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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F/A
(Amendment No. 1)
(Mark One)
¨ |
REGISTRATION STATEMENT PURSUANT
TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
OR |
|
|
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
|
For The Fiscal Year Ended December
31, 2023. |
|
|
OR |
|
|
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
OR |
|
|
¨ |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number: 001-33863
XINYUAN
REAL ESTATE CO., LTD.
(Exact name of Registrant as specified in its
charter)
N/A
(Translation of Registrant’s
name into English)
Cayman
Islands
(Jurisdiction of incorporation or organization)
27/F,
China Central Place, Tower II
79
Jianguo Road, Chaoyang
District
Beijing
100025
People’s Republic of China
(Address of principal executive offices)
Yong
Zhang
Xinyuan
Real Estate Co., Ltd.
27F,
China Central Place, Tower II,
79
Jianguo Road, Chaoyang
District
Beijing
100025
People’s Republic of China
Tel: (86-10)
8588-9255
Fax: (86-10) 8588-9300
Email: irteam@xyre.com
(Name, Telephone, E-mail and/or Facsimile number
and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of
the Act:
Title
of Each Class |
|
Trading
Symbol(s) |
|
Name
of Each Exchange on Which Registered |
American
Depositary Shares, each representing 20 common shares, par value US$0.0001 per share |
|
XIN |
|
New
York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of
the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of
the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 112,273,601 common shares, par value US$0.0001 per share, as of December 31, 2023.
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨
Yes x No
If this report is an annual
or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
¨
Yes x No
Note - Checking the box
above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 from their obligations under those Sections.
Indicate by check mark whether
the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
x
Yes
¨ No
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files).
x
Yes
¨ No
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitions
of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2
of the Exchange Act.
Large accelerated
filer ¨ |
Accelerated filer ¨ |
Non-accelerated
filer x |
|
|
Emerging growth company ¨ |
If an emerging growth company
that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ¨
The term “new or revised
financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards
Codification after April 5, 2012.
Indicate by check mark whether
the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. x
If securities are registered
pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements. ¨
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate by check mark which basis of accounting
the registrant has used to prepare the financial statements included in this filing:
|
|
|
U.S. GAAP x |
International Financial
Reporting Standards as issued by the International Accounting Standards Board ¨ |
Other
¨ |
If “Other” has
been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to
follow.
¨
Item 17 ¨ Item 18
If this is an annual report,
indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
¨
Yes x No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING
THE PAST FIVE YEARS)
Indicate by check mark whether
the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a court.
¨ Yes
¨ No
EXPLANATORY NOTE
This
Amendment No. 1 on Form 20-F/A (the “Amendment No. 1”) amends the Annual Report on Form 20-F of XINYUAN REAL ESTATE
CO., LTD. (the “Company” or “we”) for the year ended December 31, 2023 (the “2023 Form 20-F”),
filed on May 15, 2023, with the Securities and Exchange Commission (the “SEC”).
This
Amendment No. 1 restates the Company’s certain disclosures as of and for the year ended December 31, 2023 (the “Restatement”)
in response to a comment letter to the Company from the staff of the SEC dated September 16, 2024 and is being filed solely to make the
following modifications or updates:
| · | Part
I, Item 3 Key Information |
At the outset of Item 3,
we have added certain disclosures to: (i) prominently disclose our status as a Cayman holding company with operations primarily conducted
by our Chinese subsidiaries; (ii) address the legal and operational risks associated with being based in, or having the majority of the
Company’s operations in, China; (iii) discuss our auditors and the impact of the Holding Foreign Companies Accountable Act and
related regulations on the Company; and (iv) discuss the permissions or approvals we are required to obtain from Chinese authorities
to operate our business and offer securities to foreign investors.
| · | Part
I, Item 3 Key Information — D Risk Factors |
We have made conforming
changes to reflect the additional disclosures discussed above.
| · | Part
I, Item 4 Information on the Company — B. Business Overview — Regulation —
China — Regulatory Developments On Data Privacy |
We
have revised and provided additional disclosure regarding the oversight by the Cyberspace Administration of China (“CAC”)
over data security, its impact on our business, and our compliance with the regulations or policies issued by the CAC to date.
| · | Report
of Independent Registered Public Accounting Firm, Assentsure PAC |
We have corrected a clerical
error in our auditor’s report with respect to the amount of the Company’s real estate properties development completed and
under development on December 31, 2023.
| · | Consent
of Independent Registered Public Accounting Firm, Union Power HK CPA Limited |
A clerical error in the fiscal year-end date included in the Consent of Independent Registered Public Accounting Firm, filed as Exhibit
15.1 to the 2023 Form 20-F, has been corrected. The correct date was included in the corrected Consent of Independent Registered Public
Accounting Firm received from Union Power HK CPA Limited and filed as Exhibit 15.1 with this Amendment No.1.
Except
as set forth herein, the Company has not modified, or updated any other disclosures and has made no change to the 2023 Form 20-F.
Other than as expressly set forth above, this Amendment No. 1 does not, and does not purport to, amend, update or restate the information
in any part of the 2023 Form 20-F or reflect any events that have occurred after the 2023 Form 20-F was filed on May 15, 2023. The filing
of this Amendment No. 1, and the inclusion of newly executed certifications, should not be understood to mean that any other statements
contained in the original filing are true and complete as of any date subsequent to May 15, 2023. Accordingly, this Amendment No. 1 should
be read in conjunction with the 2023 Form 20-F and the documents filed with or furnished to the SEC by the Company subsequent to May
15, 2023, including any amendments to such documents.
TABLE
OF CONTENTS
PART I
ITEM 3 KEY INFORMATION
Our Holding Company Structure
Xinyuan
Real Estate Co., Ltd. is not a Chinese operating company but a Cayman Islands holding company with operations primarily conducted
through our PRC subsidiaries. Under this holding company structure, shareholders of our ADSs hold equity interests in the Cayman
Islands holding company and obtaining indirect ownership interests in the Chinese operating companies.
Risks Associated with Being
Based in and Having the Majority of Our Operations in China
We
face various legal and operational risks and uncertainties relating to doing business in China. Our business operations are primarily
conducted in China, and we are subject to complex and evolving PRC laws and regulations. For example, the PRC government has issued statements
and regulatory actions relating to areas such as regulatory approvals on overseas offerings and listings conducted by, and foreign investment
in, China-based issuers, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, which may impact our ability
to conduct certain businesses, accept foreign investments, or list on a United States stock exchange. These legal and operational risks
and uncertainties relating to doing business in China may impact our ability to conduct certain businesses, accept foreign investments,
or list and conduct offerings on a United States or other foreign exchange. These risks could result in a material adverse change in
our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors,
or cause the value of such securities to significantly decline or become worthless. For a detailed description of risks relating to doing
business in China, see “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China.”
Risks
and uncertainties regarding the enforcement of laws and quickly evolving rules and regulations in China could result in a material adverse
change in our operations and the value of our ADSs. The PRC legal system is a civil law system based on written statutes, and
decided legal cases may be cited for reference but have less precedential value. The legal system in China evolves rapidly, and the interpretations
of many laws, regulations and rules may change from time to time. Certain PRC laws, regulations, and legal requirements are constantly
changing and may change with little advance notice. In addition, their interpretation and enforcement involve uncertainties. See
“Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Uncertainties with
respect to the PRC legal system, including uncertainties with respect to the interpretation, application, and enforcement of PRC laws
and regulations, and sudden or unexpected changes of PRC laws and regulations with little advance notice, could have a material adverse
effect on our business, results of operations, financial condition and the value of our ADSs.”
The
PRC government has significant authority in regulating our business and may intervene or influence our operations at any time. It
may exert control over our business, which could result in a material change in our operations and/or the value of our ADSs. It may also
exert more oversight and control over offerings conducted overseas by, and/or foreign investment in, China-based issuers, which could
significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our
ADSs to significantly decline or be worthless. The PRC government has recently indicated an intent to exert more oversight and control
over offerings that are conducted overseas and foreign investment in China-based issuers. Any such action could significantly limit or
completely hinder our ability to offer or continue to offer securities to investors. In addition, implementation of industry-wide regulations
directly targeting our operations could cause the value of our securities to significantly decline. Therefore, our company and our business
face potential uncertainty from actions taken by the PRC government affecting our business. See “Item 3. Key Information
— D. Risk Factors — Risks Related to Doing Business in China — Significant oversight and discretion by the PRC government
over our business operations could result in a material change in our operations and the value of our ADSs.”
The
Holding Foreign Companies Accountable Act
Pursuant to the Holding Foreign
Companies Accountable Act, as amended by Consolidated Appropriations Act of 2023, or the HFCA Act, if the SEC determines that we have
filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the Public Company Accounting
Oversight Board, or the PCAOB, for two consecutive years, the SEC will prohibit our ADSs from being traded on a national securities exchange
or in the over-the-counter trading market in the United States.
Our
current auditor, Assentsure PAC (“Assentsure”), and our prior auditor for our 2021 annual report, Union Power HK CPA Limited
(“Union Power”), the independent registered public accounting firms that issue the financial reports included elsewhere in
this annual report on Form 20-F, are both currently registered with the PCAOB. The PCAOB conducts regular inspections to assess
their compliance with the applicable professional standards. Assentsure and Union Power are headquartered in Singapore and Hong
Kong, respectively. On December 16, 2021, the PCAOB issued its determinations that the PCAOB was unable to inspect or investigate
completely PCAOB-registered public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC
authorities in those jurisdictions, which determinations were vacated on December 15, 2022, and the PCAOB included in the report of its
determination a list of the accounting firms that are headquartered in mainland China or Hong Kong. The list includes Union Power, the
firm which audited our financial statements for the fiscal year ended December 31, 2021. Subsequently on August 29, 2022, we were added
to the conclusive list of “Commission-Identified Issuer” identified under the HFCA Act on the website of the SEC. Our current
auditor, Assentsure PAC is not subject to the determinations announced by the PCAOB on December 16, 2021. On August 26, 2022, the PCAOB
signed a Statement of Protocol Agreement (the “SOP”) with the China Securities Regulatory Commission (the “CSRC”)
and China’s Ministry of Finance. The SOP, together with two protocol agreements governing inspections and investigations (together,
the “SOP Agreements”), establish a specific, accountable framework to make possible complete inspections and investigations
by the PCAOB of audit firms based in mainland China and Hong Kong, as required under U.S. law. On December 15, 2022, the PCAOB determined
that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland
China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise
fail to facilitate the PCAOB’s access in the future, the PCAOB will consider the need to issue a new determination. On June 22,
2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, and on December 29, 2022, legislation entitled
“Consolidated Appropriations Act, 2023” (the “Consolidated Appropriations Act”) was signed into law by President
Biden, which contained, among other things, an identical provision to the Accelerating Holding Foreign Companies Accountable Act and
amended the HFCA Act by requiring the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor
is not subject to PCAOB inspections for two consecutive years instead of three, thus reducing the time period for triggering the delisting
of our Company and the prohibition of trading in our securities if the PCAOB is unable to inspect our accounting firm at such future
time. If trading in our ADSs is prohibited under the HFCA Act in the future because the PCAOB determines that it cannot inspect or fully
investigate our auditor at such future time, NYSE may determine to delist our ADSs and trading in our ADSs could be prohibited. See “Item
3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— The enactment of the Holding Foreign Companies
Accountable Act and the adoption of any rules, legislations or other efforts to increase U.S. regulatory access to audit information
could cause uncertainty and our securities listed on the NYSE could be delisted or prohibited from being traded “over-the-counter”
if we are unable to meet the PCAOB requirement in time.”
Cash and Asset Flows through
Our Organization
Xinyuan
Real Estate Co., Ltd. is a Cayman Islands holding company with no material operations of its own. We conduct our operations primarily
through our subsidiaries in China. As a result, the Company’s ability to pay dividends to our shareholders and to service
our indebtedness outside of China depends significantly upon dividends that we receive from our subsidiaries in China. To the extent
our existing subsidiaries or any newly formed ones incur indebtedness or losses on their own behalf in the future, such indebtedness
or losses may impair their ability to pay dividends or other distributions to us.
During
the three fiscal years ended December 31, 2021, 2022, and 2023, subsidiaries of the Company transferred cash in a total amount
of US$292.4 million, US$ 6.3 million, US$ 5.0 million, respectively, to the Company for working capital purposes.
During
the past three fiscal years, other than the cash transfers described hereto, there have been no other transfers of assets or cash
dividends among the Company and its subsidiaries, and the Company has not made any dividend payments or distributions to investors (including
U.S. investors).
For
further discussion, see “Item 3. Key Information—D. Risk Factors— Risks Related to Our Business — We
are a holding company that depends on dividend payments from our subsidiaries for funding”, and “Item 10. Additional
Information—E. Taxation.”
Restrictions and Limitations
on Transfer of Cash and Cash Dividend Distribution
Subject
to certain contractual, legal and regulatory restrictions, cash and capital contributions may be transferred among our Cayman Islands
holding company and the Chinese operating entities. If needed, our Cayman Islands holding company can transfer cash to the Chinese operating
entities through loans and/or capital contributions, and the Chinese operating entities can transfer cash to our Cayman Islands
holding company through loans and/or issuing dividends or other distributions. There are limitations on the ability to transfer cash
between the Cayman Islands holding company, the Chinese operating entities or investors. Cash transfers from the Cayman Islands holding
company to the Chinese operating entities are subject to the applicable PRC laws and regulations on loans and direct investment. See
“Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in the PRC—PRC regulations of loans
and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of our offshore financing
to make loans or additional capital contributions to the operating entities, which could materially and adversely affect our liquidity
and business.”
Cash
transfers from the Chinese operating entities to the Cayman Islands holding company are also subject to the current PRC regulations,
which permit the Chinese operating entities to pay dividends to their shareholders only out of their accumulated profits, if any, determined
in accordance with PRC accounting standards and regulations. To the extent cash or assets in the business is in China or a Chinese operating
entity, the funds or assets may not be available to fund operations or for other use outside of China due to interventions in or the
imposition of restrictions and limitations on the ability of our Company or the operating entities by the PRC government to transfer
cash or assets. If we are considered a PRC tax resident enterprise for tax purposes, any dividends we pay to our overseas shareholders
may be regarded as China-sourced income and as a result may be subject to PRC withholding tax. Relevant PRC laws and regulations
permit the PRC companies to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting
standards and regulations. Additionally, the Company’s PRC subsidiaries can only distribute dividends upon approval of the shareholders
after they have met the PRC requirements for appropriation to the statutory reserves. Under PRC laws, rules and regulations, each of
our subsidiaries incorporated in mainland China is required to set aside at least 10% of its after-tax profits each year, after
making up for previous years’ accumulated losses, if any, to fund certain statutory reserves, until the aggregate amount of such
fund reaches 50% of its registered capital. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—We
are a holding company that depends on dividend payments from our subsidiaries for funding. To the extent funds or assets in the business
are in the PRC or a PRC entity, the funds or assets may not be available to fund operations or for other use outside of the PRC due to
interventions in or the imposition of restrictions and limitations on the ability of our company or the operating entities by the PRC
government to transfer cash or assets” and “—Risks Related to Our Business—We face risks related to our
back-to-back loans.”
Cash
transfers from the Cayman Islands holding company to the investors are subject to the restrictions on the remittance of Renminbi into
and out of China and governmental control of currency conversion. Our cash dividends, if any, will be paid in U.S. dollars. The
PRC government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency
out of China. The majority of our income is received in Renminbi and shortages in foreign currencies may restrict our ability to pay
dividends or other payments, or otherwise satisfy our foreign currency denominated obligations, if any. Under existing PRC foreign exchange
regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions,
can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange of China, or SAFE, as long
as certain procedural requirements are met. Approval from appropriate government authorities is required if Renminbi is converted into
foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies.
The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions in the
future, and in such event, we may not be able to pay dividends in foreign currencies to our shareholders. See “Item 3. Key Information—D.
Risk Factors—Risks Related to Doing Business in the PRC—We are subject to PRC restrictions on currency exchange.”
As a result of these and other restrictions under
the PRC laws and regulations, our PRC subsidiaries are restricted to transfer a portion of their cash or assets to the Company. Even
though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries for working capital and
other funding purposes, the Company may in the future require additional cash resources from its PRC subsidiaries due to changes in business
conditions, to fund future acquisitions and developments, or merely declare and pay dividends to or distributions to the Company’s
shareholders.
Permissions Required from
the PRC Authorities for Our Operations and Overseas Securities Offering
We
conduct our business primarily through our PRC subsidiaries. Our operations in China are governed by PRC laws and regulations. As of
the date hereof, each of our PRC subsidiaries is required to have, and does have, a business license issued by the PRC State Administration
for Market Regulation or its local counterparts. Our business model involves certain subsidiaries managing separate real estate projects
in different regions. Under the PRC laws and regulations, there are governmental licenses and permits that need to be obtained for each
real estate project from local authorities. As of the date hereof, except for the specific projects discussed below, all of our PRC subsidiaries
have obtained, and have not been denied, all requisite licenses and permits from the PRC government authorities that are required for
their primary business operations in China. These include, among others, real estate property registration certificates, land use rights
certificates, construction site planning permits, construction work planning permits, construction permits, pre-sale permits and completion
acceptance certificates. However, given the uncertainties of interpretation and implementation of relevant laws and regulations and the
enforcement practice by relevant government authorities, we may be required to obtain additional licenses, permits, filings or approvals
for the functions and services in the future.
There
are a few projects where certain subsidiaries have not yet obtained specific governmental permits and/or certificates, as detailed below.
These subsidiaries are actively in the process of applying for these permits and/or certificates or taking other remedial measures. The
absence of these permits or certificates does not have a material adverse impact on our business operations and financial results.
