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三七互娱:2020年年度报告摘要(英文版) 下载公告
公告日期:2021-04-30

Wuhu 37 Interactive Entertainment Network

Technology Group Co., Ltd.2020 Annual Report (Summary)

April 2021

Part I Important Notes, Table of Contents and Definitions

The Board of Directors (or the “Board”), the Supervisory Committee as well as the directors,supervisors and senior management of Wuhu 37 Interactive Entertainment Network TechnologyGroup Co., Ltd. (hereinafter referred to as the “Company”) hereby guarantee the truthfulness,accuracy and completeness of the contents of this Report, and shall be jointly and severallyliable for any misrepresentations, misleading statements or material omissions therein.Li Weiwei, the Company’s legal representative, and Ye Wei, the Company’s Chief FinancialOfficer & Board Secretary, hereby guarantee that the financial statements carried in this Reportare truthful, accurate and complete.All the Company’s directors have attended the Board meeting for the review of this Report.Possible risks facing the Company have been detailed in the section under the heading of“Prospects” under “Part IV Operating Performance Discussion and Analysis” herein, whichinvestors are kindly reminded to pay attention to.

The Company is subject to the disclosure requirements for listed companies engaged insoftware and IT services.

The Board has approved a final dividend plan as follows: based on 2,217,864,281 shares, acash dividend of RMB 2 (tax inclusive) per 10 shares is planned to be distributed to all theshareholders of the Company, with no bonus issue from either profit or capital reserves.

Table of Contents

Part I Important Notes, Table of Contents and Definitions ...... 2

Part II Corporate Information and Key Financial Information ...... 5

Part III Business Summary ...... 10

Part IV Operating Performance Discussion and Analysis ...... 16

Part V Significant Events ...... 50

Part VI Share Changes and Shareholder Information ...... 56

Part VII Directors, Supervisors, Senior Management and Staff ...... 63

Part VIII Financial Statements ...... 72

Definitions

TermDefinition
CSRCChina Securities Regulatory Commission
SZSE/the Stock ExchangeShenzhen Stock Exchange
Company/ the Company/ the Listed Company/ 37 Interactive EntertainmentWuhu Shunrong Auto Parts Co., Ltd./Wuhu Shunrong Sanqi Interactive Entertainment Network Technology Co., Ltd./ Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.
37 Interactive Entertainment (Shanghai)37 Interactive Entertainment (Shanghai) Technology Co., Ltd.
Company LawCompany Law of the People's Republic of China
Securities LawSecurities Law of the People's Republic of China
Articles of AssociationArticles of Association of Wuhu Shunrong Auto Parts Co., Ltd./Articles of Association of Wuhu Shunrong Sanqi Interactive Entertainment Network Technology Co., Ltd./Articles of Association of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.
RMB, RMB’0,000Expressed in the Chinese currency of Renminbi, expressed in tens of thousands of Renminbi
Reporting Period/the Reporting PeriodThe period from 1 January 2020 to 31 December 2020
Period-end/end of the Reporting Period31 December 2020
Browser gamesClientless or browser kernel-based micro-client games that are based on web development technologies and utilize standard protocols as basic transmission modes. Game users can play browser games directly through an Internet browser
Mobile gamesGames that are downloaded via mobile network and run on mobile phones or other mobile terminals
RPGRole playing game
ARPGAction role playing game
SLGStrategy game
STGShooting game
MMOMassive Multiplayer Online
MOBAMultiplayer Online Battle Arena
MMORPGMassive Multiplayer Online Role-Playing Game
Chengdu Pengwan Technology Co., Ltd.Chengdu Pengwan Technology Co., Ltd. and its subsidiaries
Zengame TechnologyZengame Technology Holding Limited and its business entities
X.D.NetworkXD Inc. and its business entities
Jiangsu Aurora/Aurora Network/Jiangsu Aurora NetworkJiangsu Aurora Network Technology Co., Ltd.
Guangzhou 37Guangzhou 37 Network Technology Co., Ltd.

Part II Corporate Information and Key Financial InformationI Corporate Information

Stock name37 Interactive EntertainmentStock code002555
Place of listingShenzhen Stock Exchange
Company name in Chinese芜湖三七互娱网络科技集团股份有限公司
Abbr.三七互娱
Company name in English (if any)WUHU SANQI INTERACTIVE ENTERTAINMENT NETWORK TECHNOLOGY GROUP CO.,LTD.
Legal representativeLi Weiwei
Registered address11/F, Creative Advertising Complex, Wuhu Advertising Industrial Park, Middle Beijing Road, Jiujiang District, Wuhu City, Anhui Province
Zip code241000
Office address11/F, Creative Advertising Complex, Wuhu Advertising Industrial Park, Middle Beijing Road, Jiujiang District, Wuhu City, Anhui Province
Zip code241000
Company websitehttp://www.37wan.net/
Email addressir@37.com

II Contact Information

Board SecretarySecurities Affairs Representative
NameYe WeiWang Sijie
Office address11/F, Creative Advertising Complex, Wuhu Advertising Industrial Park, Middle Beijing Road, Jiujiang District, Wuhu City, Anhui Province11/F, Creative Advertising Complex, Wuhu Advertising Industrial Park, Middle Beijing Road, Jiujiang District, Wuhu City, Anhui Province
Tel.0553-76537370553-7653737
Fax0553-76537370553-7653737
Email addressir@37.comir@37.com

III Media for Information Disclosure and Place where this Report Is Lodged

Newspapers designated by the Company for information disclosureChina Securities Journal, Securities Times, Shanghai Securities News, and Securities Daily
Website designated by the CSRC for publication of this Reporthttp://www.cninfo.com.cn
Place where this Report is lodged11/F, Creative Advertising Complex, Wuhu Advertising Industrial Park, Middle Beijing Road, Jiujiang District, Wuhu City, Anhui Province

IV Change to Company Registered Information

Organization code71392778-9
Changes to the principal activities of the Company since going public (if any)No changes in the Reporting Period
Every change of controlling shareholder since incorporation (if any)No changes in the Reporting Period

V Other InformationThe independent auditor hired by the Company:

NameHuaxing Certified Public Accountants LLP
Office address7-9/F, Tower B, Zhongshan Building, 152 Hudong Road, Gulou District, Fuzhou City, Fujian Province
Accountants writing signaturesYang Xinchun and Zhang Fengbo

The independent sponsor hired by the Company to exercise constant supervision over the Company in the Reporting Period:

√ Applicable □ Not applicable

NameOffice addressRepresentativePeriod of supervision
Orient Securities Investment Banking Co., Ltd.24/F, 318 South Zhongshan Road, Huangpu District, ShanghaiLu Shaoyu and Wang BinFrom 10 March 2021 to 31 December 2022

The independent financial advisor hired by the Company to exercise constant supervision over the Company in the ReportingPeriod:

□ Applicable √ Not applicable

VI Key Financial InformationIndicate by tick mark whether there is any retrospectively restated datum in the table below.

□ Yes √ No

202020192020-over-2019 change (%)2018
Operating revenue (RMB)14,399,703,084.5613,227,135,966.708.86%7,632,679,668.47
Net profit attributable to the Listed Company’s shareholders2,760,951,475.222,114,770,061.5530.56%1,008,503,357.80
(RMB)
Net profit attributable to the Listed Company’s shareholders after deducting non-recurring profits and losses (RMB)2,391,804,997.012,089,129,849.8214.49%474,909,138.00
Net cash flows from operating activities (RMB)2,927,937,304.653,257,563,997.94-10.12%1,954,433,620.84
Basic earnings per share (RMB/share)1.311.0031.00%0.47
Diluted earnings per share (RMB/share)1.311.0031.00%0.47
Weighted average return on equity (%)34.84%32.66%2.18%16.59%
31 December 202031 December 2019Change of 31 December 2020 over 31 December 2019 (%)31 December 2018
Total assets (RMB)10,564,331,499.8510,145,259,855.734.13%8,395,761,716.98
Equity attributable to the Listed Company’s shareholders (RMB)6,037,383,625.957,029,307,859.08-14.11%5,972,675,405.86

Indicate by tick mark whether the lower of the net profit attributable to the Listed Company’s shareholders before and afterdeducting non-recurring profits and losses was negative for the last three accounting years, and the latest independent auditor’sreport indicated that there was uncertainty about the Company’s ability to continue as a going concern.

□ Yes √ No

Indicate by tick mark whether the lower of the net profit attributable to the Listed Company’s shareholders before and afterdeducting non-recurring profits and losses was negative.

□ Yes √ No

VII Accounting Data Differences under China’s Accounting Standards for Business Enterprises(CAS) and International Financial Reporting Standards (IFRS) and Foreign Accounting Standards

1. Net Profit and Equity under CAS and IFRS

□ Applicable √ Not applicable

No difference for the Reporting Period.

2. Net Profit and Equity under CAS and Foreign Accounting Standards

□ Applicable √ Not applicable

No difference for the Reporting Period.

VIII Key Financial Information by Quarter

Unit: RMB

Q1Q2Q3Q4
Operating revenue4,343,108,719.333,645,566,476.243,300,855,132.343,110,172,756.65
Net profit attributable to the Listed Company’s shareholders728,824,406.61970,911,716.85560,489,992.17500,725,359.59
Net profit attributable to the Listed Company’s shareholders after deducting non-recurring profits and losses651,124,068.35813,818,252.89486,017,500.51440,845,175.26
Net cash flows from operating activities1,753,949,281.15696,277,265.75-6,019,821.61483,730,579.36

Indicate by tick mark whether any of the quarterly financial data in the table above or their summations differs materially fromwhat have been disclosed in the Company’s quarterly or interim reports.

□ Yes √ No

IX Non-recurring Profits and Losses

√ Applicable □ Not applicable

Unit: RMB

Items202020192018Note
Gain or loss on disposal of non-current assets (inclusive of impairment allowance write-offs)-5,016,442.199,097,544.6156,085,328.82
Government grants through profit or loss (exclusive of government grants given in the Company’s ordinary course of business at fixed quotas or amounts as per the government’s uniform standards)94,879,456.9583,976,058.5838,851,289.40Mainly due to refund of value-added tax and government grants other than super-deduction in the calculation of taxable amount for VAT
Capital occupation charges on non-financial enterprises that are recognized in current profits and losses3,399,910.0017,307,831.49
Gain equal to the amount by which investment costs for the Company to acquire subsidiaries, associates and joint ventures are lower than the Company’s enjoyable fair value of identifiable net assets of investees when making investments18,216.32
Gain or loss on assets entrusted to other entities for investment or management16,941,398.12
Gain or loss on fair-value changes on trading and derivative financial assets and liabilities & income from disposal of trading and derivative financial assets and liabilities and other debt investments (exclusive of the effective portion of hedges that arise in the Company’s ordinary course of business)317,000,879.97-73,399,855.36-9,740,417.35
Non-operating income and expenses other than the above-6,978,497.942,855,883.242,945,610.96
Other gains and losses that meet the definition of non-recurring profits and losses21,156,420.83446,156,583.73
Less: Income tax effects21,437,227.9616,818,250.5333,857,857.74
Non-controlling interests effects (net of tax)9,301,690.624,645,715.961,095,547.63
Total369,146,478.2125,640,211.73533,594,219.80--

Explanation of why the Company reclassifies as recurrent a non-recurring profits and losses item defined or listed in the ExplanatoryAnnouncement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public—Non-recurring Profits andLosses Items:

□ Applicable √ Not applicable

No such cases for the Reporting Period.

Part III Business SummaryI Principal Activity of the Company in the Reporting Period

The Company is required to comply with the disclosure requirements of the SZSE Industrial Information Disclosure Guide No.12—Listed Companies Engaged in Software and IT Services.During the Reporting Period, the Company focused on cultural and creative businesses based on the development, publishing,and operation of mobile and browser games, as well as the development in segments such as 5G cloud gaming, film and television,music, anime, VR/AR, cultural health, e-learning, esports, and social entertainment. The Company steadily advanced itsdevelopment strategy of “boutiqueization, diversification and globalization”. It ranks No. 1 among game companies listed on theA-shares market in 2020 China’s Top 100 Internet Companies Ranking.During the Reporting Period, the Company achieved robust performance growth and recorded operating revenue of RMB14.4billion, with a year-over-year (YoY) increase of 8.86%; a profit before income tax expenses of RMB3,249 million, up by 20.50% YoY;and a net profit attributable to the Listed Company’s shareholders of RMB2,761 million, rising by 30.56% YoY. The above growthwas mainly attributable to the sound development of the main business, which promoted continuous growth in the overalloperating results.

1. Changes in industry-related economic situation and their impacts on the Company

In 2020, under the support and guidance of a series of industrial policies, the game industry has resisted the impact ofCOVID-19, and has developed steadily. According to the 2020 China's Game Industry Report, there are more than 660 million gameusers in China in 2020; the actual sales revenue of China's game market is RMB278.687 billion, with a year-over-year increase of

20.71%, and the growth rate was 13.05% higher year-over-year. The scale of "Games Export" has been further expanded. Theactual sales revenue of independently-developed games in the oversea market was USD15.450 billion with a year-over-yearincrease of 33.25%, and a year-over-year growth rate of 12.3%. The internationalization level was further improved.

The competition landscape of the gaming industry has changed. On the one hand, with the gradual disappearance ofdemographic dividend and the increasing demand of players for content quality, the mobile games have gradually transitionedfrom enjoying demographic dividend period to enjoying content dividend, which led to the result that players were posing higherrequirements for online games. Game companies need to improve the quality of games to expand user base and willingness to pay,and ultimately achieve an increase in the return on product investment. On the other hand, the industry's attention wasincreasingly concentrated on top-performing games and leading manufacturers, suggesting a prominent "head" effect in theindustry.

The threshold of game development and barriers to competition have been substantially raised under this situation. Top gamecompanies embracing strengths in the R&D and publishing of quality products and operation are more likely to benefit from thenew situation. In 2020, the Company has stepped into a high-quality development stage. In the new stage of development, theCompany takes the main business as its core and deepens the strategy of "integration of R&D and operation" and "dual engines athome and abroad". During the Reporting Period, the Company kept its leading role in R&D capabilities by raising R&D investments,expanding the R&D team and strengthening the output of quality games. Moreover, it advanced the "diversification" strategy fromthe aspects of R&D and publishing, and reserved varied quality games on different themes through independent development,

investment in R&D-oriented companies, and enhanced cooperation with developers capable of producing quality games. Inaddition, the Company, through independently developed AI systems, consolidated refined operation, prolonged the life cycle ofquality games, and improved operation efficiency.

2. Changes in industrial policy environment and their impacts on the Company

(1) The Law of the People's Republic of China on the Protection of Minors, as revised for the second time at the 22nd Sessionof the Standing Committee of the 13th National People’s Congress of the People’s Republic of China in October 2020, shall comeinto force commencing from 1 June 2021. The Law of the People's Republic of China on the Protection of Minors strengthenedjuvenile protection online, required to build a unified online game electronic authentication system for minors nationwide, andspecified the online game service time for minors. It required classification of online games with age suitability reminders. Besides,it asked Internet service providers ("ISPs") to enhance user and information management and timely adopt appropriate measuresto control illegal information or criminal offenses against juveniles. Meanwhile, it specified penalties for ISPs who fail to fulfillobligations, such as anti-addiction and anti-cyberbully obligations. In December 2020, China Audio-video and Digital PublishingAssociation issued the Online Game Age Suitability Reminders, a standard to make clear specifications on available game contentsfor juveniles of different age groups. It will be a requisite for the approval and release of games this year.During the Reporting Period, 37 Interactive Entertainment fully upgraded the "real-name registration and anti-addictionsystem for minors" and launched it on all its independent operation online games (including browser and mobile games) in early2020. According to the requirements of the government authorities, 37 Interactive Entertainment now gradually employs thenational real-name authentication system on all its games in batches so as to strictly implement the anti-addiction regulations forminors. At the same time, adhering to the standard of the Online Game Age Suitability Reminders for different age groups, 37Interactive Entertainment has improved the marks and texts of the reminders on the basis of previous reminders. The newstandard has been piloted in representative independently developed and exclusive agency products such as Yong Heng Ji Yuan (永恒纪元), Rong Yao Da Tian Shi (荣耀大天使) and Yun Shang Cheng Zhi Ge (云上城之歌) of the Company., and the full applicationto all games will be made subsequently. Additionally, the Company added contents applicable to children to its Privacy Policy in linewith the user habits of juveniles under 14 years old and their guardians. It contributed to turning China's gaming industry morestandardized by actively participating in the compilation of group standards for the gaming industry led by the China Audio-videoand Digital Publishing Association ("CADPA"), such as the Specifications on Age Ratings of Online Games, the Specifications onParent Monitoring Platforms, and Online Game Terminology.

(2) On 2 August 2020, the Online Game Copyright Committee of Copyright Society of China was established in Beijing. Thedecision on amending the Copyright Law of the People’s Republic of China has been adopted at the 23rd Session of the StandingCommittee of the 13th National People’s Congress on November 11 in 2020, and the revised Copyright Law of the People’sRepublic of China shall come into force on 1 June 2021. The Copyright Law of the People’s Republic of China provides guidelines forauthorization, use and protection of copyright in the game industry, making the copyright management increasingly normative.

During the Reporting Period, 37 Interactive Entertainment increased the efforts in the research and development ofhigh-quality games, and protected intellectual property with great efforts at the same time. The Company used multiple methodsto protect its own legitimate rights and interests, and improved copyright awareness and copyright management to ensure itscompliance operation.

3. Main businesses and business models of the Company

During the Reporting Period, the Company's main businesses included the development, publishing, and operation of mobile

games and browser games. The operating modes of the Company’s mobile games and browser games mainly include independentoperation and third-party joint operation.Under the independent operation mode, the Company obtains the licenses of games through independent R&D or being anoperator of other games, and publishes and operates these products through its own or third-party channels. The Company is fullyresponsible for the operation, promotion and maintenance of the games; providing unified management services for onlinepromotion, online customer service and top-up payment; and updating games along with game developers based on the real-timefeedback of users and games.Under the third-party joint operation mode, the Company cooperates with one or more game operators or game applicationplatforms to jointly operate games. And the aforesaid parties are responsible for the management of their own channels, includingoperation, promotion, the recharge and charge system, while the Company provides technical support services for third partiesalong with game developers.

II Significant Changes in Major Assets

1. Significant Changes in Major Assets

Major assetsMain reason for significant changes
Equity assetsNo significant change in equity assets
Fixed assetsThe ending balance of fixed assets increased 1858.98%, or RMB876 million, compared to the beginning balance, primarily driven by the transfer of office building from construction in progress to fixed assets.
Intangible assetsThe ending balance of intangible assets increased 6421.20%, or RMB1,091 million, compared to the beginning balance, primarily driven by the acquisition of land use rights.
Construction in progressThe ending balance of construction in progress decreased 99.48%, or RMB793 million, compared to the beginning balance, primarily driven by the transfer of office building from construction in progress to fixed assets.
Trading financial assetsThe ending balance of trading financial assets decreased 35.33%, or RMB722 million, compared to the beginning balance, primarily driven by the maturity of low-risk bank wealth management products and structured deposits.
PrepaymentsThe ending balance of prepayments increased 51.25%, or RMB339 million, compared to the beginning balance, primarily driven by an increase prepayments for Internet traffic fee charges.
Other current assetsThe ending balance of other current assets increased 259.40%, or RMB327 million, compared to the beginning balance, primarily driven by the combined effects of the increase in term deposits held in bank and of the decrease in overpaid and pending VAT.
Other equity investmentsThe ending balance of other equity investments increased 146.67%, or RMB175 million, compared to the beginning balance, primarily driven by new equity investments.
Other non-current assetsThe ending balance of other non-current assets decreased 88.67%, or RMB240 million, compared to the beginning balance, primarily driven by the transfer of the payment for acquisition of land

2. Major Assets Overseas

√ Applicable □ Not applicable

use rights to intangible assets.

Asset

AssetSourceAsset value (RMB)LocationManagement modelControl measures to protect asset safetyReturn generated (RMB)As % of the Company’s equityMaterial impairment risk or not
Monetary fundsIncome from investments and operations720,711,692.59Hong Kong, the US, etc.A sound business supervision mechanism and a sound risk control mechanism have been put in place11.88%Not
Other equity assetsInvestments in overseas companies457,056,404.79Hong Kong, South Korea, etc.A sound business supervision mechanism and a sound risk control mechanism have been put in place120,176,469.227.54%Not
Other informationNone

III Core Competitiveness AnalysisDuring the Reporting Period, the Company steadily promoted the development strategy of "boutiqueization, diversificationand globalization" and formed the following core competitiveness:

1. Industry-leading R&D strength

The Company has always emphasized R&D investments and talent cultivation. After years of efforts in R&D, the Company isranked among the top in terms of R&D strengths. Meanwhile, the Company's independently developed products are characterizedby high output, a high success rate and a long period, and center on "boutiqueization and diversification". During the ReportingPeriod, a number of independently developed quality games, such as Jing Ling Sheng Dian (精灵盛典), and Dou Luo Da Lu H5 (斗罗大陆H5), have achieved steady gross billing in the markets after being published for more than one year.

