Annual Report 2019

INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS (CONTINUED) China Merchants China Direct Investments Limited Annual Report 2019 21 REVIEW OF INVESTMENTS (CONTINUED) As of the end of 2019, the carrying value of the Fund’s debt in Qinghai Lake Tourism was US$6.04 million, representing a decrease of 82.79% from the value at the end of last year of US$35.10 million, for reasons as stated above. Currently, Qinghai Lake Tourism is in the process of implementing a restructuring plan under the guidance of intermediaries. In June 2018, the Qinghai Provincial People’s Government officially approved the spin-off of Qinghai Lake Tourism. In September 2018, Qinghai Lake Tourism obtained a new business license. After the spin-off, Qinghai Lake Tourism continues to retain core assets and related businesses, while the newly established company has taken over non-operating assets and related personnel. In 2019, one major work task by Qinghai Lake Tourism, among others, was to complete a review of its operations with respect to the environmental compliance and put them in order. The Qinghai Provincial People’s Government has explicitly requested the relevant departments to begin asset divestitures and conversion to a joint-stock limited company, and to strive for the listing of Qinghai Lake Tourism as soon as possible. The Fund will consider whether suitable conditions have been achieved for the exercise of conversion rights during the joint-stock restructuring of Qinghai Lake Tourism. Xi’an Jinpower Electrical Co., Ltd. (“Jinpower Electrical”) was established in Xi’an, Shaanxi in 2001 and is a high technology enterprise principally engaged in the research and development, and production, of intelligent online monitoring systems for transmission lines and substation equipment for the power grid. The stock of Jinpower Electrical was listed for trading on the New Third Board in January 2016. The Fund invested RMB20 million (equivalent to US$3.03 million) in January 2011 and held 2.89 million shares in Jinpower Electrical as of 31 December 2019, accounting for 4.83% of the issued share capital of Jinpower Electrical. As of the end of 2019, the carrying value of the Fund’s interest in Jinpower Electrical was US$0.68 million, representing an increase of 15.25% over US$0.59 million at the end of last year. On 23 August 2019, Jinpower Electrical announced that its unaudited net loss for the first half of 2019 was RMB6.36 million, which was lower than in the same period last year, due mainly to a decrease in interest payment and loss from asset impairment. In 2019, affected by various factors such as changes in economic conditions and the industry environment, especially changes to the bidding approach by the State Grid Corporation of China and increasingly intense competition, it is estimated that the operating performance of Jinpower Electrical in 2019 will fail to meet expectations. Presently, the company is focusing on a market-oriented approach to its business, while accelerating the research, development and innovation of its products. At the same time, it is striving to boost sales, while enhancing its internal management and financial controls, with an aim to drive the development of the company’s various businesses. In 2019, Jinpower Electrical refined several of its product lines through on-going research and development, such as its comprehensive monitoring system for cable tunnels and its HD video and photo products. Meanwhile, it has released a newly developed intelligent patrol robot for cable tunnels, a central image analysis system based on AI technology, a 3D visual monitoring platform for cable tunnels and other products based on Internet of Things (IoT), all of which lay a sound foundation for the company’s future business development.