Qingling Motors : INSIDE INFORMATION - LITIGATION

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

(a Sino-foreign joint venture joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 1122)

INSIDE INFORMATION

LITIGATION

This announcement is made by Qingling Motors Co. Ltd (the "Company", together with its subsidiaries, the "Group") pursuant to Rule 13.09 of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules") and the Inside Information Provisions under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

References are made to (i) the announcement of 2015 interim results of the Company dated 26 August 2015, (ii) the announcement of inside information of the Company dated 9 October 2015, (iii) the paragraph headed "Material Litigations" in Note 35 to the Consolidated Financial Statements in the 2017 Annual Report of the Company dated 23 March 2018, (iv) the announcement of inside information of the Company dated 8 June 2018 and (v) the paragraph headed "Provision for Litigation" in Note 36 to the Consolidated Financial Statements in the 2018 Annual Report of the Company dated 27 March 2019 (collectively, the "Disclosures") in relation to a dispute in respect of a financial credit agreement which was entered into between the Company's customer (the "Customer", a third party independent of the Company) and a bank (the "Bank A"). The Group's bank balances of RMB79,999,000 have been frozen since 16 August 2015 (the "2015 Litigation").

As disclosed in the Disclosures, in the 2015 Litigation, Bank A alleged that the Customer has failed to meet the margin calls in accordance with the requirements under a credit agreement (the "Credit Agreement"), constituting an event of default of such agreement, and that Bank A is also entitled to demand the Customer to prematurely repay all the amount granted under the relevant credit facilities. Bank A further alleged that the Company did not, as instructed by Bank A, deliver the vehicles that had not been picked up but paid by the Customer in full with loan to the warehouse as specified by Bank A, leading to a breach of the Credit Agreement, and should be jointly and severally liable to compensate for the losses it suffered. Bank A stated that

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the outstanding credit balances due from the Customer were RMB80 million in aggregate. As the claims in the 2015 Litigation have been transferred to another company ("Company Y"), the current plaintiff of the 2015 Litigation is Company Y. In December 2017, the 2015 Litigation was heard (the "First Hearing") in the Shenzhen Intermediate People's Court (the "Shenzhen Court"). However, the parties failed to settle through mediation and the Shenzhen Court decided that it would set a date to hand down its judgment.

Afterwards, the Company received the judgment on the 2015 Litigation (the "Judgment") dated 14 May from the Shenzhen Court on 25 May 2018. Summary of the Judgment is as follows: (1) the Customer shall pay Company Y the principal amount of approximately RMB80 million and the interest of the loans; (2) relevant guarantors (guarantor A, guarantor B, guarantee company A and guarantee company B) shall be jointly and severally liable to compensate Company Y in respect of the abovementioned indebtedness of the Customer; and (3) the Company shall assume the supplementary compensation liability for the abovementioned indebtedness of the Customer and the aforesaid guarantors. Upon the supplementary repayment, the Company is entitled to recover the amount from the Customer. The Company appealed the Judgment to the Higher People's Court of Guangdong Province (the "Guangdong Court"), and made a provision of RMB80,000,000 for the 2015 Litigation in June 2018.

On 16 August 2019, the Company received the appeal judgment (the "Appeal Judgment") dated 2 August 2019 from the Guangdong Court. The Guangdong Court confirmed the facts as ascertained by the Shenzhen Court in the First Hearing, dismissed the appeal of the Company and upheld the Judgment. The Guangdong Court ruled that (1) the Credit Agreement is valid and effective; (2) the Company shall assume the corresponding supplementary compensation liability; and (3) the litigation fee of approximately RMB490,000 shall be borne by the Company.

After reviewing all documents and contracts related to the 2015 Litigation and consulting and taking into account the opinion of the Company's PRC legal adviser, the Company is of the view that the facts are not clearly ascertained in the Appeal Judgment and the application of the law is incorrect, and thus the Company has decided to appeal to the Supreme People's Court of the PRC.

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The Company will make further announcement(s) to inform the Company's shareholders and potential investors of the significant progress of the 2015 Litigation as and when appropriate in accordance with the requirements of the Listing Rules.

Based on the opinion of the PRC legal adviser and the information currently available, the board of directors of the Company (the "Board") expects that the 2015 Litigation will have no material impact on the overall financial or operating conditions of the Group.

Shareholders and potential investors are advised to exercise caution when dealing in the shares of the Company.

By Order of the Board

Qingling Motors Co. Ltd

LUO Yuguang

Executive Director and Chairman

Chongqing, the PRC, 29 August 2019

As at the date of this announcement, the Board comprises 11 Directors, of which Mr. LUO Yuguang, Mr. HAYASHI Shuichi, Mr. MAEGAKI Keiichiro, Mr. ADACHI Katsumi, Mr. LI Juxing, Mr. XU Song and Mr. LI Xiaodong are executive Directors and Mr. LONG Tao, Mr. SONG Xiaojiang, Mr. LIU Tianni and Mr. LIU Erh Fei are independent non-executive Directors.

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