mr. Liu is currently a partner of HongShan, which he joined in May 2007.Mr. Liu has served as an independent director of Vipshop Holdings Limited (NYSE: VIPS) (“Vipshop”) since January 2011 and served as a non-executive director of China Renaissance Holdings Limited (HKEX: 1911) from 2020 to 2023. Mr. Liu received an MBA degree from The WhartonSchool of the University of Pennsylvania in May 2004, a master’s degree in computer engineering from Syracuse University in December 1995,and graduated from Fudan University in July 1992 with a major in management information systems.Mr. Zhen Wei, also known as Mr. Frank Zhen Wei, has been our director since August 2015. Mr. Wei joined Warburg Pincus Asia LLC inNovember 2002, and has been serving as a managing director since January 2010. Mr. Wei is currently Managing Director at Warburg PincusChina and leads overall strategy and investment. Mr. Wei worked as an investment banking analyst of Morgan Stanley in Hong Kong from 1997 to1999 and as a business analyst at McKinsey & Company in Shanghai from 1995 to 1997. Mr. Wei was a director of Hwabao WP FundManagement Co., Ltd. from January 2019 to July 2022, a non-executive director of AAG Energy Holdings Limited (HKEX: 2686) from January2015 to August 2018 and a non-executive director of CAR Inc. (HKEX: 699) from January 2016 to October 2019. Mr. Wei received a master’sdegree in business administration from Harvard Business School in June 2002 and a bachelor’s degree in science from the University of Texas atAustin in May 1995.Mr. Qin Charles Huang became our director in October 2016. Mr. Huang is the chairman and chief executive officer of CEG (Asia)Limited (also known as China Education Group), an education services provider for students, executives and professionals in Greater China andhas been a director since its inception in 1999. Mr. Huang has served on the board of directors of Sohu.com Inc. (NASDAQ: SOHU) since 2001.Mr. Huang previously held positions at Deutsche Bank, New York and Hong Kong, including as head of Asian securitization, and also served assenior vice president of Prudential Securities Inc., New York. He received a Master of Science degree in electrical engineering and computerscience from the Massachusetts Institute of Technology in September 1990. Mr. Huang is also a Chartered Financial Analyst.Mr. Herman Yu has been our director since October 2016. Mr. Yu advises and invests in high tech companies in the AI, internet, Web3,fintech and green energy sectors. Previously, Mr. Yu worked at Baidu, Inc. (NASDAQ: BIDU, HKEX: 9888), an AI and internet company, servingas its chief strategy officer from August 2021 to March 2023 and as its chief financial officer from September 2017 to November 2021. Prior tojoining Baidu, Mr. Yu served as the chief financial officer of Weibo Corporation (NASDAQ: WB, HKEX: 9898), a social media company from2015 to 2017, and as the chief financial officer of SINA Corporation, an internet portal, from 2006 to 2015. Mr. Yu is a California Certified PublicAccountant and holds a B.A. in economics from the University of California, Santa Cruz and a Master of Accountancy (MAcc) from the Universityof Southern California.Mr. Tsun-Ming Kao, also known as Mr. Tsun-Ming (Daniel) Kao has been our director since October 2017. Mr. Kao has long-standingindustry experience in leading e-commerce and internet companies in the U.S. and China. Mr. Kao has served as the chief technology officer atVipshop (NYSE: VIPS) since April 2019. Prior to that, Mr. Kao served as the chief technology officer at Shanghai Noah Information TechnologyCo., Ltd. (an affiliate of Noah Holdings Limited (NYSE: NOAH)) from January 2018 to April 2021. Mr. Kao served as the chief technology officerat Vipshop (NYSE: VIPS) from June 2012 to October 2016. Before joining Vipshop, Mr. Kao was an employee of eBay Inc. (NASDAQ: EBAY)(“eBay”) and was assigned to work at eBay e-Commerce Technology Operations (Shanghai) Co., Ltd. as general manager and board director ofChina Operations Center from January 2010 to April 2012. Earlier in his career, he worked at eBay as a principal software engineer and softwaredevelopment manager for seven years. Mr. Kao received a bachelor’s degree in computer science from Iowa State University in August 1995.Table of Contents118Ms. Fang Xie, also known as Heather Xie, has been our director since November 2021. Ms. Xie has been a director and portfolioinvestment manager at Seres Capital since May 2021. Ms. Xie provided management consulting and leadership coaching services to startupcompanies and investment management companies from July 2018. Ms. Xie joined Prologis in March 2008, which later span off its China andJapan businesses and formed Global Logistic Properties (“GLP”). Ms. Xie took GLP public in Singapore Stock Exchange and served as ChiefFinancial Officer of GLP from May 2010 to January 2018. Prior to GLP, Ms. Xie worked in General Electric Companies in the US and Asia from1994 with increasing responsibilities, including as head of Treasury of GE Asia Pacific, Controller of GE Asia Pacific, Chief Financial Officer ofGE infrastructure Asia and GE Toshiba Silicones China. Ms. Xie received a master’s degree in economics from Cornell University in 1994 and abachelor and a master degree in industrial economy from Renmin University of China in 1986 and 1989, respectively.Ms. Huiping Yan has served as our chief financial officer since May 2018 and was our vice president of finance from January 2018 to May2018. Before joining ZTO, Ms. Yan spent approximately seven years serving as the chief financial officer of a number of Chinese TMT andhospitality companies including two years at Cainiao Network, the logistics arm of Alibaba (NYSE: BABA, HKEX: 9988), and over four years atHome Inns, a leading economy hotel chain in China. Prior to that, Ms. Yan spent 11 years at GE in both the U.S. and Asia, serving in various keyroles in corporate and operational financial management. Prior to that, Ms. Yan spent over six years at Deloitte & Touche in the U.S. in taxservices. Ms. Yan has served as the independent non-executive director of TUHU Car Inc. (HKEX: 9690), a leading integrated online and offlineplatform for automotive service in China since September 2023. Ms. Yan studied at Shanghai International Studies University, where she majoredin English literature and linguistics and received a bachelor’s degree in business administration with an accounting major from Hawaii PacificUniversity in August 1991. Ms. Yan graduated from the GE experienced financial leadership program in September 2003 and is a U.S.-certifiedpublic accountant with a CGMA designation (AICPA).Mr. Jianchang Lai has been our vice president of overseas operations since September 2016. Mr. Lai was our director from January 2014to September 2016 and our head of network partner management since our inception to September 2016. Mr. Jianchang Lai is a brother-in-law toMr. Meisong Lai.Mr. Jingxi Zhu has been our head of information technology since July 2003 and has served as a vice president of information technologysince September 2016. From January 2014 to September 2016, Mr. Zhu was also our director. Mr. Zhu received an EMBA from Renmin Universityof China in 2021.Mr. Jianfeng Zhang has served as our vice president of public relations since February 2016. Mr. Zhang served as Assistant Director of theNews & Information Center of Xinhua News Agency Shanghai Bureau from June 2012 to February 2016 and Deputy Director of the Image Centerof Xinhua News Agency Shanghai Bureau from August 2010 to February 2016. Mr. Zhang received a master’s degree in business administrationfrom Arizona State University in December 2017, a master’s degree in arts from Renmin University in China in June 2012 and a bachelor’s degreein law from Shanghai International Studies University in China in July 2006.Employment Agreements and Indemnification AgreementsWe have entered into employment agreements with each of our executive officers. Under these agreements, each of our executive officersis employed for a specified time period. We may terminate employment for cause for certain acts of the executive officer, such as conviction or pleaof guilty to a felony or any crime involving moral turpitude, negligent or dishonest acts to our detriment, or misconduct or a failure to performagreed duties. We may also terminate an executive officer’s employment without cause upon 60-day advance written notice. In such case oftermination by us, we will provide severance payments to the executive officer as agreed by us and the executive officer. The executive officer mayresign at any time with a 60-day advance written notice.Each executive officer has agreed to hold, both during and after the termination or expiry of his or her employment agreement, in strictconfidence and not to use, except as required in the performance of his or her duties in connection with the employment or pursuant to applicablelaw, any of our confidential information or trade secrets, any confidential information or trade secrets of our clients or prospective clients, or theconfidential or proprietary information of any third party received by us and for which we have confidential obligations. The executive officershave also agreed to disclose in confidence to us all inventions, designs and trade secrets which they conceive, develop or reduce to practice duringthe executive officer’s employment with us and to assign all right, title and interest in them to us, and assist us in obtaining and enforcing patents,copyrights and other legal rights for these inventions, designs and trade secrets.Table of Contents119In addition, each executive officer has agreed to be bound by non-competition and non-solicitation restrictions during the term of his orher employment and typically for one year following the last date of employment. Specifically, each executive officer has agreed not to (i)approachour suppliers, clients, customers or contacts or other persons or entities introduced to the executive officer in his or her capacity as a representativeof 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 ofour competitors, without our express consent; or (iii)seek directly or indirectly, to solicit the services of, or hire or engage, any person who isknown to be employed or engaged by us; or (iv)otherwise interfere with our business or accounts.We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agreeto indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims madeby reason of their being a director or officer of our company.B. Compensation of Directors and Executive OfficersFor the year ended December 31, 2023, we paid an aggregate of approximately RMB100.3 million (US$14.1 million) in cash to ourexecutive officers and directors. For share incentive grants to our officers and directors, see “—2016 Share Incentive Plan,” “—2024 ShareIncentive Plan” and “—Employee Shareholding Platform.” We have not set aside or accrued any amount to provide pension, retirement or othersimilar benefits to our executive officers and directors. Our PRC subsidiaries and the VIE are required by law to make contributions equal tocertain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance and other statutorybenefits and a housing provident fund.2016 Share Incentive PlanFollowing our conversion to a dual-primary listed company on the Hong Kong Stock Exchange, the scheme limit under our 2016 ShareIncentive Plan (as amended and restated), or the 2016 Plan, is capped at 21,000,000 Class A ordinary shares. For administrative conveniencepurposes, we have established a trust administered by an independent trustee for transferring, as directed by an authorized representative of ourcompany, the shares or ADSs to the grantees upon the exercise or vesting of awards granted under the 2016 Plan.The following paragraphs describe the principal terms of the 2016 Plan.Types of Awards. The 2016 Plan permits the awards of options, restricted shares or any other type of awards that the committee decides.Plan Administration. Our board of directors or a committee of one or more members of the board of directors will administer the 2016Plan. The committee or the full board of directors, as applicable, will determine the participants to receive awards, the type and number of awardsto be granted to each participant, and the terms and conditions of each award grant.Table of Contents120Award Agreement. Awards granted under the 2016 Plan are evidenced by an award agreement that sets forth terms, conditions andlimitations for each award, which may include the term of the award, the provisions applicable in the event of the grantee’s employment or serviceterminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.Eligibility. We may grant awards to our employees, directors and consultants. However, we may grant options that are intended to qualifyas incentive share options only to our employees and employees of our parent companies and subsidiaries.Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the award agreement.Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. Thevested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, themaximum exercisable term is ten years from the date of a grant.Transfer Restrictions. Awards may not be transferred in any manner by the recipient other than by will or the laws of descent anddistribution, except as otherwise provided by the plan administrator.Termination and amendment of the 2016 Plan. Unless terminated earlier, the 2016 Plan has a term of ten years. Our board of directorshas the authority to amend or terminate the plan. However, no such action may adversely affect in any material way any awards previously grantedunless agreed by the recipient.As of March 31, 2024, restricted share units representing a total of 5,592,500 Class A ordinary shares have been granted under the 2016Plan, excluding awards that were forfeited or cancelled after their grant dates.Table of Contents121The following table summarizes, as of March 31, 2024, the restricted share units we granted to our directors and executive officers underour 2016 Plan, excluding awards that were forfeited or cancelled after their grant dates. Other individuals as a group were granted restricted shareunits representing a total of 1,943,531 Class A ordinary shares as of March 31, 2024. Ordinary Shares Underlying RestrictedName Share Units AwardedDate of GrantMeisong Lai*March 28, 2017March 7, 2018March 11, 2019 March 13, 2020March 16, 2021March 15,2022March 14, 2023March 22, 2024Jilei Wang*March 28, 2017 March 7, 2018March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023March 22, 2024Xing Liu *March 7, 2018March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023Frank Zhen Wei*March 7, 2018March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023Qin Charles Huang*March 7, 2018March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023Herman Yu*March 7, 2018March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023Tsun-Ming (Daniel) Kao*March 7, 2018March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023Fang Xie*March 14, 2023Huiping Yan*March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023March 22, 2024Jianchang Lai*March 28, 2017March 7, 2018March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023March 22, 2024Total 3,648,969 *Less than 1% of our total outstanding shares.2024 Share Incentive PlanThe board of directors approved and adopted a share incentive plan on March 19, 2024 that became effective on March 19, 2024, or the2024 Plan. The maximum aggregate number of shares underlying the awards under the 2024 Plan is 30,000,000 Class A ordinary shares. Theshares that may be issued pursuant to the awards under the 2024 Plan will be from shares or ADSs purchased in the open market by us or a thirdparty trust. 2024 Plan does not involve the issuance of new shares of our company.Table of Contents122The following paragraphs describe the principal terms of the 2024 Plan.Types of Awards. The 2024 Plan permits the awards of options, restricted share units or any other type of awards that permitted by ourcompany.Plan Administration. Our board of directors will administer the 2024 Plan. The board of directors will determine the participants toreceive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each award grant. The board ofdirectors may delegate the administration power to the chief executive officer, such committee or any other authorized agent as the board ofdirectors in its absolute discretion may think fit.Award Agreement. Awards granted under the 2024 Plan are evidenced by an award agreement that sets forth terms, conditions andlimitations for each award, which may include the vesting schedule and term of the award and transfer restrictions, among other things.Eligibility. We may grant awards to our employees, and service provider participants as defined in the 2024 Plan.Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the award agreement.Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the award agreement. Thevested portion of option will expire if not exercised prior to the time as the plan administrator determines at the time of its grant. However, themaximum exercisable term is ten years from the date of a grant.Transfer Restrictions. Awards may not be transferred in any manner by the recipient.Termination and Amendment of the 2024 Plan. Unless terminated earlier, the 2024 Plan has a term of ten years. Our board of directorshas the authority to amend or terminate the plan. However, no such action may adversely affect in any material way any awards previously grantedunless agreed by the recipient.As of March 31, 2024, options representing a total of 916,200 Class A ordinary shares have been granted under the 2024 plan.The following table summarizes, as of March 31, 2024, the options we granted to our directors and executive officers under our 2024 Plan.Other individuals as a group were granted options representing a total of 352,200 Class A ordinary shares as of March 31, 2024. Ordinary Shares Underlying ExerciseDateOptions priceofNameAwarded(US$/Share)Date of GrantExpirationMeisong Lai * 21.88March 22, 2024March 22, 2034Jilei Wang * 21.88March 22, 2024March 22, 2034Hongqun Hu * 21.88March 22, 2024March 22, 2034Huiping Yan * 21.88March 22, 2024March 22, 2034Jianchang Lai * 21.88March 22, 2024March 22, 2034Jingxi Zhu * 21.88March 22, 2024March 22, 2034Jianfeng Zhang * 21.88March 22, 2024March 22, 2034Total 564,000 *Less than 1% of our total outstanding shares.Table of Contents123Employee Shareholding PlatformIn June 2016, we issued 16,000,000 ordinary shares to Zto Es Holding Limited, or ZTO ES, to establish an employee shareholdingplatform to allow our employees in China to receive share incentives. All ordinary shares issued for purpose of this employee shareholdingplatform were re-designated as Class A ordinary shares of our company upon the completion of our initial public offering in 2016. ZTO ES isdirectly held by four limited partnerships. Our board of directors review the performance of our employees, and reward selected employees bydirecting the general partner of the partnerships to transfer limited partnership interests in those partnerships to the selected employees.Each recipient of such partnership interest is entitled to rights associated with the number of our ordinary shares held by ZTO ES thatcorresponds to the recipient’s proportional indirect ownership of ZTO ES to (i) receive dividends, if and when declared, on those shares and (ii)request the sale of those shares by ZTO ES and receive the sale proceeds. ZTO ES abstains from voting on matters that require shareholders’approval for all the shares of our company held by ZTO ES.As of March 31, 2024, we have awarded certain rights associated with 11,458,072 Class A ordinary shares through the platform as shareincentives. The following table summarizes, as of March 31, 2024, the number of our ordinary shares held by ZTO ES over which our directors andofficers had been awarded such rights. Class A NameOrdinary SharesDate of GrantMeisong Lai *June 28, 2016March 11, 2019 March 13, 2020Jilei Wang*June 28, 2016Hongqun Hu *March 7, 2018March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023 March 22, 2024Jianchang Lai*June 28, 2016Jingxi Zhu*June 28, 2016, March 28, 2017March 7, 2018 March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023March 22, 2024Jianfeng Zhang*March 28, 2017March 7, 2018March 11, 2019March 13, 2020March 16, 2021March 15, 2022March 14, 2023March 22, 2024Total 1,792,851 *Less than 1% of our total outstanding shares.As of March 31, 2024, other employees as a group were granted the same rights associated with 9,665,221 Class A ordinary shares held byZTO ES through our employee shareholding platform.Table of Contents124On March 22, 2024, we agreed to award rights associated with 1,205,483 Class A ordinary shares through the platform as share incentivesto certain executive officers and employees. These rights vested immediately upon grant.C. Board PracticesOur board of directors consists of ten directors. A director is not required to hold any shares in our company by way of qualification.Subject to the New York Stock Exchange rules, the Hong Kong Listing Rules, and disqualification by the chairman of the relevant board meeting, adirector may vote in respect of any contract or transaction or proposed contract or transaction notwithstanding that he may be interested therein andif he does so his vote shall be counted and he may be counted in the quorum at any meeting of the directors at which any such contract ortransaction or proposed contract or transaction is considered. A director who is in any way, whether directly or indirectly, interested in a contract ortransaction or proposed contract or transaction with our company is required to declare the nature of his interest at a meeting of our directors.However, unless permitted under the Hong Kong Listing Rules, a director shall not be entitled to vote on (nor shall be counted in the quorum inrelation to) any resolution of the directors in respect of any contract or arrangement or any other proposal whatsoever in which he or any of hisclose associates as defined under the Hong Kong Listing Rules (or, if required by the Hong Kong Listing Rules, his other associates) has anymaterial interest, and if he shall do so his vote shall not be counted (nor is he to be counted in the quorum for the resolution). Our directors mayfrom time to time at their discretion exercise all the powers of our company to raise or borrow money and to mortgage or charge its undertaking,property and assets (present and future) and uncalled capital or any part thereof, to issue debentures, debenture stock, bonds and other securities,whether outright or as collateral security for any debt, liability or obligation of our company or of any third party.Committees of the Board of DirectorsWe have established three committees under the board of directors: an audit committee, a compensation committee and a nominating andcorporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions aredescribed below.Audit Committee. Our audit committee consists of Herman Yu, Qin Charles Huang and Xing Liu. Mr. Yu is the chairman of our auditcommittee. We have determined that Herman Yu, Qin Charles Huang and Xing Liu each satisfies the “independence” requirements ofSection 303A of the Corporate Governance Rules of the New York Stock Exchange and meets the independence standards under Rule 10A-3 underthe Exchange Act. We have determined that Herman Yu qualifies as an “audit committee financial expert.” The audit committee oversees ouraccounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for,among other things:●appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by theindependent auditors;●reviewing with the independent auditors any audit problems or difficulties and management’s response;●discussing the annual audited financial statements with management and the independent auditors;●reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken tomonitor and control major financial risk exposures;●reviewing and approving all proposed related party transactions;●meeting separately and periodically with management and the independent auditors; and●monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of ourprocedures to ensure proper compliance.Table of Contents125Compensation Committee. Our compensation committee consists of Xing Liu, Frank Zhen Wei and Qin Charles Huang. Mr. Liu is thechairman of our compensation committee. We have determined that Xing Liu, Frank Zhen Wei and Qin Charles Huang each satisfies the“independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. The compensation committeeassists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors andexecutive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. Thecompensation committee is responsible for, among other things:●making recommendations to the board on the Company’s policy and structure for all directors’ and senior management’sremuneration and on the establishment of a formal and transparent procedure for developing remuneration policy;●reviewing and approving, or recommending to the board for its approval, the compensation for our chief executive officer and otherexecutive officers;●reviewing and recommending to the board for determination with respect to the compensation of our non-employee directors;●reviewing periodically and approving any incentive compensation or equity plans, programs or similar arrangements; and●selecting compensation consultant, legal counsel or other adviser only after taking into consideration all factors relevant to thatperson’s independence from management.Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Frank Zhen Wei,Qin Charles Huang and Tsun-Ming (Daniel) Kao. Mr. Wei is the chairman of our nominating and corporate governance committee. We havedetermined that Frank Zhen Wei, Qin Charles Huang and Tsun-Ming (Daniel) Kao each satisfies the “independence” requirements of Section 303Aof the Corporate Governance Rules of the New York Stock Exchange. The nominating and corporate governance committee assists the board ofdirectors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. Thenominating and corporate governance committee is responsible for, among other things:●selecting and recommending to the board nominees for election by the shareholders or appointment by the board;●reviewing annually with the board the current composition of the board with regards to characteristics such as independence,knowledge, skills, experience and diversity;●making recommendations on the frequency and structure of board meetings and monitoring the functioning of the committees of theboard; and●advising the board periodically with regards to significant developments in the law and practice of corporate governance as well asour compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporategovernance and on any remedial action to be taken.Duties of DirectorsUnder Cayman Islands law, our directors owe fiduciary duties to our company including a duty of loyalty, a duty to act honestly, and aduty to act in what they consider in good faith to be in our best interests. Our directors also have a duty to exercise the care and diligence that areasonably prudent person would exercise in comparable circumstances and a duty to exercise the skill they actually possess. In fulfilling their dutyof care to us, our directors must ensure compliance with our memorandum and articles of association and the class rights vested thereunder in theholders of the shares. Our company has the right to seek damages if a duty owed by our directors is breached. In limited exceptional circumstances,a shareholder may have the right to seek damages in our name if a duty owed by our directors is breached.Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functionsand 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;Table of Contents126●appointing officers and determining the term of office of the officers;●exercising the borrowing powers of our company and mortgaging the property of our company; and●approving the transfer of shares in our company, including the registration of such shares in our share register.Terms of Directors and OfficersOur directors are appointed by ordinary resolution of our shareholders. The directors may, by the affirmative vote of a simple majority ofthe remaining directors present and voting at a board meeting, appoint any person as a director, to fill a casual vacancy on the board or as anaddition to the existing board. Any director so appointed shall hold office only until the first annual general meeting of our company after his or herappointment and shall then be eligible for re-election at that meeting. Every director, including those appointed for a specific term, should besubject to retirement by rotation at least once every three years. Our officers are elected by and serve at the discretion of the board of directors. Theoffice of a director shall be vacated if the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) dies or isfound to be or becomes of unsound mind; (iii) resigns his office by notice in writing to us; (iv) without special leave of absence from the board ofdirectors, is absent from meetings of the board of directors for three consecutive meetings and the board of directors resolves that his office bevacated; or (v) is removed from office pursuant to our memorandum and articles of association.Enforceability of Civil LiabilitiesMost of our operations are conducted in China, and substantially all of our assets are located in China. A majority of our directors andexecutive officers are nationals or residents of jurisdictions other than the United States and most of their assets are located outside the UnitedStates. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these individuals, to bring anaction against us or these individuals in the United States, or to enforce against us or them judgments obtained in United States courts, includingjudgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.We have been informed by our Cayman Islands legal counsel that the United States and the Cayman Islands do not have a treaty providingfor reciprocal recognition and enforcement of judgments of U.S. courts in civil and commercial matters and that there is uncertainty as to whetherthe courts of the Cayman Islands would (i) recognize or enforce judgments of U.S. courts obtained against us or our directors or officers, predicatedupon the civil liability provisions of the securities laws of the United States or any state in the United States, or (ii) entertain original actionsbrought in the Cayman Islands against us or our directors or officers, predicated upon the securities laws of the United States or any state in theUnited States. We have also been advised by our Cayman Islands legal counsel that a judgment obtained in any federal or state court in the UnitedStates will be recognized and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of theunderlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (i) isgiven by a foreign court of competent jurisdiction, (ii) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgmenthas been given, (iii) is final, (iv) is not in respect of taxes, a fine or a penalty, and (v) was not obtained in a manner and is not of a kind theenforcement of which is contrary to natural justice or the public policy of the Cayman Islands.However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the United States courts under the civil liabilityprovisions of the securities laws if such judgment is determined by the courts of the Cayman Islands to give rise to obligations to make paymentsthat are penal or punitive in nature. Because the courts of the Cayman Islands have yet to rule on whether such judgments are penal or punitive innature, it is uncertain whether such civil liability judgments from U.S. courts would be enforceable in the Cayman Islands.Our PRC legal counsel has advised us that there is uncertainty as to whether the courts of China would:●recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civilliability provisions of the securities laws of the United States or any state in the United States; or●entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securitieslaws of the United States or any state in the United States.Table of Contents127Our PRC legal counsel has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRCCivil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil ProceduresLaw and other applicable laws and regulations based either on treaties between China and the country where the judgment is made or on principlesof reciprocity between jurisdictions. China does not have any treaties or other form of reciprocity with the United States or the Cayman Islands thatprovide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, courts in thePRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles ofPRC law or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce ajudgment rendered by a court in the United States or in the Cayman Islands. Under the PRC Civil Procedures Law, foreign shareholders mayoriginate actions based on PRC law against a company in China for disputes if they can establish sufficient nexus to the PRC for a PRC court tohave jurisdiction, and meet other procedural requirements. It will be, however, difficult for U.S. shareholders to originate actions against us in thePRC in accordance with PRC laws because we are incorporated under the laws of the Cayman Islands and it will be difficult for U.S. shareholders,by virtue only of holding the ADSs or Class A ordinary shares, to establish a connection to the PRC for a PRC court to have jurisdiction as requiredunder the PRC Civil Procedures Law.D. EmployeesAs of December 31, 2021, 2022 and 2023, we had a total of 23,865, 24,888 and 23,554 employees, respectively. The following table setsforth the breakdown of our own employees as of December 31, 2023 by function:Functional Area Number of Employees % of TotalSorting 7,857 33.4Transportation 3,612 15.3Management and Administration 4,386 18.6Customer Service 2,001 8.5Operation Support 3,958 16.8Technology and Engineering 1,383 5.9Sales and Marketing 357 1.5Total 23,554 100.0In addition to our employees, our workforce also includes over 63,000 outsourced workers, as of December 31, 2023. Our networkpartners hire their own employees according to their operational needs.We believe we offer our employees competitive compensation packages and a merit-based work environment that encourages initiative,and as a result, we have generally been able to attract and retain qualified personnel and maintain a stable core management team.As required by PRC regulations, we participate in various government statutory employee benefit plans, including social insurance funds,namely a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and amaternity insurance plan, and a housing provident fund. We are required under PRC law to make contributions to employee benefit plans atspecified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the localgovernment from time to time. We have not made adequate employee benefit payments. We may be required to make up the contributions for theseplans as well as to pay late fees and fines but have made adequate provisions. See “Item 3. Key Information—D. Risk Factors—Risks Related toDoing Business in China—Our failure to fully comply with PRC labor-related laws may expose us to potential penalties.”We enter into standard labor agreements with our employees and, in addition, enter into confidentiality and non-compete agreements withour key employees. The non-compete restricted period typically expires two years after the termination of employment, and we agree tocompensate the key employee with a certain percentage of his or her pre-departure salary during the restricted period.We believe that we maintain a good working relationship with our employees, and we have not experienced any major labor disputes.Table of Contents128E. Share OwnershipThe following table sets forth information with respect to the beneficial ownership of our ordinary shares as of March 31, 2024 by:●each of our directors and executive officers; and●each person known to us to own beneficially more than 5% of our total outstanding shares.We had 606,766,663 Class A ordinary shares, and 206,100,000 Class B ordinary shares, issued and outstanding as of March 31, 2024.Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially ownedby a person and the percentage ownership of that person, we have included shares that the person has the right to acquire within 60 days, includingthrough the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in thecomputation of the percentage ownership of any other person.Ordinary Shares Beneficially Owned Class A Class B Percentage of Percentage ofordinaryordinaryTotal ordinarytotal ordinaryaggregatesharessharessharessharesvoting power†Directors and Executive Officers:** Meisong Lai(1)5,573,685206,100,000211,673,68526.077.7Jilei Wang(2)42,208,065— 42,208,065 5.2 1.6Hongqun Hu* —***Xudong Chen—— — — —Xing Liu*— * * *Frank Zhen Wei*— * * *Qin Charles Huang*— * * *Herman Yu*— * * *Tsun-Ming (Daniel) Kao*— * * *Fang Xie*—***Huiping Yan*— * * *Jianchang Lai*— * * *Jingxi Zhu*— * * *Jianfeng Zhang*— * * *All Directors and Executive Officers as a Group52,815,262206,100,000258,915,262 31.979.5Principal Shareholders: Zto Lms Holding Limited (3)4,608,920206,100,000 210,708,920 25.9 77.7Alibaba Group Holding Limited (4) 71,941,287— 71,941,287 8.9 2.7Jianfa Lai and Zto Ljf Holding Limited (5) 65,252,639— 65,252,639 8.0 2.5Zto Wjl Holding Limited (6) 42,088,065 — 42,088,065 5.2 1.6†For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially ownedby such person or group by the voting power of our Class A ordinary shares and Class B ordinary shares as a single class. We did not include8,700,914 Class A ordinary shares held by ZTO ES for the purpose of our employee shareholding platform and 2,256,634 Class A ordinaryshares held by the trustee in connection with the trust for the 2016 Plan in the calculation of voting power as ZTO ES and the trustee shallabstain from voting on matters that require shareholders’ approval for all the shares of our company held by them following our voluntaryconversion to a dual-primary listed company on the Hong Kong Stock Exchange. Notwithstanding the above, such shares held by ZTO ES andthe trustee were included in the column for calculation of beneficial ownership as a percentage of our total ordinary shares. Each holder ofClass A ordinary shares is entitled to one vote per share and each holder of our Class B ordinary shares is entitled to ten votes per share on allmatters submitted to them for a vote. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matterssubmitted to a vote of our shareholders, except as may otherwise be required by law. Our Class B ordinary shares are convertible at any timeby the holder thereof into Class A ordinary shares on a one-for-one basis.*Less than 1% of our total outstanding ordinary shares.Table of Contents129**Except for Messrs. Xing Liu, Frank Zhen Wei and Xudong Chen, the business address of our directors and executive officers is to No.1685Huazhi Road, Qingpu District, Shanghai, 201708, People’s Republic of China. The business address of Mr. Xing Liu is Suite 3613, 36/F, TwoPacific Place, 88 Queensway, Hong Kong. The business address of Mr. Frank Zhen Wei is Suite 6703, Two IFC, 8 Finance Street, Hong Kong.The business address of Mr. Xudong Chen is No. 618, Waima Road, Huangpu District, Shanghai, 200010, China.(1)Represents (i) 206,100,000 Class B ordinary shares directly held by Zto Lms Holding Limited, (ii) 964,765 Class A ordinary shares held byZTO ES and (iii) 4,608,920 ADSs (representing the same number of Class A ordinary shares) held by Zto Lms Holding Limited, 2,932,166 ofwhich were vested from restricted share units held by Mr. Meisong Lai. Mr. Meisong Lai has the power to direct the disposition of those964,765 Class A ordinary shares held by ZTO ES. Zto Lms Holding Limited is a British Virgin islands company wholly owned by LMSHolding Limited, which in turn is beneficially owned by The LMS Family Trust, a trust established under the laws of Singapore and managedby Standard Chartered Trust (Singapore) Limited as trustee. Mr. Meisong Lai is the settlor of The LMS Family Trust and the beneficiaries ofthe trust are Mr. Meisong Lai and his family members. Mr. Meisong Lai is the sole director of Zto Lms Holding Limited. The registeredaddress of Zto Lms Holding Limited is Sea Meadow House, P.O. Box 116, Road Town, Tortola, British Virgin Islands.(2)Represents (i) 35,635,000 Class A ordinary shares held by Zto Wjl Holding Limited, (ii) 5,200,000 restricted ADSs held by JPMorgan ChaseBank, N.A., as depositary bank, underlying 5,200,000 Class A ordinary shares held by Zto Wjl Holding Limited pledged to Morgan StanleyBank Asia Limited, as lender under a loan agreement dated December 19, 2019, to secure Zto Wjl Holding Limited’s obligations under theloan agreement, (iii) 1,253,065 Class A ordinary shares, in the form of ADSs, held by Zto Wjl Holding Limited, among which 974,236 arerestricted ADSs, and (iv) 120,000 Class A ordinary shares held by ZTO ES. Mr. Jilei Wang is the sole director of Zto Wjl Holding Limited.Mr. Jilei Wang has the power to direct the disposition of those 120,000 Class A ordinary shares held by ZTO ES. Zto Wjl Holding Limited is aBritish Virgin Islands company wholly owned by WJL Holding Limited, which in turn is beneficially owned by The WJL Family Trust, a trustestablished under the laws of Singapore and managed by Standard Chartered Trust (Singapore) Limited as trustee. Mr. Jilei Wang is the settlorof The WJL Family Trust and the beneficiaries of the trust are Mr. Jilei Wang and his family members. The registered address of Zto WjlHolding Limited is Sea Meadow House, P.O. Box 116, Road Town, Tortola, British Virgin Islands.(3)Represents (i) 206,100,000 Class B ordinary shares directly held by Zto Lms Holding Limited, a British Virgin Islands company whollyowned by Mr. Meisong Lai, (ii) 4,608,920 ADSs (representing the same number of Class A ordinary shares) held by Zto Lms HoldingLimited, 2,932,166 of which were vested from restricted share units held by Mr. Meisong Lai.(4)Represents 71,941,287 Class A ordinary shares beneficially owned by Alibaba Group Holding Limited, an exempted company incorporatedunder the laws of the Cayman Islands (“Alibaba”), which consist of (i) 57,870,370 Class A ordinary shares directly held by Alibaba ZTInvestment Limited (“Ali ZT”), a company incorporated under the laws of Hong Kong, (ii) 5,787,037 Class A ordinary shares directly held byCainiao Smart Logistics Investment Limited (“Cainiao Smart”), a company organized under the laws of the British Virgin Islands,(iii) 4,629,630 Class A ordinary shares directly held by New Retail Strategic Opportunities Investments 2 Limited (“NRF”), a companyorganized under the laws of the Cayman Islands, (iv) 3,322,050 Class A ordinary shares directly held by Taobao China Holding Limited(“Taobao”), a company incorporated under the laws of Hong Kong, and (v) 332,200 Class A ordinary shares directly held by Cainiao SmartLogistics Network (Hong Kong) Limited (“Cainiao HK”), a company incorporated under the laws of Hong Kong. Alibaba is a holdingcompany which, through its subsidiaries and variable interest entities, operates leading online and mobile marketplaces in retail and wholesaletrade, as well as provides cloud computing and other services. Ali ZT is an indirect wholly-owned special purpose subsidiary of Alibaba.Cainiao Smart is a majority owned indirect subsidiary of Alibaba. New Retail Strategic Opportunities Fund, L.P., a Cayman Islands exemptedlimited partnership (“NRSF”), owns 100% of NRF. New Retail Strategic Opportunities Fund GP, L.P., a Cayman Islands exempted limitedpartnership (“NRSF GP”), is the general partner of NRSF. New Retail Strategic Opportunities GP Limited, a company organized under thelaws of the Cayman Islands and an indirect wholly owned subsidiary of Alibaba, is the general partner of NRSF GP. Taobao is an indirectwholly owned subsidiary of Alibaba. Cainiao HK is a majority owned indirect subsidiary of Alibaba. Alibaba is deemed to be the beneficialowner of the 71,941,287 Class A ordinary shares held by Ali ZT, Cainiao Smart, NRF, Taobao and Cainiao HK. The business address ofAlibaba, Ali ZT, NRF, Cainiao HK and Taobao is 26/F, Tower One, Times Square, 1 Matheson Street, Causeway Bay, Hong Kong. Thebusiness address of Cainiao Smart is c/o Zhejiang Cainiao Supply Chain Management Limited, 588 West Wenyi Road, Xihu District,Hangzhou 310000, China. Information regarding beneficial ownership is reported as of June 12, 2018, based on information contained in theSchedule 13D filed by Alibaba Group Holding Limited, among other reporting persons, with the SEC on June 21, 2018.Table of Contents130(5)Represents (i) 39,000,000 Class A ordinary shares held by Zto Ljf Holding Limited, among which, 32,250,000 Class A ordinary shares arerecorded on our Cayman share register, and the remaining 6,750,000 Class A ordinary shares are recorded under the name of HKSCCNominees Limited on our Hong Kong share register and are deposited into the Central Clearing and Settlement System established andoperated by Hong Kong Securities Clearing Company Limited, (ii) 6,000,000 ADSs registered in the name of Citibank, N.A., Singapore,underlying 6,000,000 Class A ordinary shares held by JPMorgan Chase Bank, N.A., as depositary bank, which Zto Ljf Holding Limitedpledged to Citibank, N.A., Singapore, as lender under a loan agreement dated December 6, 2019, to secure Zto Ljf Holding Limited’sobligations under the loan agreement, (iii) 10,000,000 ADSs held by Zto Ljf Holding Limited, underlying 10,000,000 Class A ordinary sharesheld by JPMorgan Chase Bank, N.A., as depositary bank, pledged to Citibank, N.A., as counterparty under the share forward transactionpursuant to the Master Terms and Conditions for Prepaid Variable Share Forward Transactions dated June 6, 2022 and as amended by theSupplemental Confirmation dated June 8, 2023 and the Amended and Restated Supplemental Confirmation dated September 8, 2023 (and asmay be further amended and supplemented from time to time, the “Forward Contract”), to secure Zto Ljf Holding Limited’s obligations underthe Forward Contract, (iv) 10,219,041 Class A ordinary shares, in the form of ADSs, held by Zto Ljf Holding Limited, and (v) 33,598 Class Aordinary shares held by ZTO ES. Mr. Jianfa Lai is the sole director of Zto Ljf Holding Limited. Mr. Jianfa Lai has the power to direct thedisposition of those 33,598 Class A ordinary shares held by ZTO ES. Zto Ljf Holding Limited is a British Virgin Islands company whollyowned by LJFA Holding Limited, which in turn is beneficially owned by The LJF Family Trust, a trust established under the laws ofSingapore and managed by Standard Chartered Trust (Singapore) Limited as trustee. Mr. Jianfa Lai is the settlor of The LJF Family Trust andthe beneficiaries of the trust are Mr. Jianfa Lai and his family members. The registered address of Zto Ljf Holding Limited is Sea MeadowHouse, P.O. Box 116, Road Town, Tortola, British Virgin Islands.(6)Represents (i) 35,635,000 Class A ordinary shares held by Zto Wjl Holding Limited, (ii) 5,200,000 restricted ADSs held by JPMorgan ChaseBank, N.A., as depositary bank, underlying 5,200,000 Class A ordinary shares held by Zto Wjl Holding Limited pledged to Morgan StanleyBank Asia Limited, as lender under a loan agreement dated December 19, 2019, to secure Zto Wjl Holding Limited’s obligations under theloan agreement, and (iii) 1,253,065 Class A ordinary shares, in the form of ADSs, held by Zto Wjl Holding Limited, among which 974,236 arerestricted ADSs.To our knowledge, as of March 31, 2024, 136,095,789 (16.7%) of our ordinary shares in the form of ADSs were held by one record holderin the United States, which was JPMorgan Chase Bank, N.A., the depositary of our ADS program. The number of beneficial owners of our ADSsin the United States is likely to be much larger than the number of record holders of our ordinary shares in the United States.F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded CompensationNot applicable.ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONSA. Major ShareholdersPlease refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”B. Related Party TransactionsContractual Arrangements with the VIE and its ShareholdersSee “Item 4. Information on the Company—C. Organizational Structure.”Shareholders AgreementWe entered into our shareholders agreement on August 18, 2015 with our then shareholders. Pursuant to this shareholders agreement, wehave granted certain registration rights to our shareholders. Set forth below is a description of the registration rights granted under the agreement.Table of Contents131Demand Registration Rights. At any time after the earlier of (i)180 days after the effective date of the registration statement for a publicoffering or (ii)the expiration of the period during which the managing underwriters for such public offering shall prohibit us from effecting anyother public sale or distribution of registrable securities, holders of series A preferred shares, Max Alpha Limited and Max Beyond Limited, andZto Wlm Holding Limited have the right to demand that we file a registration statement covering the registration of any registrable securities ofsuch holders. We have the right to defer filing of a registration statement for a period of not more than 90 days after the receipt of the request of theinitiating holders under certain conditions, but we cannot exercise the deferral right more than once in any six-month period. We are not obligatedto effect more than two demand registrations, other than demand registration to be effected pursuant to registration statement on Form F-3, forwhich an unlimited number of demand registrations shall be permitted.Piggyback Registration Rights. If we propose to file a registration statement for a public offering of our securities, we must offer holdersof our registrable securities an opportunity to include in the registration the number of registrable securities of the same class or series as thoseproposed to be registered If the mana in number of registrable securities of the same class or series as those proposed to be registered. If themanaging underwriters of any underwritten offering determine in its view the number of registrable securities exceeds the maximum offering size,the registrable securities shall allocate first to us, second to each of holders requesting for the inclusion of their registrable securities pursuant to thepiggyback registration, and third to any other party with such priorities among them as we shall determine.Form F-3 Registration Rights. Holders of series A preferred shares, Max Alpha Limited and Max Beyond Limited, and Zto Wlm HoldingLimited, may request us in writing to file an unlimited number of registration statements on Form F-3. Within 90 days of receiving such request,we shall effect the registration of the securities on Form F-3.Expenses of Registration. We will bear all registration expenses, other than underwriting discounts and selling commissions, incurred inconnection with any demand, piggyback or F-3 registration.Investor Rights Agreement with Ali ZT and Cainiao SmartIn connection with the investment by Alibaba and Cainiao Network, we entered into an investor rights agreement, dated as of June 12,2018, with Alibaba ZT Investment Limited, or Ali ZT, an indirect wholly-owned special purpose subsidiary of Alibaba, Cainiao Smart LogisticsInvestment Limited, or Cainiao Smart, a wholly-owned subsidiary of Cainiao Network, and certain founding shareholders named therein. Amongother things, the investor rights agreement contains the following rights of Alibaba and Cainiao Network, as applicable:Right of First Offer. At any time Mr. Meisong Lai, our Founder, proposes to transfer securities of our company which constitutes aChange of Control (as defined in the investor rights agreement), Mr. Lai shall first make an offer of such securities to Ali ZT and Cainiao Smart.Ali ZT and Cainiao Smart may elect to exercise their rights to accept Mr. Lai’s offer to purchase the securities, or exercise their tagalong rights tosell their securities, at the price and on the terms offered by Mr. Lai.Preemptive Rights. If the company proposes to issue any of its securities, Ali ZT, Cainiao Smart and certain existing shareholders of thecompany shall have the right to acquire a portion of such securities equal to the quotient obtained by dividing (i) the number of shares of allsecurities owned by such shareholder by (ii) the total number of shares of all securities issued and outstanding, or such other percentage as may bemutually agreed among such shareholders following discussions with the company.Restriction on Transfers of Company Securities. Each of Ali ZT and Cainiao Smart is prohibited from transferring its Class A ordinaryshares prior to the second anniversary of the date of the investor rights agreement, other than transfers to its affiliates, transfers to the company,transfers required by law or transfers approved by the board of directors. In addition, certain existing shareholders of the company are not permittedto transfer any securities of the company to a competitor of Alibaba without the prior written consent of Ali ZT and Mr. Lai is not permitted totransfer any Class B ordinary shares beneficially owned by him without the prior written consent of Ali ZT prior to the second anniversary of thedate of the investor rights agreement.Table of Contents132Additional Agreements. The company agrees to take all Necessary Action (as defined in the investor rights agreement), and the FoundingShareholders (as defined in the investor rights agreement) agree to take all Necessary Action to cause the company, to ensure that (i) one(1) incumbent member of the Board shall resign his or her directorship, and (ii) the vacancy so caused by such resignation shall be filled by theappointment of one (1) director who shall be designated by Ali ZT. Ali ZT may, at its election, appoint a designated representative to serve as anon-voting observer to the Board and appoint the director or observer it designated to any committee of the board of directors, subject tocompliance with independence requirements under applicable laws and listing rules.Registration Rights Agreement with Ali ZT and Cainiao SmartIn connection with the investment by Alibaba and Cainiao Network, we entered into a registration rights agreement, dated as of June 12,2018, with Ali ZT and Cainiao Smart. The registration rights agreement provides that the company shall file a registration statement prior to thesecond anniversary of the date of the registration rights agreement covering the resale of the Class A ordinary shares owned by Ali ZT and CainiaoSmart. The company will bear the registration expenses related to the preparation and filing of the registration statement. A prospectus supplementcovering such resale was filed on December 30, 2020. The registration rights agreement contains customary indemnification provisions.Registration Rights Agreement with NRFIn connection with the investment by Alibaba and Cainiao Network, we entered into a registration rights agreement, dated as of June 28,2018, with NRF. NRSF owns 100% of NRF. NRSF GP is the general partner of NRSF. New Retail Strategic Opportunities GP Limited, an indirectwholly owned subsidiary of Alibaba, is the general partner of NRSF GP. The registration rights agreement provides that the company shall file aregistration statement prior to the first anniversary of the date of the registration rights agreement covering the resale of the Class A ordinary sharesowned by NRF. NRF will bear the registration expenses related to the preparation and filing of the registration statement. The registration rightsagreement contains customary indemnification provisions.Employment Agreements and Indemnification AgreementsSee “Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Employment Agreements andIndemnification Agreements.”Share Incentive PlanSee “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—2016 ShareIncentive Plan.”Employee Shareholding PlatformSee “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—EmployeeShareholding Platform.”Other Transactions with Related PartiesShanghai Mingyu. Shanghai Mingyu Barcode Technology Ltd. is controlled by our chairman’s brother. We incurred approximatelyRMB235.8 million, RMB237.3 million and RMB330.2 million (US$46.5 million) for purchases of supplies from this company in 2021, 2022 and2023, respectively. As of December 31, 2023, we had approximately RMB28.9 million (US$4.1 million) due to this company.Table of Contents133ZTO LTL. In November 2016, we invested RMB54.0 million in ZTO Supply Chain Management Co., Ltd., or ZTO LTL, for 18% equityinterest. ZTO LTL is engaged in provision of less-than-truckload transportation services in China. ZTO LTL is our investee. In 2017, 2018 and2020, we increased our investment in ZTO LTL by RMB256.4 million in aggregate. In December 2021, we invested US$52,102 (approximate toRMB331,807) in cash to maintain our equity interest in ZTO LTL at 17.3%. We incurred approximately RMB56.6 million, RMB459.0 million andRMB862.9 million (US$121.5 million) of transportation service fees to ZTO LTL and derived approximately RMB29.7 million, RMB45.9 millionand RMB45.9 million (US$6.5 million) of property leasing income from ZTO LTL in 2021, 2022 and 2023, respectively. In September 2022, wesold 100% of our equity interests in a wholly owned subsidiary of ours, Jinhua Zhongrui Freight Forwarding Co., Ltd, to ZTO LTL at a cashconsideration of RMB291.4 million. We recognized gain of RMB60.5 million on the disposal of Jinhua Zhongrui Freight Forwarding Co., Ltd. Weprovided some factoring loans to ZTO LTL and subsidiaries in 2022 and 2023. The balance of the loans was RMB110.0 million and RMB66.9million (US$9.4 million) as of December 31, 2022 and 2023, respectively. All of the loans were within one year and with a 7.0% annualizedinterest rate.We generated RMB3.5 million (US$0.5 million) of interest income from ZTO LTL in 2023. As of December 31, 2023, we had amountdue from ZTO LTL of RMB69.9 million (US$9.8 million) and RMB149.5 million (US$21.1 million) due to ZTO LTL.Zhongkuai Future City. Zhongkuai (Tonglu) Future City Industrial Development Co., Ltd, or Zhongkuai Future City, is controlled by ourchairman and chief executive officer. In 2020, we provided a three-year loan with a principal amount of RMB500.0 million with a 7.2% annualizedinterest rate to Zhongkuai Future City. On December 1, 2023, our company (through an indirect wholly-owned subsidiary), Zhongkuai Future City,and Mr. Jilei Wang entered into a loan extension agreement, pursuant to which we agreed to continue to provide Zhongkuai Future City with theloan in the principal amount of RMB500.0 million for a term of 36 months with an interest rate of 5% per annum, with Mr. Jilei Wang as guarantor.We generated RMB33.0 million (US$4.7 million) of interest income from Zhongkuai Future City in 2023. As of December 31, 2023, we hadamounts due from Zhongkuai Future City of RMB502.1 million (US$70.7 million).Transaction with an executive officer. Mr. Jianchang Lai is a vice president of our company. In 2021, we acquired 20.77% equityinterests each in two subsidiaries from Mr. Lai at a total cash consideration of RMB103.7 million.ZTO Yun Leng. In 2021, we invested RMB80.0 million in ZTO Yun Leng Network Technology (Zhejiang) Co., Ltd., or ZTO Yunleng, for18% equity interests in it. In December 2021, we sold our 100% equity interests in Zhejiang Xinglian Air Cargo Co., Ltd. to Zhongtong Yunleng ata cash consideration of RMB177.3 million. We incurred approximately RMB5.9 million, RMB56.3 million and RMB119.0 million (US$16.8million) of transportation service fees to ZTO Yun Leng in 2021, 2022 and 2023, respectively. As of December 31, 2023, we had approximatelyRMB15.0 million (US$2.1 million) of accounts due to ZTO Yun Leng and RMB1.2 million (US$0.2 million) due from ZTO Yun Leng.ZTO Cloud Warehouse. ZTO Cloud Warehouse Technology Co., Ltd., or ZTO Cloud Warehouse, was held as to approximately 16.36%by us as of December 31, 2023. ZTO Cloud Warehouse are primarily engaged in the provision of one-stop warehouse solutions includingwarehouse storage, warehouse management and express delivery services in China. We generated approximately RMB68.7 million, RMB291.6million and RMB274.3 million (US$38.6 million) of express delivery service revenue from ZTO Cloud Warehouse and derived approximatelyRMB33.4 million, RMB53.1 million and RMB64.7 million (US$9.1 million) of property leasing income from ZTO Cloud Warehouse in 2021,2022 and 2023, respectively. We provided some factoring loans to ZTO Cloud Warehouse and its subsidiaries in 2022 and 2023. The balance of theloans was RMB12.5 million and RMB33.0 million (US$4.6 million) as of December 31, 2022 and 2023, respectively. All of the loans were withinone year and with a 7.0% annualized interest rate. We generated RMB0.1 million and RMB1.8 million (US$0.3 million) of interest income fromZTO Cloud Warehouse in 2022 and 2023, respectively. As of December 31, 2023, we had amount due from ZTO Cloud Warehouse of RMB72.4million (US$10.2 million) and RMB16.4 million (US$2.3 million) due to ZTO Cloud Warehouse.C. Interests of Experts and CounselNot applicable.ITEM 8. FINANCIAL INFORMATIONA. Consolidated Statements and Other Financial InformationWe have appended consolidated financial statements filed as part of this annual report.Table of Contents134Legal ProceedingsWe may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of ourbusiness. Litigation or any other legal or administrative proceeding, regardless of outcome, may result in substantial cost and diversion of ourresources, including our management’s time and attention.Starting in May 2017, our company and certain of our directors and officers, and the underwriters of our company’s initial public offeringin October 2016 were named as defendants in a total of five putative securities class actions. All of these cases were voluntarily dismissed withoutprejudice in 2021 other than one case in which the court rendered a judgment in 2021 in favor of us and the other defendants.For risks and uncertainties relating to legal proceedings, please see “Item 3. Key Information—D. Risk Factors—Risks Related to OurBusiness and Industry—We are regularly subject to claims, lawsuits and other proceedings that may adversely affect our reputation, business andresults of operations.”Dividend PolicyOn March 19, 2024, our board of directors approved a semi-annual cash dividend policy, under which, starting from 2024, we will declareand distribute a recurring cash dividend semi-annually, in which the aggregate amount of the semi-annual dividend distributions for each year isequivalent to no less than 40% of our distributable profit in such fiscal year, or as otherwise authorized by our board of directors. The determinationto make dividend distributions and the exact amount of such distributions in any particular semi-annual period will be based upon our operationsand earnings, cash flow, financial condition, and other factors, and subject to adjustment and determination by the board of directors.Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. Ourboard of directors may revise our dividend policy or it may choose to cancel our dividend policy entirely. In addition, our shareholders may byordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Under Cayman Islands law, aCayman Islands company may pay a dividend out of either profit or share premium account provided that in no circumstances may a dividend bepaid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. See “Item 3. KeyInformation—D. Risk Factors—Risks Related to Our Shares and ADSs—Because the amount, timing, and whether or not we distribute dividendsat all is entirely at the discretion of our board of directors, investors may need to mainly rely on price appreciation of our Class A ordinary sharesand/or ADSs for return on their investments.”We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cashrequirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to paydividends to us. See “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Dividend Distribution.”If we pay any dividends, on our ordinary shares, we will pay those dividends which are payable in respect of the ordinary sharesunderlying our ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to our ADSholders in proportion to the ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement,including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.B. Significant ChangesWe have not experienced any significant changes since the date of our audited consolidated financial statements included in this annualreport.ITEM 9. THE OFFER AND LISTINGA. Offering and Listing DetailsOur ADSs, each representing one Class A ordinary share of ours, have been listed on the NYSE since October 27, 2016 under the symbol“ZTO.” As of the date of this annual report, each ADS represents one Class A ordinary share.Table of Contents135Our Class A ordinary shares have been listed on the Hong Kong Stock Exchange since September 29, 2020 under the stock code “2057.”B. Plan of DistributionNot applicable.C. MarketsOur ADSs, each representing one Class A ordinary share of ours, have been listed on the NYSE since October 27, 2016 under the symbol“ZTO.”Our Class A ordinary shares have been listed on the Hong Kong Stock Exchange since September 29, 2020 under the stock code “2057.”D. Selling ShareholdersNot applicable.E. DilutionNot applicable.F. Expenses of the IssueNot applicable.ITEM 10. ADDITIONAL INFORMATIONA. Share CapitalNot applicable.B. Memorandum and Articles of AssociationThe following are summaries of material provisions of our fourth amended and restated memorandum and articles of association, as wellas the Companies Act (As Revised) insofar as they relate to the material terms of our ordinary shares.Registered Office and Objects. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited,PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Law DebentureCorporate Services Inc., located at 4th Floor, 400 Madison Avenue, New York, New York 10017. Under our fourth amended and restatedmemorandum and articles of association, the objects of our company are unrestricted, and we have the full power and authority to carry out anyobject not prohibited by the law of the Cayman Islands.Board of DirectorsSee “Item 6 Directors, Senior Management and Employees—C. Board Practices.”Ordinary SharesGeneral.Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary sharesand Class B ordinary shares will have the same rights except for voting and conversion rights. Our ordinary shares are issued in registered form andare issued when registered in our register of members. Our shareholders who are non-residents of the Cayman Islands may freely hold and votetheir shares.Table of Contents136Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinaryshares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of Class Bordinary shares by a holder thereof to any person or entity that is not an Affiliate (as defined in our fourth amended and restated articles ofassociation) of such holder or upon a change of ultimate beneficial ownership of any Class B ordinary shares to any person who is not an Affiliateof the holder of such Class B ordinary shares, such Class B ordinary shares will be automatically and immediately converted into an equal numberof Class A ordinary shares. In addition, if at any time, Mr. Meisong Lai and his affiliates collectively own less than 10% of the issued andoutstanding shares in the capital of our company, each issued and outstanding Class B ordinary share will be automatically and immediatelyconverted into one Class A ordinary share, and we will not issue any Class B ordinary shares thereafter.Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors. In addition, ourshareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our directors. Our fourthamended and restated articles of association provide that dividends may be declared and paid out of our profits, realized or unrealized, or from anyreserve set aside from profits which our board of directors determine is no longer needed. Dividends may also be declared and paid out of sharepremium account or any other fund or account which can be authorized for this purpose in accordance with the Companies Act, provided that in nocircumstances may we pay a dividend if this would result in our company being unable to pay its debts as they fall due in the ordinary course ofbusiness.Voting Rights. On a show of hands each shareholder is entitled to one vote for each ordinary shares registered in his name on the registerof members or, on a poll, each shareholder is entitled to one vote for each Class A ordinary share registered in his name on the register of membersand ten votes for each Class B ordinary share registered in his name on the register of members, voting together as a single class, on all matters thatrequire a shareholder’s vote. Voting at any shareholders’ meeting is by poll, save that the chairman of the meeting may, in good faith, allow aresolution which relates purely to a procedural or administrative matter as prescribed under the Hong Kong Listing Rules to be voted on by a showof hands.We shall, for as long as our Class A ordinary shares remain listed on the Hong Kong Stock Exchange, in each financial year hold a generalmeeting as our annual general meeting and shall specify the meeting as such in the notices calling it. A quorum required for a meeting ofshareholders consists of one or more shareholders present and holding not less than 10%, for as long as the Class A ordinary shares remain listedon the Hong Kong Stock Exchange, or otherwise not less than one-third, of the votes attaching to all issued and outstanding shares in our companyand entitled to vote at such general meetings, on a one vote per share basis. Shareholders may be present in person or by proxy or, if theshareholder is a legal entity, by its duly authorized representative. Shareholders’ meetings may be convened by the chairman of the board ofdirectors or our board of directors on its own initiative or upon a request to the directors by shareholders holding not less than 10% of all votesattaching to our issued and outstanding shares, on a one vote per share basis, that as at the date of the deposit carry the right to vote at our generalmeetings. Our annual general meetings shall be called by not less than 21 days’ notice in writing and any other general meeting (including anextraordinary general meeting) shall be called by not less than 14 days’ notice in writing.An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votesattaching to the ordinary shares cast by those shareholders entitled to vote who are present in person or by proxy at a meeting, while a specialresolution requires the affirmative vote of no less than three-fourths of the votes attaching to the ordinary shares cast by those shareholders entitledto vote who are present in person or by proxy at a meeting. A special resolution will be required for important matters such as a change of name ormaking changes to our fourth amended and restated memorandum and articles of association. Holders of the ordinary shares may, among otherthings, divide or combine their shares by ordinary resolution.Transfer of Ordinary Shares. Subject to the restrictions set out below and the provisions above in respect of the transfer of Class Bordinary shares, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or commonform 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 onwhich we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:●the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such otherevidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;●the instrument of transfer is in respect of only one class of ordinary shares;Table of Contents137●the instrument of transfer is properly stamped, if required;●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 exceedfour; and●a fee of such maximum sum as the New York Stock Exchange may determine to be payable or such lesser sum as our directors mayfrom time to time require is paid to us in respect thereof.If our directors refuse to register a transfer they shall, within three 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 New York Stock Exchange, be suspended and theregister closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that theregistration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.Liquidation. On a return of capital on winding up (including in the case of voluntary winding up) or otherwise (other than on conversion,redemption or purchase of shares), assets available for distribution among the holders of ordinary shares shall be distributed among the holders ofour shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributedso that the losses are borne by our shareholders proportionately.Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amountsunpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that havebeen called upon and remain unpaid are subject to forfeiture.Redemption, Repurchase and Surrender of Shares. We may issue shares on terms that such shares may be redeemed, at our option or at theoption of the holders thereof, in such manner and on such terms as may be determined, before the issue of such shares, by either our board ofdirectors or by a special resolution of our shareholders. Our company may also repurchase any of our shares in such manner and on such terms ashave been approved by our board of directors or by ordinary resolution of our shareholders, or are otherwise authorized by our memorandum andarticles of association, provided always that any such purchase shall only be made in accordance with any relevant code, rules or regulations issuedby Hong Kong Stock Exchange or the Securities and Futures Commission of Hong Kong from time to time in force. Under the Companies Act, theredemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a fresh issue of shares made for thepurpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can,immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act nosuch 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 sharesoutstanding, or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for noconsideration.Variations of Rights of Shares. Whenever the capital of our company is divided into different classes, the rights attached to any such classmay, subject to any rights or restrictions for the time being attached to any class, only be materially adversely varied with the consent in writing ofthe holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a separate meeting of the holdersof the shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, subject toany rights or restrictions for the time being attached to the shares of that class, be deemed to be materially adversely varied by, inter alia, thecreation, allotment or issue of further shares ranking pari passu with or subsequent to them or the redemption or purchase of any shares of any classby our company.Issuance of Additional Shares. Our fourth amended and restated memorandum of association authorizes our board of directors to issueadditional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.Table of Contents138Subject to our fourth amended and restated memorandum and articles of association and in compliance with the Hong Kong Listing Rulesand Takeover Code, our fourth amended and restated memorandum of association also authorizes our board of directors to establish from time totime one or more series of preference shares and to determine, with respect to any series of preference shares, the terms and rights of that series,including:●the designation of the series;●the number of shares of the series;●the dividend rights, dividend rates, conversion rights, voting rights; and●the rights and terms of redemption and liquidation preferences.Subject to our fourth amended and restated memorandum and articles of association and in compliance with the Hong Kong Listing Rulesand Takeover Code, our board of directors may issue preference shares without action by our shareholders to the extent authorized but unissued.Issuance of these shares may dilute the voting power of holders of ordinary shares.Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtaincopies of our list of shareholders or our corporate records (other than copies of our memorandum and articles of association, our register ofmortgages and charges and any special resolutions passed by our shareholders). However, we will provide our shareholders with annual auditedfinancial statements.Anti-Takeover Provisions. Some provisions of our fourth amended and restated memorandum and articles of association may discourage,delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:●authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences,privileges and restrictions of such preference shares without any further vote or action by our shareholders; and●limit the ability of shareholders to requisition and convene general meetings of shareholders.However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our fourth amended andrestated memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of ourcompany.Exempted Company. We are an exempted company with limited liability under the Companies Act. The Companies Act distinguishesbetween ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts businessmainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company areessentially the same as for an ordinary company except that an exempted company:●does not have to file an annual return of its shareholders with the Registrar of Companies;●is not required to open its register of members for inspection;●does not have to hold an annual general meeting;●may issue negotiable or bearer shares or shares with no par value;●may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the firstinstance);●may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;Table of Contents139●may register as a limited duration company; and●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 thecompany.Changes in Capital. The company may from time to time by ordinary resolution increase the share capital by such sum, to be divided intoshares of such classes and amount, as the resolution shall prescribe. The company may by ordinary resolution:●increase its share capital by new shares of such amount as it thinks expedient;●consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares;●subdivide its shares, or any of them, into shares of an amount smaller than that fixed by the Memorandum and Articles ofAssociation, provided that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reducedshare shall be the same as it was in case of the Share from which the reduced share is derived; and●cancel any shares that, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person anddiminish the amount of its share capital by the amount of the shares so cancelled.The company may by special resolution reduce its share capital and any capital redemption reserve in any manner authorized by law.Differences in Corporate LawThe Companies Act is derived, to a large extent, from the older Companies Acts of England but does not follow recent United Kingdomstatutory enactments, and accordingly there are significant differences between the Companies Act and the current Companies Act of England. Inaddition, the Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary ofcertain significant differences between the provisions of the Companies Act applicable to us and the laws applicable to companies incorporated inthe United States and their shareholders.Mergers and Similar Arrangements. The Companies Act permits mergers and consolidations between Cayman Islands companies andbetween Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or moreconstituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company and (b) a“consolidation” means the combination of two or more constituent companies into a combined company and the vesting of the undertaking,property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of eachconstituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of theshareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles ofassociation. The written plan of merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands together with adeclaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and anundertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company andthat notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger orconsolidation which is effected in compliance with these statutory procedures.A merger between a Cayman parent company and its Cayman subsidiary or subsidiaries does not require authorization by a resolution ofshareholders. For this purpose, a subsidiary is a company of which at least 90% of the issued shares entitled to vote are owned by the parentcompany.The consent of each holder of a fixed or floating security interest of a constituent company is required unless this requirement is waivedby a court in the Cayman Islands.Table of Contents140Except in certain limited circumstances, a shareholder of a Cayman Islands constituent company who dissents from the merger orconsolidation is entitled to payment of the fair value of his or her shares (which, if not agreed between the parties, will be determined by theCayman Islands court) upon dissenting from a merger or consolidation, provided the dissenting shareholder complies strictly with the proceduresset out in the Companies Act. The exercise of such dissenter rights will preclude the exercise by the dissenting shareholder of any other rights towhich he or she might otherwise be entitled by virtue of holding shares, except for the right to seek relief on the grounds that the merger orconsolidation is void or unlawful.Separate from the statutory provisions relating to mergers and consolidations, the Companies Act also contains statutory provisions thatfacilitate the reconstruction and amalgamation of companies by way of schemes of arrangement, provided that the arrangement is approved by amajority in number of each class of shareholders or creditors with whom the arrangement is to be made and who must, in addition, represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at ameeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by theGrand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to beapproved, the court can be expected to approve the arrangement if it determines that:●the statutory provisions as to the required majority vote have been met;●the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide withoutcoercion of the minority to promote interests adverse to those of the class;●the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of hisinterest; and●the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Act.The Companies Act also contains a statutory power of compulsory acquisition which may facilitate the “squeeze out” of dissentientminority shareholders upon a tender offer. When a tender offer is made and accepted by holders of 90% of the shares affected within four months,the offeror may, within a two-month period commencing on the expiration of such four-month period, require the holders of the remaining shares totransfer such shares to the offeror on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands, but this is unlikelyto succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.If an arrangement and reconstruction by way of scheme of arrangement is thus approved and sanctioned, or if a tender offer is made andaccepted, in accordance with the foregoing statutory procedures, a dissenting shareholder would have no rights comparable to appraisal rights,which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash forthe judicially determined value of the shares.Shareholders’ Suits. In principle, we will normally be the proper plaintiff to sue for a wrong done to us as a company, and as a general rulea derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be ofpersuasive authority in the Cayman Islands, the Cayman Islands court can be expected to apply and follow the common law principles (namely therule in Foss v. Harbottle and the exceptions thereto) which permit a minority shareholder to commence a class action against, or derivative actionsin the name of, a company to challenge the following:●an act which is illegal or ultra vires;●an act which, although not ultra vires, could only be effected duly if authorized by a special or qualified majority vote that has notbeen obtained; and●an act which constitutes a fraud on the minority where the wrongdoers are themselves in control of the company.Table of Contents141Indemnification of Directors and Executive Officers and Limitation of Liability. Cayman Islands law does not limit the extent to which acompany’s memorandum and articles of association may provide for indemnification of officers and directors, except to the extent any suchprovision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or theconsequences of committing a crime. Our fourth amended and restated memorandum and articles of association provide that we shall indemnifyour directors and officers against all losses, damages, costs, expenses, actions, proceedings, charges or liabilities incurred in their capacities as suchunless such losses or damages arise from dishonesty, willful default or fraud of such directors or officers in or about the conduct of our company’sbusiness or affairs (including as a result of any mistake of judgment) or in the execution or discharge of his duties, powers, authorities ordiscretions, including without prejudice to the generality of the foregoing, any costs, expenses, losses or liabilities incurred by such director orofficer in defending (whether successfully or otherwise) any civil proceedings concerning our company or our affairs in any court whether in theCayman Islands or elsewhere. This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for aDelaware corporation.In addition, we have entered into indemnification agreements with our directors and executive officers that provide such persons withadditional indemnification beyond that provided in our Memorandum and Articles of Association.Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controllingus under the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnification is against public policy as expressedin the Securities Act and is therefore unenforceable.Directors’ Fiduciary Duties. Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporationand its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in goodfaith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himselfof, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that adirector acts in a manner he reasonably believes to be in the best interests of the corporation. He must not use his corporate position for personalgain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders takeprecedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general,actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in thebest interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should suchevidence be presented concerning a transaction by a director, the director must prove the procedural fairness of the transaction, and that thetransaction was of fair value to the corporation.As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the companyand therefore it is considered that he owes the following duties to the company—a duty to act bona fide in the best interests of the company, a dutynot to make a profit based on his position as director (unless the company permits him to do so) and a duty not to put himself in a position wherethe interests of the company conflict with his personal interest or his duty to a third party. A director of a Cayman Islands company owes to thecompany 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 greaterdegree of skill than may reasonably be expected from a person of his knowledge and experience. However, English and Commonwealth courtshave moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the CaymanIslands.Shareholder Action by Written Consent. Under the Delaware General Corporation Law, a corporation may eliminate the right ofshareholders to act by written consent by amendment to its certificate of incorporation. Cayman Islands law and our fourth amended and restatedmemorandum and articles of association provide that shareholders may approve corporate matters by way of a unanimous written resolution signedby or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.Shareholder Proposals. Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annualmeeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the boardof directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.Table of Contents142Cayman Islands law does not provide shareholders any right to put proposal before a meeting and provides limited rights for shareholdersto requisition a general meeting. However, these rights may be provided in articles of association. Our fourth amended and restated memorandumand articles of association allow our shareholders holding not less than 10% of all votes attaching to our issued and outstanding shares, on a onevote per share basis, that as at the date of the deposit carry the right to vote at our general meetings, to requisition a shareholder’s meeting. Otherthan this right to requisition a shareholders’ meeting, our fourth amended and restated memorandum and articles of association do not provide ourshareholders other right to put proposal before a meeting. As an exempted Cayman Islands company, we are not obliged by law to callshareholders’ annual general meetings.Cumulative Voting. Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless thecorporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minorityshareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a singledirector, which increases the shareholder’s voting power with respect to electing such director. There are no prohibitions in relation to cumulativevoting under the laws of the Cayman Islands, but our fourth amended and restated memorandum and articles of association do not provide forcumulative voting. As a result, our shareholders are not afforded any less protections or rights on this issue than shareholders of a Delawarecorporation.Removal of Directors. Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removedonly for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise.Under our fourth amended and restated memorandum and articles of association, directors may be removed with or without cause, by an ordinaryresolution of our shareholders before the expiration of his or her term of office.Transactions with Interested Shareholders. The Delaware General Corporation Law contains a business combination statute applicable toDelaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificateof incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the datethat such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15%or more of the target’s outstanding voting share within the past three years. This has the effect of limiting the ability of a potential acquirer to makea two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to thedate on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or thetransaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation tonegotiate the terms of any acquisition transaction with the target’s board of directors.Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delawarebusiness combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significantshareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect ofconstituting a fraud on the minority shareholders.Dissolution; Winding Up. Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve,dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by theboard of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation toinclude in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board.Under Cayman Islands law, a company may be wound up by either an order of the courts of the Cayman Islands or by a special resolutionof its members or, if the company is unable to pay its debts as they fall due, by an ordinary resolution of its members. The court has authority toorder winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. Under theCompanies Act and our fourth amended and restated memorandum and articles of association, our company may be dissolved, liquidated or woundup by a special resolution of our shareholders.Table of Contents143Variation of Rights of Shares. Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares withthe approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islandslaw and our fourth amended and restated memorandum and articles of association, if our share capital is divided into more than one class of shares,we may vary the rights attached to any class with the written consent of the holders of three-fourths of the issued shares of that class or with thesanction of a special resolution passed at a general meeting of the holders of the shares of that class.Amendment of Governing Documents. Under the Delaware General Corporation Law, a corporation’s governing documents may beamended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Aspermitted by Cayman Islands law, our fourth amended and restated memorandum and articles of association may only be amended with a specialresolution of our shareholders.Rights of Non-Resident or Foreign Shareholders. There are no limitations imposed by our fourth amended and restated memorandum andarticles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares.C. Material ContractsWe 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,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” in this “Item 10.Additional Information—C. Material Contracts” or elsewhere in this annual report on Form 20-F.D. Exchange ControlsSee “Item 4. Information on the Company—B. Business Overview—Regulation—Regulations Relating to Foreign Exchange.”E. TaxationThe following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of an investment in our ADSs orordinary shares is based upon laws and interpretations thereof in effect as of the date of this annual report, all of which are subject to change. Thissummary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequencesunder U.S. state and local tax laws or under the tax laws of jurisdictions other than the Cayman Islands, the People’s Republic of China and theUnited States.Cayman Islands TaxationThe Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there isno taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to holders of our ADSs or ordinary shareslevied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution,brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties that are applicable to anypayments made to or by our company. There are no exchange control regulations or currency restrictions in the Cayman Islands.Table of Contents144People’s Republic of China TaxationUnder the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established outside of the PRC with “de factomanagement body” within the PRC is considered a resident enterprise. The implementation rules define the term “de facto management body” asthe body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties, etc.of an enterprise. STA Circular 82 provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlledenterprise that is incorporated offshore is located in China. Although this circular only applies to offshore enterprises controlled by PRC enterprisesor PRC enterprise groups, not those controlled by PRC individuals or foreigners, the criteria set forth in the circular may reflect the general positionof the State Taxation Administration on how the “de facto management body” text should be applied in determining the tax resident status of alloffshore enterprises. According to STA Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise groupwill be regarded as a PRC tax resident by virtue of having its “de facto management body” in China only if all of the following conditions are met:(i) the primary location of the day-to-day operational senior management and senior management department’s performance of their duties is in thePRC; (ii) decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations orpersonnel in the PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholder resolutions, arelocated or maintained in the PRC; and (iv) at least 50% of voting board members or senior executives habitually reside in the PRC.We believe that ZTO is not a PRC resident enterprise for PRC tax purposes. ZTO is not controlled by a PRC enterprise or PRC enterprisegroup and we do not believe that ZTO meets all of the conditions above. ZTO is a company incorporated outside the PRC. As a holding company,its key assets are its ownership interests in its subsidiaries, and its key assets are located, and its records (including the resolutions of its board ofdirectors and the resolutions of its shareholders) are maintained, outside the PRC. However, the tax resident status of an enterprise is subject todetermination by the PRC tax authorities and further interpretation of the term “de facto management body.”If the PRC tax authorities determine that ZTO is a PRC resident enterprise for enterprise income tax purposes, we may be required towithhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises, including the holders of our ADSs. Inaddition, non-resident enterprise shareholders (including our ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or otherdisposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. Furthermore, if we are deemed a PRC residententerprise, dividends payable to our non-PRC individual shareholders (including our ADS holders) and any gain realized on the transfer of ADSsor ordinary shares by such shareholders may be subject to PRC tax at a rate of 20% unless a reduced rate is available under an applicable tax treaty.Further interpretations may make it clear on whether non-PRC shareholders of ZTO would be able to claim the benefits of any tax treaties betweentheir country of tax residence and the PRC in the event that ZTO is treated as a PRC resident enterprise.Table of Contents145The State Taxation Administration issued an STA Circular 59 together with the Ministry of Finance on April 30, 2009 and a STA PublicNotice 7 on February 3, 2015. By promulgating and implementing these two circulars, the PRC tax authorities have enhanced their scrutiny overthe direct or indirect transfer of equity interests in a PRC resident enterprise by a non-resident enterprise. Under STA Public Notice 7, an “indirecttransfer” of assets, including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as adirect transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose ofavoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise incometax. STA Public Notice 7 provides clear criteria for assessment of reasonable commercial purposes and has introduced safe harbors for internalgroup restructurings and the purchase and sale of equity through a public securities market. STA Public Notice 7 also brings challenges to bothforeign transferor and transferee (or other person who is obligated to pay for the transfer) of taxable assets. Where a non-resident enterprisetransfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an Indirect Transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may report such Indirect Transfer to thetax authority. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if itlacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derivedfrom such Indirect Transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transferis obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both thetransferor and the transferee may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails topay the taxes. According to STA Announcement 37, the withholding party shall, within seven days of the day on which the withholding obligationoccurs, declare and remit the withholding tax to the competent tax authority at its locality. Where the withholding party fails to withhold and remitthe income tax payable or is unable to perform its obligation in this regard, the non-resident enterprise that earns the income shall, declare and paythe tax that has not been withheld to the competent tax authority at the place where the income occurs, and complete the Withholding Statement ofthe People’s Republic of China for Enterprise Income Tax. Our company may be subject to filing obligations or taxed if our company is thetransferor in such transactions, and may be subject to withholding obligations if our company is the transferee in such transactions, under STAAnnouncement 37 and STA Public Notice 7. For transfer of shares in our company by investors that are non-PRC resident enterprises, our PRCsubsidiaries may be requested to assist in the filing under STA Public Notice 7. As a result, we may be required to expend valuable resources tocomply with STA Announcement 37 and STA Public Notice 7 or to request the transferors from whom we purchase taxable assets to comply withthese circulars, or to establish that our company should not be taxed under these circulars, which may have a material adverse effect on ourfinancial condition and results of operations.Under the PRC Enterprise Income Tax Law and its implementation rules, certain high and new technology enterprises that independentlyown core intellectual property and meet statutory criteria are permitted to enjoy a reduced 15% enterprise income tax rate. On January 29, 2016 theState Taxation Administration, the Ministry of Science and Technology and the Ministry of Finance jointly issued the Administrative Measures forthe Certification of High and New Technology Enterprises specifying the criteria and procedures for the qualification and certification of the highand new technology enterprises.Under Circular 58 and Circular 12, from January 1, 2011 to December 31, 2020, the primary business of the enterprise is listed in the oneof industry items provided in the Catalogue of Encouraged Industries in Western Regions and annual primary business revenue of which accountsfor more than 70% of the total enterprise revenue, may pay enterprise income tax at the reduced tax rate of 15% subject to the examination andconfirmation of the competent tax authority. Afterwards, the State Taxation Administration abolished the examination and confirmation proceduresof the competent tax authority for the preferential treatment under Circular 12. The Ministry of Finance, the State Taxation Administration and theNational Development and Reform Commission promulgated Circular 23, from January 1, 2021 to December 31, 2030, the primary business of theenterprise is listed in the one of industry items provided in the Catalogue of Encouraged Industries in Western Regions and primary businessrevenue of which accounts for more than 60% of the total enterprise revenue, may pay enterprise income tax at the reduced tax rate of 15% subjectto the examination and confirmation of the competent tax authority. Circular 23 came into force from January 1, 2021 and Circular 58 shall cease tobe implemented with effect from the same day.Table of Contents146In order to encourage the development of the enterprises in software industry, the State Taxation Administration, the Ministry of Finance,the National Development and Reform Commission and the Ministry of Industry and Information Technology issued the Circular on IssuesConcerning Preferential Policies on Enterprise Income Tax for Software and Integrated Circuit Industries on May 4, 2016 and the Announcementon Enterprise Income Tax Policies for Promoting High Quality Development of Integrated Circuit Industry and Software Industry on December 11,2020, which specifies the criteria and procedures for the qualification and certification of the key software enterprise. The key software enterprisesencouraged by the State are entitled to be exempted from enterprise income tax from the first to the fifth year from the profit-making year and besubject to enterprise income tax at a reduced tax rate of 10% for subsequent years.United States Federal Income Tax ConsiderationsThe following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition ofour ADSs or Class A ordinary shares by a U.S. Holder (as defined below) that holds our ADSs as “capital assets” (generally, property held forinvestment) under the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal tax law,which is subject to differing interpretations or change, possibly with retroactive effect. There can be no assurance that the Internal Revenue Service,or the IRS, or a court will not take a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, Medicare tax oncertain net investment income, and minimum tax considerations, or any state, local and non-U.S. tax considerations, relating to the ownership ordisposition of our ADSs or Class A ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that maybe important to particular investors in light of their individual circumstances or to persons in special tax situations such as:●banks and other financial institutions;●insurance companies;●pension plans;●cooperatives;●regulated investment companies;●real estate investment trusts;●broker-dealers;●traders in securities that elect to use a mark-to-market method of accounting;●certain former U.S. citizens or long-term residents;●tax-exempt entities (including private foundations);●persons liable for minimum tax;●holders who acquire their ADSs or Class A ordinary shares pursuant to any employee share option or otherwise as compensation;●investors that will hold their ADSs or Class A ordinary shares as part of a straddle, hedge, conversion, constructive sale or otherintegrated transaction for U.S. federal income tax purposes;●investors that have a functional currency other than the U.S. dollar;●persons that actually or constructively own 10% or more of our stock (by vote or value); orTable of Contents147●partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding common stock throughsuch entities.all of whom may be subject to tax rules that differ significantly from those discussed below.Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal tax law to its particular circumstances, andthe state, local, non-U.S. and other tax considerations of the ownership and disposition of our ADSs or Class A ordinary shares.GeneralFor purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ADSs or Class A ordinary shares that is, for U.S. federalincome tax purposes:●an individual who is a citizen or resident of the United States;●a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the law ofthe United States or any state thereof or the District of Columbia;●an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or●a trust (A) the administration of which is subject to the primary supervision of a U.S. court and which has one or more U.S. personswho have the authority to control all substantial decisions of the trust or (B) that has otherwise validly elected to be treated as a U.S.person under the Code.If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of our ADSs or Class Aordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of thepartnership. Partnerships holding our ADSs or Class A ordinary shares and their partners are urged to consult their tax advisors regarding aninvestment in our ADSs or Class A ordinary shares.For U.S. federal income tax purposes, it is generally expected that a U.S. Holder of ADSs will be treated as the beneficial owner of theunderlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of our ADSs will be treated in thismanner. Accordingly, deposits or withdrawals of Class A ordinary shares for ADSs will generally not be subject to U.S. federal income tax.Passive Foreign Investment Company ConsiderationsA non-U.S. corporation, such as our company, will be classified as a PFIC, for U.S. federal income tax purposes for any taxable year, ifeither (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the value of its assets(generally determined on the basis of a quarterly average) during such year is attributable to assets that produce or are held for the production ofpassive income. For this purpose, cash and assets readily convertible into cash are categorized as a passive asset and the company’s goodwill andother unbooked intangibles are taken into account. Passive income generally includes, among other things, dividends, interest, rents, royalties, andgains from the disposition of passive assets. We will be treated as owning a proportionate share of the assets and earning a proportionate share ofthe income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.Although the law in this regard is unclear, we treat our consolidated VIE and its subsidiaries as being owned by us for U.S. federal incometax purposes because we control their management decisions and are entitled to substantially all of the economic benefits associated with theseentities. As a result, we consolidate their results of operations in our consolidated U.S. GAAP financial statements. If it were determined, however,that we are not the owner of the consolidated VIE and its subsidiaries for U.S. federal income tax purposes, we would likely be treated as a PFICfor the current taxable year and any subsequent taxable year.Table of Contents148Assuming that we are the owner of the VIE for U.S. federal income tax purposes, and based upon our income and assets, and the marketvalue of our ADSs, we do not believe we were a PFIC for the taxable year ended December 31, 2023 and do not anticipate being or becoming aPFIC in the current taxable year or in the foreseeable future. While we do not anticipate being or becoming a PFIC in the current or foreseeabletaxable years, no assurance can be given in this regard because the determination of whether we will be or become a PFIC is a factualdetermination made annually that will depend, in part, upon the composition of our income and assets. Fluctuations in the market price of our ClassA ordinary shares and/or ADSs may cause us to be classified as a PFIC for the current or future taxable years because the value of our assets forpurposes of the asset test, including the value of our goodwill and other unbooked intangibles, may be determined by reference to the market priceof our Class A ordinary shares and/or ADSs from time to time (which may be volatile). If our market capitalization subsequently declines, we maybe or become classified as a PFIC for the current taxable year or future taxable years. Furthermore, the composition of our income and assets mayalso be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenue from activities that produce passiveincome significantly increases relative to our revenue from activities that produce non-passive income, or where we determine not to deploysignificant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.If we are classified as a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, the PFICrules discussed below under “Passive Foreign Investment Company Rules” will generally apply to such U.S. Holder for such taxable year, andunless the U.S. Holder makes certain elections, will apply in future years even if we cease to be a PFIC.The discussion below under “Dividends” and “Sale or Other Disposition” is written on the basis that we will not be or become classifiedas a PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that apply generally if we are treated as a PFIC are discussedbelow under “Passive Foreign Investment Company Rules.”DividendsAny cash distributions (including the amount of any PRC tax withheld) paid on our ADSs or Class A ordinary shares out of our current oraccumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross income of a U.S.Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of Class A ordinary shares, or by thedepositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles,any distribution we pay will generally be treated as a “dividend” for U.S. federal income tax purposes. Dividends received on our ADSs or Class Aordinary shares will not be eligible for the dividends received deduction allowed to corporations. A non-corporate U.S. Holder will be subject to taxat the lower capital gain tax rate applicable to “qualified dividend income,” provided that certain conditions are satisfied, including that (1) ourADSs are readily tradeable on an established securities market in the United States, or, in the event that we are deemed to be a PRC residententerprise under the PRC tax law, we are eligible for the benefit of the United States-PRC income tax treaty (the “Treaty”), (2) we are neither aPFIC nor treated as such with respect to a U.S. Holder (as discussed below) for the taxable year in which the dividend was paid and the precedingtaxable year, and (3) certain holding period requirements are met. Our ADSs (but not our Class A ordinary shares) are readily tradeable on anestablished securities market in the United States. There can be no assurance, however, that our ADSs will be considered readily tradeable on anestablished securities market in later years.In the event that we are deemed to be a PRC resident enterprise under the PRC Enterprise Income Tax Law (see “—People’s Republic ofChina Taxation”), a U.S. Holder may be subject to PRC withholding taxes on dividends paid on our ADSs or Class A ordinary shares. We may,however, be eligible for the benefits of the Treaty. If we are eligible for such benefits, dividends we pay on our Class A ordinary shares, regardlessof whether such shares are represented by the ADSs, would be eligible for the reduced rates of taxation described in the preceding paragraph.Table of Contents149Dividends will generally be treated as income from foreign sources for U.S. foreign tax credit purposes and will generally constitutepassive category income. Depending on the U.S. Holder’s individual facts and circumstances, a U.S. Holder may be eligible, subject to a number ofcomplex limitations, to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received on our ADSs or ClassA ordinary shares. A U.S. Holder who does not elect to claim a foreign tax credit for foreign tax withheld may instead claim a deduction, for U.S.federal income tax purposes, in respect of such withholding, but only for a year in which such holder elects to do so for all creditable foreignincome taxes. The rules governing the foreign tax credit are complex and their outcome depends in large part on the U.S. Holder’s individual factsand circumstances. Accordingly, U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under theirparticular circumstances.Sale or Other DispositionA U.S. Holder will generally recognize capital gain or loss upon the sale or other disposition of ADSs or Class A ordinary shares in anamount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or Class Aordinary shares. Any capital gain or loss will be long-term if the ADSs or Class A ordinary shares have been held for more than one year and willgenerally be U.S.-source gain or loss for U.S. foreign tax credit purposes. Long-term capital gain of individuals and certain other non-corporateU.S. Holders will generally be eligible for a reduced rate of taxation. The deductibility of a capital loss may be subject to limitations. In the eventthat gain from the disposition of the ADSs or Class A ordinary shares is subject to tax in the PRC, such gain may be treated as PRC source gainunder the Treaty. Pursuant to U.S. Treasury Regulations, if a U.S. Holder is not eligible for the benefits of the Treaty or does not elect to apply theTreaty, then such U.S. Holder may not be able to claim a foreign tax credit arising from any PRC tax imposed on the disposition of the ADSs orClass A ordinary shares. The rules regarding foreign tax credits and deduction of foreign taxes are complex. U.S. Holders are urged to consult theirtax advisors regarding the tax consequences if a foreign tax is imposed on a disposition of our ADSs or Class A ordinary shares, including theavailability of the foreign tax credit or deduction under their particular circumstances, their eligibility for benefits under the Treaty and the potentialimpact of the U.S. Treasury Regulations.Passive Foreign Investment Company RulesIf we are classified as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares, and unless theU.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excessdistribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for theADSs or Class A ordinary shares), and (ii) any gain realized on the sale or other disposition of ADSs or Class A ordinary shares. Under the PFICrules:●the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or Class A ordinaryshares;●the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the firsttaxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income;●the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect forindividuals or corporations, as appropriate, for that year; and●the interest charge generally applicable to underpayments of tax will be imposed on the tax attributable to each prior taxable year,other than a pre-PFIC year.If we are a PFIC for any taxable year during which a U.S. Holder holds our ADSs or Class A ordinary shares and any of our subsidiaries isalso a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes ofthe application of these rules. U.S. Holders are urged to consult their tax advisors regarding the application of the PFIC rules to any of oursubsidiaries.Table of Contents150As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” in a PFIC may make a mark-to-market election with respectto such stock, provided that such stock is regularly traded on a national securities exchange that is registered with the SEC or on a foreign exchangeor market that the IRS determines is a qualified exchange that has rules sufficient to ensure that the market price represents a legitimate and soundfair market value. For those purposes, our ADSs, but not our Class A ordinary shares, are listed on the NYSE, which is an established securitiesexchange in the United States. Our Class A ordinary shares are listed on the Hong Kong Stock Exchange, which is expected to meet therequirements of a qualified exchange or market for these purposes. We anticipate that our ADSs and Class A ordinary shares should qualify asbeing regularly traded, but no assurances may be given in this regard. If a U.S. Holder makes this election, the holder will generally (i) include asordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs or Class A ordinary shares held at theend of the taxable year over the adjusted tax basis of such ADSs or Class A ordinary shares and (ii) deduct as an ordinary loss the excess, if any, ofthe adjusted tax basis of the ADSs or Class A ordinary shares over the fair market value of such ADSs or Class A ordinary shares held at the end ofthe taxable year, but such deduction will only be allowed to the extent of the amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs or Class A ordinary shares would be adjusted to reflect any income or lossresulting from the mark-to-market election. If a U.S. Holder makes a mark-to-market election in respect of a corporation classified as a PFIC andsuch corporation ceases to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during anyperiod that such corporation is not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizesupon the sale or other disposition of our ADSs or Class A ordinary shares in a year when we are a PFIC will be treated as ordinary income and anyloss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in incomeas a result of the mark-to-market election.Because a mark-to-market election technically cannot be made for any lower-tier PFICs that we may own, a U.S. Holder may continue tobe subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest ina PFIC for U.S. federal income tax purposes.We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, wouldresult in tax treatment different from the general tax treatment for PFICs described above.If a U.S. Holder owns our ADSs or Class A ordinary shares during any taxable year that we are a PFIC, the holder must generally file anannual IRS Form 8621. You should consult your tax advisors regarding the U.S. federal income tax consequences of owning and disposing of ourADSs or Class A ordinary shares if we are or become a PFIC.F. Dividends and Paying AgentsNot applicable.G. Statement by ExpertsNot applicable.H. Documents on DisplayWe are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we arerequired to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than four monthsafter the close of each fiscal year. All information filed with the SEC can be obtained over the internet at the SEC’s website at www.sec.gov. As aforeign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxystatements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained inSection 16 of the Exchange Act.Table of Contents151We will furnish JPMorgan Chase Bank, N.A., the depositary of our ADSs, with our annual reports, which will include a review ofoperations and annual audited consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders’ meetingsand other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports andcommunications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in anynotice of a shareholders’ meeting received by the depositary from us.I. Subsidiary InformationNot applicable.J. Annual Report to Security HoldersWe intend to submit the annual report provided to security holders in electronic format pursuant to the Rules Governing the Listing ofSecurities on The Stock Exchange of Hong Kong Limited as an exhibit to a current report on Form 6-K.ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket RisksForeign Exchange RiskOur revenues, expenses and assets and liabilities are mainly denominated in Renminbi. We do not believe that we currently have anysignificant direct foreign exchange risk. To date, we have entered into some hedging transactions, such as foreign currency deposits, foreigncurrency forward contract and options, to hedge exposure to such risk. Although our exposure to foreign exchange risks should be limited ingeneral, the value of your investment in our ADSs will be affected by the exchange rate between U.S. dollar and Renminbi because the value of ourbusiness is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.The conversion of Renminbi into other currencies, including U.S. dollars, is based on rates set by the People’s Bank of China. TheRenminbi has fluctuated against other currencies, at times significantly and unpredictably. The value of Renminbi against other currencies isaffected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. It is difficult topredict how market forces or government policies may impact the exchange rate between Renminbi and other currencies in the future.To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollarwould have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert Renminbi into U.S. dollarsfor the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollaragainst the Renminbi would have a negative effect on the U.S. dollar amounts available to us.As of December 31, 2023, we had RMB2.7 billion of cash and cash equivalent, restricted cash and short-term investment that weredenominated in U.S. dollars. If Renminbi had appreciated by 10% against the U.S. dollar, it would result in a decrease of RMB242.0 million in ourcash and cash equivalents, restricted cash and short-term investment.Interest Rate RiskOur exposure to interest rate risk primarily relates to the interest income generated by excess cash, which is mostly held in interest-bearingbank deposits. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securitiesmay have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income thanexpected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interestrates, or we may suffer losses in principal if we have to sell securities which have declined in market value due to changes in interest rates. Ourexposure to interest rate risk also arises from our borrowings that have a floating rate of interest. The costs of floating rate borrowings may beaffected by the fluctuations in the interest rates. We have not been, and do not expect to be, exposed to material risks due to changes in interestrates, and we have not used any derivative financial instruments to manage our interest risk exposure.Table of Contents152Commodity Price RiskOur exposure to commodity price risk primarily relates to fuel prices in connection with our line-haul transportation. The price andavailability of fuel are subject to fluctuations due to changes in the level of global oil production, seasonality, weather, global politics and otherfactors. Historically, we have not experienced significant pricing pressure in connection with fuel price fluctuation. In the event of significant fuelprice rise, our transportation expenses may rise and our gross profits may decrease if we are unable to adopt any effective cost control-measures orpass on the incremental costs to our customers in the form of service surcharges.ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIESA. Debt SecuritiesNot applicable.B. Warrants and RightsNot applicable.C. Other SecuritiesNot applicable.D. American Depositary SharesCharges Our ADS Holders May Have to PayThe depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares,issuances in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared by us orissuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or deposited securities, and each personsurrendering ADSs for withdrawal of deposited securities or whose ADRs are cancelled or reduced for any other reason, US$5.00 for each 100ADSs (or any portion thereof) issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell (by public orprivate sale) sufficient securities and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to paysuch charge.The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing shares or by any partysurrendering ADSs and/or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared byus or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:●a fee of US$1.50 per ADR or ADRs for transfers of certificated or direct registration ADRs;●a fee of up to US$0.05 per ADS for any cash distribution made pursuant to the deposit agreement;●a fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services performed by the depositary in administering theADRs (which fee may be charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as ofthe record date or record dates set by the depositary during each calendar year and shall be payable in the manner described in thenext succeeding provision);Table of Contents153●a fee for the reimbursement of such fees, charges and expenses as are incurred by the depositary and/or any of its agents (including,without limitation, the custodian and expenses incurred on behalf of holders in connection with compliance with foreign exchangecontrol regulations or any law or regulation relating to foreign investment) in connection with the servicing of the shares or otherdeposited securities, the sale of securities (including, without limitation, deposited securities), the delivery of deposited securities orotherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation (which fees andcharges shall be assessed on a proportionate basis against holders as of the record date or dates set by the depositary and shall bepayable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividendsor other cash distributions);●a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal tothe US$0.05 per ADS issuance fee for the execution and delivery of ADSs which would have been charged as a result of the depositof such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the salethereof are instead distributed by the depositary to those holders entitled thereto;●stock transfer or other taxes and other governmental charges;●cable, telex and facsimile transmission and delivery charges incurred at your request in connection with the deposit or delivery ofshares, ADRs or deposited securities;●transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with thedeposit or withdrawal of deposited securities;●in connection with the conversion of foreign currency into U.S. dollars, JPMorgan Chase Bank, N.A. shall deduct out of such foreigncurrency the fees, expenses and other charges charged by it and/or its agent (which may be a division, branch or affiliate) soappointed in connection with such conversion; and●fees of any division, branch or affiliate of the depositary utilized by the depositary to direct, manage and/or execute any public and/orprivate sale of securities under the deposit agreement.JPMorgan Chase Bank, N.A. and/or its agent may act as principal for such conversion of foreign currency.We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreementsfrom time to time between us and the depositary. The charges described above may be amended from time to time by agreement between us and thedepositary.Fees and Other Payments Made by the Depositary to UsOur depositary anticipates to reimburse us for certain expenses we incur that are related to establishment and maintenance of the ADRprogram upon such terms and conditions as we and the depositary may agree from time to time. The depositary may make available to us a setamount or a portion of the depositary fees charged in respect of the ADR program or otherwise upon such terms and conditions as we and thedepositary may agree from time to time. For the year ended December 31, 2023, we received a reimbursement of US$5.3 million, after deductionof applicable U.S. taxes, from the depositary.Table of Contents154PART IIITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIESNone.ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS MATERIALMODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERSSee “Item 10. Additional Information—B. Memorandum and Articles of Association—Ordinary Shares” for a description of the rights ofsecurities holders, which remain unchanged.Use of ProceedsNot applicable.ITEM 15. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresUnder the supervision and with the participation of our management, including our chief executive officer and our chief financial officer,we carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e)of the ExchangeAct, as of December 31, 2023. Based upon that evaluation, our management, with the participation of our chief executive officer and chief financialofficer, has concluded that, as of December 31, 2023, our disclosure controls and procedures were effective in ensuring that the informationrequired to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, withinthe 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 submitunder the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, asappropriate, to allow timely decisions regarding required disclosure.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act of 1934. Our internal control over financial reporting is a process designed to providereasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance withU.S. GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections ofany evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, orthat the degree of compliance with the policies and procedures may deteriorate.Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023. Inmaking this assessment, it used the criteria established within the Internal Control—Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO) (2013 framework). Based on this assessment, our management has concluded that, as ofDecember 31, 2023, our internal control over financial reporting was effective.Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm, who audited ourconsolidated financial statements for the year ended December 31, 2023, has also audited the effectiveness of internal control over financialreporting as of December 31, 2023.Attestation Report of the Registered Public Accounting FirmThe effectiveness of our internal control over financial reporting as of December 31, 2023 has been audited by Deloitte Touche TohmatsuCertified Public Accountants LLP, an independent registered public accounting firm. The attestation report issued by Deloitte Touche TohmatsuCertified Public Accountants LLP can be found on page F-4 of this annual report on Form 20-F.Table of Contents155Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting that occurred during the period covered by this annual report onForm 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.ITEM 16.ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERTOur board of directors has determined that Herman Yu, a member of our audit committee and independent director (under the standardsset forth in Section 303A of the Corporate Governance Rules of the NYSE and Rule 10A-3 under the Securities Exchange Act of 1934), is an auditcommittee financial expert.ITEM 16B. CODE OF ETHICSOur board of directors adopted a code of business conduct and ethics that applies to our directors, officers and employees in October 2016.We have posted a copy of our code of business conduct and ethics on our website at http://ir.zto.com.ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICESThe following table sets forth the aggregate fees by categories specified below in connection with certain professional services renderedby Deloitte Touche Tohmatsu Certified Public Accountants LLP, our principal external auditors, for the periods indicated. We did not pay any otherfees to our auditors during the periods indicated below.For the Year Ended December 31, 2022 2023(in thousands of RMB)Audit fees and audit-related fees(1) 18,840 18,640All other fees(2) 944 920(1)“Audit fees” means the aggregate fees billed for professional services rendered by our principal auditors for the audit of our annual financialstatements, the review of our interim financial statements and the review of our financial statements for the six months ended June 30, 2022 inconnection with the issuance of convertible senior notes. “Audit-related fees” are fees billed by the auditor for assurance and related servicesthat are reasonably related to the performance of the audit and review of our company’s financial statements.(2)“All other fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditorsother than services reported under “Audit fees and audit-related fees.”The policy of our audit committee is to pre-approve all audit and other service provided by Deloitte Touche Tohmatsu Certified PublicAccountants LLP as described above, other than those for de minimis services which are approved by the Audit Committee prior to the completionof the audit.ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEESNone.Table of Contents156ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERSOn November 14, 2018, we announced a share repurchase program, pursuant to which we were authorized to repurchase our own Class Aordinary shares, in the form of ADSs, with an aggregate value of up to US$500 million during an 18-month period thereafter. In March 2020, ourboard of directors approved the extension of this share repurchase program to June 30, 2021. On March 31, 2021, the board of directors hasapproved changes to the share repurchase program, increasing the aggregate value of shares that may be repurchased from US$500 million to US$1billion and extending the effective time by two years through June 30, 2023. In November 2022, the board of directors approved further changes tothe share repurchase program, increasing the aggregate value of shares that may be repurchased from US$1 billion to US$1.5 billion and extendingthe effective time by one year through June 30, 2024. In March 2024, the board of directors approved additional further changes to the sharerepurchase program, increasing the aggregate value of shares that may be repurchased from US$1.5 billion to US$2 billion and extending theeffective time by one year through June 30, 2025. As of December 31, 2023, we had purchased an aggregate of 42,501,325 ADSs for US$1,063.0million on the open market under this program, at a weighted average price of US$25.01 per ADS, including repurchase commissions.The following table sets forth some information about our repurchases during the periods presented.(c) Total Number(d) Maximum Dollarof ADS PurchasedValue of ADSs that(a) Total(b) Averageas Part of PubliclyMay Yet beNumber of ADSsPrice Paid per Announced PlansPurchased Under thePeriod Purchased ADS (US$) or Programs Plans or Programs(1)February 2023 1,224,100 24.80 1,224,100 1,048,156,193March 2023 466,100 23.98 466,100 1,036,979,530June 2023 222,782 25.01 222,782 1,031,408,617July 2023 1,710,599 24.92 1,710,599 988,785,981August 2023 75,148 24.04 75,148 986,979,532November 2023 2,242,347 22.30 242,347 936,979,558Total 58,126,700 N/A 58,126,700 N/A(1)Calculated based on the updated share repurchase program as approved by the board of directors in March 2024.ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTNot applicable.ITEM 16G. CORPORATE GOVERNANCEAs a Cayman Islands company listed on the NYSE, we are subject to the NYSE corporate governance listing standards. However, NYSErules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governancepractices in the Cayman Islands, which is our home country, may differ significantly from the NYSE corporate governance listing standards. Wehave elected to follow home country practice in lieu of the corporate governance requirements of the New York Stock Exchange with respect to theadoption of our 2024 Share Incentive Plan without the approval of our shareholders. In this respect, and in other respects if we choose to followhome country practice in the future, our shareholders may be afforded less protection than they otherwise would under the NYSE corporategovernance listing standards applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Sharesand ADSs—We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certainprovisions applicable to United States domestic public companies.”ITEM 16H. MINE SAFETY DISCLOSURENot applicable.ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONSNot applicable.Table of Contents157ITEM 16J. INSIDER TRADING POLICIESNot applicable.ITEM 16K. CYBERSECURITYRisk Management and StrategyWe have implemented robust processes for assessing, identifying and managing material risks from cybersecurity threats and monitoringthe prevention, detection, mitigation and remediation of material cybersecurity incident. We have also integrated cybersecurity risk managementinto our overall enterprise risk management system.We have developed a comprehensive cybersecurity threat defense system to address both internal and external threats. This systemencompasses various levels, including network, host and application security and incorporates systematic security capabilities for threat defense,monitoring, analysis, response, deception and countermeasures. We strive to manage cybersecurity risks and protect sensitive information throughvarious means, such as technical safeguards, procedural requirements, an intensive program of monitoring on our corporate network, continuoustesting of aspects of our security posture internally and with third-party vendors, a robust incident response program and regular cybersecurityawareness training for employees. We have implemented a set of procedures to ensure effective management of the cybersecurity risks associatedwith the use of third-party service providers. These procedures include, but are not limited to, conducting cybersecurity assessments and trackingthe capabilities and qualifications of third-party security service providers through our supplier assessment process. Our IT department regularlymonitors the performance of our app, platform and infrastructure to enable us to respond quickly to potential problems, including potentialcybersecurity threats.As of the date of this annual report, we have not experienced any material cybersecurity incidents or identified any material cybersecuritythreats that have affected or are reasonably likely to materially affect us, our business strategy, results of operations or financial condition.GovernanceOur board of directors is responsible for overseeing our cybersecurity risk management. Our board of directors shall (i) maintain oversightof the disclosure related to cybersecurity matters in current reports or periodic reports of our company, (ii) review updates to the status of anymaterial cybersecurity incidents or material risks from cybersecurity threats to our company, and the relevant disclosure issues, if any, presented byour chief executive officer, chief financial officer and cybersecurity officer on a quarterly basis, and (iii) review disclosure concerningcybersecurity matters in our annual report on Form 20-F presented by our chief executive officer, chief financial officer and cybersecurity officer.At management level, our chief executive officer, chief financial officer and cybersecurity officer (the “Cybersecurity Risk ManagementOfficers”), are responsible for assessing, identifying and managing material risks from cybersecurity threats to our company and monitoring theprevention, detection, mitigation and remediation of material cybersecurity incident. Our Cybersecurity Risk Management Officers report to ourboard of directors (i) on a quarterly basis on updates to the status of any material cybersecurity incidents or material risks from cybersecuritythreats to our company, and the relevant disclosure issues, if any, and (ii) on disclosure concerning cybersecurity matters in our annual report onForm 20-F.If a cybersecurity incident occurs, our Cybersecurity Risk Management Officers will promptly organize relevant personnel for internalassessment and if it is determined that the incident could potentially be a material cybersecurity event, our Cybersecurity Risk ManagementOfficers will promptly report the incident and assessment results to our disclosure committee, our board of directors, and other members of seniormanagement and external legal counsel, to the extent appropriate. Our Cybersecurity Risk Management Officers shall prepare disclosure materialon the cybersecurity incident for review and approval by the disclosure committee and board of directors, and other members of seniormanagement (if necessary), before it is dissemopinated to the public.Table of Contents158PART IIIITEM 17. FINANCIAL STATEMENTSWe have elected to provide financial statements pursuant to Item 18.ITEM 18. FINANCIAL STATEMENTSThe consolidated financial statements of ZTO Express (Cayman) Inc. are included at the end of this annual report.ITEM 19. EXHIBITSExhibit Number Description of Document1.1Fourth Amended and Restated Memorandum and Articles of Association of the Registrant adopted on April 14, 2023 and effective May1, 2023 (incorporated herein by reference to Exhibit 1.2 to the Form 20-F filed on April 20, 2023 (File No. 001-37922))2.1Registrant’s Specimen American Depositary Receipt (included in Exhibit (a)(2)) (incorporated by reference to Exhibit (a)(2) of post-effective amendment No. 1 to the registration statement on Form F-6 (File No. 333-214107), filed with the Commission on October 28,2022)2.2Registrant’s Specimen Certificate for Class A Ordinary Shares (incorporated herein by reference to Exhibit 4.2 to the Form F-1/A filed onOctober 14, 2016 (File No.333-213882))2.3Deposit Agreement dated October 26, 2016 among the Registrant, the depositary and holder of the American Depositary Receipt(incorporated herein by reference to Exhibit 4.3 to Form S-8 filed on January 12, 2018 (File No.333-222519))2.4Form of Amendment No. 1 to Deposit Agreement between the Registrant, the depositary and holders and beneficial owners of theAmerican Depositary Receipts issued thereunder (incorporated by reference to Exhibit (a)(2) of post-effective amendment No. 1 to theregistration statement on Form F-6 (File No. 333-214107), filed with the Commission on October 28, 2022)2.5Shareholders Agreement between the Registrant and other parties thereto dated August 18, 2015 (incorporated herein by reference toExhibit 4.4 to the Form F-1 filed on September 30, 2016 (File No.333-213882))2.6*Description of securities2.7*Indenture, dated August 29, 2022 constituting US$1.0 billion 1.50% Convertible Senior Notes Due 20274.1Amended and Restated 2016 Share Incentive Plan (incorporated herein by reference to Exhibit 4.1 of the Registrant’s Annual Report onForm 20-F filed with the Securities and Exchange Commission on April 27, 2017)4.2*English translation of 2024 Share Incentive Plan4.3Form of Indemnification Agreement between the Registrant and its directors and executive officers (incorporated herein by reference toExhibit 10.2 to the Form F-1 filed on September 30, 2016 (File No.333-213882))4.4Form of Employment Agreement between the Registrant and its executive officers (incorporated herein by reference to Exhibit 10.3 to theForm F-1 filed on September 30, 2016 (File No.333-213882))4.5English translation of Exclusive Consulting and Services Agreement between Shanghai Zhongtongji Network and ZTO Express datedAugust 18, 2015 (incorporated herein by reference to Exhibit 10.4 to the Form F-1 filed on September 30, 2016 (File No.333-213882))4.6English translation of Supplemental Agreement to the Exclusive Consulting and Services Agreement between Shanghai ZhongtongjiNetwork and ZTO Express dated August 10, 2020 (incorporated herein by reference to Exhibit 4.5 to the Form 20-F filed on April 21,2021 (File No. 001-37922))4.7English translation of Exclusive Call Option Agreement among Shanghai Zhongtongji Network, ZTO Express and the shareholders ofZTO Express dated August 18, 2015 (incorporated herein by reference to Exhibit 10.5 to the Form F-1 filed on September 30, 2016 (FileNo.333-213882))4.8English translation of Equity Pledge Agreement among Shanghai Zhongtongji Network, ZTO Express and the shareholders of ZTOExpress dated August 18, 2015 (incorporated herein by reference to Exhibit 10.6 to the Form F-1 filed on September 30 2016 (FileNo.333-213882))4.9English translation of Voting Rights Proxy Agreement among Shanghai Zhongtongji Network, ZTO Express and the shareholders of ZTOExpress dated August 18, 2015 (incorporated herein by reference to Exhibit 10.7 to the Form F-1 filed on September 30 2016 (FileNo.333-213882))4.10English translation of Irrevocable Powers of Attorney granted by the shareholders of ZTO Express dated August 18, 2015 (incorporatedherein by reference to Exhibit 10.8 to the Form F-1 filed on September 30, 2016 (File No.333-213882))Table of Contents1594.11English translations of Spousal Consents granted by each of Lai Yufeng, Fu Aiyun, Chen Xinyu, Shen Litudan, Wu Yanfen and FanFeiqun (incorporated herein by reference to Exhibit 10.9 to the Form F-1 filed on September 30, 2016 (File No.333-213882))4.12English translation of Road Transportation Agreement between ZTO Express and Tonglu Tongze dated December 22, 2014 (incorporatedherein by reference to Exhibit 10.10 to the Form F-1 filed on September 30, 2016 (File No.333-213882))4.13English translation of form of Cooperation Agreement between ZTO Express and direct network partners of the Registrant (incorporatedherein by reference to Exhibit 10.11 to the Form F-1 filed on September 30, 2016 (File No.333-213882))4.14Share Purchase and Subscription Agreement by and among the Registrant Onyx Gem Investment Holdings Limited, Hillhouse ZTHoldings Limited, Standard Chartered Private Equity (Mauritius) III Limited. Gopher China S.O. Project Limited and other partiesthereto dated May 21, 2015 (incorporated herein by reference to Exhibit 10.12 to the Form F-1 filed on September 30, 2016 (File No.333-213882))4.15Share Subscription Agreement by and between the Registrant and Zto Es Holding Limited dated June 28, 2016 (incorporated herein byreference to Exhibit 10.13 to the Form F-1 filed on September 30, 2016 (File No.333-213882))4.16Share Purchase Agreement among ZTO Express (Cayman) Inc., Taobao China Holding Limited. Cainiao Smart Logistics InvestmentLimited, New Retail Strategic Opportunities Investments 2 Limited and Rising Auspicious Limited dated May 29, 2018 (incorporated byreference to Exhibit 99.2 from Schedule 13D (file no. 005-89835) filed by Alibaba ZT Investment Limited with the Securities andExchange Commission on June 21, 2018)4.17Investor Rights Agreement among ZTO Express (Cayman) Inc., Alibaba ZT Investment Limited and Cainiao Smart Logistics InvestmentLimited dated June 12, 2018 (incorporated by reference to Exhibit 99.4 from Schedule 13D (file no. 005-89835) filed by Alibaba ZTInvestment Limited with the Securities and Exchange Commission on June 21, 2018)4.18Registration Rights Agreement among ZTO Express (Cayman) Inc., Alibaba ZT Investment Limited and Cainiao Smart LogisticsInvestment Limited, dated June 12, 2018 (incorporated by reference to Exhibit 99.5 from Schedule 13D (file no. 005-89835) filed byAlibaba ZT Investment Limited with the Securities and Exchange Commission on June 21, 2018)4.19Registration Rights Agreement between ZTO Express (Cayman) Inc. and New Retail Strategic Opportunities Investments 2 Limited,dated June 28, 2018 (incorporated herein by reference to Exhibit 4.17 to the Form 20-F filed on April 16, 2019 (File No. 001-37922))8.1*Significant subsidiaries and consolidated affiliated entities of the Registrant11.1Code of Business Conduct and Ethics of the Registrant (incorporated herein by reference to Exhibit 99.1 to the Form F-1 filed onSeptember 30, 2016 (File No.333-213882))12.1*CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2*CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1**CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2**CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200215.1*Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP, an independent registered public accounting firm15.2*Consent of Global Law Office97.1*Clawback Policy of the Registrant101.1NS*Inline XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags areembedded within the Inline XBRL document101.SCH*Inline XBRL Taxonomy Extension Scheme Document101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document104*Cover Page Interactive Data File — the cover page XBRL tags are embedded within the Exhibit 101 Inline XBRL document set*Filed with this Annual Report on Form 20-F.**Furnished with this Annual Report on Form 20-F.Table of Contents160SIGNATURESThe registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized theundersigned to sign this annual report on its behalf.ZTO Express (Cayman) Inc.By:/s/ Meisong LaiName:Meisong LaiTitle:Chairman of the Board of Directors and Chief Executive OfficerDate: April 19, 2024Table of ContentsF-1ZTO EXPRESS (CAYMAN) INC.INDEX TO FINANCIAL STATEMENTSPageReports of Independent Registered Public Accounting Firm (PCAOB ID:1113)F-2Consolidated Balance Sheets as of December 31, 2022 and 2023F-6Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2022 and 2023F-7Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021, 2022 and 2023F-8Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2022 and 2023F-11Notes to the Consolidated Financial StatementsF-13Financial Statements Schedule I—Financial Information of Parent CompanyF-46Table of ContentsF-2REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders of ZTO Express (Cayman) Inc.Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of ZTO Express (Cayman) Inc. and subsidiaries (the “Company”) as of December31, 2023 and 2022, the related consolidated statements of comprehensive income, changes in shareholders’ equity, and cash flows for each of thethree years in the period ended December 31, 2023 and the related notes and the related financial statement schedule included in Schedule I(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financialposition of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in theperiod ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theCompany’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 19, 2024expressed an unqualified opinion on the Company’s internal control over financial reporting.Convenience TranslationOur audits also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has beenmade in conformity with the basis stated in Note 2. Such United States dollar amounts are presented solely for the convenience of readers outsidethe People’s Republic of China.Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent withrespect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and ExchangeCommission 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 obtainreasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits includedperforming procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performingprocedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in thefinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.Table of ContentsF-3REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMCritical Audit MatterThe critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicatedor required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statementsand (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in anyway our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing aseparate opinion on the critical audit matter or on the accounts or disclosures to which it relates.Revenue Recognition — Refer to Note 2(t) to the financial statementsCritical Audit Matter DescriptionThe Company generated 92.4% of its revenues from express delivery services in 2023. The revenues from express delivery services are primarilydriven by parcel volume and the network transit fee the Company charges network partners for each parcel going through the Company’s network.The Company recognizes revenues from express delivery services over the delivery time and uses automated systems to process and record itsrevenue transactions.We identified accuracy of express delivery services revenue as a critical audit matter because there is an inherent industry risk around the accuracyof revenue recorded by the Company’s systems given the complexity of the systems and the significant volume of data processed by the systems.How the Critical Audit Matter Was Addressed in the AuditOur audit procedures related to revenue recognition comprised the following control testing and analytical procedure, among others:●With the assistance of our IT specialists and data specialists:●We tested the IT environment in which the revenue pricing and settlement module resides, including interface controls between differentIT applications.●We tested the key controls over the authorization of the rate changes and the input of such rates to the operation systems.●We tested the key controls over the authorization of the weight and route changes and the input of such data to the operation systems.●We tested the key controls over automated calculation of delivery service fee.●We reconciled the revenue data recorded in operation systems to the general ledger.●We reconciled the revenue data recorded in general ledger with cash received from network partners.●We performed analytical procedure over the revenue generated from waybill sales by developing expected amount with parcel volume andaverage price per parcel./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPShanghai, ChinaApril 19, 2024We have served as the Company’s auditor since 2015.Table of ContentsF-4REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Shareholders of ZTO Express (Cayman) Inc.Opinion on Internal Control over Financial ReportingWe have audited the internal control over financial reporting of ZTO Express (Cayman) Inc. and subsidiaries (the “Company”) as of December 31,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations ofthe Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financialreporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), theconsolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated April 19, 2024 expressedan unqualified opinion on those financial statements and included explanatory paragraphs regarding the translation of Renminbi amounts intoUnited States dollar amounts for the convenience of readers outside the People’s Republic of China.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. Weare a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with theU.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 obtainreasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessaryin the circumstances. We believe that our audit provides a reasonable basis for our opinion.Table of ContentsF-5REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMDefinition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance thattransactions 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 thecompany; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of thecompany’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 anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate./s/ Deloitte Touche Tohmatsu Certified Public Accountants LLPShanghai, ChinaApril 19, 2024Table of ContentsF-6ZTO EXPRESS (CAYMAN) INC.CONSOLIDATED BALANCE SHEETS(Amounts in thousands, except for share and per share data)As of December 31, Notes20222023 RMB RMB US$ (Note 2)ASSETSCurrent assetsCash and cash equivalents 11,692,773 12,333,884 1,737,191Restricted cash 895,483 686,568 96,701Accounts receivable, net 818,968 572,558 80,643Financing receivables, net951,3491,135,445159,924Short-term investment5,753,4837,454,6331,049,963Inventories 40,537 28,074 3,954Advances to suppliers 861,573 821,942 115,768Prepayments and other current assets3 3,146,378 3,772,377 531,328Amounts due from related parties 17 314,483 148,067 20,855Total current assets 24,475,027 26,953,548 3,796,327Investments in equity investees 8 3,950,544 3,455,119 486,643Property and equipment, net 4 28,813,204 32,181,025 4,532,603Land use rights, net 5 5,442,951 5,637,101 793,969Intangible assets, net929,43723,2403,273Operating lease right-of-use assets6808,506672,19394,676Goodwill 7 4,241,541 4,241,541 597,409Deferred tax assets 13 750,097 879,772 123,914Long-term investment7,322,54512,170,8811,714,233Long-term financing receivables, net1,295,755964,780135,886Other non-current assets 816,839 701,758 98,841Amounts due from related parties-non current17577,140584,26382,292TOTAL ASSETS 78,523,586 88,465,221 12,460,066LIABILITIES AND EQUITYCurrent liabilities (including amounts of the consolidated VIE without recourse to ZTO Express (Cayman) Inc. See Note 2(b))Short-term bank borrowings 11 5,394,423 7,765,990 1,093,817Accounts payable 2,202,692 2,557,010 360,147Notes payable200,000——Advances from customers 1,374,691 1,745,727 245,881Income tax payable 228,422 333,257 46,938Amounts due to related parties 17 49,138 234,683 33,054Operating lease liabilities, current6229,718186,25326,233Dividends payable1,4971,548218Other current liabilities 10 6,724,743 7,236,716 1,019,271Total current liabilities 16,405,324 20,061,184 2,825,559Non-current operating lease liabilities6510,349455,87964,209Deferred tax liabilities 13 346,472 638,200 89,889Convertible senior notes126,788,9717,029,550990,091Total Liabilities 24,051,116 28,184,813 3,969,748Commitments and contingencies (Note 18)Shareholders’ equityOrdinary shares ( US$0.0001 par value; 10,000,000,000 shares authorized; 826,943,309 shares issued and 809,247,109 sharesoutstanding as of December 31, 2022; 812,866,663 shares issued and 804,719,252 shares outstanding as of December 31, 2023)15 535 525 74Additional paid-in capital 26,717,727 24,201,745 3,408,744Treasury shares, at cost (11,671,525 and 3,000,000 shares as of December 31, 2022 and 2023, respectively)(2,062,530)(510,986)(71,971)Retained earnings 29,459,491 36,301,185 5,112,915Accumulated other comprehensive loss (86,672) (190,724) (26,862)ZTO Express (Cayman) Inc. shareholders’ equity 54,028,551 59,801,745 8,422,900Non-controlling interests 443,919 478,663 67,418Total Equity 54,472,470 60,280,408 8,490,318TOTAL LIABILITIES AND EQUITY 78,523,586 88,465,221 12,460,066The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-7ZTO EXPRESS (CAYMAN) INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in thousands, except for share and per share data)Year ended December 31, Notes202120222023 RMB RMB RMB US$ (Note 2)Revenues (including related party revenue of RMB112,142, RMB1,038,004 and RMB594,859 for theyears ended December 31, 2021, 2022 and 2023, respectively) 30,405,83935,376,996 38,418,915 5,411,191Cost of revenues (including related party cost of revenues of RMB401,954, RMB797,256 andRMB1,351,977 for the years ended December 31, 2021, 2022 and 2023, respectively) (23,816,462)(26,337,721) (26,756,389) (3,768,559)Gross profit 6,589,3779,039,275 11,662,526 1,642,632Operating (expenses)/incomeSelling, general and administrative (1,875,869)(2,077,372) (2,425,253) (341,590)Other operating income, net 789,503774,578 770,651 108,544Total operating expenses (1,086,366)(1,302,794) (1,654,602) (233,046)Income from operations 5,503,0117,736,481 10,007,924 1,409,586Other income/(expenses)Interest income 363,890503,722 706,765 99,546Interest expense (126,503)(190,521) (289,533) (40,780)Gain from fair value changes of financial instruments52,90946,246164,51723,172Gain on disposal of equity investees and subsidiaries and others2,35769,5985,485773Impairment of investment in equity investees—(26,328)——Foreign currency exchange (loss)/gain(56,467)147,25493,54313,175Income before income tax and share of loss in equity method investments5,739,1978,286,45210,688,7011,505,472Income tax expense13 (1,005,451)(1,633,330) (1,938,600) (273,046)Share of (loss)/gain in equity method investments (32,419)5,844 4,356 614Net income 4,701,3276,658,966 8,754,457 1,233,040Net loss/(income) attributable to non-controlling interests 53,500150,090 (5,453) (768)Net income attributable to ZTO Express (Cayman) Inc. 4,754,8276,809,056 8,749,004 1,232,272Net income attributable to ordinary shareholders 4,754,8276,809,056 8,749,004 1,232,272Net earnings per share attributable to ordinary shareholders 16Basic 5.808.41 10.83 1.53Diluted 5.808.36 10.60 1.49Weighted average shares used in calculating net earnings per ordinary shareBasic 819,961,265809,442,862 807,739,616 807,739,616Diluted 819,961,265820,273,531 838,948,683 838,948,683Net income 4,701,3276,658,966 8,754,457 1,233,040Other comprehensive income/(loss), net of tax of nilForeign currency translation adjustment (146,533)155,432 (104,052)(14,655)Comprehensive income 4,554,7946,814,398 8,650,4051,218,385Comprehensive loss/(income) attributable to non-controlling interests 53,500150,090 (5,453)(768)Comprehensive income attributable to ZTO Express (Cayman) Inc. 4,608,2946,964,488 8,644,9521,217,617The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-8ZTO EXPRESS (CAYMAN) INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY(Amounts in thousands, except for share and per share data)ZTO Express (Cayman) Inc. Shareholders’ EquityAccumulatedAdditionalTreasuryotherpaid-inshares, atRetainedcomprehensiveNon-controllingOrdinary sharescapital costearningslossTotalinterestsTotal EquityNumberof outstanding shares RMB RMB RMB RMB RMB RMB RMB RMBBalance at January 1, 2021 828,869,972553 30,613,948 (2,578,870)21,038,753 (95,571) 48,978,813 120,885 49,099,698Net income —— — —4,754,827 — 4,754,827 (53,500) 4,701,327Foreign currencytranslation adjustments —— — —— (146,533) (146,533) — (146,533)Acquisition of non-controlling interests ofsubsidiaries——(43,994)———(43,994)(127,824)(171,818)Share-based compensationand ordinary sharesissued for share-basedcompensation 1,161,362— 229,052 49,496(30,521) — 248,027 — 248,027Repurchase of ordinaryshares (21,583,045)— — (3,810,586)— — (3,810,586) — (3,810,586)Non-controlling interestrecognized from partialdisposal——1,850———1,85011,08312,933Capital contribution fromnon-controlling interestholders —— — —— — — 380,301 380,301Distribution of dividends——(1,345,157)———(1,345,157)—(1,345,157)Decrease of non-controlling interests fromdisposal of subsidiaries —— — —— — — (40,611) (40,611)Cancellation of ordinaryshares—(18)(1,226,673)4,272,951(3,046,260)————Balance atDecember 31, 2021 808,448,289535 28,229,026 (2,067,009)22,716,799 (242,104) 48,637,247 290,334 48,927,581The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-9ZTO EXPRESS (CAYMAN) INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)(Amounts in thousands, except for share and per share data)ZTO Express (Cayman) Inc. Shareholders’ EquityAccumulatedAdditionalTreasuryotherpaid-inshares, atRetainedcomprehensiveNon-controllingOrdinary sharescapital costearningslossTotalinterestsTotal EquityNumberof outstanding shares RMB RMB RMB RMB RMB RMB RMB RMBBalance atDecember 31, 2021 808,448,289 535 28,229,026 (2,067,009)22,716,799 (242,104) 48,637,247 290,334 48,927,581Net income — — — —6,809,056 — 6,809,056 (150,090) 6,658,966Foreign currencytranslation adjustments — — — —— 155,432 155,432 — 155,432Acquisition of non-controlling interests ofsubsidiaries ——(5,060)———(5,060)(34,069)(39,129)Share-based compensationand ordinary sharesissued for share-basedcompensation 1,284,827 — 156,318 89,026(66,364) — 178,980 — 178,980Capped Call options inconnection with issuanceof convertible seniornotes——(373,139)———(373,139)—(373,139)Repurchase of ordinaryshares(486,007) — — (84,547)— — (84,547) — (84,547)Non-controlling interestrecognized from partialdisposal — — — —— — — 49,159 49,159Capital contribution fromnon-controlling interestholders — — — —— — — 275,950 275,950Distribution of dividends——(1,289,418)———(1,289,418)—(1,289,418)Removal of non-controllinginterests due to disposalof subsidiaries———————12,63512,635Balance atDecember 31, 2022 809,247,109 535 26,717,727 (2,062,530)29,459,491 (86,672) 54,028,551 443,919 54,472,470The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-10ZTO EXPRESS (CAYMAN) INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Continued)(Amounts in thousands, except for share and per share data)ZTO Express (Cayman) Inc. Shareholders’ EquityAccumulatedAdditionalTreasuryotherpaid-inshares, atRetainedcomprehensiveNon-controllingOrdinary sharescapital costearningslossTotalinterestsTotal EquityNumberof outstanding shares RMB RMB RMB RMB RMB RMB RMB RMBBalance atDecember 31, 2022809,247,109 535 26,717,727 (2,062,530)29,459,491 (86,672) 54,028,551 443,919 54,472,470Net income — — — —8,749,004 — 8,749,004 5,453 8,754,457Foreign currencytranslation adjustments — — — —— (104,052) (104,052) — (104,052)Acquisition of non-controlling interests ofsubsidiaries——(64,560)———(64,560)(185)(64,745)Share-based compensationand ordinary sharesissued for share-basedcompensation 1,413,219 — 230,587 97,169(72,780) — 254,976 — 254,976Repurchase of ordinaryshares (5,941,076) — — (1,006,451)— — (1,006,451) — (1,006,451)Cancellation of treasuryshares — (10) (626,286) 2,460,826(1,834,530) — — — —Capital contribution fromnon-controlling interestholders — — — —— — — 34,564 34,564Distribution of dividends——(2,055,723)———(2,055,723)—(2,055,723)Removal of non-controllinginterests due to disposalof subsidiaries———————(5,088)(5,088)Balance atDecember 31, 2023 804,719,252 525 24,201,745 (510,986)36,301,185 (190,724) 59,801,745 478,663 60,280,408The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsF-11ZTO EXPRESS (CAYMAN) INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(Amounts in thousands, except for share and per share data)Year ended December 31, 202120222023 RMB RMB RMB US$(Note 2)Operating activitiesNet income 4,701,3276,658,9668,754,4571,233,040Adjustments to reconcile net income to net cash provided by operating activities:Share-based compensation 248,027178,980254,97635,913Depreciation and amortization 2,221,7682,670,5462,875,209404,965Loss on disposal of property and equipment 32,12941,51710,1601,431Impairment of property and equipment——76,61610,791Provision for credit losses36,348134,436142,13120,019Amortization of issuance cost of convertible senior notes —12,63440,4735,701Deferred income tax (192,091)244,616157,78222,223Gain on disposal of equity investees and subsidiaries and others(2,357)(69,598)(5,485)(773)Impairment of equity investees—26,328——Share of loss/(gain) in equity method investments 32,419(5,844)(4,356)(614)Gain of fair value changes of financial instruments(52,909)(46,246)(164,517)(23,172)Foreign currency exchange loss/(gain)56,467(147,254)(93,543)(13,175)Changes in operating assets and liabilities:Accounts receivable (209,855)(14,879)244,41634,425Financing receivables(639,375)127,521(179,780)(25,321)Inventories (29,965)28,95812,4631,755Advances to suppliers (90,835)(227,328)27,5783,884Prepayments and other current assets (774,302)59,313(753,431)(106,119)Amounts due from related parties (51,398)(140,864)89,69512,633Operating lease right-of-use assets(20,979)88,73257,6658,122Long-term financing receivables507,353114,277323,43745,555Other non-current assets (19,308)37,382(103,587)(14,590)Accounts payable 354,478528,299364,57851,350Advances from customers 113,800148,142371,03652,259Amounts due to related parties 6,13126,352185,54526,133Income tax payable 53,731135,884109,10615,367Operating lease liabilities58,211(67,019)(9,469)(1,334)Other current liabilities 881,402690,457577,81281,383Notes payable—245,000——Net cash provided by operating activities 7,220,21711,479,30813,360,9671,881,851Cash flows from investing activitiesPurchases of property and equipment (8,360,497)(7,067,744)(6,528,833)(919,567)Purchases of land use rights (967,284)(344,988)(140,948)(19,852)Investments in equity investees (569,751)(94,400)——Purchases of short-term investment(13,193,447)(9,563,852)(11,261,190)(1,586,105)Maturity of short-term investment14,054,0966,713,9829,798,2731,380,058Purchases of long-term investment(225,000)(6,388,768)(10,090,353)(1,421,196)Maturity of long-term investment845,110284,0005,240,732738,142Net cash received from disposal of equity investees200100,000413,93158,301Net cash in (out) in relation to disposal of a subsidiary(100,714)230,79962,9988,873Repayment of amounts due from related parties——6,600930Loan to related parties(70,000)———Loan to employees(339,412)(60,285)(66,590)(9,379)Repayments of loan to employees51,88736,416169,04923,810Proceeds from disposal of property and equipment and others 118,279112,950143,58020,223Net cash used in investing activities (8,756,533)(16,041,890)(12,252,751)(1,725,762)Cash flows from financing activitiesPayment of issuance cost(887)(228)——Proceeds from disposal of equity interests in subsidiaries 12,93326,217——Capital contribution from non-controlling interest shareholder 380,301275,95019,3482,725Proceeds from short-term borrowings 6,944,7227,669,94312,279,0501,729,468Repayment of short-term borrowings (4,918,934)(5,883,561)(9,924,563)(1,397,845)Repurchase of ordinary shares(3,810,586)(84,547)(1,006,451)(141,756)Payment of dividends (1,353,969)(1,323,205)(2,072,509)(291,907)Acquisition of non-controlling interests of subsidiaries(157,565)(39,129)(64,711)(9,114)Proceeds from issuance of convertible senior notes, net of issuance cost paid of RMB120,099 and capped calloption of RMB373,139—6,416,762——Net cash (used in)/ provided by financing activities (2,903,985)7,058,202(769,836)(108,429)Effect of exchange rate changes on cash, cash equivalents and restricted cash (150,430)338,106109,84315,471Net change in cash, cash equivalents and restricted cash (4,590,731)2,833,726448,22363,131Cash, cash equivalents and restricted cash at beginning of year 14,360,0929,769,36112,603,0871,775,107Cash, cash equivalents and restricted cash at end of year 9,769,36112,603,08713,051,3101,838,238Table of ContentsF-12ZTO EXPRESS (CAYMAN) INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(Amounts in thousands, except for share and per share data)The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financialposition that sum to the total of the same such amounts shown in the statement of cash flows.As of December 31, 2021 20222023RMBRMBRMBUS$ (Note 2)Cash and cash equivalents 9,721,22511,692,773 12,333,8841,737,191Restricted cash 27,736895,483 686,56896,701Restricted cash, non-current (1)20,40014,83130,8584,346Total cash, cash equivalents, and restricted cash shown in the statement of cash flows 9,769,36112,603,087 13,051,3101,838,238Note (1): The non-current restricted cash is included in other non-current assets on the consolidated balance sheets.Year ended December 31, 2021 2022 2023RMBRMBRMB US$ (Note 2)Supplemental disclosure of cash flow information Income taxes paid 1,139,981 1,252,830 1,671,712235,456Interest expense paid 126,813 177,457 249,06035,079Supplemental disclosure on non-cash informationCash dividends declared in payables32173071Purchase of property and equipment included in payables980,8011,212,4761,397,015196,765Purchase of property and equipment using prepayments recorded in other non-currentassets19,7236,95720,9302,948Purchase of land use rights using prepayments recorded in other non-current assets206,050174,117254,33535,822Acquisition consideration paid through offsetting receivables from seller—22,942——The accompanying notes are an integral part of these consolidated financial statements.