1. Shareholder

CITIC Group (hereunder “the Group”) is a conglomerate established upon the approval of the State Council. It is funded by the Ministry of Finance on behalf of the State Council.

2. Board of Directors

The Board of Directors consists of eight members, including one chairman, one vice chairman and one employee director.

The mandate of the Board of Directors

●Drafting corporate development strategies, business principle and investment plans.

●Deciding on corporate business plans, investment schemes, setup of management bodies and compensation schemes for managers.

●Formulating basic corporate policies and bylaws.

●Preparing annual corporate budget, final accounts, profit distribution and loss recovery plans.

●Developing the plans for corporate merger, pision, dissolution and/or transformation, plans for the amendment of the Articles of Association.

●Reviewing and approving General Manager's Work Report.

●Appointing and/or removing general managers and/or other senior managers, and hiring or dismissing external auditors.

3. Board of Supervisors

The Board of Supervisors consists of six members, including three internal supervisors and three employee supervisors.

The mandate of the Board of Supervisors

●Examining business operations and financial positions of the Group.

●Supervising the actions taken by Directors and the Management.

●Reviewing the Group's Annual Business Plan, Annual Report, the Board of Supervisors'Work Report and proposals on the relevant policies formulated by the Board of Supervisors.

4. Management

The Management of the Group makes decisions on matters related to business operations and management within its mandate authorized by the Board of Directors.

Measures to Enhance Corporate Governance

1. In accordance with the Company Law and the Articles of Association,the Group further improved its governance structure in line with modern business operations, and the checks and balances among the Board of Directors, the Board of Supervisors and the Management, to provide the mechanisms necessary for operation efficiency. In 2012,the Board of Directors of the Company convened three times with seven proposals reviewed. The Board of Supervisors convened once and reviewed three proposals. On the level of CITIC Limited, four shareholder meetings were convened with eight proposals reviewed.The Board of Directors convened six times and reviewed 18 proposals.The Board of Supervisors convened twice and reviewed seven proposals.CITIC Limited established the Strategy Committee, Auditing and Risk Management Committee, Nominations and Compensation Committee.

 
2. The Group enhanced oversight to ensure compliance, integrity and diligence on the part of all parties involved to improve overall operational and management efficiency and decision-making. In 2012, CITIC Limited’s Board of Supervisors improved its organizational structure by establishing the Financial Supervision Committee and Due Performance Committee. The system was further strengthened with the development of the (Provisional) Working Rules of the Sub-committees under the Board of Supervisors of CITIC Limited, the (Provisional) Rules of the Board of Supervisors of CITIC Limited for Financial Supervision and the (Provisional) Rules of the Board of Supervisors of CITIC Limited for Supervision of the Board of Directors, Management and Its Members Concerning Due Performance.

3. In its effort to optimize management and control models and taking into account optimization proposals made by consultants as well as needs for business development and management, the Group conducted research on key topics including corporate strategies and operations, in a bid to achieve more specialized operations at the subsidiary level and flatter management structure at the Group. The group also developed principles and standards of management and control tailored to different category of subsidiaries,improved reviewing rules and decision-making procedures for material matters, enhanced capacity building at the head office to step up management and control and to further reform of the joint stock system.

4. As part of its efforts to strengthen strategic management, the Group developed the (Provisional) Rules of CITIC Group for the Administration of Evaluation Concerning Asset Management Accountability to establish the responsibility system for assets operation and the system for asset operation performance assessment at subsidiaries. The two value-oriented systems put capital management at the core, encouraging subsidiaries to get more capable for value creation and dividend payout. Besides,the Group revised decision-making processes to strengthen investment management and improve decision-making efficiency.

