Annual Report 2019

INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS (CONTINUED) China Merchants China Direct Investments Limited Annual Report 2019 27 REVIEW OF INVESTMENTS (CONTINUED) Against the backdrop of increasing downward pressure on the domestic economy, both revenues and earnings for the domestic paper manufacturing and paper products industries recorded a decrease year-over-year in 2019, according to data released by the Ministry of Industry and Information Technology. In 2019, Hwagain achieved relatively stable development in both production and operations through enhanced management, increased production capacity, reduced energy consumption and a greater focus on technological transformation and innovation. Wuhan Rixin Technology Co., Ltd. (“Wuhan Rixin”) was established in Wuhan, Hubei in 2001 and is a state- accredited high technology enterprise engaged in the design, production and installation of solar modules and Building Integrated Photovoltaic (BIPV) products, as well as in the operation, maintenance and management of solar powered electric systems. The stock of Wuhan Rixin was listed for trading on the New Third Board in February 2016. The Fund invested RMB15 million (equivalent to US$2.20 million) in July 2009. As of 31 December 2019, the Fund held a total of 4.95 million shares in Wuhan Rixin, as a result of the receipt of 1.65 million new shares via a capitalisation issue from Wuhan Rixin in May 2019, accounting for 4.24% of the issued share capital of Wuhan Rixin. As of the end of 2019, the carrying value of the Fund’s interest in Wuhan Rixin was US$2.17 million, representing an increase of 30.72% over US$1.66 million at the end of last year. On 29 July 2019, Wuhan Rixin announced that its unaudited net profit for the first half of 2019 was RMB6.38 million (including extraordinary items), as compared to a net loss of RMB16.23 million for the same period last year. The reversal was mainly due to the disposal of a project for a gain on sale, along with a reduction in costs and expenses during the period. In 2019, domestic demand for photovoltaic installations was significantly impacted by the new photovoltaic policy introduced on 31 May 2018. As a result, Wuhan Rixin has slowed its investment in and the construction of photovoltaic power plant projects, and the sale of certain photovoltaic power plant projects could not be realised. The photovoltaic market improved mildly in 2019, but the recovery will need more time and market opportunities before growth can resume, following the introduction of new photovoltaic policy. As such, currently, Wuhan Rixin is primarily striving to reduce the backlog of projects from last year for full capacity, grid-connected, photovoltaic power generation. Guangxi Xinhua Preschool Education Investment Corporation Limited (“Xinhua Preschool Education”) was established in Nanning, Guangxi in 2014, with registered capital of RMB300 million. Xinhua Preschool Education is based in Guangxi and is dedicated to investing in the preschool education sector, as well as supplying cultural and educational products. Xinhua Preschool Education was jointly established by the Fund and Guangxi Xinhua Bookstore Group Share Corporation Limited, with stakes of 30% and 70%, respectively. In December 2014, the Fund completed the first capital contribution of RMB30 million (equivalent to US$4.90 million), with the remaining RMB60 million of capital to be disbursed according to the development progress of Xinhua Preschool Education.