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-131. Organization and Principal ActivitiesZTO Express (Cayman) Inc. (“ZTO”) was incorporated under the laws of Cayman Islands on April 8, 2015. ZTO, its subsidiaries and itsvariable interest entity and subsidiaries of variable interest entity (“VIE”) (collectively also referred to as the “Company”) are principally engagedin express delivery services in the People’s Republic of China (“the PRC”) through a nationwide network partner model.2. Summary of Significant Accounting Policies(a) Basis of presentationThe consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United Statesof America (“U.S. GAAP”).(b) Principles of consolidationThe consolidated financial statements include the financial statements of ZTO, its subsidiaries and VIE. All intercompany transactions andbalances have been eliminated on consolidation.The Company evaluates the need to consolidate its VIE of which the Company is the primary beneficiary. In determining whether theCompany is the primary beneficiary, the Company considers if the Company (1) has power to direct the activities that most significantly affects theeconomic performance of the VIE, and (2) The obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right toreceive benefits from the VIE that could potentially be significant to the VIE. If deemed the primary beneficiary, the Company consolidatesthe VIE.Consolidation of Variable Interest EntityApplicable PRC laws and regulations currently limit foreign ownership of companies that provide delivery services in the PRC. TheCompany is deemed a foreign legal person under PRC laws and accordingly subsidiaries owned by the Company are ineligible to engage inprovisions of delivery services. To provide the Company effective control over its variable interest entity, ZTO Express Co., Ltd. (“ZTO Express”)and receive substantially all of the economic benefits of ZTO Express, the Company’s wholly owned subsidiary, Shanghai Zhongtongji NetworkTechnology Ltd. (“WFOE”) entered into a series of contractual arrangements, described below, with ZTO Express and its individual shareholders.The agreements that provide the Company effective control over the VIE include:Voting Rights Proxy Agreements & Irrevocable Powers of AttorneyUnder which each shareholder of ZTO Express has executed a power of attorney to grant WFOE the power of attorney to act on his or herbehalf on all matters pertaining ZTO Express and to exercise all of his or her rights as a shareholder of ZTO Express, including but not limited toconvening, attending and voting at shareholders' meetings, designating and appointing directors and senior management members. The votingrights proxy agreement will remain in force for an unlimited term, unless all the parties to the agreement mutually agree to terminate the agreementin writing.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-142. Summary of Significant Accounting Policies (Continued)(b) Principles of consolidation (Continued)Consolidation of Variable Interest Entity (Continued)Exclusive Call Option AgreementsUnder which the shareholders of ZTO Express granted WFOE or its designated representative(s) an irrevocable and exclusive option topurchase their equity interests in ZTO Express when and to the extent permitted by PRC law. WFOE or its designated representative(s) has solediscretion as to when to exercise such options, either in part or in full. Without WFOE’s written consent, the shareholders of ZTO Express shall nottransfer, donate, pledge, or otherwise dispose any equity interests of ZTO Express in any way. The acquisition price for the shares or assets will bethe minimum amount of consideration permitted under the PRC law at the time when the option is exercised. The exclusive call option agreementwill remain effective until all equity interests in ZTO Express and all assets of ZTO Express are transferred or assigned to WFOE or its designatedentity or person.Equity Pledge AgreementsUnder which the shareholders of ZTO Express pledged all of their equity interests in ZTO Express to WFOE as collateral to secure theirobligations under the VIE contractual arrangements. If the shareholders of ZTO Express or ZTO Express breach their respective contractualobligations, WFOE, as pledgee, will be entitled to certain rights, including the right to dispose the pledged equity interests. Pursuant to theagreements, the shareholders of ZTO Express shall not transfer, assign or otherwise create any new encumbrance on their respective equity interestin ZTO Express without prior written consent of WFOE. The equity pledge agreements will remain effective until ZTO Express and itsshareholders have completed all of their obligations under the VIE contractual arrangements or discharged all of their obligations under thecontractual arrangements.The agreement that transfers economic benefits to the Company is:Exclusive Consulting and Services AgreementUnder which ZTO Express engages WFOE as its exclusive technical and operational consultant and under which WFOE agrees to assist inbusiness development and related services necessary to conduct ZTO Express's operational activities. ZTO Express shall not seek or accept similarservices from other providers without the prior written approval of WFOE. ZTO Express agrees to pay WFOE an annual service fee, at an amountequal to 100% of the net income of ZTO Express. This agreement will remain effective for an unlimited term, unless WFOE and ZTO Expressmutually agree to terminate the agreement in writing, or the agreement is required to be terminated by applicable PRC law.Under the above agreements, the shareholders of ZTO Express irrevocably granted WFOE the power to exercise all voting rights to whichthey were entitled. In addition, WFOE has the option to acquire all of the equity interests in ZTO Express, to the extent permitted by the then-effective PRC laws and regulations, for nominal consideration. Finally, WFOE is entitled to receive service fees for services provided to ZTOExpress.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-152. Summary of Significant Accounting Policies (Continued)(b) Principles of consolidation (Continued)Consolidation of Variable Interest Entity (Continued)The Call Option Agreements and Voting Rights Proxy Agreements provide the Company with effective control over the VIE, while theEquity Interest Pledge Agreements secure the obligations of the shareholders of ZTO Express under the relevant agreements. Because theCompany, through WFOE, has (i) the power to direct the activities of ZTO Express that most significantly affect the entity’s economic performanceand (ii) the right to receive substantially all of the benefits from ZTO Express, the Company is deemed the primary beneficiary of ZTO Express.Accordingly, the Company consolidates the ZTO Express’s financial results of operations, assets and liabilities in the Company’s consolidatedfinancial statements.The Company believes that the contractual arrangements with the VIE are in compliance with the PRC law and are legally enforceable.However, the contractual arrangements are subject to risks and uncertainties, including:●revoking the business licenses and/or operating licenses of such entities;●discontinuing or placing restrictions or onerous conditions on the Company’s operation through any transactions between theCompany’s PRC subsidiaries and consolidated affiliated entities;●imposing fines, confiscating the income from PRC subsidiaries or consolidated affiliated entities, or imposing other requirementswith which such entities may not be able to comply;●requiring the Company to restructure its ownership structure or operations, including terminating the contractual arrangements withits variable interest entity and deregistering the equity pledges of its variable interest entity, which in turn would affect theCompany’s ability to consolidate, derive economic interests from, or exert effective control over its variable interest entity, or●restricting or prohibiting the Company’s use of the proceeds from its securities offerings to finance its business and operations inChina.●restricting or prohibiting the Company's future capital raising activities by the China Securities Regulatory Commission.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-162. Summary of Significant Accounting Policies (Continued)(b) Principles of consolidation (Continued)Consolidation of Variable Interest Entity (Continued)The amounts and balances of ZTO Express and its subsidiaries (the “VIE”) after the elimination of intercompany balances andtransactions within the VIE are presented in the following table:As of December 31, 2022 2023RMBRMBAssetsCurrent assets:Cash and cash equivalents 2,752,475 2,808,795Restricted cash — 117,324Accounts receivable, net 621,395 359,207Financing receivables, net847,054955,424Short-term investment270,345548,273Inventories 28,151 20,405Advances to suppliers 51,550 82,252Prepayments and other current assets 1,197,862 2,109,425Amounts due from related parties (1) 6,580,240 10,579,479Total current assets 12,349,072 17,580,584Investments in equity investees 343,692 252,265Property and equipment, net 5,916,022 5,928,466Land use rights, net 1,217,531 1,234,585Operating lease right-of-use assets706,810635,647Goodwill 4,157,111 4,157,111Deferred tax assets 436,558 300,761Long-term investment699,885500,000Long-term financing receivables, net1,128,807891,191Other non-current assets 382,449 134,678TOTAL ASSETS 27,337,937 31,615,288LiabilitiesCurrent liabilities:Short-term bank borrowings 5,394,423 7,365,990Accounts payable 1,607,764 1,892,652Advances from customers 1,355,910 1,709,101Income tax payable 165,973 198,294Amounts due to related parties 39,770 197,021Operating lease liabilities, current216,799181,275Other current liabilities 4,908,777 4,430,580Total current liabilities 13,689,416 15,974,913Non-current operating lease liabilities422,629424,311Deferred tax liabilities 92,344 81,971TOTAL LIABILITIES 14,204,389 16,481,195(1)Included amounts due from other consolidated subsidiaries of RMB6,554,502 and RMB10,556,052 as of December 31, 2022 and 2023,respectively.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-172. Summary of Significant Accounting Policies (Continued)(b) Principles of consolidation (Continued)Consolidation of Variable Interest Entity (Continued)Year ended December 31, 2021 2022 2023RMBRMBRMBTotal revenue 29,721,13531,981,79031,276,014Net income (1) 1,237,5242,453,6412,003,952Net cash provided by (used in) operating activities (2) 976,290805,413(1,261,654)Net cash used in investing activities (877,285)(1,521,688)(536,180)Net cash provided by financing activities 55,2122,537,8081,971,478Net (decrease) increase in cash and cash equivalents 154,2171,821,533173,644Cash and cash equivalents and restricted cash at beginning of year 776,725930,9422,752,475Cash and cash equivalents and restricted cash at end of year 930,9422,752,4752,926,119(1)Included inter-company transportation fees, service fees and rental fees charged by other consolidated subsidiaries of RMB14,967,293,RMB14,587,084 and RMB13,984,286 for the years ended December 31, 2021, 2022 and 2023, respectively.(2)Included inter-company operating cash outflow of RMB15,973,616, RMB20,739,098 and RMB17,985,836 to other consolidated subsidiariesfor the years ended December 31, 2021, 2022 and 2023, respectively.After all eliminations of intercompany transactions with other consolidated subsidiaries, the VIE contributed 97.7%, 90.4% and 81.4% ofthe Company’s consolidated revenues for the years ended December 31, 2021, 2022 and 2023, respectively. As of December 31, 2022 and 2023,the VIE accounted for an aggregate of 26.5% and 35.7%, respectively, of the consolidated assets, and 59.1% and 58.5%, respectively, of theconsolidated liabilities.There are no terms in any arrangements, considering both explicit arrangements and implicit variable interests that require the Company toprovide financial support to the VIE. However, if the VIE was ever to need financial support, the Company may, at its option and subject tostatutory limits and restrictions, provide financial support to its VIE through loans to the shareholders of the VIE or entrustment loans to the VIE.The Company believes that there are no assets held in the consolidated VIE that can be used only to settle obligations of the VIE, exceptfor paid-in capital, additional paid-in capital and statutory reserves. As the consolidated VIE is incorporated as a limited liability company underthe PRC Company Law, creditors of the VIE do not have recourse to the general credit of the Company for any of the liabilities of theconsolidated VIE.Relevant PRC laws and regulations restrict the VIE from transferring a portion of their net assets, equivalent to the balance of itsregistered capital and statutory reserves, to the Company in the form of loans and advances or cash dividends. Please refer to Note 23 for disclosureof restricted net assets.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-182. Summary of Significant Accounting Policies (Continued)(c) Use of estimatesThe preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during thereporting period. Actual results may differ from these estimates. The Company bases its estimates on historical experience and other relevantfactors.(d) Foreign currency translationThe Company’s reporting currency is Renminbi (“RMB”). The functional currency of the Company and subsidiaries incorporated outsidethe mainland China is the United States dollar (“US dollar” or “US$”) or Hong Kong dollar (“HKD”). The functional currency of all the othersubsidiaries and the VIE is RMB.Transactions denominated in currencies other than functional currency are translated into functional currency at the exchange rates quotedby authoritative banks prevailing at the dates of the transactions. Foreign currency denominated financial assets and liabilities are re-measured atthe balance sheet date exchange rate. Exchange gains and losses resulting from those foreign currency transactions denominated in a currency otherthan the functional currency are recorded in the consolidated statements of comprehensive income.The financial statements of the Company are translated from the functional currency into RMB. Assets and liabilities denominated inforeign currencies are translated into RMB using the applicable exchange rates at the balance sheet date. Equity accounts other than earningsgenerated in current period are translated into RMB at the appropriate historical rates. Revenues, expenses, gains and losses are translated intoRMB at the average rates of exchange for the year. The resulting foreign currency translation adjustments are recorded in accumulated othercomprehensive income as a component of shareholders’ equity.(e) Convenience translationThe Company’s business is primarily conducted in the PRC and almost all of the Company’s revenues are denominated in RMB.However, periodic reports made to shareholders will include current period amounts translated into US dollars using the then current exchangerates, solely for the convenience of the readers outside the PRC. Translations of the consolidated balance sheets, consolidated statements ofcomprehensive income and consolidated statements of cash flows from RMB into US dollars as of and for the year ended December 31, 2023 werecalculated at the rate of US$1.00=RMB7.0999, representing the noon buying rate set forth in the H.10 statistical release of the U.S. FederalReserve Board on December 29, 2023. No representation was made that the RMB amounts could have been, or could be, converted, realized orsettled into US$ at that rate on December 31, 2023, or at any other rate.(f) Cash and cash equivalentsCash and cash equivalents consist of cash on hand and highly liquid investments which are unrestricted as to withdrawal or use, and whichhave maturities of three months or less when purchased.(g) Restricted cashRestricted cash represents secured deposits held in designated bank accounts for issuance of bank acceptance notes, settlement ofderivatives and commencement of construction.(h) Accounts receivable, netAccounts receivable mainly consists of amount due from the Company’s customers, which is recorded net of allowance for credit losses.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-192. Summary of Significant Accounting Policies (Continued)(i) Short-term and long-term investmentShort-term investment primarily comprises of interest rate swaps, dual currency notes/deposits (“DCN/DCD”), time deposits withmaturities between three months and one year, and investments in wealth management products with variable interest rates. Long-term investmentcomprises of time deposits and investments in wealth management products with maturities more than one year.DCN/DCD and interest rate swaps purchased by the Company to earn interest and manage foreign currency risks are structured productsoffered by financial institutions with original maturities less than one year and written foreign exchange options embedded.The Company classifies its investments as held-to-maturity securities when the Company expects to receive all the principals and has thepositive intent and ability to hold them to maturity. The Company elects the fair value option to record all other investments in accordance withASC 825 Financial Instruments. The fair values of the investments are measured based on market-based redemption prices which are level 2 inputsprovided by the selling banks. Changes in fair value of the investments are recorded as gain or loss from fair value changes of financial instrumentsin the consolidated statements of comprehensive income.RMB900,000 and RMB1,300,000 of short-term and long-term investments were used as collaterals to issue bank acceptance draft as ofDecember 31, 2022 and 2023, respectively.The Company utilized a forward-looking CECL model to assess the credit loss of financial instruments measured at amortized cost. Basedupon the Company’s assessment of various factors, including historical experience, credit quality of the related financial institutions, and otherfactors that may affect its ability to collect the short-term and long-term investment, the Company determined there were no credit losses for theyears ended December 31, 2021, 2022 and 2023.The Company recorded interest income from the held-to maturity investments of RMB212,713, RMB209,061 and RMB399,689, and gainfrom fair value changes of investments carried at fair value of RMB40,076, RMB70,437 and RMB186,914 in the consolidated statements ofcomprehensive income for the years ended December 31, 2021, 2022, and 2023, respectively.(j) Foreign exchange options and forward contractsThe Company entered into certain foreign exchange options and forward contracts to protect against volatility of future cash flows causedby the changes in foreign exchange rates. The foreign exchange options and forward contracts are accounted for as derivatives and measured at fairvalue at each period end. The fair values of foreign exchange options and forward contracts are measured based on market-based redemption priceswhich are level 2 inputs provided by the bank that sells such foreign exchange options and forward contracts. The changes in fair value arerecognized as gain or loss in the consolidated statements of comprehensive income.Depending on the terms of the specific derivative instruments and market conditions, the Company’s derivative instruments may bereflected as assets or liabilities at any particular point in time and recorded within prepayments and other current assets or other current liabilitieson the consolidated balance sheets.The Company recorded a net gain of RMB12,833, a net loss of RMB24,191 and a net loss of RMB22,397 from fair value changes relatedto foreign exchange options and forward contracts in the consolidated statements of comprehensive income for the year ended December 31,2021,2022 and 2023, respectively.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-202. Summary of Significant Accounting Policies (Continued)(k) Fair valueFair value is considered to be the price that would be received from selling an asset or paid to transfer a liability in an orderly transactionbetween market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permittedto be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considersassumptions 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 intothree broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of inputthat is significant to the fair value measurement as follows:Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable forthe asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in marketswith insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable orcan be derived principally from, or corroborated by, observable market data.Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to themeasurement of the fair value of the assets or liabilities.The short-term financial instruments, which consist of cash and cash equivalents, restricted cash, accounts receivable, financingreceivable, time deposits and wealth management products recorded in short-term investments, amounts due from related parties, other currentassets, accounts payable, amounts due to related parties, short-term bank borrowings, notes payable and other current liabilities, except for thefinancial instruments measured at fair value and presented in the following table, are recorded at costs less credit loss allowance when applicable,which approximate their fair values due to the short-term nature of these financial instruments. The carrying values of non-current restricted cash,long-term financing receivables and long-term investment approximate their fair values as their interest rates are comparable to the prevailinginterest rates in the market.The Company measures at fair value its financial assets and liabilities by using a fair value hierarchy that prioritizes the inputs to valuationtechniques used to measure fair value.As of December 31, 2022 and 2023, wealth management products, DCN/DCD, interest rate swap and derivative instruments are measuredand recorded at fair value initially and on a recurring basis in periods subsequent to their initial recognition and are as follows:As of December 31, Significant Other Observable Inputs (Level 2)20222023 RMB RMBShort-term investmentsDCN/DCD and interest rate swap 835,896 299,106Wealth management products4,077,7163,279,813Long-term investmentsWealth management products1,653,27669,629Derivative liabilities recorded within other current liabilities Foreign exchange option contracts31,15544,521Foreign exchange forward contracts 1,754 13,967Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-212. Summary of Significant Accounting Policies (Continued)(k) Fair value (Continued)The Company measures an equity method investment at fair value on a nonrecurring basis when it is deemed to be impaired. The fairvalue of the investment is determined based on valuation techniques using the best information available, which may include future performanceprojections, discount rate and other assumptions that are significant to the measurements of fair value. An impairment charge to the investment isrecorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary.Theimpairment of equity method investments was nil, RMB4,559 and nil during the years ended December 31, 2021, 2022 and 2023, respectively.The carrying values of the Company’s equity investments without readily determinable fair values are measured at cost, less anyimpairment, plus and minus changes resulting from observable price changes in orderly transactions for identical or similar investments. TheCompany recognized impairment losses of nil, RMB21,769 and nil related to equity investments without readily determinable fair values for theyears ended December 31, 2021, 2022 and 2023, respectively (Note 8).Certain non-financial assets are measured at fair value on a nonrecurring basis, including property, plant, and equipment, right-of-useassets, goodwill and intangible assets and they are recorded at fair value only when impairment is recognized by applying unobservable inputs suchas forecasted financial performance, discount rate, and other significant assumptions to the discounted cash flow valuation methodology.(l) Financing receivables, netThe Company provides financial services to its network partners with credit terms generally ranging from three months to three years. Thebalances reported in the consolidated balance sheets were at the outstanding principal amount less allowance of credit losses. The accrued interestreceivables are also included in financing receivables as of the balance sheet date. The Company developed a forward looking CECL model basedon the conditions of collaterals and guarantees for financing receivables, historical experiences, credit quality of the borrowers, current economicconditions and the borrowers’ operating results, forecasts of future economic conditions, and other factors that may affect its ability to collect fromthe borrowers. RMB58,768 and RMB93,185 of allowance of credit losses relating to short-term financing receivables, and RMB40,340 andRMB56,863 relating to long-term financing receivables were recorded as of December 31, 2022 and 2023, respectively. The expected credit lossrecognized for financing receivables was RMB19,703, RMB35,515 and RMB50,940 for the years ended December 31, 2021, 2022 and 2023,respectively. Interest income generated from the financing receivables was recorded as revenue in the amounts of RMB183,709, RMB168,395, andRMB146,096 for the years ended December 31, 2021, 2022 and 2023, respectively.(m) Property and equipment, netProperty and equipment are stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over thefollowing estimated useful lives:Leasehold improvements Lesser of lease term or estimated useful life of 3 yearsFurniture, office and electric equipment3 to 5 yearsMachinery and equipment10 yearsVehicles5-10 yearsBuildings20 yearsTable of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-222. Summary of Significant Accounting Policies (Continued)(n) Intangible assetsIntangible assets include customer relationship acquired in a business combination which are recognized initially at fair value at the dateof acquisition and are carried at cost less accumulated amortization. Amortization of customer relationship is computed using the straight-linemethod over 10 years. The useful life of customer relationship was estimated to be 10 years based on the nature of the customer base and averageattrition rate.(o) Investments in equity investeesInvestments in equity investees of the Company are comprised of investments in privately-held companies. The Company uses the equitymethod to account for an equity investment over which it has significant influence but does not own a majority equity interest or otherwise control.The Company records equity method adjustments in share of profits and losses. Equity method adjustments include the Company’s proportionateshare of investee income or loss, impairments, and other adjustments required by the equity method. Dividends received are recorded as a reductionof carrying amount of the investment. Cumulative distributions that do not exceed the Company’s cumulative equity in earnings of the investee areconsidered as a return on investment and classified as cash inflows from operating activities. Cumulative distributions in excess of the Company’scumulative equity in the investee’s earnings are considered as a return of investment and classified as cash inflows from investing activities. TheCompany continually reviews equity method investments to determine whether a decline in fair value to below the carrying value is other-than-temporary. The primary factors the Company considers in determination are the duration and severity of the decline in fair value; the financialcondition, operating performance and the prospects of the equity investee; and other company specific information such as recent rounds offinancing. If the decline in fair value is deemed to be other-than-temporary, the carrying value of the equity investment is written down to fairvalue.The Company’s equity investments without readily determinable fair values, which do not qualify for net asset value (“NAV”) practicalexpedient and over which the Company does not have the ability to exercise significant influence through the investments in common stock or insubstance common stock, are accounted for under the measurement alternative in accordance with Accounting Standards Update (“ASU”) 2016-01“Recognition and Measurement of Financial Assets and Liabilities” (the “Measurement Alternative”). Under the Measurement Alternative, thecarrying value is measured at cost, less any impairment, plus and minus changes resulting from observable price changes in orderly transactions foridentical or similar investments.(p) Impairment of long-lived assetsThe Company evaluates the recoverability of long-lived assets with determinable useful lives whenever events or changes incircumstances indicate that an asset’s carrying amount may not be recoverable. Impairment exists when the sum of the expected future net cashflows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of theasset exceeds its fair value. Fair value is estimated based on various valuation techniques and significant assumptions such as future cash flowsover the life of the asset being evaluated. These assumptions require significant judgment and may differ from actual results. The Companyrecognizes such asset at the lower of carrying value or fair market value less costs to sell, as estimated based on comparable asset sales, offersreceived, or a discounted cash flow model. The Company recorded impairment charges of nil, nil and RMB76,616, related to property andequipment that were expected to be disposed of before the end of their estimated useful lives for the years ended December 31, 2021, 2022 and2023, respectively. Impairment losses are recorded in other operating income, net in the consolidated statements of comprehensive income.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-232. Summary of Significant Accounting Policies (Continued)(q) GoodwillGoodwill is recognized for the excess of the purchase price over the fair value of net assets of business acquired. Several factors give riseto goodwill in the Company’s acquisitions, such as the expected benefit from synergies of the combination and the existing workforce of theacquired businesses. Unless circumstances otherwise indicate, goodwill is reviewed annually at December 31 for impairment. In evaluation ofgoodwill impairment, the Company performs a qualitative assessment to determine if it is more likely than not that the fair value of a reporting unitis less than its carrying amount. Based on the qualitative assessment, if it is more likely than not that the fair value is less than the carrying amount,the Company performs a quantitative assessment to identify goodwill impairment and measure the amount of a goodwill impairment loss to berecognized. The impairment test is performed as of year-end or if events or circumstances changes indicate that it is more likely than not thatgoodwill is impaired.The Company had two reporting units, the express delivery business and the freight forwarding business, for purposes of allocating andtesting goodwill for the years ended December 31, 2021, 2022 and 2023. The Company conducted qualitative assessment to determine whether it isnecessary to perform a quantitative goodwill impairment test. In assessing the qualitative factors, the Company considered the impact of keyfactors such as changes in the general economic conditions including the impact of COVID-19, changes in industry and competitive environment,stock price, actual revenue performance compared to previous years, and cash flow projection. Based on the results of the qualitative assessmentcompleted as of December 31, 2021, 2022 and 2023,the Company determined it was not more likely than not that the fair value of each reportingunit was less than its carrying amount. Therefore, no quantitative assessment was performed and no impairment charge was recognized for theyears ended December 31, 2021, 2022 and 2023.