HEBEI CONSTRUCTION GROUP CORPORATION LIMITED

Hebei Construction Group Corporation Limited

1727

CNE100002R32

Construction & Engineering

Market Closed - Hong Kong S.E. Other stock markets 01:38:20 14/05/2024 pm IST			5-day change	1st Jan Change
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07/05	Hebei Construction to Renew Services Deal with Zhongming Zhiye	MT
27/03	Hebei Construction Group Corporation Limited Reports Earnings Results for the Full Year Ended December 31, 2023	CI

Hebei Construction : 2020 Interim Report

September 23, 2020 at 02:05 pm IST

CONTENTS

CORPORATE INFORMATION	2
FINANCIAL HIGHLIGHTS	4
BUSINESS OVERVIEW	5
MANAGEMENT DISCUSSION AND ANALYSIS	15
OTHER MATTERS	22
CHANGES IN SHARE CAPITAL AND INFORMATION OF	27
SHAREHOLDERS
INFORMATION OF DIRECTORS, SUPERVISORS AND	37
SENIOR MANAGEMENT
INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED)	39
INTERIM CONSOLIDATED INCOME STATEMENT (UNAUDITED)	42
INTERIM CONSOLIDATED STATEMENT OF CHANGES IN	44
SHAREHOLDERS' EQUITY (UNAUDITED)
INTERIM CONSOLIDATED CASH FLOW STATEMENT	46
(UNAUDITED)
COMPANY BALANCE SHEET (UNAUDITED)	48
COMPANY INCOME STATEMENT (UNAUDITED)	50
COMPANY STATEMENT OF CHANGES IN	51
SHAREHOLDERS' EQUITY (UNAUDITED)
COMPANY CASH FLOW STATEMENT (UNAUDITED)	53
NOTES TO FINANCIAL STATEMENTS	55
DEFINITIONS	190

CORPORATE INFORMATION

Basic information of the Company is set out below:

LEGAL NAME OF THE

COMPANY

河北建設集團股份有限公司

ENGLISH NAME OF THE COMPANY

Hebei Construction Group Corporation Limited

DIRECTORS

Executive Directors

Mr. Li Baozhong (Chairman of the Board)

Mr. Shang Jinfeng (President)

Mr. Zhao Wensheng

Mr. Liu Yongjian

Non-executive Directors

Mr. Li Baoyuan (Honorary Chairman) Mr. Cao Qingshe (Vice Chairman)

Independent Non-executive DirectorsNote 1

Ms. Shen Lifeng

Ms. Chen Xin

Mr. Chan Ngai Sang Kenny

JOINT COMPANY

SECRETARIES

Mr. Li Wutie

Ms. Wong Wai Ling (ACIS, ACS)

AUTHORIZED

REPRESENTATIVES

Ms. Shen Lifeng

Ms. Wong Wai Ling (ACIS, ACS)

BOARD COMMITTEES

Audit Committee

Ms. Shen Lifeng (Chairwoman of the committee) Mr. Li Baoyuan

Mr. Cao Qingshe

Ms. Chen Xin

Mr. Chan Ngai Sang Kenny

Remuneration and Appraisal Committee

Ms. Chen Xin (Chairwoman of the committee) Mr. Li Baozhong

Mr. Shang Jinfeng

Ms. Shen Lifeng

Mr. Chan Ngai Sang Kenny

SUPERVISORS

Mr. Yu Xuefeng (Chairman of the Board of Supervisors)

Mr. Liu Jingqiao

Ms. Feng Xiujian

Mr. Yue Jianming

Mr. Wang Feng

Nomination Committee

Ms. Chen Xin (Chairwoman of the committee) Mr. Li Baozhong

Mr. Shang Jinfeng

Ms. Shen Lifeng

Mr. Chan Ngai Sang Kenny

Note:

1 Mr. Xiao Xuwen did not seek re-election of directors upon the expiration of his term of office as a Director due to reaching his retirement age, and he ceased to take the role as an independent non-executive Director of the Company with effect from 23 June 2020.

2 Hebei Construction Group Corporation Limited

Strategic Committee

Mr. Li Baozhong (Chairman of the committee)

Mr. Cao Qingshe

Mr. Shang Jinfeng

REGISTERED OFFICE

125 Lugang Road

Jingxiu District

Baoding, Hebei Province

PRC

HEADQUARTERS AND

PRINCIPAL PLACE OF

BUSINESS IN THE PRC

329 Wusi West Road

Jingxiu District

Baoding, Hebei Province

PRC

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

40th Floor, Sunlight Tower

248 Queen's Road East

Wanchai, Hong Kong

STOCK SHORT NAME AND STOCK CODE

HEBEI CONS (01727)

H SHARE REGISTRAR AND TRANSFER OFFICE IN HONG KONG

Tricor Investor Services Limited

Level 54, Hopewell Centre

183 Queen's Road East

Wanchai, Hong Kong

CORPORATE INFORMATION

COMPANY WEBSITE

http://www.hebjs.com.cn

INVESTOR RELATIONS

CONTACT

Tel: (86) 312 331 1000

Fax: (86) 312 301 9434

E-mail: hebeijianshe@hebjs.com.cn

Address: No. 329, Wusixi Road, Jingxiu District, Baoding City, Hebei Province, PRC

Postal Code: 071000

LEGAL ADVISORS

As to Hong Kong law

Clifford Chance

27/F, Jardine House

One Connaught Place

Central, Hong Kong

As to PRC law

Jia Yuan Law Offices

F408, Ocean Plaza

158 Fuxing Men Nei Street, Xicheng District

Beijing, PRC

AUDITOR

Ernst & Young Hua Ming LLP

Certified Public Accountants

Level 16, Ernst & Young Tower, Oriental Plaza No. 1 East Chang An Avenue

Dong Cheng District, Beijing

Interim Report 2020 3

FINANCIAL HIGHLIGHTS

For the six months ended 30 June 2020, our revenue amounted to RMB14,372 million, representing a decrease of 29.2% as compared with the corresponding period of 2019.

For the six months ended 30 June 2020, our net profit amounted to RMB247 million, representing a decrease of 56.6% as compared with the corresponding period of 2019.

For the six months ended 30 June 2020, our earnings per Share amounted to RMB0.14, representing a decrease of RMB0.17 as compared with the corresponding period of 2019.

The financial information contained in this report has been prepared in accordance with the Chinese Accounting Standards for Business Enterprises and, unless otherwise stated, is comprehensive information of the Company and its subsidiaries, which is presented in Renminbi.

The decline in the Group's results for the first half of 2020 was due to the fact that under the continuous impact from the pandemic of COVID-19 since the beginning of 2020, market supply of material, labour services and other resources failed to resume in time, and certain projects under construction cannot resume operation and production as scheduled, which resulted in certain production failing to resume normal operation and prolonged cycle of project construction. In addition, most of the projects tendered have delayed the bid opening or cancelled the original plan for implementation, which resulted in decrease of new projects undertaken.

Notwithstanding the above, the Board would like to emphasize that there is no cancellation of major contracts of the Group as of the Latest Practicable Date. While implementing regular epidemic prevention and control measures, the Group also made active response by extensively participating in project tendering and quotation, identifying potential new projects, striving to overcome different adverse factors, increasing its efforts in production organization, management and control, and actively organizing various resources required for production in order to ensure normal production. In addition, as the pandemic in China become under control and the supply chain and labour services gradually resumed, the Group's revenue from construction projects had recovered from loss in the second quarter of 2020 as compared to the first quarter of 2020. The Board expects that, as the adverse effects from the pandemic subside, the Group's performance will improve in the second half of 2020.

4 Hebei Construction Group Corporation Limited

BUSINESS OVERVIEW

PART I OVERVIEW OF COMPANY'S BUSINESS

We are a leading non-state-owned construction group in China and are principally engaged in the following businesses:

Construction contracting business. We provide construction project contracting services mainly as a general contractor for building construction projects and infrastructure construction projects.
Other businesses. We are also engaged in service concession arrangements and other businesses.

A substantial majority of our revenue is generated from the construction contracting business, which mainly comprises of building construction business, infrastructure construction business and specialized and other construction contracting business. In the first half of 2020, our new contract value was RMB20,809 million, representing a decrease of 47.58% as compared with RMB39,694 million for the corresponding period of last year; and ongoing contract backlog was RMB104,414 million, representing an increase of 6.37% as compared with RMB98,157 million as at the end of 2019.

New contract value (by region):
	Six months ended 30 June

Year	2020	2019
RMB100 million	208.09	396.94
Share of Beijing-Tianjin-Hebei	58.98%	52.18%
Share of other regions	41.02%	47.82%

Interim Report 2020 5

BUSINESS OVERVIEW

New contract value (by segment):
	Six months ended 30 June

Year	2020	2019
RMB100 million	208.09	396.94
Share of building construction	66.30%	71.31%
Share of infrastructure construction	26.74%	19.67%
Share of specialized and other construction	6.96%	9.02%

Building Construction Business

We provide construction contracting services for residential, public works, industrial and commercial construction projects. We undertake most of such construction projects as a general contractor. As a general contractor, we undertake all main aspects of construction projects, including building construction, foundation work, curtain wall construction, building decoration and fire engineering. We are also responsible for engaging subcontractors in providing construction services and the labor force for construction projects, coordinating the works of all parties, providing the major equipment and machinery, procuring raw materials and ensuring that construction projects are carried out on schedule. In the first half of 2020, the new contract value from the building construction business was RMB13,796 million, compared with RMB28,305 million for the corresponding period of last year.

New contract value of the building construction business (by segment):

	Six months ended 30 June

Year	2020	2019
RMB100 million	137.96	283.05
Share of residential construction	66.76%	64.55%
Share of public building construction	21.70%	24.13%
Share of industrial building construction	7.68%	9.98%
Share of commercial building construction	3.86%	1.34%

6 Hebei Construction Group Corporation Limited

BUSINESS OVERVIEW

Infrastructure Construction Business

In addition to our core building construction business, we are also providing construction contracting services for municipal and transportation infrastructure projects, including facilities for water supply and treatment, gas and heating, urban pipelines, landscaping, roads, bridges and airport runways. We undertake most of such construction projects as general contractor. Our infrastructure construction customers are primarily local governments. In the first half of 2020, the new contract value from the infrastructure construction business was RMB5,564 million, compared with RMB7,809 million for the corresponding period of last year.

New contract value of the infrastructure construction business (by segment):

	Six months ended 30 June

Year	2020	2019
RMB100 million	55.64	78.09
Share of municipal infrastructure construction	74.33%	64.52%
Share of transportation infrastructure construction	25.67%	35.48%

Specialized and Other Construction Contracting Business

We also undertake construction contracting projects by leveraging our qualifications and experience in specialized areas such as electrical and mechanical installation, construction of steel structures and decoration. Our electrical and mechanical installation works generally cover the supply, installation and maintenance of equipment for power plants, pipelines for heating and natural gas, as well as air-conditioning, mechanical ventilation and exhaust air systems. Steel structure construction generally refers to the building of the structural supporting elements comprising steel columns, girders and beams of a construction project. Decoration usually refers to the decoration and fixture handling after the completion of the major construction of the building. In the first half of 2020, the new contract value from the specialized and other construction contracting business was RMB1,449 million, compared with RMB3,580 million for the corresponding period of last year.

Interim Report 2020 7

BUSINESS OVERVIEW

New contract value of the specialized and other construction contracting business (by segment):

	Six months ended 30 June

Year	2020	2019
RMB100 million	14.49	35.80
Share of electrical and mechanical installation	5.84%	25.47%
Share of steel structures	21.73%	16.68%
Share of decoration	33.41%	30.97%
Share of other construction business	39.02%	26.88%

Representative projects of new contracts

		Business
No.	Name of project	segment	Region

1.	Construction Project of Outpatient Complex and	Public building	Baoding,
	Ophthalmology Building of the East Campus of Baoding		Hebei
	No.1 Central Hospital (保定市第一中心醫院東院門診綜合樓和
	眼科大樓項目施工)
2.	Project of Court No.9 of Country Garden Xiliuhu City	Residential	Zhengzhou,
	(G29-01) (Building 1# to Building 9#, Non-motor Vehicle	building	Henan
	Shed with Charging Outlets, Basement and Underground
	Parking Lot)
	(碧桂園西流湖名城九號院 (G29-01)項目(1#樓~9#樓、充電非
	機動車車棚、地下室及地下車庫))
3.	Main Body and Supporting Construction Project of the	Residential	Tangshan,
	First Phase (Plots A, B and D) of Tangshan Evergrande	building	Hebei
	Hushan Peninsula Project (唐山恒大湖山半島項目首開區
	(A、B、D地塊)主體及配套建設工程)
4.	Construction of Airfield (Section I) of the Guangdong	Transportation	Zhanjiang,
	Zhanjiang Airport Relocation Project	infrastructure	Guangdong
	(廣東湛江機場遷建工程飛行區場道工程施工 (一標段))	construction
5.	General Contracting of the Land Level Project (Phase II)	Municipal	Guangzhou,
	of the Northern Zone of Knowledge City (知識城北片區土	infrastructure	Guangdong
	地平整工程 (二期)施工總承包工程)	construction
6.	EPC General Contracting of Road Greening and	Municipal	Langfang,
	Landscaping of the First Phase of Langfang Airport	infrastructure	Hebei
	Economic Zone	construction
	(廊坊臨空經濟區起步區道路綠化及生態綠地EPC工程總承包)

8 Hebei Construction Group Corporation Limited

BUSINESS OVERVIEW

Representative projects of construction in progress

		Business
No.	Name of project	segment	Region

1.	Scientific Research Complex at 4# of Phase II of	Public building	Langfang,
	the Langfang Pilot Test Base of Technical Institute of		Hebei
	Physics and Chemistry under Chinese Academy of
	Sciences (中國科學院理化技術研究所廊坊中試基地二期4#
	科研綜合樓)
2.	Construction Project of the Outpatient Complex and	Public building	Baoding,
	Ophthalmology Building of the East Campus of		Hebei
	Baoding No.1 Central Hospital
	(保定市第一中心醫院東院門診綜合樓和眼科大樓項目施工)
3.	Construction Project of Multi-purpose Covered	Public building	Tianjin
	Playground of Hebei University of Technology
	(河北工業大學多功能風雨操場項目施工)
4.	Construction Project of Shijiazhuang Public Records	Public building	Shijiazhuang,
	Office (石家莊市檔案館項目工程施工)		Hebei
5.	Gu'an Laikangjun Leisure and Tourism Complex Project	Public building	Langfang,
	(固安來康郡康樂旅游綜合體工程)		Hebei
6.	Main Body and Supporting Construction Project of	Residential	Ordos, Inner
	Phase I of Ordos Evergrande Metropolis	building	Mongolia
	(鄂爾多斯恒大名都項目首期主體及配套建設工程)
7.	Beijing Electronic City IT Industry Park Electronic	Industrial	Beijing
	Industry Factory Project (D3 Workshop (for High and	building
	New Technology Industry) and B3 Workshop (for High
	and New Technology Industry))
	(北京電子城IT產業園電子工業廠房項目 (D3廠房
	(高新技術產業用房)、B3廠房 (高新技術產業用房)))
8.	Quinta, Ethiopia - Garsner Road Project Contract	Transportation	Ethiopia
	(Quinta - Kurba Segment)	infrastructure
	(埃塞俄比亞昆塔－加斯納道路工程合同(昆塔－庫爾巴段))	construction
9.	General Contracting of Mozambique Saskatchewan	Transportation	Mozambique
	Airport Project (Bid Section for Airfield)	infrastructure
	(援莫桑比克賽賽機場項目 (飛行區標段)工程總承包任務)	construction
10.	Construction of Airfield (Section I) of the Guangdong	Transportation	Zhanjiang,
	Zhanjiang Airport Relocation Project (廣東湛江機場遷建工	infrastructure	Guangdong
	程飛行區場道工程施工 (一標段))	construction
11.	Main Body Construction Project of Beijing-Hebei	Transportation	Langfang,
	Boundary to Tianjin-Shijiazhuang Expressway Section	infrastructure	Hebei
	along Beijing New Airport - Dezhou Expressway (北京新	construction
	機場至德州高速公路京冀界至津石高速段主體工程施工)
12.	Construction, Installation and Procurement Project for	Specialized	Maoming,
	the Dry Coal Shed of Yudean Coal Terminal in Bohe New	and other	Guangdong
	Port Zone of Maoming Port in Guangdong (廣東茂名港博	construction
	賀新港區粵電煤炭碼頭乾煤棚製作與安裝採購)	business

Interim Report 2020 9

BUSINESS OVERVIEW

Representative projects of completed projects

		Business
No.	Name of project	segment	Region

1.	Construction of New Shijiazhuang Children's Hospital	Public building	Shijiazhuang,
	(City Maternity and Child Healthcare Hospital) Project		Hebei
	(新建石家莊市兒童醫院 (市婦幼保健院)項目施工)
2.	Outlets (Phase I) Residential Buildings 1#-3#,5#-13#,	Residential	Hengshui,
	15#, 55#-58#, Ancillary Public Buildings 61#, 70#,	building	Hebei
	Phase I of Underground Parking Lot; Outlets (Phase

Residential Buildings 25#-33#,35#, Underground Parking Lot (奧特萊斯 (一期)1#-3#、5#-13#、15#、55#-58#住宅樓，61#、70#配套公建，地下車庫一期；奧特萊斯 (二期)25#-33#、35#住宅樓，地下車庫)

3. 20 items including Building 1# of Research and	Industrial building	Beijing
Development, Trial Production and Testing Platform
(Xiaomi Internet Electronic Industrial Park Project)
(Phase I) (研發試製檢測平台1#樓等20項 (小米互聯網電子產業
園項目)一標段)
4. EPC General Contracting of Phase I of the Widening	Municipal	Shijiazhuang,
and Reconstruction Project of Lianmeng Road - Shifang	infrastructure	Hebei
Road - Fengshou Road (聯盟路-石紡路-豐收路拓寬打通工	construction
程一標段EPC總承包)

10 Hebei Construction Group Corporation Limited

BUSINESS OVERVIEW

PART II RESEARCH AND DEVELOPMENT ACHIEVEMENTS AND AWARDS

In the first half of 2020, the Group achieved remarkable results in various aspects of technology innovation, including implementation of technology research and development projects, construction and operation of technology platform and application and licensing of intellectual property.