During the Reporting Period, the Company's R&D investments increased significantly year-over-year. The Company’s R&Dinvestments amounted to RMB1.113 billion during the Reporting Period, up by 36.66% YoY. It expanded from product upgrading totalent cultivation, opened up development channels for professionals, and embraced employee diversity. Moreover, the Companyencouraged innovation by employees, increased the proportion of senior R&D staff, and welcomed employees with diversifiedbackgrounds.

First, the "boutiqueization" strategy greatly improved the R&D success rate. The "boutiqueization" strategy runs through theentire life cycle of the Company's independently developed products. Before the launch of games, the Company carefully workedout details regarding product planning, art quality, music effects, etc.; after the launch of games, the Company continued to invest

in product iteration, process optimization, user experience and other aspects to ensure high gross billing and a long period ofgames. In the meantime, its independently developed AI systems assisted in producing "quality games". The Company offeredprecise reference value for the design of new products and iteration and optimization of existing products, improved productdevelopment and procedure optimization, and substantially enhanced product experience, by analyzing and studying theenormous data accumulated with the two independently developed AI ad systems, i.e., "Quantum" and "Destiny", as well as thethree platform-based big data products—"Athena", "Ares", and "Poseidon".Second, the Company made breakthroughs in the "diversification" strategy. During the Reporting Period, the Company's R&Dteam, based on its R&D strengths in ARPGs, expanded its game categories to MMORPG, SLG, SRPG, and simulation. It will continueto innovate in diversified aspects, including product types, themes, art performance, and gameplay.

During the Reporting Period, the Company vigorously reformed the mechanism for R&D project approval, encouraged the"bottom-up" project approval approach based on the "top-down" approach, shortened the evaluation cycle and establisheddiversified indicators, so as to stimulate employees’ innovative vitality. At the same time, the Company adjusted the incentivemechanism for the R&D department, established a tiered incentive system for different categories of products, promoted theincentive for new categories of products, and encouraged employees to be creative and step out of their comfort zone. TheCompany has also established a project lifecycle management process for game development, which run through many links, suchas idea creation, project approval, process and review, to achieve the risk control of the entire R&D process, greatly improve thesuccess rate of product R&D while effectively controlling the cost, and lay the foundation for creating diverse, high-quality games.

2. Excellent publishing strength

During the Reporting Period, the Company maintained its leading position in mobile game and browser game publishingbusiness. 37 Interactive Entertainment enriched the product supply via independent R&D, investments, and cooperation withexcellent developers, improved the ability in publishing diverse, high-quality games and promoted the publishing strength to a newheight. During the Reporting Period, the Company expanded its product matrix and offered diversified gaming experience toplayers by publishing quality games in different types and on varied themes, including Yun Shang Cheng Zhi Ge (云上城之歌), HunDun Qi Yuan (混沌起源) to the domestic mobile game market.

The Company constantly sought innovative publishing approaches, and thus created a barrier to entry for competitors in gamepublishing. First, the Company developed its own AI system to improve the ability of accurate ad placement. With this system, theCompany has optimized placement methods, improved the quality of materials, took advantage of high-quality materials, andthereby effectively controlled the user acquisition cost. Second, the efficiency of publishing, including tool construction and dataalgorithm to help form a real-time monitoring system and reduce cost waste. The Company puts forward the publishing idea of“branding + sales effects”, grasps the market changes to carry out high-quality publicity, and uses good publishing ability to attracttarget users to achieve good results.

In terms of operation optimization, the Company possesses strong capabilities for operation and optimization in numericalmanagement, process optimization, event planning, etc. After the launch of games, the Company continues to improve the qualityof games, attract users through better contents, prolong the product life cycle, and accumulate higher gross billing.

In regard to promotion, through the two AI ad systems, i.e., "Quantum" and "Destiny", as well as the threeproducts—"Athena", "Ares", and "Poseidon", 37 Interactive Entertainment mined big data on user demand graphs according tobehavior characteristics like browsing of game ads and in-game activities. 37 Interactive Entertainment, based on the AI systems,diverted users with the same demands to the same game or the same server. Therefore, it conducted differentiated iteration andrefined operation for specific types of users of specific games and servers in order to enhance user interaction and activity, activate

the paid game ecology, and maximize the effect of life time value ("LTV").

The Company has accumulated rich experience in overseas game publishing thanks to years of practice. During the ReportingPeriod, the overseas publishing became a highlight as breakthroughs were made in the publishing areas and game categories. TheCompany has successfully opened the European and North American markets, led the Asian market and improved its globalinfluence.

3. Advantage of the model of “integration of R&D and operation”

As the Company’s business mode of "integration of R&D and operation” becomes sophisticated, it is conducive to making fulluse of resources and creating quality products from a long-term perspective. On the one hand, the Company can ensure the stablesupply of quality products to support the operation development through strong R&D strengths. At the same time, the R&D teamcan utilize the feedback of the operation department to optimize products and extend the product life cycle. On the other hand, atthe early stage of product R&D, the operation team can provide advises and suggestions to the R&D team based on its years ofexperience and keen market insights.

4. Team strengths

The Company has been deeply involved in the field of cultural and creative industries for many years. Its core managementteam has long been at the top of the industry, and have strong and forward-looking capabilities for strategic layout. The core teamconsists of highly skilled R&D personnel, creative operators, and highly efficient managers. During the Reporting period, theCompany took over the 20% minority equity of Guangzhou 37 Network Technology Co., Ltd. and adjusted the equity structure to tiethe management team to the Company’s interests.

The Company has established a fully-fledged personnel training system. During the Reporting Period, the Company completedthe personnel system reform, made new promotion mechanism, appraisal mechanism and incentive mechanism. The new systemdoes not only make the employee’s growth path clearer, more open and more transparent but also motivates their enthusiasm andcreativity in a better way. The Company has always adhered to the entrepreneurial spirit like marathoners and been clear about itsgoals. It has aimed to promote sustainable development and to progressively realize the long-term goal rather than the short-termgoal, and constantly caught up to surpass the industry leader.

Part IV Operating Performance Discussion and AnalysisI Overview

The competition landscape of the domestic gaming industry underwent changes during the Reporting Period. The "head"effect was prominent. The industry ushered in a new period of development. The Company precisely grasped the industrydevelopment trends, made continuous improvements in operation, and remained a top performer in the industry, while adheringto the "boutiqueization, diversification and globalization" strategy.In 2020, the Company recorded operating revenue of RMB14.4 billion, with a year-over-year (YoY) increase of 8.86%; a profitbefore income tax expenses of RMB3,249 million, up by 20.50% YoY; and a net profit attributable to the Listed Company’sshareholders of RMB2,761 million, rising by 30.56% YoY. The stable growth in the mobile game business was the main driver for theincrease in revenue and profit during the Reporting Period. The overseas business in 2020 soared to a new high and the operatingrevenue from the overseas game business increased by 104.34% compared to the same period last year.

(I) Mobile game business

During the Reporting Period, the Company recorded operating revenue of RMB13,296 million from mobile games, a YoYincrease of 10.9%. The Company’s business revenue from, and R&D investments in, mobile games continue to increase, and themobile game business maintains the leading position in domestic and overseas markets.

1. Research and development of mobile games

During the Reporting Period, the Company continuously exerted more efforts for R&D, and R&D investments grew YoY. TheCompany’s R&D investments amounted to RMB1,113 million during the Reporting Period, up by 36.66% YoY, higher than that ofthe operating revenue. The total R&D investments have reached RMB2.467 billion over the last three years. The size of theresearch team has grown bigger. By the end of the Reporting Period, there were 2343 game and system R&D developers, 761 morethan last year, up by 48.1%, among which the number of senior developers also rose.

The R&D investments were mainly concentrated on improvement of product quality and exploration of product categories.

The "boutiqueization" strategy runs through the entire life cycle of the Company's independently developed products. TheCompany is committed to making better the product engines, art design and sound quality of gaming products to meet the userdemand in experiencing high-quality games at the technical level; it is dedicated to gameplay innovation and process optimizationto meet user demand in fun and smooth experience at the planning level. High-quality development and high-frequency iterationsturned new products more attractive to users, and allowed most independently developed products to maintain high gross billingfor a long time.

The Company improved the "diversification" of product R&D. R&D projects included game genres such as MMORPG, SLG,SRPG and simulation. Extensive numbers and categories of products were prepared for the year 2021. The Company will continueinnovation in diversified aspects, including product types, themes, art performance, and gameplay. It will pay close attention to thein-depth exploration of MMORPG, SLG, SRPG, simulation and endeavor to become a first-class game company that can provideglobal players with various gaming products, based on quality content, operation experience in multiple types of products, andadvantages in numerical value and gameplay.

Meanwhile, the Company turned the product supply side more diversified, by buying a stake in and joining hands withexcellent developers. In order to further raise the product success rate, the Company established a rigorous evaluation process,utilized its own advantages in user data and numerical experiences to work out products along with game developers, thusensuring a better quality of games before their publishing.

During the Reporting Period, the R&D department developed the Zeus Middle Platform, a middle platform with AI big datacomputing power. Supported by one-stop service module, the Zeus Middle Platform can do deep learning calculations flexibly andfreely and realize automated operation and maintenance. It can realize the automation and standardization across the wholeprocess of R&D, deployment and operation, and clear a path for interconnectivity between systems of different departments, thusgreatly automating systems and the original business process. The emergence of the Middle Platform marks the transfer ofequipment resources from reserved mode to on-demand dynamic expansion mode. It sharply cuts costs and increases margins,utilizes idle equipment and provides a flexible computing power environment for data analysts.

Construction of 5G cloud gaming system. The Company is currently committed to building a better cloud gaming system,including: building internal cloud, providing computing and network supports for cloud gaming; building cloud gaming operationservices, proactively developing efficient game video transcoding and decoding technologies; developing a universal frameworkwith user interaction, video decoding, and cloud server communication, so as to support the universal light apps for cloud gaming.During the Reporting Period, 37 Interactive Entertainment signed a cooperative agreement with Huawei. The two sides will set up a“Joint Team of Cloud Gaming Technology Solutions” to improve current cloud gaming solutions and explore the developmentdirection and technological innovation hand in hand. In the upcoming 5G era, the Company’s smooth transition among cloudgaming technologies is expected to bring new experiences to game players.

2. Publishing of mobile games

(1) Domestic market

The Company's advantages in refined operations in the domestic mobile games publishing were highlighted during theReporting Period. The highest monthly gross billing of its domestic mobile games exceeded RMB1.8 billion, with the total numberof newly registered users surpassing 384 million and the highest number of MAUs of over 84.87 million.

During the Reporting Period, the Company offered diversified gaming experience to players by publishing quality games indifferent types and on varied themes, including Yun Shang Cheng Zhi Ge (云上城之歌), Fu Sheng Yao Hui Juan (浮生妖绘卷),Wan Gu Feng Ling Jue (万古封灵决) and so on.

Among them, the adventure in another world theme MMORPG Yun Shang Cheng Zhi Ge (云上城之歌) published by theCompany became the representative of the Company's "diversification" strategy in operation and publishing. Yun Shang Cheng ZhiGe (云上城之歌) was published in April 2020 with good results in a number of operational and distributional aspects. Thesuccessful release of this product brought positive significance to the Company in two ways. On the one hand, it broke through theCompany's previous ARPG-based product distribution ideas, the Company's distribution and operation capabilities in differentcategories such as MMORPG have been greatly strengthened; on the other hand, different from the Company’s products in thepast, Yun Shang Cheng Zhi Ge (云上城之歌) is a pan-two-dimensional product with younger public. This distribution is also asuccessful exploration of the Company in younger communities, laying a solid foundation for the following company’s distributionand operation of diversified products.

The Company applied the "diversification" strategy to multiple aspects, including products, promotion, and services, based onits capabilities of operating multiple types of games. Thanks to the strategy, the Company reserved adequate products in terms oftype, theme, and quantity. Its product matrix covered different types of games, such as MMORPGs, card games, SLGs, and SIMgames, as well as varied themes, such as fantasy, mythology/martial arts, city life, campus and women-orientation.

During the Reporting Period, the Company insisted on operating with systematic flow management and adopted a diversifiedapproach of “multi-channel marketing + targeted advertising + long-term service” to accurately grasp user needs, accurately delivercreative marketing plans to target groups and provide players with meticulous and comprehensive long-term service, with apurpose of improving player satisfaction, activity and retention rate to prolong the product life cycle and accumulate higher grossbilling.In terms of multi-channel marketing, the Company had formed a unique marketing approach featuring "branding + saleseffects". On the one hand, by selecting spokespersons that are consistent with the product’s connotation, the Company producedhigh-quality micro-film-style promotional materials for promotion. With more advanced technology, more advanced visualperformance, more realistic force, more diverse production methods, and richer story content, it can quickly "break the circle" andreach a wider user group; on the other hand, combinations were made with the short video platform to provide rich materialoutput and to meet the different cultural consumption needs of users in different angles, to further expand the scope of users, andthen to enlarge brand value and influence.During the Reporting Period, the Company put its independently developed intelligent ad platform, "Quantum" and intelligentoperation analysis platform, "Destiny", into production. On the one hand, "Quantum" can connect with all mainstream channels toachieve rapid and automatic advertising. Meanwhile, the platform can be used together with multiple systems and connectprocedures in series to greatly reduce the time to create plans, perform standardized processing of plans in batches, and maintainplans automatically and systematically. Moreover, the platform can improve promotion efficiency and effect through big dataanalysis and AI algorithms. On the other hand, "Destiny" is a comprehensive operational decision system for statistics, analysis andprediction of game data. The system can accurately predict the life cycle of games through data analysis models. It supportsoperation teams to adopt differentiated event marketing based on user data, so that customer service can focus on higher valueuser services to generate more revenue.

(2) Overseas market

During the Reporting Period, the Company significantly accelerated the strategic expansion of global footprint. Its overseasoperating revenue rose by 104.34% year-over-year. As of the end of the Reporting Period, its overseas brand, 37GAMES, coveredmany countries and regions, whose products included SLGs, MMORPG, simulation and card games.

Benefited from the adjustment of overseas operations, the Company's overseas business grew rapidly during the ReportingPeriod. After years of accumulation of experience in publishing games overseas, the Company adjusted its overseas strategy fromthe original "partition breakthrough" to publishing based on the organization structure of the tracks and categories. Under theguidance of the new strategy, publishing personnel have a deeper understanding of the products and can be more effective. Moremeans of localized operations can be used by them.

In terms of "globalization", on the one hand, the Company continued to develop its global layout through the deployment ofSLG games in various themes such as western and military. After years of accumulation, during the Reporting Period, the Companyhas effectively entered the European and American markets with SLG products, and its impact has been improved globally. SLGgames are products with long life cycles in the game field. After the initial growth, there will be a long-term payback period in thefollowing period, thus ensuring the stable growth of the gross billing of the Company's overseas business in the future. On theother hand, in Southeast Asia, Japan and South Korea, the Company still stayed ahead.

Specifically, the Company had achieved excellent results in a number of games published in the global market. The market'sfirst "Match 3 + SLG" product "Puzzles & Survival" had filled the gaps in the European and American markets, with outstandingperformance and faster growth than similar mobile games. After the product was published in August 2020, it has topped someregional strategy games top grossing charts, entered the top 50 top grossing charts in many regions in Europe and the United States,and No. 1 in iOS and Google Play charts in Japan. The theme of "Puzzles & Survival" is attractive and its gameplay is innovative. It

perfectly integrated the most popular match-3 gameplay in the European and American markets with the traditional heavy SLGgameplay, which is well received by overseas players. This product is a classic case of SLG game that successfully “go out of thecircle”. The product not only attracted core SLG players, but also charmed match-3 players with a large base in Europe and America,and player retention had also risen sharply. Since the publishing of this product, the gross billing contribution had been outstanding.As of the date of issuance of the report, the monthly gross billing of this product had exceeded RMB100 million, and it is stillbreaking through the peak. After a good reputation among players was earned in Europe and the United States, it is expected thatthis product will be strongly promoted in Hong Kong, Macau, Taiwan, South Korea and other markets in 2021.In addition, Miracle MU: Across the Times (奇迹MU:跨时代) was published in Hong Kong, Macao and Taiwan in February 2020,which quickly topped the iOS top grossing chart and Google Play free download chart in Taiwan. Jing Ling Sheng Dian (精灵盛典)was published in Vietnam in December 2020, currently ranking first on the iOS and Google Play top grossing charts. Call Me the BigShopkeeper (叫我大掌柜) was published in Hong Kong, Macao and Taiwan regions in October 2020, staying on the free downloadcharts for several weeks.Then, respectively, it was released in Japan and Korea In January and February 2021, which has achievedgood response in Korea as of the announcement date. Swords of Archangels H5 (大天使之剑H5) has been on top of the topgrossing chart in the Vietnamese market for a long time, becoming a phenomenon game in the local market.

(II) Browser gamesDuring the Reporting Period, the Company’s browser game business achieved operating revenue of RMB1.08 billion, whichwas lower than that of last year. It was mainly affected by both the shift of users to mobile phones and the decrease in the numberof browser game products. During the Reporting Period, the Company strengthened partnership with domestic top browser gamedevelopers through strategic investment and business cooperation on the one hand, on the other hand, the Company also refinedthe operation of its major quality games, improved user stickiness, stabilized the product life cycle, and further maintained itsoperating revenue.

(III) Cultural industryThe Company invested into other fast-growing cultural and creative segments, while maintaining the high-speed growth of itscore business. The Company exploited opportunities in 5G cloud gaming, film and television, anime, music, VR/AR, cultural health,e-learning, e-sports, and social entertainment with a strategic focus on quality content. As of the date of this report, cultural andcreative enterprises funded or acquired by the Company included:

Film and television: DSMovie, Youying Culture, Zhonghui Television, Mowei Pictures, JinhaiShiyi, etc.Music: FenghuaQiushiTalent agent: Original Plan and Haohao BangyangAnime: YHKT Entertainment, and IDRAGONS Creative StudioVR/AR: Archiact and WaveOpticsCultural health: WakeE-sports: AG E-Sports ClubE-learning: KaDa Story

Social Entertainment: Wuli Planet and Wonderful PartyConsumption: Mutual Help Parking, Nowwa Coffee and Yangji Mountain Wild Nanchang Rice NoodlesThe Company adhered to the long-term investment concept. Based on the main business of games, it reached audiences invaried segments by investing in the upstream and downstream companies of the industry chain. With respect to investmentstrategies, the Company paid close attention to new products and technologies in the industry and overseas and internationaldistribution of products. In regard to the selection of investment targets, the Company valued the ability to constantly outputquality products, excellent team or talent reserves, and future growth potential. The Company continuously consolidated its statusin the cultural and creative industry by integrating quality resources in the industry.The Company made constant efforts to create a closed loop of the entertainment eco-system and achieved favorablemulti-directional synergy in 2020. 37 Interactive Entertainment's mobile game, "The King of Fighters All Star (KOF ALLSTAR) (拳魂觉醒)", performed noticeably well and achieved outstanding results at home and abroad, thanks to the integration of the SNK IPunder DIGital Color where the Company holds equity. Puzzles & Survival, a mobile game product invested by Shanghai Eyu Game in2020, entered the top 30 of APP Annie's global revenue rank of Chinese manufacturers' overseas apps in January 2021. In addition,companies in vertical fields where the Company invests have been more closely connected. For instance, Zhonghui Television andYHKT Entertainment cooperated to purchase the copyright of Incarnation, a sci-fi blockbuster on bilibili.com, and would make aseries. "Original Plan", the talent agent, and "Haohao Bangyang" are working with FenghuaQiushi, Zhonghui Television, and 37Interactive Entertainment to maximize the outstanding talent resources. Besides, "DSMovie", a superb domestic Multi-ChannelNetwork (MCN), is used as a promotional channel to exert an amplified and superimposed effect on the entertainment eco-systemof 37 Interactive Entertainment.In terms of e-learning, the audiobook platform “KaDa Story” has become a top platform in China, doubling its operatingrevenue last year. Likewise, "Wake Yoga", an online yoga platform, has turned profitable despite the pandemic. Overall, theCompany has achieved sound progress in the e-learning sector by devoting enormous resources in quality content and traffic.In terms of film and television, the Company has invested a number of excellent film and television production enterprises,having a successful participation in the production of excellent works such as Peace Breaker, Suspect X, Forever Young, Till The EndOf The World, Better Days, Crane New Arrival and Serenade of Peaceful Joy. The Company will gradually release more excellent filmand television works in the future. In terms of animation, the Company has invested in several outstanding domestic animationproducers. The Three-Body Problem, an animation adapted from Liu Cixin's science fiction novel, is expected to be released in 2021by YHKT ENTERTAINMENT.As of the date of this report, the Company's many subject companies have shown the great potential for development, andthe Company's investment strategies in the whole cultural and creative industry chain have begun to show its outcomes. In March2020, the Company exited from ZLONGAME and obtained considerable return. In 2020, the Company partially exited from X.D.Network after its IOP, gaining substantial return. This deal won the Company the Best Exit of the Year. Fuhai 37, a fund to which theCompany is a partner, has completed the exit of its investment in Weimob and received good returns after its IPO.The Company is further building a full industry chain in cultural and entertainment ecological layout. To promote the mutualempowerment between industrial and cultural value, the Company has already integrated emerging fields into the 5G era,including interactive games, virtual streamers, VR/AR industry chain and e-sports through M&A and equity investment. At the sametime, the Company will empower and coordinate strategically with the invested companies, offer more high-quality content withnew experience, create a one-stop cultural and entertainment ecosystem, and become the most trusted cultural brand of China’syounger generation.