(r) Share-based compensationThe Company grants share options, ordinary share units and restricted share units to eligible employees, management and directors andaccounts for these share-based awards in accordance with ASC 718 Compensation—Stock Compensation.Employees’ share-based awards are measured at the grant date fair value of the awards and recognized as expenses a) immediately at grantdate if no vesting conditions are required; or b) over the requisite service period, which is the vesting period, net of forfeitures. The Company electsto recognize forfeitures when they occur. When there is a modification of the terms and conditions of an award, the Company measures the pre-modification and post-modification fair value of the share-based awards as of the modification date and recognizes the incremental value and theremaining unrecognized compensation expenses as compensation cost over the remaining service period. The fair values of share option, ordinaryshare units and restricted share units are determined based on the closing market price of the underlying shares on the grant date.(s) Treasury sharesTreasury shares represent ordinary shares repurchased by the Company that are no longer outstanding and are held by the Company. Therepurchase of ordinary shares is accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock.When treasury stock is retired, treasury stock is reduced by the cost of such stock on the first-in, first-out basis and an excess of repurchase priceover par or stated value is allocated between additional paid-in capital and retained earnings.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-242. Summary of Significant Accounting Policies (Continued)(t) Revenue recognitionThe Company derives revenues from its express delivery services primarily provided to its network partners, including parcel sorting andline-haul transportation, as well as direct express delivery services provided to certain enterprise customers, including vertical e-commerce andtraditional merchants, on a much smaller scale, in connection with the delivery of their products to end consumers. The Company also providesfreight forwarding services to its customers. Revenues generated from express delivery services and freight forwarding services are recognizedover time as the Company performs the services.Revenues also include sales of accessories, such as portable barcode readers and ZTO-branded packing supplies and apparels. Revenuesare recognized when control of the product is transferred to the customer and in an amount the Company expects to earn in exchange for theproduct.Disaggregation of revenueYear Ended December 31, 202120222023 RMB % RMB % RMB US$ %Express delivery services27,450,92290.332,575,69892.135,488,0604,998,38992.4Freight forwarding services 1,529,601 5.0 1,212,677 3.4 906,802127,7202.4Sale of accessories 1,231,283 4.0 1,384,674 3.9 1,876,624264,3174.9Others 194,033 0.7 203,947 0.6 147,42920,7650.3Total revenues 30,405,839 100.0 35,376,996 100 38,418,9155,411,191100.0Performance obligationsA performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the basis of revenuerecognition in accordance with U.S. GAAP. The customer generally contracts with the Company for distinct services. Substantially all of theCompany’s service contracts include only one performance obligation, e.g. the express delivery or freight forwarding services.Satisfaction of performance obligationsThe Company generally recognizes revenue over time as the Company performs the services stipulated in the contract because of thecontinuous transfer of control to the customer. The customers receive the benefit of the services as the goods are transported from one location toanother. That is, if the Company was unable to complete the delivery, the service that was already performed by the Company would not need to bereperformed. As such, revenue is recognized based on the extent of progress towards completion of the performance obligation. It normally takesone to seven days for the Company to complete the performance obligation.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-252. Summary of Significant Accounting Policies (Continued)(t) Revenue recognition (Continued)Variable considerationThe Company provides customers with certain volume-based incentives in relation to express delivery services, which represent variableconsiderations and are recorded as reductions to the related revenue. The Company estimates the variable considerations in the most likely amountsit expects to earn. As the incentives are generally determined on a monthly basis, the uncertainty in estimating the variable considerations to berecorded is very limited.Principal vs. agent considerationsIn its express delivery services provided to pickup outlets, the Company utilizes delivery outlets operated by its network partners toperform the dispatching services. The Company only fulfills parcel sorting and line-haul transportation services. U.S. GAAP requires the Companyto use a control-model approach to evaluate whether the Company performs services directly to the customers (as a principal) or arranges forservices to be provided by another party (as an agent). Based on an evaluation of the control model, the Company has determined that it acts as aprincipal in providing sorting and line haul transportation services to the pickup outlets as the Company is primarily responsible for the delivery ofparcels between sorting hubs and has the ability to control the related services. The Company acts as an agent for dispatching services as it arrangesfor such services to be provided by the delivery outlets. Therefore, the revenue is recorded net of the dispatching fees paid to the delivery outlets.The Company also provides express delivery services to certain enterprise customers. According to the contracts with the enterprisecustomers, the Company is primarily responsible for and has control over the entire delivery process including the dispatching services. Therefore,the Company has determined that it acts as a principal for all the express delivery services provided to enterprise customers and accordingly, hasrecorded revenue on a gross basis, including the dispatching fees paid to the delivery outlets.Contract assets and liabilitiesContract assets include billed and unbilled receivables resulting from in-transit parcels, which were recorded in accounts receivable andnot material as of December 31, 2022 and 2023.Contract liabilities consist of advance payments, which were recorded in advances from customers and not material as of December 31,2022 and 2023.Practical expedients and exemptionsThe Company elects not to disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length ofone year or less (ii) contracts for which the Company recognizes revenues at the amount which it has the right to invoice for services performedand (iii) contracts with variable consideration related to wholly unsatisfied performance obligations.(u) Cost of revenuesCost of revenues mainly consists of the following:●line-haul transportation costs, including payments to outsourced transportation companies, as well as costs associated with theCompany’s own transportation infrastructure, including labor costs of truck drivers, depreciation of self-owned trucks, airfare cost,fuel cost, and road toll,Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-262. Summary of Significant Accounting Policies (Continued)(u) Cost of revenues (Continued)●operating costs for the ZTO delivery IT platform,●cost of hub operations, such as operators’ labor costs and depreciation and lease costs,●cost of accessories including portable barcode readers, thermal papers and packaging materials, and●cost of freight forwarding services, including cost of line-haul transportation and cargo handling costs.(v) Income taxesThe Company accounts for income taxes using the asset and liability method. Under this method, deferred income taxes are recognized fortemporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Net operating losses arecarried forward by applying enacted statutory tax rates applicable to future years when the reported amounts of the asset or liability are expected tobe recovered or settled. Deferred tax assets are reduced by a valuation allowance when, based upon the weight of available evidence, it is morelikely than not that some portion or all of the deferred tax assets will not be realized. The Company recognizes the tax benefit from an uncertain taxposition only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technicalmerits of the position.(w) Comprehensive incomeComprehensive income is defined to include all changes in equity from transactions and other events and circumstances excludingtransactions resulting from investments by shareholders and distributions to shareholders. For the years presented, the Company’s comprehensiveincome includes net income and foreign currency translation adjustments and is presented in the consolidated statements of comprehensive income.(x) Leased assetsAs a lesseeThe Company leases office space, sorting hubs and warehouse facilities in different cities in the PRC under operating leases.Under ASU No. 2016-02 “Leases” (ASC 842), the Company determines whether an arrangement constitutes a lease and records leaseliabilities and right-of-use (“ROU”) assets on its consolidated balance sheets at the lease commencement. The Company measures the operatinglease liabilities at the commencement date based on the present value of remaining lease payments over the lease term, which was computed usingthe Company’s incremental borrowing rate, an estimated rate the Company would be required to pay for a collateralized borrowing equal to thetotal lease payments over the lease term. The Company measures the operating lease ROU assets based on the corresponding lease liabilityadjusted for payments made to the lessor at or before the commencement date, and initial direct costs it incurs under the lease. The Companybegins recognizing operating lease expense based on lease payments on a straight-line basis over the lease term when the lessor makes theunderlying asset available to the Company. After considering the factors that create an economic incentive, the Company does not include renewaloption periods in the lease term for which it is not reasonably certain to exercise. The carrying amount of lease liabilities is remeasured if there is amodification, e.g. a change in the lease term or a change in the in-substance fixed lease payments.The Company determines its land use right agreements contain operating leases of land under ASC 842. However, this determination doesnot result in any changes to the accounting for land use rights as the cost for land use rights are fully prepaid and no liabilities would be recorded.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-272. Summary of Significant Accounting Policies (Continued)(x) Leased assets (continued)As a lessorThe Company’s lessor arrangements include operating leases of land and buildings to its network partners. The Company recognizes theunderlying assets and records the lease payments as income over the lease term on a straight-line basis.(y) Concentration of credit riskFinancial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents,accounts receivable, financing receivables, short-term investment, advances to suppliers, prepayments and other current assets, long-terminvestment and long-term financing receivables. The Company places its cash and cash equivalents, short-term investment and long-terminvestment with reputable financial institutions. Accounts receivable primarily comprise amounts receivable from enterprise customers. Financingreceivables primarily comprise financing receivables from network partners. The Company performs on-going credit evaluations of the financialcondition of its counter parties and establishes an allowance for credit losses estimated based on factors surrounding the credit risk of specificentities and other relevant information. The allowance amounts were immaterial for all the periods presented.(z) Earnings per shareBasic earnings per share are computed by dividing income attributable to holders of ordinary shares by the weighted average number ofordinary shares outstanding during the years.Diluted earnings per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shareswere exercised or converted into ordinary shares, which consist of the ordinary shares issuable upon the conversion of the convertible senior notes(using the if-converted method). Ordinary share equivalents are excluded from the computation of diluted earnings per ordinary share if theireffects would be anti-dilutive.On October 27, 2016, the Company’s shareholders voted in favor of a proposal to adopt a dual-class share structure, pursuant to which theCompany’s authorized share capital were reclassified and redesignated into Class A ordinary shares and Class B ordinary shares. Both Class Aordinary shares and Class B ordinary shares are entitled to the same dividend right, as such, this dual class share structure has no impact to theearnings per share calculation. Basic earnings per share and diluted earnings per share are the same for each Class A ordinary shares and Class Bordinary shares.(aa) Recently Issued Accounting PronouncementOn November 27, 2023, the FASB issued ASU 2023-07 to improve reportable segment disclosure requirements, primarily throughenhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarifycircumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entitieswith a single reportable segment, and contain other disclosure requirements. The amendments in ASU 2023-07 are effective for all public entitiesfor fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company doesnot expect the adoption of this ASU to have a material impact on the consolidated financial statements and related disclosures.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-282. Summary of Significant Accounting Policies (Continued)(aa) Recently Issued Accounting Pronouncement (Continued)On December 14, 2023, the FASB issued ASU 2023-09 to improve its income tax disclosure requirements. Under the ASU, PBEs (publicbusiness entities) must annually “(1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconcilingitems that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed bymultiplying pretax income (or loss) by the applicable statutory income tax rate). The ASU’s amendments are effective for PBEs for annual periodsbeginning after December 15, 2024. For entities other than PBEs, the amendments are effective for annual periods beginning after December 15,2025. The Company does not expect the adoption of this ASU to have a material impact on the consolidated financial statements and relateddisclosures.3. Prepayments and Other Current AssetsPrepayments and other current assets consist of the following:As of December 31, 2022 2023RMBRMBInput value added tax (“VAT”) 2,296,1672,704,180Prepaid expenses 119,935102,438Accrued interest income 199,686135,096Deposits 130,731104,408Others 399,859726,255Total 3,146,3783,772,3774. Property and Equipment, NetProperty and equipment, net consist of the following:As of December 31, 2022 2023RMBRMBBuildings 14,995,85721,731,960Machinery and equipment 7,328,2078,861,939Leasehold improvements 923,2851,085,101Vehicles 6,101,9485,642,905Furniture, office and electric equipment 850,836922,797Construction in progress 7,372,6054,929,745Total 37,572,73843,174,447Accumulated depreciation (8,759,534)(10,916,806)Impairment—(76,616)Property and equipment, net 28,813,20432,181,025Depreciation expenses were RMB2,102,310, RMB2,540,899 and RMB2,740,819 for the years ended December 31, 2021, 2022 and 2023,respectively.The Company recorded impairment charges of nil, nil and RMB76,616, related to property and equipment that were expected to bedisposed of before the end of their estimated useful lives for the years ended December 31, 2021, 2022 and 2023, respectively.As of December 31, 2022 and 2023, the title certificates for certain buildings of the Company with an aggregate net book value ofapproximately RMB4,909,234 and RMB3,024,988, respectively, had not been obtained.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-295. Land Use Rights, NetThere is no private land ownership in China. Companies or individuals are authorized to possess and use the land only through land userights granted by the PRC government. Land use rights are amortized using the straight-line method over the lease term of around 50 years or less.The weighted average remaining lease term is 44 and 43 years as of December 31, 2022 and 2023 respectively.As of December 31, 2022 2023RMBRMBCost 5,922,5146,244,857Less: Accumulated amortization (479,563)(607,756)Land use rights, net 5,442,9515,637,101Amortization expenses for land use rights were RMB113,260, RMB123,450 and RMB128,193 for the years ended December 31, 2021,2022 and 2023, respectively.As of December 31, 2022 and 2023, the title certificates for certain land use rights of the Company with carrying value of approximatelyRMB103,453 and RMB89,295, respectively, had not been obtained.6. Operating Leases1)Lease as lesseeThe Company leases office space, sorting hubs and warehouse facilities under non-cancellable operating lease agreements that expire atvarious dates through October 2037. During the three years ended December 31, 2021, 2022 and 2023, the Company incurred rental expensesrelated to fixed operating lease costs amounting to RMB388,450, RMB370,385 and RMB348,878, respectively. No variable lease cost existed.Supplemental information related to leases within the consolidated balance sheets are as follows: As of December 31, As of December 31, 20222023 RMB RMB Operating lease right-of-use assets 808,506672,193Current operating lease liabilities 229,718186,253Non-current operating lease liabilities 510,349455,879Total operating lease liabilities 740,067642,132Weighted average remaining lease term (in years) 55Weighted average discount rate 4.31%4.28%Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-306. Operating Leases (Continued)1)Lease as lessee (Continued)Supplemental cash flow information related to leases for the years ended December 31, 2022 and 2023 are as follows:Year endedYear endedDecember 31, December 31, 20222023 RMB RMBCash paid for amounts included in measurement of liabilities: Operating cash flows from operating leases 348,672294,069Right-of-use assets obtained in exchange for lease liabilities:Operating leases 291,000312,574Right-of-use assets decreased due to lease modifications: Operating leases 44,79755,391Right-of-use assets decreased due to disposal of subsidiary:Operating leases—80,923The following is a maturity analysis of the annual undiscounted cash flows as of December 31, 2022 and December 31, 2023: As of As ofDecember 31, 2022December 31, 2023RMBRMBWithin one year 227,647207,712Within a period of more than one year but not more than two years 179,784148,891Within a period of more than two years but not more than three years 133,299116,488Within a period of more than three years but not more than four years 118,14266,457Within a period of more than four years but not more than five years 47,39752,571More than five years125,054122,757Total lease commitment831,323714,876Less: Imputed interest91,25672,744Total operating lease liabilities740,067642,132Less: Current operating lease liabilities229,718186,253Long-term operating lease liabilities 510,349455,879Under ASC 842, land use rights agreements are also considered as operating lease contracts. See Note 5 for separate disclosures related toland use right.2)Lease as lessorThe Company rents land and buildings to network partners under non-cancellable operating lease agreements that expire at various datesthrough September 2037. All of the Company’s leasing arrangements as lessor are classified as operating leases. Rental income is recognized on astraight-line basis over the rental period. During the years ended December 31, 2021, 2022 and 2023, the Company recorded rental incomeamounting to RMB128,074, RMB178,761 and RMB291,693, respectively.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-317. GoodwillThe carrying amount of goodwill by reporting units as of December 31, 2022 and 2023 are as follows:ExpressFreightTotal Delivery Forwarding AmountRMBRMBRMBBalance at December 31, 2022 and 20234,157,11184,4304,241,5418. Investments in equity investeesThe Company’s investments in equity investees comprise the following:As of December 31, 2022 2023RMBRMBInvestments accounted for under equity method:ZTO Supply Chain Management Co., Ltd. (“ZTO LTL”) (1) 152,549205,827ZTO Yun Leng Network Technology (Zhejiang) Co., Ltd. (“ZTO YL”) (2) 51,42035,959Tonglu Antong Management LLP (“Antong”) (3)146,051117,995Others 220,336 171,476Total investments accounted for under the equity method 570,356 531,257Investments accounted for as equity investments without readily determinable fair values:Cai Niao Smart Logistics Network Limited (“Cai Niao”) (4) 1,116,0851,143,797Zhejiang Yizhan Network Technology Co., Ltd. (“Cainiao Post”) (4)1,075,0001,075,000Zhijiang New Industries Limited (“ZJ New Industries”) (4)500,000—ZTO Supply Chain Management Co., Ltd. (“ZTO LTL”) (1)578,105582,526Others 110,998122,539Total investments accounted for equity investments without readily determinable fair values 3,380,1882,923,862Total investments in equity investees 3,950,5443,455,119(1)ZTO LTLZTO LTL is engaged in provision of less-than-truckload transportation services in China. The Company obtained significant influenceover ZTO LTL through owning 18% equity interest in common stock of ZTO LTL at a total consideration of US$14,017 (RMB99,519), which isaccounted for using the equity method. The Company also invested US$83,817 (RMB582,526) in preferred stock of ZTO LTL, which is accountedfor under the Measurement Alternative as the underlying preferred shares are not considered in-substance common stock and have no readilydeterminable fair value.(2)ZTO YLThe Company obtained significant influence over ZTO YL through owning 18% equity interest of ZTO YL at a total consideration ofRMB90,000, which is accounted for using the equity method.(3)AntongIn 2021 and 2022, the Company invested RMB70,000 and RMB49,000 in Tonglu Antong Management LLP, respectively. As a limitedpartner, the Company has ability to exercise significant influence over operating activities of Antong but doesn’t have controlling financial interestin it. Therefore, the investment is accounted for using the equity method.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-328. Investments in equity investees (Continued)(4)Investments accounted for as equity investments without readily determinable fair valuesThe Company obtained 1% equity interest of Cai Niao, which provides a platform that connects with a network of logistics providersthrough a proprietary logistics information system and facilitates the delivery of packages across the PRC. The Company doesn’t have significantinfluence over the investee, therefore, accounts for the investment as an equity investment without readily determinable fair values.In May 2018, the Company entered into a subscription and contribution agreement with four other leading express delivery companies inthe PRC, to obtain 15% equity interest in Cainiao Post, Cai Niao’s network of last-mile delivery stations, in an amount of RMB1,075,000. As ofDecember 31, 2022 and 2023, the Company held 13.75% and 13.75% equity interest in Cainiao Post, respectively. Since the Company doesn’thave significant influence over Cainiao Post, this investment is accounted for as an equity investment without readily determinable fair values.In October 2018, the Company entered into an investment agreement with several investment corporations to establish a new investmentcompany, named ZJ New Industries and obtained 2% equity interest in ZJ New Industries at a total consideration of RMB500,000. For the yearended December 31, 2023, the Company disposed its 2% equity interest in ZJ New Industries at a cash consideration of RMB507,032, resulting ina disposal gain of RMB7,032.The Company recognized impairment losses totaling nil, RMB26,328, and nil related to equity investments for the years ended December31, 2021, 2022 and 2023, respectively.9. Intangible Assets, NetAs of December 31, 20222023 RMB RMBCustomer relationships 61,973 61,973Less: accumulated amortization (32,536) (38,733)Customer relationships, net 29,437 23,240Amortization expenses for customer relationships acquired through the business combination of COE Business were RMB6,198,RMB6,197 and RMB6,197 for the years ended December 31, 2021, 2022 and 2023, respectively.The estimated amortization expenses for each of the five succeeding fiscal years and thereafter are as follows: Years endedDecember 31, RMB2023 6,1972024 6,1972025 6,1972026 4,649Total 23,240Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-3310. Other Current LiabilitiesOther current liabilities consist of the following:As of December 31, 2022 2023RMBRMBPayables related to property and equipment 1,874,5621,908,520Deposits from network partners (1) 1,479,0271,550,463Salary and welfare payable 1,179,9171,231,320Payables to individual couriers (2) 779,4811,000,069Accrued expenses345,468364,746Others 1,066,2881,181,598Total 6,724,7437,236,716(1)Deposits from network partners represent the waybill deposits collected from the pickup outlets operated by network partners. The depositswill be refunded when the parcels are delivered to the recipients.(2)Payables to individual couriers represent the amount to be paid by the Company to individual couriers on behalf of its network partners fortheir last mile dispatch.11. Short-term Bank BorrowingsShort-term bank borrowings consist of the following:As of December 31, 2022 2023RMBRMBThe PRC domestic commercial banks5,394,4237,765,990The weighted average interest rates on short-term bank borrowings as of December 31, 2022 and 2023 were 2.04% and 1.62%,respectively. Certain borrowings are subject to financial covenants such as asset-liability ratio less than 65% and current ratio not less than 0.8. Asof December 31, 2023, the Company was in compliance with the financial covenants. The borrowings are repayable within one year.12. Convertible Senior NotesOn August 29, 2022, the Company issued US$1,000,000 of Convertible Senior Notes (“the Notes”). The Notes will mature on September1, 2027 and bear interest at a rate of 1.5% per year, payable semiannually in arrears on March 1 and September 1 of each year, beginning on March1, 2023.Holders of the Notes have the option to convert the Notes, in integral multiples of US$1 principal amount, at any time prior to the close ofbusiness on the fifth scheduled trading day immediately preceding the maturity date. The Notes can be converted into the Company’s ADSs at aninitial conversion rate of 31.6296 of the Company’s ADSs per US$1 principal amount of the Notes (equivalent to an initial conversion price ofUS$31.62 per ADS). The conversion rate is subject to customary adjustments upon the occurrence of certain events, such as the payment ofdividends. Upon conversion, the Company will pay or deliver, as the case may be, cash, ADSs, or a combination of cash and ADSs, at its selection.The holders may require the Company to repurchase for cash all or part of the Notes on September 2, 2025 (the “repurchase date”) at arepurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, therelevant repurchase date.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-3412. Convertible senior notes(Continued)The Company did not identify any embedded features that are subject to separate accounting. The conversion option meets the scopeexception for derivative accounting as it is indexed to the Company’s own stock and classified in stockholders’ equity. Other embedded featuresincluding the mandatory redemption feature and the contingent put option upon tax events or fundamental changes are considered clearly andclosely related to the debt host with no separate accounting required.Therefore, the Company accounted for the Notes as a single liability under convertible senior note, non-current. Issuance costs related tothe Notes were recorded in consolidated balance sheet as a direct deduction from the principal amount of the Notes, and the discount caused byissuance cost is amortized over the period from August 29, 2022, the date of issuance, to September 2, 2025, the first put date of the Notes, usingthe effective interest method.On August 29, 2022, the Company recorded the convertible senior notes as a long-term liability at face value (RMB6,910,000 orUS$1,000,000) net of issuance costs (RMB121,588 or US$17,596).Capped Call OptionsIn connection with the Notes, the Company entered into privately-negotiated capped call transactions indexed to its own ordinary shareswith certain financial institutions based on the total offering US$1,000,000 of Convertible Senior Notes to reduce the potential dilution to existingshareholders of the Company upon conversion of the Notes. The cap price of the capped call transactions is initially US$36.48 per ADS, and issubject to adjustment under the terms of the capped call transactions. The total premium paid by the Company for the capped call options wasRMB373,139 (equivalently US$54,000). The capped call options are classified as stockholders’ equity and carried at the acquisition cost.13. Income TaxUnder the current laws of the Cayman Islands, the Company is incorporated in the Cayman Islands and not subject to tax on income orcapital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of dividends to shareholders.Under the current laws of the British Virgin Islands, the Company’s subsidiary incorporated in British Virgin Island is not subject to tax.Under the current Hong Kong Inland Revenue Ordinance, the Company’s subsidiaries domiciled in Hong Kong have applied a two-tieredprofits tax rate regime. The profits tax rate for the first HK$2 million of profits of corporations is 8.25%, while profits above that amount is subjectto the tax rate of 16.5%. Additionally, payments of dividends by the subsidiary incorporated in Hong Kong to the Company are not subject to anyHong Kong withholding tax.Under the Law of the People’s Republic of China on Enterprise Income Tax (“EIT Law”), the Company’s subsidiaries domiciled in thePRC are subject to statutory rate of 25%. Certain enterprises will benefit from a preferential tax rate of 15% under the EIT Law if they qualify as“high and new technology enterprises,” or HNTEs, or if they are located in applicable PRC regions including Qianhai Shenzhen-Hong KongModern Service Industry Cooperation Zone or regions as specified in the Catalogue of Encouraged Industries in Western Regions (effective till2030), or the Western Regions Catalogue, subject to certain general restrictions described in the EIT Law and the related regulations.WFOE is qualified for HNTE status and therefore eligible for a preferential income tax rate of 15% for the years ended December 31,2021, 2022 and 2023. In addition, WFOE applied for the Key Software Enterprise status in early 2023. After the approval by the relevant taxauthority in 2023, WFOE was entitled to a preferential tax rate of 10% retroactively for the year ended December 31, 2022.Four, three and six of the Company's subsidiaries are qualified enterprises within the Catalog of Encouraged Industries in the WesternRegion and therefore eligible for the 15% preferential income tax rate for the years ended December 31, 2021, 2022 and 2023. The preferentialincome tax rate will expire in December 2030.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-3513. Income Tax (Continued)According to Caishui (2021) No.30, Shenzhen Dayu International Logistics Co., Ltd, established in Qianhai Shenzhen-Hong KongModern Service Industry Cooperation Zone, is entitled to a preferential tax rate of 15% until December 31, 2025.The current and deferred portion of income tax expenses included in the consolidated statements of comprehensive income, which weresubstantially attributable to the Company’s subsidiaries are as follows:Year ended December 31, 2021 2022 2023RMBRMBRMBCurrent tax expenses 1,197,5421,388,7141,780,818Deferred tax expenses (benefits) (192,091)244,616157,782Total 1,005,4511,633,3301,938,600The Company’s effective tax rate for the years ended December 31, 2021, 2022 and 2023 were 17.52%, 19.71% and 18.14%, respectively.Reconciliations of the differences between the PRC statutory income tax rate and the Company’s effective income tax rate for the yearsended December 31, 2021, 2022 and 2023 are as follows:Year ended December 31, 2021 2022 2023 RMBRMBRMBStatutory income tax rate 25.00% 25.00% 25.00%Preferential tax rates (6.45)% (4.29)% (7.22)%Research & development super deduction (2.66)% (2.42)% (1.05)%Non-deductible expenses 1.57% 0.66% 0.82%Different tax rates of operations in other jurisdictions(0.07)% 0.40% 0.36%Valuation allowance on deferred tax assets0.09% 0.10% 0.03%True up (1)0.04% 0.25% (1.69)%Withholding tax on the earnings distributed——1.89%Others 0.00% 0.01% 0.00% 17.52% 19.71% 18.14%Note (1): WFOE applied for the Key Software Enterprise status in early 2023. After the approval by the relevant tax authority in 2023,WFOE was entitled to a preferential tax rate of 10% retroactively for the year ended December 31, 2022, resulting in an income tax expensedecrease of RMB207,142 for the year ended December 31,2023.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-3613. Income Tax (Continued)The effect of the tax holiday on the income per share is as follows:Year ended December 31, 202120222023 RMB RMB RMBTax saving amount due to preferential tax rates 370,178355,489978,866Income per share effect- basic 0.450.441.21Income per share effect- diluted 0.450.431.17The principal components of the Company’s deferred income tax assets and liabilities as of December 31, 2022 and 2023 are as follows:As of December 31, 2022 2023RMBRMBDeferred tax assets:Accrued payroll and expense 188,826206,180Net loss carryforward362,443386,749Financial subsidy15,79020,009Depreciation for property and equipment137,440179,774Unrealized gain from intragroup transactions 28,98620,545Provision for allowance for credit losses 58,076121,898Deferred tax assets in subtotal791,561935,155Valuation allowance on deferred tax assets(41,464)(55,383)Total deferred tax assets 750,097879,772 Deferred tax liabilities:Difference in basis of land use rights (134,928)(131,412)Difference in basis of property and equipment(205,763)(299,529)Difference in basis of intangible assets(4,881)(3,859)Unrealized investment gain(900)(900)Dividend withholding tax—(202,500)Total deferred tax liabilities (346,472)(638,200)The Company considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will morelikely than not be realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of futureprofitability, the duration of statutory carryforward periods, and the history of operating loss or tax credit carryforwards expiring unused. As ofDecember 31, 2022 and 2023, valuation allowance of RMB41,464 and RMB55,383 were provided, respectively.As of December 31, 2023, the Company had total tax loss carryforward in subsidiaries of RMB1,652,821.The tax loss carryforward of theCompany’s PRC subsidiaries and VIE were RMB1,371,801 as of December 31, 2023 which will expire from 2024 to 2028 if not used.