Provincial science and technology projects: We applied for financial support from the government and initiated two projects admitted by Hebei Provincial Department of Science and Technology as the 2020 key projects of science and technology research and development in Hebei Province: the project of "Research, Development and Application of Ultra Low Energy Consumption Key Technology for Prefabricated Steel Structure Residential Buildings" (裝配式鋼結構住宅的超低能耗關鍵技術研發與應用) initiated by the Group and Hebei Academy of Building Research and the project of "Research and Development and Demonstration of Wetland Buffer Zone Technology for Ecological Purification of Water Inflow of Baiyang Lake" (白洋澱入澱水體生態淨化濕地緩衝帶技術研究及示範) initiated by Installation Company and Tongji University were awarded special government grant of RMB900,000. We also initiated 14 new technology demonstration projects of the Hebei Provincial Department of Housing and Urban-Rural Development, and applied for three science and technology projects of the Ministry of Housing and Urban-Rural Development, which marked a great start for implementation of provincial projects.
Enterprise level science and technology projects: In 2019, we incurred research and development expenses of RMB47,812,800 for enterprise level science and technology projects. In the first half of 2020, we assessed and initiated 224 enterprise level research and development projects and carried out research and development activities in an orderly manner.
Science and technology progress awards: We applied for the Science and Technology Progress Award of Hebei Provincial Department of Science and Technology (河北省科技廳科學技術獎) for two projects including the project of "Innovation and Demonstration of Key Technologies for Construction of Sponge Cities in Hebei Province" (河北省海綿城市建設關鍵技術創新與示範), and applied for the Baoding Science and Technology Awards for four projects.

Interim Report 2020 11

BUSINESS OVERVIEW

Construction and operation of technology platform: We carried out platform construction and operation with increased efforts, and our national enterprise technology center received rewards of RMB3 million from the Development and Reform Commission of Hebei Province. We cooperated with Harbin Institute of Technology to apply for the admission of "Research Center for Ecological Restoration of Polluted Water and Wetland in Hebei Province" as a Hebei provincial engineering research center under the Development and Reform Commission of Hebei Province. Installation Company has applied to be admitted as the Baoding technology innovation center.
Intellectual property: We patented our key technologies in a timely manner. As of the end of June 2020, we obtained 112 new patents (including three invention patents), submitted 81 patent applications (including ten applications for invention patents) and obtained seven software copyrights.

PART III OUTLOOK

The outbreak of COVID-19 is the most severe public health incident since the establishment of the PRC in terms of spreading speed, area of infection and difficulties in prevention and control. In response, the Company strictly implemented various prevention and control measures and contributed to the pandemic fight with its best efforts.

In 2020, the Company aimed at meeting all financial and technical targets to conclude the "13th Five-Year Plan" period with remarkable results. In the future, the Group will continue to uphold the general keynote of "Improving Quality and Efficiency, and Achieving Stability for Sustainable Development", diligently complete different tasks and fully implement detailed, standard and thorough management.

We will increase our efforts in development of project department and quantify and strengthen its performance. Through the development of project department, we will identify and consolidate more resources to bring more development opportunities for the Company. One of the main goals in the "14th Five-Year Plan" period is to meet the target of organizational construction, in order to establish one thousand project entities by the end of the "14th Five-Year Plan" period, thereby creating healthy competition among these entities and providing powerful support to meet the ultimate goal of reaching RMB100 billion of revenue.

12 Hebei Construction Group Corporation Limited

BUSINESS OVERVIEW

In the working meeting held during the year, the Group further confirmed that we shall prioritize the development of market system, adhere to market-oriented approach and mobilize all staff to participate in the comprehensive market expansion. Facing the impact from COVID-19, we will make proactive response with our positivity, courage and bravery, increase our efforts in market expansion and participate in the construction of national key projects. To tackle the challenges, we shall toughen up ourselves. Starting from the system operation, we will further adjust and improve the major customer management system, make market segmentation, increase the contribution from major customers, and improve the customer maintenance and development mechanism. Meanwhile, we will also strengthen the system interaction, enhance the quality and efficiency, put efforts in improving our abilities of project monitoring, bidding, implementation and performance, and understand customers' demand to provide professional solutions for the customers.

In response to the gradual emergence of domestic economic circle, we will actively explore business models related to "new infrastructure". Firstly, we will continuously strengthen our attention to the investment projects on the government platform, formulate project monitoring measures, specify the responsibilities at different levels, thereby improving the matching level and increasing the chance of winning the bids. Secondly, we will focus on national key infrastructure projects. For rail transit, expressway, emerging businesses (ecological and environmental protection and high-end manufacturing), water and environmental protection and water and soil conservation, we will implement comprehensive planning and whole-process monitoring to ensure real-timefollow-up on all process points. Thirdly, we will strengthen the in-depth exploration and research on different EPC projects and study the prefabricated "construction + EPC model" and other construction models, in order to make breakthrough in general contracting sector.

We will pay attention to national policies and people's livelihood, understand the needs of general public in different regions, and actively participate in urban renewal, shanty town renovation, irrigation and water conservancy and other relevant construction projects, thereby contributing to the well-being of general public by providing high-quality construction services, and creating new economic growth drivers that promote energy-saving, environmental protection and sustainable development.

We will also participate in the collaborative development of 5G communication, artificial intelligence, industrial internet of things, smart city, biomedical science and other emerging industries. As a traditional industry, construction industry is the foundation of every part of our lives, including the development of any new ideas or new sectors. As such, we will support, embrace and integrate the new models with our traditional services, and also lead and facilitate the transformation and upgrade of construction industry through technology innovation and industrial reform.

Interim Report 2020 13

BUSINESS OVERVIEW

We will innovate our business model, make in-depth research and exploration in the new meanings of "PPP + TOD", "PPP + land development", "EPC + land development" and "EPC + PPP", and actively study and exchange ideas on collective land utilization, project integration, investment and financing management, internal and external cooperation, profiting model and other relevant aspects. We will also innovate our operating sectors, fully understand the operation of TOD model, and actively participate in the projects of service platform complex, high-speed rail new city, upgrade and renovation of old railway lines and small communities and development of public areas in developed areas. We will cooperate with all stakeholders in the industry and provide systematic services in the industry, thereby unifying the linear operation in closed value chain into an open and collaborative community.

We will also capture the historic opportunities from the development of the Xiong'an New Area, the Guangdong-HongKong-Macao Greater Bay Area and the Hainan Free Trade Zone and actively support the "Belt and Road Initiative" by expanding to international markets.

The Company will strive to become a leading integrated provider of construction services and municipal services. It will also make preliminary plan before project implementation, and provide high-quality construction services, satisfactory after-sale services and valued-added services, thereby fully satisfying the customers' demand for customized services and potential expectation and providing premium services for the customers.

14 Hebei Construction Group Corporation Limited

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW

Operating income, operating cost and gross profit

The revenue of the Group for the six months ended 30 June 2020 amounted to RMB14,372 million, representing a decrease of approximately RMB5,926 million as compared with the corresponding period of last year, which was mainly due to the decrease in revenue from construction contracting segment of RMB5,783 million.

Segment operating results of construction contracting business

			Six months ended 30 June 2020				Six months ended 30 June 2019
						Gross							Gross
						profit							profit
		Revenue		Cost	margin	Percentage		Revenue		Cost	margin	Percentage
		(RMB		(RMB				(RMB		(RMB
	100	100				100		100
		million)		million)	%	%		million)		million)	%	%
Building construction business	94.51	90.07	4.7	66.9	141.24	134.13	5.0	70.9
Infrastructure construction business	30.96	29.07	6.1	21.9	42.11	39.69	5.7	21.2
Specialized and other
construction business		15.78	14.82	6.1	11.2	15.73	14.94	5.0	7.9

Total		141.25		133.96	5.2		199.08	188.76	5.2

The revenue from construction contracting segment for the six months ended 30 June 2020 decreased by RMB5,783 million, which was mainly due to the fact that the Group's construction business was mainly concentrated in Beijing, Tianjin and Hebei and their surrounding areas, and under the continuous impact from the pandemic of COVID-19 since the beginning of 2020, market supply of material, labour services and other resources failed to resume in time, certain projects under construction cannot resume operation and production as scheduled, and the work suspension period slightly increased as compared to the Chinese New Year holiday in the corresponding period of last year, which resulted in certain production failing to resume normal operation and prolonged cycle of project construction. In addition, most of the projects tendered have delayed the bid opening or cancelled the original plan for implementation, which resulted in decrease of new projects undertaken and thus the decreasing trend in the revenue from construction contracting segment of the Group.

Interim Report 2020 15

MANAGEMENT DISCUSSION AND ANALYSIS

Detailed analysis of the changes in revenue from construction contracting segment is as follows:

Building construction business is the largest contributor to the revenue from construction contracting segment. Under the continuous impact from the pandemic of COVID-19, certain construction projects failed to resume operation from January to March 2020, which led to prolonged cycle of project construction and resulted in decrease in revenue from building construction business of the Group of RMB4,673 million as compared to the corresponding period of last year;
The revenue from infrastructure construction business recorded a significant decrease of RMB1,115 million, which was mainly due to the decrease in new infrastructure construction projects undertaken by the Group since the second half of 2019, which led to the decrease in relevant revenue during the Reporting Period; and
The revenue from specialized and other construction business for the first half of 2020 increased slightly as compared to the corresponding period of last year, which was mainly because such business mainly includes mechanical and electrical installation, steel structures, decoration and other construction business, which have a relatively short construction cycle of no more than one year and thus expose to less impact from work suspension resulting from the pandemic.

Selling expenses

The selling expenses for January to June 2020 amounted to RMB0.45 million, decreasing by approximately RMB8.63 million as compared to the corresponding period of 2019, which was mainly because the Group made strategic adjustment to divest its property development business, resulting in decrease in salary of sales staff, advertising expense, business expense and other relevant expenses related to real estate companies.

16 Hebei Construction Group Corporation Limited

MANAGEMENT DISCUSSION AND ANALYSIS

Administrative expenses

The Group's administrative expenses for the first half of 2020 amounted to RMB189 million, representing an increase of RMB22 million as compared to the corresponding period of 2019, which was mainly due to the increase in number of employees during the period as compared with the corresponding period of 2019, resulting in the increase in employee salaries, benefits and social insurance contributions for the period as compared to the corresponding period of last year.

Research and development costs

The research and development costs of the Group for the first half of 2020 amounted to RMB11 million, representing a decrease of RMB37 million as compared to the corresponding period of 2019. The research and development costs mainly include the costs incurred for research of special projects or production process, including the cost of materials utilised and salary of senior engineers involved in research and development. The decrease was mainly because certain research and development projects of the Group had not commenced operation during the period affected by the pandemic.

Credit impairment losses

Credit impairment losses for January to June 2020 amounted to RMB48 million, which was mainly because the Group made provision for the expected credit loss of accounts receivable, other receivables and contract assets during the period in view of the pandemic of COVID-19, the macro-economic condition and credit profile of the customers.

Investment income

The investment income for January to June 2020 amounted RMB27 million, representing a decrease of RMB1.40 million as compared to the corresponding period of 2019, which was mainly due to the decrease in dividends declared by the enterprises under other equity instrument investment of strategic investment as compared to the corresponding period of last year.

Income tax expenses

The income tax expenses for January to June 2020 amounted to RMB70 million, representing a decrease of RMB98 million as compared to the corresponding period of last year, which was mainly due to the decrease in pre-tax profit which led to the decrease in income tax expenses.

Net profit

Based on the above factors, net profit for the first half of 2020 was RMB247 million, representing a decrease of approximately RMB321 million as compared with the corresponding period of last year.

Interim Report 2020 17

MANAGEMENT DISCUSSION AND ANALYSIS

Liquidity, financial sources and capital structure

The Group finances operations primarily through cash generated from operating activities and interest-bearing borrowings. As of 30 June 2020 and 31 December 2019, the Group had unrestricted cash and cash equivalents of approximately RMB5,128 million and approximately RMB6,675 million, respectively.

Currency funds

As of 30 June 2020, currency funds of the Group were RMB5,465 million, representing a decrease of RMB1,580 million as compared with that at the end of 2019, which was mainly due to the increase in net cash outflows from operating activities and investment activities.

Financial policy

The Group regularly monitors cash flow and cash balances. Furthermore, it is dedicated to maintaining the optimal liquidity level required for working capital and keeping its business and multiple growth strategies at a stable and healthy level during the Reporting Period. In the future, the Group intends to finance operations through cash generated from operating activities and interest-bearing borrowings.

Financial assets held for trading

As of 30 June 2020, financial assets held for trading of the Group were RMB0.58 million, representing a decrease of RMB4.35 million as compared with that at the end of 2019, which was mainly because the Group disposed of certain financial assets held for trading during the year.

Long-term equity investments

As of 30 June 2020, the long-term equity investment was RMB531 million, representing an increase of RMB1.10 million as compared with that at the end of 2019, which was mainly due to the change in profit or loss of investments under equity method.

Accounts receivable and long-term receivables

As of 30 June 2020, the net value of accounts receivable was RMB6,009 million, representing an increase of approximately RMB260 million as compared with that at the end of 2019, which was mainly due to the settlement of certain projects during the Reporting Period resulting in a relatively small overall change. The balance of long-term receivables (including the portion due within one year) was RMB120 million, which was mainly the receivables under concession projects and remained basically the same as last year.

18 Hebei Construction Group Corporation Limited

MANAGEMENT DISCUSSION AND ANALYSIS

Other receivables

As of 30 June 2020, balance of other receivables of the Group was RMB2,418 million, representing a decrease of approximately RMB51 million as compared to that at the end of last year with a slight overall change.

Contract assets and construction services contract liabilities

The net value of contract assets as of 30 June 2020 was RMB41,322 million, representing an increase of approximately RMB803 million as compared with that at the end of 2019, which was in line with the overall progress of projects. Contract liabilities as of 30 June 2020 were RMB4,594 million, representing an increase of approximately RMB104 million as compared with that at the end of 2019. It was mainly due to the enhanced settlement progress of some quality projects of the Group during the Reporting Period, resulting in the increase in contract liabilities as compared to last year.

Other equity instrument investment

The carrying value of other equity instrument investment as at 30 June 2020 was RMB734 million, representing a decrease of approximately RMB45 million as compared with that at the end of 2019, which was mainly due to the decrease in investment value of other equity instruments invested by the Group.

Short-term borrowings, long-term borrowings and non-current liabilities due within one year

The Group's short-term borrowings, long-term borrowings and non-current liabilities due within one year mainly include long-term and short-term borrowings from financial institutions and lease liabilities. The total balance of short-term borrowings, long-term borrowings and non-current liabilities due within one year as at 30 June 2020 was RMB5,319 million, increasing by RMB282 million as compared with that at the end of 2019, which was mainly due to the increase in long-term borrowings (including the portion due within one year) of the Group from January to June 2020.

Interim Report 2020 19

MANAGEMENT DISCUSSION AND ANALYSIS

Bills and accounts payable

The balance of accounts payable as at 30 June 2020 was RMB34,879 million, representing a decrease of RMB1,068 million as compared with that at the end of 2019, which was within normal range of fluctuation. Such change was mainly due to the slight decrease in procurement amount during the first half of 2020 affected by the pandemic of COVID-19. The balance of bills payable as at 30 June 2020 was RMB447 million, representing an increase of RMB66 million as compared with that at the end of last year, which was mainly due to the increase in proportion of bill payment by the Group.

Capital expenditures

Capital expenditures in the first half of 2020 were approximately RMB503 million, representing an increase of RMB471 million as compared to the corresponding period of 2019, which was mainly due to the construction of office building and increase in land.

Capital commitment

As at 30 June 2020, the Group did not have any material commitment.

Financial Ratios

	30 June	31 December
	2020	2019
Current ratio (times) (1)	1.1	1.1
Quick ratio (times) (2)	1.1	1.1
Gearing ratio (3)	90.4%	85.2%
Return on assets (4) (not annualized)	0.4%	1.2%
Return on equity (5) (not annualized)	4.2%	12.6%

Notes:

Current ratio (times) represents total current assets divided by total current liabilities as at the relevant date;
Quick ratio (times) represents total current assets minus inventory divided by total current liabilities as at the relevant date;
Gearing ratio represents total interest-bearing liabilities divided by equity as at the relevant date and multiplied by 100%;
Return on assets represents profit for the period/year divided by the average of total assets at the beginning and end of the period/year and multiplied by 100%;
Return on equity represents profit for the period/year divided by the average of total equity at the beginning and end of the period/year and multiplied by 100%.

20 Hebei Construction Group Corporation Limited

MANAGEMENT DISCUSSION AND ANALYSIS

Interest-bearing bank and other borrowings

As of 30 June 2020, the Group's interest-bearing borrowings were approximately RMB5,305 million (31 December 2019: approximately RMB5,029 million), bearing an effective annual interest rate ranging from 4.2% to 12.0% per annum (31 December 2019: annual interest rate ranging from 4.4% to 12.0%).

Significant sales or disposal

During the Reporting Period, the Group did not have any significant sales or disposal.

Contingent liabilities

As at 30 June 2020, the banking facilities granted to third parties subject to guarantees given to the banks by the Group were utilised to the extent of approximately RMB157 million.