(IV) Internal system reform

During the Reporting Period, the Company upgraded its corporate culture system, specified its mission of “bringing joy to theworld”, proposed its vision of “becoming an excellent and sustainable entertainment enterprise”, and established its corporatevalues of “innovation, aggressiveness, sharing and respect”. The Company vigorously reformed its project approval mechanism,encouraged “bottom-up” project creation, shortened the evaluation period and established diversified indicators, so as tostimulate employees’ creativity.II Core Business Analysis

1. Overview

See “I Overview” above.

2. Revenue and Cost Analysis

(1) Breakdown of Operating Revenue

Unit: RMB

20202019Change (%)
AmountAs % of operating revenue (%)AmountAs % of operating revenue (%)
Total operating revenue14,399,703,084.56100%13,227,135,966.70100%8.86%
By operating division
Online games14,399,703,084.56100.00%13,227,135,966.70100.00%8.86%
By product category
Mobile games13,295,895,373.4192.33%11,988,656,847.8490.64%10.90%
Browser games1,079,617,086.017.50%1,231,554,163.279.31%-12.34%
Others24,190,625.140.17%6,924,955.590.05%249.33%
By operating segment
Domestic12,256,885,640.4085.12%12,178,494,820.5392.07%0.64%
Overseas2,142,817,444.1614.88%1,048,641,146.177.93%104.34%

The Company is required to comply with the disclosure requirements of the SZSE Industrial Information Disclosure Guide No.12—Listed Companies Engaged in Software and IT Services.

Unit: RMB

20202019
Q1Q2Q3Q4Q1Q2Q3Q4
Operating revenue4,343,108,719.333,645,566,476.243,300,855,132.343,110,172,756.653,246,955,520.812,824,001,982.253,488,924,731.713,667,253,731.93
Net profit attributable to the Listed Company’s shareholders728,824,406.61970,911,716.85560,489,992.17500,725,359.59454,380,284.86578,694,120.52522,761,921.29558,933,734.88

Reasons for business seasonality (or periodicity) and risk of fluctuations:

There is no significant seasonality or periodicity in the operations of the Company.

(2) Operating Division, Product Category or Operating Segment Contributing over 10% of Operating Revenueor Operating Profit

√ Applicable □ Not applicable

The Company is required to comply with the disclosure requirements of the SZSE Industrial Information Disclosure Guide No.12—Listed Companies Engaged in Software and IT Services.

Unit: RMB

Operating revenueCost of salesGross profit marginYoY change in operating revenue (%)YoY change in cost of sales (%)YoY change in gross profit margin (%)
By operating division
Online games14,399,703,084.561,757,783,549.7687.79%8.86%-1.03%1.22%
By product category
Mobile games13,295,895,373.411,483,000,672.3088.85%10.90%0.36%1.18%
Browser games1,079,617,086.01262,771,345.3175.66%-12.34%-11.93%-0.11%
By operating segment
Domestic12,256,885,640.401,397,827,063.2688.60%0.64%-3.01%0.43%
Overseas2,142,817,444.16359,956,486.5083.20%104.34%7.49%15.13%

Core business data restated according to the changed methods of measurement that occurred in the Reporting Period:

□Applicable √ Not applicable

(3) Whether Revenue from Physical Sales Is Higher than Service Revenue

□ Yes √ No

(4) Execution Progress of Major Signed Sales Contracts in the Reporting Period

□Applicable √ Not applicable

(5) Breakdown of Cost of Sales

By operating division

Unit: RMB

Operating divisionItems20202019Change (%)
AmountAs % of cost of salesAmountAs % of cost of sales
Online gamesRoyalties1,560,019,412.6488.75%1,522,715,776.5485.74%2.45%
Online gamesCost of servers147,742,407.218.40%124,912,548.477.03%18.28%
Online gamesAmortization of copyright money36,340,772.792.07%127,866,853.047.20%-71.58%
Online gamesOther costs13,680,957.120.78%571,141.290.03%2,295.37%

Other costs are mainly labor costs.The Company is required to comply with the disclosure requirements of the SZSE Industrial Information Disclosure Guide No.12—Listed Companies Engaged in Software and IT Services.Breakdown of the cost of sales for the core business:

Unit: RMB

Breakdown of cost20202019Change (%)
AmountAs % of cost of salesAmountAs % of cost of sales
Royalties1,560,019,412.6488.75%1,522,715,776.5485.74%2.45%
Cost of servers147,742,407.218.40%124,912,548.477.03%18.28%
Amortization of copyright money36,340,772.792.06%127,866,853.047.20%-71.58%
Other costs13,680,957.120.78%571,141.290.03%2,295.37%

(6) Changes in the Scope of Consolidated Financial Statements for the Reporting Period

√ Yes □ No

For details, see Note VIII Changes in the Scope of Consolidated Financial Statements in Part XII.

(7) Major Changes to the Business Scope or Product or Service Range in the Reporting Period

□Applicable √ Not applicable

(8) Major Customers and Suppliers

Major customers:

Total sales to top five customers (RMB)4,739,902,816.65
Total sales to top five customers as a % of total sales of the Reporting Period (%)32.92%
Total sales to related parties among top five customers as a % of total sales of the Reporting Period (%)0.00%

Top five customers:

No.CustomerSales revenue contributed for the Reporting Period (RMB)As a % of total sales revenue (%)
1Customer A1,517,308,351.9110.54%
2Customer B1,152,409,531.008.00%
3Customer C961,456,579.616.68%
4Customer D614,280,222.594.27%
5Customer E494,448,131.543.43%
Total--4,739,902,816.6532.92%

Other information about major customers:

□ Applicable √ Not applicable

Major suppliers:

Total purchases from top five suppliers (RMB)634,954,764.28
Total purchases from top five suppliers as a % of total purchases of the Reporting Period (%)36.12%
Total purchases from related parties among top five suppliers as a % of total purchases of the Reporting Period (%)5.01%

Top five suppliers:

No.SupplierPurchase in the Reporting Period (RMB)As a % of total purchases (%)
1Supplier A178,628,597.5810.16%
2Supplier B155,842,616.178.87%
3Supplier C119,059,890.056.77%
4Supplier D93,293,165.195.31%
5Supplier E88,130,495.295.01%
Total--634,954,764.2836.12%

Other information about major suppliers:

□ Applicable √ Not applicable

3. Expenses

Unit: RMB

20202019Change (%)Reason for any significant change
Distribution and selling expenses8,212,936,504.817,737,205,528.076.15%In the Reporting Period, the Company increased traffic investments in newly launched games and primary games
that were being promoted so as to attract users in an effective manner, which resulted in an increase in Internet traffic fee charges.
General and administrative expenses366,208,400.81221,857,572.8265.06%Increase in depreciation of office building transferred to fixed assets, and increase in the remuneration and equity incentives for employees in the Reporting Period
Financial expenses-23,004,271.22-14,903,861.3354.35%Increase in interest income from term deposits at bank in the Reporting Period
Research and development expenses1,112,654,352.49820,387,890.1035.63%Increase in employee remuneration and design expenses in research and development projects as a result of greater investments in this respect in the Reporting Period

4. R&D Investments

√ Applicable □ Not applicable

As of the end of the Reporting Period, the Company is developing a number of games such as Dou Luo Da Lu: Hun Shi Dui Jue(斗罗大陆:魂师对决), Code BY , Chuan Shi Zhi Guang (传世之光), Code C6 and so on, covering various genres such as MMORPG,SLG, SRPG, simulation and card game. With its profound accumulation and spirit of innovation, the Company expects to be able toproduce more long-period quality games.Details about R&D investments:

20202019Change (%)
Number of R&D personnel2,3431,58248.10%
R&D personnel as % of total employees57.68%56.14%1.54%
R&D investments (RMB)1,112,654,352.49814,182,093.9436.66%
R&D investments as % of operating revenue7.73%6.16%1.57%
Capitalized R&D investments (RMB)0.000.000.00%
Capitalized R&D investments as % of total R&D investments0.00%0.00%0.00%

Reasons for any significant YoY change in the percentage of R&D investments in operating revenue:

□ Applicable √ Not applicable

The Company is required to comply with the disclosure requirements of the SZSE Industrial Information Disclosure Guide No.12—Listed Companies Engaged in Software and IT Services.

Unit: RMB

Name of projectCapitalized R&D investmentsProject overviewProgress

Reason for any sharp variation in the percentage of capitalized R&D investments and rationale:

□ Applicable √ Not applicable

5. Cash Flows

Unit: RMB

Items20202019Change (%)
Sub-total of cash inflows from operating activities15,534,023,490.3414,249,193,491.079.02%
Sub-total of cash outflows used in operating activities12,606,086,185.6910,991,629,493.1314.69%
Net cash flows from operating activities2,927,937,304.653,257,563,997.94-10.12%
Sub-total of cash inflows from investing activities6,993,035,534.584,584,256,827.5052.54%
Sub-total of cash outflows used in investing activities7,602,685,681.655,627,684,529.2735.09%
Net cash flows used in investing activities-609,650,147.07-1,043,427,701.77-41.57%
Sub-total of cash inflows from financing activities889,324,326.07100.00%
Sub-total of cash outflows used in financing activities3,517,673,494.411,602,201,622.61119.55%
Net cash flows used in financing activities-2,628,349,168.34-1,602,201,622.6164.05%
Net increase in cash and cash equivalents-361,178,898.22619,520,061.98-158.30%

Explanation of why any of the data above varies significantly on a year-over-year basis:

√ Applicable □ Not applicable

1. Sub-total of cash inflows from investing activities increased 52.54% YoY, primarily driven by an increase in cash inflows uponthe maturity of wealth management products in which the Company made a greater investment in the Reporting Period.

2. Sub-total of cash outflows used in investing activities increased 35.09% YoY, primarily driven by the payment for theacquisition of land use rights and a greater investment in wealth management products in the Reporting Period.

3. Sub-total of cash inflows from financing activities increased 100.00% YoY, primarily driven by new discounted notes in theReporting Period.

4. Sub-total of cash outflows used in financing activities increased 119.55% YoY, primarily driven by a greater cash dividendpayout and the payment for the acquisition of non-controlling interests in Guangzhou 37 in the Reporting Period.

5. Net increase in cash and cash equivalents decreased 158.30% YoY, primarily driven by the combined effects of a YoY decreasein net cash flows from operating activities, a decrease in net cash flows used in investing activities and an increase in net cash flows

used in financing activities.Explanation of why the net cash flows from operating activities varied significantly from the net profit of the Reporting Period:

□ Applicable √ Not applicable

III Analysis of Non-Core Businesses

√ Applicable □ Not applicable

Unit: RMB

AmountAs % of profit before income tax expensesReason/sourceRecurrent or not
Investment income155,254,765.654.78%Mainly due to gains on investments from disposal of equity investments, dividends during the period of holding equity investments, and wealth management productsNot
Gain/loss on changes in fair value195,629,632.386.02%Mainly due to changes in fair value of equity investmentsNot
Impairment loss on assets188,053,453.445.79%Mainly due to impairment losses on long-term equity investments and goodwill as well as losses on doubtful accountsImpairment losses on long-term equity investments and goodwill are not recurrent while losses on doubtful accounts are recurrent
Non-operating income4,066,295.960.13%Mainly due to compensation incomeNot
Non-operating expenses11,044,793.900.34%Mainly due to donations for governments and medical institutions in the fight against the COVID-19 pandemicNot
Other income162,027,080.814.99%Mainly due to refund of VAT and other government grants given in the Company’s ordinary course of businessRefund VAT is recurrent while other government grants are not.

IV Analysis of Assets and Liabilities

1. Significant Changes in Asset Composition

Indicate whether the Company has adopted the new accounting standards governing revenue and leases since 2020 and restatedthe beginning amounts of relevant financial statement line items in the year.

Applicable.

Unit: RMB

31 December 20201 January 2020Change in percentage (%)Reason for any significant change
AmountAs % of total assetsAmountAs % of total assets
Monetary funds1,776,856,909.8516.82%2,152,508,643.7621.22%-4.40%For details, see “5. Cash Flows” in “II Core Business Analysis” of Part IV.
Accounts receivable1,164,657,998.3511.02%1,287,915,082.5612.69%-1.67%No significant change
Long-term equity investments360,566,552.563.41%468,792,240.204.62%-1.21%No significant change
Fixed assets922,736,638.768.73%47,102,974.140.46%8.27%Transfer of office building from construction in progress to fixed assets in the Reporting Period
Construction in progress4,180,019.750.04%797,245,599.787.86%-7.82%Transfer of office building from construction in progress to fixed assets in the Reporting Period
Short-term loans889,324,326.078.42%8.42%New undue discounted bank acceptance bills in the Reporting Period
Long-term loans0.00%250,017,634.022.46%-2.46%Repayment of mortgage loan for office building purchase in the Reporting Period
Intangible assets1,108,434,647.5110.49%16,997,408.090.17%10.32%Payment made in the Reporting Period for acquisition of land use rights

2. Assets and Liabilities at Fair Value

√ Applicable □ Not applicable

Unit: RMB

ItemBeginning amountGain/loss on fair-value changes in the Reporting PeriodCumulative fair-value changes through equityImpairment allowance made in the Reporting PeriodPurchased in the Reporting PeriodSold in the Reporting PeriodOther changesEnding amount
Financial assets
1. Trading financial assets (exclusive of derivative financial assets)2,042,903,416.3225,422,811.135,714,790,000.006,651,121,001.79189,238,803.951,321,234,029.61
4. Other equity investments119,521,347.60-128,611,926.36185,274,339.00-2,729,871.27294,824,927.02
Other non-current financial assets389,489,978.68170,206,821.25113,633,450.0095,425,086.78-205,709,679.22372,195,483.93
Total of the above2,551,914,742.60195,629,632.38-128,611,926.366,013,697,789.006,746,546,088.57-19,200,746.541,988,254,440.56
Financial liabilities0.000.000.000.000.000.000.000.00

Contents of other changes:

Other changes were incurred by reclassification of accounting items due to changed business models for managing financial assets,and exchange rate fluctuations.Significant changes to the measurement attributes of the major assets in the Reporting Period:

□ Yes √ No

3. Restricted Asset Rights as at the End of the Reporting Period

Unit: RMB

ItemEnding carrying amount(RMB)Reason for restriction
Monetary funds2,775,401.30Money frozen by bank and security deposits
Other current assets360,001,443.35Principals and interest of term deposits in pledge
Trading financial assets914,490,610.28Security deposits for notes
Total1,277,267,454.93

V Investments Made

1. Total Investment Amount

√ Applicable □ Not applicable

Total investment amount in 2020 (RMB)Total investment amount in 2019 (RMB)Change (%)
9,833,076,338.665,513,532,721.6078.34%

2. Major Equity Investments Made in the Reporting Period

√ Applicable □ Not applicable

Unit: RMB

InvesteePrincipal activityWay of investmentAmount of investmentThe Company’s interestFunding sourceCo-investorTerm of investmentType of the investee’s productsInvestment progress as of the balance sheet dateAnticipated incomeInvestment income in the Reporting PeriodAny legal matter involved or notDate (if any) of disclosureIndex (if any) to disclosed information
Beijing Meng52 Network Technology Co., Ltd.Technology development; basic software services; application software services; computer system services; computer technology training (not for national enrollment); data processing (except for bank card centers that are processing data and cloud computing data centers with a PUE value of 1.5 or more); organization of cultural and artistic exchange activities; conference services; exhibition activities; product design; packaging and decoration design; computer animation design; design, production, agency, andCapital increase20,018,583.1217.00%Self-fundedNonePermanentGame developmentOwnership change completed with the industrial and commercial administration24,676,237.64Not
release of ads; sales of computers, software, and auxiliary equipment; and Internet-based cultural activities.
Beijing Immortal King Technology Co., Ltd.Technology development, consultancy, services, transfer and promotion; software development; computer system services; computer animation design; computer graphic design and production; TV and movie planning; organization of cultural and artistic exchange activities (excluding performances); enterprise management consultation; economic and trade consultation; design, production, agency, and release of ads; computer system services; sales of computers, software, auxiliary equipment, electronic products and stationery.Capital increase10,000,000.0020.00%Self-fundedNonePermanentGame developmentOwnership change completed with the industrial and commercial administration-177,407.46Not
Chengdu Longyou Tianxia Technology Co., Ltd.Technology development, consultancy, transfer and services of computer software and hardware; Internet information technology services; computer system integration; basic software services; application software services; multimedia design; arts and crafts design; design, production, agency, and release of ads (excluding balloon ads); technology consultancy; information system integration services; network engineering design and construction (construction works operated with qualification certificate); communication and automation control system development.Capital increase5,000,000.0020.00%Self-fundedNonePermanentGame developmentOwnership change completed with the industrial and commercial administrationNot
Zhuhai Quxiang TechnologSoftware development; data processing and storage services; digital animation production; game software design and production; information skills consultingCapital incre5,000,000.0020.00%Self-fundedNonePermanentGame developmentOwnership change completed-583,027.05Not
y Co., Ltd.services; R&D of network information technology; R&D, wholesale, retail and organ technical services of computer software and hardware; system integration; web page design; network engineering (excluding business services); Sales on the Internet: electronic products, computers, software and auxiliary equipment; technical information services business. (For projects that are subject to approval according to law, the operation activities can be carried out after approval by relevant authorities.)asewith the industrial and commercial administration
Shanghai Dobala Network Technology Co., Ltd.Development, transfer, and consultancy and technical services of network and computer technologies, design, production, and agency of ads, publication of ads through self-owned media, planning of cultural and artistic exchanges, organization and planning of public relation activities, conference services, exhibition services, creative services, and sales of computers, software, and auxiliary equipment.Capital increase5,000,000.0010.00%Self-fundedNonePermanentGame developmentOwnership change completed with the industrial and commercial administrationNot
Beijing UEGAME Software Co., Ltd.Software development; technology development, services and consultancy; design, production, agency, and release of ads; technology import and export, agency import and export; sales of computers, software, auxiliary equipment and stationery.Capital increase20,000,000.0010.00%Self-fundedNonePermanentGame developmentOwnership change completed with the industrial and commercial administrationNot
Beijing Point FutureTechnology promotion services; Internet cultural activities; Internet information services.Capital incre6,660,000.0010.00%Self-fundedNonePermanentGame developmentOwnership change completedNot
Technology Co., Ltd.asewith the industrial and commercial administration
Shanghai Moqiuli Cultural Communication Co., Ltd.Technology development, consultancy, transfer and services in the field of network technology; design, production, agency, and release of ads; exhibition services; conference services; software design; game development.Capital increase15,000,000.0013.63%Self-fundedNonePermanentGame developmentOwnership change completed with the industrial and commercial administrationNot
Shanghai Yiyu Network Technology Co., Ltd.Licensed items: Internet information services; network cultural management; publications.Capital increase120,000,000.0010.00%Self-fundedNonePermanentGame developmentOwnership change completed with the industrial and commercial administrationNot
Guangzhou Kapark Network Technology Co., Ltd.Operations of parking lots; property management; engineering and technical research and experimental development; R&D of electronic, communication, and automatic control technologies; software development; information system integration services; information technology consultancy services; electromechanical equipment installation services; special equipment installation (except for elevators and boilers); electronic equipment installation services; general equipment repair; special equipment repair; electrical equipmentIncorporation15,000,000.0012.00%Self-fundedNonePermanentInternet-based car parkingOwnership change completed with the industrial and commercial administrationNot
repairs; sales of general mechanical equipment; professional contracting of electromechanical equipment installation projects; R&D, installation, and maintenance of parking berths with automatic are collection function; motor vehicle agency management business; battery charging services for electric vehicles; car rental; sales of auto parts; car rescue services; motor vehicle performance inspection services; network information technology promotion services; advertising services; installation and construction of street nameplates, road signs, and advertising board; designated driver services; computer network system engineering services; intelligent installation services; site leasing (excluding warehouses); car sales; car cleaning services; and car repair and maintenance.
Shanghai Lixing Technology Co., Ltd.Licensed items: Food. General items: Development, transfer, consultancy, and services of information technology, computer hardware, and network technology; sales of furniture, kitchen equipment, household appliances, hotel equipment, instruments and apparatus, building materials, metal materials, hardware and electrical equipment, mechanical equipment, automobile and motorcycle accessories, household supplies, kitchenware, feedstuff, flowers, jewelry, handicrafts (except for ivory and its products), automobile supplies, road traffic safety equipment, automobiles, chemical raw materials and products (except for hazardous chemicals, monitored chemicals, fireworks and firecrackers, civil explosives, andCapital increase9,000,000.0011.67%Self-fundedNonePermanentOperation of a coffee brandOwnership change completed with the industrial and commercial administrationNot
precursor chemicals), advertising equipment, printing materials, packaging materials, mineral products, electronic products, elevators, mechanical equipment, molds, and lubricants (including online retail). The following items are exclusive to branch offices: catering services.
Beijing Suimu Technology Co., Ltd.Internet cultural activities; technology development, services, transfer and promotion; organization of cultural and artistic exchange activities (excluding performances); undertaking exhibition activities; computer system services; enterprise management consultation; enterprise management; market investigation; technology import and export, goods import and export, and agency import and export.Capital increase10,000,000.009.00%Self-fundedNonePermanentGame developmentOwnership change completed with the industrial and commercial administrationNot
GUGI INC.Network consultancy and information security management consultancy; technology development, technology promotion, and technical services: Information technology, computer technology, and computer software and hardware; design and development: toys and anime; network sales: computer software and hardware, toys, and anime; telecommunications value-added services; and operating Internet cultural services.Capital increase10,615,650.005.46%Self-fundedNonePermanentGame-based social softwareOwnership change completed with the industrial and commercial administrationNot
Shanghai Youerlan Information TechnologLicensed items: labor dispatch services; career intermediary activities.Capital increase20,000,000.001.17%Self-fundedNonePermanentRecruitment + vocational educatiOwnership change completed with the industrial andNot
y Co., Ltd.on of blue collar workerscommercial administration
Guangzhou Youhaoxi Network Technology Co., Ltd.Data processing and storage services; game software design and production; network technology research and development; computer technology development and services; environmental protection technology promotion services; science and technology project agency services; science and technology project evaluation services; corporate image planning services; public relations services; planning creative services; boxes, bags wholesale; other artificial jewelry, ornaments wholesale; toys wholesale; Sales of Internet commodities (excluding licensed products); retail of small accessories and gifts; retail of electronic products; retail of Internet commodities (excluding licensed products); sales of recharge cards; retail of stationery; retail of clothing; wholesale of electronic products; wholesale of stationery; organization and planning services for large-scale activities (large-scale activities refer to parties, sports meetings, celebrations, art and model competitions, art festivals, film festivals, public welfare performances, exhibitions, etc. and activities requiring special approval shall be operated after obtaining approval); personal image design services; advertising industry; investment consulting services; cultural and art consulting services; enterprise management consulting services; science andCapital increase35,968,000.005.43%Self-fundedNonePermanentFilm and television productionOwnership change completed with the industrial and commercial administrationNot
technology project bidding services; science and technology intermediary services; book data processing technology development; digital animation production; software development; network information technology promotion services; lamp retail; home audio-visual equipment retail; toy retail; ticketing services; box and bag retail; cultural promotion (excluding licensed business items); cultural communication (excluding licensed business items); Clothing wholesale; information electronic technology services; retail of cosmetics and hygiene products; import and export of goods (excluding franchised products); scientific and technological information consulting services; information technology consulting services; non-alcoholic beverages, tea wholesale; newspapers wholesale; audio-visual products and electronic publications wholesale; liquor wholesale; Online reading services; prepackaged food wholesale; book wholesale; liquor retail; books, newspapers retail; retail of audio-visual products and electronic publications; online game services; online music services; online movie services; online video services; retail of prepackaged food; retail of non-alcoholic beverages and tea.
Wave Optics LimitedResearch and development of AR optical waveguide and optical deviceCapital increase13,049,800.00Self-fundedNonePermanentAR optical modulesOwnership change completed with the industrial and347,994.58Not
commercial administration
Yingtan Yangji Mountain Technology Co., Ltd.Licensed items: Internet sales of food (sales of prepackaged food), food business (sales of prepackaged food), Internet sales of food, food business, food production, grain processing and food production, food business (sales of bulk food), catering service (as for the items requiring to be licensed as per laws, specific business activities may take place with the license of the relevant department) General items: catering management, Internet sales (excluding the commodities subject to any sales license), Internet of Things technology research and development, and network technology service.Capital increase10,000,000.0010.00%Self-fundedNonePermanentInstant food for new consumptionOwnership change completed with the industrial and commercial administrationNot
Huai'an Shunqin Corporate Management Company (Limited Partnership)Corporate management services; corporate management consulting services; corporate marketing planning; and marketing planningAcquisition2,160,000,000.00100.00%Self-fundedNonePermanentCommercial servicesOwnership change completed with the industrial and commercial administrationNot8 December 2020Announcement on the Indirect Acquisition of 20 Percent of the Equity of Guangzhou 37 Network Technology Co.,
Ltd.
Huai'an Shunjing Corporate Management Company (Limited Partnership)Corporate management and corporate management consulting; corporate marketing planning; and marketing planningAcquisition720,000,000.00100.00%Self-fundedNonePermanentCommercial servicesOwnership change completed with the industrial and commercial administrationNot8 December 2020Announcement on the Indirect Acquisition of 20 Percent of the Equity of Guangzhou 37 Network Technology Co., Ltd.
Total----3,210,312,033.12------------0.0024,263,797.71------