Project
Name |
Unobtained
Licenses and Permits |
International
New Plaza |
·
The real estate property registration certificate for
Xinyuan No. 5
·
Construction work permit for project B05 |
Xingyang
Mingjia Project
|
·
The pre-sale permit and the completion acceptance certificate
for the sales department
·
The completion acceptance certificate for the basement of Phase 2 project
·
The pre-sale permit and the completion acceptance certificate for Phase 2 of the Commercial
Section
·
The pre-sale permit for No. 54 and 55 of the Commercial buildings of Phase 5
·
The completion acceptance certificate for Phase 5
·
The real estate property registration certificate for the Commercial shops of Building No.4
in Phase 4
·
The pre-sale permit and the completion acceptance certificate for Commercial Building No.3 in
Phase 2
·
The land use rights certificate, construction site planning permit, construction work planning
permit, construction permit, pre-sale permit, and completion acceptance certificates for Building No. 5 of Phase 2
·
The land use rights certificate, construction site planning permit, construction work planning
permit, construction permit, pre-sale permits, and completion acceptance certificate for Commercial Section No. 45 of Phase 4 |
Xinyuanfu
Project |
·
The completion acceptance certificate |
Daxuefu
Project
|
·
The land use rights certificate, construction site planning permit, construction work planning
permit, construction permit, pre-sale permit, and completion acceptance certificate for the acquired project |
Yuefu
Project |
·
The pre-sale permit for Buildings No. 3 and No.7 |
As
of the date hereof, we have not received any notice of warning or been subject to penalties or other disciplinary action from any PRC
authorities regarding conducting our business without requisite approvals or permits, except for the following instances where
(i) a subsidiary was fined a total of RMB 450,000 during the year of 2023 for its failure to timely file project completion acceptance
with the local government for one real estate project, (ii) a subsidiary was fined a total of RMB 510,000 for its failure to obtain the
pre-sale permit before selling properties, and (iii) a subsidiary was fined a total of RMB 298,282 for its failure to obtain the pre-sale
permit before selling properties. However, we cannot assure you that we will not be subject to any penalty in the future due to a lack
of such approvals or permits. If (i) we or our subsidiaries, do not receive or maintain any permission or approval required of us or
our subsidiaries, (ii) we or our subsidiaries inadvertently concluded that certain permissions or approvals have been acquired or are
not required, or (iii) applicable laws, regulations, or interpretations thereof change, and we or our subsidiaries become subject to
the requirement of additional permissions or approvals in the future, we may have to expend significant time and costs to procure them.
If we are unable to do so, in a timely manner or otherwise, we may become subject to sanctions imposed by the PRC regulatory authorities,
which could include fines, penalties, and proceedings against us, and other forms of sanctions, and our ability to conduct our business,
invest in mainland China as foreign investments or accept foreign investments, or list on a U.S. or other overseas exchange may be restricted,
our business, reputation, financial condition, and results of operations may be materially and adversely affected, and the value of our
ADSs could significantly decline or become worthless. For more detailed information, see “Item 3. Key Information — D.
Risk Factors — Risks Relating to Our Business —We may fail to obtain or maintain, or may experience material delays in obtaining,
necessary government approvals for any major property development, which will adversely affect our business.”
On December 28, 2021, the Cyberspace
Administration of China, or the CAC, and certain other PRC governmental authorities jointly released the Revised Cybersecurity Review
Measures, which became effective on February 15, 2022. Pursuant to these measures, (i) operators of critical information infrastructure
that intend to purchase network products and services and online platform operators that conduct data processing activities, in each
case that affect or may affect national security, and (ii) operators of network platforms seeking listing abroad that are in possession
of more than one million users’ personal information must apply for a cybersecurity review. These measures set out certain general
factors which would be the focus in assessing the national security risk during a cybersecurity review, including, without limitation,
risks of influence, control or malicious use of critical information infrastructure, core data, important data or large amounts of personal
information by foreign governments in relation to listing abroad.
As of December 31, 2023, we
had not received any notice that we are a critical information infrastructure operator from any government authority, nor had we received
any request from the CAC to undergo a cybersecurity review. As advised by our PRC counsel, ChangAn Law Offices, as of the date of this
annual report, neither the Company nor any of its subsidiaries currently are subject to the cybersecurity review process with respect
to the offering of our securities or the business operations of our PRC subsidiaries, as neither we nor any of our PRC subsidiaries qualifies
as a critical information infrastructure operator or has conducted any data processing activities that affect or may affect national
security or holds personal information of more than one million users. There remains uncertainty, however, as to how the Cybersecurity
Review Measures will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations,
rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures.
On February 17, 2023, the China
Securities Regulatory Commission, or the CSRC, issued the Trial Administrative Measures of Overseas Securities Offering and Listing by
Domestic Enterprises, or the Overseas Offering and Listing Measures, which became effective on March 31, 2023, and five supporting guidelines
on CSRC’s official website. Pursuant to these measures, PRC domestic enterprises conducting overseas securities offering and listing,
either directly or indirectly, shall complete filings with the CSRC within three working days following the submission of application
for an initial public offering or listing. These filings shall include, among other documents, (i) a filing report, (ii) regulatory opinions,
filing or approval documents issued by the competent authorities of the industry concerned (if applicable), (iii) opinions on the security
assessment and review issued by the competent department of the State Council (if applicable), (iv) legal opinions and undertakings issued
by PRC counsel, and (v) the listing documents.
Our
PRC counsel, ChangAn Law Offices, has advised us that, based on their understanding of the currently effective PRC laws and regulations,
including the Overseas Offering and Listing Measures, as of the date of this annual report, we are not required to obtain any prior approval
or permission from or complete filing procedures with the CSRC or CAC for our historical offshore offerings to foreign investors which
have been completed, except for a private placement sale of the Company’s common shares to Central Plains Ltd. on December 27,
2023, for which, under a conservative interpretation of the applicable PRC laws and regulations, we were required to make a filing with
the CSRC but we have not completed it. The PRC counsel has further advised us that the untimely filing may result in a correction order,
an admonition, and a fine in the amount of RMB 1,000,000 to 10,000,000. Based on the foregoing, we do not expect that the uncompleted
filing with the CSRC with respect to the private placement transaction would per se have a material adverse impact on our business. The
Company is actively consulting with its PRC counsel with respect to potential remedial measures.
However, we are required to
go through filing procedures with CSRC for our future issuance or offering of securities (including shares, depository receipts, corporate
bonds convertible into shares and other securities in nature of equity) to foreign investors if certain condition conditions set forth
in the Overseas Offering and Listing Measures are met so that they are considered “indirect overseas offerings and listings by
a PRC domestic company”. However, our PRC legal counsel has further advised us that there remains some uncertainty as to how relevant
rules published by the CSRC and the CAC will be interpreted or implemented, and its opinions summarized above are subject to any new
laws, rules and regulations or detailed implementations and interpretations in any form. We cannot assure you that relevant PRC governmental
authorities, including the CSRC and the CAC, would reach the same conclusion as our PRC legal counsel, and hence, we may face regulatory
actions or other sanctions from them.
However, any future securities
offerings and listings outside of mainland China by our company, including, but not limited to, follow on offerings, secondary listings
and going-private transactions, will be subject to the filing requirements with the CSRC under the Trial Administrative Measures of Overseas
Securities Offering and Listing by Domestic Enterprises and the supporting guidelines, and we cannot assure you that we will be able
to comply with such filing requirements in a timely manner, or at all. If we fail to obtain the necessary approval or complete the filings
and other regulatory procedures in a timely manner, we may face sanctions by the CSRC or other PRC regulatory agencies, which may include
fines and penalties on our operations in mainland China, limitations on our operating privileges in China, restrictions on or prohibition
of the payments or remittance of dividends by our mainland China subsidiaries, delay of or restriction on the repatriation of the proceeds
from our initial public offering into mainland China, or other actions that could have a material and adverse effect on our business,
financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. The CSRC or other PRC
regulatory authorities also may take actions requiring us, or making it advisable for us, to halt our offerings before settlement and
delivery of the shares offered. Consequently, if investors engage in market trading or other activities in anticipation of and prior
to settlement and delivery, they do so at the risk that settlement and delivery may not occur. In addition, if the CSRC or other regulatory
authorities later promulgate new rules or explanations requiring that we obtain their approvals or accomplish the required filing or
other regulatory procedures for our initial public offering, we may be unable to obtain a waiver of such approval requirements, if and
when procedures are established to obtain such a waiver. Any uncertainties or negative publicity regarding such approval requirement
could materially and adversely affect our business, prospects, financial condition, reputation, and the trading price of our ADSs.
For
detailed information, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Failure
to maintain the security of our information and technology networks, including personally identifiable and customer information, as well
as uncertainties with respect to the interpretation and implementation of cybersecurity review procedures and proprietary business information,
could significantly adversely affect us”, “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—The
approval of the CSRC, may be required if we intend to do a follow-on equity offering in the future, and, if required, we cannot predict
whether we will be able to obtain such approval”, “Item 4. Information on the Company — B. Business Overview —
Regulation — China — Regulatory Developments On Data Privacy.”
D. Risk
Factors
Risks Related to Our Business
We are a holding company
that depends on dividend payments from our subsidiaries for funding. To the extent funds or assets in the business are in the PRC or
a PRC entity, the funds or assets may not be available to fund operations or for other use outside of the PRC due to interventions in
or the imposition of restrictions and limitations on the ability of our company or the operating entities by the PRC government to transfer
cash or assets.
We are a holding company
established in the Cayman Islands; we operate most of our business and operations through our subsidiaries in China. Our ability to pay
dividends to our shareholders and to service our indebtedness outside of China depends significantly upon dividends that we receive from
our subsidiaries in China. To the extent our U.S., Malaysia and U.K. operations continue to grow, we may in the future also depend on
dividends from our U.S., Malaysia, or U.K. subsidiaries. If our subsidiaries incur indebtedness or losses, such indebtedness or losses
may impair their ability to pay dividends or other distributions to us. As a result, our ability to pay dividends and to service our
indebtedness will be restricted. Regulations in China currently permit payment of dividends only out of accumulated after-tax profits
upon satisfaction of relevant statutory conditions and procedures, if any, determined in accordance with Chinese accounting standards
and regulations. Each of our PRC subsidiaries, including wholly foreign-owned enterprises and domestic companies, is required to set
aside at least 10.0% of its after-tax profits each year, if any, to fund certain reserve funds until the cumulative amount of such reserves
reaches 50.0% of its respective registered capital and, with the approval of a shareholder meeting or general shareholder meeting, a
PRC subsidiary may set aside a certain amount of after-tax profits to its discretionary general reserves. As of December 31, 2023, our
statutory reserves amounted to US$179.8 million. Our statutory reserves are not distributable as cash dividends. Dividends paid by the
PRC subsidiaries may also be subject to PRC withholding tax. In addition, restrictive covenants in bank credit facilities, bonds, other
long-term debt agreements, joint venture agreements or other agreements that we or our subsidiaries currently have or may enter into
in the future may also restrict the ability of our subsidiaries to pay dividends or make other distributions to us and our ability to
receive distributions. Therefore, these restrictions on the availability and usage of our major source of funding may impact our ability
to pay dividends to our shareholders and to service our indebtedness.
Our business and prospects
are heavily dependent on and may be adversely affected by the performance of the PRC property markets, particularly in Zhengzhou.
Our business and prospects
depend on the performance of the PRC property market. As of December 31, 2023, we had a total of 104 property projects covering 20 cities
in China at various stages of development. We intend to continue to enhance our presence in targeted high-growth cities in China. These
property markets may be affected by local, regional, national and global factors, including economic and financial conditions, speculative
activities in local markets, demand for and supply of properties, investor confidence, availability of alternative investment choices
for property buyers, inflation, government policies, interest rates and availability of capital. Any market downturn in China generally
or in cities in which we have or expect to have operations may materially and adversely affect our business, financial condition, and
results of operations. Moreover, any oversupply of properties or potential decline in demand for or prices of properties in these cities
could also have a material adverse impact on us. In particular, the PRC property market is affected by the recent slowdown of China’s
economic growth. There have been increasing concerns over the sustainability of the real estate market growth in China. Any slowdown
in the PRC’s economic development could lead to tighter credit markets, increased market volatility, sudden drops in business and
consumer confidence and dramatic changes in business and consumer behaviors. In response to their perceived uncertainty in economic conditions,
consumers might delay, reduce or cancel purchases of homes, and our homebuyers may also defer, reduce or cancel purchases of our units.
We have experienced volatilities in demand from time to time in the recent years due to the strict mortgage policy and other measures
taken by the PRC government to slow down the rapid increase in housing prices. To the extent any fluctuations in the Chinese economy
significantly affect homebuyers’ demand for our units or change their spending habits, our results of operations may be materially
and adversely affected. The PRC’s economy also faces challenges in the short to medium term. Continued turbulence in the international
markets and prolonged declines in consumer spending, including home purchases, as well as any slowdown of economic growth in China, may
adversely affect our liquidity and financial condition.
Our business requires access
to substantial financing. Our failure to obtain adequate financing in a timely manner could severely adversely restrict our ability to
complete existing projects, expand our business, or repay our obligations and affect our financial performance and condition.
Our property development
business is capital intensive. To date, we have funded our operations primarily through bank borrowings, proceeds from sales and pre-sale
of our properties and proceeds from issuance of equity and debt securities. We obtain commercial bank financing for our projects through
credit lines extended on a case-by-case basis. Our ability to secure sufficient financing for land use rights acquisition and property
development and repayment of our existing onshore and offshore debt obligations depends on a number of factors that are beyond our control,
including lenders’ perceptions of our creditworthiness, sufficiency of collateral, if any, market conditions in the capital markets,
investors’ perception of our securities, the PRC economy and PRC government regulations that affect the availability and cost of
financing for real estate companies or property purchasers.
Since 2003, PRC commercial
banks have been prohibited, under the guidelines of the PBOC, from advancing loans to fund the payment of land use rights. We generate
significant cash flow through pre-sale, which are subject to government restrictions. In particular, PRC regulations on the pre-sale
of properties generally provide that the proceeds from the pre-sale of a real estate project may only be used for the construction of
such project. Any additional potential government restrictions on pre-sale could significantly increase our financing needs. Moreover,
our ability to move cash through inter-company transfers or transfer funds from onshore subsidiaries to our offshore parent company is
limited by PRC government regulations, which limits our ability to use excess cash resources in one subsidiary to fund the obligations
of another subsidiary or our offshore parent company. In addition, reserve requirement applicable to PRC commercial banks generally limits,
and any increases in such reserve requirements could further limit, the amount of commercial bank credit available to businesses in China,
including us.
Furthermore, various other
PRC regulations restrict our ability to raise capital through external financing and other methods, including, without limitation, the
following:
| · | we
cannot borrow from a PRC bank for a particular project if we do not have the land use rights
certificate for that project; |
| · | we
cannot pre-sell uncompleted residential units in a project prior to achieving certain development
milestones specified in related regulations; |
| · | we
cannot borrow from a PRC bank for a particular project unless we fund at least 35% of the
total investment amount of that project from our own capital; |
| · | property
developers are strictly restricted from using the proceeds from a loan obtained from a local
bank to fund property developments outside the region where that bank is located; and |
| · | PRC
banks are prohibited from accepting properties that have been vacant for more than three
years as collateral for loans. |
On February 13, 2017, the
Asset Management Association of China issued the Administrative Rules for the Filing of Private Equity and Asset Management Plans by
Securities and Futures Institutions No. 4—Investment in Real Estate Developers and Projects by Private Equity and Asset Management
Plans, or “Rule 4.” Rule 4 provides that the Asset Management Association of China will temporarily suspend accepting any
private equity and asset management plan which makes a direct or indirect investment in any ordinary residential property project located
in specified cities where the property prices are considered to have risen too fast, including Beijing, Shanghai, Guangzhou, Suzhou,
Tianjin, Wuhan, Zhengzhou, Jinan and Chengdu, where the Company operates. In addition, a private equity and asset management plan may
not be used to finance any real estate developer, whether in the form of bank entrusted loans, trust plans or transfers of beneficial
interests in assets, for the purpose of acquiring land use rights or supplementing working capital.
On August 20, 2020, PBOC
and Ministry of Housing and Urban-Rural Development, or the “MOHURD,” jointly held a conference with 12 major real estate
development companies in China. At the conference, PBOC and MOHURD proposed a pilot plan to regulate the financing activity of real estate
development companies. The pilot plan sets three goals for real estate development companies: the debt asset ratio will not exceed 70%
after deducting advance proceeds from projects sold; net debt to equity ratio will not exceed 100%; and the ratio of balance of cash
and cash equivalent to short-term borrowings will be at least 1. Based on the number of goals completed, the upper limit of annual growth
rate of interest-bearing liabilities of a real estate development company varies from 5% to 15%. The pilot plan was supposed to become
a formal policy in 2021; nevertheless, the governmental authority has not issued any relevant regulations or policies.
On December 31, 2020, PBOC
and the China Banking and Insurance Regulatory Commission, or “CBIRC”, collectively issued the Notice on the Establishment
of a Concentration Administration System for Real Estate Loans from Banking Financial Institutions, or the “2021 Notice”,
which took effect on January 1, 2021. The 2021 Notice divides all Chinese-funded banks into five (5) levels and sets different limitation
on banks in different levels to provide real estate loans. For example, the amount of outstanding real estate loans of a bank in Level
1 must not account for more than 40% of its total outstanding RMB loans, while the amount of outstanding real estate loans of a bank
in Level 5 must not account for more than 12.5% of its total outstanding loans denominated in RMB.
While the PRC government
has adopted or adjusted the measures mentioned above and may adopt or adjust other measures in the future seeking to support the healthy
development of the residential real estate market in China, the government policies significantly impacted the residential real estate
market in the past few years. For example, a few real estate developers, such as China Evergrande Group, Kaisa Group Holdings Ltd., Yango
Group Co. and us, have experienced decreasing transaction volumes in the Chinese residential real estate market, closing of certain financing
opportunities and significant challenges and pressure on short-term liquidity in 2021. The crisis has also led to notable bankruptcies,
with China’s largest developer, Country Garden, causing investor concerns about potential loan defaults. China Evergrande filed
for U.S. bankruptcy in August 2023 while restructuring its debt, having defaulted on a massive $300 billion debt in 2021; it was ordered
to liquidate by Hong Kong High Court in January 2024. We cannot assure you that the PRC government will not adopt additional and more
stringent industry policies, regulations and measures in the future, nor can we assure you when or whether the existing policies and
regulations will be eased or reversed, or otherwise enhanced to some extent in their implementations. If the policies remain unchanged
or become more restrictive, they may continue affecting the growth rate of the Chinese residential real estate market, some of which
may cause a decline in transaction volumes and average selling prices, prevent developers from raising the capital they need, increase
developers’ costs to start new projects and increase the burdens on developers to secure financing on favorable terms or at all.
In addition, the slowdown of China’s economic growth as well as the housing market may result in the banks and other financial
institutions becoming more cautious in their lending activities, and therefore adversely impact our ability to secure financing. As a
result, our business and results of operations may be materially and adversely affected.