RMB exchange rate fluctuations and exchange risk

Most of the Group's businesses and all bank loans have been traded in RMB so there is no significant foreign exchange fluctuation risk. The Board does not expect that fluctuations in the RMB exchange rate and exchange fluctuations of other foreign currencies will have a significant impact on the Group's business or performance. The Group currently has no relevant foreign exchange risk hedging policies and therefore it has not carried out any hedging transactions to manage the potential risks of foreign currency fluctuations.

Employee and remuneration policies

As of 30 June 2020, the Group has had a total of 8,062 full-time employees (31 December 2019: 8,062). Through integrating human resources strategy and based on different job classification, the Group has established a performance and competence-oriented remuneration system and competitive remuneration standards with reference to the remuneration level of relevant enterprises in the same region and the same industry, providing effective guarantee for recruiting, retaining and motivating talents, as well as the pursuit of human resources strategy of the Company.

Interim Report 2020 21

OTHER MATTERS

ISSUED SHARE CAPITAL

As at 30 June 2020, the total share capital of the Company was RMB1,761,383,500, divided into 1,761,383,500 Shares with a nominal value of RMB1.00 each. During the Reporting Period, there was no change in the share capital of the Company.

COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE

The Company is committed to achieving and maintaining a high level of corporate governance to meet business needs and Shareholders' requirements.

To ensure that the Company is able to fully fulfill its obligations under the Listing Rules, the Company has established an effective corporate governance structure and is committed to continually improving its internal control and corporate governance mechanisms.

The Company also operates in strict accordance with the Articles of Association, the Working Rules of the Committees under the Board of Directors, the Company Law, and the relevant laws, regulations and regulatory documents, as well as the relevant provisions of the Hong Kong Stock Exchange, so as to do a good job in corporate information disclosure and investment relationship management and service.

During the six months ended 30 June 2020, the Company had complied with all the code provisions as set out in the Corporate Governance Code and Corporate Governance Report in Appendix 14 to the Listing Rules and had adopted most of the recommended best practices as set out in Appendix 14 to the Listing Rules.

COMPLIANCE WITH THE MODEL CODE

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as set out in Appendix 10 to the Listing Rules as the code for all Directors and Supervisors to conduct transactions of the Company's securities. The Company has made specific inquiries to all Directors and Supervisors about their compliance with the Model Code, and they all confirmed that they have complied with the standards specified in the Model Code during the six months ended 30 June 2020.

22 Hebei Construction Group Corporation Limited

OTHER MATTERS

AMENDMENTS TO THE ARTICLES OF ASSOCIATION

On 31 December 2019, the Board considered and approved, among other things, the proposal in respect of amendments to the Articles of Association, which was for the amendments on the relevant articles in the Articles of Association involving the notice period of the general meeting of the Company and the "full circulation" of H Shares. The above proposal was considered and approved as special resolution at the 2020 first extraordinary general meeting, the 2020 first domestic shareholders class meeting and the 2020 first H shareholders class meeting convened on 30 March 2020. The revised Articles of Association took effect from 30 March 2020. The whole text of the revised Articles of Association has been published on the HKEXnews website of Hong Kong Stock Exchange and the website of the Company. For details, please refer to the announcements of the Company dated 31 December 2019 and 30 March 2020, and the circular of the 2020 first extraordinary general meeting and the 2020 first H shareholders class meeting dated 22 January 2020.

On 12 May 2020, the Board considered and approved, among other things, the proposal in respect of amendments to the Articles of Association, which was for the amendments on certain articles in the Articles of Association involving the composition of the Board. The above proposal was considered and approved as special resolution at the 2019 AGM convened on 23 June 2020. The revised Articles of Association took effect from 23 June 2020. The whole text of the revised Articles of Association has been published on the HKEXnews website of the Hong Kong Stock Exchange and the website of the Company. For details, please refer to the announcements of the Company dated 12 May 2020 and 23 June 2020, and the circular of the 2019 AGM dated 25 May 2020.

Other than the above, there was no other major changes on the Articles of Association by the Company during the Reporting Period.

PURCHASE, SALE OR REDEMPTION OF LISTED SECURITIES OF THE COMPANY

Neither the Company nor its subsidiaries has purchased, sold or redeemed any of its listed securities for the six months ended 30 June 2020.

Interim Report 2020 23

OTHER MATTERS

DIVIDEND DISTRIBUTION

2019 Final Dividend

According to the Profit Distribution Proposal of the Company for 2019 considered and approved by the Shareholders of the Company at the 2019 AGM convened on 23 June 2020, the Company will distribute cash dividends out of 32% of the net profit attributable to the listed company's shareholders for the year ended 31 December 2019 to Shareholders, totalling RMB246,593,690. The Board will distribute 2019 final dividend of RMB0.14 per Share (tax inclusive) in cash to its domestic Shareholders and H Shareholders whose names appear on the register of members of the Company on Wednesday, 8 July 2020. Such dividend was distributed on Monday, 10 August 2020. For details, please refer to the 2019 AGM circular dated 25 May 2020 and the announcement dated 23 June 2020.

2020 Interim Dividend

The Board does not recommend the distribution of interim dividend for the six months ended 30 June 2020.

USE OF PROCEEDS FROM THE IPO

The Company was listed on the Main Board of the Hong Kong Stock Exchange on 15 December 2017. According to the Appraisal Report on the Use of Previously Raised Proceeds (An Yong Hua Ming (2019) Zhuan Zi No. 61319209_J03) issued by Ernst & Young Hua Ming LLP (the "Appraisal Report on the Use of Previously Raised Proceeds"), the net proceeds (net of Stock Exchange trading fee, SFC transaction levy, registration fee and fees charged by the receiving banks) received by the Company from the IPO of new Shares for the purpose of its listing on the Stock Exchange and issue of new Shares upon partial exercise of the Over-allotment Option (as defined in the Prospectus) amounted to approximately HK$1,972.25 million.

Reference is made to the circular of 2019 first extraordinary general meeting of the Company dated 14 January 2019 and the poll results announcement of 2019 first extraordinary general meeting dated 25 February 2019. On 25 February 2019, the resolution in respect of the change in use of net proceeds from the Global Offering was considered and approved at the 2019 first extraordinary general meeting of the Company, including (1) the equity investment amount initially to be used under the Group's existing and future PPP projects be adjusted to be used to fund the Group's existing and future equity investment; (2) certain net proceeds initially to be used to fund the Group's equity investment commitments under existing and future PPP projects (approximately RMB160.81 million) be allocated to be used for general corporate purposes of the Group, including but not limited to payment of office rent, maintenance costs, employee costs, professional expenses and other expenses in the daily operation of the Company (the "Change"). Other than the above Changes, there is no other change in use of net proceeds from the Global Offering of the Company.

24 Hebei Construction Group Corporation Limited

OTHER MATTERS

As of the end of the Reporting Period, the use of net proceeds from the Global Offering of the Company is as follows:

		Amount of net proceeds used		Remaining net proceeds
The use of net proceeds		as of 30 June 2020		as of 30 June 2020
		Approximate		Approximate		Approximate		Approximate
		amount		percentage		amount		percentage
		(RMB million)	(%)			(RMB million)	(%)

Proceeds used to undertake
the construction of certain
construction contracting
projects remain to be
completed	642.73	39.97		0.52	0.03
To fund the Group's existing
and future equity investment
commitments	482.44	30.00		0.00	0.00
To repay the principal of and
interest on the Group's loans
on or before their respective
maturity dates	160.81	10.00		0.00	0.00
General corporate purposes	317.34	19.73		4.29	0.27

Total*	1,603.32	99.70		4.81	0.30

In preparing the above table, the exchange rate applied is RMB0.81538 = HK$1.000, and the amount of RMB is calculated according to such exchange rate. As a result, the difference between the net value of the remaining funds in the above table and the actual amount of funds in the retained account is due to the difference between the controlling exchange rate and the actual exchange rate.

The Company confirmed that, during the Reporting Period, the aforementioned use of raised funds was in line with the use of the proceeds after the Change.

The Company strictly recycled the raised funds in accordance with the relevant requirements of the SAFE. As of 30 June 2020, the total amount of recycling funds was approximately HK$1,380.50 million, the total amount of recycling funds was approximately RMB416.40 million and the proceeds from the settlement of exchange of Hong Kong dollars were approximately RMB1,126.12 million.

Interim Report 2020 25

OTHER MATTERS

The Company strictly controlled the use of raised funds according to the instructions of policy documents of the SAFE and the use of proceeds after the Change. As of 30 June 2020, the accumulative amounts of the raised funds paid for various purpose by the Company was RMB1,603.32 million. Among them, approximately RMB642.73 million was used to undertake the construction of certain construction contracting projects remain to be completed; approximately RMB482.44 million was used to fund the Group's existing and future equity investment commitments; approximately RMB160.81 million was used to repay the principal of and interest on bank loans on or before the due date; and approximately RMB317.34 million was used for general corporate purposes. Save as used above, as of 30 June 2020, the remaining funds of the Company's proceeds were approximately HK$3.16 million, RMB23.39 million (including an interest income of approximately RMB20.95 million) and USD0.44 million, which had not been used and were deposited in a special account opened by the Company in the bank. The Company will continue to apply the aforementioned net proceeds in accordance with the development strategy, market conditions and the net proceeds after the Change. The Company expects that the remaining unused proceeds will be fully utilized according to the proportion and the use after the Change on or before 31 December 2020.

SUBSEQUENT EVENTS

Save as disclosed in this report, there has been no major subsequent event of the Company from 30 June 2020 to the Latest Practicable Date.

REVIEW OF INTERIM REPORT BY AUDIT COMMITTEE

The members of the Audit Committee of the Company are Ms. Shen Lifeng (Chairwoman of the committee), Mr. Li Baoyuan, Mr. Cao Qingshe, Ms. Chen Xin and Mr. Chan Ngai Sang Kenny. The Audit Committee of the Company has reviewed and confirmed the Group's interim results announcement for the six months ended 30 June 2020, the 2020 interim report and the unaudited interim financial statements for the six months ended 30 June 2020 prepared in accordance with Chinese Accounting Standards for Business Enterprises.

26 Hebei Construction Group Corporation Limited

CHANGES IN SHARE CAPITAL AND

INFORMATION OF SHAREHOLDERS

SHARE CAPITAL AND CHANGES IN SHARE CAPITAL

The overseas-listedforeign-invested shares (H Shares) of the Company were listed on the main board of the Stock Exchange on 15 December 2017, with a total share capital of 1,733,334,000 Shares. As at 5 January 2018, the over-allotment option described in the Prospectus was partially exercised, and 28,049,500 H Shares were allotted, increasing the number of shares to 1,761,383,500 Shares.

As at 30 June 2020, the total issued share capital of the Company was RMB1,761,383,500, divided into 1,761,383,500 ordinary Shares with a nominal value of RMB1.00 each, including 1,300,000,000 Domestic Shares and 461,383,500 H Shares. During the Reporting Period, there was no change in the share capital of the Company.

As disclosed in the announcement of the Company dated 22 May 2020, on 22 May 2020, the Company has received the acceptance notice from the CSRC in relation to the Company's application submitted to the CSRC for implementation of the H share full circulation. Under its application, the Company has applied for the conversion of a maximum of 400,000,000 domestic shares of the Company in issue into H shares and the listing thereof on the Stock Exchange (the "Conversion and Listing"). As of the Latest Practicable Date, the details of implementation plan of the Conversion and Listing have not been finalised.

PROPOSED PLAN FOR THE A SHARE OFFERING

As disclosed in the announcements of the Company dated 19 July 2019 and 16 September 2019 and the circular of 2019 second extraordinary general meeting and 2019 first H shareholders class meeting of the Company dated 27 August 2019, the Board resolved to approve, among other things, the resolutions in relation to the proposed plan for the A Share Offering and related resolutions on 19 July 2019. Such resolutions have been approved by the Shareholders at the 2019 second extraordinary general meeting of the Company, the 2019 first domestic shareholders class meeting of the Company and the 2019 first H shareholders class meeting of the Company. Such resolutions are subject to the market conditions and the necessary approval or decisions of the relevant regulatory authorities.

Interim Report 2020 27

CHANGES IN SHARE CAPITAL AND INFORMATION OF SHAREHOLDERS

Due to the needs of the A Share Offering and Listing, according to the relevant laws, regulations and rules including the Company Law, the Securities Law of the PRC and the Administrative Measures on Initial Public Offering and Listing (《首次公開發行股票並上市管理辦法》), and upon negotiation with the sponsor institution(s), the proposed plan for the A Share Offering and Listing is further detailed as follows:

(1) Type of Shares to be issued	: Renminbi ordinary shares (A Share), with a par value of
	and par value	RMB1.00 each.
(2) Number of A Shares to be	: It is proposed that the size of the A Shares to be
	issued	issued shall not exceed 25% of the total share capital
		of the Company upon completion of the offering, being
		587,127,833 Shares. The specific number of the offering
		will be negotiated by the Board, as authorized by the
		Shareholders at the extraordinary general meeting and
		the class meetings, with the sponsor institution(s) in
		accordance with the market price consultation results
		and the capital needs of the investment projects to be
		funded by proceeds from the offering. The ultimate
		number of the offering shall be subject to the approval
		of the CSRC.
(3)	Target subscribers	: Inquiry targets who meet the requirements under the
		national laws and regulations and the provisions of the
		CSRC and other regulatory authorities, and domestic
		natural persons, legal persons and other investors who
		have maintained accounts at the SSE (other than those
		prohibited by the national laws and regulations). The
		Company shall take appropriate steps to ascertain the
		eligibility of the A Share subscribers and to ensure that
		no A Shares will be allotted and issued to its connected
		persons and/or their associates.
(4)	Methods of offering	: A combination of offline placement to inquiry targets
		and offering by way of online subscription, or any other
		methods as specified by the CSRC.

28 Hebei Construction Group Corporation Limited

CHANGES IN SHARE CAPITAL AND INFORMATION OF SHAREHOLDERS

(5) Offer price of the Shares	: The price range will be determined first by the Board
	as authorized by the Shareholders and the sponsor
	institution(s) through promotion and preliminary
	price consultation, and the offer price will then be
	determined in accordance with laws and regulations
	and the relevant requirements of the CSRC.
	In accordance with the Measures for the Administration
	of the Offering and Underwriting of Securities (《證
	券發行與承銷管理辦法》) issued by the CSRC, the issue
	price of shares in the initial public offering can be
	determined either by way of price enquiry to offline
	investors, or by other legitimate and feasible methods
	such as direct pricing based on negotiation between
	the issuer and the lead underwriter(s).
	In accordance with the Measures for the Administration
	of the Offering and Underwriting of Securities (《證
	券發行與承銷管理辦法》), if an initial public offering of
	shares is to be conducted by means of direct pricing,
	all the shares shall be issued to online investors without
	carrying out offline price enquiries or placement; if
	an initial public offering of shares is to be conducted
	by means of price enquiry, then once the offline
	investors have submitted bids, the issue price shall be
	determined by the issuer and the lead underwriter(s)
	b a s e d o n t h e r e m a i n i n g b i d s a n d n u m b e r o f
	subscription applications, after excluding the portion
	of offer shares with the highest bids. It is also required
	that the excluded portion shall not be less than 10% of
	the total number of shares to be subscribed for by all
	the offline investors.

Interim Report 2020 29

CHANGES IN SHARE CAPITAL AND INFORMATION OF SHAREHOLDERS

According to the Company Law, shares may be issued at a price equal to or in excess of par value, but not below par value. As the par value of the A Shares proposed to be issued by the Company is RMB1.00, the issue price of the A Shares will not be lower than RMB1.00 per Share. Save as the aforesaid regulatory provision, no minimum issue price is set for the A Shares proposed to be issued.

When determining the actual issue price of the A Shares, the Company will take into consideration the following factors: (i) the Company's financial results,

the average Price-to-Earnings ratio (P/E ratio) of other A share listed issuers which operate in the same industry as the Company; (iii) market conditions; (iv) the trading price of the H Shares; (v) requirements under the relevant laws and regulations; and (vi) rules and policies of the relevant regulatory authorities.

(6) Place of listing of the shares

: SSE.

Use of proceeds from the A : The Company proposes to use the proceeds from

Share Offering	the A Share Offering (after deduction of offering
	expenses) to invest in several PPP projects (amounting
	to approximately RMB550 million in aggregate),
	BOT projects (amounting to approximately RMB130
	million in aggregate) and other investment projects
	(amounting to approximately RMB3,275 million
	in aggregate). It is estimated that approximately
	RMB3,955 million in aggregate out of the proceeds will
	be used in such projects.

30 Hebei Construction Group Corporation Limited

CHANGES IN SHARE CAPITAL AND INFORMATION OF SHAREHOLDERS

		In the event that the actual proceeds from the A Share
		Offering, after deduction of the corresponding offering
		expenses, are insufficient to meet the investment
		needs for all such projects, the Company will prioritize
		its investment in certain of the above projects by
		taking into account the urgency and materiality of
		each project and the shortfall shall be eased by the
		self-raised funds of the Company. If initial investment
		is required for the aforesaid investment projects to
		be funded by proceeds before the proceeds from the
		offering are available due to factors such as operational
		needs or market competition, the Company will initially
		fund the projects by way of its self-owned funds, bank
		loans or financing leases, etc. Once the proceeds from
		the offering are available, the Company will replace
		its initial investment of self-owned funds in relevant
		investment projects and/or repay bank loans and/or
		financing leases with the proceeds from the offering.
		In the event that the actual proceeds, after deduction
		of the corresponding offering expenses, are more than
		those required for the aforesaid investment projects to
		be funded by proceeds, the surplus will be applied to
		replenish the working capital of the Company through
		legal procedures in accordance with the national laws,
		regulations and the relevant requirements of the CSRC.
(8)	Undertaking of offering	: All the Shares to be offered in the public offering are
	expenses	new Shares and all the offering expenses incurred
		thereof shall be borne by the Company.
(9)	Underwriting method	: Standby commitment.
(10) Conversion into a joint stock	: After the approval of the A Share Offering and
	limited liability company	Listing by the CSRC, the Company will apply for the
	with Shares issued and listed	conversion into a joint stock limited liability company
	domestically and overseas	with Shares issued and listed domestically and
		overseas.