3. Major Non-Equity Investments Ongoing in the Reporting Period

√ Applicable □ Not applicable

Unit: RMB

Name of projectWay of investmentInvestment in fixedIndustry of investmentInvestment in the ReportCumulative investment as of the period-endFunding sourceProject progressAnticipated incomeCumulative income as of the period-enReason for failing to reach the scheduled progress andDate (if any) of disclosureIndex (if any) to disclosed information
assets or noting Perioddanticipated income
Guangzhou HQ Building construction projectOtherYesCommercial property895,043,421.021,109,643,421.02Self-funded0.000.00N/A7 January 2020Announcement No. 2020-003 on a Wholly-Owned Subsidiary Bidding for the Use Rights of State-Owned Land
Poly 37 Interactive Entertainment Building decoration projectOtherYesCommercial property46,120,727.66928,851,920.68Self-funded and mortgage loan-funded0.000.00N/A26 April 2017Announcement No. 2017-034 on a Subsidiary Intending to Purchase Office and Parking Space
Total------941,164,148.682,038,495,341.70----0.000.00------

4. Financial Investments

(1) Securities Investments

√ Applicable □ Not applicable

Unit: RMB

Variety of securitiesCode of securitiesName of securitiesInitial investment costAccounting measurement methodBeginning carrying amountGain/loss on fair-value changes in the Reporting PeriodCumulative fair-value changes through equityPurchased in the Reporting PeriodSold in the Reporting PeriodGain/loss in the Reporting PeriodEnding carrying amountAccounting titleFunding source
Domestic/foreign stock002445-SZSEZNHI21,743,091.99Fair value method2,725,492.781,332,905.374,058,398.15Trading financial assetsSelf-funded
Domestic/foreign stock02660-HKEXZENGAME18,000,000.00Fair value method14,301,324.388,773,760.0421,856,632.40Trading financial assetsSelf-funded
Domestic/foreign stock960180-KRXSNK1,036.35Fair value method23,021,920.4310,487,671.2931,669,701.53Trading financial assetsSelf-funded
Domestic/foreign stock02400-HKEXXD INC100,055,903.60Fair value method103,133,292.11160,233,223.3582,116,517.9531,569,308.63169,222,061.74Trading financial assetsSelf-funded
Domestic/foreign stock00302-HKEXCMGE Technology Group Limited14,101,880.71Fair value method15,438,704.59-2,825,843.8911,708,568.834,758,269.70Other non-current financial assetsSelf-funded
Domestic/foreign stock833604-NEEQSouthern Pictures64,997,287.11Fair value method15,784,332.79-2,665,863.2513,118,469.54Other non-current financial assetsSelf-funded
Domestic/foreign stock835067-NEEQMokylin60,000,000.00Fair value method7,240,888.31-7,240,888.31-60,000,000.00Other equity investmentsSelf-funded
Total278,899,199.76--181,645,955.39168,094,964.60-60,000,000.000.0093,825,086.36,327,578.33239,925,263.36----
78
Disclosure date of the announcement on the board’s approval of the securities investments6 December 2019
Disclosure date of the announcement on the general meeting of shareholders’ approval of the securities investment (if any)25 December 2019

(2) Investments in Derivative Financial Instruments

□ Applicable √ Not applicable

No such cases in the Reporting Period.

5. Use of Raised Funds

□ Applicable √ Not applicable

No such cases in the Reporting Period.

VI Sale of Major Assets and Equity Investments

1. Sale of Major Assets

□ Applicable √ Not applicable

No such cases in the Reporting Period.

2. Sale of Major Equity Investments

□ Applicable √ Not applicable

VII Principal Subsidiaries and Joint Stock Companies

√ Applicable □ Not applicable

Principal subsidiaries and joint stock companies with an over 10% effect on the Company’s net profit:

Unit: RMB

NameRelationship with the CompanyPrincipal activityRegistered capitalTotal assetsNet assetsOperating revenueOperating profitNet profit
Jiangsu AuroraSubsidiaryDevelopment of mobile and browser games6,250,000.004,394,632,225.613,910,959,055.262,158,559,136.051,101,436,205.931,125,343,310.86
Guangzhou 37SubsidiaryLaunch and operation of mobile games11,764,706.004,108,668,872.151,585,826,430.259,055,389,231.501,599,248,453.451,399,543,219.92

Subsidiaries obtained or disposed of in the Reporting Period:

√ Applicable □ Not applicable

Name of subsidiaryHow it was obtained or disposed ofEffects on the overall operations and performance
Huai'an Shunqin Corporate Management Company (Limited Partnership)AcquisitionNo material effects on the overall operations and performance of the Company
Huai'an Shunjing Corporate Management Company (Limited Partnership)AcquisitionNo material effects on the overall operations and performance of the Company
Wuhu Firefly Light Network Technology Co., Ltd.AcquisitionNo material effects on the overall operations and performance of the Company
Guangzhou Tieji Network Technology Co., Ltd.AcquisitionNo material effects on the overall operations and performance of the Company

Other information on principal subsidiaries and joint stock companies:

VIII Structured Bodies Controlled by the Company

□ Applicable √ Not applicable

IX Prospects(I) Development Strategy and 2021 Business Plan of the CompanyAfter many years of development, the online game industry in China has become mature with increasingly fierce marketcompetition and growing demand of users for product boutiqueization and diversification. In this context, the Company will stick tothe strategy of “boutiqueization, diversification and globalization”, ensuring the steady growth of its existing businesses.The Company always treats quality games as the commanding height, continuously reinforces the “integration of R&D andoperation” model and the "dual engines at home and abroad" strategy, constantly consolidates the leading position of theCompany in the game industry and devotes itself to being one of the top-ranking R&D and operation enterprises providing theglobal users with various integrated game products. In the meantime, the Company plans to implement a series of industriallayouts by centering on “Generation Z”.In 2020, the Company upgraded its corporate culture system, clarified the corporate mission of “bringing joy to the world”,developed a vision that is “becoming an excellent and sustainable entertainment enterprise” and established the corporate valuesof “innovation, aggressiveness, sharing and respect”. In the brand-new corporate culture system, all the employees of the Companydare to innovate, are aggressive, take pleasure in share and respect each other.

1. Research and Development

The online game industry is iterated and upgraded relatively fast, so it is especially important for content innovation ability.“Innovation” comes first in the corporate values. In 2021, the Company will implement the measures of “boutiqueization anddiversification” in various aspects and develop many influential quality games.On the basis of the relatively high research and development investments in 2020, the Company will invest more in theresearch and development work, scale up the research and development team, increase the proportion of the senior research anddevelopment talents and realize the dual breakthroughs of the independently researched and developed products in quality andquantity. In the future three years, the Company will greatly increase the number of the members in the research and developmentteam, activate the motive force of development, reinforce the “moat” of the Company and continuously tamp the corecompetitiveness and status of the Company as the industry leader. In terms of hardware, the Company will continuously upgradeits hardware facilities, ensuring that the artistic effect and rendering level of the products in the Company rank top in the industry;the Company will further increase the research and development efficiency by various industrialized and intelligent measures,making the research and development team focus on product innovation better and increasing the innovation of the products.

In addition, to develop the business categories, the Company will continue to implement the “diversification” strategy raisedby the research and development team, maintain the original ARPG research and development power and scale up the non-ARPGresearch and development team, further increasing the proportion of the non-ARPG products independently researched anddeveloped. As an important part of the “globalization” strategy of the Company, the research and development team will alsoresearch and develop quality games for the overseas market, contributing to globalization.

In addition to more investments in its independent research and development, the Company also spares no effort to make anequity investment in various quality game research and development companies, enriching the game product library.

2. Product reserves

With abundant product reserves and product supply, on the basis of boutiqueization, diversification and globalization of R&D,the Company will comprehensively promote the dual-core and diversified product strategy, successively release over 50 agency andindependently-developed products in 2021, the categories of which include MMRPG, SLG, SRPG, simulation games, card games, etc.Besides publishing Rong Yao Da Tian Shi (荣耀大天使) Jue Shi Xian Wang (绝世仙王) and Dou Luo Da Lu: Wu Hun Jue Xing (斗罗大陆:武魂觉醒), the Company plans to release products, such as Duo Luo Da Lu: Hun Shi Dui Jue (斗罗大陆:魂师对决) and YunDuan Wen Xian (云端问仙) representing the boutiqueization, diversification and rejuvenation of the Company. Domestic productsinclude:

MMORPG: Yi Neng Du Shi (异能都市), Code LH and Chuan Shi Zhi Guang (传世之光).

SLGs: Bing Ren Zhi Hui Guan(兵人指挥官), Code WZ and Code BY.

Card games: Zui Hou De Yuan Shi Ren (最后的原始人) and Du Luo Da Lu: Hun Shi Dui Jue (斗罗大陆:魂师对决).

Galgames: Queen of Diamonds (一千克拉女王)

SIM games: Call Me the Big Shopkeeper (叫我大掌柜)

3. Operation

The Company constantly made innovations in publishing and operation means, raised the operation idea of “branding +saleseffects”, conducted high-quality promotion according to market changes, emphasized innovative output of content, and improvedthe quality of video materials to attract target customers. The Company should carry out differentiated and customizedcooperation in traffic and channel in product publishing, build channels and conduct community construction and maintain thelong-term operation input in product channels. The Company continued to expand the usable range of intelligent ad platform andoperation analysis platform to improve the distribution capacity, achieve more efficient promotion through traffic and dighigh-quality customers, thus achieving the maximum ad benefit. The operation team can concentrate more on innovative work toconduct more precise and differentiated event marketing.

4. Overseas market

As one of the earliest Chinese game companies to implement “games going global”, the Company enjoyed an expandingmarket size and an increasing market share overseas. As the Company received remarkable responses from Europe, North America,Japan, South Korea, Southeast Asia, and Hong Kong, Macao, and Taiwan regions of China, 37GAMES saw growing brand influence.After the new overseas strategies were implemented, the Company made initial achievements in 2020. Going forward, theCompany will continue to pursue the new strategies by publishing diversified, tailored games in big markets around the world,deepen overseas expansion and consolidate existing advantages in overseas markets. In 2021, with large reserves of quality gamesin various genres, the Company will maintain its advantages in the Asian market, and gain more achievements in European andNorth American ones. Europe and North America are fertile lands for SLG games, the Company’s advantageous product, to grow.The Company will publish many SLG games to both markets. There is a large room for the growth of its overseas businesses. Its

abundant game reserves are expected to raise its overseas revenue to a new high in 2021. Overseas markets will be one of theCompany's strategic growth drivers in the next three years.

In 2021, the Company will facilitate its overseas expansion and promote more quality Chinese games to go global from aninternational perspective, through which it can tell Chinese stories to the world. Main products to be promoted overseas include:

SLGs: Code SG, Survival at Gunpoin and Code HD

MMORPG: Code E and Code BX

Simulation games: Call Me the Big Shopkeeper (叫我大掌柜) and Code DFW

Card games: Code C6, Dou Luo 3D (斗罗3D) and Idol Angel (アイドルエンジェル)

RPG: Code TJKD and Code SS

5. 5G cloud gaming business

With the development of edge computing, fixed broadband network speed and 5G network, cloud gaming, as the bestscenario for 5G application, has become an important market for global game manufacturers and cloud service manufacturers. TheCompany has been developing 5G cloud gaming since 2020, and signed a cooperative agreement with Huawei, in which bothparties will set up the “Joint Team of Cloud Gaming Technology Solutions” to deeply optimize the existing cloud gaming solutionsand jointly explore its development direction and technical innovation.

6. Investment business

The Company has increased its investment in boutique developers, actively promoting the cultural and entertainmentindustries including 5G cloud games, film and television, music, artist agents, animation, VR/AR and some emerging fields such asculture and health, social networking, etc. The Company aims to promote the vigorous development of China's cultural andentertainment industries and make new contributions to cultural confidence.

7. IP strategy

It’s a long-term development goal of the Company to create quality content and establish a quality content brand. Based onthis, the Company continues to explore, by the methods of internal incubation and external access, high-quality IPs for thedevelopment of quality cultural products including games, relying on its own advantages.

A cultural and creative strategy system was built based on the IP strategy. As of the date of this report, the IPs of theCompany's reserves covered different segments, including games, anime, literature, film, and television. Meanwhile, the Companywill gradually develop its own IPs to create higher value. Relying on its excellent IP strategy, the Company will continue to build itscultural and creative strategy system, satisfy the diversified demands of users for entertainment, and exploit the opportunities of IPvalue in film and television, music, anime, VR, cultural health industry, Internet child education and social entertainment.

(II) Possible Risks

1. Risk of industry regulation

The online game industry is strictly regulated by relevant national policies and government departments. During recent years,regulatory authorities have gradually attached importance to the healthy development of the online game industry, implementingmore stringent regulatory measures such as qualification management and content review for games’ development, publicationand operation. For example, the Standing Committee of the 13th National People's Congress revised the Law of the People'sRepublic of China on the Protection of Minors for the second time at its 22nd session in October 2020, which came into effect onJune 1, 2021. The Law of the People's Republic of China on the Protection of Minors strengthens network protection, stipulatingthat online games can be operated only after the approval of law. What’s more, China establishes a unified electronic identityauthentication system of online games for minors, specifies their online time, and stipulates penalties for network service providerswho do not fulfill their obligations to prevent online addiction and stop cyberbullying. During the operation of the game products, ifthe Company violates the relevant regulations or misunderstand the regulatory regulations, there may be a risk that it will bepunished by authorities or that relevant works may not be published as planned because they do not meet the regulatoryrequirements.In the long term, the regulation of the online game industry is becoming more and more standardized, which is conducive tothe healthy development of the industry. The enterprises with standardized operation will benefit from it. 37 InteractiveEntertainment will strictly abide by the requirements related to the development of the industry and support its policies andregulations.

2. Market competition risks and countermeasures

The online game industry is facing increasingly fierce competition as it gradually matures. The development of variousInternet-based cultural creative segments other than online games is further exacerbating external competition. At the same time,online game users are also maturing, and online game users have increasingly higher demand for quality for game products Intensemarket competition will challenge the Company’s development in terms of products and market channels.

In response, the Company will continue to increase R&D investments, R&D and innovation in product creativity, gameplay,theme, art and technology. It will maintain close cooperation with excellent developers to guarantee the supply of quality products,and continue to connect users with quality games. In terms of market channels, the Company will further bring into play the role ofnew ideas in traffic operation, deepen the business strategy of multi-channel marketing, targeted advertising and long-termservices, and continuously enhance its core market competitiveness.

3. Business risks and countermeasures

The online game industry is characterized by fast product update, limited life cycle and fast change of user preference. Gameenterprises need to increase their investment in technology development and closely keep in pace with trend of the industrialtechnologies. If the technology, products and other aspects of the game undergo major changes, and game enterprises fail to keepup with them, their products will fail to meet the market demands. At the same time, information security and user privacyprotection arouse great public concerns. If the Company leaks users’ information due to negligence, there will be a significantdamage to the user experience and brand image. Consequently, its operation performance will be impaired.

In response, increasing R&D investments are needed to maintain continuous product innovation. The Company also needs todig deeper into operational data through independently developed AI systems, continuously update the understanding of changesin target users' preferences, and timely adjust operational and R&D strategies, to meet the core demands of users.

A strict internal control system for information security management and user privacy protection has been set up to ensure

the security of users’ information to the maximum extent. In terms of information security, the Company defines and classifiessecurity incidents to respond to possible data security problems. Information security audits take place once every six months forsystematic control of information security risks. In terms of privacy protection, the Privacy Policy has been established, whichprovides in details the rules and standards for collection and use of users’ personal information and sets forth the reasonable andfeasible security measures adopted for protection of users’ personal information. In this way the Company will make sure withgreatest efforts that all users’ personal information is protected at the highest level. The Company ensures that it runs the businessin compliance with applicable laws and regulations throughout the world, and protects the users’ right to manage personalinformation. A response procedure has been stipulated to inform users of any possible cost and necessary actions needed to betaken

4. Risks of core personnel turnover and countermeasures

A stable and high-quality talent team for game development, operation and management is an important guarantee for theCompany to maintain its core competitive advantage. If the Company fails to effectively build a core talent team, give reasonableincentives and manages the core personnel, the employees’ enthusiasm and creativity will be affected, which will have an adverseimpact on the Company’s core competitiveness.

