Annual Report 2019

INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS (CONTINUED) China Merchants China Direct Investments Limited Annual Report 2019 14 REVIEW OF INVESTMENTS (CONTINUED) China Credit Trust Co., Ltd. (“CCT”) was established in 1995, with its headquarters in Beijing. The principal activities of CCT are trust management, fund management, investments and loan financing. It is the first trust company with a full range of licenses for international business in the Chinese trust industry. As of 31 December 2019, the Fund held a 6.94% equity interest in CCT, with a total investment cost of US$50.49 million. In April 2019, CCT declared a cash dividend for 2018, and the Fund is entitled to receive a total of US$2.10 million (pre-tax) from CCT. As of the end of 2019, the carrying value of the Fund’s interest in CCT was US$175.66 million, representing an increase of 17.77% over US$149.15 million at the end of last year. The Fund’s unrealised gain attributable to its investment in CCT for 2019 was US$29.21 million, as compared to an unrealised loss for last year. For 2019, CCT recorded an unaudited net profit of RMB983 million, down 15.61% year-over-year. During the year, the company recorded a decrease in income from commissions and handling fees, and in interest income, as compared to last year. In addition, the loss due to asset impairment for the year saw an increase, but investment income and the gain on change in fair value also saw increases as well, compared to last year. In response to the requirements of certain regulatory policies, CCT significantly reduced the footprint of its channel business while seeking to develop its actively managed trust business, and this ultimately increased the trust assets under active management as a percentage of the company’s gross trust assets. However, on balance, CCT’s results have been negatively affected by stronger regulatory supervision of its real estate trust business. Currently, among its traditional businesses, the real estate trust business is the major source of income and profit for CCT, while the inter-financial institution business and securitised asset business also contributed to a certain extent. Faced with a number of factors such as increasing uncertainties in the macroeconomic environment, on-going regulation of the real estate industry, more stringent controls over the trust industry, and more intense competition resulting from the successive establishment of asset management subsidiaries by banks, CCT will strive to expedite the innovative transformation of its businesses and to focus on developing businesses such as capital markets, small and micro finance, international business and wealth management, in order to ensure the continuous development of the company. In 2019, the CBIRC promulgated new requirements to strengthen the control over real estate financing and established a requirement that real estate trust of trust companies may not exceed their size as of 30 June 2019. These measures have limited the growth of CCT’s real estate trust business and have increased the urgency to develop other lines of business. Since 2019, CCT has received over 10 industry awards, including the “Excellent Trust Company Award” and “Best Family Trust Product Award” from the Shanghai Securities News, the “2019 Excellent Risk Control of Trust Company Award” from the Securities Times, the “2018 Golden Bull Award for Trust Company - Charity Trust” from the China Securities Journal, the “Excellent Competitiveness in terms of Wealth Management Award” from the 4th Global Asset Allocation Focus (GAAF) of 2019, the “Outstanding Brand for Wealth Management Services” in Leading China Award 2019 organised by JRJ.com , and the “Best Trust Company of the Year in terms of Stable Growth” from the Financial Times.