Interim Report 2020 31

CHANGES IN SHARE CAPITAL AND INFORMATION OF SHAREHOLDERS

(11) V a l i d p e r i o d o f t h e :	The relevant resolutions of the A Share Offering and
resolutions	Listing shall be valid for 12 months from the date of
	the approval at the 2019 second extraordinary general
	meeting of the Company and the 2019 first domestic
	shareholders class meeting of the Company and the
	2019 first H shareholders class meeting of the Company
	(i.e. 16 September 2019).

For further details of the proposed A Share Offering, please see the announcement of the Company dated 19 July 2019, the circular of the 2019 second extraordinary general meeting and the 2019 first H shareholders class meeting of the Company dated 27 August 2019 and the poll results announcement of the Company dated 16 September 2019.

INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN THE SHARES, UNDERLYING SHARES OR DEBENTURES OF THE COMPANY AND ITS ASSOCIATED CORPORATIONS

As at 30 June 2020, the interests and short positions of the Directors, the Supervisors and chief executives of the Company in the Shares, underlying Shares or debentures of the Company or its associated corporations (as defined in Part XV of the SFO) which were (i) required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (ii) recorded in the register kept under Section 352 of the SFO; or (iii) required to be notified to the Company and the Stock Exchange pursuant to the Model Code are as follows:

32 Hebei Construction Group Corporation Limited

CHANGES IN SHARE CAPITAL AND INFORMATION OF SHAREHOLDERS

INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN THE SHARES OF THE COMPANY

						Approximate
						percentage of
					Approximate	shareholding
					percentage of	in the total
					shareholding	issued share
					in the relevant	capital of the
Name of the Directors,					class of Shares	Company
Supervisors and		Number of			as at 30 June	as at 30 June
chief executives	Capacity	Shares interested	Class of Shares	Nature of interest	2020	2020

Mr. Li Baoyuan1	Interest in	1,300,000,000	Domestic Shares	Long position	100%	73.80%
	controlled
	corporation

Note:

1. As at 30 June 2020, Qianbao Investment directly holds 5.54% of the equity interests in the Company and 43.63% of the equity interests in Zhongru Investment. In addition, each of the 119 individuals holding in aggregate the remaining 56.37% of the equity interests in Zhongru Investment has respectively undertaken that they have followed since the establishment of Zhongru Investment or when each of them became a shareholder of Zhongru Investment, and will continue to follow Qianbao Investment in exercising their voting powers at shareholders' general meetings of Zhongru Investment and all other rights of shareholders of Zhongru Investment. Therefore, Qianbao Investment is deemed to be interested in 100% of the equity interests in Zhongru Investment and thus be interested in the 1,202,500,000 Shares held by Zhongru Investment for the purpose of Part XV of the SFO. As at 30 June 2020, Mr. Li Baoyuan directly holds 90% of the equity interests in Qianbao Investment, and Qianbao Investment directly or indirectly holds 100% of the equity interests in Zhongru Investment and directly holds 5.54% of the equity interests in the Company. Therefore, Mr. Li Baoyuan is deemed to be interested in 100% of the equity interests, or 231,500,000 shares, in Zhongru Investment and thus be interested in the 1,300,000,000 Shares directly or indirectly held by Qianbao Investment for the purpose of Part XV of the SFO.

Interim Report 2020 33

CHANGES IN SHARE CAPITAL AND INFORMATION OF SHAREHOLDERS

INTERESTS AND SHORT POSITIONS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN THE SHARES OF ASSOCIATED CORPORATIONS OF THE COMPANY

					Approximate
					percentage of
					issued share
			Number of		capital of
			ordinary shares		associated
Name of the Directors,	Name of		interested in		corporation
Supervisors and	associated		the associated		as at 30 June
chief executives	corporation	Capacity	corporation	Nature of interest	2020

Directors
Mr. Li Baoyuan1	Qianbao Investment2	Beneficial owner	45,000,000	Long position	90.00%
	Zhongru Investment3	Interest in controlled	231,500,000	Long position	100.00%
		corporation
Mr. Li Baozhong	Qianbao Investment2	Beneficial owner	5,000,000	Long position	10.00%
Mr. Cao Qingshe	Zhongru Investment3	Beneficial owner	5,000,000	Long position	2.16%
Mr. Shang Jinfeng	Zhongru Investment3	Beneficial owner	1,000,000	Long position	0.43%
Mr. Zhao Wensheng	Zhongru Investment3	Beneficial owner	1,000,000	Long position	0.43%
Mr. Liu Yongjian	Zhongru Investment3	Beneficial owner	2,000,000	Long position	0.86%
Supervisors
Mr. Yu Xuefeng	Zhongru Investment3	Beneficial owner	1,000,000	Long position	0.43%
Mr. Liu Jingqiao	Zhongru Investment3	Beneficial owner	500,000	Long position	0.22%
Mr. Yue Jianming	Zhongru Investment3	Beneficial owner	500,000	Long position	0.22%

Notes:

As at 30 June 2020, Mr. Li Baoyuan directly holds 90% of the equity interests in Qianbao Investment, and Qianbao Investment directly holds 43.63% of the equity interests in Zhongru Investment. In addition, each of the 119 individuals holding in aggregate the remaining 56.37% of the equity interests in Zhongru Investment has respectively undertaken that they have followed since the establishment of Zhongru Investment or when each of them became a shareholder of Zhongru Investment, and will continue to follow Qianbao Investment in exercising their voting powers at shareholders' general meeting of Zhongru Investment and all other rights of shareholders of Zhongru Investment. Therefore, Mr. Li Baoyuan (through Qianbao Investment) is deemed to be interested in 100% of the equity interests, or 231,500,000 shares, in Zhongru Investment.
As at 30 June 2020, the total share capital of Qianbao Investment is 50,000,000 shares.
As at 30 June 2020, the total share capital of Zhongru Investment is 231,500,000 shares.

34 Hebei Construction Group Corporation Limited

CHANGES IN SHARE CAPITAL AND INFORMATION OF SHAREHOLDERS

Save as disclosed above, so far as any Directors, Supervisors or chief executives of the Company are aware, as at 30 June 2020, none of the Directors, Supervisors or chief executives of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (as defined in Part XV of the SFO) which were (i) required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO); or (ii) recorded in the register kept under Section 352 of the SFO; or (iii) required to be notified to the Company and the Stock Exchange pursuant to the Model Code.

RIGHTS OF DIRECTORS AND SUPERVISORS TO ACQUIRE SHARES OR DEBENTURES

As of 30 June 2020, none of the Directors or Supervisors or their respective spouses or children under the age of 18 was granted any rights to acquire benefits by means of acquisition of Shares or debentures of the Company, nor exercised any such rights. The Company or any of its subsidiaries did not make any arrangement to enable the Directors or their respective spouses or children under the age of 18 to acquire such rights from any other body corporate.

Interim Report 2020 35

CHANGES IN SHARE CAPITAL AND INFORMATION OF SHAREHOLDERS

INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS IN THE SHARES AND UNDERLYING SHARES OF THE COMPANY

As at 30 June 2020, the following persons (not being the Directors, Supervisors or chief executives of the Company) had interests or short positions in the Shares or underlying Shares of the Company which would be required to be recorded in the register kept under Section 336 of the SFO:

						Approximate
						percentage of
						shareholding
					Approximate	in total
					percentage of	issued share
					shareholding	capital of
					in the relevant	the Company
					class of Shares	as at
		Number of			as at 30 June	30 June
Name of Shareholder	Capacity	Shares interested	Class of Shares	Nature of interest	2020	2020

Zhongru Investment	Beneficial owner	1,202,500,000	Domestic Shares	Long position	92.50%	68.27%
Qianbao Investment1	Interest in controlled	1,202,500,000	Domestic Shares	Long position	92.50%	68.27%
	corporation
	Beneficial owner	97,500,000	Domestic Shares	Long position	7.50%	5.54%

Note:

36 Hebei Construction Group Corporation Limited

INFORMATION OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

As of the Latest Practicable Date, the composition of the Board of Directors, the Board of Supervisors and senior management of the Company is as follows:

The Board of Directors has 9 Directors, including: 4 executive Directors, namely Mr. Li Baozhong, Mr. Shang Jinfeng, Ms. Liu Yongjian and Mr. Zhao Wensheng; 2 non-executive Directors, namely Mr. Li Baoyuan and Mr. Cao Qingshe; and 3 independent non-executive Directors, namely Ms. Shen Lifeng, Ms. Chen Xin and Mr. Chan Ngai Sang Kenny.

The Board of Supervisors has 5 Supervisors, including: 3 shareholder Supervisors, namely Mr. Yu Xuefeng, Ms. Feng Xiujian and Mr. Wang Feng; and 2 employee Supervisors, namely Mr. Liu Jingqiao and Mr. Yue Jianming.

The Company has a total of 7 members of senior management, namely Mr. Shang Jinfeng (executive Director and President), Mr. Liu Yongjian (executive Director and Vice President), Mr. Zhao Wensheng (executive Director, Chief Accountant and Director of Finance), Mr. Gao Qiuli (Vice President and Chief Engineer), Mr. Zhang Wenzhong (Vice President and Chief Economic Officer), Mr. Tian Wei (Vice President) and Mr. Li Wutie (Board Secretary and Assistant to the President).

Save as disclosed in this report, there is no change in the information of Directors, Supervisors and chief executive of the Company that is required to be disclosed pursuant to the provisions of Rule 13.51B (1) of the Listing Rules.

CHANGE OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Change of Directors

At the 2019 AGM of the Company held on 23 June 2020, (i) Mr. Li Baozhong, Mr. Shang Jinfeng, Mr. Zhao Wensheng and Mr. Liu Yongjian have been appointed as executive Directors of the second session of the Board of Directors; (ii) Mr. Li Baoyuan and Mr. Cao Qingshe have been appointed as non-executive Directors of the second session of the Board of Directors; and

Ms. Shen Lifeng, Ms. Chen Xin and Mr. Chan Ngai Sang Kenny have been appointed as independent non-executive Directors of the second session of the Board of Directors. Besides, Mr. Xiao Xuwen, an independent non-executive Director of the first session of the Board of Directors, did not seek re-election of Director upon the expiration of his term of office as a Director due to reaching his retirement age, and he shall cease to take any role as an independent non-executive Director of the Company with effect from 23 June 2020.

Interim Report 2020 37

INFORMATION OF DIRECTORS, SUPERVISORS AND SENIOR MANAGEMENT

Meanwhile, at the first meeting of the second session of the Board of Directors of the Company held on 23 June 2020, the Board of Directors has resolved to elect Mr. Li Baoyuan as the honorary chairman of the second session of the Board of Directors of the Company, Mr. Li Baozhong as the chairman of the second session of the Board of Directors of the Company and Mr. Cao Qingshe as the vice chairman of the second session of the Board of Directors of the Company, whose terms of office shall start from 23 June 2020 and end at the expiration of the term of the second session of the Board of Directors of the Company.

Change of Supervisors

At the 2019 AGM of the Company held on 23 June 2020, Mr. Yu Xuefeng, Ms. Feng Xiujian and Mr. Wang Feng have been appointed as the Shareholder representative Supervisors of the second session of the Board of Supervisors. Meanwhile, upon the approval at the employee representative meeting held on 25 April 2020, effective from 23 June 2020, Mr. Liu Jingqiao and Mr. Yue Jianming have been elected as employee representative Supervisors of the second session of the Board of Supervisors.

At the first meeting of the second session of the Board of Supervisors of the Company held on 23 June 2020, the Board of Supervisors has resolved to elect Mr. Yu Xuefeng as the chairman of the second session of the Board of Supervisors of the Company, whose term of office shall start from 23 June 2020 and end at the expiration of the term of the second session of the Board of Supervisors of the Company.

Change of Senior Management

At the first meeting of the second session of the Board of Directors of the Company held on 23 June 2020, the Board of Directors has resolved to (i) re-appoint Mr. Shang Jinfeng as the president of the Company; (ii) re-appoint Mr. Liu Yongjian as a vice president of the Company;

re-appointMr. Zhao Wensheng as the chief accountant and the director of finance of the Company; (iv) re-appoint Mr. Gao Qiuli as a vice president and the chief engineer of the Company; (v) re-appoint Mr. Zhang Wenzhong as a vice president and the chief economic officer of the Company; (vi) re-appoint Mr. Li Wutie as the Board secretary of the Company; and

appoint Mr. Tian Wei as a vice president of the Company, whose terms of office shall start from 23 June 2020 and end on the date when the third session of the Board of Directors of the Company is established and has appointed new session of senior management.

38 Hebei Construction Group Corporation Limited

INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED)

					30 June 2020
						RMB'000

			30 June		31 December
Assets	Note VI	2020		2019
			(Unaudited)
Current assets
Currency funds	1	5,465,114		7,045,270
Financial assets held for trading		584		4,931
Accounts receivable	2	6,008,900		5,748,686
Accounts receivable financing	3	1,089,983		1,257,760
Prepayments	4	1,251,294		1,285,168
Other receivables	5	2,417,681		2,468,999
Inventories		338,915		241,145
Contract assets	6	39,890,798		39,231,476
Non-current assets due within one year		26,061		26,061
Other current assets	7		165,770		117,736
Total current assets			56,655,100			57,427,232
Non-current assets
Long-term receivables	8	93,819		93,840
Contract assets	6	1,431,489		1,287,426
Long-term equity investments	9	531,111		530,015
Other equity instrument investments	10	734,007		779,054
Investment property		136,600		134,750
Fixed assets	11	380,529		378,117
Construction in progress		424,060		15,764
Right-of-use assets	12	39,443		46,544
Intangible assets		101,844		35,633
Deferred tax assets		219,071		198,196

Total non-current assets		4,091,973		3,499,339

Total assets			60,747,073		60,926,571

The notes form an integral part of these financial statements

Interim Report 2020 39

INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED)

30 June 2020

RMB'000

			30 June			31 December
Liabilities and shareholders' equity	Note VI	2020		2019
			(Unaudited)
Current liabilities
Short-term borrowings	14	2,236,017		2,250,713
Bills payable		446,768		380,677
Accounts payable	15	34,878,714		35,946,252
Contract liabilities		4,593,846		4,489,727
Employee benefits payable		161,037		185,954
Taxes payable		584,032		636,184
Other payables		5,538,009		5,300,272
Non-current liabilities due within one year		1,504,063		922,400
Other current liabilities	16		3,328,404		3,016,571
Total current liabilities			53,270,890			53,128,750
Non-current liabilities
Long-term borrowings	17	1,578,998		1,864,424
Lease liabilities	18	15,280		29,825

Total non-current liabilities		1,594,278		1,894,249

Total liabilities			54,865,168		55,022,999

40 Hebei Construction Group Corporation Limited

INTERIM CONSOLIDATED BALANCE SHEET (UNAUDITED)

					30 June 2020
						RMB'000

			30 June		31 December
Liabilities and shareholders' equity	Note VI	2020		2019
			(Unaudited)
Shareholder's equity
Share capital	19	1,761,384		1,761,384
Capital reserve		1,661,232		1,661,232
Other comprehensive income		87,357		119,557
Surplus reserve		417,681		417,681
Retained profit	20	1,763,291		1,760,756

Total equity attributable to shareholders of the parent		5,690,945		5,720,610
Minority interests		190,960		182,962

Total shareholders' equity		5,881,905		5,903,572

Total liabilities and shareholders' equity			60,747,073		60,926,571

The financial statements have been signed by:

	Principal in charge of	Head of accounting
Legal Representative:	accounting:	department:

The notes form an integral part of these financial statements

Interim Report 2020 41

INTERIM CONSOLIDATED INCOME STATEMENT (UNAUDITED)

Six months ended 30 June 2020

RMB'000

			Six months			Six months
		ended 30 June	ended 30 June
	Note VI	2020		2019
			(Unaudited)			(Unaudited)
Operating revenue	21	14,371,556		20,297,154
Less: Operating costs		13,604,235		19,191,379
Taxes and surcharges		34,409		51,731
Selling costs		452		9,084
Administrative expenses		189,104		166,996
Research and development costs		11,203		47,884
Finance expenses	22	200,057		46,436
Including: Interest expenses		229,670		123,388
Interest income		26,198		81,472
Add: Other income		4,503		207
Investment income	23	27,189		28,590
Including: Gains on investments in joint
ventures and associates		1,096		10,054
Gains/(losses) from changes in fair values		1,850		(7,994)
Credit impairment losses	24	(48,192)	(64,249)
Gains on disposal of assets		119				-

Operating profit		317,565		740,198
Add: Non-operating income		897		301
Less: Non-operating expenses		1,817		4,153

Total profit		316,645		736,346
Less: Income tax expenses	25	69,978		168,207

Net profit			246,667		568,139

42 Hebei Construction Group Corporation Limited

INTERIM CONSOLIDATED INCOME STATEMENT (UNAUDITED)

Six months ended 30 June 2020

RMB'000

			Six months		Six months
		ended 30 June	ended 30 June
	Note VI	2020		2019
			(Unaudited)		(Unaudited)
Including: Net profit of party being acquired prior
to business combination under common
control			-	37,906
Classified by business continuity
Net profit from continuing operations		246,667		530,248
Net profit from discontinued operations			-	37,891
Classified by ownership
Net profit attributable to shareholders of the parent		249,129		553,222
(Losses)/gains of minority interests		(2,462)	14,917
Other comprehensive (loss)/income, net of tax		(32,200)	66,255
Other comprehensive (loss)/income attributable to
shareholder of the parent, net of tax		(32,200)	66,255
Other comprehensive (loss)/income that cannot be
reclassified to profit and loss
Changes in fair value of other equity instrument
investments		(33,785)	66,255
Other comprehensive income that will be reclassified
to profit and loss
Changes in fair value of accounts receivable
financing		1,585			-