In the United States, we
currently have three development projects in the Brooklyn, Manhattan and Queens boroughs of New York City. Pre-sale proceeds (i.e., deposits
and other sales proceeds received before the conveyance of title to the buyer) cannot be used to finance project construction under local
laws and regulations applicable to the New York projects, so we are financing their development through internal funds and bank loans,
causing us to utilize more of our own funds to undertake larger construction debt obligations and to bear higher borrowing costs. In
January 2024, two of our subsidiaries in the United States filed voluntary petitions for relief under chapter 11 of title 11 of the United
States Code. See “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Legal Proceedings.”
As of December 31, 2023,
our contractual obligations amounted to US$3,305.1 million, primarily arising from contracted construction costs or other capital commitments
for future property developments, operating lease obligations and debt obligations. Of this amount, US$1,939.8 million was due within
one year.
There can be no assurance
that our internally generated cash flow and external financing will be sufficient for us to meet our contractual and financing obligations
in a timely manner. Due to the current measures imposed by the PRC government (as well as other measures that may be imposed in the future)
which limit our access to additional capital, as well as restrictions imposed on our conduct under existing debt arrangements, we cannot
assure you that we will be able to obtain sufficient funding to finance intended purchases of land and land use rights, develop future
projects or meet other capital needs as and when required at a commercially reasonable cost or at all. Our failure to obtain adequate
financing in a timely manner and on reasonable terms could severely adversely restrict our ability to complete existing projects, expand
our business or repay our obligations and affect our cash flow, liquidity, financial performance and condition.
We are subject to certain
restrictive covenants and risks normally associated with debt financing which may limit our ability to take certain corporate actions,
including incurring additional debt, which could materially and adversely affect our business and financial condition.
We are subject to certain
restrictive covenants in our loan agreements with certain commercial banks. Certain loan agreements contain covenants providing that,
among other matters, we or our relevant PRC operating subsidiaries may not enter into mergers, joint ventures or restructurings, decrease
our registered share capital, transfer material assets, including shares of subsidiaries, engage in material investments, liquidate,
change our shareholding, or distribute dividends without the relevant lenders’ prior written consent or unless we fully settle
the outstanding amounts under the relevant loan agreements. In addition, certain of our loan agreements contain cross-default clauses.
If any cross-default occurs, these banks are entitled to accelerate payment of all or any part of the loan under their relevant loan
agreements and to enforce all or any of the security for such loans. Further, the onshore corporate bonds issued by Xinyuan (China) Real
Estate, Ltd., or “Xinyuan China”, our wholly-owned PRC subsidiary, contain restrictions on certain business activities of
Xinyuan China when in default on payment of interest or principal, including, among others, limitations on distributions of net income,
limitations on certain expenditures, or business combination transactions. Our future bank and other borrowings may contain similar restrictions
or cross-default provisions.
Our outstanding debt securities
also contain certain covenants that restrict our ability to take other corporate actions. The indentures governing our senior secured
notes contain covenants that, among other things, restrict our ability and our restricted subsidiaries’ abilities (as defined in
the relevant indenture) to incur additional debt or issue preferred stock, to make certain payments or investments, to pay dividends,
to purchase or redeem capital stock, sell assets, or make certain other payments, subject to certain qualifications and exemptions and
satisfaction of certain conditions.
As a result of any such covenants
in current or future financing documents, our ability to pay dividends or other distributions on our common shares and ADSs may be limited.
Such covenants may also restrict our ability to raise additional capital in the future through bank borrowings, mortgage financings,
and debt and equity issuances and may restrict our ability to engage in some transactions that we believe to be of benefit to us. The
occurrence of any of the above events may have a material adverse effect on our business, financial condition and operating results,
as well as cash flow and cash that is available for distributions.
In addition, our obligations
under our senior secured notes are guaranteed by various of our subsidiaries, and the guarantee by our wholly-owned subsidiary, Xinyuan
Real Estate, Ltd., which indirectly holds all our assets and operations in China, is secured by a pledge of our shares of the other guarantor
subsidiaries subject to limited exceptions. If we default under any of the senior secured notes, the holders thereof may enforce their
claims against those shares. In such an event, the holders of the notes could gain ownership of the shares of Xinyuan Real Estate, Ltd.,
and, as a result, own and control all our subsidiaries in China. We conduct substantially all of our operations in China, and if we default
under any of the notes, we could lose control or ownership of our assets and operations in China.
We are overdue on our debt,
and we may not be able to work out a viable debt restructuring plan or otherwise maintain our liquidity and financial position. We are
exposed to risks associated with our debt restructuring, and our other measures to maintain and improve our liquidity and financial position
may not be successful.
As of December 31, 2023,
our short-term bank loans and other debt, and current portion of long-term bank loans and other debt amounted to US$1,957.2 million.
We did not make payments in full for the June 2022 Senior Secured Notes (as defined below) at maturity on June 29, 2022. The total amount
due and payable, including principal and interests, was RMB545.3 million. The default also triggered cross-default of other senior notes
issued by us. On August 18, 2023, eligible holders of the defaulted senior notes in the aggregate principal amount of US$307.36 million
exchanged their notes and the Company delivered the September 2027 Senior Secured Notes in the aggregate principal amount of US$331.3
million due on September 30, 2027 and US$1.54 million in cash consideration in full satisfaction of the exchange consideration to those
eligible holders. The carrying amount of senior notes still in default was US$393.0 million as at December 31, 2023. We also breached
certain covenants relating to bank and other borrowings of US$614.0 million as of December 31, 2023. See “Item 5. Operating and
Financial Review and Prospects—B. Liquidity and Capital Resources—Debt Securities—Senior Secured Notes.”
We are currently exploring
a variety of measures to maintain and improve our liquidity and financial position. We have been proactively making effort to resolve
debts both from domestic and foreign institutions since June 2022 and have engaged Alvarez & Marsal Corporate Finance Limited to
advise on certain debt matters. We have reached or agreed into resolution or settlement with institutions through various approaches.
As of December 31, 2023, we had accumulatively completed debt restructurings amounting to USD$880.6 million, including the rollover of
the onshore corporate bonds issued by Xinyuan China, and an exchange offer of the senior secured notes issued by the Company completed
in August 2023. The total restructuring amount mentioned above accounts for approximately 45% of the total outstanding balance of our
interest-bearing debts. The average maturity extended is around 3 years. The interest saving contributes around RMB350 million annually.
However, there is no assurance
as to whether such debt restructuring may be completed or successful. If we cannot work out successfully complete such debt restructuring,
we may not be able to maintain our liquidity and continue our normal business operation. Even if we successfully enter into arrangements
to restructure or resolve our debt, it is possible that our existing creditors and potential financing providers may impose additional
conditions, increase interest rates and demand payment of extension fees or penalties in connection with such arrangements, leaving little
or no value for our shareholders.
Our auditor has issued a
“going concern” audit opinion, and our ability to continue as a going concern is dependent on our ability to significantly
improve our liquidity position.
We experienced net losses
of US$413.3 million and US$258.7 million in 2021 and 2022 and net income of US$30.5 million in 2023, respectively. We may continue to
incur losses in the future. There is material uncertainty associated with our ability to continue as a going concern. See “Item
5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”
In addition, our independent
auditor has indicated in its report on our audited financial statements that there exists material uncertainty that could raise doubt
about our ability to continue as a going concern. These doubts regarding our ability to continue as a going concern relate to the conditions
including that our ability to generate funds to meet short-term operating cash requirements and loan repayments is reliant on our ability
to sell the real estate properties we hold, or to obtain alternative financing, and that the timing of these sales is uncertain and as
a result the we are currently reliant on long-term investor loans being renewed when they come up for repayment. Such a “going
concern” opinion could impair our ability to finance our operations through the sale of equity, incurring debt, or other financing
alternatives.
Our liquidity and our ability
to continue as a going concern is dependent on various factors, to generate cash flows from operations and to arrange adequate financing
arrangements to support our working capital requirements, and there are no assurances that we will be successful in our efforts to maintain
a sufficient cash balance, report profitable operations in the future or pay our debts as they fall due, any of which could impact our
ability to continue as a going concern. Any such inability to continue as a going concern may result in our shareholders losing their
entire investment.
If we are unable to manage
successfully our expansion into other cities in China, we will not be able to execute our business plan.
A key aspect of our historical
business plan has been to expand our residential property development operations into high-growth cities in China, from our initial focus
on Zhengzhou. We plan to expand into new cities as suitable opportunities arise. The development of real estate projects in other cities
will impose significant demands on our management and other operational resources. Moreover, we will face additional competition and
will need to establish brand recognition and market acceptance for our developments in these new markets. Each city has its unique market
conditions, customer requirements and local regulations related to the local real estate industry. If we are unable to successfully develop
and sell projects outside of our existing markets, our future growth may be limited and we may not generate adequate returns to cover
our investments in these new markets. In addition, if we expand our operations to other cities with higher land prices, our costs may
increase, which may lead to a decrease in our profit margin, or impairments resulting from land value decreases.
We are in the early stages
of expanding into markets outside of China, in which we have limited or no development experience and which may require us to spend significant
resources, and there can be no assurance that we will be able to succeed in any such market.
While our primary focus continues
to be residential real estate markets in high-growth cities in China, we have begun expanding into other markets on an opportunistic
basis. In the U.S., we currently have two completed projects, one in the Williamsburg neighborhood of Brooklyn or the “New York
Oosten Project” and another one in Manhattan, or the “Hudson Garden Project.” We also have an early-stage project in
the Flushing neighborhood of Queens, New York. Any change in federal income tax laws that increase the effective costs of owning a home
would have an adverse effect on the demand for homes in the United States, which could negatively affect any properties we may develop
in the United States. In 2014, we acquired 100% of the shares of a Malaysian company, which owns offshore landfill development rights
for a total area of 170 acres (approximately 687,966 square meters). The reclamation work has been completed as of December 31, 2020.
In 2018, we acquired a 50% equity stake in Madison Developments Limited, or “MDL,” the developer of the Amory Tower project
(previously named as the Madison project), a 0.38-hectare (approximately 0.94 acre) development located adjacent to Canary Wharf, in
London, United Kingdom. See “Item 4. Information on the Company—B. Business Overview” for more information on our projects
outside China.
Given our limited experience
in markets outside of China market, it may be difficult for us to forecast accurately our future revenue and expenses related to existing
and future projects in the United States, the U.K., or Malaysia. Further, locating appropriate future projects in those and other non-China
markets and generating future revenue from such projects may require us to expend significant capital and management resources.
In addition, we may not be
able to develop a successful property development business in any given market. Our ability to develop a successful property developments
business in any given market will depend on a number of factors including many outside of our control, such as the status of the country’s/region’s
economy in general and in our target markets, consumer confidence levels, unemployment levels, interest rates and the ability of potential
purchasers to obtain mortgage financing.
Our business is sensitive
to the general economic conditions in the countries, cities and specific target markets in which we operate. A severe or prolonged downturn
in the global economy generally and particularly in the countries or regions in which we have development projects could materially and
adversely affect our revenue and results of operations.
The real estate market is
sensitive to general economic conditions, financial conditions, including interest rates, availability of capital, employment rates,
and other economic and financial conditions in the local market and the broader region or country as well as global economic conditions.
Significant downturns and instability in the global economy or in the country and local markets in which we operate or the perception
that they could occur, could depress economic activity and restrict our access to capital. In addition, any such events could negatively
affect our customers in one or more markets, including their access to financing or willingness to engage in a major financial transaction,
such as purchasing a home. As a result, our business, financial condition and results of operations could be negatively affected.
In our China markets, our
results of operations, financial condition and prospects are influenced by social, economic, political and legal developments in China.
See “—Risks Related to Doing Business in China—Changes in social conditions, political and economic policies of the
PRC government may affect our business, financial condition and results of operations and may result in our inability to sustain our
growth and expansion strategies.” In response to their perceived uncertainty in economic conditions, consumers might delay, reduce
or cancel purchases of homes, and our homebuyers may also defer, reduce or cancel purchases of our units. We have experienced volatilities
in demand from time to time in the recent years due to the strict mortgage policy and other measures taken by the PRC government to slow
down the rapid increase in housing prices. To the extent any fluctuations in the Chinese economy significantly affect homebuyers’
demand for our units or change their spending habits, our results of operations may be materially and adversely affected.
The PRC economy also faces
challenges in the short to medium term. Continued turbulence in the international markets and prolonged declines in consumer spending,
including home purchases, as well as any slowdown of economic growth in China, may adversely affect our liquidity and financial condition.
Our U.S. property developments
are sensitive to the general economic conditions in the United States and the condition of the U.S. housing market in particular. The
U.S. housing industry is highly cyclical and is significantly affected by changes in industry conditions, as well as in global and local
economic conditions, such as changes in employment and income levels, availability of financing for buyers, interest rates, levels of
new and existing homes for sale demographic, trends and housing demand. Deterioration in industry conditions in the United States or
in broader economic conditions could have additional material adverse effects on our business expansion in the United States and financial
results.
There have been significant
changes and proposed changes to the U.S. trade policies, treaties, tariffs and taxes, including trade policies and tariffs regarding
China, which have created significant uncertainty about the future relationship between the United States and China, as well as other
countries, including with respect to the trade policies, treaties, government regulations and tariffs that could apply to trade with
those countries.
We may be unable to acquire
desired development sites at commercially reasonable costs.
Our revenue depends on the
completion and sale of our projects, which in turn depends on our ability to acquire development sites. Our land costs are a major component
of our cost of real estate sales and increases in such costs could diminish our gross margin. In China, the PRC government controls the
supply of land and regulates land sales and transfers in the secondary market. As a result, the policies of the PRC government, including
those related to land supply and urban planning, affect our ability to acquire, and our costs of acquiring, land use rights for our projects.
In recent years, the PRC government has introduced various measures attempting to moderate investment in the property market in China.
Although we believe that these measures are generally targeted at the luxury property market and speculative purchases of land and properties,
we cannot assure you that the PRC government will not introduce other measures in the future that would adversely affect our ability
to obtain land for development. We currently acquire our development sites primarily by bidding for government land, supplemented in
some instances by direct negotiations with local governments prior to land auctions or by acquisition of local developers or by investment
in an entity that holds land use rights or by cooperating with our business partners through joint ventures and associated companies.
Under current regulations, land use rights acquired from government authorities for commercial and residential development purposes must
be purchased through a public tender, auction or listing-for-sale. Competition in these bidding processes has resulted in higher land
use rights costs for us over the past few years, and we may not successfully obtain desired development sites due to the increasingly
intense competition in the bidding processes. Moreover, the supply of potential development sites in any given city will diminish over
time, and we may find it increasingly difficult to identify and acquire attractive development sites at commercially reasonable costs
in the future.
We rely on third-party contractors
who may not perform at acceptable quality levels or in a timely manner.
Substantially all of our
project construction and related work are outsourced to third-party contractors, and their performance may not meet our level of standards
or specifications. Negligence, delay or poor work quality by contractors may result in defects in our buildings or residential units,
which could in turn cause us to suffer financial losses, harm our reputation or expose us to third-party claims. If the performance of
any third-party contractor is not satisfactory or is delayed, we may need to replace such contractor or take other actions to remedy
the situation, which could adversely affect the cost and construction progress of our projects, and which could cause the completion
of our property developments to be delayed. We work with multiple contractors on different projects and cannot guarantee that we can
effectively monitor their work at all times. Although our construction and other contracts contain provisions designed to protect us,
we may be unable to successfully enforce these rights and, even if we are able to successfully enforce these rights, the third-party
contractors may not have sufficient financial resources to compensate us. Moreover, the contractors may undertake projects from other
property developers, engage in risky undertakings or encounter financial or other difficulties, such as supply shortages, labor disputes
or work accidents, which may cause delays in the completion of our property projects or increases in our costs. In addition, consistent
with what we believe is the customary industry practice in China, our contractors typically do not maintain insurance coverage on our
properties under construction.
We may be unable to complete
our property developments on time or at all and any construction delays, or failure to complete a project according to our planned specifications
or budget, may delay our property sales, which could adversely affect our revenue, cash flows and our reputation.
The progress and costs for
a development project can be adversely affected by many factors, including, without limitation:
| · | delays
in obtaining necessary licenses, permits or approvals from government agencies or authorities; |
| · | changes
in government policies, rules or regulations; |
| · | shortages
of materials, equipment, contractors and skilled labor or increased labor or raw material
costs; |
| · | disputes
with our third-party contractors; |
| · | failure
by our third-party contractors to comply with our designs, specifications or standards; |
| · | difficult
geological situations or other geotechnical issues; |
| · | onsite
labor disputes or work accidents; |
| · | natural
catastrophes or adverse weather conditions, including strong winds, storms, floods, and earthquakes;
and |
| · | geopolitical
challenges and uncertainties (including wars and other forms of conflict, terrorist acts
and security operations), such as the escalating conflict between Russia and Ukraine and
the severe economic sanctions and export controls imposed by the U.S. and other governments
against Russia and Russian interests. |
Any construction delays,
or failure to complete a project according to our planned specifications or budget, may delay our property sales, which could adversely
affect our revenue, cash flows and our reputation.
Under PRC laws and regulations
and our pre-sale contracts, we are required to compensate purchasers for late delivery of or failure to complete our pre-sold units.
If the delay extends beyond the contractually specified period, the purchasers may become entitled to terminate the pre-sale contracts
and claim damages. We are also unable to guarantee that any legal proceedings or renegotiations resulting from delays or failures to
deliver will have a favorable outcome. For more information, see “—We may become involved in legal and other proceedings
from time to time and may suffer significant liabilities or other losses as a result.”
Proceeds from pre-sale of
our properties are an important source of financing for our property developments. Under PRC laws, we are not permitted to commence pre-sale
until we have completed certain stages of the construction process for a project. Consequently, a significant delay in the construction
of a project could restrict our ability to pre-sell our properties, which could extend the recovery period for our capital outlay. This,
in turn, could have an adverse effect on our cash flow, business and financial position.
Changes of laws and regulations
with respect to pre-sale may adversely affect our cash flow position and performance.