In response, much attention has been attached to cultivation and acquisition of professional talents. The Company creativelybuilds a platform-based talent management mechanism, according to which excellent game producers are rewarded with highproject bonus, and given discretion of research and creation. In order to attract and retain outstanding management talents andbusiness elites, the Company has vigorously reformed the project mechanism, encouraged “bottom-up” project creation,shortened the review cycle and established diversified indicators, so as to stimulate the innovative vitality of employees. In termsof employee performance appraisal, the Company has broken the traditional salary incentive system based on gross billing, and setup diversified KPIs based on employees' contribution and ability, and set up flexible team appraisal standards to encourageemployees’ creativity. Through the above mechanism changes, the Company increases the attractiveness to core staffs and R&Dpersonnel.

The Company has established “37 Interactive Entertainment University” to provide sufficient training and learningopportunities for employees and help them grow rapidly. At the same time, “37 Interactive Entertainment University” has set upacademies with different specializations in each business group, focusing on professional empowerment and talent cultivationaround different needs for professional skill growth.X Communications with the Investment Community such as Researches, Inquiries and Interviews

1. During the Reporting Period

√ Applicable □ Not applicable

DatePlaceWay of communicationType of the communication partyCommunication partyMain discussions and materials provided by the CompanyIndex to the relevant information
11 February 2020Video conferencingOtherInstitutionInstitutional investors and research analysts from securities firmsAbout main strategies of major business lines forLog Sheet of Investor Relations Activities (No. 2020-001)
2020
2 April 2020Video conferencingOtherInstitutionInstitutional investors and research analysts from securities firmsAbout the private placement plan and priorities in the development of the Company for the next three yearsLog Sheet of Investor Relations Activities (No. 2020-002)
30 April 2020Video conferencingOtherInstitutionInstitutional investors and research analysts from securities firmsAbout the 2020 First Quarterly ReportLog Sheet of Investor Relations Activities (No. 2020-003)
31 August 2020Video conferencingOtherInstitutionInstitutional investors and research analysts from securities firmsAbout the 2020 Interim ReportLog Sheet of Investor Relations Activities (No. 2020-004)
13 October 2020Conference callBy phoneInstitutionInstitutional investors and research analysts from securities firmsAbout fundamentals and operationsLog Sheet of Investor Relations Activities (No. 2020-005)
1 November 2020Video conferencingOtherInstitutionInstitutional investors and research analysts from securities firmsAbout the 2020 Third Quarterly Report and operationsLog Sheet of Investor Relations Activities (No. 2020-006)
10 December 2020Video conferencingOtherInstitutionOverseas institutional investorsAbout the operations of the CompanyLog Sheet of Investor Relations Activities (No. 2020-007)

Part V Significant EventsI Profit Distribution to Common Shareholders (in the Form of Cash and/or Stock)The profit distribution policy for common shareholders, especially the formulation, implementation and amendments to the cashdividend policy, in the Reporting Period:

√ Applicable □ Not applicable

The Company formulated the Shareholder Dividend Compensation Plan for the Future Three Years (2020-2022) of Wuhu 37Interactive Entertainment Network Technology Group Co., Ltd. (hereinafter referred to as the "Shareholder Compensation Plan") tofurther promote the establishment of a sound, sustainable and stable shareholder compensation mechanism, increase thetransparency and operability of the profit distribution policy and effectively protect the legitimate rights and interests of publicinvestors.

Special statement about the cash dividend policy
In compliance with the Company’s Articles of Association and resolution of general meeting of shareholdersYes
Specific and clear dividend standard and ratioYes
Complete decision-making procedure and mechanismYes
Independent directors faithfully performed their duties and played their due roleYes
Non-controlling shareholders are able to fully express their opinion and desire and their legal rights and interests are fully protectedYes
In case of adjusting or changing the cash dividend policy, the conditions and procedures involved are in compliance with applicable regulations and transparentYes

The profit distributions to common shareholders, either in the form of cash or stock, in the past three years (including the ReportingPeriod) are summarized as follows:

1. The 2018 interim dividend plan: Based on the total share capital of 2,124,870,253 shares on 30 June 2018, a cash dividend ofRMB1 (tax inclusive) per 10 shares was planned to be distributed to all the shareholders of the Company, with no bonus issue fromeither profit or capital reserves.

2. The 2018 final dividend plan: Based on the total issued share capital on the date of record (the total share capital minus therepurchased shares), a cash dividend of RMB2 (tax inclusive) per 10 shares was planned to be distributed to all the shareholders ofthe Company, with the remaining undistributed profit carried forward to the next year; and there would be no bonus issue fromeither profit or capital reserves.

3. The 2019 interim dividend plan: Based on the total issued share capital on the date of record (the total share capital minusthe shares in the share repurchase account), a cash dividend of RMB1 (tax inclusive) per 10 shares was planned to be distributed toall the shareholders of the Company, with the remaining undistributed profit carried forward to the next year; and there would beno bonus issue from either profit or capital reserves.

4. The 2019 final dividend plan: Based on the total issued share capital on the date of record, a cash dividend of RMB3 (tax

inclusive) per 10 shares was planned to be distributed to all the shareholders of the Company, with the remaining undistributedprofit carried forward to the next year; and there would be no bonus issue from either profit or capital reserves.

5. The 2020 interim dividend plan: Based on the total issued share capital on the date of record, a cash dividend of RMB3 (taxinclusive) per 10 shares was planned to be distributed to all the shareholders of the Company, with the remaining undistributedprofit carried forward to the next year; and there would be no bonus issue from either profit or capital reserves.

6. The 2020 final dividend plan: Based on the total issued share capital on the date of record, a cash dividend of RMB 2 (taxinclusive) per 10 shares was planned to be distributed to all the shareholders of the Company, with the remaining undistributedprofit carried forward to the next year; and there would be no bonus issue from either profit or capital reserves.

Cash dividends for common shareholders in the past three years (including the Reporting Period):

Unit: RMB

YearCash dividends (tax inclusive) (A)Net profit attributable to common shareholders of the Listed Company in consolidated statements for the year (B)A as % of B (%)Cash dividends in other forms (like share repurchase) (C)C as % of B (%)Total cash dividends (including those in other forms) (A+C)A+C as % of B (%)
20201,077,248,365.302,760,951,475.2239.02%0.000.00%1,077,248,365.3039.02%
2019844,900,678.802,114,770,061.5539.95%301,961,944.3014.28%1,146,862,623.1054.23%
2018630,467,857.301,008,503,357.8062.52%0.000.00%630,467,857.3062.52%

Indicate whether the Company fails to put forward a cash dividend proposal for the common shareholders despite the facts that theCompany has made profits in the Reporting Period and the profits of the Company as the parent distributable to the commonshareholders are positive.

□ Applicable √ Not applicable

II Final Dividend Plan

√ Applicable □ Not applicable

Bonus issue from profit (share/10 shares)0
Cash dividend/10 shares (RMB) (tax inclusive)2
Bonus issue from capital reserves (share/10 shares)2,217,864,281
Share base (share)443,572,856.20
Cash dividends (RMB) (tax inclusive)0.00
Cash dividends in other forms (such as share repurchase) (RMB)443,572,856.20
Total cash dividends (including those in other forms) (RMB)1,160,408,295.15
Distributable profit (RMB)100.00%
Total cash dividends (including those in other forms) as % of total profit to be distributed0
Applicable cash dividend policy
If it is difficult to identify the development stage of the Company but it has a significant capital expenditure arrangement, when making profit distribution, cash dividends shall account for no less than 20% in the profit distribution.
Details of the cash and/or stock dividend plan
Upon approval by the Board of Directors, the Company’s 2020 final dividend plan is as follows: Based on the total issued share capital on the date of record, a cash dividend of RMB 2 (tax inclusive) per 10 shares is planned to be distributed to all the shareholders of the Company, with the remaining undistributed profit carried forward to the next year; and there will be no bonus issue from either profit or capital reserves. The above dividend plan is consistent with the Company’s performance growth, and also in line with relevant provisions of the Company Law, the Articles of Association and the Company’s shareholder return plan. The independent directors of the Company have expressed consent as their independent opinion on the above dividend plan.

III Equity Incentive Plans, Employee Stock Ownership Plans or Other Incentive Measures forEmployees

√ Applicable □ Not applicable

The third employee stock ownership plan (ESOP) has been reviewed and approved by the Fourth Meeting of the Fifth Board ofDirectors, the Fourth Meeting of the Fifth Supervisory Committee and the Fourth Extraordinary General Meeting of Shareholders of2019. The Company transferred the shares repurchased from 11 April 2019 to 7 May 2019 to the ESOP at zero price. The sharescovered under the ESOP amount to 22,347,537 shares, accounting for 1.06% of the Company's total share capital. The ESOPunlocked the underlying shares, which were received through non-trade transfer and other legitimate means, phase by phase 12months after the date of the Company's announcement on the transfer of the last shares to the ESOP. The maximum lock-up periodis 36 months. For more details, see the Third Employee Stock Ownership Plan of Wuhu 37 Interactive Entertainment NetworkTechnology Group Co., Ltd. (Draft) and its abstract, the Announcement on the Resolution of the Fourth Meeting of the Fifth Boardof Directors (Announcement no.: 2019-078), the Announcement on the Resolution of the Fourth Meeting of the Fifth SupervisoryCommittee (Announcement no.: 2019-079) and Announcement on the Resolution of the Fourth Extraordinary General Meeting ofShareholders of 2019 (Announcement no.: 2019-089) published on Cninfo (http://www.cninfo.com.cn/).

According to the third ESOP (draft), if the Company's performance target defined in the ESOP is achieved -- that is, the netprofit (which is measured based on the net profit attributable to the Listed Company’s shareholders and does not include costsincurred by the shares under this ESOP) in 2019 is not lower than RMB1.5 billion), then 30% of the total number of shares in thisESOP can be unlocked. According to the Audit Report (H.X.S. (2020) S.Z. No. GD-26) issued by Huaxing Certified Public AccountantsLLP (special general partnership), the net profit attributable to the Listed Company’s shareholders in 2019 is RMB2.115 billion, andthe net profit attributable to the Listed Company’s shareholders minus the cost incurred by this ESOP in 2019 is RMB2.185 billion.That is, the Company's performance target defined in the ESOP has been achieved. Therefore, 30% of the total number of sharesunder this ESOP were unlocked 12 months after the date (27 July 2019) of the Company's announcement on the transfer of the last

shares to this ESOP upon the confirmation that the performance target has been achieved. That is, the lock-up period of the firstbatch of shares (6,704,261 shares) under the Company's third ESOP expired on 26 July 2020. For details, see the InformativeAnnouncement on the Expiration of the Lock-up Period of the First Batch of Shares under the Third Employee Stock Ownership Planpublished on Cninfo (http://www.cninfo.com.cn) on 23 July 2020.

According to the third ESOP (draft), if the Company's performance target defined in the ESOP is achieved -- that is, the total netprofit (which is measured based on the net profit attributable to the Listed Company’s shareholders and does not include costsincurred by the shares under this ESOP) in 2019 and 2020 is not lower than RMB3.2 billion), then 30% of the total number of sharesin this ESOP can be unlocked. According to the Audit Report issued by Huaxing Certified Public Accountants LLP (special generalpartnership), the net profit attributable to the Listed Company’s shareholders in 2020 of RMB2.761 billion, and the net profitattributable to the Listed Company’s shareholders minus the cost incurred by this ESOP in 2020 is RMB2.893 billion. Therefore, thetotal net profit attributable to the Listed Company’s shareholders in 2019 and 2020 minus the cost incurred by this ESOP isRMB5.077 billion. That is, the Company's performance target defined in the ESOP has been achieved. Therefore, 30% of the totalnumber of shares under this ESOP were unlocked 24 months after the date (27 July 2019) of the Company's announcement on thetransfer of the last shares to this ESOP upon the confirmation that the performance target has been achieved. That is, the lock-upperiod of the second batch of shares (6,704,261 shares) under the Company's third ESOP will expire on 26 July 2021.The Company is required to comply with the disclosure requirements of the SZSE Industrial Information Disclosure Guide No.12—Listed Companies Engaged in Software and IT Services.Naught.

IV Other Significant Events

√ Applicable □ Not applicable

The Proposal on the 2020 Private Placement Plan, along with related proposals, was approved at the Eleventh Meeting of theFifth Board of Directors and the 2019 Annual General Meeting of Shareholders of the Company. According to the Plan, the Companyintended to raise funds not exceeding RMB4.5 billion (inclusive) by offering shares of no more than 5% of the total pre-offeringshare capital. The raised funds after deducting the issuance expenses would be invested in the online games development andoperation project (RMB1.6 billion), the 5G-based cloud gaming platform project (RMB1.65 billion) and the Guangzhou headquartersbuilding project (RMB1.25 billion). On 27 April 2020, the Company received the Acceptance of Application for AdministrativePermission (acceptance No.: 200844) issued by the China Securities Regulatory Commission (hereinafter, the “CSRC”) on 26 April2020. Upon preliminary examination of the Application for Private Placement by Listed Company submitted by the Company,together with related materials, the CSRC decided to accept the application for further review on the ground that the applicationmaterials were in compliance with the prescribed form.

On 1 June 2020, the Company received the First Feedback Concerning Application for Administration Permission (No. 200844)issued by the CSRC on 29 May 2020. Upon the receipt of the Feedback, the Company, together with the relevant intermediaryagencies, carefully analyzed and discussed the issues raised in the Feedback, and made a corresponding reply, upon relevant checks,as required by the Feedback. The reply has been disclosed to the public. Please refer to the Reply of Wuhu 37 InteractiveEntertainment Network Technology Group Co., Ltd. Concerning the Feedback to Its Private Placement Application Documentsdisclosed by the Company on http://www.cninfo.com.cn dated 24 June 2020.

On 23 June 2020,the Proposal on Reducing the Total Funds to Be Raised in the 2020 Private Placement, along with relatedproposals, was approved at the Thirteenth Meeting of the Fifth Board of Directors of the Company. As such, the total funds to beraised was agreed to be reduced to an amount not exceeding RMB4.463 billion. The raised funds after deducting the issuance

expenses would be invested in the online games development and operation project (RMB1.6 billion), the 5G-based cloud gamingplatform project (RMB1.65 billion) and the Guangzhou headquarters building project (RMB1.213 billion).On 9 July 2020, the Company received the Letter on Preparations for the Issuance Review Committee Meeting on theApplication of 37 Interactive Entertainment for Private Placement (hereinafter, the “Letter”) issued by the CSRC. The Company,together with Orient Securities Investment Banking Co., Ltd. and other relevant intermediary agencies, carried out careful checks inrespect of the issues raised in the Letter, and made a corresponding reply as required. For further information, please refer to theReply of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd. and Orient Securities Investment Banking Co., Ltd.on the Letter on Preparations for the Issuance Review Committee Meeting on the Application of 37 Interactive Entertainment forPrivate Placement disclosed by the Company on http://www.cninfo.com.cn dated 18 July 2020.On 30 October 2020,the Proposal on Reducing the Total Funds to Be Raised in the 2020 Private Placement, along with relatedproposals, was approved at the Fifteenth Meeting of the Fifth Board of Directors of the Company. As such, the total funds to beraised was agreed to be reduced to an amount not exceeding RMB4.296 billion. The raised funds after deducting the issuanceexpenses would be invested in the online games development and operation project (RMB1.545 billion), the 5G-based cloud gamingplatform project (RMB1.595 billion) and the Guangzhou headquarters building project (RMB1.156 billion).As the Preliminary Plan for the 2020 Private Placement was revised as approved at the Fifteenth Meeting of the Fifth Board ofDirectors of the Company on 30 October 2020, the Company disclosed the accordingly revised reply to the CSRC feedback and replyto the Letter on 4 November 2020 according to the relevant requirements.On 14 December 2020, the Issuance Review Committee of the CSRC conducted a review on the Company’s private placementapplication. According to the review results, the private placement was approved.

The Company has received the Reply on Approval of the Application of Wuhu 37 Interactive Entertainment Network TechnologyGroup Co., Ltd. for Private Placement (CSRC Permit [2021] No. 16) issued by the CSRC. And the Announcement on the Receipt of theCSRC Approval Document for the Private Placement was disclosed by the Company on 13 January 2021. For details, please refer tohttp://www.cninfo.com.cn.

V Significant Events of Subsidiaries

√ Applicable □ Not applicable

On 7 November 2020,the Proposal on the Indirect Acquisition of 20 Percent of the Equity of Guangzhou 37 NetworkTechnology Co., Ltd. was reviewed and approved by the 16th Meeting of the Fifth Board of Directors. The Company and Shanghai 37Interactive Entertainment (a wholly owned subsidiary of the Company) acquired 100% of the equity of Huai'an Shunqin CorporateManagement Company (Limited Partnership) (hereinafter referred to as "Shunqin Partnership") previously owned by Xu Zhigao andXue Min at a price of RMB2.16 billion using cash from self-owned capital and 100% of the equity of Huai'an Shunjing CorporateManagement Company (Limited Partnership) (hereinafter referred to as "Shunjing Partnership") previously owned by He Hong, LiuJun, Liu Jiayu and Xu Zhigao at a price of RMB720 million. Through the acquisition of 100 percent of the equities of ShunqinPartnership and Shunjing Partnership at a total consideration of RMB2.88 billion, the Company indirectly acquired the 20% of theequity of Guangzhou 37 Interactive Entertainment previously owned by the two partnerships.

Before the acquisition transaction, the Company owned 80% of the equity of Guangzhou 37 Interactive Entertainment throughShanghai 37 Interactive Entertainment. That is, Guangzhou 37 Interactive Entertainment was previously a majority-ownedsubsidiary of 37 Interactive Entertainment. After the acquisition transaction, Shunqin Partnership and Shunjing Partnership becamethe Company's wholly owned partnerships, and Guangzhou 37 Interactive Entertainment became a wholly owned subsidiary of theCompany. For details, see the Announcement on the Indirect Acquisition of 20% of the Equity of Guangzhou 37 Network TechnologyCo., Ltd. published on Cninfo (http://www.cninfo.com.cn) on 8 December 2020.

The above proposal was reviewed and approved by the Third Extraordinary General Meeting of Shareholders of 2020. For

details, see the Announcement on the Resolution of the Third Extraordinary General Meeting of Shareholders of 2020 published onCninfo (http://www.cninfo.com.cn) on 24 December 2020.