Total comprehensive income		214,467		634,394
Including:
Total comprehensive income attributable to
shareholders of the parent		216,929		619,477
Total comprehensive (losses)/income attributable
to minority shareholders		(2,462)	14,917
Earnings per share (RMB/share)
Basic earnings per share	26	0.14		0.31

The notes form an integral part of these financial statements

Interim Report 2020 43

INTERIMCONSOLIDATED STATEMENT OF

CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

Six months ended 30 June 2020

RMB'000

								Attributable to shareholders of the parent

								Other									Total
					Capital	comprehensive	Special		Surplus		Retained				Minority	shareholders'
		Share capital	reserve		income	reserve		reserve		profit		Subtotal		interests		equity

I. Opening balance of the period	1,761,384	1,661,232	119,557		-	417,681	1,760,756	5,720,610	182,962	5,903,572
II. Changes for the period

(I) Total comprehensive income		-	-	(32,200)	-		-	249,129	216,929	(2,462)	214,467
1.	Capital contribution by
	minority shareholders		-	-		-	-		-		-		-	10,460	10,460

Profit distribution
1. Distribution to

shareholders

(246,594)

Special reserve
1. Appropriation for the

period	-		-	-	(282,497)	-	282,497		-		-	-
2. Use in the period	-		-	-	282,497		-	(282,497)	-		-	-

III. Closing balance of the period	1,761,384	1,661,232	87,357		-	417,681	1,763,291		5,690,945	190,960	5,881,905

The notes form an integral part of these financial statements

44 Hebei Construction Group Corporation Limited

INTERIM CONSOLIDATED STATEMENT OF

CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

Six months ended 30 June 2019

RMB'000

									Attributable to shareholders of the parent

									Other									Total
							Capital	comprehensive	Special		Surplus		Retained			Minority	shareholders'
			Share capital		reserve		income	reserve		reserve		profit	Subtotal	interests		equity

I. Closing balance of the
previous year	1,761,384	1,462,156	60,900		-	267,706	1,625,641		5,177,787		510,606	5,688,393
Add: Business combinations under
		common control			-	124,776		-	-	27,540	76,388		228,704		15,248	243,952
	Effects of the first application
		of new leases standard			-		-		-	-		-	(838)	(838)	-	(838)

II. Opening balance of the period	1,761,384	1,586,932	60,900		-	295,246	1,701,191		5,405,653		525,854	5,931,507
III. Changes for the period

(I)	Total comprehensive income			-		-	66,255		-		-	553,222		619,477		14,917	634,394
(II)	Capital contribution and
	reduction by shareholders
	1.	Capital contribution by
		minority shareholders			-		-		-	-		-		-	-	5,475	5,475

2. Effects of business combination under common control as at the date of combination and the effect of disposal of the

		discontinued operations	-	(29,105)	-	-	-		-	(29,105)	(353,487)	(382,592)
(III)	Profit distribution
	1.	Distribution to
		shareholders	-		-	-	-	-	(588,415)	(588,415)	-	(588,415)
(IV)	Special reserve
	1.	Appropriation for the
		period	-		-	-	389,525		-		-	389,525		-	389,525
	2.	Use in the period	-		-	-	(389,525)	-		-	(389,525)	-	(389,525)

IV. Closing balance of the period	1,761,384	1,557,827		127,155	-	295,246	1,665,998		5,407,610		192,759		5,600,369

The notes form an integral part of these financial statements

Interim Report 2020 45

INTERIM CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

Six months ended 30 June 2020

RMB'000

			Six months		Six months
		ended 30 June	ended 30 June
	Note VI	2020		2019
			(Unaudited)		(Unaudited)
I. CASH FLOWS USED IN OPERATING ACTIVITIES:
Cash received from sales of goods or rendering of
services		16,096,729		17,173,747
Other cash receipts related to operating activities		8,091,854		690,540

Subtotal of cash inflows from operating activities		24,188,583		17,864,287

Cash paid for goods and services		16,195,762		18,759,166
Cash paid to and for employees		412,688		327,847
Taxes paid		641,380		355,622
Other cash payments related to operating activities		8,068,967		112,688

Subtotal of cash outflows from operating activities		25,318,797		19,555,323

Net cash flows used in operating activities	27	(1,130,214)	(1,691,036)
II. CASH FLOWS USED IN INVESTING ACTIVITIES:
Cash received from return of investment		7,886		4,500
Cash received from investment income		21,411		91,984
Net cash received from disposal of fixed assets and
other long-term assets		495		755
Other cash receipts related to investing activities			-	58,235

Subtotal of cash inflows from investing activities		29,792		155,474
Cash paid for the purchase and construction
of fixed assets, intangible assets and other
long-term assets		503,365		48,700
Cash paid to acquire investments		3,539		416,625
Net cash received from disposal of subsidiaries and
other business units			-	282,671

Subtotal of cash outflows from investing activities		506,904		747,996

Net cash flows used in investing activities			(477,112)	(592,522)

46 Hebei Construction Group Corporation Limited

INTERIM CONSOLIDATED CASH FLOW STATEMENT (UNAUDITED)

Six months ended 30 June 2020

RMB'000

			Six months		Six months
		ended 30 June	ended 30 June
	Note VI	2020		2019
			(Unaudited)		(Unaudited)
III. CASH FLOWS FROM FINANCING ACTIVITIES:
Cash received from capital contributions		10,460		5,475
Including: Cash received from minority
shareholders' capital contributions
to subsidiaries		10,460		5,475
Cash received from borrowings		1,886,873		2,348,848
Other cash receipts related to financing activities			-	472,835

Subtotal of cash inflows from financing activities		1,897,333		2,827,158

Cash paid for repayments of debts		1,619,448		2,117,326
Cash paid for distribution of dividends, profits or
interest repayment		154,236		182,524
Other cash payments related to financing activities		67,435		115,000

Subtotal of cash outflows from financing activities		1,841,119		2,414,850

Net cash flows from financing activities		56,214		412,308
IV.EFFECT OF FOREIGN EXCHANGE RATE CHANGES
ON CASH AND CASH EQUIVALENTS		3,415		(4,520)
V.NET DECREASE IN CASH AND CASH
EQUIVALENTS		(1,547,697)	(1,875,770)
Add: Opening balance of cash and cash equivalents		6,675,426		6,011,066
VI.CLOSING BALANCE OF CASH AND CASH
EQUIVALENTS	28	5,127,729		4,135,296

The notes form an integral part of these financial statements

Interim Report 2020 47

COMPANY BALANCE SHEET (UNAUDITED)

30 June 2020

RMB'000

		30 June		31 December
Assets	2020		2019
		(Unaudited)
Current assets
Currency funds	4,337,312		5,566,335
Accounts receivable	4,619,305		4,133,415
Accounts receivable financing	793,880		902,718
Prepayments	766,312		1,009,335
Other receivables	1,816,958		1,803,262
Inventories	264,551		181,974
Contract assets	30,961,410		32,455,838
Other current assets	71,427		53,548

Total current assets	43,631,155		46,106,425
Non-current assets
Long-term equity investments	2,635,048		2,554,241
Other equity instrument investments	734,007		779,054
Investment property	136,600		134,750
Fixed assets	145,663		135,070
Construction in progress	426,551		14,950
Right-of-use assets	11,267		19,287
Intangible assets	610		610
Deferred tax assets	148,093		133,558

Total non-current assets	4,237,839		3,771,520

Total assets		47,868,994		49,877,945

The notes form an integral part of these financial statements

48 Hebei Construction Group Corporation Limited

COMPANY BALANCE SHEET (UNAUDITED)

30 June 2020

RMB'000

		30 June		31 December
Liabilities and shareholders' equity	2020		2019
		(Unaudited)
Current liabilities
Short-term borrowings	1,780,717		1,812,213
Bills payable	192,738		124,828
Accounts payable	26,776,377		29,165,296
Contract liabilities	4,038,654		4,121,521
Employee benefits payable	105,796		97,881
Taxes payable	419,022		454,840
Other payables	5,109,877		4,758,205
Non-current liabilities due within one year	933,538		518,084
Other current liabilities	2,751,404		2,508,029

Total current liabilities	42,108,123		43,560,897
Non-current liabilities
Long-term borrowings	294,684		785,464
Lease liabilities	3,875		13,087

Total non-current liabilities	298,559		798,551

Total liabilities	42,406,682		44,359,448
Shareholders' equity
Share capital	1,761,384		1,761,384
Capital reserve	1,447,379		1,447,379
Other comprehensive income	91,080		123,730
Surplus reserve	228,135		228,135
Retained profit	1,934,334		1,957,869

Total shareholders' equity	5,462,312		5,518,497

Total liabilities and shareholders' equity	47,868,994		49,877,945

The notes form an integral part of these financial statements

Interim Report 2020 49

COMPANY INCOME STATEMENT (UNAUDITED)

Six months ended 30 June 2020

RMB'000

		Six months		Six months
	ended 30 June	ended 30 June
	2020		2019
		(Unaudited)		(Unaudited)
Operating revenue	12,138,555		16,213,130
Less: Operating costs	11,531,687		15,489,871
Taxes and surcharges	24,152		33,326
Selling costs	309		684
Administrative expenses	176,522		108,205
Research and development costs	7,417		33,626
Finance expenses	133,807		(730)
Including: Interest expenses	171,153		120,665
Interest income	33,931		125,915
Add: Other income	3,200		200
Investment income	26,182		17,801
Including: Gains/(losses) on investments in joint
ventures and associates	1,182		(699)
Gains/(losses) from changes in fair values	1,850		(4,583)
Credit impairment (losses)/gains	(12,100)	20,995

Operating profit	283,793		582,561
Add: Non-operating income	611		9,492
Less: Non-operating expenses	1,437		341

Total profit	282,967		591,712
Less: Income tax expenses	59,908		137,684

Net profit	223,059		454,028

Other comprehensive income, net of tax	(32,650)	66,255
Other comprehensive income that cannot be reclassified to
profit or loss
Changes in fair value of other equity instrument investments	(33,785)	66,255
Other comprehensive income that will be reclassified to
profit and loss
Changes in fair value of accounts receivable financing	1,135			-

Total comprehensive income	190,409		520,283
The notes form an integral part of these financial statements

50 Hebei Construction Group Corporation Limited

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

Six months ended 30 June 2020

RMB'000

Other

Total

Capital

comprehensive

Special

Surplus

Retained

shareholders'

Share capital

reserve

income

reserve

profit

equity

Opening balance

of the period

1,761,384

1,447,379

123,730

228,135

1,957,869

5,518,497

Changes for the period
1. Total comprehensive

income

(32,650)

223,059

190,409

Profit distribution
1. Distribution to

shareholders

(246,594)

Special reserve
1. Appropriation for

	the period	-		-	-	(242,771)	-	242,771	-
	2. Use in the period	-		-	-	242,771		-	(242,771)	-

III.	Closing balance of the period	1,761,384	1,447,379	91,080	-	228,135	1,934,334	5,462,312

The notes form an integral part of these financial statements

Interim Report 2020 51

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

Six months ended 30 June 2019

RMB'000

							Other					Total
					Capital	comprehensive	Special	Surplus		Retained	shareholders'
		Share capital	reserve		income	reserve	reserve		profit		equity

I.	Closing balance of the
	previous year	1,761,384		1,462,156	60,900	-	131,414	1,617,678	5,033,532
	Add: Changes in accounting
	policies		-	-		-	-	-	(1,882)	(1,882)
II.	Opening balance of

	the period	1,761,384		1,462,156	60,900	-	131,414	1,615,796	5,031,650

Changes for the period
1. Total comprehensive

income

66,255

454,028

520,283

1. Effects of business combination under common control and the effect of disposal of discontinued

operations

(80,777)

Profit distribution
1. Distribution to

shareholders

(528,415)

Special reserve
1. Appropriation for

	the period	-		-	-	325,676	-		-	325,676
	2. Use in the period	-		-	-	(325,676)	-		-	(325,676)

IV.	Closing balance of the period	1,761,384	1,381,379	127,155	-	131,414	1,541,409	4,942,741

The notes form an integral part of these financial statements

52 Hebei Construction Group Corporation Limited

COMPANY CASH FLOW STATEMENT (UNAUDITED)

Six months ended 30 June 2020

RMB'000

		Six months		Six months
	ended 30 June	ended 30 June
	2020		2019
		(Unaudited)		(Unaudited)
I. CASH FLOWS USED IN OPERATING ACTIVITIES:
Cash received from sales of goods or rendering of services	15,073,276		11,895,965
Other cash receipts related to operating activities	5,320,301		513,997

Subtotal of cash inflows from operating activities	20,393,577		12,409,962

Cash paid for goods and services	14,748,873		11,944,554
Cash paid to and for employees	328,122		259,696
Taxes paid	515,936		262,930
Other cash payments related to operating activities	5,289,109		1,285,320

Subtotal of cash outflows from operating activities	20,882,040		13,752,500

Net cash flows used in operating activities	(488,463)	(1,342,538)
II. CASH FLOWS USED IN INVESTING ACTIVITIES:
Cash received from return of investment	33,932		144,415
Net cash received from disposal of fixed assets, intangible
assets and other long-term assets	8,739		195
Other cash receipts related to investing activities		-	58,235

Subtotal of cash inflows from investing activities	42,671		202,845
Cash paid for the purchase and construction of fixed assets,
intangible assets and other long-term assets	438,244		8,328
Cash paid to acquire investments	81,499		692,638
Other cash payments related to investment activities		-	23,400

Subtotal of cash outflows from investing activities	519,743		724,366

Net cash flows used in investing activities		(477,072)	(521,521)

Interim Report 2020 53

COMPANY CASH FLOW STATEMENT (UNAUDITED)

Six months ended 30 June 2020

RMB'000

		Six months		Six months
	ended 30 June	ended 30 June
	2020		2019
		(Unaudited)		(Unaudited)
III.CASH FLOWS (USED IN)/FROM FINANCING ACTIVITIES:
Cash received from borrowings	1,625,909		1,125,900
Other cash receipts related to financing activities		-	472,835

Subtotal of cash inflows from financing activities	1,625,909		1,598,735

Cash paid for repayments of debts	1,741,422		1,137,100
Cash paid for distribution of dividends, profits or interest
repayment	98,536		119,661
Other cash payments related to financing activities	63,101		115,000

Subtotal of cash outflows from financing activities	1,903,059		1,371,761

Net cash flows (used in)/from financing activities	(277,150)	226,974
IV.EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS	3,415		(4,520)

V.NET INCREASE IN CASH AND CASH EQUIVALENTS	(1,239,270)	(1,641,605)
Add: Opening balance of cash and cash equivalents	5,361,461		4,861,499

VI.CLOSING BALANCE OF CASH AND CASH EQUIVALENTS	4,122,191		3,219,894

The notes form an integral part of these financial statements

54 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

BASIC INFORMATION

Hebei Construction Group Co., Ltd. (河北建設集團有限公司), the predecessor of Hebei Construction Group Corporation Limited (the "Company"), was established on 29 September 1997 with the approval of the People's Government of Baoding City. It was established by state-owned enterprise restructuring of certain state-owned assets and legal entities of No. 1 Construction Engineering Company of Hebei Province (河北省第一建築工程公司), which had 50 years of history, as well as merging of Architectural Design Institute, legal entities, Baoding Furnace Plant and Baoding Concrete Pipe Plant. On 7 April 2017, the Company completed the shareholding system reform, converted into a joint stock company and renamed as "Hebei Construction Group Corporation Limited". The registered address of the Company is No. 125 Lugang Road, Baoding, Hebei Province, and the legal representative is Li Baozhong. The Company does not have a fixed business term.

Upon the proposal by the Board of Directors of the Company and approval by the general meeting, and according to the Reply on the Approval of Issuance of Overseas-Listed Foreign-InvestedShares by Hebei Construction Group Corporation Limited (Zheng Jian Xu Ke [2017] No. 2056) (證監許可[2017]2056號文《關於核准河北建設集團股份有限公司發行境外上市外資股的批覆》) from CSRC, the Company completed the initial issue of 433,334,000 overseas-listed foreign-investedshares (H shares) to overseas investors. Over-allotmentoption was exercised on 5 January 2018 and issued 28,049,500 additional overseas-listed foreign-investedshares (H shares), and a total of 461,383,500 H shares were issued, with a nominal value of RMB1.00 each. The H shares were verified by Zhonghingcai Guanghua Certified Public Accountants LLP with the capital verification report of Zhonghingcai Guanghua Yan Zi (2019) No. 309003. The registered capital of the Company increased to RMB1,761,383,500 after the initial public offering of H shares.

Interim Report 2020 55

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

BASIC INFORMATION (Continued)

The major operating activities of the Company and its subsidiaries (hereinafter referred to as the "Group") are: general contracting of construction works and property development and operations. The Company currently possesses special-grade qualification for national building construction project general contracting, and is one of the 43 enterprises with special-grade qualification for national building construction project general contracting. It also possesses first-grade general contracting for road construction, first-grade qualifications for general contracting for municipal public engineering construction, first-grade general contracting for electrical and mechanical installation construction, first-grade professional contracting for road pavement construction, first-grade professional contracting for road subgrade construction, first-grade professional contracting for pipeline construction, first-grade qualification for professional airport runway construction contracting, first-grade professional contracting for steel structure construction, third-grade general contracting for water resources and hydropower construction (interim) and contracting for international construction and qualification for dispatch of work force to overseas. The Company and each of its subsidiaries mainly engage in projects of building construction, municipal and public construction, electrical and mechanical installation, road construction, railway construction, port and waterways construction, water resources and hydropower construction, subgrade and pavement construction, steel structure construction, airport runway construction etc.