We depend on cash flows from
pre-sale of properties as an important source of funding for our property development projects. Under current PRC laws and regulations,
property developers must fulfill certain conditions before they can commence pre-sale of the relevant properties and may only use pre-sale
proceeds to finance the construction of the specific developments. In addition, a number of provinces and cities in which we are operating
business, such as Tianjin, Sichuan, Zhejiang and Qingdao, have established local rules and conditions for the pre-sale permits application,
especially for the custody of pre-sale funds. Such local regulatory measures have not materially affected or restricted our operation
or our use of pre-sale funds yet. However, we cannot assure you that the PRC national government or the local governmental authorities
will not implement further restrictions on the pre-sale of properties, which may affect our cash flow position and force us to seek alternative
sources of funding for much of our property development business.
The results of our operations
may fluctuate from period to period as we derive our revenue principally from the sale of properties and we rely on our unsold inventory
of units.
We derive the majority of
our revenue from the sale of properties that we have developed. Our results of operations tend to fluctuate from period to period due
to a combination of factors, including the overall schedule of our property development projects, the timing of the sale of properties
that we have developed, the size of our land bank, our revenue recognition policies and changes in costs and expenses, such as land acquisition
and construction costs. The number of properties that we can develop or complete during any particular period is limited due to the size
of our land bank, the substantial capital required for land acquisition and construction, as well as the development periods required
before positive cash flows may be generated. For real estate sales contracts for which we have an enforceable right to payment for performance
completed to date, revenue is recognized over time by measuring the progress towards complete satisfaction of that performance obligation.
Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset. In addition, several properties that
we have developed or that are under development are large scale and developed in multiple phases over the course of one to several years.
The selling prices of the residential units in larger-scale property developments tend to change over time, which may impact our sales
proceeds and, accordingly, our revenue for any given period. Furthermore, our property development projects may be delayed or adversely
affected by a combination of factors beyond our control, which may in turn adversely affect our revenue recognition and consequently
our cash flows or results of operations. As a result of the fluctuations in our operating results, our period-to-period comparisons of
results of operations and cash flow positions may not be indicative of our future results of operations and may not be taken as meaningful
measures of our financial performance for any specific period.
The recognition of our real
estate revenue and costs is dependent upon our estimation of our total project revenue and costs.
For real estate sales contracts
for which we have an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring the
progress towards complete satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer
obtains control of the asset. See “Item 5. Operating and Financial Review and Prospects—A. Operating Results—Critical
Accounting Policies.” Under both methods, revenue and costs are calculated based on an estimation of total project costs and total
project revenue, which are revised on a regular basis as the work progresses. Any material deviation between actual and estimated total
project revenue and costs may result in an increase, a reduction or an elimination of reported revenue or costs from period to period,
which will affect our gross profit and net income.
We face risks related to our back-to-back loans.
With
our operations in the U.S. markets and now other non-PRC jurisdictions, we have seen and expect to continue to experience an increasing
need of non-RMB financings with respect to project developments and future expansions. We currently satisfy our non-RMB denominated financing
requirements through four ways: dividends distributions from our PRC subsidiaries, which are subject to 10% withholding tax payment,
back-to-back loan arrangements, high-yield bond issuances and construction loan financing from local banks. Under back-to-back loan arrangements,
our PRC subsidiaries make deposits denominated in RMB into banks in China as collateral to request the banks in China to issue standby
letters of credit denominated in U.S. dollars or other currencies in the same amount as the RMB collateral to their outbound branches,
and our project companies outside the PRC enter into loans denominated in U.S. dollars or other currencies with such outbound branches
in the same amount specified in such standby letters of credit in accordance with to the Provisions on the Administration of Foreign
Exchange for Cross-border Guarantee issued by the State Administration of Foreign Exchange of the People’s Republic of China, or
the “SAFE,” effective June 1, 2014. SAFE registration requirements apply to overseas back-to-back loan arrangements and the
use of proceeds of such loans must comply with certain requirements. On August 4, 2017, the National Development and Reform Commission,
or the “NDRC,” Ministry of Commerce, or the “MOFCOM,” PBOC and Ministry of Foreign Affairs, or the “MFA,”
jointly issued Guiding Opinions on Further Directing and Regulating the Direction of Overseas Investments, or “Opinion 74.”
Under Opinion 74, outbound investment into real estate industry is restricted. The back-to-back loan arrangement may face strict scrutiny
by banks in China. Any change in laws or regulations to restrict or forbid back-to-back loan transactions in the future may adversely
affect our non-PRC companies’ financing. In addition, we are exposed to exchange rate fluctuation and foreign exchange control
risks under the current back-to-back loan model, which may adversely affect our business condition and results of operation.
We rely on our key management
members and the loss of their services or investor confidence in such personnel could have a material adverse effect on our business,
results of operations and financial condition.
We depend on the services
provided by key management members. Competition for management talent is intense in the property development sector. We rely on the leadership,
expertise, experience and vision of our directors and senior management team. In particular, we are highly dependent on Mr. Yong Zhang,
our founder and Chairman. We do not maintain key employee insurance. In the event that we lose the services of any key management member,
we may be unable to identify and recruit suitable successors in a timely manner or at all, which will adversely affect our business and
operations and we may incur additional expenses to recruit, train and retain qualified personnel. Moreover, we may need to employ and
retain more management personnel to support an expansion into high-growth cities on a much larger geographical scale as well as our expansion
in the U.S., Malaysia, the U.K. and other areas. If we cannot attract and retain suitable personnel, especially at the management level,
our business and future growth will be adversely affected.
We provide guarantees for
the mortgage loans of our customers in China, which expose us to risks of default by our customers.
We pre-sell properties before
actual completion and, in accordance with PRC industry practice, our customers’ mortgage banks require us to guarantee our customers’
mortgage loans. Typically, we provide guarantees to PRC banks with respect to loans procured by the purchasers of our properties for
the total mortgage loan amount until the completion of the registration of the mortgage with the relevant mortgage registration authorities,
which generally occurs within six to 12 months after the purchasers take possession of the relevant properties. In line with what we
believe to be industry practice, we rely on the credit evaluation conducted by mortgagee banks and do not conduct our own independent
credit checks on our customers. The mortgagee banks typically require us to maintain, as restricted cash, up to 10% of the mortgage proceeds
paid to us as security for our obligations under such guarantees. If a purchaser defaults on its payment obligations during the term
of our guarantee, the mortgagee bank may deduct the delinquent mortgage payment from the security deposit. If the delinquent mortgage
payments exceed the security deposit, the banks may require us to pay the excess amount. If multiple purchasers’ default on their
payment obligations, we will be required to make significant payments to the banks to satisfy our guarantee obligations. Factors such
as a significant decrease in housing prices, increase in interest rates or the occurrence of natural catastrophes, among others, could
result in a purchaser defaulting on its mortgage payment obligations. If we are unable to resell the properties underlying defaulted
mortgages on a timely basis or at prices higher than the amounts of our guarantees and related expenses, we will suffer financial losses.
We paid US$3,723,398, US$4,068,840 and US$2,286,938 to satisfy guarantee obligations related to customer defaults in 2021, 2022 and 2023
respectively.
As of December 31, 2022 and
2023, our outstanding guarantees in respect of our customers’ mortgage loans amounted to US$2,110.5 million and US$1,926.4 million,
respectively. If substantial defaults by our customers occur and we are called upon to honor our guarantees, our financial condition,
cash flow and results of operations will be materially adversely affected.
Our level of indebtedness could have an adverse
effect on our financial condition, diminish our ability to raise additional capital to fund our operations and limit our ability to explore
business opportunities.
As of December 31, 2023,
the outstanding balance of our total indebtedness amounted to US$1,957.2 million. Our level of indebtedness could have an adverse effect
on us. For example, it could:
| · | require
us to dedicate a large portion of our cash flow from operations as well as the proceeds from
certain financings and asset dispositions to fund payments of our debt, thereby reducing
the availability of our cash flow to fund working capital, capital expenditures and other
general corporate purposes; |
| · | make
it more difficult for us to satisfy our obligations under our debt securities and other indebtedness; |
| · | increase
our vulnerability to adverse general economic or industry conditions; |
| · | limit
our flexibility in planning for, or relating to, changes in our business or the industry
in which we operate; |
| · | limit
our ability to raise additional debt or equity capital in the future or increase the cost
of such funding; |
| · | restrict
us from making strategic acquisitions, exploring business opportunities or selling assets; |
| · | place
us at a competitive disadvantage compared to any competitors that have less debt; and |
| · | make
it more difficult for us to satisfy our obligations with respect to our debt. |
Our ability to make payments
on and to refinance our indebtedness will depend on our ability to generate cash in the future, which in turn is dependent on various
factors. For a discussion of these factors, see “Item 5. Operating and Financial Review and Prospects — A. Operating Results
— Principal Factors Affecting Our Results of Operations.”
Our financing costs are subject to changes in
interest rates.
The rates of interest payable
on our PRC long-term bank loans are adjustable based on the range of 92.63% to 189.47% of the PBOC benchmark rate, which fluctuates from
time to time. As of December 31, 2023, the principal amount of our aggregate outstanding variable rate debt was US$777.8 million. A hypothetical
1% increase in annual interest rates would increase our interest expenses by US$7.78 million based on our debt level on December 31,
2023. In connection with our U.S. projects and U.K. projects, we enter into U.S. dollar and British pound denominated loans, which will
subject us to additional interest rate fluctuation risks, including fluctuations of the London Interbank Offered Rate, or LIBOR, and
the Secured Overnight Financing Rate, or SOFR. For a further discussion of interest rate sensitivity, see “Item 11. Quantitative
and Qualitative Disclosures About Market Risk—Interest Rate Risk.”
We are subject to potential environmental liability.
We are subject to a variety
of laws and regulations concerning the protection of health and the environment. The particular environmental laws and regulations that
apply to any given development site vary significantly according to the site’s location and environmental condition, the present
and former uses of the site and the nature of the adjoining properties. Environmental laws and conditions may result in delays, may cause
us to incur substantial compliance and other costs and can prohibit or severely restrict project development activity in environmentally-sensitive
regions or areas. Although the environmental investigations conducted by local PRC environmental authorities have not revealed any environmental
liability related to our China projects that we believe would have a material adverse effect on our business, financial condition or
results of operations to date, it is possible that these investigations did not reveal all environmental liabilities and that there are
material environmental liabilities of which we are unaware. We cannot assure you that future environmental investigations will not reveal
material environmental liability. Also, we cannot assure you that the PRC, United States, Malaysian or U.K. governments will not change
the existing laws and regulations or impose additional or stricter laws or regulations, the compliance of which may cause us to incur
significant capital expenditure. See “Item 4. Information on the Company—B. Business Overview—Environmental Matters.”
Our business expansion and
business diversification require proper allocation of our management resources and qualified employees.
In recent years, we expanded
our operations into the U.S., Malaysia and the U.K. while also expanding our operations in China. Such expansion, with more diversified
business focuses in terms of market regions and types of business, demand proper allocation of our management resources. In addition,
our Malaysia acquisition which involves land reclamation activities, our acquisitions of Beijing Ruizhuo Xitou Development Co., Ltd.,
or “Xitou,” Beijing Ruizhuo Xichuang Technology Development Co., Ltd., or “Xichuang,” and Beijing I-Journey Science
and Technology Development Co., Ltd., or “I-Journey,” which extends the Group’s business to providing real estate and
property management related technology services, in which we have no prior experience and which presents risks we have not previously
encountered or dealt with, may require additional skill sets on the part of our management. If our management fails to satisfy these
increased demands, we may not be able to carry out our business expansion and project development successfully. In addition, if we are
unable to recruit or retain a sufficient number of qualified employees for the continuation and expansion of our business, our business
and prospects may be adversely affected.
New lines of business or new products and services
may subject us to additional risks.
From time to time, we may
implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and
uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. There may be license
and compliance requirements regarding new lines of business, including special requirements for foreign-invested enterprises. The development
and marketing of new lines of business or new products and services could distract our management from our core business. In addition,
we may invest significant time and resources into these new lines of business or new products and services. Initial timetables for the
introduction and development of new lines of business or new products and services may not be achieved and price and profitability targets
may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences,
may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business
or new product or service could have a significant impact on the effectiveness of our system of internal control. Particularly, we cannot
assure that our investment in certain technology development activities, including our development of smart home technology products,
cloud-based enterprise resource planning software and online property sales platform will be successful or have positive impacts on our
business. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or
services could have a material adverse effect on our business, results of operations and financial condition.
Failure
to maintain the security of our information and technology networks, including personally identifiable and customer information, as well
as uncertainties with respect to the interpretation and implementation of cybersecurity review procedures and proprietary business information,
could significantly adversely affect us.
In China, the government
is still ramping up regulations with regard to personal information protection. On October 1, 2020, the Information Security Technology—Personal
Information Security Specification (GB/T 35273-2020), or the “2020 Specification,” took effect. Although the 2020 Specification
is a recommended guideline, and it is not enforceable by law, the authority will use this standard to evaluate our compliance with China’s
legal guidelines and regulations regarding personal information protection. On August 20, 2021, the Standing Committee of the National
People’s Congress, or “SCNPC,” promulgated the Personal Information Protection Law of the PRC, or the “Personal
Information Protection Law,” which integrates various rules with respect to personal information rights and privacy protection.
The Personal Information Protection Law, which took effect on November 1, 2021, seeks to protect the personal information rights and
interests, regulating the processing of personal information, ensuring the orderly and free flow of personal information in accordance
with the law and promoting the reasonable use of personal information. The Personal Information Protection Law applies to the processing
of personal information within China, as well as certain personal information processing activities conducted by entities outside China
for natural persons within China, including those for the provision of products and services to natural persons within China or for the
analysis and assessment of acts of natural persons within China. The Personal Information Protection Law provides severe punishment for
violations of the regulations relating to the processing of personal information.
The relevant regulatory authorities
in China continue to monitor websites and networks in relation to the protection of personal data, privacy and information security,
and may impose additional requirements from time to time. For example, the SCNPC promulgated the PRC Data Security Law, which took effect
on September 1, 2021. The Data Security Law provides for a security review procedure for data that may affect national security. Furthermore,
on December 28, 2021, the Cyberspace Administration of China, or the “CAC,” the NDRC, the Ministry of Industry and Information
Technology, or the “MIIT,” and several other administrations jointly published the Measures for Cybersecurity Review, which
became effective on February 15, 2022. The Measures for Cybersecurity Review provide that certain operators of critical information infrastructure
engaged in the purchasing of network products and services, and certain network platform operators carrying out data processing activities
that affect or may affect national security, must apply with the Cybersecurity Review Office to conduct a cybersecurity review. On July
30, 2021, the State Council issued the Security Protection Regulations for Critical Information Infrastructure, or the “Regulation
for CII,” which became effective on September 30, 2021. The Regulation for CII specifies that CII refers to important Internet
facilities and information systems in significant industries, such as public communication, information services, energy, traffic, hydraulic
engineering, financing, public services, e-government, national defense technology, and other facilities that once destroyed, lost function
or data leakage, may seriously endanger national security, national economy, people’s livelihood, and public interest. However,
the scope of operators of “critical information infrastructure” under the current regulatory regime remains unclear and is
subject to further decisions of competent PRC regulatory authorities.
On November 14, 2021, the
CAC published a draft version of the Administrative Measures for Internet Data Security, or the “Draft Measures for Internet Data
Security,” which propose that data processors conducting the following activities would also need to apply for cybersecurity review
procedures: (i) mergers, reorganizations or divisions of Internet platform operators that have acquired a large number of data resources
related to national security, economic development or public interests that affect or may affect national security; (ii) overseas listings,
if the data processor processes an amount of personal information relating to over one million users; (iii) listings in Hong Kong which
affect or may affect national security; or (iv) other data processing activities that affect or may affect national security. There currently
is no public timetable as to when or whether the Draft Measures for Internet Data Security will be enacted. As such, substantial uncertainties
still exist with respect to the potential timing of obligations, the regulation’s final content, as well as its interpretation
and implementation. Regardless of such uncertainties, if in the future these or other regulations were to require us to perform a cybersecurity
review, then any failure to obtain approval or clearance from the regulatory authorities with respect to our cybersecurity review could
materially constrain our liquidity and have a material adverse impact on our business operations and financial results, especially if
any additional capital or financing were to be needed.
The PRC regulatory authorities
have also undertaken recent efforts to enhance the supervision and regulation of cross-border data transmissions. On July 7, 2022, the
CAC promulgated the Measures for the Security Assessment of Cross-border Data Transmission, which came into effect on September 1, 2022
and regulate security assessment procedures with respect to cross-border data transfers by data processors of important data and personal
information that is collected and generated during operations within the PRC. The Measures for the Security Assessment of Cross-border
Data Transmission provide a six-month transition period (beginning from the regulation’s effective date) for data processors to
rectify their compliance with the security assessment requirements with regard to cross-border data transfers carried out before these
measures take effect (September 1, 2022). On March 22, 2024, the CAC issued the long-awaited Provisions on Facilitating and Regulating
Cross-Border Data Transfers, effective as of the same date. The CAC simultaneously updated the Guidelines to Applications for
Security Assessment of Outbound Data Transfers and the Guidelines for Filing the Standard Contract for Outbound Cross-Border Transfer
of Personal Information to harmonize the current rules applicable to cross-border data transfers. These regulations benefit many
multinational companies that are involved in the transfer of personal information and other data out of China. The essence of these regulations
consists of exceptions to existing data compliance requirements (such as the need to conduct “security assessments” and to
complete “standard contracts”) set out under pre-existing laws and regulations concerning outbound cross-border data transfers.
Regulatory requirements on
cybersecurity and data privacy are constantly evolving and can be subject to varying interpretations or significant changes, resulting
in uncertainties about the scope of our responsibilities in that regard. In particular, the Draft Measures for Internet Data Security
are still uncertain and in a draft state, and we cannot assure that, once implemented (if they are ever implemented), relevant governmental
authorities will not interpret or implement this and other laws or regulations in ways that may negatively affect us. Security breaches
and other disruptions of our information and technology networks could compromise our information and expose us to liability, reputational
harm and significant remediation costs, which could cause material harm to our business and financial results. In the ordinary course
of our business, we collect and store sensitive data, including our proprietary business information, and information relating to our
customers and information of our employees, contractors and vendors, in our networks. Despite our security measures, and those of our
third-party service providers, our information technology and infrastructure may be vulnerable to attacks by third parties or breached
due to employee error, malfeasance or other disruptions. A significant theft, loss, corruption, exposure, fraudulent use or misuse of
customer, employee or other personally identifiable or proprietary business data, noncompliance with our contractual or other legal obligations
regarding such data could result in significant remediation and other costs, fines, litigation or regulatory actions against us. Such
an event could additionally disrupt our operations, harm our relationships with contractors and vendors, damage our reputation, result
in the loss of a competitive advantage, which could adversely affect our business, revenue, competitive position and investor confidence.
