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The period fordisclosure of 2018 annual reports has kicked off. As a summary of the annual business result and operation of a listed company, the annual report isan important way for investors to learn about the quality and risks of the listed company. The Shanghai Stock Exchange (SSE) has always attached great importance to the disclosure and review of the annual reports and established a mature working mechanism. In 2018, Chinese economy registered a stable performance with a good momentum for growth amidst changes and increasing downward pressure, and the listed companies were in the face of more uncertainties in operation. As a result, some companies failed to effectively adapt to the changes in the economic and market circumstances, exposing themselves to more long accumulated risks. In such a context, , the SSE has set the goals for the review of this year's annual reportsbased on actual conditions and work requirements. They include unvealing the facts about the production, operation, corporate governance, and compliance to operation standard, etc. in the listed companies, identifyingthe problems and risks in the companies, and proposing more targeted measures for supportingtheir development and quality improvement. The SSE will focus on the following four aspects.
First, the SSE will focus on the readability and usefulness of the operationalinformation, and strive to meet the investors' right to know. Thelisted companies act asthe barometer for economic operation, and the information intheir annual reportsnot onlyprovidesthe basis for investors' decisions, but also serves as an important tool for investors to understand economic dynamics and development trends. This year, the SSE will, based on the regulatory experience in the past four years,instruct and urge the companies to improve the effectiveness of information disclosure for the annual reports, truthfully reflect the actual situations of the company's production and operation, enrich the contents of information in the annual reports in multiple dimensions, and encourage the listed companies to disclose annual reports that the investors want and like to read in vivid language. In addition to continuing to implement thereleased disclosurerequirements for 28 industries,a listed company should strengthen te horizontal and verticalcomparisons, enrich the contents and dimensions of thedisclosureof business information, and adequately integrate the interpretation of the company's business situationswiththe analysis and evaluation of the overall operation of the industry. A listed company should also further disclose more valuable information for investors, display the company's overall picture more clearly, and provide strong support for investors to fully grasp the company's actual situation so as tomake informed investment decisions. The SSE will step up regulationonthe companies whose disclosed information on the industry and business isunduly simplified, generalized orblurred, and urge them to make supplementary disclosure.
Secondly, the SSE will closely monitor the authenticity of the financial information disclosed and comprehensively check and prevent major risks ofthe listed companies. Disrupting the order of the securities market and damaging the legitimate rights and interests of investors, thebehaviors of financial fraud havelongbeen an anathema to investors and the SSE has also maintained a "zero tolerance" attitude. Given thatChina's economic environment was complex and volatile last year,it is likely that companies risk fabricatingperformance and whitewashing statements in the face of more operational challenges. Given that, the SSE has made sufficient planning and screened listed companies in advance. During the review, the SSE will pay close attention to major suspicious financial recordingsin the listed companies including doubtful cash flows, both high deposits and liabilities, and abnormal profit levels. At the same time, for issues of potentially major risks including stock pledge, bonds, goodwill impairment, capital occupation by major shareholders,irregularities concerning guarantees, and the achievement of the target performance for mergers & acquisitions and reorganization, the SSEhas been taking intensive measures in advance. They includethorough screening, tracking and defusing the risks, and callingthe companies and intermediaries for interviews, and itstrictly sought accountability for revealed violations. In thereviewof the annual reports, based on the facts learned in the earlier work, the SSE will continue to follow the guideline of preventing and reining in risks, pay special attention to the evolvementof various risks, make effective efforts in defusing and dealing with the risks, and firmly hold the bottomlineagainst systemic risks
Thirdly, the SSE will comprehensively find out the actual difficulties faced by listed companies, brainstorm and explore new measures for supporting the companies' transformation and upgrading. Affected by the internal and external factors combined, the listed companies are in more urgent need of restructuring, transformation and upgrading. In the context of the supply-side reform and deleveraging, some traditional industries such as department stores and traditional manufacturing companiesmeet with temporary difficulties in their operations,some industries on the downstream demand-side have limitedgrowth space, and the adjustment of operating performance is relatively deep. In addition, the financing for the private enterprises is yet to be made more accessible and affordable; the small and medium-sized market capitalization companies have relatively weak anti-risk ability; the reform of the state-owned enterprises has also entered the deep-water zone. This year, the review of the annual reports will focus on figuring out the situations, gaining an in-depth understanding of the companies' actual operational difficulties and needs, researching and proposing targeted measures that will help support the companies' efforts in transformation and upgrading, turning crisis into opportunity, and improvingthe operational quality and governance. In the review, the SSE will pay special attention to the financing of private enterprises, the mixed ownership reform of state-owned enterprises, the restructuring in the traditional industries, the de-capacity inthe cyclical industries and other specific circumstances with widespread market concerns. The SSE will comprehensively assess the functions of equity incentives, employee stock ownership, mergers & acquisitions and reorganization and other institutional arrangements in stimulatingthe vitality of the companies, advancing the transformation of the companies and other aspects. Besides, the SSE will identify key points, work together to come up withconcrete and effective solutions, help the companies to achieve transformation and upgrading through the capital market which will improve their business quality and enhance the risk resilience.
Fourthly, the SSE will strengthen services, improve mechanisms, and effectively provide guarantee for the disclosure and review of the annual reports. The disclosure of the annual report information is characterized by the complicated contents, the detailed requirements and the heavy task of preparation. In the early stage, the SSE hasorganized special training for the listed companies on the spot orvia video, explaining the precautions for the preparation of annual reports, and providing detailed interpretation of the key issues in the review such as impairment of goodwill, capital transactions,and application of new accounting standards. At the same time, the SSE also optimized the technical support for disclosure of annual reports to ensurethe smooth reservation of the listed companies for disclosure of the annual reports on the electronic system.The SSE has also updated and improved the XBRL electronic documents for preparation of annual reports to facilitate the listed companies' announcement and submission of their annual reports. In the review of the annual reports, the Company RegulationDepartment of the SSE has optimized the working mechanism, established a special annual report working group, and organizedthe personnel experienced in regulation to effectively analyze and judge the difficult cases.The SSE strengthened the pre-event surveys by comprehensively checking a multitude of financial and non-financial indicators to determine the list of the key targets in the review; the SSE enhanced the internal training to continuously improve the reviewers' capabilities of professional judgment and problem finding. In the review of the annual reports, the SSE will make full use of the public inquiry mode, strengthen thecollaboration between the local securities regulatory bureau and the SSE, step up the regulation of the intermediary agencies, and carry out rapid disposal and serious accountabilitymechanism for obvious violations such as major financial frauds and defects in standard operation.