The Group's parent company and ultimate parent company are Zhongru Investment Co., Ltd. (incorporated in the PRC) and Qianbao Investment Co., Ltd. (incorporated in the PRC), respectively, with their principal place of business in the PRC.

56 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The financial statements were prepared in accordance with the Accounting Standards for Business Enterprises - Basic Standards issued by the Ministry of Finance, and the specific accounting standards, application guidance, interpretations and other relevant regulations issued and revised thereafter (hereafter referred to as the "Accounting Standards for Business Enterprises").

The financial statements have been prepared on a going concern basis.

The financial statements are prepared under the historical cost convention, except for certain financial instruments and investment properties. If the assets are impaired, corresponding provisions for impairment shall be made according to relevant rules.

Statement of compliance with the Chinese Accounting Standards and the Hong Kong Listing Rules

The interim consolidated financial statements have been prepared in accordance with the requirements of the Accounting Standards for Business Enterprises No. 32 - Interim Financial Reporting and Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules"), and give a true and fair view of the financial position of the Company and the Group as at 30 June 2020, and of their operating results and cash flows for the six months ended 30 June 2020.

Interim Report 2020 57

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

The financial information included in the financial statements of the Company and the Group for the six months ended 30 June 2020 have been prepared based on the following significant accounting policies and estimates formulated in accordance with the Accounting Standards for Business Enterprises.

1. Accounting period

The accounting year of the Group is from 1 January to 31 December each year and the accounting period for these financial statements is from 1 January 2020 to 30 June 2020.

2. Functional currency

Renminbi ("RMB") is the functional currency of the Company and the subsidiaries, joint ventures and associates under the Group, which is used in the preparation of these financial statements by the Company. Unless otherwise stated, the unit of the currency is RMB'000.

3. Business combinations

Business combinations are classified into business combinations under common control and business combinations not under common control.

Business combinations under common control

A business combination under common control is a business combination in which all of the combining entities are ultimately controlled by the same party or parties both before and after the combination, and that control is not transitory. For a business combination under common control, the party that, on the combination date, obtains control of another entity participating in the combination is the acquiring party, while that other entity participating in the combination is a party being acquired. The combination date is the date on which the acquiring party effectively obtains control of the party being acquired.

58 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

3. Business combinations (Continued)

Business combinations under common control (Continued)

Assets and liabilities (including goodwill arising from the acquisition of the merged party by the ultimate controlling party) obtained by the merging party in a business combination shall be measured at their carrying amounts at the date of combination as recorded by the ultimate controlling party. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid for the combination (or the aggregate face value of shares issued as consideration) is adjusted to share premium under the capital reserve. If the capital reserve is not sufficient to absorb the difference, any excess is adjusted against retained earnings.

Business combinations not under common control

A business combination not under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the combination. For a business combination not under common control, the party that, on the acquisition date, obtains control of another entity participating in the combination is the acquirer, while that other entity participating in the combination is the acquiree. Acquisition date is the date on which the acquirer effectively obtains control of the acquiree.

In a business combination not under common control, the acquirer measures the acquiree's identifiable assets, liabilities and contingent liabilities acquired in the business combination at their fair values on the acquisition date.

Interim Report 2020 59

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

3. Business combinations (Continued)

Business combinations not under common control (Continued)

Where the aggregate of the fair value of the considerations paid (or the fair value of the equity securities issued) and the fair value of the acquiree previously held equity interest before the acquisition date exceeds the acquirer's interest in the fair value of the acquiree's identifiable net assets, the difference is recognised as goodwill. Goodwill is subsequently measured at cost less any accumulated impairment losses. Where the aggregate of the fair value of the considerations paid (or the fair value of the equity securities issued) and the fair value of the acquiree's previously held equity interest before the acquisition date is less than the acquirer's interest in the fair value of the acquiree's identifiable net assets, the acquirer reassesses the measurement of the fair value of the considerations paid (or the fair value of the equity securities issued) and the fair value of the acquirer's previously held equity interest, if after that reassessment, the aggregate of the fair value of the considerations paid (or the fair value of the equity securities issued) and the fair value of the acquirer's previously held equity interest is still less than the acquirer's interest in the fair value of the acquiree's identifiable net assets, the acquirer recognises the difference immediately in the profit or loss for the current period.

4. Consolidated financial statements

The consolidation scope of the consolidated financial statements is determined on the basis of control, including the financial statements of the Company and all of its subsidiaries. A subsidiary is an entity (including an enterprise, a separable part of an investee, and the structural entities controlled by the Company) which is under the control of the Company.

The accounting policies and accounting periods of the Company and subsidiaries are consistent in the preparation of the consolidated financial statements. All assets, liabilities, equity, income, expenses and cash flows arising from intra-group transactions are eliminated on consolidation.

When the amount of loss for the period attributable to the non-controlling shareholders of a subsidiary exceeds the non-controlling shareholders' portion of the opening balance of owners' equity of the subsidiary, the excess amount is still charged against minority interests.

60 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

4. Consolidated financial statements (Continued)

For a subsidiary that is acquired in a business combination involving enterprises not under common control, the operating results and cash flows of the acquiree shall be consolidated into the consolidated financial statements from the date on which the Group takes control of acquiree to the date on which such control ceases. In the preparation of the consolidated financial statements, the financial statements of the subsidiary are adjusted based on the fair value of the subsidiary's identifiable assets, liabilities or contingent liabilities determined as at the acquisition date.

For a subsidiary that is acquired in a business combination involving enterprises under common control, the operating results and cash flows of the merged party shall be incorporated into the consolidated financial statements at the beginning of the current period. In the preparation of the consolidated financial statements, the relative items of the financial statements of the previous period are treated as if the merged party had been formed under the control of the Group at the very beginning.

If a change in any facts and circumstances gives rise to one or more changes in controlling factors, the Group will reassess whether it controls the investee or not.

Change in non-controlling interests that does not result in the loss of control over the subsidiary is accounted for as an equity transaction.

5. Joint arrangement classification and joint operation

Joint arrangement is classified as joint operation and joint venture. A joint operation refers to a joint arrangement whereby the parties concerned have rights to the assets, and obligations for the liabilities relating to the arrangement. A joint venture refers to a type of joint arrangement whereby the parties concerned have rights to the net assets of the arrangement.

The party concerned recognises following items in relation to its interest in a joint operation: its solely-held assets, including its share of any assets held jointly; its solely-assumed liabilities, including its share of any liabilities incurred jointly; its revenue from the sale of its share of the output arising from the joint operation; its share of the revenue from the sale of the output by the joint operation; and its solely-incurred expenses, including its share of any expenses incurred jointly.

Interim Report 2020 61

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

6. Cash and cash equivalents

Cash comprises the Group's cash on hand and deposits that can be withdrawn on demand at any time. Cash equivalents are the Group's short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

7. Foreign currency transactions and translation of the financial statements prepared in foreign currencies

The Group's foreign currency transactions are translated and recorded in the respective functional currencies.

A foreign currency transaction is recorded in the functional currency on initial recognition, by applying the exchange rate on the date of transaction. At the balance sheet date, foreign currency monetary items are translated into the functional currency using the spot exchange rates at the balance sheet date. Exchange differences arising from the settlements and monetary items are recognized in profit or loss for the period, except that exchange differences that qualify for capitalization related to a specific-purpose borrowing denominated in foreign currency are capitalized as part of the cost of the qualifying asset. Foreign currency non-monetary items measured at historical cost are translated at the spot exchange rate on the date of transaction but the amount of the functional currency is not changed. Foreign currency non-monetary items measured at fair value are re-translated at the spot exchange rate on the date the fair value is determined. The exchange differences are recognized in profit or loss or as other comprehensive income depending on the nature of the non-monetary items.

Cash flows arising from a transaction in foreign currency are translated at the spot exchange rate of the transaction date of cash flows. The effect of exchange rate changes on cash is regarded as a reconciling item and presented separately in the statement of cash flows.

62 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

8. Financial instruments

Financial instruments refer to contracts that form the financial assets of one company and form the financial liabilities or equity instruments of other companies.

The recognition and derecognition of financial instruments

The Group recognizes a financial asset or financial liability when it becomes a party to a financial instrument contract.

A financial asset (or part of a financial asset, or a portion of a group of similar financial assets) is derecognized and written off from its account and balance sheet, when the following conditions are met:

The right to receive cash flows from financial assets expires;
Transferring the right to receive cash flows from financial assets, or under the "hands-on agreement", undertaking the obligation to pay the full amount of cash flows to the third party in full; and (a) substantially transferring all risks and rewards of the ownership of the financial assets, or (b) abandoning the control of the financial assets, although it does not substantially transfer or retain almost all of the risks and rewards of the ownership of the financial assets.

If the responsibility for a financial liability has been fulfilled or revoked or has expired, the financial liability should be derecognized. If an existing financial liability is replaced by another financial liability of the same creditor on substantially virtually different terms, or if the terms of the existing liability are substantially modified, such replacement or modification is deemed to terminate the recognition of the original liability and to confirm the new disposal of liabilities, the difference is included in the current profit or loss.

The purchases and sales of financial assets in regular ways are recognized and derecognized on a trade date basis. The purchases and sales of financial assets in regular ways refers to the collection or delivery of financial assets within the time limit stipulated by regulations or common practices in accordance with the terms of the contract. The trading day is the date on which the Group commits to buy or sell the financial assets.

Interim Report 2020 63

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

8. Financial instruments (Continued)

Classification and measurement of financial assets

The financial assets of the Group are classified upon the initial recognition based on the business model of the Group's financial asset management and the characteristics of the financial assets' contractual cash flows: financial assets measured at fair value through profit or loss, financial assets measured at amortized cost or financial assets measured at fair value through other comprehensive income.

Financial assets are measured at fair value on initial recognition. However, if the accounts receivable or receivable notes arising from selling goods and the provision of services do not include significant financing components or do not consider financing components not exceeding one year, the financial assets shall be initially measured at the transaction price.

For financial assets measured at fair value through profit or loss, the related transaction expense is directly recognized in profit or loss for the current period. The related transaction costs of other types of financial assets are included in their initial recognition amount.

Subsequent measurement of financial assets depends on their classification:

Debt instrument investments measured at amortized cost

Financial assets are classified as financial assets measured at amortized cost if the financial assets meet the following conditions: The business model for managing the financial assets is to collect contractual cash flows; the contractual terms of the financial assets stipulate that cash generated on a specific date is only the payment of the principal and the interest based on the outstanding principal amount. The effective interest method is used to recognize interest revenue for such financial assets. The gains or losses arising from derecognition, modification or impairment are recognized in profit or loss for the current period.

64 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

8. Financial instruments (Continued)

Classification and measurement of financial assets (Continued)

Debt instrument investments measured at fair value through other comprehensive income

A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met: the financial asset is held by the Group within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and the contractual terms of the financial asset set that the cash flows on specified dates are solely payments of principal and interest on the outstanding amount of principal. The interest income from such financial asset is recognized using the effective interest method. The change in fair value of such financial asset shall be recognized in other comprehensive income, except for interest income, impairment losses and exchange differences recognized in profit or loss for the current period. When the financial asset is derecognized, the cumulative gains or losses previously recognized in other comprehensive income is reclassified from other comprehensive income to profit or loss for the current period.

Equity instrument investments measured at fair value through other comprehensive income

The Group irrevocably opts to assign some of the investments in non-tradable equity instruments to financial assets at fair value through other comprehensive income, and only recognizes relevant dividend incomes (excluding dividend incomes taken back clearly as part of investment cost) in profit or loss for the current period, while subsequent changes in fair value is recognized as other comprehensive income without provision for impairment. When the financial assets are derecognized, the cumulative gains or losses previously recognized in other comprehensive income are reclassified from other comprehensive income to retained earnings.

Interim Report 2020 65

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

8. Financial instruments (Continued)

Classification and measurement of financial assets (Continued)

Financial assets at fair value through profit or loss

The financial assets other than those measured at amortized cost and at fair value through other comprehensive income are classified as financial assets at fair value through profit or loss. For such financial assets, fair value is used for subsequent measurement, and all changes in fair value are recognized in profit or loss for the current period.

Classification and measurement of financial liabilities

The financial liabilities of the Group are, on initial recognition, classified as financial liabilities at fair value through profit or loss, other financial liabilities and derivatives designated as effective hedging instruments. For financial liabilities measured at fair value through profit or loss, the related transaction expense is directly recognized in profit or loss, while the related transaction expense of other financial liabilities is included in the initial recognition amount. The Group only holds financial liabilities classified as other financial liabilities.

Subsequent measurement of financial liabilities depends on their classification:

Other financial liabilities

Such financial liabilities are subsequently measured at amortized cost by using the effective interest method.

66 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

8. Financial instruments (Continued)

Impairment of financial instruments

On the basis of expected credit losses, the Group performs the impairment treatment on financial assets, contract assets and financial guarantee contracts measured at amortized cost and confirms the loss provision.

For receivables and contract assets that do not contain significant financing components, the Group uses a simplified measurement method to measure loss provision based on the amount of expected credit losses for the entire duration of the life.

For contract assets that contain significant financing components, the Group uses a simplified measurement method to measure loss provision based on the amount of expected credit losses for the entire duration of the life.

For financial assets and financial guarantee contracts other than those measured by the aforesaid simplified measurement method, the Group assesses whether its credit risk has increased significantly since the initial recognition on each balance sheet date. If the credit risk has not increased significantly since the initial recognition (at the first phase), the Group measures the loss provision based on the amount of expected credit loss over the next 12 months and calculates the interest income based on the book balance and effective interest rate; if the credit risk has increased significantly but the financial assets have not yet been credit-impaired since the initial recognition (at the second phase), the Group measures the loss provision based on the amount of expected credit losses for the entire duration of the life and calculates the interest income based on the book balance and effective interest rate; if the financial assets have been credit-impaired since the initial recognition (at the third phase), the Group measures the loss provision based on the amount of expected credit losses for the entire duration of the life and calculates the interest income based on the amortized cost and effective interest rate.

Interim Report 2020 67

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

8. Financial instruments (Continued)

Impairment of financial instruments (Continued)

The Group assesses whether or not the credit risk of the relevant financial instruments has increased significantly since the initial recognition at each balance sheet date. Based on the single financial instrument or the combination of financial instruments with similar characteristics of credit risk, the Group compares the risk of default of financial instruments on the balance sheet date with that on the initial recognition date in order to figure out the changes of default risk in the expected lifetime of financial instruments. For financial instruments that have lower credit risk on the balance sheet date, the Group assumes that its credit risk has not increased significantly since the initial recognition.

Please refer to Note VIII-3 for disclosures including the Group's assumption of expected credit loss measurement.

A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

When the Group no longer reasonably expects to be able to fully or partially recover the contractual cash flows of financial assets, the Group directly writes down the book balance of the financial assets.

Elimination of financial instruments

The net amount after eliminating financial assets and financial liabilities is presented in the balance sheet if the following conditions are satisfied: A lawful right exists for eliminating recognized amounts, and such lawful right is currently enforceable; it is planned that the financial assets and financial liabilities are to be netted against each other, or that they are to be realized and settled simultaneously.

68 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

8. Financial instruments (Continued)

Financial guarantee contracts

Financial guarantee contracts are those contracts that require a payment to be made by the issuer to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are measured at fair value at initial recognition. Subsequent to initial recognition, financial guarantee contracts that are not designated as financial liabilities at fair value through profit or loss are measured at the higher of the expected credit loss provision recognized at the balance sheet date and the amount initially recognized less cumulative amortization amount in accordance with the guidance for revenue recognition.

Transfer of financial assets

If the Group transfers substantially all the risks and rewards of ownership of the financial asset to the transferee, it derecognizes the financial asset; if the Group retains substantially all the risks and rewards of ownership of the financial asset, it does not derecognize the financial asset.

If the Group neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, it is accounted for as follows: if the Group has not retained control of the financial asset, it derecognizes the financial asset and recognizes any resulting assets or liabilities; if the Group has retained control of the financial asset, it recognizes the financial asset to the extent of its continuing involvement in the transferred financial asset and recognizes an associated liability.

Interim Report 2020 69

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

9. Inventories

Inventories are initially measured at cost. Inventories comprises raw material, properties under development and completed properties held for sale, costs of purchase, costs of conversion and other costs. Costs for properties under development and completed properties held for sale include land costs, construction costs, capitalized interests, and other direct and indirect development expenses in relation to property development. For the delivery of inventories, their actual costs are determined using the first-infirst-out method. Cost of properties under development is transferred to cost of completed properties held for sale based on actual cost upon completion of development and is allocated on weighted average basis.

On the balance sheet date, the inventories shall be calculated by the lower of cost and net realized value. When the cost is higher than the net realizable value, inventory impairment allowance shall be provided and the inventories shall be included in current profit and loss. In case the factors impacting the previous providing of the inventory impairment allowance are eliminated, making the net realizable value of the inventory higher than its carrying amount, the write-down amount should be recovered from the amount of inventory impairment allowance previously provided and the corresponding amount shall be reversed to current profit and loss.

The net realizable value represents the amount derived by deducting the potential cost, estimated sale cost and relative taxes to the completion date from the estimated selling price of the inventory in daily activities. When providing the inventory impairment allowance, raw material and finished products and completed properties held for sale shall be provided by individual inventory item, and the costs of properties under development shall be provided by categories.

70 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

10. Long-term equity investments

Long-term equity investments include equity investments in subsidiaries, joint ventures and associates. A long-term equity investment is initially recorded at its initial investment cost on acquisition.

For a long-term equity investment where the Company can exercise control over the investee, the Company uses the cost method in the Company's separate financial statements. Control refers to the power over an investee, and exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the investor's returns.

Under the cost method, the long-term equity investment is measured at its initial investment cost. For addition or recovery of investments, the cost of long-term equity investments is adjusted accordingly. Cash dividend or profit declared to be distributed by an investee is recognized as profit for the current period.