Additionally, we rely on third parties to support our information and technology networks, and as a result have less direct control over
our data and information technology systems. These third parties are also vulnerable to security breaches and compromised security systems,
for which we may not be indemnified and which could materially adversely affect us.
We may fail to obtain or
maintain, or may experience material delays in obtaining, necessary government approvals for any major property development, which will
adversely affect our business.
The real estate industry
in China is strictly regulated by the PRC government. Property developers in China must abide by various laws and regulations, including
implementation rules implemented by local governments to enforce these laws and regulations. Before commencing, and during the course
of, development of a property project, we need to apply for or renew various licenses, permits, certificates and approvals, including
but not limited to, land use rights certificates, construction site planning permits, construction work planning permits, construction
permits, pre-sale permits and completion acceptance certificates. We need to satisfy various requirements to obtain these approval certificates
and permits, and to meet specific conditions in order for the government authorities to renew relevant approval certificates and permits.
We cannot guarantee that we will not encounter serious delays or difficulties in the future. Some of our subsidiaries were not in compliance
with certain construction or pre-sale PRC laws and regulations, such as commencing construction works and pre-sale before obtaining the
requisite approvals or permits. Although we have improved our internal control procedures, we cannot guarantee that we will be able to
adapt to new rules and regulations that may come into effect from time to time with respect to the property industry or that we will
not encounter material delays or difficulties in fulfilling the necessary conditions to obtain and/or renew all necessary certificates
or permits for our operations in a timely manner, or at all, in the future. In the event that we fail to obtain the necessary governmental
approvals for any of our major property projects, or a serious delay occurs in the government’s examination and approval process,
we may not be able to maintain our development schedule and our business and cash flows may be adversely affected.
Moreover, as the real estate
industry is closely monitored by the PRC government, we anticipate that new policies will be promulgated from time to time in relation
to the conditions for issuance or renewal of such approvals, licenses or permits. We cannot guarantee that such new policies will not
present unexpected obstacles toward our ability to obtain or renew the required permits, licenses and certificates or that we will be
able to overcome these obstacles in a timely manner, or at all. Loss of or failure to renew our permits, licenses and certificates may
stall the progress of our major property development projects.
If (i) we or our subsidiaries,
do not receive or maintain any permission or approval required of us or our subsidiaries, (ii) we or our subsidiaries inadvertently concluded
that certain permissions or approvals have been acquired or are not required, or (iii) applicable laws, regulations, or interpretations
thereof change, and we or our subsidiaries become subject to the requirement of additional permissions or approvals in the future, we
may have to expend significant time and costs to procure them. If we are unable to do so, in a timely manner or otherwise, we may become
subject to sanctions imposed by the PRC regulatory authorities, which could include fines, penalties, and proceedings against us, and
other forms of sanctions, and our ability to conduct our business, invest in mainland China as foreign investments or accept foreign
investments, or list on a U.S. or other overseas exchange may be restricted, our business, reputation, financial condition, and results
of operations may be materially and adversely affected, and the value of our ADSs could significantly decline or become worthless.
Regulations in the United
States could increase the cost and limit the availability of our project development in these jurisdictions and adversely affect our
business or financial results.
As we expand our business
in the U.S., we will continue to be subject to extensive and complex regulations in these jurisdictions that affect land development
and home construction, including zoning, density restrictions, building design and building standards, as well as environmental laws.
These regulations often provide broad discretion to the administering governmental authorities as to the conditions we must meet prior
to being approved, if approved at all. We are subject to determinations by these authorities as to the adequacy of water and sewage facilities,
roads and other local services. New housing developments may also be subject to various assessments for public improvements. Any of these
regulatory issues can limit or delay construction and increase our operating costs. We are also subject to a variety of local, state
and/or federal laws and regulations concerning protection of health, safety and the environment. These matters may result in delays,
may cause us to incur substantial compliance, remediation, mitigation and other costs or subject us to costs from fines, penalties and
related litigation. These laws and regulations can also prohibit or severely restrict development and homebuilding activity in environmentally
sensitive areas.
Increases in the price of
raw materials or labor costs may increase our cost of sales and reduce our earnings.
We outsource the design and
construction of our projects under development to third-party service providers. Our third-party contractors are responsible for providing
labor and procuring almost all of the raw materials used in our project developments. Our PRC construction contracts typically provide
for fixed or capped payments, but the payments are subject to changes in PRC government-suggested prices for certain raw materials we
use, such as steel and cement. In addition, China’s overall economy and the average wage in China have increased in recent years
and are expected to grow in the near future. The average wage level for the employees has also increased for the past periods. Any increase
in raw materials costs, labor costs or other costs which may result in adjustments in payments under any of our construction contracts
could result in an increase in our construction costs. In the event that the price of any raw materials, including cement, concrete blocks
and bricks, or labor cost increase in the future, such increase could be passed on to us by our contractors, and our construction costs
would increase accordingly. Passing such increased costs to our customers may result in reduced sales and delay our ability to complete
sales for our projects. Any input cost increase could reduce our earnings to the extent we are unable to pass these increased costs to
our customers.
Retail and commercial investment
properties and properties held for sale are generally illiquid investments and the lack of alternative uses of such properties could
limit our ability to respond to changes in the performance of our properties.
As of December 31, 2023,
we had approximately 86,951, 116,288, 12,187, 18,936 and 3,904 square meters of retail investment properties in Zhengzhou, Xi’an,
Changsha, Chengdu and Kunshan, in China, and approximately 28,090 square feet of retail investment properties in New York, respectively.
As of December 31, 2023, we also had four projects under construction at which we plan to develop commercial property for lease with
a planned GFA of approximately 203,270 square meters. We anticipate that we may prudently and gradually increase our retail and commercial
investment properties as appropriate opportunities arise in the future. Any form of real estate investment is difficult to liquidate
and, as a result, our ability to sell our properties in response to changing economic, financial and investment conditions is limited.
In addition, we may also need to incur operating and capital expenditures to manage and maintain our properties, or to correct defects
or make improvements to these properties before selling them. We cannot assure you that we can obtain financing at a reasonable cost
for such expenditures, or at all.
Furthermore, aging of retail
and commercial investment properties or properties held for sale, changes in economic and financial conditions or changes in the competitive
landscape in the PRC or U.S. property markets, may adversely affect the amounts of rentals and revenue we generate from, as well as the
fair value of, these properties. However, our ability to convert any of these properties to alternative uses is limited as such conversion
requires extensive governmental approvals in the PRC or may require zoning or other approvals in the United States and involves substantial
capital expenditures for the purpose of renovation, reconfiguration and refurbishment. We cannot assure you that such approvals and financings
can be obtained when needed. These and other factors that impact our ability to respond to adverse changes in the performance of our
retail and commercial investment properties, as well as properties held for sale, may adversely affect our business, financial condition,
cash flow and results of operations.
We may be adversely affected
by material issues that affect our relationships or business ventures with our joint venture and associated company partners.
We have partnered with a
number of business partners and established joint ventures with third parties and may continue to do so in the future. The performance
of such business ventures has affected, and will continue to affect, our results of operations and financial position. We and our business
venture partners provided capital to our jointly established project companies in proportion to our shareholding percentages in order
to fund such project companies’ land acquisition efforts and working capital requirements. Once these project companies commence
pre-sale and generate cash flow, they will repay such capital to us on demand. Therefore, the timing of such business ventures’
capital requirements, the financial performance of these business ventures and their ability to repay may materially and adversely affect
our results of operations. With respect to our subsidiaries with minority interest holders, our consolidated financial results may be
directly impacted and the profit attributable to our Group may be diluted. With respect to joint ventures and associates, we generally
expect to incur share of loss in such joint ventures or associates until their respective development of property projects completes
and starts to contribute revenue. As of December 31, 2021, 2022 and 2023, we had a total of 16, 14 and 14 joint ventures, respectively.
We may engage in joint ventures,
which could result in unforeseen expenses or disruptive effects on our business.
From time to time, we have
engaged and may consider engaging in joint ventures with other businesses to develop a property. Any joint venture that we determine
to pursue will be accompanied by a number of risks. We may not be in a position to exercise sole decision-making authority regarding
the joint ventures. We may not be able to control the quality of products produced by the joint venture. Depending on the terms of the
joint venture agreement, we may require the consent of our joint venture partners for the joint venture to take certain actions, such
as making distributions to the partners. A joint venture partner may encounter financial difficulties and become unable to meet obligations
with regard to funding of the joint venture. In addition, our joint venture partners and the joint ventures themselves may hold different
views or have different interests from ours, and therefore may compete in the same market with us, in which case our interest and future
development may be materially adversely affected. Further, since we may not have full control over the business and operations of our
joint ventures and associated companies, we cannot assure that they will be in strict compliance with all applicable PRC laws and regulations.
We cannot assure you that we will not encounter problems with respect to our joint ventures and associated companies or our joint ventures
and associated companies will not violate PRC laws and regulations, which may have an adverse effect on our business, results of operation
and financial condition.
Any future investments or
acquisitions could expose us to unforeseen risks or place additional strain on the management and other resources.
As part of our business strategy,
we regularly evaluate investments in, or acquisitions of, subsidiaries, joint ventures, and we expect that we will continue to make such
investments and acquisitions in the future. Any potential future acquisition may be accompanied by a number of risks, including risks
relating to the evolving legal landscape in China. An acquired business may underperform relative to expectations or may expose us to
unexpected liabilities. Acquisitions of entities that own real estate may involve risks in addition to the risks inherent in a real estate
acquisition, because the acquisition of an entity generally includes all of the liabilities of the entity — known and unknown,
fixed and contingent — rather than only the liabilities related to the real estate. These liabilities, which could be material,
may include liabilities not disclosed by the seller of the entity or not discovered during our due diligence. In addition, the integration
of any acquisition could require substantial management attention and resources. If we were unable to successfully manage the integration
and ongoing operations, or hire and retain additional personnel necessary for the running of the expanded business, the results of our
operations and financial performance could be adversely affected.
Acquisitions may result in
the incurrence and inheritance of debts and other liabilities, assumption of potential legal liabilities in respect of the acquired businesses,
and incurrence of impairment charges related to goodwill and other intangible assets, any of which could harm our businesses, financial
condition and results of operations. In particular, if any of the acquired businesses fails to perform as we expect, we may be required
to recognize a significant impairment charge, which may materially and adversely affect our businesses, financial condition and results
of operations. As a result, there can be no assurance that we will be able to achieve the strategic purpose of any acquisition, the desired
level of operational integration or our investment return target.
Our failure to successfully
manage our business expansion would have a material adverse effect on our results of operations and prospects.
Our expansion has created,
and will continue to place, substantial demand on our resources. Managing our growth and integrating the acquired businesses will require
us to, among other things:
| · | comply
with the laws, regulations and policies applicable to the acquired businesses, including
obtaining timely approval for the real estate construction as required under the PRC law; |
| · | maintain
adequate control on our business expansion to prevent, among other things, project delays
or cost overruns; |
| · | manage
relationships with employees, customers and business partners during the course of our business
expansion; |
| · | attract,
train and motivate members of our management and qualified workforce to support successful
business expansion; |
| · | access
debt, equity or other capital resources to fund our business expansion, which may divert
financial resources otherwise available for other purposes; |
| · | divert
significant management attention and resources from our other businesses; and |
| · | strengthen
our operational, financial and management controls, particularly those of our newly acquired
subsidiaries, to maintain the reliability of our reporting processes. |
Any difficulty meeting the
foregoing or similar requirements could significantly delay or otherwise constrain our ability to implement our expansion plans or result
in failure to achieve the expected benefits of the combination or acquisition or write-offs of acquired assets or investments, which
in turn would limit our ability to increase operational efficiency, reduce costs or otherwise strengthen our market position. Failure
to obtain the intended economic benefits from the business expansion could adversely affect our business, financial condition, results
of operations and prospects. In addition, we may also experience mixed results from our expansion plans in the short term.
Regulations in the PRC may
make it more difficult for us to pursue growth through acquisitions.
A number of PRC laws and
regulations have established procedures and requirements that could make merger and acquisition activities in China by foreign investors
more time-consuming and complex, including the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors,
or the “M&A Rules,” which became effective on September 8, 2006 and was amended on June 22, 2009, and the Implementing
Rules Concerning Security Review on the Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, or the “Security
Review Rules,” issued by MOFCOM in August 2011. These laws and regulations impose requirements in some instances that MOFCOM must
be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In
addition, the Anti-Monopoly Law of PRC requires that the anti-monopoly enforcement agency be notified in advance of any concentration
of undertaking if certain thresholds are triggered. On February 7, 2021, the Anti-Monopoly Committee of the State Council published the
Anti-Monopoly Guidelines for the Internet Platform Economy Sector, which stipulates that any concentration of undertakings involving
variable interest entities is subject to anti-monopoly review. Moreover, the Security Review Rules specify that mergers and acquisitions
by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign
investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict
review by the MOFCOM, and prohibit any attempt to bypass a security review, including by structuring the transaction through a proxy
or contractual control arrangement. On December 19, 2020, the NDRC and the MOFCOM jointly issued the Measures for the Security Review
for Foreign Investment, which took effect on January 18, 2021. These measures set forth the provisions concerning the security review
mechanism on foreign investment, including, among others, the types of investments subject to review, and the review scopes and procedures.
In the future, we may grow our business by acquiring complementary businesses. On January 22, 2024, the Provisions of the State Council
on Filing Thresholds for Business Concentrations came into effect, which raised the filing threshold concerning the revenues of parties
participating in business concentrations to be consistent with the current Anti-Monopoly Law of PRC, and, to a certain degree, to alleviate
the burdens of PRC regulatory compliance applicable to acquisition activities. Complying with the requirements of the relevant regulations
to complete such transactions could be time consuming, and any required approval processes, including approval from the MOFCOM and other
PRC government authorities, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand
our business or maintain our market share. We believe that our business is not in an industry related to national security. However,
we cannot preclude the possibility that MOFCOM or other government agencies may publish interpretations contrary to our understanding
or broaden the scope of such security review in the future. Although we have no current plans to do so, we may elect to grow our business
in the future in part by directly acquiring complementary businesses in China.
The approval of the CSRC,
may be required if we intend to do a follow-on equity offering in the future, and, if required, we cannot predict whether we will be
able to obtain such approval.
The M&A Rules require
an overseas special purpose vehicle, or “SPV,” formed for listing purposes through acquisitions of PRC domestic companies
and controlled by PRC persons or entities to obtain the approval of the China Securities Regulatory Commission, or the “CSRC,”
prior to the listing and trading of such SPV’s securities on an overseas stock exchange. The interpretation and application of
the regulations remain unclear, and our follow-on offering of securities may be subject to approval of the CSRC. If the CSRC approval
is required, it is uncertain whether we can or how long it will take us to obtain the approval and any failure to obtain or delay in
obtaining the CSRC approval for such future offering would subject us to sanctions imposed by the CSRC or other PRC regulatory authorities,
which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside
of China and other forms of sanctions that may materially and adversely affect our business, financial condition and results of operations.
In addition, on February
17, 2023, the CSRC promulgated the Overseas Listing Trial Measures and five relevant guidelines on the application of the Regulatory
Rules, which took effect on March 31, 2023, requiring the overseas securities offerings or listings of Chinese domestic companies to
be filed with the CSRC. The Overseas Listing Trial Measures clarify the scope of overseas offerings or listings by Chinese domestic companies
which are subject to the filing and reporting requirements thereunder, and provide, among other things, that Chinese domestic companies
that have already directly or indirectly offered and listed securities in overseas markets prior to the effectiveness of the Overseas
Listing Trial Measures must fulfill their filing obligations and report relevant information to the CSRC within three working days after
conducting a follow-on securities offering on the same overseas market, and follow the relevant reporting requirements within three working
days upon the occurrence and public disclosure of any specified circumstances provided thereunder, including any (i) change of control;
(ii) investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities; (iii) change
of listing status or transfer of listing segment; or (iv) voluntary or mandatory delisting. In addition, where the main business of an
issuer undergoes a material change after an overseas offering and listing, and is therefore beyond the scope of the business stated in
the original filing documents, such issuer shall follow the relevant reporting requirements within three working days after occurrence
of such changes.
As of the date of this annual
report, we are not required by the CSRC to make the above filings. However, if we conduct a new issuance of securities on the stock market,
we are required by the Overseas Listing Trial Measures to fulfill relevant filing obligations within three working days upon the competition
of the new securities offering. If we are found in violation of these provisions or measures, the competent Chinese authorities may impose
administrative regulatory measures, such as orders for correction, warnings, and fines, and may subject us to legal liability in accordance
with PRC laws and regulations, which could include fines and penalties on our operations in the Chinese mainland, and other forms of
sanctions that may materially and adversely affect our business, financial condition and results of operations.
Our development plan may
be adversely affected in the event that relocation issues related to government housing expropriations are not successfully settled by
the relevant PRC governmental authorities.
We acquire property for development
through bidding, auctions and listing procedures held by the government or through acquisitions of third parties. Some of the property
we acquire from the government may have been made available through expropriation. On January 21, 2011, the PRC State Council issued
the Regulations on the Expropriation and Compensation of Houses on State-owned Land, which provides that government entities at the city
and county level are responsible for overseeing housing expropriation and compensation within their respective administrative regions.
The regulations mandate that a compensation agreement be entered into between the relevant housing expropriation department and the entities
or individuals whose houses have been expropriated addressing, among others things, the mode of payment and the amount of compensation,
the period of payment, the removal expenses, temporary placement or transitional housing expenses, losses from the closure of business
operations, the time period within which the entities or individuals must vacate the expropriated premises, the type of transitional
accommodation and the period of transition. The compensation payable may not be less than the market value of property of a similar nature
as of the date of issuance of the expropriation notice. Under the regulations, property developers are prohibited from participating
in the relocation arrangements. Given the fact that the completion of the relocation procedures is the condition precedent for the relevant
PRC governmental authorities to grant land use rights, any failure of the PRC governmental authorities in handling the relocation issues
may cause substantial delays in the granting process of land use rights. If we cannot obtain the land use rights from the relevant governmental
authorities in time, our development plan may be delayed, and we may not be able to complete the development and sell the property according
to plan. This will, in turn, adversely affect our business operations.