5. In line with related regulations for listed companies, the Group examined the content and process of disclosing financial reports,dramatically shortening the time for preparing financial statements and improving the quality and efficiency of such disclosure. An Asset and Liability Management Committee was set up to manage the balance sheets and liquidity of the Company and its subsidiaries, allocate financial resources and control financial risks. The Group advanced centralized management of subsidiaries’funds, improved risk management and boosted return on fund. Management of financing and guarantee were enhanced through development of rules and regulations, and major investments were tracked and monitored to keep risks under control.

6. The Group along with its subsidiaries kept improving systems for risk monitoring and management. It advanced risk identification and assessment at all levels, intensified risk assessment and monitoring of major projects and businesses, managed counterparty credit risks and large exposures. With particular attention to weak links and potential risks, the Group prepared reports in that respect and stressed the full implementation of risk management which has become more encompassing and proactive.

7. Internal auditing was conducted independently. The scope of auditing was expanded with forms of supervision diversified, and particular attention was given to the major investments, key risk areas and key control points. Internal auditing played the role of management consultant with results of auditing being further utilized. The collaboration of internal supervision was also enhanced.

 8. The Company stressed operation in compliance with laws and regulations and has set up mechanisms against legal risks through formulating rules and policies, reviewing major contracts, managing arbitration and court cases and protecting CITIC trademark.

1.The Group is faced with the following risks:

Strategic risks:The international economic landscape in 2013 will remain complex and full of uncertainties. The slowdown of global economy will continue while risks arising from inflationary pressures and asset bubbles increase. The domestic economy will keep progressing with stability, which requires faster restructuring and shift in growth patterns. As a conglomerate covering a wide range of industries,the overall development of the Group is subject to macroeconomic fluctuations at home and abroad and faces the challenge to develop and implement right strategies.

Policy-related risks: Guided by the general principle of “progress with stability”, the government will continue to pursue a proactive fiscal policy and a prudent monetary policy in 2013. Priority will be given to energy conservation, emissions reduction and the preservation of ecoenvironment.Unremitting efforts will be made to promote economic restructuring and to transform growth patterns. Structural tax reduction policies will be improved based on the ongoing tax reform. The interest rate liberalization and reform of exchange rate regime will advance in a prudent manner. The government will keep a tight reign on real estate.The relevant businesses of the Group will be affected by the above factors to varying degrees.

Financial risks: With mounting inflationary expectations across the world, the cost of factors including labour, land, energy and resources may trend up for the long run, adding to the cost of projects under construction. Should there be a liquidity crunch, the Group may face constraints on investment and financing, hence funding and liquidity risks for scaling up its business. Given the multitude of uncertainties, the real return on investment may deviate from our expectations.

Credit risks: Amidst an economic slowdown and an adverse business climate, the Group is facing greater risks of counterparty defaults in its various businesses. Bad debts may arise from debtors' default at maturity.

Market risks: The European sovereign-debt crisis is not over. As international markets continue to swing, businesses have adopted a more conservative investment style. With a slowdown in demand, commodity and raw material prices, major currencies and the money market and capital market may experience great fluctuations, which will impact a number of business lines including financial services, trade, engineering contracting, energy and resources and manufacturing.

Operational risks: The Group is developing fast with a more persified portfolio. As new markets, new products, new clients and new businesses make operations more complex and challenging, risks related to human resources, policies, processes, information systems and natural disasters also arise.

Legal and compliance risks: In the event of a potential future listing,CITIC Limited will subject itself to more stringent external supervision and market scrutiny, including obligations to make timely, accurate, full and consistent disclosure to domestic and foreign regulators. CITIC Limited faces an arduous task in information disclosure whose scope and content is more complicated due to the large number of subsidiaries and needs to collaborate closely with those listed subsidiaries to ensure the consistency of information disclosure. Any untimely disclosure, any incompliance or inconsistency will jeopardize CITIC Limited's reputation and incur regulatory penalties, even legal actions. Besides, financial services of the Group are subject to regulatory oversight and the real estate business is affected by increasingly tighter macro control policies.Overseas businesses are also subject to local laws and regulations. These above businesses face more legal and compliance risks.

