# IX. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)

# 1. Objective and policies of risk management (Continued)

# (1) Market risks (Continued)

# 2) Interest rate risk

The risk that changes in interest rate lead to changes in cash flow of the financial instruments of the Company is mainly associated with floating-rate bank borrowings. The Company currently does not have a foreign currency hedging policy to hedge against its exposures. However, the management will closely monitor foreign currency risk and will consider hedging significant foreign currency risk when the risk arises.

# 3) Price risk

The Company other price risk is mainly concentrated on investments held for trading quoted in the stock exchange of the PRC. The management monitors the price risk exposure and will take appropriate measures should the need arise.

# (2) Credit risk

On 31 December 2018, the most significant credit risk exposure that might incur financial losses on the Company was mainly attributable to a contractual counterparty’s failure to perform its obligations resulting losses on financial assets of the Company and financial guarantee undertaken by the Company, specific details are set out as follows:

The carrying amount of financial assets recognised in the consolidated balance sheet: in respect of financial instruments carried at fair value, the carrying amount reflects the risk exposure; however, such amount does not represent the maximum credit exposure which changes in line with future changes in fair value.

In order to mitigate credit risk, the Company established a committee to be responsible for determining credit limits, approving credit applications and carrying out other monitoring procedures to ensure necessary actions are taken to collect overdue debts. Besides, the Company reassesses the collectability of each amount receivable on an individual basis at each balance sheet date, in order to ensure sufficient bad debt provision is allocated for amounts that are not recoverable. As such, the management of the Company believes the credit risk assumed by the Company has been significantly reduced.

# IX. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (Continued)

# 1. Objective and policies of risk management (Continued)

# (2) Credit risk (Continued)

The Company places its liquid funds at banks with relatively higher credit ratings; therefore, the credit risk with respect to liquid funds is low.

Since the Company’s risk exposures are distributed among various contractual parties and various customers, the Group has no significant concentration risk. Top five account receivables in total: RMB341,388,578.27.

# (3) Liquidity risk

The liquidity risk is the Company’s impossibility to perform its financial obligations after the maturity date. In the management of the liquidity risk, the Company monitors and maintains a level of working capital deemed adequate by the management to perform the Company’s obligations, thus will not cause loss or damage to the reputation of the Company. Moreover, the Company analyses its debt structure and deadline regularly and maintain sufficient fund. The management monitors the utilization of bank borrowings and ensures compliance with loan covenants. In the meanwhile, the management conducts negotiation on financing issues with financial institutions to maintain enough credit limits and mitigate liquidity risk.

The Company’s main capital source is from bank borrowing. As at 31 December 2018, the unused credit facilities of bank borrowing of the Company was RMB3.270 billion (31 December 2017: RMB3.689 billion), including unused short-term bank borrowings facilities of the Company of RMB3.100 billion (31 December 2017: RMB3.257 billion), representing a significant change as compared to last year, mainly due to the issuance of bonds for financing in this period which results in more remaining credit of bank borrowings.