We do not have insurance to cover potential losses
and claims.
We do not maintain insurance
policies for properties that we have delivered to our customers, and we maintain only limited insurance coverage against potential losses
or damages with respect to our properties in the PRC before their delivery to customers. Although we require our contractors to carry
insurance, we believe most of our contractors do not comply with this requirement. Our contractors may not be sufficiently insured themselves
or have the financial ability to absorb any losses that arise with respect to our projects or pay our claims. In addition, there are
certain types of losses, such as losses due to earthquakes, which are currently uninsurable in China. While we believe that our practice
is in line with the general practice in the PRC property development industry, there may be instances when we will have to internalize
losses, damages and liabilities because of the lack of insurance coverage, which may in turn adversely affect our financial condition
and results of operations. In addition, while we carry limited insurance on our operations in the United States, Malaysia and the U.K.,
such insurance may not be adequate to compensate us for any losses, damages and liabilities we might incur with regard to our properties.
We may suffer a penalty
or even forfeit land to the PRC government if we fail to comply with procedural requirements applicable to land grants from the government
or the terms of the land use rights grant contracts.
According to the relevant
PRC laws and regulations, if we fail to develop a property project according to the terms of the land use rights grant contract, including
those relating to the payment of land premiums, specified use of the land and the time for commencement and completion of the property
development, the PRC government may issue a warning, may impose a penalty or may order us to forfeit the land. Specifically, under current
PRC laws and regulations, if we fail to pay land premiums in accordance with the payment schedule set forth in the relevant land use
rights grant contract, the relevant PRC land bureau may issue a warning notice to us, impose late payment penalties or even require us
to forfeit the related land to the PRC government. The late payment penalties are usually calculated based on the overdue days for the
land premium payments. Furthermore, if we fail to commence development within one year after the commencement date stipulated in the
land use rights grant contract, the relevant PRC land bureau may issue a warning notice to us and impose an idle land fee on the land
of up to 20% of the land premium. If we fail to commence development within two years, then upon approval by the competent local branch
of the PRC government, the land may be subject to forfeiture to the PRC government without any compensation. Even if the commencement
of the land development is compliant with the land use rights grant contract, if the developed GFA on the land is less than one-third
of the total GFA of the project that should have been under construction and development or the total capital invested is less than one-fourth
of the total investment of the project and the suspension of the development of the land continues for more than one year without government
approval, the land will also be treated as idle land and be subject to penalty or forfeiture.
We cannot assure you that
circumstances leading to significant delays in our own land premium payments or development schedules or forfeiture of land will not
arise in the future. If we pay a substantial penalty, we may not be able to meet pre-set investment targeted returns for a given project
and our financial conditions could be adversely affected. If any of our land is forfeited, we will not only lose the opportunity to develop
the property projects on such land, but may also lose a significant portion of the investment in such land, including land premium deposits
and the development costs incurred.
Any non-compliant GFA of
our uncompleted and future property developments will be subject to governmental approval and additional payments or even revocation
of qualification certificate.
The local government authorities
inspect property developments after their completion and issue the completion acceptance certificates if the developments are in compliance
with the relevant laws and regulations. If the total constructed GFA of a property development exceeds the GFA originally authorized
in the relevant land grant contracts or construction permit, or if the completed property contains built-up areas that do not conform
with the plan authorized by the construction permit, the property developer may be required to pay additional amounts or take corrective
actions with respect to such non-compliant GFA before a completion acceptance certificate can be issued to the property development.
Furthermore, if the total constructed GFA of a property development exceeds the constructed GFA limitation specified in the real estate
development qualification obtained by the property developer, the property developer may be fined up to RMB100,000, or even have its
qualification certificate and business license revoked.
We obtained completion acceptance
certificates for all of our completed properties as of December 31, 2023. However, we cannot be certain that local government authorities
will not determine that the total constructed GFA upon completion of our existing projects under development or any future property developments
exceed the relevant authorized GFA. Any such non-compliance could lead to additional payments or penalty, which would adversely affect
our financial condition. We have not incurred material amounts of any such payments or penalties since the founding of our company.
We may not be able to continue
obtaining qualification certificates, which will adversely affect our business.
Real estate developers in
the PRC must obtain a formal qualification certificate in order to carry on a property development business in the PRC. According to
the PRC regulations issued on the qualifications of property developers, a newly established property developer must first apply for
a temporary qualification certificate with a one-year validity, which can be renewed for not more than two years. If, however, the newly
established property developer fails to commence a property development project within the one-year period during which the temporary
qualification certificate is in effect, it will not be allowed to renew its temporary qualification certificate. All qualification certificates
are subject to inspection on an annual basis and shall be renewed upon expiration. Under government regulations, developers must fulfill
all statutory requirements before they may obtain or renew their qualification certificates. In accordance with the provisions of the
rules on the administration of qualifications, the real estate developer qualifications are classified into four classes and the approval
system for each class is tiered. A real estate developer may only engage in the development and sale of real estate within the scope
of its qualification certificate. See “Item 4. Information on the Company — B. Business Overview — Regulation —
China — Regulations on Qualifications of Developer.”
There can be no assurance
that some of our project companies that are in the process of applying for or renewing proper qualification certificates will be able
to obtain such certificates on a timely basis to commence their planned real estate projects development on schedule. There can be no
further assurance that we and our project companies will continue to be able to extend or renew the qualification certificates or be
able to successfully upgrade the current qualification class to a higher qualification. If we or our project companies are unable to
obtain or renew qualification certificates, the PRC government will refuse to issue pre-sale and other permits necessary for the conduct
of the property development business, and our results of operations, financial condition and cash flows will be adversely affected. In
addition, if any of our project companies engages in the development and sale of real estate outside the scope of its qualification certificate,
it may be ordered to rectify such conduct within a prescribed period, be fined up to RMB100,000, or even have its qualification certificate
and business license revoked.
Our failure to assist our
customers in applying for property ownership certificates in a timely manner may lead to compensatory liabilities to our customers and
our reputation and results of operations may be thus adversely affected.
We are statutorily required
to assist our customers in their application process for property ownership certificates within 90 days after delivery of property, or
such other period contracted with our customers, including in the way of submitting required materials to the real estate administration
of the place where the house is located within 60 days from the day of delivery, passing various governmental clearances, formalities
and procedures. If we failed to submit the required materials for property right registration within such period, we may be given a disciplinary
warning and be ordered to take remedial measures within specified time limit, or be fined not less than RMB20,000 but not more than RMB30,000.
Besides, under our typical sales contract, we are liable for any delay in the submission of the required documents as a result of our
failure to meet such requirements, and are required to compensate our customers for delays. In the case of delays of submission of required
documents, we are required under contracts with our customers to pay compensation to our customers and our reputation and results of
operations may be adversely affected.
The property development business is subject
to claims under statutory quality warranties.
Under PRC law, all property
developers in the PRC must provide certain quality warranties for the properties they construct or sell. We are required to provide these
warranties to our customers. Generally, we receive quality warranties from our third-party contractors with respect to our property projects.
If a significant number of claims were brought against us under our warranties and if we were unable to obtain reimbursement for such
claims from third-party contractors in a timely manner or at all, or if the money retained by us to cover our payment obligations under
the quality warranties was not sufficient, we could incur significant expenses to resolve such claims or face delays in remedying the
related defects, which could in turn harm our reputation, and materially adversely affect our business, financial condition and results
of operations.
We may become involved in
legal and other proceedings from time to time and may suffer significant liabilities or other losses as a result.
We have been, in the past,
and may be, in future, involved in disputes with various parties relating to the acquisition of land use rights, the development and
sale of our properties or other aspects of our business and operations. These disputes may lead to legal or other proceedings and may
result in substantial costs and diversion of resources and management’s attention. Disputes and legal and other proceedings may
require substantial time and expense to resolve, which could divert valuable resources, such as management time and working capital,
delay our planned projects and increase our costs. Third parties that are found liable to us may not have the resources to compensate
us for our incurred costs and damages. We could also be required to pay significant costs and damages if we do not prevail in any such
disputes or proceedings. In addition, we may have disagreements with regulatory bodies in the course of our operations, which may subject
us to administrative proceedings and unfavorable decrees that result in pecuniary liabilities and cause delays to our property developments.
On December 19, 2023, we received subpoenas from the SEC in connection with certain loans and compensations. Any unfavorable judgment
in our current legal proceedings or any involvement in further legal proceedings or disputes may materially and adversely affect our
business, financial condition and results of operations. See “Item 8. Financial Information—A. Consolidated Statements and
Other Financial Information—Legal Proceedings.”
The relevant PRC tax authorities
may challenge the basis on which we have been paying our land appreciation tax obligations and our results of operations and cash flows
may be affected.
Under PRC laws and regulations,
our PRC subsidiaries engaging in property development are subject to land appreciation tax, or “LAT,” which is levied by
the local tax authorities. All taxable gains from the sale or transfer of land use rights, buildings and their attached facilities in
the PRC are subject to LAT at progressive rates ranging from 30% to 60%. Exemptions are available for the sale of ordinary residential
properties if the appreciation values do not exceed certain thresholds specified in the relevant tax laws. Gains from the sale of commercial
properties, luxury residential properties and villas are not eligible for this exemption.
We have accrued LAT payable
on our property sales and transfers in accordance with the progressive rates specified in relevant tax laws, less amounts previously
paid under the levy method applied by relevant local tax authorities. However, provision for LAT requires our management to use a significant
amount of judgment with respect to, among other things, the anticipated total proceeds to be derived from the sale of the entire phase
of the project or the entire project, the total appreciation of project value and the various deductible items. Given the time gap between
the point at which we make provisions for and the point at which we settle the full amount of LAT payable, the relevant tax authorities
may not necessarily agree with our apportionment of deductible expense or other bases on which we calculate LAT. As a result, our LAT
expenses as recorded in our financial statements of a particular period may require subsequent adjustments. If the LAT provisions we
have made are substantially lower than the actual LAT amounts assessed by the tax authorities in the future, our results of operations
and cash flows will be materially and adversely affected. For a range of reasonably possible losses in excess of the amounts we have
accrued for LAT, to the extent such estimates are determinable, see Note 15 of our Consolidated Financial Statements in this report.
Our operations may be affected by the real property
taxes to be imposed by the PRC government.
According to the Interim
Regulations on Real Property Tax of the PRC, or the “Real Property Tax Regulations,” which were amended on January 8, 2011,
real property tax shall be paid by the property owners based on the residual value of real property following a subtraction of 10% to
30% from the original value of the property, and the specific range of subtraction, the tax payment period and the detailed implementing
rules shall be decided or formulated by the local governments of provinces. Although the PRC government has been considering imposing
real property tax on a nationwide scale, most of the provinces have not promulgated any detailed implementing rules about real property
tax or levy the real property tax yet. In another attempt to cool the real estate market, the PRC government has designated Shanghai
and Chongqing as trial regions to impose the real property tax, and in response, on January 27, 2011, both Shanghai and Chongqing implemented
local rules regarding the imposition of real property tax, with these rules taking effect on January 28, 2011, with Chongqing amending
its rules on January 13, 2017. On February 20, 2013, the PRC State Council, in an executive meeting, stated a new policy regarding the
real property tax that the government would select more trial regions for the real property tax that year. However, most provinces still
have not implemented any local rules regarding the imposition of real property tax yet. Real property tax regulations may eventually
be officially implemented at the national level; any such regulation could significantly impact the real estate market. In light of these
developments, we cannot guarantee that our operations will not be adversely affected.
Dividends we receive from
our subsidiaries located in the PRC may be subject to PRC withholding tax.
The Enterprise Income Tax
Law of the PRC, or the “EIT Law,” became effective as of January 1, 2008 and was amended on February 24, 2017 and December
29, 2018, and the Implementation Rules for the EIT Law issued by the PRC State Council became effective as of January 1, 2008
and was amended on April 23, 2019. The EIT Law provides that a maximum income tax rate of 20% may be applicable to dividends payable
to non-PRC investors that are “non-resident enterprises,” to the extent such dividends are derived from sources within the
PRC, and the State Council has reduced such rate to 10% through the Implementation for the EIT Law. We are a Cayman Islands holding company
and substantially all of our income may be derived from dividends we receive from our PRC subsidiaries. Thus, dividends paid to us by
our subsidiaries in China may be subject to the 10% income tax if we are considered a “non-resident enterprise” under the
EIT Law. If we are required under the EIT Law to pay income tax for any dividends we receive from our PRC subsidiaries, it will materially
and adversely affect the amount of dividends received by us from our PRC subsidiaries.
We may be deemed a PRC resident
enterprise for PRC tax purposes under the EIT Law and be subject to the PRC taxation on our worldwide income.
The EIT Law also provides
that enterprises established outside of China whose “de facto management bodies” are located in China are considered
“resident enterprises” and are generally subject to the uniform 25% corporate income tax rate as to their worldwide income.
Under the Implementation Rules for the EIT Law, “de facto management body” is defined as a body that has material
and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury,
and acquisition and disposition of properties and other assets of an enterprise. Under the Notice on the Issues Regarding Recognition
of Overseas Incorporated Domestically Controlled Enterprises as PRC Resident Enterprises Based on the De Facto Management Body Criteria,
or “Circular 82,” which was retroactively effective as of January 1, 2008 and amended on November 8, 2013, January 29, 2014
and December 29, 2017, an overseas incorporated, domestically-controlled enterprise will be recognized as a PRC resident enterprise if
it satisfies certain conditions. Further, the State Administration of Taxation, or the “SAT,” issued the Administrative
Measures of Enterprise Income Tax of Chinese-controlled Offshore Incorporated Resident Enterprises (Trial), or “Bulletin 45,”
which became effective on September 1, 2011, and was amended on April 17, 2015, June 28, 2016 and June 15, 2018, to provide further guidance
on the implementation of Circular 82. Bulletin 45 clarified certain issues relating to the determination of PRC tax resident enterprise
status, post-determination by administration and the authorities responsible for determining offshore-incorporated PRC tax resident enterprise
status. Bulletin 45 specifies that when provided with a copy of a Chinese tax resident determination certificate issued by the in-charge
tax authorities from an offshore-incorporated PRC tax resident enterprise, the payer should not withhold 10% income tax when paying Chinese-sourced
dividends, interest and royalties to the offshore incorporated PRC tax resident enterprise. However, as Circular 82 and Bulletin 45 only
apply to enterprises incorporated under laws of foreign jurisdictions that are controlled by PRC enterprises or groups of PRC enterprises,
it remains unclear how the tax authorities will determine the location of “de facto management bodies” for overseas
incorporated enterprises that are controlled by individual PRC residents or non-PRC enterprises such as our company. It is still unclear
whether PRC tax authorities would require us to be treated as a PRC resident enterprise. If we are treated as a resident enterprise for
PRC tax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which could have an impact on our
effective tax rate and an adverse effect on our net income and results of operations. Notwithstanding the foregoing, the EIT Law also
provides that, if a PRC resident enterprise already invests in another PRC resident enterprise, the dividends received by the investing
resident enterprise from the invested resident enterprise will be exempt from PRC income tax, subject to certain qualifications. Therefore,
if we are classified as a PRC resident enterprise, the dividends received from our PRC subsidiaries may be exempt from income tax in
China. However, it remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment of an offshore company with
indirect ownership interests in PRC resident enterprises through intermediary holding companies.
Dividends payable by us
to our non-PRC investors and gain on the sale of our ADSs may become subject to taxes under PRC tax laws.
Under the Implementation
Rules for the EIT Law, a PRC income tax rate of 10% is applicable to dividends payable to investors that are “non-resident
enterprises,” which do not have an establishment or place of business in the PRC, or which have such establishment or place of
business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends
have their sources within the PRC. Similarly, any gain realized on the transfer of ADSs by such investors is also subject to 10% PRC
income tax if such gain is regarded as income derived from sources within the PRC. For non-PRC individual investors, under the PRC Individual
Income Tax Law, if we are deemed as a PRC “resident enterprise,” there could be a PRC income tax at a rate of 20% for such
dividends or gains, if such income is considered as having been derived from within China. It is unclear whether dividends we pay with
respect to our ADSs, or the gain you may realize from the transfer of our ADSs, would be treated as income derived from sources within
the PRC and be subject to PRC tax. If we are required under the Implementation Rules for the EIT Law to withhold PRC income tax
on dividends payable to our non-PRC investors that are “non-resident enterprises,” or non-PRC individuals, or if you are
required to pay PRC income tax on the transfer of our ADSs, the value of your investment in our ADSs may be materially and adversely
affected.
Indirect Transfers of Equity
Interests in PRC Tax Resident Enterprises by Non-resident Enterprises May Cause Uncertainty on Tax Liabilities.
On February 3, 2015, the
SAT issued the Circular on issues of enterprise Income Tax on Indirect Transfer of Assets by Non-PRC Resident Enterprise, or “Circular
7,” which extends its tax jurisdiction to transactions involving transfer of other taxable assets through offshore transfer of
a foreign intermediate holding company. In addition, Circular 7 provides clear criteria for assessment of reasonable commercial purposes
and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market.
Circular 7 also brings challenges to both foreign transferor and transferee (or other person who is obligated to pay for the transfer)
of taxable assets. In October 2017, SAT issued the Announcement of the State Administration of Taxation on Issues Concerning the Withholding
of Non-resident Enterprise Income Tax at Source, or “SAT Bulletin 37,” which came into effect on December 1, 2017. The
SAT Bulletin 37 further clarifies the practice and procedure of the withholding of non-resident enterprise income tax. Where a non-resident
enterprise transfers taxable assets indirectly by disposing of the equity interests of an overseas holding company, which is an indirect
transfer, the non-resident enterprise as either transferor or transferee, or the PRC entity that directly owns the taxable assets, may
report such Indirect Transfer to the relevant tax authority. Using a “substance over form” principle, the PRC tax authority
may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose
of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer other than transfer of shares or ADSs
acquired and sold on public markets may be subject to PRC enterprise income tax, and the transferee or other person who is obligated
to pay for the transfer is obligated to withhold the applicable taxes, currently at a rate of 10%. Both the transferor and the transferee
may be subject to penalties under PRC tax laws if the transferee fails to withhold the taxes and the transferor fails to pay the taxes.