Country risks: The Group is engaged in engineering contracting, resource development and trade in Africa, South America, the Middle East,Australia and Central Asia. Furthermore, the Group is exporting more machinery and auto parts to markets around the world. These businesses are subject to the impact of political, economic and social variables in host countries.

2.The Company took the following measures against the aforementioned risks:

1. Optimizing strategic management and control models to enhance risk management.  

In line with the Group's strategy of a balanced development of financial services and industrial investment, the Group's limited persification is based on specialization of its subsidiaries. In order to promote sustained, healthy and steady development of the Group and achieve business objectives, efforts have been taken to optimize strategic management and control models and improve the system for asset management accountability, encouraging subsidiaries to enhance their capabilities for value creation and pidend payout.

The Group will continue to enhance the specialization of subsidiaries by stepping up assets consolidation. With development strategies better defined, the mode for management and control as well as business structures will be further optimized to give full play to the Group-level functions such as strategic management, resource allocation, risk management and coordination.

2. Enhancing monitoring of key projects to ensure safety and returns.  

2013 will be a critical year for some of the Group's key projects under construction. Management of key projects will be strengthened with rigorous contract management, cost control and safety measures to ensure the full implementation of projects. Problems arising during the construction phase will be identified and addressed in a timely manner to speed up the process while ensuring quality. 

3. Building a comprehensive risk management system to improve the Group's risk management capabilities.  

The Group has established the Investment Review Committee, Asset and Liability Management Committee and Internal Oversight Committee to enhance execution and to improve operational and management efficiency.Business units at all levels are required to establish and improve the organizational structure for risk management and to fulfill risk management responsibilities. Management policies and business processes will be further developed to enhance internal control. Risk assessment of key projects and major businesses will be implemented to identify and defuse material risks in a prompt manner. Key risk indicators and mechanism for risk warning will be further improved. Management of concentration risks both counterparty-wise and sector-wise are enhanced and associated transactions are under constant regulation to control the internal transfer of risks. The Group will also step up the inspection of the execution of risk management at subsidiaries. 

4. Implementing prudent financial policy to ensure security and liquidity of funds.  

Giving priority to liquidity management, the Group expands financing channels while strictly controlling new investment and credit extension. The funding needs of projects under construction are met first. The Group's debt structure will be optimized to cut back the debt cost. Timely adjustments will be made to the ratio, interest rate and term structure of our asset and liability portfolio in accordance with the changes on international and domestic financial markets to prevent market and currency risks. The Group will step up efforts to monitor and manage liquidity levels at subsidiaries to prevent and control financial risks. 

5. Strengthening legal work and information disclosure to control legal and compliance risks. 

The Group will continue to provide legal support and services for key businesses and major projects, especially rigorous legal review of key contracts. The Group along with its subsidiaries will further develop the legal structure and legal teams, improve related policies and raise the legal awareness of all employees so as to elevate the level of compliance management. The Group-wide information disclosure system will be set up to meet the requirements for overseas listing. The CITIC trademark will be strictly managed to maintain good reputation and legitimate interests of the Group. As the government introduces increasingly stringent requirements for production safety and environmental protection, the Group will enhance the management of safety and compliance risks at non-financial subsidiaries. 

6. Stepping up internal auditing to enhance supervision. 

Internal auditing is under review and transformation to meet the requirements of the Group's restructuring and development. Auditing policies are reviewed and improved to give full play to the function of the Group's auditing system as a whole and ensure auditing is carried out in an independent and unbiased manner thus systematically preventing all categories of risks. Follow-up audits are consistently conducted so that problems detected will be addressed,prompting audited units to improve their management and establish a longterm mechanism for internal control. 

7. Enhancing human resource management to meet the Group's need for development.  

Human resources management is to serve the business development of the Group. By carrying out innovation in mechanism development to improve policies in recruitment, assessment and incentives, the Group will take a scientific approach to HR management and provide a solid foundation for its sustainable development.