Part VI Share Changes and Shareholder InformationI Share Changes

1. Share Changes

Unit: share

BeforeIncrease/decrease in the Reporting Period (+/-)After
NumberPercentage (%)New issuesShares as dividend converted from profitShares as dividend converted from capital reservesOtherSubtotalNumberPercentage (%)
1. Restricted shares794,755,46737.63%-51,252,364-51,252,364743,503,10335.20%
1.1 Shares held by the government
1.2 Shares held by state-owned corporations
1.3 Shares held by other domestic investors794,755,46737.63%-51,252,364-51,252,364743,503,10335.20%
Including: Shares held by domestic corporations
Shares held by domestic natural persons794,755,46737.63%-51,252,364-51,252,364743,503,10335.20%
1.4 Shares held by overseas investors
Including: Shares held by overseas corporations
Shares held by overseas natural persons
2. Un-restricted shares1,317,496,23062.37%51,252,36451,252,3641,368,748,59464.80%
2.1 RMB-denominated common shares1,317,496,23062.37%51,252,36451,252,3641,368,748,59464.80%
2.2 Domestically listed foreign shares
2.3 Overseas listed foreign shares
2.4 Others
3. Total shares2,112,251,697100.00%002,112,251,697100.00%

Reasons for share changes:

□ Applicable √ Not applicable

Approval of share changes:

□ Applicable √ Not applicable

Transfer of share ownership:

□ Applicable √ Not applicable

Progress on any share repurchase:

□ Applicable √ Not applicable

Progress on reducing the repurchased shares by way of centralized bidding:

□ Applicable √ Not applicable

Effects of share changes on the basic earnings per share, diluted earnings per share, equity per share attributable to the Company’scommon shareholders and other financial indicators of the prior year and the prior accounting period, respectively:

□ Applicable √ Not applicable

Other information that the Company considers necessary or is required by the securities regulator to be disclosed:

□ Applicable √ Not applicable

2. Changes in Restricted Shares

√ Applicable □ Not applicable

Unit: share

Name of shareholderBeginning restricted sharesShares with restriction lifted in the Reporting PeriodIncrease in restricted shares in the Reporting PeriodEnding restricted sharesReason for restrictionLifting date
Li Weiwei302,743,53900302,743,539Locked-up shares of senior managementSubject to regulations in respect of changes in shareholdings of directors, supervisors and senior management in the Company Law, etc.
Zeng Kaitian276,978,130031,633,800245,344,330Locked-up shares of senior managementSubject to regulations in respect of changes in shareholdings of directors, supervisors and senior management in the Company Law, etc.
Hu Yuhang4,315,518106,577,7450110,893,263Locked-up shares of senior managementSubject to regulations in respect of changes in shareholdings of directors, supervisors and senior management in the Company Law, etc.
Wu Weihong112,002,562028,000,64184,001,921Locked-up shares of senior managementSubject to regulations in respect of changes in shareholdings of directors, supervisors and senior management in the Company Law, etc.
Yang Jun520,05000520,050Locked-up shares of senior managementSubject to regulations in respect of changes in shareholdings of directors, supervisors and senior management in the Company Law, etc.
Wu Weidong98,195,668098,195,6680Restriction lifted for locked-up shares of senior managementRestriction lifted on 3 July 2020
Total794,755,467106,577,745157,830,109743,503,103----

II Issuance and Listing of Securities

1. Securities (Exclusive of Preferred Shares) Issued in the Reporting Period

□ Applicable √ Not applicable

2. Changes to Total Shares, Shareholder Structure and Asset and Liability Structures

□ Applicable √ Not applicable

3. Existing Staff-Held Shares

□ Applicable √ Not applicable

III Shareholders and Actual Controller

1. Shareholders and Their Holdings as at the Period-End

Unit: share

Number of common shareholders175,651Number of common shareholders at the month-end prior to the disclosure of this Report214,772Number of preferred shareholders with resumed voting rights (if any) (see note 8)0Number of preferred shareholders with resumed voting rights at the month-end prior to the disclosure of this Report (if any) (see note 8)0
5% or greater shareholders or the top 10 shareholders
Name of shareholderNature of shareholderShareholding percentageShares heldIncrease/decrease in the Reporting PeriodRestricted shares heldUn-restricted shares heldPledged or frozen status
StatusShares
Li WeiweiDomestic natural person17.11%361,413,019-42,245,033302,743,53958,669,480Pledged29,000,000
Zeng KaitianDomestic natural person11.62%245,344,374-81,781,400245,344,33044Pledged9,810,000
Hu YuhangDomestic natural person7.00%147,857,68474,220,133110,893,26336,964,421Pledged5,050,000
Wu WeihongDomestic natural person4.81%101,532,962-10,469,60084,001,92117,531,041
Wu WeidongDomestic natural person4.29%90,519,257-7,908,300090,519,257
Hong Kong Securities Clearing Company Ltd.Overseas corporation3.92%82,772,0868,978,938082,772,086
Wu XushunDomestic natural person2.37%50,070,682-23,867,100050,070,682
Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.—third employee stock ownership planOther0.75%15,740,183-6,607,354015,740,183
Industrial and Commercial Bank of China Limited-Yinhua Mid-cap and Small-cap Selected Mixed Securities Investment FundOther0.74%15,647,15712,689,657015,647,157
China Citic Bank Corporation Limited-Other0.68%14,316,0965,751,354014,316,096
Bank of Communications Schroders New Vitality Dynamic Asset Allocation Mixed Securities Investment Fund
Strategic investor or general corporation becoming a top-10 shareholder in a rights issue (if any) (see note 3)Not applicable
Related or acting-in-concert parties among the shareholders above1. Among the top 10 shareholders of the Company, Wu Xushun is the father of Wu Weihong and Wu Weidong, which makes them shareholders acting in concert. 2. The Company is not aware of whether there is, among the other top 10 shareholders, any related parties or acting-in-concert parties as defined in the Measures on the Administration of Acquisition of Listed Companies.
Top 10 un-restricted shareholders
Name of shareholderUn-restricted shares heldShares by class
ClassShares
Wu Weidong90,519,257RMB-denominated common shares90,519,257
Hong Kong Securities Clearing Company Ltd.82,772,086RMB-denominated common shares82,772,086
Li Weiwei58,669,480RMB-denominated common shares58,669,480
Wu Xushun50,070,682RMB-denominated common shares50,070,682
Hu Yuhang36,964,421RMB-denominated common shares36,964,421
Wu Weihong17,531,041RMB-denominated common shares17,531,041
Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.—third employee stock ownership plan15,740,183RMB-denominated common shares15,740,183
Industrial and Commercial Bank of China Limited-Yinhua Mid-cap and Small-cap Selected Mixed Securities Investment Fund15,647,157RMB-denominated common shares15,647,157
China Citic Bank Corporation Limited-Bank of Communications Schroders New Vitality Dynamic Asset Allocation Mixed Securities Investment Fund14,316,096RMB-denominated common shares14,316,096
Industrial and Commercial Bank of China-GF Sustaining Growth Securities Investment Fund13,800,000RMB-denominated common shares13,800,000
Related or acting-in-concert parties among the top 10 un-restricted shareholders, as well as between the top 10 un-restricted shareholders and the top 10 shareholders1. Among the top 10 shareholders of the Company, Wu Xushun is the father of Wu Weihong and Wu Weidong, which makes them shareholders acting in concert. 2. The Company is not aware of whether there is, among the other top 10 shareholders, any related parties or acting-in-concert parties as defined in the Measures on the Administration of Acquisition of Listed Companies.
Top 10 common shareholders engaged in securities margin trading (if any) (see note 4)None

Indicate by tick mark whether any of the top 10 common shareholders or the top 10 un-restricted common shareholders of theCompany conducted any promissory repo during the Reporting Period.

□ Yes √ No

No such cases in the Reporting Period.

2. Controlling Shareholder

Nature of the controlling shareholder: controlled by a natural personType of the controlling shareholder: natural person

Name of the controlling shareholderNationalityResidency in other countries or regions or not
Li WeiweiChineseNot
Main occupation and positionChairman of the Board and General Manager
Interests held in other domestically and overseas listed companies in the Reporting PeriodNone

Change of the controlling shareholder in the Reporting Period:

□ Applicable √ Not applicable

No such cases in the Reporting Period.

3. Actual Controller and Acting-in-Concert Parties

Nature of the actual controller: domestic natural personType of the actual controller: natural person

Name of the actual controllerRelationship with the actual controllerNationalityResidency in other countries or regions or not
Li WeiweiActual controller himselfChineseNot
Main occupation and positionChairman of the Board and General Manager
Controlling interests in other domestically and overseas listed companies in the past 10 yearsNone

Change of the actual controller in the Reporting Period:

□ Applicable √ Not applicable

No such cases in the Reporting Period.Ownership and control relationship between the actual controller and the Company:

Indicate whether the actual controller controls the Company via trust or other ways of asset management.

□ Applicable √ Not applicable

4. Other 10% or Greater Corporate Shareholders

□ Applicable √ Not applicable

5. Limitations on Shareholding Decrease by the Company’s Controlling Shareholder, Actual Controller,Reorganizer and Other Commitment Makers

□ Applicable √ Not applicable

Part VII Directors, Supervisors, Senior Management and Staff

I Changes in the Shareholdings of Directors, Supervisors and Senior Management

NameOffice titleIncumbent/FormerGenderAgeStart of tenureEnd of tenureBeginning shareholding (share)Increase in the period (share)Decrease in the period (share)Other increase/decrease (share)Ending shareholding (share)
Li WeiweiChairman of the Board and General MangerIncumbentMale4320 January 20157 April 2022403,658,05242,245,033361,413,019
Zeng KaitianVice Chairman of the BoardIncumbentMale455 July 20197 April 2022327,125,77481,781,400245,344,374
Hu YuhangDirectorIncumbentMale4416 September 20207 April 202273,637,55174,220,133147,857,684
Yang JunDirector and Deputy General ManagerIncumbentMale4120 January 20157 April 2022693,400693,400
Li YangIndependent DirectorIncumbentMale5224 December 20197 April 2022
Chen JianlinIndependent DirectorIncumbentMale4113 May 20167 April 2022
Ye XinIndependent DirectorIncumbentMale4524 December 20197 April 2022
Liu GuangqiangIndependent DirectorIncumbentMale3824 December 20197 April 2022
He YangChairman of the Supervisory CommitteeIncumbentMale3927 December 20187 April 2022
Cheng LinSupervisorIncumbentFemale3827 November 20157 April 2022
Liu FengyongSupervisorIncumbentFemale4320 January 20157 April 2022
Zhu HuaiminDeputy General ManagerIncumbentMale3821 January 20197 April 2022
Ye WeiChief Financial Officer and Board SecretaryIncumbentMale3712 October 20167 April 2022
Chen XialinDirectorFormerMale3621 January 20193 August 2020
Total------------805,114,77774,220,133124,026,4330755,308,477

II Changes of Directors, Supervisors and Senior Management

√ Applicable □ Not applicable

NameOffice titleType of changeDate of changeReason for change
Chen XialinDirectorResignation3 August 2020Personal reason
Hu YuhangDirectorElected16 September 2020Nominated by the Nomination Committee

III Biographical InformationProfessional backgrounds, major work experience and current posts in the Company of the incumbent directors, supervisors andsenior management:

Mr. Li Weiwei was born on 11 November 1977. Mr. Li is a member of the CPC and has no right of permanent residence in aforeign country. He received an EMBA degree from Cheung Kong Graduate School of Business and is working on a Doctor ofBusiness Administration program at the school. From August 2000, he worked for Shenzhen Zhuanjia Network Technology Co., Ltd.,then Shenzhen Quanzhi Information Technology Co., Ltd. and then Guangzhou Haiyan Network Technology Co., Ltd. From October2011 to 18 March 2015, he served as Executive Director and General Manager of 37 Interactive Entertainment (Shanghai)Technology Co., Ltd. On 20 January 2015, he became Vice Chairman of the Third Board of Directors of Wuhu 37 InteractiveEntertainment Network Technology Group Co., Ltd. On 24 August 2015, he was also appointed General Manager of the Company.On 21 January 2019, he became Chairman of the Fourth Boarder of Directors and General Manager of the Company. On 8 April2019, he became Chairman of the Fifth Boarder of Directors and General Manager of the Company. Mr. Li is currently Chairman ofthe Fifth Boarder of Directors and General Manager of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.

Mr. Zeng Kaitian, Han nationality, was born on 3 March 1975. Mr. Zeng is of Chinese nationality and has no right of permanentresidence in a foreign country. He received an EMBA degree from China Europe International Business School. He is a co-founder of37 Interactive Entertainment (Shanghai) Technology Co., Ltd. In October 2011, he became Director of 37 Interactive Entertainment(Shanghai) Technology Co., Ltd., overseeing the overseas publishing of the company's online game business. On 5 July 2019, hebecame Director of the Company. Mr. Zeng is currently Vice Chairman of the Fifth Boarder of Directors of Wuhu 37 Interactive

Entertainment Network Technology Group Co., Ltd.Mr. Hu Yuhang was born on 27 February 1976. He graduated from Lanzhou University and received an EMBA degree fromCheung Kong Graduate School of Business. He has no right of permanent residence in a foreign country. Mr. Hu became President of37 Interactive Entertainment in October 2013 in charge of the strategic planning and day-to-day management of 37 Games, an R&Dbrand of 37 Interactive Entertainment. He is a seasoned expert in game R&D management and has rich experience in game R&D andproject management. On 16 September 2020, he became Director of the Company. Mr. Hu is currently Director of the Fifth Board ofDirectors of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.Mr. Yang Jun, born on 23 January 1979, is a member of the CPC and has no right of permanent residence in a foreign country.He has received a master's degree in corporate management and is working on a Doctor of Business Administration program at theCheung Kong Graduate School of Business .He is a Chinese certified public accountant. From June 2006 to April 2012, he worked forDeloitte Touche Tohmatsu (special general partner) as the Manager of the Audit Department. From April 2012 to present, he servedas CFO of 37 Interactive Entertainment (Shanghai) Technology Co., Ltd. On 20 January 2015, he became Director and DeputyGeneral Manager of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd. He is currently Director of the FifthBoard of Directors and Deputy General Manager of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.Mr. Chen Jianlin, Han nationality, was born on 21 April 1979. He is of Chinese nationality and has no right of permanentresidence in a foreign country. He holds a Ph.D. and is a certified Independent Director. From July 2009 to present, he worked atGuangdong University of Finance & Economics, serving as Lecturer, then Associate Professor and then Professor. He is currently ViceDean, Professor and Master's Degree Supervisor of the School of Accounting, Guangdong University of Finance & Economics. In2015, he was included in the list of Ministry of Finance National (Reserve) Leading Accounting Talents (Academics). On 13 May 2016,he became Independent Director of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd. Mr. Li is currentlyIndependent Director of the Fifth Board of Directors of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.Mr. Li Yang, Han nationality, was born on 1 June 1968. He is of Chinese nationality and has no right of permanent residence in aforeign country. He received an LL.B. from Zhongnan University of Economics and Law and an LL.M. and a J.D. from Peking Universityand completed a postdoctoral research program in laws at Wuhan University. He is a certified Independent Director. From January2016 to present, he was Professor and Doctorate Supervisor of the School of Law, Sun Yat-sen University and Director of theInstitute of Intellectual Property Law at the university. In 2016, he was listed in the university's Introduction of 100 Talents program.Mr. Li is also Vice Chairman of the China Intellectual Property Law Association, Researcher of the Intellectual Property Right JudicialProtection Research Center of the Supreme People's Court, Arbitrator of Shenzhen Court of International Arbitration, Arbitrator ofGuangzhou Arbitration Commission and Expert Consultant to Guangzhou Intellectual Property Court. On 24 December 2019, hebecame Independent Director of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd. Mr. Li is currentlyIndependent Director of the Fifth Board of Directors of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.Mr. Ye Xin, Han nationality, was born on 10 July 1975. He is of Chinese nationality and has no right of permanent residence in aforeign country. He received a bachelor's degree in accounting from Xi'an Jiaotong University, a Master of Management degree fromXi'an University of Technology and an EMBA degree from Guanghua School of Management, Peking University and Cheung KongGraduate School of Business. He is a certified Independent Director. From 1995 to 2003, he worked at the Civil AviationAdministration of China. From 2003 to 2005, he served as Deputy General Manager of Tsinghua Unisplendour Venture InvestmentCo., Ltd. From 2005 to 2015, he served as Director, Deputy General Manager, Board Secretary and General Manager of ShenzhenCoship Electronics Co., Ltd.. From 2016 to present, he was General Manager of Tianshi Fund Management (Shenzhen) Co., Ltd. On24 December 2019, he became Independent Director of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.Mr. Ye is currently Independent Director of the Fifth Board of Directors of Wuhu 37 Interactive Entertainment Network TechnologyGroup Co., Ltd.Mr. Liu Guangqiang, Han nationality, was born on 19 February 1982. He is of Chinese nationality and has no right of permanentresidence in a foreign country. He received a Ph.D. in public economic management from Wuhan University. He is a member of theCPC and a certified Independent Director. From July 2014 to present, he worked at Zhongnan University of Economics and Law,

holding positions of Associate Professor of the School of Accounting, Vice Dean of the Faculty of Accounting and Director of theAccounting Information Research Center. He is currently on the list of National High-end (Reserve) Accounting Talents. On 24December 2019, he became Independent Director of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd. Mr.Liu is currently Independent Director of the fifth Board of Directors of Wuhu 37 Interactive Entertainment Network TechnologyGroup Co., Ltd.Mr. He Yang, Han nationality, was born on 14 June 1981. He is of Chinese nationality, is a member of the CPC and has no rightof permanent residence in a foreign country. He received an MBA degree from University of Electronic Science and Technology ofChina. From June 2012 to July 2014, he was Deputy General Manager of Chengdu 37Wan Network Technology Co., Ltd.. In July2014, he became Director and General Manager of Jiangsu Aurora Network Technology Co., Ltd. In December 2018, he becameEmployee Supervisor of the Fourth Supervisory Committee of Wuhu 37 Interactive Entertainment Network Technology Group Co.,Ltd. In January 2019, he became Chairman of the Fourth Supervisory Committee of Wuhu 37 Interactive Entertainment NetworkTechnology Group Co., Ltd. Mr. He is currently Chairman of the Fifth Supervisory Committee of Wuhu 37 Interactive EntertainmentNetwork Technology Group Co., Ltd.Ms. Cheng Lin, Han nationality, was born on 11 July 1982. She is of Chinese nationality and has no right of permanent residencein a foreign country. She is working on an EMBA program at Lingnan College, Sun Yat-sen University. From 2011 to 2016, she wasDirector of Public Affairs of 37 Interactive Entertainment (Shanghai) Technology Co., Ltd. She is currently Shareholder Supervisor ofthe Fifth Board of Supervisors of the Company.

Ms. Liu Fengyong, Han nationality, was born on 13 April 1977. She is of Chinese nationality and has no right of permanentresidence in a foreign country. She has received a university degree and is a member of the CPC. From July 2000 to September 2005,she worked for Guangzhou Pearl River Piano Group Co., Ltd. as a Legal Specialist. From November 2005 to August 2012, she wasLegal Director of Guangzhou Rockmobile Network Co., Ltd. In August 2012, she became Legal Manager of 37 InteractiveEntertainment (Shanghai) Technology Co., Ltd. In December 2016, she became Employee Supervisor of the Third SupervisoryCommittee of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd. She is currently Employee Supervisor of theFifth Supervisory Committee of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.

Mr. Zhu Huaimin, Han nationality, was born on 5 January 1982. He is of Chinese nationality and has no right of permanentresidence in a foreign country. He is working on an EMBA program at China Europe International Business School. From July 2004 toJuly 2008, he worked for Beijing Sina Internet Information Service Co., Ltd. From August 2008 to December 2009, he was TechnicalManager of Molihe Network Technology (Beijing) Co., Ltd. In October 2011, he joined 37 Interactive Entertainment (Shanghai)Technology Co., Ltd., serving as Vice President of Technology. On 21 January 2019, he became Deputy General Manager of Wuhu 37Interactive Entertainment Network Technology Group Co., Ltd. Mr. Zhu is currently Deputy General Manager of Wuhu 37 InteractiveEntertainment Network Technology Group Co., Ltd.

Mr. Ye Wei was born in December 1983. He is a member of the CPC and has no right of permanent residence in a foreigncountry. He has received a bachelor's degree, is a Certified Public Accountant in China, and is a Shenzhen Stock Exchange certifiedBoard Secretary. From August 2006 to July 2013, he was Audit Manager of Ernst & Young Guangzhou Office. From July 2013 toMarch 2015, he was Chief Financial Officer of 37 Interactive Entertainment (Shanghai) Technology Co., Ltd. On 30 March 2015, hebecame Chief Financial Officer of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd. On 6 January 2017, hebecame Chief Financial Officer and Secretary to the Fourth Board of Directors of Wuhu 37 Interactive Entertainment NetworkTechnology Group Co., Ltd. Mr. Ye is currently Chief Financial Officer and Secretary to the Fourth Board of Directors of Wuhu 37Interactive Entertainment Network Technology Group Co., Ltd.

Offices held concurrently in shareholding entities:

□ Applicable √ Not applicable

Offices held concurrently in other entities:

√ Applicable □ Not applicable

NameOther entityOffice held in the entityStart of tenureEnd of tenureRemuneration or allowance from the entity or not
Chen JianlinSchool of Accounting, Guangdong University of Finance & EconomicsVice Dean, Professor and Master's Degree Supervisor of the School of Accounting1 July 2009Yes
Li YangSchool of Law, Sun Yat-sen UniversityProfessor, Doctoral Supervisor and Director of the Institute of Intellectual Property Law1 January 2016Yes
Ye XinTianshi Fund Management (Shenzhen) Co., Ltd.General Manager20 January 2016Yes
Liu GuangqiangAccounting Information Research Center and School of Accounting, Zhongnan University of Economics and LawAssociate Professor and Vice Dean of the Faculty of Accounting and Director of the Accounting Information Research Center1 July 2014Yes
NoteMr. Chen Jianlin worked at the School of Accounting, Guangdong University of Finance & Economics from July 2009 to present, holding the position of Lecturer, then Associate Professor and then Professor. Mr. Chen is currently Vice Dean, Professor and Master's Degree Supervisor of the School of Accounting, Guangdong University of Finance & Economics. Mr. Li Yang was Professor and Doctoral Supervisor of the School of Law, Sun Yat-sen University and Director of the Institute of Intellectual Property Law at the university from January 2016 to present. Mr. Ye Xin was General Manager of Tianshi Fund Management (Shenzhen) Co., Ltd. from 2016 to present. Mr. Liu Guangqiang worked at Zhongnan University of Economics and Law from July 2014 to present, holding the positions of Associate Professor of the School of Accounting, Vice Dean of the Faculty of Accounting and Director of the Accounting Information Research Center. Mr. Liu is also Deputy Chief Editor of Cai Zheng Jian Du.

Punishments imposed in the recent three years by the securities regulator on the incumbent directors, supervisors and seniormanagement as well as those who resigned in the Reporting Period:

□ Applicable √ Not applicable

IV Remuneration of Directors, Supervisors and Senior ManagementDecision-making procedure, determination basis and actual payments of remuneration for directors, supervisors and seniormanagement:

1. Procedure for determining the remunerations of directors, supervisors and senior management: The Remuneration andPerformance Assessment Committee of the Company's Board of Directors formulates the policy and plan for compensating theCompany's directors, supervisors and senior management. The remunerations of directors and supervisors are reviewed andapproved by the General Meeting of Shareholders. The remunerations of senior management are reviewed and approved by theBoard of Directors. The Human Resources and Finance Departments of the Company support the Remuneration and PerformanceAssessment Committee to implement the remuneration plan for the Company's directors, supervisors and senior management.

2. Criteria for determining the remunerations of directors, supervisors and senior management: The remunerations ofdirectors, supervisors and senior management are determined based on the operational performance of the Company and thecurrent market conditions. The remunerations of senior management are determined according to the Company's relevantregulations, the Company's annual operational targets for 2020 and the functions and duties the senior management have fulfilledin achieving the annual operational targets and sustainable development objectives.