The equity method is adopted for a long-term equity investment when the Group holds joint control, or exercises significant influence on the investee. Joint control refers to the contractually-agreed shared control over an arrangement and related activities under such arrangement shall be decided on with the unanimous consent of the parties sharing control. Significant influence is the power to participate in the financial and operating policy decisions of the investee rather than to control or jointly control with other parties over the formulation of those policies.

Under the equity method, where the initial investment cost of a long-term equity investment is more than the share of the fair value of the investee's identifiable net assets when the investment is made, the cost is included in the initial investment cost of the long-term equity investment. Where the initial investment cost of the long-term equity investment is less than the share of the fair value of the investee's identifiable net assets when the investment is made, the difference is recognized in profit or loss for the current period and the cost of the long-term equity investment is adjusted accordingly.

Interim Report 2020 71

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

10. Long-term equity investments (Continued)

Under the equity method, the Group recognizes its share in the net profit or loss and other comprehensive income made by the investee as investment income or losses and other comprehensive income after the acquisition of the long-term equity investment, and adjusts the carrying amount of the long-term equity investment accordingly. When recognizing the Group's share in the net profit or loss of the investee, the Group recognizes the net profit of the investee after making appropriate adjustments based on the fair values of the identifiable assets of the investee when the investment is acquired and in accordance with the Group's accounting policies and periods, after eliminating the portion of the profits or losses, arising from internal transactions with its joint ventures and associates, attributable to the investor according to its share ratio (but losses arising from internal transactions that belong to impairment losses on assets should be recognized in full), save for business formed by assets invested or disposed. The carrying amount of the long-term equity investment is reduced accordingly based on the Group's share of profit or cash dividends declared to be distributed by the investee. The Group's share in net loss of the investee is recognized to the extent that the carrying amount of the long-term equity investment and other long-term equity substantively forming net investments of the investee are written down to zero, except that the Group has incurred obligations to assume additional losses. The Group adjusts the carrying amount of the long-term equity investment for other changes in shareholders' equity of the investee (other than net profit or loss, other comprehensive income and profit appropriation of the investee) and includes the corresponding adjustments in the shareholders' equity.

72 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

10. Long-term equity investments (Continued)

On disposal of the long-term equity investment, the difference between carrying amount and consideration actually received is recognized in profit or loss for the current period. For long-term equity investments under equity method, when the use of the equity method is discontinued, other comprehensive income previously accounted for under the equity method shall be accounted for on the same basis as where the relevant assets or liabilities are disposed of directly by the investee. Shareholders' equity recognized as a result of changes in other shareholders' equity (other than the net profit or loss, other comprehensive income and profit appropriation of the investee) shall be taken in full to the profit or loss for the current period. If the equity method remains in use, other comprehensive income previously accounted for under the equity method shall be accounted for on the same basis as where the relevant assets or liabilities are disposed of directly by the investee and taken to the profit or loss for the current period in proportion. Shareholders' equity recognized as a result of changes in shareholders' equity (other than the net profit or loss, other comprehensive income and profit appropriation of the investee) shall be taken to the profit or loss for the current period on a pro-rata basis.

11. Investment property

Investment property is any property held for rental earnings or capital appreciation or both. It includes buildings being leased out, etc.

An investment property is measured initially at cost. Expenditure subsequently incurred for such investment property is recognized in its cost if the economic benefits associated with such investment property are probable to flow in and relevant costs can be measured reliably, otherwise recognized in profit or loss for the period of their occurrence.

The Group subsequently measures investment properties by adopting the fair value model without provision for depreciation and adjusts its carrying value based on investment properties' fair value in balance sheet date with the difference between fair value and original carrying value recognized in profit or loss for the period.

Interim Report 2020 73

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

12. Fixed assets

A fixed asset is recognized only when the economic benefits associated with the asset are probable to flow into the Group and the cost of the asset can be measured reliably. Subsequent expenditures incurred for the fixed asset are included in the cost of the fixed asset when meeting the above confirming conditions, and the carrying amount of the replaced part is derecognized; otherwise the expenditures are recognized in profit or loss in the period in which they are incurred.

Fixed assets initially measured at cost. The cost of a purchased fixed asset consists of the acquisition price, relevant taxes, and other directly attributable expenditure for bringing the asset to its working condition for its intended use. A fixed asset is depreciated using the straight-line method. The useful life, net of estimated residual value rate and annual depreciation rate of each category of fixed assets are as follows:

		Net of
		estimated	Annual
		residual value	depreciation
	Useful life	rate	rate

Buildings	20-30 years	3%	3.23%-4.85%
Machinery equipment	5-10 years	1%-10%	9.00%-19.80%
Transportation vehicles	5-12 years	5%	7.92%-19.00%
Office equipment and others	3-10 years	1%-5%	9.50%-33.00%

The Group reviews the useful life and net of estimated residual value of a fixed asset and the depreciation method applied at least once at each year-end, and adjusts when necessary.

74 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

13. Construction in progress

Construction in progress is recognized at its actual costs, which include various necessary construction expenditures during the construction period, borrowing costs capitalized before it is ready for intended use and other relevant costs.

Construction in progress is transferred to a fixed asset when it is ready for intended use.

14. Borrowing costs

Borrowing costs are interests and other related cost arising from Group's borrowing, including borrowing interests, amortization of discounts or premiums, ancillary expenses and exchange differences arising from foreign currency lending etc.

Borrowing costs directly attributable to the acquisition, construction or production of qualifying asset are capitalized, and other borrowing costs are recognized in profit or loss for the period. Qualifying assets are assets such as inventories that necessarily take a substantial period of time for acquisition, construction or production activities to get ready for its intended use or sale.

Borrowing costs may be capitalised only when:

Expenditures for such asset are incurred;
Borrowing costs are incurred;
The acquisition, construction or production activities which are necessary to prepare the asset for its intended use or sale have started.

Interim Report 2020 75

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

14. Borrowing costs (Continued)

Capitalization of borrowing costs ceases when the qualifying asset being acquired, constructed or produced becomes ready for its intended use or sale. Borrowing costs incurred subsequently are recognized in current profit or loss.

During the period of capitalisation, the amount of capitalised interests in each accounting period is determined by the following methods:

For dedicated borrowings, the amount of capitalised interests is the interest expenses actually incurred in the current period less the interest income earned on temporary deposits or investment income.
For general borrowings utilised, the amount of capitalised interests is the weighted average asset expenditures of the excess of accumulative asset expenditure over the dedicated borrowings multiplying the weighted average interest rate of the general borrowings utilised.

Where the acquisition and construction or production of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 consecutive months, other than those necessary to prepare the asset for its intended use or sale, the capitalization of the borrowing costs shall be suspended. Borrowing costs incurred during the interruption period are recognised as cost in profit or loss for the current period, until those acquisition or construction is resumed.

15. Intangible assets

Intangible assets may be recognized and initially measured at cost only when economic benefits relating to them are likely to flow into the Group as well as its cost can be measured reliably. However, for intangible assets acquired from business combination not under common control, if their fair value can be measured reliably, they are recognized separately as intangible assets and measured at fair value.

The useful life of an intangible asset shall be determined based on the term in which it can generate economic benefits for the Group. An intangible asset is regarded as having an indefinite useful life when there is no foreseeable term in which it can generate economic benefits for the Group.

76 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

15. Intangible assets (Continued)

The useful life of each category of intangible assets is as follows:

Useful life

Land use rights

50 years

Land use rights that are purchased by the Group are accounted for as intangible assets. For buildings such as office buildings that are developed and constructed by the Group, the relevant land use rights and buildings are accounted for as intangible assets and fixed assets, respectively. Payments for the land and buildings purchased are allocated between the land use rights and the buildings; if they cannot be reasonably allocated, all of the land use rights and buildings are accounted for as fixed assets.

An intangible asset with finite useful life is amortised over its useful life period by using the straight-line method. The useful life and amortization method of an intangible asset with finite useful life shall be reviewed at least once at each year-end, and adjusted when necessary.

16. Research and development expenditures

Internal research and development expenditures of the Group are classified as research expenditures and development expenditures. Research expenditure is recognized in profit or loss when occurred.

Development expenditure can only be capitalized if the following conditions are all met, namely: It is technically feasible to complete the intangible asset that can be used or sold; It is intending to use or sell the completed intangible asset; The intangible asset produced can generate economic benefits, including the ability to prove that the product produced by the intangible asset, or the intangible asset itself exists in the market, or that the intangible asset is useful for the internal use; the Group has sufficient technologies, financial resources, and other resources to support and complete the development, and has the ability to use or sell the intangible asset once it is made; and the development expenditure of the intangible asset can be properly measured. If the development expenditure cannot meet the condition listed above, the development expenditure will be recognized in profit or loss when occurred.

Interim Report 2020 77

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

17. Impairment of assets

The Group determines impairment of assets excluding inventories, contract assets, investment properties measured at fair value model, deferred income taxes and finance assets using the below methods:

The Group determines whether there is any indication that assets have suffered impairment losses at balance sheet date. If an impairment indication exists, the recoverable amount is estimated and impairment test is carrying out. The intangible assets with the goodwill and indefinite useful life arising from business combination should be performed impairment test at least once at the each year-end whether an impairment indication exists. As for intangible assets that have not been ready for intended use, an impairment test should be carried out each year.

The recoverable amount of an asset is the higher of its fair value less costs of disposal and the present value of the future cash flows expected to be derived from the asset. Recoverable amount is estimated on individual basis. If it is not practical to estimate the recoverable amount of an individual asset, the recoverable amount of the asset group to which the asset belongs will be recognized. The asset group is determined according to whether the main cash flows generated from the asset group are independent from those from other assets or asset group.

If such recoverable amount of the asset or asset group is less than its carrying amount, carrying amount is reduced to its recoverable amount, the reduction amount is recognized in profit or loss for the current period and a provision for impairment losses of such assets shall be made.

Once an impairment loss is recognized for above-mentioned assets, it will not be reversed in subsequent accounting period.

78 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

18. Employee benefits

Employee benefits represent all kinds of reward or compensation for service rendered by employees or the termination of employment given by the Group. Employee benefits include short-term remuneration, post-employment benefit, termination benefits and other employee benefits. Benefits the Group provided to employees' spouse, children, dependent, families of the deceased employees and other beneficiaries also belong to employee benefits.

Post-employment benefits (Defined contribution plans)

The Group's employees participated in endowment insurance and unemployment insurance managed by local government and corresponding expenses are recognized in costs of related assets or profit or loss for the current period.

19. Provisions

Except for a contingent consideration and contingent liability assumed in a business combination not under common control, the Group recognises an obligation related to a contingency as a provision when all of the following conditions are satisfied:

the obligation is a present obligation of the Group;
it is probable that an outflow of economic benefits from the Group will be required to settle the obligation;
the amount of the obligation can be measured reliably.

A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation, with comprehensive consideration of factors such as the risks, uncertainty and time value of money relating to a contingency. The carrying amount of a provision is reviewed at each balance sheet date. If there is clear evidence that the carrying amount does not reflect the current best estimate, the carrying amount is adjusted to the best estimate.

Interim Report 2020 79

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

20. Revenue from contracts with customers

The Group recognizes revenue when it performs the performance obligations in the contract, namely, when the customer obtains control over relevant goods or services. Control over the relevant goods and services refers to the ability to direct the use of the goods, and obtain substantially all of the economic benefits from the provisions of the services.

Construction contracts

The construction contract between the Group and the customer usually includes the performance obligation of building construction, infrastructure construction and specialized and other construction. As the customer can control the goods under construction during the performance of the Group, the Group regards it as a performance obligation performed within a certain period of time and recognizes the income according to the progress of the performance, excepting that the progress of the performance cannot be reasonably determined. The Group determines the progress of the performance of the services provided in accordance with the input method. If the performance of the Group is expected to be compensated if the progress of the performance cannot be reasonably determined, the revenue will be recognized according to the amount of costs incurred, until the progress of the performance can be reasonably determined.

Property sale contracts

The property sale contracts between the Group and the customer generally contains the obligation of transferring the commercial housing only. The Group generally recognizes the revenue when the relevant goods are delivered and confirmed as accepted by the customer, on the basis of taking full consideration of the following factors: the transfer of the key risk and return in the goods ownership, the transfer of the legal ownership of goods, the transfer of the physical asset of the goods, and the acceptance of the goods by the customer.

80 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

20. Revenue from contracts with customers (Continued)

Sale of goods contracts

The sale of goods contract between the Group and the customer usually contains only the performance obligations for the transfer of concrete products. The Group generally recognizes revenue at the point of acceptance of the goods by the customer on the basis of a combination of the following factors: the current right of receiving payment for the goods, the transfer of major risks and benefits in the ownership of the goods, and the transfer of the legal ownership of the goods, the transfer of physical assets of the goods and that the customers have accepted the goods.

Significant financing components

For the existence of significant financing components in the contract, the Group determines the transaction price based on the amount payable immediately by cash upon the receipt of control of goods by the customer, and uses the discount rate which discounts the nominal amount of the contract consideration to the discounted price of the goods or services to amortise the difference between the determined transaction price and the consideration amount of the contract commitment using the effective interest method during the contract period. Where it is expected that the intervals between the customer's control over the goods and the payment by the customer will not exceed one year, the Group does not consider the significant financing components in the contract.

Interim Report 2020 81

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

20. Revenue from contracts with customers (Continued)

Quality assurance obligation

The Group provides quality assurance for the assets constructed pursuant to contractual agreement and laws and regulations. The Group performs accounting treatments in accordance with Note III-19 with a view to providing guarantee to the customers that the assets constructed meet the established quality standards. In addition to providing guarantee to the customers that the assets constructed meet the established quality standards, the Group provided the customers with a separate quality assurance for services, regarding it as a separate performance obligation. Based on the relative proportion of the individual selling prices of providing quality assurance for assets constructed and services, part of the transaction price is allocated to quality assurance of services and revenue is recognised when the customers take control of the services. In assessing whether quality assurance is provided as a separate service other than providing guarantee to the customers that the assets constructed meet the established quality standards, the Group considers factors such as whether the quality assurance is a statutory requirement, the term of quality assurance and nature of the Group's commitment to perform its obligations.

82 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

20. Revenue from contracts with customers (Continued)

Changes of contract

When the contract for the construction contract between the Group and the customer changes:

If the contract change adds a clearly distinguishable construction service and contract price and the new contract price reflects the separate selling price of the new construction service, the Group treats the contract change as a separate contract for accounting treatment;
If the contract change does not fall within the above-mentioned situation (1), and the construction service transferred and that untransferred can be clearly distinguished on the contract change date, the Group will regard it as the original contract termination, and at the same time, the non-compliance part of the original contract and the contract change part are merged into a new contract for accounting treatment;
If the contract change does not fall within the above-mentioned situation (1), and there is no clear distinction between the construction service transferred and that untransferred on the contract change date, the Group will treat the changed part of the contract as part of the original contract for accounting treatment. The resulting impact on the recognized revenue is adjusted for current income on the contract change date.

Interim Report 2020 83

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

20. Revenue from contracts with customers (Continued)

Concession contract ("BOT Contract")

The concession activities under the BOT contract usually include constructions, operations, and transfers. During the construction phase, the contract revenue for construction services is recognised in accordance with the above accounting policies of the construction contract. Revenue of construction contract shall be measured at fair values of consideration received or receivable, and the financial assets shall be recognised at the same time as revenue:

The Group recognises financial assets while recognising the revenue to the extent that it has an unconditional contractual right to receive specified or determinable amount of cash or another financial asset from the grantor within a certain period after the completion of construction of the relevant infrastructure.

The Group, instead of recognising the revenue for those infrastructure construction being subcontracted to other parties other than providing actual construction service, recognises financial assets based on the costs incurred and paid during the construction and the contract arrangement of the project.

During the operation phase, corresponding revenue is recognised when labour service being provided; and the daily maintenance or repair costs incurred are recognised as current expenses.

The contract stipulates that the Group shall maintain service ability of the relevant infrastructure or keep it in a good condition before returning to the grantor, and the current obligations undertaken by the Group in the expenses incurred are expected to be recognised as a provision.

Build and transfer contract ("BT Contract")

The activities under the BT contract usually include building and transfer. For the construction services provided by the Group, during the construction phase, the relevant construction service contract revenue is recognized in accordance with the accounting policies of the construction contract mentioned above. The construction service contract revenue is measured at the fair value of the consideration receivable. Meanwhile, the contract asset is recognized using the effective interest method and measured at amortized cost, which will be written off upon the receipt of payment from the owner.

84 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

21. Contract assets and contract liabilities

The Group presents contract assets or contract liabilities in the balance sheet based on the relationship between the Group's fulfilment of performance obligations and customers' payment. The Group presents contract assets and contract liabilities under the same contract as net amount after they offset each other.

Contract assets

The contract assets represent the rights to receive considerations for goods or service transferred to customers (subject to factors other than passage of time).

Please refer to Note III-8 for the Group's methods for determining and accounting for expected credit loss on contract assets.

Contract liabilities

The contract liabilities represent the the obligations for transfer of goods or service to customers for considerations received or receivable from customers, such as the relevant amounts received by the enterprises before transferring the promised goods or service.

Interim Report 2020 85

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

22. Government grants

Government grant is recognised when the Group can comply with the conditions attached to it and it can be received. If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount received or receivable. If a government grant is in the form of a transfer of a non-monetary asset, it is measured at fair value; if fair value is not reliably determinable, it is measured at a nominal amount. A government grant related to income is accounted as follows: if the grant is a compensation for related costs or losses to be incurred in subsequent periods, the grant is recognised as deferred income, and recognised in profit or loss or reduced related costs over the periods in which the related costs are recognised; if the grant is a compensation for related expenses or losses already incurred, it is recognised immediately in profit or loss of the current period. A government grant related to an asset shall be deducted from the carrying amount of the asset; or recognised as deferred income and included in profit or loss over the useful life of the related asset with a reasonable and systemic method, except that a government grant measured at a nominal amount is recognised immediately in profit or loss in the current period. Where the relevant asset is sold, transferred, scrapped or damaged prior to the end of its useful life, the related undistributed deferred income is transferred to the profit or loss of the disposal period.