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-3713. Income Tax (Continued)Uncertainties exist with respect to how the current income tax law in the PRC applies to the Company’s overall operations, and morespecifically, with regard to tax residency status. The EIT Law includes a provision specifying that legal entities organized outside of the PRC willbe considered residents for Chinese Income tax purposes if the place of effective management or control is within the PRC. The implementationrules to the EIT Law provide that nonresident legal entities will be considered the PRC residents if substantial and overall management and controlover the manufacturing and business operations, personnel, accounting and properties, occurs within the PRC. Despite the present uncertaintiesresulting from the limited PRC tax guidance on the issue, the Company does not believe that the legal entities organized outside of the PRC withinthe Company should be treated as residents for EIT law purposes. If the PRC tax authorities subsequently determine that the Company and itssubsidiaries registered outside the PRC should be deemed resident enterprises, the Company and its subsidiaries registered outside the PRC will besubject to the PRC income taxes, at a statutory income tax rate of 25%. The Company is not subject to any other uncertain tax position.According to the PRC Tax Administration and Collection Law, and Implementing Rules of the PRC Tax Administration and CollectionLaw, the statute of limitations is three years if the underpayment of taxes is due to computational errors made by the taxpayer or withholding agent.The statute of limitations will be extended to five years under special circumstances, which are not clearly defined (but an underpayment of taxliability exceeding RMB0.1 million is specifically listed as a special circumstance). In the case of a related party transaction, the statute oflimitations is ten years. There is no statute of limitations in the case of tax evasion. From inception to 2023, the Company is subject to examinationof the PRC tax authorities.In accordance with the EIT Law, dividends, which arise from profits of foreign invested enterprises (“FIEs”) earned after January 1, 2008,are subject to a 10% withholding income tax. In addition, under tax treaty between the PRC and Hong Kong, if the foreign investor is incorporatedin 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 theFIE, or 10%, if the investor holds less than 25% in the FIE. A deferred tax liability is recognized for the undistributed profits of the PRCsubsidiaries unless the Company has sufficient evidence to demonstrate that the undistributed dividends will be reinvested and the remittance of thedividends will be postponed indefinitely.Prior to 2023, the Company intended to indefinitely reinvest the undistributed profits of the Company’s PRC subsidiaries. Referring toNote 24, the board of directors of ZTO approved a dividend of US$0.62 per ADS for 2023. To execute the dividend plan, the board of WFOE hasapproved to distribute cash dividends to ZTO Express (Hong Kong) Limited, and the Company recorded a deferred tax liability of RMB202,500 asof December 31, 2023 accordingly. The remaining undistributed profits of the Company’s PRC subsidiaries would be indefinitely reinvested.Under applicable accounting principles, a deferred tax liability should be recorded for taxable temporary differences attributable to theexcess of financial reporting basis over tax basis in a domestic entity. However, recognition is not required in situations where the tax law providesa means by which the reported amount of that investment can be recovered tax-free and the enterprise expects that it will ultimately use that means.The Company completed its feasibility analysis on a method, which the Company will ultimately execute if necessary to repatriate theundistributed earnings of the VIE without significant tax costs. As such, the Company does not accrue deferred tax liabilities on the earnings of theVIE given that the Company will ultimately use the means.Aggregate undistributed earnings of the Company’s PRC subsidiaries and VIE that are available for distribution were RMB28,504,400and RMB35,533,419 as of December 31, 2022 and 2023 respectively.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-3814. Share-Based CompensationEmployee Share Holding PlatformIn June 2016, the Company established an employee share holding platform (the “Share Holding Platform”). ZTO ES Holding Limited(“ZTO ES”), a British Virgin Islands company was established as a holding vehicle for the Company’s Share Holding Platform. Four limitedliability partnerships (“LLPs”) were established in the PRC as the shareholders of ZTO ES. ZTO ES and the LLPs have no activities other thanadministering the plan and does not have employees.On June 28, 2016, the Company issued 16 million ordinary shares to ZTO ES. All shareholder rights associated with these 16 millionordinary shares including but not limited to voting right and dividend right were waived until such time when the economic interests in the ordinaryshares are granted to the employees, through transfer of interests in the LLPs. The recipient of limited partnership interests is entitled to indirectlyall of the economic rights associated with the underlying ordinary shares of the Company and accordingly, at the direction of the employee, ZTOES will sell the Company’s ordinary shares held in connection with the limited partnership interest owned by the employee, and remit the proceedsto the employee. The other shareholder’s rights associated with the Company’s ordinary shares held by the partnership may be exercised by thegeneral partner of these LLPs. The Company referred to these limited partner’s partnership interests as ordinary share units and five ordinary shareunits correspond to the indirect economic interest in one ordinary share of the Company.In March 2021,2022 and 2023, 3,178,835, 3,934,355 and 4,386,320 ordinary share units corresponding to 635,767, 786,871 and 877,264Company’s ordinary shares were granted to certain officers and employees,respectively. The consideration was nil for each of three years. Theseshare awards vested immediately upon grant. The Company recorded the share-based compensation of RMB135,778, RMB109,614, andRMB158,278 based on the market price at US$32.83, US$21.87 and US$26.27 of ordinary shares on the respective grant dates, in selling, generaland administrative expenses in the consolidated statements of comprehensive income for the years ended December 31, 2021, 2022 and 2023,respectively.2016 Share Incentive PlanIn June 2016, the Board also approved the 2016 share incentive plan (the “2016 Share Incentive Plan”) in order to provide appropriateincentives to directors, executive officers and other employees of the Company. The 2016 Share Incentive Plan were amended and restated inSeptember 2016, the maximum aggregate number of shares which may be issued pursuant to all awards under the 2016 Plan is initially 3,000,000,plus an annual increase, by an amount equal to the least of (i) 0.5% of the total number of shares issued and outstanding on the last day of theimmediately preceding fiscal year; (ii) 3,000,000 shares or (iii) such number of shares as may be determined by the Board.With effect from May 1, 2023, the Company will no longer further increase the scheme limit of the 2016 Share Incentive Plan for theremaining term of the 2016 Share Incentive Plan, and the scheme limit of the 2016 Share Incentive Plan will be capped at the existing size of theshare award pool as at December 31, 2022, i.e. 21,000,000 shares; options and awards under the 2016 Share Incentive Plan will be satisfied by theexisting shares of the Company issued and reserved for the administration of the 2016 Share Incentive Plan and no new shares will be issued for theshare award grants made or to be made pursuant to the 2016 Share Incentive Plan.Restricted share units (“RSUs”)In March 2021, 2022 and 2023, the Company granted 525,595, 497,956 and 535,955 RSUs at par value to certain director, executiveoffices and employees pursuant to the 2016 Share Incentive Plan, respectively. These grants vested immediately upon grant. The Companyrecorded the share-based compensation of RMB112,249, RMB69,366, and RMB96,698 based on the market price of ordinary shares at US$32.83,US$21.87 and US$26.27 on the respective grant dates in selling, general and administrative expenses in the consolidated statements ofcomprehensive income for the years ended December 31, 2021, 2022 and 2023, respectively.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-3915. Ordinary SharesAs disclosed in Note 14, on June 28, 2016, 16 million ordinary shares of the Company were issued to ZTO ES to establish a reserve poolfor future issuance of equity share incentive to the Company’s employees. All shareholder rights of these 16 million ordinary shares including butnot limited to voting rights and dividend rights are unconditionally waived until the corresponding ordinary share units are transferred to theemployees. While the ordinary shares were legally issued to ZTO ES, ZTO ES does not have any of the rights associated with the ordinary shares.As such the Company accounted for these shares as issued but not outstanding ordinary shares until the waiver is released by the Company, whichoccurs when Ordinary Shares Units are awarded to the employees. 6,024,675 and 5,147,411 ordinary shares transferred to ZTO ES were consideredissued but not outstanding as of December 31, 2022 and 2023, respectively.On September 29, 2020, the Company successfully listed on the Main Board of the Hong Kong Stock Exchange with a global offering of51,750,000 Class A ordinary shares (including the exercise of the over-allotment option on October 22, 2020 ) at a public offering price ofHK$218.00. The Company received net proceeds of RMB9,763.8 million from this offering after deducting RMB79.2 million of underwritingcommissions and discounts and RMB77.4 million of the offering expenses payable by the Company. The Hong Kong-listed shares are fullyfungible with the Company’s American depositary shares (ADSs) listed on the New York Stock Exchange (one ADS representing one Class Aordinary share).16. Earnings Per ShareBasic and diluted earnings per share for each of the years presented are calculated as follows:Year ended December 31, 2021 2022 2023RMBRMBRMBNumerator: Net income attributable to ordinary shareholders—basic4,754,8276,809,0568,749,004Plus: Interest expense of convertible senior notes—45,809145,451Net income attributable to ordinary shareholders—diluted4,754,8276,854,8658,894,455Shares (Denominator):Weight average ordinary shares outstanding—basic819,961,265809,442,862807,739,616Plus:Dilutive effect of convertible senior notes—10,830,66931,209,067Weight average ordinary shares outstanding—diluted819,961,265820,273,531838,948,683Earnings per share—basic5.808.4110.83Earnings per share—diluted5.808.3610.606,811,546, 6,024,675 and 5,147,411 ordinary shares transferred to ZTO ES were considered issued but not outstanding as of December 31,2021, 2022 and 2023, respectively, and therefore not included in the calculation of basic and dilutive earnings per share.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-4017. Related Party TransactionsThe table below sets forth the major related parties and their relationships with the Company:Name of related parties Relationship with the CompanyTonglu Tongze Logistics Ltd. and its subsidiariesMajority equity interests held by the employees of the CompanyZTO Supply Chain Management Co., Ltd. and its subsidiariesThe Company’s equity investeeZTO Cloud Warehouse Technology Co., Ltd. and its subsidiariesThe Company’s equity investeeZTO Yun Leng Network Technology (Zhejiang) Co., Ltd. and itssubsidiariesThe Company’s equity investeeZhejiang Tongyu Intelligent Industry Development Co., Ltd.The Company’s equity investeeTonglu Antong Management LLPThe Company’s equity investeeShanghai Mingyu Barcode Technology Ltd. and its subsidiariesControlled by brother of chairman of the CompanyZhongkuai (Tonglu) Future City Industrial Development Co., LtdControlled by chairman of the CompanyMr. Jianchang LaiDirector and Vice President of OperationsMr. Jilei WangDirector and Vice President of Infrastructure ManagementMr. Du WangImmediate families of Director and Vice President(a) The Company entered into the following transactions with its related parties:TransactionsYear ended December 31, 2021 2022 2023RMBRMBRMBRevenues:Express delivery service revenue derived from Tonglu Antong Management LLP and its subsidiaries38,202694,758253,948Express delivery service revenue from ZTO Cloud Warehouse Technology Co., Ltd. and its subsidiaries68,716291,584274,256Others5,22451,66266,655Total112,1421,038,004594,859Cost of revenues:Transportation service fees paid to ZTO Supply Chain Management Co., Ltd. and its subsidiaries56,624459,013862,944Freight services agency fees paid to Zhongtong Yun Leng Network Technology (Zhejiang) Co., Ltd.and its subsidiaries5,85356,325119,005Purchases of supplies from Shanghai Mingyu Barcode Technology Ltd.235,808237,252330,190Others103,66944,66639,838Total401,954797,2561,351,977Other operating income:Property leasing income from ZTO Supply Chain Management Co., Ltd. and its subsidiaries29,68845,87645,896Property leasing income from ZTO Cloud Warehouse Technology Co., Ltd. and its subsidiaries33,39053,11564,722Others8,45320,67718,918Total71,531119,668129,536Other income:Interest income related to loan receivables from Zhongkuai (Tonglu) Future City IndustrialDevelopment Co., Ltd39,00033,96233,046Others2,4358,07110,382Total41,43542,03343,428Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-4117. Related Party Transactions (Continued)(a)The Company entered into the following transactions with its related parties (continued):In October and December 2021, the Company acquired 20.77% equity interest in certain subsidiaries from Mr. Jianchang Lai at a cashconsideration of RMB103,728. The difference between the consideration and the carrying amount of ownership interest obtained was RMB29,799recorded in additional paid-in capital.In December 2021, the Company sold its 100% shares in Zhejiang Xinglian Air Cargo Co., Ltd. to Zhongtong Yun Leng NetworkTechnology (Zhejiang) Co., Ltd. at a cash consideration of RMB177,297. The Company recognized loss of RMB2,532 on the disposal of ZhejiangXinglian.In 2021, the Company purchased trucks from Tonglu Tongze Logistics Ltd. and its subsidiaries at an aggregate price of RMB53,868.In January 2022, the Company acquired 10% equity interest in a subsidiary from Mr. Du Wang at a cash consideration of RMB39,128.The difference between the consideration and the carrying amount of non-controlling interests as of the acquisition date was RMB5,060 andrecorded in additional paid-in capital.In September 2022, the Company sold its 100% equity interest in Jinhua Zhongrui Freight Forwarding Co., Ltd to ZTO Supply ChainManagement Co., Ltd. at a cash consideration of RMB291,400, resulting in a gain of RMB60,514.In December 2022, the Company acquired 82% equity interests of Tuxi Technology Co.,Ltd from certain related parties and third partiesshareholders at a total cash consideration of RMB98,533, which approximately equals to the fair value of net assets acquired.(b) The Company had the following balances with its related parties:As of December 31, 2022 2023RMBRMBAmounts due to related parties Shanghai Mingyu Barcode Technology Ltd.20,24928,924Tonglu Antong Management LLP and its subsidiaries28,887—ZTO Supply Chain Management Co., Ltd. and its subsidiaries—149,495ZTO Cloud Warehouse Technology Co., Ltd. and its subsidiaries—16,415Zhongtong Yunleng Network Technology (Zhejiang) Co., LTD and its subsidiaries—14,988Others224,861Total 49,138234,683Amounts due to related parties consisted of accounts payable to related parties for transportation, waybill material and deposits as ofDecember 31, 2022 and 2023, respectively. Trade related amounts due to related parties are normally settled within one year.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-4217. Related Party Transactions (Continued)(b)The Company had the following balances with its related parties (continued):As of December 31, 2022 2023RMBRMBAmounts due from related parties ZTO Cloud Warehouse Technology Co., Ltd. and its subsidiaries (1)55,06172,377ZTO Supply Chain Management Co., Ltd. (2)101,43269,881Zhongtong Yunleng Network Technology (Zhejiang) Co., Ltd. and its subsidiaries53,5041,169Zhongkuai (Tonglu) Future City Industrial Development Co., Ltd. (3)75,000—Others29,4864,640Total 314,483 148,067Amounts due from related parties-non currentZhongkuai (Tonglu) Future City Industrial Development Co., Ltd. (3)500,000502,083Zhejiang Tongyu Intelligent Industry Development Co., Ltd. (4)77,14082,180Total577,140584,263Notes:(1)The amount comprised the three-month factoring loan to this related party with 6.96% annualized interest rate, accounts receivable generatedfrom the express delivery service provided by the Company and other receivables generated from the property leasing service provided by theCompany. The balance of loan was RMB12,500 and RMB33,040 as of December 31, 2022 and 2023, respectively.(2)The amount comprised the three-to-nine-month factoring loan to this related party and its subsidiaries with 6.96% annualized interest rate andother receivables generated from the property leasing service provided by the Company. The balance of loan was RMB109,980 andRMB66,860 as of December 31, 2022 and 2023, respectively.(3)The amount comprised a loan to this related party with 5.0% annualized interest rate for a term of 36 months from December 4, 2023 toDecember 3, 2026. This loan is an extension of the original three-year loan with 7.2% annualized interest rate. Mr. Jilei Wang, the Director ofthe Company, is the guarantor of this extended loan. The balance of principal was RMB500,000 as of December 31, 2022 and 2023 andinterest receivable was RMB75,000 and RMB2,083 as of December 31, 2022 and 2023, respectively.(4)The amount comprised a three-year loan to this related party with 7.2% annualized interest rate. The balance of principal was RMB70,000 asof December 31, 2022 and 2023.Trade related amounts due from related parties are normally settled within one year.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-4318. Commitments and Contingencies Capital commitmentsThe Company’s capital commitments primarily relate to commitments on construction of office building, sorting hubs and warehousefacilities. Total capital commitments contracted but not yet reflected in the consolidated financial statements amounted to RMB5,201,385 andRMB4,593,606 as of December 31, 2022, and 2023, respectively. All of these capital commitments will be fulfilled in the following years based onthe construction progress.Investment commitmentsThe Company is committed to make further capital injection into certain investments in equity investees. Such investment commitmentamounted to approximately RMB25,610 and RMB20,200 as of December 31, 2022 and 2023, respectively.ContingenciesThe Company is subject to periodic legal or administrative proceedings in the ordinary course of business. The Company does not believethat any currently pending legal or administrative proceeding to which the Company is a party will have a material effect on its business orfinancial condition.The Company has not made adequate contributions to employee benefit plans, as required by applicable PRC laws and regulations, but theCompany has recorded accruals for the estimated underpaid amounts in the consolidated financial statements. However, the Company has not madeany accruals for the interest on underpayments and penalties that may be imposed by the relevant PRC government authorities in the consolidatedfinancial statements as the Company believes it would be unlikely that the relevant PRC government authorities will impose any significantinterests or penalties.19. Repurchase of Ordinary SharesThe board of directors has approved its share repurchase program in November 2018 and made subsequent modifications. On March 31,2021, the board of directors approved changes to the share repurchase program, increasing the aggregate value of shares that may be repurchasedfrom US$500 million to US$1 billion and extending the effective time by two years through June 30, 2023. The Company funded the repurchasesout of its existing cash balance. As of December 31, 2021, the Company purchased an aggregate of 36,074,242 ADSs at an average purchase priceof US$25.21, including repurchase commissions, which had been fully paid as of December 31, 2021.On November 17, 2022, the board of directors approved further changes to the share repurchase program, increasing the aggregate valueof shares that may be repurchased from US$1 billion to US$1.5 billion and extending the effective time by one year through June 30, 2024. TheCompany funded the repurchases out of its existing cash balance. As of December 31, 2023, the Company purchased an aggregate of 42,501,325ADSs at an average purchase price of US$25.01, including repurchase commissions, which had been fully paid as of December 31, 2023.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-4420. DividendsOn March 16, 2021, a dividend in respect of the year ended December 31, 2020 of US$0.25 per ordinary share, in an aggregate amount ofUS$206,782 (RMB1,345,157), had been approved by the board of directors of the Company.On March 15, 2022, a dividend in respect of the year ended December 31, 2021 of US$0.25 per ordinary share, in an aggregate amount ofUS$202,433 (RMB1,289,418), had been approved by the board of directors of the Company.On March 14, 2023, a dividend in respect of the year ended December 31, 2022 of US$0.37 per ordinary share, in an aggregate amount ofUS$299,319 (RMB2,055,723), had been approved by the board of directors of the Company.For the years ended December 31, 2021, 2022 and 2023, dividends of US$212,467 (RMB1,353,969), US$191,847 (RMB1,323,205) andUS$291,907 (RMB2,072,509) were paid to shareholders of record as of designated record dates.21. Employee Benefit PlansThe Company’s PRC subsidiaries are required by law to contribute a certain percentage of applicable salaries for retirement benefits,medical insurance, unemployment insurance, work-related injury insurance, maternity insurance, and housing provident fund for full timeemployees. The Company contributed RMB379,168, RMB403,621 and RMB444,719 for the years ended December 31, 2021, 2022 and 2023,respectively, for such benefits and has no legal obligation for the benefits beyond the contribution made. The PRC government is responsible forthe medical benefits and ultimate liability to those employees.22. Segment InformationThe Company's Chief Executive Officer, who has been identified as the chief operating decision maker ("CODM"), reviews theconsolidated results when making decisions about allocating resources and assessing performance of the Company as a whole and hence, theCompany has only one reportable segment.Substantially all of the Company’s revenues for the years ended December 31, 2021, 2022 and 2023 were generated from the PRC. As ofDecember 31, 2022 and 2023, the majority of the long-lived assets of the Company are located in the PRC, and therefore no geographical segmentsare presented.23. Restricted Net AssetsPursuant to the laws applicable to the PRC’s Foreign Investment Enterprises and local enterprises, the Company’s entities in the PRC mustmake appropriation from after-tax profit to non-distributable reserve funds as determined by the Board of Directors of the Company.The PRC laws and regulations permit payments of dividends by the Company’s subsidiaries and VIE incorporated in the PRC only out oftheir retained earnings, if any, as determined in accordance with the PRC accounting standards and regulations. In addition, the Company’ssubsidiaries and VIE incorporated in the PRC are required to annually appropriate 10% of their net income to the statutory reserve prior to paymentof any dividends, unless such reserve has reached 50% of their respective registered capital. In addition, registered share capital and capital reserveaccounts are also restricted from withdrawal in the PRC, up to the amount of net assets held in each subsidiary and VIE.The appropriation to these statutory reserves by the Company’s PRC entities were nil, 78,326 and 8,952 for the years ended December 31,2021, 2022 and 2023, respectively. The accumulated statutory reserves as of December 31, 2022 and 2023 were RMB1,072,262 andRMB1,081,214, respectively.Table of ContentsZTO EXPRESS (CAYMAN) INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2021, 2022 and 2023(Amounts in thousands, except for share and per share data, unless otherwise stated)F-4523. Restricted Net Assets (Continued)As a result of these PRC laws and regulations and the requirement that distributions by the PRC entities can only be paid out ofdistributable profits computed in accordance with PRC GAAP, the PRC entities are restricted from transferring a portion of their net assets to theCompany. Amounts restricted include paid-in capital, additional paid-in capital and the statutory reserves of the Company’s PRC subsidiaries andVIE. As of December 31, 2023, the aggregate amount of capital and statutory reserves restricted which represented the amount of net assets of therelevant subsidiaries and VIE in the Company not available for distribution was RMB32,867,325.24. Subsequent EventsOn March 22, 2024, the Company granted 743,366 restricted share units to certain director, executive officers and employees pursuant tothe 2016 Share Incentive Plan. In addition, the Company granted ordinary share units representing 1,205,483 Class A ordinary shares through itsemployee shareholding platform to certain executive officers and employees at nil subscription consideration. These grants vested immediatelyupon grant.On March 22, 2024, the Company granted share options representing 916,200 Class A ordinary shares to certain director, executiveofficers and employees pursuant to the 2024 Share Incentive Plan. The exercise price is US$21.88. The options will be vested 33%, 33% and 34%on each of three anniversary dates from the grant date, respectively.On March 19, 2024, the board of directors approved a final dividend of US$0.62 per ADS and ordinary share for 2023 to the shareholdersof record as of the close of business on April 10, 2024.Table of ContentsF-46FINANCIAL STATEMENTS SCHEDULE IZTO EXPRESS (CAYMAN) INC.FINANCIAL INFORMATION OF PARENT COMPANYCONDENSED BALANCE SHEETS(Amounts in thousands, except for share and per share data)As of December 31, 20222023 RMB RMB US$(Note 2)ASSETS Cash and cash equivalents70,9378,8811,251Short-term investment2,487,7751,020,094143,677Investments in equity investees including subsidiaries and VIE, and amounts due from subsidiariesand VIE58,323,58065,804,5729,268,380Long-term investment—69,6299,807TOTAL ASSETS60,882,29266,903,1769,423,115LIABILITIES AND EQUITYDividends payable1,4971,548218Other current liability63,27370,3339,906Convertible senior notes6,788,9717,029,550990,091Total liabilities6,853,7417,101,4311,000,215Shareholders’ equity:Ordinary shares (US$0.0001 par value; 10,000,000,000 shares Authorized; 826,943,309 sharesissued and 809,247,109 shares outstanding as of December 31, 2022; 812,866,663 shares issuedand 804,719,252 shares outstanding as of December 31, 2023)53552574Additional paid-in capital26,717,72724,201,7453,408,744Treasury shares, at cost (11,671,525 and 3,000,000 shares as of December 31, 2022 and 2023,respectively)(2,062,530)(510,986)(71,971)Retained earnings29,459,49136,301,1855,112,915Accumulated other comprehensive loss(86,672)(190,724)(26,862)Total shareholders’ equity54,028,55159,801,7458,422,900TOTAL LIABILITIES AND EQUITY60,882,29266,903,1769,423,115Table of ContentsF-47FINANCIAL STATEMENTS SCHEDULE IZTO EXPRESS (CAYMAN) INC.FINANCIAL INFORMATION OF PARENT COMPANYCONDENSED STATEMENTS OF COMPREHENSIVE INCOME(Amounts in thousands, except for share and per share data)Year ended December 31, 202120222023 RMB RMB RMB US$(Note 2)Operating expenses:General and administrative(251,146)(197,209)(260,613)(36,707)Other operating income, net54,62059,88152,9687,460Total operating expenses(196,526)(137,328)(207,645)(29,247)Interest income72,98722,92779,73711,231Interest expense(2,206)(64,412)(162,326)(22,863)Loss from operations(125,745)(178,813)(290,234)(40,879)(Loss)/gain from fair value change at financial instruments(40,916)15,99558,6828,265Loss before income tax and share of profit in subsidiaries, VIE and equitymethod investments(166,661)(162,818)(231,552)(32,614)Income tax expense(23,101)(19,987)(26,270)(3,700)Share of profit in subsidiaries, VIE and equity method investments4,944,5896,991,8619,006,8261,268,586Net income attributable to ZTO Express (Cayman) Inc.4,754,8276,809,0568,749,0041,232,272Net income attributable to ordinary shareholders4,754,8276,809,0568,749,0041,232,272Other comprehensive income/(loss), net of tax of nil Foreign currency translation adjustment(146,533)155,432(104,052)(14,655)Comprehensive income4,608,2946,964,4888,644,9521,217,617Table of ContentsF-48FINANCIAL STATEMENTS SCHEDULE IZTO EXPRESS (CAYMAN) INC.FINANCIAL INFORMATION OF PARENT COMPANYCONDENSED STATEMENTS OF CASH FLOWS(Amounts in thousands, except for share and per share data)Year ended December 31, 202120222023 RMB RMB RMB US$(Note 2)Cash flows from operating activities: Net income4,754,8276,809,0568,749,0041,232,272Adjustments to reconcile net income to net cash used by operating activitiesShare-based compensation248,027178,980254,97635,913Fair value change at financial instruments40,916(15,995)(58,682)(8,265)Share of profit in subsidiaries and VIE(4,944,589)(6,991,861)(9,006,826)(1,268,586)Changes in operating assets and liabilities:Prepayments and other current assets13,013———Other current liabilities(23,318)35,45887,97312,393Net cash provided by operating activities88,87615,63826,4453,727Cash flows from investing activities: Payment and collection of loans to and investments in subsidiaries, VIE and equityinvestees(1,249,655)(2,580,373)1,561,076219,873Purchases of short-term investment(8,268,243)(4,171,949)(6,188,527)(871,636)Maturity of short-term investment10,552,1181,840,7517,723,5571,087,840Purchases of long-term investment——(69,101)(9,733)Maturity of long-term investment645,110———Net cash provided by /(used in) investing activities1,679,330(4,911,571)3,027,005426,344Cash flows from financing activities: Payment of issuance cost(887) (228) ——Payment of dividends(1,353,969)(1,323,205)(2,072,509)(291,907)Proceeds from issuance of convertible senior notes, net of issuance cost paid andcapped call option—6,416,762——Repurchase of ordinary shares(3,810,586) (84,547) (1,006,451)(141,756)Proceeds from short-term borrowing647,386655,5201,362,060191,842Repayment of short-term borrowing—(1,442,104)(1,379,140)(194,248)Net cash (used in)/provided by financing activities(4,518,056)4,222,198(3,096,040)(436,069)Effect of exchange rate changes on cash, cash equivalents(72,740)123,638(19,466)(2,742)Net change in cash, cash equivalents(2,822,590)(550,097)(62,056)(8,740)Cash, cash equivalents, beginning of year3,443,624621,03470,9379,991Cash, cash equivalents, end of year621,03470,9378,8811,251Year ended December 31, 2021 2022 2023RMBRMBRMB US$(Note 2)Supplemental disclosure on non-cash informationCash dividends declared in payables 321 730 71Table of ContentsF-49FINANCIAL STATEMENTS SCHEDULE IZTO EXPRESS (CAYMAN) INC.FINANCIAL INFORMATION OF PARENT COMPANYNOTES TO SCHEDULE I1)Schedule I has been provided pursuant to the requirements of Rule 12-04(a) and 5-04(c) of Regulation S-X, which require condensedfinancial information as to the financial position, changes in financial position and results of operations of a parent company as of the same datesand for the same periods for which audited consolidated financial statements have been presented when the restricted net assets of consolidatedsubsidiaries exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The Company does not includecondensed financial information as to the changes in equity as such financial information is the same as the consolidated statements of changes inshareholders’ equity.2)The condensed financial information has been prepared using the same accounting policies as set out in the consolidated financialstatements except that the equity method has been used to account for investments in its subsidiaries and VIE. For the parent company, theCompany records its investments in subsidiaries and VIE under the equity method of accounting as prescribed in ASC 323, Investments—EquityMethod and Joint Ventures. Such investments are presented on the Condensed Balance Sheets as "Investments in equity investees includingsubsidiaries and VIE, and amounts due from subsidiaries and VIE" and the subsidiaries and VIE's profit or loss as "Share of profit in subsidiaries,VIE and equity method investments" on the Condensed Statements of Operations and Comprehensive Income.3)As of December 31, 2022 and 2023, there were no material contingencies, significant provisions of long-term obligations, mandatorydividend or guarantees of the Company.4)Translations of balances in the additional financial information of Parent Company- Financial Statements Schedule I from RMB into US$as of and for the year ended December 31, 2023 are solely for the convenience of the readers and were calculated at the rate of 7.0999, representingthe noon buying rate set forth in the H.10 statistical release of the U.S. Federal Reserve Board on December 29, 2023. No representation is madethat the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 29, 2023, or at any other rate.

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