3. Payment of remunerations of directors, supervisors and senior management: The remunerations of independent directorsare paid semiannually to their personal accounts as scheduled. The remunerations of other directors, supervisors and seniormanagement are determined based on the results of their performance assessment and are paid monthly or as scheduled in theremuneration payment system.

4. On 15 May 2020, the Proposal for Revising the Remuneration Plan for the Directors of the Fifth Board of Directors wasreviewed and approved by the First Extraordinary General Meeting of Shareholders of 2020. To further improve the Company'sdirector remuneration management, stimulate the initiative and creativity of directors, improve the Company's operations andmanagement, promote healthy, sustainable and stable development of the Company and ensure the realization of the strategicdevelopment objectives for the Company, the remuneration plan is revised as follows: (1) All non-independent directors work fulltime for the Company, tackle day-to-day decision-making tasks and perform important functions and duties, so they arecompensated RMB0.6 million to RMB6 million per annum, with the exact amount of remuneration to be determined based on theirjob functions and duties and the Company's performance. The compensation described above does not include the reward coveredunder ESOPs or equity incentive programs. (2) Each independent director is compensated a fixed amount of director fees ofRMB120,000 per annum, which is paid out in two half-year disbursements.

Remuneration of directors, supervisors and senior management for the Reporting Period

Unit: RMB'0,000

NameOffice titleGenderAgeIncumbent/FormerTotal before-tax remuneration from the CompanyRemuneration from any related party or not
Li WeiweiChairman of the Board and General MangerMale43Incumbent250.41Not
Zeng KaitianVice Chairman of the BoardMale45Incumbent284.51Not
Hu YuhangDirectorMale44Incumbent540.59Not
Yang JunDirector and Deputy General ManagerMale41Incumbent261.93Not
Li YangIndependent DirectorMale52Incumbent12Not
Chen JianlinIndependent DirectorMale41Incumbent12Not
Ye XinIndependent DirectorMale45Incumbent12Not
Liu GuangqiangIndependent DirectorMale38Incumbent12Not
He YangChairman of the Supervisory CommitteeMale39Incumbent366.17Not
Cheng LinSupervisorFemale38Incumbent134.1Not
Liu FengyongSupervisorFemale43Incumbent56.93Not
Zhu HuaiminDeputy General ManagerMale38Incumbent161.15Not
Ye WeiChief Financial Officer and Board SecretaryMale37Incumbent159.07Not
Chen XialinDirectorMale36Former315.73Not
Total--------2,578.59--

Equity incentives granted to directors and senior management in the Reporting Period:

□ Applicable √ Not applicable

V Employees

1. Number, Functions and Educational Backgrounds of Employees

Number of in-service employees of the parent1
Number of in-service employees of principal subsidiaries4,061
Total number of in-service employees4,062
Total number of paid employees in the Reporting Period4,062
Number of retirees to whom the parent or its major subsidiaries need to pay retirement pensions0
Functions
FunctionEmployees
Marketing990
Technical312
Financial86
Administrative61
R&D2,031
Teaching104
Operation241
Others237
Total4,062
Educational backgrounds
Educational backgroundEmployees
Master’s degree and above215
Bachelor’s degree2,738
Junior college908
Senior high school and below201
Total4,062

2. Employee Remuneration Policy

The Company strictly observes the Labor Law of the People's Republic of China and other relevant laws and regulations,including rules, regulations and normative documents issued by the various ministries and commissions of the State Council, andhas implemented an employment contract system. The Company protects the rights and interests of employees by strictlyimplementing China's employment system, labor protection system, social security system and medical security system and payingpremiums of pension insurance, medical insurance, unemployment insurance, work injury insurance and maternity insurance andmaking contributions to the Housing Provident Fund for employees.The Company provides employees with generous welfare benefits, such as supplementary commercial insurance, interest-freehousing loans, solid breakfast, meal allowances, flower tea, transportation allowances, telecommunication allowances, notebookallowances, physical checks, extra holidays, and employee clubs.The Company is required to comply with the disclosure requirements of the SZSE Industrial Information Disclosure Guide No.12—Listed Companies Engaged in Software and IT Services.The total amount of employee remunerations of the Reporting Period is RMB1.229 billion, accounting for 10.73% of the totalcosts (including cost of sales, distribution and selling expenses, general and administrative expenses and R&D expenses). Theprofitability of the Company has a low sensitivity to the variation in the total amount of employee remunerations. At the end of theReporting Period, the Company's core technical staff accounts for 16.91% of the total number of employees, and theirremunerations account for 29.96% of the total amount of employee remunerations.

3. Training Plans

In 2020, the Company conducted staff training focusing on improving employee’s quality and working skills, promoting theiroccupational development, and attracting and developing talents to support the Company’s business development and humanresources appreciation. In addition, the training program is committed to building a unified corporate culture, values and code ofconduct to form a core centripetal force. In line with the Company’s long-term development strategy, the program also introducedadvanced management concepts, and facilitated internal management progress, which was a booster for cadre training and strategyimplementation.The training program was joined by 30,685 employees in total. Specifically, 651 employees took part in the O2O program;online and offline learning plans were participated in by 534 and 24,400 associates respectively. The individual exams covered atotal of 286 people. The average login rate of online platforms is 59%, and the average learning rate is 27%; the number of loginssaw a continued increase, with the highest number of concurrent learners reaching 810. As of December 2020, the total number ofplatform courses is 724, with internal courses accounting for 74% and external courses taking up 26%.

4. Labor Outsourcing

√ Applicable □ Not applicable

Total hours of labor outsourced934,391.17
Total payment for labor outsourcing (RMB)43,851,838.26

Part VIII Financial StatementsI Independent Auditor’s Report

Type of the independent auditor’s opinionUnmodified unqualified opinion
Date of report signing29 April 2021
Name of the independent auditorHuaxing Certified Public Accountants LLP
Name of the certified public accountantsYang Xinchun and Zhang Fengbo

Independent Auditor’s ReportTo all the shareholders of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.:

I OpinionWe have audited the financial statements of Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.(hereinafter referred to as the “Company”), which comprise the consolidated and the Company’s balance sheets as at 31 December2020, the consolidated and the Company’s income statements, the consolidated and the Company’s cash flow statements, and theconsolidated and the Company’s statements of changes in shareholders’ equity for the year then ended, as well as the notes to thefinancial statements.

In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated and theCompany’s financial positions as at 31 December 2020, and the consolidated and the Company’s operating results and cash flowsfor the year then ended, in conformity with China’s Accounting Standards for Business Enterprises (CAS).

II Basis for Opinion

We conducted our audits in accordance with the Audit Standards for Chinese Registered Accountants. Our responsibilitiesunder those standards are further described in the Auditor’s Responsibilities for Audit of Financial Statements section of our report.We are independent of the Company in accordance with the China Code of Ethics for Certified Public Accountants, and we havefulfilled our other ethical responsibilities in accordance with the said Code of Ethics. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.

III Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financialstatements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole,and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

(I) Revenue recognition

1. Description

As described in Notes III - XXVI Revenue and V - XXXIII Operating Revenue and Cost of Sales," the Company is mainly engaged inthe R&D and (independent and joint) operation of online games. The operation of online games depends highly on internal controland IT system, leading to inherent risk in revenue recognition, so we highlighted the revenue recognition of online games as a keyaudit matter.

2. Response to audit

(1) The Company investigated and tested revenue-related internal controls and assessed the appropriateness of the key controlpoints of internal control and the effectiveness of the operation of internal controls.

(2) The Company performed IT audit. The consistency between the background recharge amount and consumption amount ofsome games and the financial information was tested. The exactness of the consumption amount of ingots at period end wasverified. Game operation data such as average number of online users, number of paying uses and average consumption amountper user were checked for their consistency with revenue data.

(3) The Company checked the accuracy of revenue accounting and estimate. To align the accounting process with the timecycle of reconciliation or settlement and follow the accrual basis of accounting, the Company makes revenue estimates based on therecharge amount and the agreed revenue distribution scheme or the actual consumption amount at month end and adjusts therevenue estimates according to the actually settled revenues; thus, the accuracy of revenue estimates directly influences theaccuracy of revenue recognition. The accuracy of revenue estimates was assessed by sampling some major games and checking theestimated monthly or annual revenues of these sampled games against the settled revenues in terms of the average discrepancybetween the estimated and settled revenues.

(4) The Company checked the collection of accounts receivable from sales. Third-party collections/payments or bank depositreceipts were checked, focusing on the consistency between the original documents and book records in terms of the recipient andamount of payment.

(5) The Company performed follow-up test. A follow up test was conducted on accounts receivable to check whether they werecollected in time and whether there were chargebacks to customers. Period-end estimated revenues were checked against revenuessettled after the Reporting Period for assessing the existence of major discrepancies between the estimated and actually settledrevenues.

(II) Internet traffic fee charges

1. Description

As described in Note V. (XXXV) Distribution and Selling Expenses, the Internet traffic fee charges in the 2020 consolidatedfinancial statements amount to RMB8.015 billion. Because Internet traffic fee charges amount to a substantial amount and there isinherent risk in terms of their exactness and accuracy, we highlighted the exactness and accuracy of Internet traffic charges as a keyaudit matter.

2. Response to audit

The major audit procedures performed to address the exactness and accuracy of Internet traffic fee charges include:

(1) We investigated and tested Internet traffic fee charges-related internal controls and assessed the effectiveness of the designand operation of relevant internal controls;

(2) We performed an analytical review to comparatively analyze the proportion of and variation in the monthly Internet trafficfee charges and assess the appropriateness of the variation;

(3) We performed a detail test on Internet traffic charges by checking the supporting documents of large vouchers, such ascontracts, invoices, bills of payment and statements of accounts, and reviewing the accuracy of such charges;

(4) We performed external confirmations by checking the amounts of transactions and the balance of the accountspayable/receivable between the Company and its major suppliers and verifying the exactness and completeness of distribution andselling expenses through letters of confirmation;

(5) We performed a cut-off test on the Internet traffic fee charges recognized before and after the date of balance sheet,focusing on whether there are major inter-period adjustments.

IV Other Information

The Company’s management is responsible for the other information. The other information comprises all of the informationincluded in the Company’s 2020 Annual Report other than the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assuranceconclusion thereon.In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in theaudit or otherwise appears to be materially misstated.If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we arerequired to report that fact. We have nothing to report in this regard.

V Responsibilities of Management and Those Charged with Governance for Financial Statements

The Company’s management is responsible for the preparation of the financial statements that give a fair view in accordancewith CAS, and for designing, implementing and maintaining such internal control as the management determines is necessary toenable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the management is responsible for assessing the Company’s ability to continue as a goingconcern, and using the going concern basis of accounting unless the management either intends to liquidate the Company or tocease operations, or have no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

VI Auditor’s Responsibilities for Audit of Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from materialmisstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is ahigh level of assurance, but is not a guarantee that an audit conducted in accordance with CAS will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financialstatements.

As part of an audit in accordance with CAS, we exercise professional judgment and maintain professional skepticismthroughout the audit. We also:

(1) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design andperform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basisfor our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, asfraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

(2) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate inthe circumstances, but not for the purpose of expressing opinion on the effectiveness of internal control.

(3) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and relateddisclosures made by the management.

(4) Conclude on the appropriateness of the management’s use of the going concern basis of accounting and, based on theaudit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on theCompany’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required by CAS to drawusers’ attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, tomodify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,future events or conditions may cause the Company to cease to continue as a going concern.

(5) Evaluate the overall presentation, structure and content of the financial statements, and whether the financial statementsrepresent the underlying transactions and events in a manner that achieves fair presentation.

(6) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities withinthe Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance

of the Company audit. We remain solely responsible for our audit opinion.We communicate with those charged with governance regarding, among other matters, the planned scope and timing of theaudit and significant audit findings, including any noteworthy deficiencies in internal control that we identify during our audit.We also provide those charged with governance with a statement that we have complied with relevant ethical requirementsregarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bearon our independence, and where applicable, related safeguards.From the matters communicated with those charged with governance, we determine those matters that were of mostsignificance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe thesematters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rarecircumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doingso would reasonably be expected to outweigh the public interest benefits of such communication.II Financial StatementsCurrency unit for the financial statements and the notes thereto: RMB

1. Consolidated Balance Sheet

Prepared by Wuhu 37 Interactive Entertainment Network Technology Group Co., Ltd.

31 December 2020

Unit: RMB

Item31 December 202031 December 2019
Current assets:
Monetary funds1,776,856,909.852,152,508,643.76
Transaction settlement funds
Loans to other banks
Trading financial assets1,321,234,029.612,042,903,416.32
Derivative financial assets
Notes receivable
Accounts receivable1,164,657,998.351,287,915,082.56
Accounts receivable financing
Prepayments999,890,031.00661,089,054.70
Premiums receivable
Reinsurance receivables
Receivable reinsurance contract reserve
Other receivables85,138,773.1084,842,613.18
Including: Interest receivable
Dividends receivable10,100,000.0010,400,000.00
Redemptory monetary capital for sale
Inventories
Contract assets
Assets held for sale
Non-current assets due within one year
Other current assets452,435,284.38125,885,754.42
Total current assets5,800,213,026.296,355,144,564.94
Non-current assets:
Loans and advances to customers
Debt investments
Other debt investments
Long-term receivables
Long-term equity investments360,566,552.56468,792,240.20
Other equity investments294,824,927.02119,521,347.60
Other non-current financial assets372,195,483.93389,489,978.68
Investment properties
Fixed assets922,736,638.7647,102,974.14
Construction in progress4,180,019.75797,245,599.78
Productive living assets
Oil and gas assets
Right-of-use assets
Intangible assets1,108,434,647.5116,997,408.09
Development expenditure
Goodwill1,589,065,048.531,614,909,880.35
Long-term deferred expenses71,442,122.8838,593,956.25
Deferred income tax assets9,967,411.3526,566,306.68
Other non-current assets30,705,621.27270,895,599.02
Total non-current assets4,764,118,473.563,790,115,290.79
Total assets10,564,331,499.8510,145,259,855.73
Current liabilities:
Short-term loans889,324,326.07
Loans from the central bank
Loans from other banks
Trading financial liabilities
Derivative financial liabilities
Notes payable393,351,017.72300,000,000.00
Accounts payable1,078,096,658.121,418,946,404.24
Advances from customers196,924,263.69
Contract liabilities204,231,829.45
Financial assets sold under repurchase agreements
Customer deposits and interbank deposits
Payables for acting trading of securities
Payables for underwriting of securities
Employee benefits payable410,000,161.52278,936,676.53
Taxes payable160,224,192.87161,110,700.51
Other payables1,317,972,818.79141,387,120.09
Including: Interest payable
Dividends payable
Handling charges and commissions payable
Reinsurance payables
Liabilities held for sale
Non-current liabilities due within one year31,158,472.31
Other current liabilities45,287,027.6171,925,723.44
Total current liabilities4,498,488,032.152,600,389,360.81
Non-current liabilities:
Insurance contract reserve
Long-term loans250,017,634.02
Bonds payable
Including: Preferred shares
Perpetual bonds
Lease liabilities
Long-term payables
Long-term employee benefits payable
Provisions
Deferred income721,630.66
Deferred income tax liabilities391,763.97422,626.71
Other non-current liabilities
Total non-current liabilities391,763.97251,161,891.39
Total liabilities4,498,879,796.122,851,551,252.20
Shareholders' equity:
Share capital2,112,251,697.002,112,251,697.00
Other equity instruments
Including: Preferred shares
Perpetual bonds
Capital reserves114,693,519.9173,153,800.49
Less: Treasury shares
Other comprehensive income-149,074,272.37-94,582,500.13
Special reserves
Surplus reserves227,390,965.90
General risk reserves
Retained earnings3,959,512,681.414,711,093,895.82
Total equity attributable to shareholders of the Company6,037,383,625.957,029,307,859.08
Non-controlling interests28,068,077.78264,400,744.45
Total shareholders' equity6,065,451,703.737,293,708,603.53
Total liabilities and shareholders’ equity10,564,331,499.8510,145,259,855.73

Legal representative: Li Weiwei Chief Financial Officer: Ye WeiBoard Secretary: Ye Wei

2. Balance Sheet of the Company

Unit: RMB

Item31 December 202031 December 2019
Current assets:
Monetary funds274,246.17765,545.81
Trading financial assets
Derivative financial assets
Notes receivable
Accounts receivable
Accounts receivable financing
Prepayments5,000.00
Other receivables1,000,017,597.101,010,549,806.19
Including: Interest receivable
Dividends receivable1,000,000,000.001,000,000,000.00
Inventories
Contract assets
Assets held for sale
Non-current assets due within one year
Other current assets3,352,745.352,895,886.32
Total current assets1,003,644,588.621,014,216,238.32
Non-current assets:
Debt investments
Other debt investments
Long-term receivables
Long-term equity investments9,449,976,259.366,487,297,853.18
Other equity investments7,240,888.31
Other non-current financial assets29,040,909.5431,706,772.79
Investment properties
Fixed assets
Construction in progress
Productive living assets
Oil and gas assets
Right-of-use assets
Intangible assets
Development expenditure
Goodwill
Long-term deferred expenses
Deferred income tax assets
Other non-current assets
Total non-current assets9,479,017,168.906,526,245,514.28
Total assets10,482,661,757.527,540,461,752.60
Current liabilities:
Short-term loans
Trading financial liabilities
Derivative financial liabilities
Notes payable
Accounts payable186,277.5014,203.83
Advances from customers
Contract liabilities
Employee benefits payable492,264.00120,059.83
Taxes payable4,749,796.661,958,201.03
Other payables3,062,581,644.176,806,054.20
Including: Interest payable
Dividends payable
Liabilities held for sale
Non-current liabilities due within one year
Other current liabilities
Total current liabilities3,068,009,982.338,898,518.89
Non-current liabilities:
Long-term loans
Bonds payable
Including: Preferred shares
Perpetual bonds
Lease liabilities
Long-term payables
Long-term employee benefits payable
Provisions
Deferred income
Deferred income tax liabilities
Other non-current liabilities
Total non-current liabilities
Total liabilities3,068,009,982.338,898,518.89
Shareholders' equity:
Share capital2,112,251,697.002,112,251,697.00
Other equity instruments
Including: Preferred shares
Perpetual bonds
Capital reserves3,759,929,582.873,622,063,902.37
Less: Treasury shares
Other comprehensive income-60,000,000.00-52,759,111.69
Special reserves
Surplus reserves442,062,200.17340,080,723.42
Retained earnings1,160,408,295.151,509,926,022.61
Total shareholders' equity7,414,651,775.197,531,563,233.71
Total liabilities and shareholders’ equity10,482,661,757.527,540,461,752.60

3. Consolidated Income Statement

Unit: RMB

Item20202019
1. Total operating revenue14,399,703,084.5613,227,135,966.70
Including: Operating revenue14,399,703,084.5613,227,135,966.70
Interest income
Premium income
Handling charge and commission income
2. Total operating costs and expenses11,468,915,314.3110,586,672,548.89
Including: Cost of sales1,757,783,549.761,776,066,319.34
Interest expense
Handling charge and commission expenses
Surrenders
Net claims paid
Net amount provided as insurance contract reserve
Expenditure on policy dividends
Reinsurance premium expenses
Taxes and surcharges42,336,777.6646,059,099.89
Distribution and selling expenses8,212,936,504.817,737,205,528.07
General and administrative expenses366,208,400.81221,857,572.82
Research and development expenses1,112,654,352.49820,387,890.10
Financial expenses-23,004,271.22-14,903,861.33
Including: Interest expense41,162,339.4230,290,824.34
Interest income73,943,032.8739,394,594.02
Add: Other income162,027,080.81142,919,413.02
Investment income (“-” for loss)155,254,765.65110,613,243.43
Including: Share of profits and losses of joint ventures and associates28,694,143.2117,449,465.62
Gain on derecognition of financial assets measured at amortised cost (“-” for loss)
Gain on exchange (“-” for loss)
Net gain on exposure hedges (“-” for loss)
Gain on changes in fair value (“-” for loss)195,629,632.38-147,537,348.28
Impairment loss on credit (“-” for loss)4,606,858.28-16,154,241.90
Impairment loss on assets (“-” for loss)-192,660,311.72-58,236,369.22
Gain on disposal of assets (“-” for loss)304,974.6952,478.74
3. Operating profit (“-” for loss)3,255,950,770.342,672,120,593.60
Add: Non-operating income4,066,295.9628,172,549.91
Less: Non-operating expenses11,044,793.904,160,245.84
4. Profit before income tax expenses (“-” for loss)3,248,972,272.402,696,132,897.67
Less: Income tax expenses213,140,950.93279,292,071.10
5. Net profit (“-” for net loss)3,035,831,321.472,416,840,826.57
5.1 Classified by continuity of operations
5.1.1 Net profit from continuing operations (“-” for net loss)3,035,831,321.472,416,840,826.57
5.1.2 Net profit from discontinued operations (“-” for net loss)
5.2 Classified by ownership of the equity
5.2.1 Net profit attributable to shareholders of the Company2,760,951,475.222,114,770,061.55
5.2.2 Net profit attributable to non-controlling interests274,879,846.25302,070,765.02
6. Other comprehensive income, net of tax-54,736,001.82-116,876,057.95
Other comprehensive income attributable to shareholders of the Company, net of tax-54,491,772.24-116,876,057.95
6.1 Other comprehensive income that will not be reclassified subsequently to profit or loss-7,240,888.31-124,125,051.09
6.1.1 Changes caused by remeasurement of defined benefit pension schemes
6.1.2 Share of the other comprehensive income of the investee accounted for using equity method that will not be reclassified subsequently to
profit or loss
6.1.3 Changes in fair value of other equity investments-7,240,888.31-124,125,051.09
6.1.4 Changes in the fair value of the company's own credit risk
6.1.5 Others
6.2 Other comprehensive income that will be reclassified subsequently to profit or loss-47,250,883.937,248,993.14
6.2.1 Share of the other comprehensive income of the investee accounted for using equity method that will be reclassified subsequently to profit or loss
6.2.2 Changes in fair value of other equity investments
6.2.3 Other comprehensive income arising from the reclassification of financial assets
6.2.4 Allowance for credit impairments in other debt investments
6.2.5 Cash flow hedge reserve
6.2.6 Exchange differences on translation of foreign currency financial statements-47,250,883.937,248,993.14
6.2.7 Others
Other comprehensive income attributable to non-controlling interests, net of tax-244,229.58
7. Total comprehensive income2,981,095,319.652,299,964,768.62
Total comprehensive income attributable to shareholders of the Company2,706,459,702.981,997,894,003.60
Total comprehensive income attributable to non-controlling interests274,635,616.67302,070,765.02
8. Earnings per share:
8.1 Basic earnings per share1.311.00
8.2 Diluted earnings per share1.311.00