We face uncertainties as
to the reporting and other implications of certain past and future transactions that involve PRC taxable assets, such as offshore restructuring,
sale of the shares in our offshore subsidiaries and investments. Our company may be subject to filing obligations or taxed if our company
is transferor in such transactions, and may be subject to withholding obligations if our company is transferee in such transactions,
under Circular 7 or SAT Bulletin 37, or both. However, since Circular 7 specifies that it does not apply if a non-resident enterprise
obtains the proceeds from indirect transfer of Chinese taxable property by trading stocks of a listed foreign enterprise in the open
market, for most of our investors, who either are not enterprises, or are non-resident enterprises but only trade stocks in the open
market, they will not be required to pay tax under Circular 7 or SAT Bulletin 37.
If the value of our brand
or image diminishes, it could have a material adverse effect on our business and results of operations.
We intend to continue promoting
the “Xinyuan” brand in selected cities in our target markets by delivering quality products and attentive real estate-related
services to our customers. Our brand is integral to our sales and marketing efforts. Our continued success in maintaining and enhancing
our brand and image depends to a large extent on our ability to satisfy customer needs by further developing and maintaining the quality
of our services across our operations, as well as our ability to respond to competitive pressures. If we are unable to satisfy customer
needs or if our public image or reputation were otherwise hindered, our business transactions with our customers may decline, which could
in turn adversely affect our results of operations.
We may be required to record impairment charges
in the future.
We
record our real estate properties projects, completed and under development, at the lower of carrying amounts or fair value less selling
costs. In accordance with ASC 360, “Property, Plant and Equipment,” real estate property projects, completed and under development,
are subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized if the carrying amount
of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to be generated by the assets. We have not recognized any fair value losses from our real estate properties projects,
completed and under development. If the projected profitability of a given project deteriorates due to a decline in the pace of unit
sales, a decline in selling prices, or some other factor, such project is reviewed for possible impairment by comparing the estimated
future undiscounted cash flows for the project to its carrying value. If the estimated future undiscounted cash flows are less than the
project’s carrying value, the project is written down to its estimated fair value. If business conditions deteriorate, there is
a potential risk that impairment charges will be recorded, which may have a material adverse effect on our results of operation.
Failure to protect our brand or trademark may
adversely affect our business.
We
own trademarks for “鑫苑” in the form of Chinese characters and our company logo in the PRC, the United
States, the U.K., EU, New Zealand, Australia, Singapore and Korea. We rely on those countries’ intellectual property and anti-unfair
competition laws and contractual restrictions to protect brand name and trademarks. We believe our brand, trademarks and other intellectual
property rights are important to our success. Any unauthorized use of our brand, trademarks and other intellectual property rights could
harm our competitive advantages and business. Monitoring and preventing unauthorized use are difficult. The measures we take to protect
our intellectual property rights may not be adequate. Furthermore, the application of laws governing intellectual property rights in
China and abroad is uncertain and evolving, and could involve substantial risks to us. If we are unable to adequately protect our brand,
trademarks and other intellectual property rights, our reputation may be harmed and our business may be adversely affected.
In the PRC, the registration
and protection of a company’s corporate name is regional and limited to its related industry. Although we have registered our corporate
name “Xinyuan” in certain provinces where we operate, we cannot prevent others from registering the same corporate name in
other provinces or in other industries. If another company is the first to register “Xinyuan” as its corporate name in a
province other than Beijing, Tianjin, Henan Province, Shandong Province, Jiangsu Province, Anhui Province, Sichuan Province, Hunan Province,
and Shaanxi Province or in another industry, we will have to adopt another corporate name if we plan to enter that market or industry.
Moreover, the use of “Xinyuan” by another company may lead to confusion in the market place and reduce the value of our brand
name.
We
may be subject to additional payments of statutory employee benefits.
According to PRC laws and
local regulations, we are required to pay various statutory employee benefits, including pensions, housing fund, medical insurance, work-related
injury insurance, unemployment insurance and childbearing insurance to designated government agents for the benefit of all our employees.
Since the Social Insurance Law of the PRC came into effect on July 1, 2011, which was amended on December 29, 2018, the legal framework
regulating employee social insurance has been further strengthened. The requirement of employee benefits has not been implemented consistently
by the local governments in China, given the different levels of economic development in different locations. While we believe that our
PRC subsidiaries have appropriately accrued for and paid statutory employee benefits, we cannot be certain the relevant PRC authorities
may not interpret local requirements differently and require payments of additional employee benefit amounts in the future.
Our
property development schedule may be delayed and our development costs may increase as a result of delayed governmental demolition and
resettlement processes if we were to acquire land requiring demolition of existing properties.
According to the Regulations
on the Expropriation and Compensation of Houses on State-owned Land, local PRC governments are responsible for the expropriation
and compensation of houses on State-owned land and may authorize entities like us to carry out the expropriation and compensation work.
However, in practice, we may be required to pay the corresponding demolition and resettlement costs. If the party subject to expropriation
is not satisfied with the compensation, an administrative reconsideration or an administrative action can be brought, which may delay
the project. Our practice generally has been to acquire land where demolition of existing properties and resettlement of residents is
not required. However, if we were to acquire land where such actions are required, issues in the demolition and resettlement processes
may affect our reputation, increase our costs and delay the pre-sale of the relevant project, which may in turn adversely affect our
business, financial position and operational performance.
To the extent demolition
and resettlement are required in any of our future property developments, we may be required to compensate existing residents an amount
calculated in accordance with local resettlement compensations standards. These local standards may change from time to time without
advance notice. If such compensation standards are changed to increase the compensation we are required to pay, our land acquisition
costs may increase, which could adversely affect our financial condition and results of operations. In respect of projects in which the
resettlement costs are borne by us, if we or the local government fail to reach an agreement over the amount of compensation with any
existing owner or resident, any party may apply to the relevant authorities for a ruling on the compensation amount. Dissenting owners
and residents may also refuse to relocate or even initiate legal proceedings to challenge our land use rights, permits or approvals.
Any administrative process, legal proceedings, resistance or refusal to relocate may delay our future project development schedules,
and an unfavorable final ruling may result in us paying more than the amount required by the local standards or even losing the relevant
certificates, permits or approvals. Any occurrence of the above factors may result in increases in our future development costs or delay
the development schedule of the relevant project which can adversely affect our cash flows, financial condition and results of operations.
We could be adversely affected
by potential violations of the United States Foreign Corrupt Practices Act.
The United States
Foreign Corrupt Practices Act, or “FCPA,” generally prohibits companies and their intermediaries from making improper payments
to public officials for the purpose of obtaining or retaining business. Our internal policies mandate compliance with these anti-corruption
laws. We operate and retain employees in China, the United States, Malaysia and the U.K., and we rely on our management structure, regulatory
and legal resources and effective operation of our compliance program to direct, manage and monitor the activities of our employees.
Despite our training, oversight and compliance programs, we cannot assure you that our internal control policies and procedures always
will protect us from deliberate, reckless or inadvertent acts of our employees or agents that contravene our compliance policies or violate
applicable laws. Our continued expansion in China and the United States could increase the risk of such violations in the future. Expansion
into other countries could expose us to additional anti-bribery or anticorruption laws, and we could face additional risks if expand
our operations into countries where the compliance culture is less robust. Violations of the FCPA, or allegations of such violations,
could disrupt our business and result in a material adverse effect on our results of operations or financial condition.
Risks Related to the Residential Property
Industry in China
Our operations are highly
subject to government policies and regulations in the real estate market.
The real estate industry
in China is subject to constant and drastic policy changes by the PRC government. Since 2010, the PRC government has been tightening
its control of the real estate market with the aim of curbing increases in property prices while also, since early 2015, trying to stimulate
the market to reduce inventory. A number of rules and regulations have been set forth by various PRC authorities concerning the real
estate market. See “Item 4. Information on the Company — B. Business Overview — Regulation — China”
for more details on some of the PRC regulations.
Since
2016, the local governments of several cities in the PRC have implemented a series of measures designed to stabilize the growth of the
property market on a more sustainable level. These tightening measures have affected some of the cities where we operate, including Zhengzhou,
Suzhou, Chengdu, Jinan, Tianjin, Beijing, Xi’an and Changsha. Since 2017, certain local governments in the PRC further implemented
measures to control the increase of property sale prices and stabilize the real estate market. For example, in March 2017, the municipal
city of Tianjin requested non-local residents to provide social insurance certificates and individual income tax contribution certificates
issued by Tianjin’s competent authorities before such non-local residents were permitted to purchase a residential property. In
April 2018, Hainan province adopted measures to limit each local resident from purchasing more than one residential property. In September
2020, the city of Chengdu adopted a five-year limit for residents to transfer or sell newly purchased residential property. These measures
regulate various aspects of the property market, including: (i) land acquisition financing, (ii) pre-sale management, (iii) sale price
restriction (for example, Suzhou requires developers to file sale prices at the price filing systems of relevant authorities), (iv) purchaser
qualification and (v) purchaser financing. These local measures may also cause adverse and material impacts on our business operations
and financial results. Since 2024, many tightening measures in the above-mentioned cities have been abolished or relaxed to a
certain extent. For example, in April 2024, Tianjin issued a policy providing that residents of Beijing and Hebei, and those employed
in Beijing and Hebei, should be entitled to enjoy the same housing purchase policies as local residents in Tianjin. In January 2024,
several cities in Hainan Province also started to relax certain aspects of the previous restrictions in those cities. For instance, in
Haikou, families with multiple children are permitted to purchase an additional residential property compared to the number permitted
under the previous policies. In April 2024, Chengdu completely abolished its existing restrictions on residential property purchases.
Despite the above, the PRC
government can still issue and impose policies and regulatory measures on the PRC real estate sector that could limit our access to required
financing and other capital resources, adversely affect the property purchasers’ involved ability to obtain mortgage financing
or significantly increase the cost of mortgage financing, reduce market demand for our properties and increase our operating costs. We
cannot be certain that the PRC government will not issue additional (or will not restore previously abolished or relaxed) stringent regulations
or measures, or that agencies and banks will not adopt restrictive measures or practices in response to PRC governmental policies and
regulations, which could substantially reduce the number of our pre-sold properties and our cash flow from operations and substantially
increase our financing needs, which would in turn materially and adversely affect our business, financial condition, results of operations
and prospects.
The PRC government has adopted
various measures to regulate foreign investment in the property development industry and may adopt further restrictive measures in the
future.
The PRC government has implemented
a number of regulations and measures governing foreign investment in the property development industry.
In July 2006, the Ministry
of Construction, MOFCOM, the NDRC, the PBOC, the State Administration for Industry and Commerce, or the “SAIC,” and the SAFE,
issued the Opinions on Regulating the Entry and Administration of Foreign Investment in the Real Estate Market, amended on August 19,
2015, which impose significant requirements on foreign investment in the PRC real estate sector. For instance, these opinions set forth
requirements for the procedures to set up a foreign-invested real estate enterprise, or the “FIREE,” and the thresholds for
a FIREE to borrow domestic or overseas loans. In addition, since June 2007, a FIREE approved by local authorities is required to file
such approvals with the MOFCOM or its provincial branches. We cannot assure that any FIREE that we establish, or whose registered capital
we increase, will be able to complete the filing procedures with MOFCOM in time or otherwise fully comply with those specific requirements
set for FIREEs.
The regulatory restrictions
imposed on foreign investment in real estate projects has been and continues to be evolving. Currently, on March 15, 2019, the National
People’s Congress adopted the Foreign Investment Law of the PRC, or the “FIL,” which became effective on January 1,
2020. The FIL grants national treatment to foreign invested entities, except for those foreign invested entities that operate in industries
deemed to be either “restricted” or “prohibited” in a “negative list.” On December 28, 2021, the
MOFCOM and the NDRC promulgated the Special Administrative Measures on the Access of Foreign Investment (Negative List) (2021 Edition),
or the “2021 Negative List,” which took effect on January 1, 2022, which provide there are no specific restrictions for foreign
investment in the real estate industry.
The PRC government’s
restrictive regulations and measures could increase our operating costs in adapting to these regulations and measures, limit our access
to capital resources or even restrict our business operations. We cannot be certain that the PRC government will not issue additional
and more stringent regulations or measures, which could further adversely affect our business and prospects.
We face intense competition from other real estate
developers.
The property industry in
the PRC is highly competitive. In the high-growth tier I and tier II cities we focus on, local and regional property developers are our
major competitors, and an increasing number of large state-owned and private national property developers have started entering these
markets. Many of our competitors, especially the state-owned and private national property developers, are well capitalized and have
greater financial, marketing and other resources than we have. Some also have larger land banks, greater economies of scale, broader
name recognition, a longer track record and more established relationships in certain markets. In addition, the PRC government’s
recent measures designed to reduce land supply has further increased competition for land among property developers.
Competition among property
developers may result in increased costs for the acquisition of land for development, increased costs for raw materials, shortages of
skilled contractors, oversupply of properties, decrease in property prices in certain parts of the PRC, a slowdown in the rate at which
new property developments will be approved and/or reviewed by the relevant government authorities and an increase in administrative costs
for hiring or retaining qualified personnel, any of which may adversely affect our business and financial condition. Furthermore, property
developers that are better capitalized than we are may be more competitive in acquiring land through the auction process. If we cannot
respond to changes in market conditions as promptly and effectively as our competitors or effectively compete for land acquisitions through
the auction systems, our business and financial condition will be adversely affected.
In addition, risk of property
over-supply is increasing in parts of China, where property investment, trading and speculation have become overly active. We are exposed
to the risk that in the event of actual or perceived over-supply, property prices may fall drastically, and our revenue and profitability
will be adversely affected.
Our sales, revenue and operations
will be affected if our customers are not able to secure mortgage financing on attractive terms, if at all.
A majority of the purchasers
of our residential properties rely on mortgages to fund their purchases. If the availability or attractiveness of mortgage financing
is reduced or limited, many of our prospective customers may not desire or be able to purchase our properties and, as a result, our business,
liquidity and results of operations could be adversely affected. Among other factors, the availability and cost of mortgage financing
may be affected by changes in PRC regulations or policies or changes in interest rates. The circulars issued by the PRC State Council
and related measures taken by local governments and banks have restricted and may continue to restrict the ability of purchasers to qualify
for or obtain mortgage financing.
On March 30, 2015, the PBOC,
the MOHURD and the CBRC jointly issued the Circular on Issues concerning Individual Residential Mortgage Policies in an effort
to stimulate the market. The circular specifies the minimum down payment is 20% for purchasers of a first residential property for their
households with their housing fund loans and 40% for the purchasers of a second residential household property with housing fund loans
with outstanding mortgages who apply for another mortgage. On August 27, 2015, the MOHURD, the Ministry of Finance of the PRC, or the
“MOF,” and the PBOC jointly issued the Circular on Adjusting the Minimum Down Payment for the Purchase of Houses by Individuals
with the Housing Fund Loans, which provides that the purchasers of a second residential household property with housing fund loans
are only required to pay a minimum down payment of 20% if all loans are settled on their first residential property, in addition, Beijing,
Shanghai, Guangzhou, and Shenzhen may, on the basis of the unified national policy and in accordance with local conditions, independently
determine the minimum down payment ratio for applying for housing fund loans to purchase a second residential household property. On
February 1, 2016, the PBOC issued the Circular on Issues concerning Adjusting the Individual Housing Loan Policies, which provides
that, in the cities without restrictive measures for residential property purchase, the minimum down payment shall, in principle, be
25% of the house price with housing fund loans for a first residential property for purchasers’ households, while the minimum down
payment shall be at least 30% of the corresponding house price for a second residential household property. And in the cities with restrictive
measures for house purchase, the individual housing loan policies shall be subject to the previous provisions. Furthermore, on April
12, 2019, the Circular on Matters relating to Adjusting the Policy for Individual Housing Loans via the Housing Provident Fund to
Further Upgrade Services was issued, which provides that the minimum down payment is 30% for purchasers of a first residential property
other than economically affordable house for their households with their housing fund loans, and 60% for the purchasers of a second residential
household property other than economically affordable house with housing fund loans.
We cannot predict how long
these policies will continue or what other action, if any, the banks in cities in which we operate may take. In addition, from 2013,
PRC banks have tightened the conditions on which mortgage loans are extended to homebuyers by comparing the anticipated monthly repayment
of the mortgage loan with the individual borrower’s monthly income and other measures. Therefore, mortgage loans for home buyers
have been subject to longer processing periods or even denied by the banks. We monitor our homebuyers’ outstanding mortgage loans
on an ongoing basis via our management reporting procedures and have taken the position that contracts with underlying mortgage loans
with processing periods exceeding one year cannot be recognized as revenue on an over time basis. As a result, we reversed contracted
sales of the amounts related to apartments for which mortgage loans with processing periods exceeding one year when recognizing revenue
on an over time basis.
Risks Related to Doing Business in China
Significant oversight and discretion by the
PRC government over our business operations could result in a material change in our operations and the value of our ADSs.
We conduct our business primarily through our
PRC subsidiaries in China. Our operations in China are governed by PRC laws and regulations. The PRC government has significant oversight
and discretion over the conduct of our business, and may influence or intervene our operations at any time, which could result in a material
change in our operation and/or the value of our ADSs. Also, the PRC government has indicated an intent to exert more oversight and control
over offerings that are conducted overseas and/or foreign investment in China-based issuers like us, and has implemented, and may continue
to implement, relevant regulatory requirements.
For example, recently the PRC government initiated
a series of regulatory actions and statements to regulate business operations in China, including cracking down on illegal activities
in the securities market, strengthened supervision on overseas listings by China-based companies, adopting new measures to extend the
scope of cybersecurity reviews and data security protection, and expanding the efforts in anti-monopoly enforcement. Our failure to meet
such requirements could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and
cause the value of such securities to significantly decline or be worthless. In addition, implementation of industry-wide regulations
directly targeting our operations could require us to change our operations, and our failure to do so could cause the value of our securities
to significantly decline. We cannot rule out the possibility that regulations or policies that directly or indirectly affect our industry
or require us to seek additional permission to continue our operations may be released in the future, which could result in a material
adverse change in our business, results of operations, financial condition, and/or the value of our ADSs. Therefore, investors and our
business face potential uncertainties from actions taken by the PRC government affecting our business.
Uncertainties
with respect to the PRC legal system, including uncertainties with respect to the interpretation, application, and enforcement of PRC
laws and regulations, and sudden or unexpected changes of PRC laws and regulations with little advance notice, could have a material
adverse effect on our business, results of operations, financial condition and the value of our ADSs.