23. Income tax

Income tax comprises current and deferred tax. Income tax is recognised as an expense or income in profit or loss for the current period, except for the tax arising from adjustment of goodwill arising from a business combination, or recognised in shareholders' equity if it arises from a transaction or event which is recognised directly in shareholders' equity.

Current income tax liabilities (or assets) for the current and prior periods are measured at the amount expected to be paid (or recovered) according to the requirements of tax laws.

For temporary differences at the balance sheet date between the carry amounts of assets and liabilities and their tax bases, and temporary differences between the carrying amounts and the tax bases of items which have not been recognised as assets and liabilities but the tax bases of which can be determined for tax purposes, deferred income taxes are provided using the liability method in the balance sheet.

86 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

23. Income tax (Continued)

A deferred income tax liability is recognised for all taxable temporary differences, except:

where the taxable temporary differences arise from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction which contains both of the following characteristics: the transaction is not a business combination; and at the time of the transaction, it affects neither accounting profit nor taxable profit or deductible loss.
in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not be reversed in the foreseeable future.

A deferred tax asset is recognised for deductible temporary differences, carryforward of unused deductible tax losses and tax credits, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of deductible tax losses and tax credits can be utilised, except:

where the deductible temporary differences arise from a transaction that is not a business combination and, at the time of the transaction, neither the accounting profit nor taxable profit or loss is affected.
in respect of the deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, a deferred tax asset is only recognised to the extent that it is probable that the temporary differences will be reversed in the foreseeable future and taxable profit will be available against which the deductible temporary differences can be utilised in the future.

At the balance sheet date, deferred income tax assets and liabilities are measured at the applicable tax rates that are expected to apply to the period when the asset is realised or the liability is settled, according to the requirements of tax laws. The measurement of deferred tax assets and deferred tax liabilities reflects the tax consequences that would follow from the manner in which the Group expects at the balance sheet date to recover the assets or settle the liabilities.

Interim Report 2020 87

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

Income tax (Continued)
The carrying amount of deferred tax assets is reviewed at the balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available in future periods to allow the deferred tax assets to be utilised. Unrecognised deferred tax assets are reassessed at the balance sheet date and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.
When all of the following conditions are satisfied simultaneously, the deferred income tax assets and deferred income tax liabilities are presented as the net amount after offsetting: the Group has a legal right to settle current tax assets and liabilities on a net basis; the deferred income tax assets and liabilities are related to the same tax payer within the Group and the same taxation authority, or related to different tax payers but during the period when each of the significant deferred income tax assets and deferred income tax liabilities is reversed, the tax payer involved intends to settle the current income tax asset and current income tax liability on a net basis, or simultaneously obtain assets and pay off the debts.
Leases

Identification of leases

On the contract start date, the Group assesses whether the contract is a lease or includes a lease. If one of the parties transfers the right to control the use of one or more identified assets for a certain period of time in exchange for consideration, the contract is a lease or includes a lease. In order to determine whether the contract has transferred the right of controlling the use of the identified assets within a certain period of time, the Group assesses whether the customers in the contract are entitled to almost all of the economic benefits arising from the use of the identified assets during the period of use and have the right of leading the use of identified assets during this period of use.

88 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

24. Leases (Continued)

Identification of separate leases

Where the contract contains multiple separate leases, the Group will split the contract and separate the leases for accounting treatment. The right to use the identified asset constitutes a separate lease in the contract if the following conditions are met:

The lessee can profit from using the asset alone or in conjunction with other resources that are readily available;
The asset does not have a high degree of dependency or a high degree of association with other assets in the contract.

Split for the lease and non-lease components

If both lease and non-lease components are included in the contract, the lease and non-lease components shall be split and processed by the Group as lessor and lessee.

Assessment of lease term

The lease term is the period during which the Group has the right to use the leased assets and it is irrevocable. Where the Group has the option to renew lease, namely, has the option to continue to lease the asset and can reasonably determine that the option will be exercised, the lease term shall also include the period covered by the option to renew lease. Where the Group has the option to terminate lease, namely, has the option to terminate lease of the assets and can reasonably determine that the option will not be exercised, the lease term shall include the period covered by the option to terminate lease. In the event of a major event or change within the controllable scope of the Group and where it affects whether the Group reasonably determines that the corresponding option will be exercised, the Group shall re-assess whether it reasonably determines that it will exercise the option to renew lease and purchase option or not to exercise the option to terminate lease.

Interim Report 2020 89

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

24. Leases (Continued)

As lessee

Right-of-use assets

The Group's right-of-use assets mainly include buildings and machinery equipment.

On the commencement date of the lease term, the Groups recognises its right to use the leased assets over the lease term as right-of-use assets, including: the initially measured amount of lease liabilities; the lease payments paid on or before the commencement date of the lease term excluding the lease incentives related amount enjoyed where lease incentives exist; the initial direct expenses by lessee; and the cost expected to incur by lessee to dismantle and remove the leased assets, restore the site where leased assets are located or restore the leased assets to the status agreed in lease terms. The Group subsequently uses the straight-line method to depreciate the right-of-use assets. If it can be reasonably determined that the ownership of the leased assets can be obtained at the expiration of the lease term, the Group shall make depreciation during the remaining useful life of the leased assets. If it cannot be reasonably determined that the ownership of the leased assets can be obtained at the expiry of the lease term, the leased assets shall be depreciated over the shorter of the lease term or the remaining useful life of the leased assets.

The Group shall remeasure the lease liabilities according to the present value of the changed lease payments, and adjust the carrying amount of the right-of-use assets accordingly. However, if the carrying amount of the right-of-use assets is reduced to zero and there is a further reduction in the measurement of the lease liabilities, the Group recognises any remaining amount of the remeasurement in profit or loss for the current period.

90 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

24. Leases (Continued)

As lessee (Continued)

Lease liabilities

On the commencement date of the lease term, the Groups recognises the present value of the outstanding lease payments as lease liabilities, except for short-term leases and low-value asset leases. In calculating the present value of the lease payments, the Group uses the interest rate implicit in the lease as the discount rate; if the interest rate implicit in the lease cannot be determined, the lessee's incremental borrowing rate is used as the discount rate. The Group calculates interest expenses in each period during the lease term based on a constant periodic interest rate, and recognises the interest expenses in profit or loss for the current period. Variable lease payments not included in the measurement of the lease liabilities are recognised in profit or loss for the current period as incurred, except for those included in the costs of the relevant assets as otherwise specified.

After the commencement date of the lease period, in the event of change in the actual fixed payment amount, change in the amounts expected to be payable under a residual value guarantee, change in an index or a rate used to determine lease payments, or change in the assessment and actual exercise of an option to purchase the underlying asset, to extend or terminate the lease, the Group shall remeasure the lease liabilities according to the present value of the changed lease payments.

Short-term leases and low-value asset leases

On the commencement date of the lease term, the Group shall recognise leases with a lease term of less than 12 months and not including a purchase option as a short-term lease; single leases with a value of less than RMB30,000 when being a new asset are recognised as low-value asset leases. If the Group subleases or expects to sublease the leased assets, the original leases shall not be recognised as low-value asset lease. The Group does not be recognise the right-of-use assets and lease liabilities for short-term leases and low-value asset leases. During different periods in the lease term, short-term leases and low-value asset leases shall be recognised in the related asset cost or current profit and loss on a straight-line basis.

Interim Report 2020 91

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

24. Leases (Continued)

As lessor

At the lease commencement date, leases that substantially transfer almost all the risks and rewards related to the ownership of leased assets are classified as finance leases, and all other leases are classified as operating leases. When the Group is an intermediate lessor, the sublease is classified as a finance lease or an operating lease by reference to the right-of-use assets arising from the head lease.

As the lessor of an operating lease

Rental income under an operating lease is recognised by a lessor on a straight-line basis over the lease term through profit or loss for the current period. The variable lease payments not included in the measurement of the lease liability shall be recognized in profit or loss in the period when it occurs.

The Group accounts for a modification to an operating lease as a new lease from the effective date of the modification, and the advance receipts or lease receipts receivable relating to the original lease prior to the modification shall be deemed as the receipts of the new lease.

25. Discontinued operation

Discontinued operation refers to a component of the Company which meets one of the following requirements and can be distinguished separately and has already been disposed of or classified as held-for-sale:

the component represents an independent major line of business or a major independent geographical area of operation;
the component is part of a plan for the contemplated disposal of an independent major line of business or a major independent geographical area of operation;
the component is a subsidiary acquired exclusively for the purpose of resale.

92 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

26. Profit distribution

Cash dividends of the Company are recognised as a liability when they are approved by the Board.

27. Safety production expenses

The safety production expenses accrued in accordance with the regulations are recorded in the relevant product cost or profit or loss of the current period and the special reserve. The treatment for usage of the safety production expenses depends on whether fixed assets are formed or not. If the usage of the safety production expenses is an expenditure, it is directly charged against the special reserve. If the usage of the safety production expenses forms fixed assets, the expenditure incurred is accumulated and recognised as fixed assets when the intended usage condition is achieved. Meanwhile, an equivalent amount is charged against special reserve and recognised as accumulated depreciation.

28. Fair value measurement

The Group measures its investment properties, other equity instruments and financial assets held for trading at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The measurement of the related assets and liabilities at fair value is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market is the market accessible by the Group as at the measurement date. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset at its best use or by selling it to another market participant that would use the asset at its best use.

Interim Report 2020 93

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

28. Fair value measurement (Continued)

The Group uses valuation techniques that are appropriate in the current circumstances and for which sufficient data and other information are available to measure fair value, and prioritizes the use of relevant observable inputs and only uses unobservable inputs under the circumstances when unobservable inputs are not available or impractical to obtain.

All assets and liabilities measured or presented at fair value in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - based on quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date; Level 2 - inputs that are observable for the related assets or liabilities other than those of Level 1, either directly or indirectly; Level 3 - inputs that are unobservable for the related assets or liabilities.

For assets and liabilities that are measured at fair value and recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy for fair value measurement by reassessing categorization at each balance sheet date.

29. Significant accounting judgements and estimates

The preparation of the financial statements requires management to make judgements, estimations and assumptions that affect the reported amounts and disclosures of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities at the balance sheet date. However, uncertainty about these assumptions and estimations could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.

Judgements

In the process of applying the Group's accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the financial statements:

94 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

29. Significant accounting judgements and estimates (Continued)

Judgements (Continued)

Operating leases - as lessor

The Group has entered into lease contracts on its investment properties. The Group has determined, based on the terms of lease contracts, that it retains all the significant risks and rewards of ownership of these properties, which are accounted for as operating leases.

Method for determining the performance progress of construction contract (only apply to the situation where the control is transferred over a period of time)

The Group determines the performance progress of the construction contract in accordance with the input method. Specifically, the Group determines the performance progress of the contract based on the cumulative actual construction cost as a percentage of the estimated total cost. The accumulated actual costs include the direct and indirect costs incurred for the transfer of goods to customers by the Group. The Group believes that the price of construction contract with the customer is determined on the basis of the construction cost, and the actual construction cost as a percentage of the estimated total cost can accurately reflect the performance progress of the construction service. In view of the long duration of construction contracts, which may span several accounting periods, the Group will review and revise the budget as the construction contract progresses, and adjust the revenue recognition amount accordingly.

Interim Report 2020 95

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

29. Significant accounting judgements and estimates (Continued)

Judgements (Continued)

Business model

The classification of financial assets held by the Group at initial recognition depends on the business model of the Group's management of financial assets. In determining the business model, the Group takes into account the corporate evaluation and ways to report the performance of financial assets to key management personnel, risks affecting the performance of financial assets and their management style, and the manner in which relevant business management personnel are paid. In assessing whether the business model is based on the objective of collection of contractual cash flows, the Group needs to make analysis and judgements on the reasons, timing, frequency and value of the sale of financial assets before the maturity date.

Contractual cash flow characteristics

The classification of financial assets held by the Group at initial recognition depends on the contractual cash flow characteristics of the financial assets. When it is necessary to determine whether the contractual cash flow is only the payment of the principal and the interest based on the outstanding principal, including the assessment of the correction of the time value of money, it is necessary to determine whether there is a significant difference compared with the benchmark cash flow, and to determine whether the fair value of financial assets with prepayment characteristics is insignificant.

Classification of investment properties and self occupied properties

The Group determines that investment property is any property held for rental earnings or capital appreciation or both (including leased property).

96 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

29. Significant accounting judgements and estimates (Continued)

Judgements (Continued)

Entities in which the Group holds less than 20% of voting rights but has a significant influence over them

The Group holds 15%, 5% and 11% equity interests in Jianwei County Yizongliangheng Project Management Company Limited ("Yizongliangheng"), Zhongyuan Environmental (Neihuang) Liangli Ecological Construction Project Management Company Limited ("Zhongyuan Environmental") and Bozhou Xiangju Construction Company Limited ("Bozhou Xiangju"), respectively. The Directors of the Group considered that despite the less than 20% shareholding in each of Yizongliangheng, Zhongyuan Environmental and Bozhou Xiangju, the Group appointed one director in each of Yizongliangheng, Zhongyuan Environmental and Bozhou Xiangju according to the requirements of their respective articles of association. As such, the Group may exercise significant influence over Yizongliangheng, Zhongyuan Environmental and Bozhou Xiangju, and the Group's equity investment in these companies are accounted for as investment in associates.

Entity in which the Group holds more than 50% of voting rights but has no control over it

In June 2019, the Group's management decided to dispose of the entire interest in its subsidiary engaging in property business. In the above property business, Zhongcheng Real Estate Development Co., Ltd. has 51% equity interests in Baoding Zhucheng Real Estate Development Co., Ltd. ("Baoding Zhucheng"). The Directors of the Group considered that despite the over 50% shareholding in Baoding Zhucheng before the disposal of property business, the Group cannot control the return from the operation of Baoding Zhucheng according to the articles of association of Baoding Zhongcheng. As such, the Group accounts for Baoding Zhucheng as an associate.

Interim Report 2020 97

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

29. Significant accounting judgements and estimates (Continued)

Judgements (Continued)

Classification of business of infrastructure construction under BOT model

Prior to the initial application of the revised Accounting Standards for Business Enterprises No. 14 - Revenue issued by the Ministry of Finance ("New Revenue Standard") by the Group on 1 January 2018, the concession right asset obtained by the Group through participation in the construction of wastewater treatment plant under the Build-Operate-Transfer ("BOT") model was accounted for as financial asset, and was recognized as financial asset according to the contract provisions in relation to the right to collect payment upon completion of construction of the infrastructure. After the initial application of the New Revenue Standard by the Group on 1 January 2018, such concession right asset was accounted for as contract asset.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities in the future accounting periods, are described below.

Impairment of financial instruments and contract assets

The Group uses the expected credit loss model to assess the impairment of financial instruments and contract assets. The application of the expected credit loss model requires significant judgements and estimations, and all reasonable and evidenced information, including forward-looking information. In making such judgements and estimations, the Group infers the expected changes in the debtor's credit risk based on the historical repayment data in combination with economic policies, macroeconomic indicators, and industry risks. Different estimates may affect the provision for impairment losses. The provision for impairment losses may not be equal to the actual amount of impairment losses in the future.

98 Hebei Construction Group Corporation Limited

NOTES TO FINANCIAL STATEMENTS

Six months ended 30 June 2020

RMB'000

III. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES

(Continued)

29. Significant accounting judgements and estimates (Continued)

Estimation uncertainty (Continued)

Fair value of unlisted equity investments

Unlisted equity investment is estimated using the market-based method and the assumptions on which it is based are unobservable inputs. The estimation requires the management to determine comparable public companies (peers) based on industry, scale, gearing ratio and strategy and compute appropriate price multiples in respect of each identified comparable company, such as price to book ("P/B") ratio or price to earnings ("P/E") ratio. Such multiples are measured and arrived at based on the relevant data of the comparable companies and discounted by a percentage for the lack of liquidity. The discounted multiple shall be used for the measurement of the corresponding profit or asset of the unlisted equity investment to arrive at its fair value. Please refer to Note IX-3 for estimation of fair value of unlisted equity investments.

Deferred income tax assets

Deferred income tax assets are recognised for all unused deductible losses to the extent that it is probable that taxable profit will be available against which the deductible losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

Revenue from construction contracting business

For construction contracting business, the Group mainly satisfies the relevant performance obligations over time and the revenue is recognised during the contract period based on the performance progress, which is determined by input method. The Group's management makes reasonable estimates on the expected total contract revenue and total contract costs based on the budgets prepared for construction contracting projects to determine the performance progress and identify onerous contracts. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Due to the nature of activities associated with construction, the Group has to continuously assess and revise the budget prepared for each construction contract throughout the contract period. Revision may have effect on revenue, profit and other items related to construction contracting business during the period when the revision incurred.

Interim Report 2020 99

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Hebei Construction Group Corporation Ltd. published this content on 23 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 23 September 2020 08:34:05 UTC

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Company Profile

Hebei Construction Group Corp Ltd is a China-based company mainly engaged in providing integrated solutions for the engineering contracting of housing construction and infrastructure construction projects. The Companyâs business is divided into construction contracting business and other businesses. The Company's construction engineering contracting business mainly provides construction engineering general contracting services for housing construction projects and infrastructure construction projects. The Company's other businesses are engaged in service concession arrangements and other businesses. The Company mainly conducts business within the domestic market.

Sector

Construction & Engineering

Calendar

26/08/2024 - Q2 2024 Earnings Release (Projected)

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Hebei Construction Group Corporation Limited

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1727

CNE100002R32

Construction & Engineering

Hebei Construction : 2020 Interim Report

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