Where business combinations under common control occurred in the current period, the net profit achieved by the acquireesbefore the combinations was RMB0.00, with the amount for the same period of last year being RMB0.00.Legal representative: Li Weiwei Chief Financial Officer: Ye WeiBoard Secretary: Ye Wei

4. Income Statement of the Company

Unit: RMB

Item20202019
1. Operating revenue0.000.00
Less: Cost of sales0.000.00
Taxes and surcharges1,469,257.3016,042.93
Distribution and selling expenses
General and administrative expenses6,412,086.864,280,010.22
Research and development expenses
Financial expenses785,537.005,392,421.29
Including: Interest expense8,467,829.41
Interest income3,662.653,455,028.92
Add: Other income1,636,316.93283,232.60
Investments income (“-” for loss)1,055,329,436.911,788,780,950.61
Including: Share of profits and losses of joint ventures and associates-530,563.09-1,206,425.37
Gain on derecognition of financial assets measured at amortised cost (“-” for loss)
Net gain on exposure hedges (“-” for loss)
Gain on changes in fair value (“-” for loss)-2,665,863.25-83,290,514.32
Impairment loss on credit (“-” for loss)38,468.66-21,106.96
Impairment loss on assets (“-” for loss)-25,856,711.23
Gain on disposal of assets (“-” for loss)
2. Operating profit (“-” for loss)1,019,814,766.861,696,064,087.49
Add: Non-operating income0.631.23
Less: Non-operating expenses27,122.89
3. Profit before income tax expenses (“-” for loss)1,019,814,767.491,696,036,965.83
Less: Income tax expenses8,090.43
4. Net profit (“-” for net loss)1,019,814,767.491,696,028,875.40
4.1 Net profit from continuing operations (“-” for net loss)1,019,814,767.491,696,028,875.40
4.2 Net profit from discontinued operations (“-” for net loss)
5. Other comprehensive income, net of tax-7,240,888.31-52,759,111.69
5.1 Other comprehensive income that will not be reclassified subsequently to profit or loss-7,240,888.31-52,759,111.69
5.1.1 Changes caused by remeasurement of defined benefit pension schemes
5.1.2 Share of the other comprehensive income of the investee accounted for using equity method that will not be reclassified subsequently to profit or loss
5.1.3 Changes in fair value of other equity investments-7,240,888.31-52,759,111.69
5.1.4 Changes in the fair value of the company's own credit risk
5.1.5 Others
5.2 Other comprehensive income that will be reclassified subsequently to profit or loss
5.2.1 Share of the other comprehensive income of the investee accounted for using equity method that will be reclassified subsequently to profit or loss
5.2.2 Changes in fair value of other equity investments
5.2.3 Other comprehensive income arising from the reclassification of financial assets
5.2.4 Allowance for credit impairments in other debt investments
5.2.5 Cash flow hedge reserve
5.2.6 Exchange differences on translation of foreign currency financial statements
5.2.7 Others
6. Total comprehensive income1,012,573,879.181,643,269,763.71
7. Earnings per share:
7.1 Basic earnings per share
7.2 Diluted earnings per share

5. Consolidated Cash Flow Statement

Unit: RMB

Item20202019
1. Cash flows from operating activities:
Cash received from the sales of goods or rendering services15,289,245,739.2014,068,189,011.86
Net increase in customer deposits and interbank deposits
Net increase in loans from the central bank
Net increase in loans from other financial institutions
Premiums received on original insurance contracts
Net proceeds from reinsurance
Net increase in deposits and investments of policy holders
Interest, handling charges and commissions received
Net increase in loans from other banks
Net increase in proceeds from repurchase transactions
Net proceeds from acting trading of securities
Refunds of taxes and levies32,303,345.8426,015,107.54
Cash received relating to other operating activities212,474,405.30154,989,371.67
Sub-total of cash inflows from operating activities15,534,023,490.3414,249,193,491.07
Cash paid for purchases of goods and services2,189,923,584.521,328,911,154.26
Net increase in loans and advances to customers
Net increase in deposits in the central bank and other banks and financial institutions
Payments for claims on original insurance contracts
Net increase in loans to other banks
Interest, handling charges and commissions paid
Policy dividends paid
Cash paid to and on behalf of employees1,097,401,697.48787,695,313.13
Payments of taxes and levies398,994,011.54465,494,751.86
Cash paid relating to other operating activities8,919,766,892.158,409,528,273.88
Sub-total of cash outflows used in operating activities12,606,086,185.6910,991,629,493.13
Net cash flows from operating activities2,927,937,304.653,257,563,997.94
2. Cash flows from investing activities:
Cash received from disposal of investments244,768,186.69303,655,590.08
Cash received from investment income83,046,513.5650,156,723.48
Cash received from disposal of fixed assets, intangible assets and other long-term assets1,093,427.902,521,781.70
Net cash received from disposal of subsidiaries and other business units433,449,673.50
Cash received relating to other investing activities6,664,127,406.433,794,473,058.74
Sub-total of cash inflows from investing activities6,993,035,534.584,584,256,827.50
Cash paid for acquisition of fixed assets, intangible assets and other long-term assets1,071,675,513.91368,224,763.40
Cash paid to acquire investments396,190,603.30176,674,288.59
Net increase in pledged loans granted
Net cash paid for the acquisition of subsidiaries and other business units
Cash paid relating to other investing activities6,134,819,564.445,082,785,477.28
Sub-total of cash outflows used in investing activities7,602,685,681.655,627,684,529.27
Net cash flows from/used in investing activities-609,650,147.07-1,043,427,701.77
3. Cash flows from financing activities:
Cash received from capital contributions
Including: Cash received from capital contributions by non-controlling interests of subsidiaries
Cash received from borrowings889,324,326.07
Cash received relating to other financing activities
Sub-total of cash inflows from financing activities889,324,326.07
Cash repayments of borrowings281,176,106.33398,599,165.73
Cash paid for interest and dividends1,508,520,111.64881,549,667.88
Including: Dividends paid by subsidiaries to non-controlling interests200,000,000.00222,000,000.00
Cash paid relating to other financing activities1,727,977,276.44322,052,789.00
Sub-total of cash outflows used in financing activities3,517,673,494.411,602,201,622.61
Net cash flows from/used in financing activities-2,628,349,168.34-1,602,201,622.61
4. Effect of foreign exchange rate changes on cash and cash equivalents-51,116,887.467,585,388.42
5. Net increase/decrease in cash and cash equivalents-361,178,898.22619,520,061.98
Add: Cash and cash equivalents at beginning of2,135,260,406.771,515,740,344.79
the period
6. Cash and cash equivalents at end of the period1,774,081,508.552,135,260,406.77

6. Cash Flow Statement of the Company

Unit: RMB

Item20202019
1. Cash flows from operating activities:
Cash received from the sales of goods or rendering services
Refunds of taxes and levies
Cash received relating to other operating activities3,035,884,451.812,116,744,879.36
Sub-total of cash inflows from operating activities3,035,884,451.812,116,744,879.36
Cash paid for purchases of goods and services
Cash paid to and on behalf of employees734,366.231,257,732.96
Payments of taxes and levies41,881.80772,741.11
Cash paid relating to other operating activities1,112,962,155.212,501,237,728.82
Sub-total of cash outflows used in operating activities1,113,738,403.242,503,268,202.89
Net cash flows from/used in operating activities1,922,146,048.57-386,523,323.53
2. Cash flows from investing activities:
Cash received from disposal of investments4,986,985.98
Cash received from investment income1,055,860,000.001,290,000,000.00
Cash received from disposal of fixed assets, intangible assets and other long-term assets
Net cash received from disposal of subsidiaries and other business units404,709,910.00
Cash received relating to other investing activities
Sub-total of cash inflows from investing activities1,055,860,000.001,699,696,895.98
Cash paid for acquisition of fixed assets, intangible assets and other long-term assets
Cash paid to acquire investments1,710,720,000.008,000,000.00
Net cash paid for the acquisition of subsidiaries and other business units
Cash paid relating to other investing activities426,330.01
Sub-total of cash outflows used in investing activities1,711,146,330.018,000,000.00
Net cash flows from/used in investing activities-655,286,330.011,691,696,895.98
3. Cash flows from financing activities:
Cash received from capital contributions
Cash received from borrowings
Cash received relating to other financing activities
Sub-total of cash inflows from financing activities
Cash repayments of borrowings369,000,000.00
Cash paid for interest and dividends1,267,351,018.20637,726,672.95
Cash paid relating to other financing activities302,007,312.87
Sub-total of cash outflows used in financing activities1,267,351,018.201,308,733,985.82
Net cash flows from/used in financing activities-1,267,351,018.20-1,308,733,985.82
4. Effect of foreign exchange rate changes on cash and cash equivalents
5. Net increase/decrease in cash and cash equivalents-491,299.64-3,560,413.37
Add: Cash and cash equivalents at beginning of the period765,545.814,325,959.18
6. Cash and cash equivalents at end of the period274,246.17765,545.81

7. Consolidated Statement of Changes in Shareholders’ Equity

2020

Unit: RMB

Item2020
Equity attributable to shareholders of the CompanyNon-controlling interestsTotal shareholders' equity
Share capitalOther equity instrumentsCapital reservesLess: Treasury sharesOther comprehensive incomeSpecial reservesSurplus reservesGeneral risk reservesRetained earningsOthersSub-total
Preferred sharesPerpetual bondsOthers
1. Balance as at the end of prior year2,112,251,697.0073,153,800.49-94,582,500.13227,390,965.904,711,093,895.827,029,307,859.08264,400,744.457,293,708,603.53
Add: Adjustments for changed accounting policies
Adjustments for corrections of previous errors
Adjustments for business combinations under common control
Others
2. Balance as at beginning of year2,112,251,697.0073,153,800.49-94,582,500.13227,390,965.904,711,093,895.827,029,307,859.08264,400,744.457,293,708,603.53
3. Increase/ decrease in the period (“-” for decrease)41,539,719.42-54,491,772.24-227,390,965.90-751,581,214.41-991,924,233.13-236,332,666.67-1,228,256,899.80
3.1 Total comprehensive income-54,491,772.242,760,951,475.222,706,459,702.98274,635,616.672,981,095,319.65
3.2 Capital contribution and withdrawal by shareholders131,668,677.79131,668,677.79-310,968,283.34-179,299,605.55
3.2.1 Common shares contribution and withdrawal by shareholders-90,239,353.06-90,239,353.06-317,165,286.05-317,165,286.05
3.2.2 Capital
contribution and withdrawal by holders of other equity instruments
3.2.3 Share-based payments included in shareholders’ equity131,668,677.79131,668,677.796,197,002.71137,865,680.50
3.2.4 Others
3.3 Profit distribution101,981,476.75-1,369,332,494.95-1,267,351,018.20-200,000,000.00-1,467,351,018.20
3.3.1 Appropriation to surplus reserves101,981,476.75-101,981,476.75
3.3.2 Appropriation to general risk reserves
3.3.3 Distribution to shareholders-1,267,351,018.20-1,267,351,018.20-200,000,000.00-1,467,351,018.20
3.3.4 Others
3.4 Internal transfers within shareholders’ equity
3.4.1 Capital reserves
transferred into capital (or share capital)
3.4.2 Surplus reserves transferred into capital (or share capital)
3.4.3 Surplus reserves for making up losses
3.4.4 Changes in defined benefit pension schemes transferred into retained earnings
3.4.5 Other comprehensive income transferred into retained earnings
3.4.6 Others
3.5 Special reserves
3.5.1 Increase in the period
3.5.2 Used in the
period
3.6 Others-90,128,958.37-329,372,442.65-2,143,200,194.68-2,562,701,595.70-2,562,701,595.70
4. Balance as at the end of the period2,112,251,697.00114,693,519.91-149,074,272.373,959,512,681.416,037,383,625.9528,068,077.786,065,451,703.73

2019

Unit: RMB

Item2019
Equity attributable to shareholders of the CompanyNon-controlling interestsTotal shareholders' equity
Share capitalOther equity instrumentsCapital reservesLess: Treasury sharesOther comprehensive incomeSpecial reservesSurplus reservesGeneral risk reservesRetained earningsOthersSub-total
Preferred sharesPerpetual bondsOthers
1. Balance as at the end of prior year2,124,870,253.00298,739,967.2146,376,346.58170,477,835.883,332,211,003.195,972,675,405.86141,026,934.066,113,702,339.92
Add: Adjustment-24,082,788.7664,533,059.8240,450,271.0640,450,271.06
s for changed accounting policies
Adjustments for corrections of previous errors
Adjustments for business combinations under common control
Others
2. Balance as at beginning of year2,124,870,253.00298,739,967.2122,293,557.82170,477,835.883,396,744,063.016,013,125,676.92141,026,934.066,154,152,610.98
3. Increase/ decrease in the period-12,618,556.00-225,586,166.72-116,876,057.9556,913,130.021,314,349,832.811,016,182,182.16123,373,810.391,139,555,992.55
(“-” for decrease)
3.1 Total comprehensive income-116,876,057.952,114,770,061.551,997,894,003.60302,070,765.022,299,964,768.62
3.2 Capital contribution and withdrawal by shareholders-12,618,556.00-36,550,975.72302,007,311.87-351,176,843.5943,303,045.37-307,873,798.22
3.2.1 Common shares contribution and withdrawal by shareholders-12,618,556.00-106,500,613.64-119,119,169.6440,142,095.23-78,977,074.41
3.2.2 Capital contribution and withdrawal by holders
of other equity instruments
3.2.3 Share-based payments included in shareholders’ equity69,949,637.9269,949,637.923,160,950.1473,110,588.06
3.2.4 Others302,007,311.87-302,007,311.87-302,007,311.87
3.3 Profit distribution169,602,887.54-798,808,889.24-629,206,001.70-222,000,000.00-851,206,001.70
3.3.1 Appropriation to surplus reserves169,602,887.54-169,602,887.54
3.3.2 Appropriation to general risk reserves-629,206,001.70-629,206,001.70-222,000,000.00-851,206,001.70
3.3.3-629,206,001.70-629,206,001.70-222,000,000.00-851,206,001.70
Distribution to shareholders
3.3.4 Others
3.4 Internal transfers within shareholders’ equity-189,317,554.35-302,007,311.87-112,689,757.52-1,611,339.50-1,611,339.50-1,611,339.50
3.4.1 Capital reserves transferred into capital (or share capital)
3.4.2 Surplus reserves transferred into capital (or share capital)
3.4.3 Surplus reserves
for making up losses
3.4.4 Changes in defined benefit pension schemes transferred into retained earnings
3.4.5 Other comprehensive income transferred into retained earnings-1,611,339.50-1,611,339.50-1,611,339.50
3.4.6 Others-189,317,554.35-302,007,311.87-112,689,757.52
3.5 Special reserves
3.5.1 Increase in
the period
3.5.2 Used in the period
3.6 Others282,363.35282,363.35282,363.35
4. Balance as at the end of the period2,112,251,697.0073,153,800.49-94,582,500.13227,390,965.904,711,093,895.827,029,307,859.08264,400,744.457,293,708,603.53

8. Statement of Changes in Shareholders’ Equity of the Company

2020

Unit: RMB

Item2020
Share capitalOther equity instrumentsCapital reservesLess: Treasury sharesOther comprehensive incomeSpecial reservesSurplus reservesRetained earningsOthersTotal shareholders' equity
Preferred sharesPerpetual bondsOthers
1. Balance as at the end of prior year2,112,251,697.003,622,063,902.37-52,759,111.69340,080,723.421,509,926,022.617,531,563,233.71
Add: Adjustments for changed accounting
policies
Adjustments for corrections of previous errors
Others
2. Balance as at beginning of year2,112,251,697.003,622,063,902.37-52,759,111.69340,080,723.421,509,926,022.617,531,563,233.71
3. Increase/ decrease in the period (“-” for decrease)137,865,680.50-7,240,888.31101,981,476.75-349,517,727.46-116,911,458.52
3.1 Total comprehensive income-7,240,888.311,019,814,767.491,012,573,879.18
3.2 Capital contribution and withdrawal by shareholders137,865,680.50137,865,680.50
3.2.1 Common shares contribution and withdrawal by shareholders
3.2.2 Capital contribution and withdrawal by holders of other equity instruments
3.2.3 Share-based payments included in shareholders’ equity137,865,680.50137,865,680.50
3.2.4 Others
3.3 Profit distribution101,981,476.75-1,369,332,494.95-1,267,351,018.20
3.3.1 Appropriation to surplus reserves101,981,476.75-101,981,476.75
3.3.2 Distribution to shareholders-1,267,351,018.20-1,267,351,018.20
3.3.3 Others
3.4 Internal transfers within shareholders’ equity
3.4.1 Capital reserves transferred into capital (or share capital)
3.4.2 Surplus reserves transferred into capital (or share capital)
3.4.3 Surplus reserves for making up losses
3.4.4 Changes in defined benefit pension schemes transferred into retained earnings
3.4.5 Other comprehensive income transferred into retained earnings
3.4.6 Others
3.5 Special reserves
3.5.1 Increase in the period
3.5.2 Used in the period
3.6 Others
4. Balance as at the end of the period2,112,251,697.003,759,929,582.87-60,000,000.00442,062,200.171,160,408,295.157,414,651,775.19

2019

Unit: RMB

Item2019
Share capitalOther equity instrumentsCapital reservesLess: Treasury sharesOther comprehensive incomeSpecial reservesSurplus reservesRetained earningsOthersTotal shareholders' equity
Preferred sharesPerpetual bondsOthers
1. Balance as at the end of prior year2,124,870,253.003,952,461,239.82170,477,835.88612,706,036.456,860,515,365.15
Add: Adjustments for changed accounting policies
Adjustments for corrections of previous errors
Others
2. Balance as at beginning of year2,124,870,253.003,952,461,239.82170,477,835.88612,706,036.456,860,515,365.15
3. Increase/ decrease in the period (“-” for decrease)-12,618,556.00-330,397,337.45-52,759,111.69169,602,887.54897,219,986.16671,047,868.56
3.1 Total comprehensive income-52,759,111.691,696,028,875.401,643,269,763.71
3.2 Capital contribution and withdrawal by shareholders-12,618,556.00-28,390,025.58302,007,311.87-343,015,893.45
3.2.1 Common shares contribution and withdrawal by shareholders-12,618,556.00-106,500,613.64-119,119,169.64
3.2.2 Capital contribution and withdrawal by holders of other equity instruments
3.2.3 Share-based payments included in shareholders’ equity73,110,588.0673,110,588.06
3.2.4 Others5,000,000.00302,007,311.87-297,007,311.87
3.3 Profit distribution169,602,887.54-798,808,889.24-629,206,001.70
3.3.1 Appropriation to surplus reserves169,602,887.54-169,602,887.54
3.3.2 Distribution to shareholders-629,206,001.70-629,206,001.70
3.3.3 Others
3.4 Internal transfers within shareholders’ equity-302,007,311.87-302,007,311.87
3.4.1 Capital reserves transferred into capital (or share capital)
3.4.2 Surplus reserves transferred into capital (or share capital)
3.4.3 Surplus reserves for making up losses
3.4.4 Changes in defined benefit pension schemes transferred into retained earnings
3.4.5 Other comprehensive income transferred into retained earnings
3.4.6 Others-302,007,311.87-302,007,311.87
3.5 Special reserves
3.5.1 Increase in the period
3.5.2 Used in the period
3.6 Others
4. Balance as at the end of the period2,112,251,697.003,622,063,902.37-52,759,111.69340,080,723.421,509,926,022.617,531,563,233.71

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