We conduct our business primarily through our
PRC subsidiaries and our operations in China are governed by PRC laws and regulations. The legal system in China is a civil law system
based on written statutes. Unlike common law systems, it is a system in which decided legal cases may be cited for reference but have
less precedential value. The legal system in China evolves rapidly, and the interpretations of laws, regulations, and rules may change
from time to time. The enforcement of laws in the PRC legal system and rules and regulations in China can change quickly with little
advance notice.
In addition, their interpretation and enforcement
involve uncertainties. These uncertainties could limit the legal protections available to us. In addition, we cannot predict the effect
of future developments in the PRC legal system, particularly with regard to internet-related industries, including the promulgation of
new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws.
Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect
our business and impede our ability to continue our operations. Furthermore, the PRC legal system is based in part on government policies
and internal rules, the interpretation, application, and enforcement of which may involve uncertainties. As a result, we may not be aware
of our potential violation of these policies and rules. In addition, we may have to resort to administrative and court proceedings to
enforce the legal protection that we enjoy either by law or contract. However, administrative and court proceedings may be protracted
and result in substantial costs and diversion of resources and management attention, and we cannot predict the outcome of administrative
and court proceedings.
In addition, new laws and regulations may be
enacted from time to time and uncertainties exist regarding the interpretation and implementation of current and any future PRC laws
and regulations applicable to our businesses. For example, recently the PRC government initiated a series of regulatory actions and statements
to regulate business operations in China, including cracking down on illegal activities in the securities market, strengthened supervision
on overseas listings by China-based companies, adopting new measures to extend the scope of cybersecurity reviews and data security protection,
and expanding the efforts in anti-monopoly enforcement. Compliance with these laws, regulations, rules, guidelines, and implementations
may be costly, and any incompliance or associated inquiries, investigations, and other governmental actions may divert significant management
time and attention and our financial resources, bring negative publicity, subject us to liabilities or administrative penalties, or materially
and adversely affect our business, financial condition, and results of operations.
Changes in social conditions,
political and economic policies of the PRC government may affect our business, financial condition and results of operations and may
result in our inability to sustain our growth and expansion strategies.
Our results of operations,
financial condition and prospects are influenced by social, economic, political and legal developments in China. China’s economy
differs from the economies of most developed countries in many respects, including with respect to the framework and style of government
supervision, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government
has implemented measures emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive
assets, and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in
China is still owned by the government. The PRC government also exercises significant control over China’s economic growth through
strategically allocating resources, controlling the payment of foreign currency denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or companies. While the Chinese economy has experienced significant growth
over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The Chinese government has
implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the
overall Chinese economy, but may have a negative effect on us. The growth rate of the Chinese economy has gradually slowed since 2010,
and the impact of COVID-19 on the Chinese economy in 2020, 2021 and 2022 was severe. Any prolonged slowdown in the Chinese economy may
reduce the demand for our property and materially and adversely affect our business and results of operations.
The new, stricter regulations
or interpretations of existing regulations imposed by the central or local governments may require additional expenditures and efforts
on our part to ensure our compliance with such regulations or interpretations, and if relevant regulations are issued and become effective
in a short notice, we may not be able to take the required actions in a timely manner without allocating significant resource. Therefore,
we cannot predict whether changes in the PRC economic, political and social conditions, laws, regulations and policies will have any
adverse effect on our current or future business, financial condition or results of operations.
PRC regulations of loans
and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of our offshore financing
to make loans or additional capital contributions to the operating entities, which could materially and adversely affect our liquidity
and business.
We
may transfer funds to the operating entities or finance the operating entities by means of shareholders’ loans or capital contributions.
Any loans to the operating entities, which are foreign-invested enterprises, cannot exceed a statutory limit, and shall be filed with
SAFE, or its local counterparts. Furthermore, any capital contributions we make to the operating entities shall be registered
with the PRC State Administration for Market Regulation or its local counterparts, and filed with MOFCOM or its local counterparts.
On
March 30, 2015, SAFE promulgated the Circular on Reforming the Administration Measures on Conversion of Foreign Exchange Registered Capital
of Foreign-invested Enterprises, or SAFE Circular 19. SAFE Circular 19, however, allows foreign invested enterprises in China to use
their registered capital settled in RMB converted from foreign currencies to make equity investments, but the registered capital of a
foreign invested company settled in RMB converted from foreign currencies remains not allowed to be used, among other things, for investment
in the security markets, or offering entrustment loans, unless otherwise regulated by other laws and regulations. On June 9, 2016, SAFE
further issued the Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over
Foreign Exchange Settlement of Capital Accounts, or SAFE Circular 16, which, among other things, amended certain provisions of Circular
19. According to SAFE Circular 19 and SAFE Circular 16, the flow and use of the RMB capital converted from foreign currency-denominated
registered capital of a foreign invested company is regulated such that Renminbi capital may not be used for purposes beyond its business
scope or to provide loans to non-affiliates unless otherwise permitted under its business scope or the relevant regulations. On October
23, 2019, SAFE promulgated the Circular of the State Administration of Foreign Exchange on Further Promoting the Facilitation
of Cross-Border Trade and Investment, or SAFE Circular 28, which removes the restrictions on domestic equity investments by non-investment
foreign-invested enterprises with their capital funds, provided that certain conditions are met. The applicable foreign exchange circulars
and rules may limit our ability to transfer funds, which may adversely affect the operating entities’ business, our financial condition
and results of operations.
We are subject to PRC restrictions on currency
exchange.
We currently receive most
of our revenue from operations in the PRC and such revenue is denominated in Renminbi. The Renminbi is currently convertible under the
“current account,” which includes dividends, trade and service-related foreign exchange transactions, but not under the “capital
account,” which includes foreign direct investment and loans, including loans we may secure from our PRC subsidiaries. Currently,
our PRC subsidiaries may purchase foreign currency for settlement of “current account transactions,” including payment of
dividends to us, without the approval of the SAFE by complying with certain procedural requirements. However, the relevant PRC governmental
authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Foreign
exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, the SAFE
and other relevant PRC governmental authorities. Since a significant amount of our future revenue and cash flow will be denominated in
Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize cash generated in Renminbi to fund
our business activities outside of the PRC or pay dividends in foreign currencies to our shareholders, including holders of the ADSs,
and may limit our ability service our foreign currency-denominated indebtedness and to obtain foreign currency through debt or equity
financing for our PRC subsidiaries.
PRC
regulations relating to investments in offshore companies by PRC residents may subject our PRC-resident beneficial owners or our PRC
subsidiaries to liability or penalties or otherwise limit our PRC subsidiaries’ ability to increase their registered capital or
distribute profits to us or otherwise adversely affect us.
On July 4, 2014, the SAFE
issued the Circular of the State Administration of Foreign Exchange on Issues Concerning the Foreign Exchange Administration over
the Overseas Investment and Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the “SAFE
Circular 37,” which replaced the former circular commonly known as “Circular 75” implemented on October 21, 2005. The
SAFE Circular 37 requires PRC residents to register with the competent local SAFE branch in connection with their direct establishment
or indirect overseas investment activities. Under SAFE Circular 37, PRC residents who make, or have prior to the implementation of SAFE
Circular 37 made, direct or indirect investments in SPVs, are required to register such investments with SAFE or its local branches.
In addition, any PRC resident who is a direct or indirect shareholder of an SPV, is required to update its registration with the local
branch of SAFE with respect to that SPV, to reflect any material change. Moreover, any subsidiary of such SPV in China is required to
urge the PRC resident shareholders to update their registration with the local branch of SAFE to reflect any material change. If any
PRC resident shareholder of such SPV fails to make the required registration or to update the registration, the subsidiary of such SPV
in China may be prohibited from distributing its profits or the proceeds from any capital reduction, share transfer or liquidation to
the SPV, and the SPV may also be prohibited from making additional capital contributions into its subsidiaries in China. In February
2015, SAFE promulgated a Notice on Further Simplifying and Improving Foreign Exchange Administration Policy on Direct Investment,
or “SAFE Notice 13.” Under SAFE Notice 13, applications for foreign exchange registration of inbound foreign direct investments
and outbound direct investments, including those required under SAFE Circular 37, must be filed with qualified banks instead of SAFE.
Qualified banks should examine the applications and accept registrations under the supervision of SAFE.
We
believe that all of our shareholders who were PRC citizens or residents at the time of our initial public offering completed their required
registrations with the SAFE in accordance with Circular 75 before the promulgation of SAFE Circular 37 prior to, and immediately after,
the completion of our initial public offering. However, as there is uncertainty concerning the reconciliation of these notices with other
approval or registration requirements and their interpretation and implementation has been constantly evolving, it remains unclear how
these regulations, and any future legislation concerning offshore or cross-border investments and transactions, will be interpreted,
amended and implemented by the relevant government authorities. For example, we may be subject to a more stringent review and approval
process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings,
which may adversely affect our financial condition and results of operations. In addition, as a publicly traded company in the United
States, we may not at all times know of the identities of all of our beneficial owners, who are PRC citizens or residents, and we may
have little control over either our present or prospective direct or indirect PRC resident beneficial owners or the outcome of such registration
procedures. We cannot assure you that we have complied or will be able to comply with all applicable foreign exchange and outbound investment
related regulations. The failure or inability of these PRC resident beneficial owners to comply with applicable SAFE registration
requirements may subject us to the sanctions described above, including sanctions which may impede our ability to contribute the additional
capital from our proceeds of any future offerings to our PRC subsidiaries, and our PRC subsidiaries’ ability to pay dividends or
distribute profits to us. Furthermore, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of
such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations
required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely
affect our business and prospects.
We may be subject to fines
or penalties if we fail to comply with any applicable laws, regulations or rules.
Historically, we experienced
certain non-compliance incidents, some of our project companies commenced construction before obtaining construction work permits or
construction work planning permits. We believe these non-compliances did not have a material operational and financial impact on us.
There is no assurance that our internal control measures will be effective and there will not be any non-compliance incidents in the
future.
In addition, PRC laws, regulations
or rules governing our industry have been evolving rapidly. We cannot assure you that we will not be subject to fines or penalties arising
from non-compliance incidents if we fail to adapt to the new regulatory regime in a timely manner, or at all, which may have a material
adverse effect on our business, financial condition and results of operation.
Certain portions of our
property development projects and investment properties are designated as civil air defense properties and transfer of the right to use
such area is subject to restrictions and uncertainties.
Certain portions of our property
development projects and investment properties are designated as civil air defense properties. According to the PRC laws and regulations,
new buildings constructed in cities should contain basement areas that can be used for civil air defense purposes in times of war. Under
the Civil Air Defense Law of the PRC promulgated by the SCNPC on October 29, 1996, as amended on August 27, 2009 and Management
Measures for Peacetime Development and Usage of Civil Air Defense Properties promulgated by the House Civil Air Defense Office in
November 2001, after obtaining the approval from the civil air defense supervising authority, a developer can manage and use such areas
designated as civil air defense properties at other time and generate profits from such use. We had entered into contracts to transfer
the right to use civil air defense properties in some of our property development projects to our customers as car parks and we intend
to continue such transfer. However, in times of war, such areas may be used by the government at no cost. In the event of war and if
the civil air defense area of our projects is used by the public, we may not be able to use such area as car parks, and such area will
no longer be a source of our revenue. In addition, while our business operations have complied with the laws and regulations on civil
air defense property in all material aspects, we cannot assure you that such laws and regulations will not be amended in the future which
may make it more burdensome for us to comply with and increase our compliance cost. The civil air defense areas of our projects are primarily
used or to be used for car parks, representing an insignificant portion of our property portfolio.
We may be subject to fines due to the lack of
registration of our leases.
Pursuant to relevant PRC
regulations, parties to a lease agreement are required to file the lease agreements for registration and obtain property leasing filing
certificates for their leases. We have leased certain properties from independent third-party landlords mainly for our office premises.
However, we failed to register some lease agreements under which we are the tenant. The failure to register the lease agreements does
not affect the validity of the lease agreements under the relevant PRC laws and regulations, or our rights or entitlements to lease out
the investment properties to tenants. However, we may be required by relevant government authorities to file the lease agreements to
complete the registration formalities and may be subject to a fine for non-registration within the prescribed time limit, which may range
from RMB1,000 to RMB10,000 per lease agreement. The imposition of the above fines could require us to make additional efforts and/or
incur additional expenses, any of which could materially and adversely impact our business, financial condition and results of operations.
The registration of these lease agreements to which we are a party requires additional steps to be taken by the respective other parties
to the lease agreement which are beyond our control. We cannot assure you that the other parties to our lease agreements will be cooperative
and that we can complete the registration of these lease agreements and any other lease agreements that we may enter into in the future.
There are uncertainties regarding the interpretation
and enforcement of PRC laws, rules and regulations.
Our core business is conducted
within China and is governed by PRC laws and regulations. Our PRC subsidiaries are subject to laws, rules and regulations applicable
to foreign investment in China. Some of our activities outside the PRC are also subject to the extra-territorial jurisdiction under the
relevant PRC laws and regulations. The PRC legal system is a civil law system based on written statutes. Unlike the common law system,
prior court decisions may be cited for reference but have limited precedential value.
In 1979, the PRC government
began to promulgate a comprehensive system of laws, rules and regulations governing economic matters in general. The overall effect of
legislation over the past three decades has significantly enhanced the protections afforded to various forms of foreign investment in
China. However, China has not developed a fully integrated legal system, and recently enacted laws, rules and regulations may not sufficiently
cover all aspects of economic activities in China or may be subject to significant degrees of interpretation by PRC regulatory agencies.
In particular, because these laws, rules and regulations are relatively new, and because of the limited number of published decisions
and the nonbinding nature of such decisions, and because the laws, rules and regulations often give the relevant regulator significant
discretion in how to enforce them, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and
can be inconsistent and unpredictable. In addition, the PRC legal system is based in part on government policies and internal rules,
some of which are not published on a timely basis or at all, and which may have a retroactive effect. As a result, we may not be aware
of our violation of these policies and rules until after the occurrence of the violation.
Any administrative and court
proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since PRC
administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it
may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than
in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into and could materially
and adversely affect our business, financial condition and results of operations.
In addition, the PRC government
has significant oversight and discretion over the conduct of our operations and may intervene or influence our operations as the government
deems appropriate to further regulatory, political and social goals. The PRC government has recently published new policies that significantly
affected certain industries such as the internet industries and private education industries, and we cannot rule out the possibility
that it will in the future release regulations or policies or take regulatory actions regarding our industry that could adversely affect
our business, financial condition and results of operations.
We could be adversely affected by political tensions
between the United States and China.
Political tensions between
the United States and China have escalated in recent years due to, among other things,
| · | the
trade war between the two countries since 2018; |
| · | the
PRC National People’s Congress’ passage of Hong Kong national security legislation; |
| · | the
imposition of U.S. sanctions on certain Chinese officials from China’s central government
and the Hong Kong Special Administrative Region by the U.S. government, and the imposition
of sanctions on certain individuals from the U.S. by the Chinese government; |
| · | various
executive orders issued by the U.S. government, which include, among others, |
| o | the
executive order issued in August 2020, as supplemented and amended from time to time, that
prohibits certain transactions with ByteDance Ltd., Tencent Holdings Ltd. and the respective
subsidiaries of such companies named in such executive order; |
| o | the
executive order issued in January 2021, as supplemented and amended from time to time, that
prohibits such transactions as are identified by the U.S. Secretary of Commerce with certain
“Chinese connected software applications,” including Alipay and WeChat Pay; and |
| · | the
Rules on Counteracting Unjustified Extra-Territorial Application of Foreign Legislation
and Other Measures promulgated by the MOFCOM, on January 9, 2021, which applies to Chinese
individuals or entities that are purportedly barred by a foreign country’s law from
dealing with nationals or entities of a third country. |
Rising political tensions
between China and the U.S. could reduce levels of trade, investment, technological exchanges and other economic activities between the
two major economies, which would have a material adverse effect on global economic conditions and the stability of global financial markets.
The measures taken by the U.S. and Chinese governments may have the effect of restricting our ability to transact or otherwise do business
with entities within or outside of China and may cause investors to lose confidence in Chinese companies and counterparties, including
us. If we were unable to conduct our business as it is currently conducted as a result of such regulatory changes, our business, results
of operations and financial condition would be materially and adversely affected.
Furthermore, the U.S. government
has imposed measures regarding limiting or restricting China-based companies from accessing U.S. capital markets, and delisting certain
China-based companies from U.S. national securities exchanges. In January 2021, after reversing its own delisting decision, the NYSE
ultimately resolved to delist China Mobile, China Unicom and China Telecom in compliance with the executive order issued in November
2020, after receiving additional guidance from the U.S. Department of Treasury and its Office of Foreign Assets Control. In addition,
the NYSE announced in February 2021 that it has determined to commence proceedings to delist CNOOC Limited in light of the same executive
order. These delistings have introduced greater confusion and uncertainty about the status and prospects of Chinese companies listed
on the U.S. stock exchanges. If any further measures were to be implemented, the resulting legislation may have a material and adverse
impact on the stock performance of China-based issuers listed in the United States such as us, and we cannot assure you that we will
always be able to maintain the listing of our ADSs on a national stock exchange in the U.S., such as the NYSE or the NASDAQ, or that
you will always be allowed to trade our ADSs.
Our business was materially
adversely affected by the COVID-19 pandemic globally and in China during the years ended December 31, 2021 and 2022.
Beginning in December 2019,
a novel strain of coronavirus, or “COVID-19,” resulted in prolonged mandatory quarantines, lockdown, closures of businesses
and facilities and travel restrictions imposed by the Chinese government and many other countries around the world. The COVID-19 pandemic,
as well as the restrictions imposed and actions taken by the governments and society as a whole in response to the COVID-19 pandemic,
could present significant challenges and uncertainties.
The
Chinese economy has been recovering steadily from the impact of COVID-19 since the second half of 2020; however, during 2021 and 2022,
there were a considerable amount of new COVID-19 cases, including primarily the COVID-19 Omicron variant cases, in various cities in
China. The Chinese local authorities had reinstated certain measures to keep COVID-19 in check, including travel restrictions and stay-at-home
orders. Although China began to modify its COVID-19 control policy at the end of 2022, and most of the travel restrictions and quarantine
requirements were lifted in December 2022. During the years ended December 31, 2021 and 2022, the recurrence of COVID-19 in the China
and continuance of the outbreak in other parts of the world, adversely impacted our company’s business operations and the business
operations of our company’s customers and partners, which in turn had an adverse impact on our business, results of operations
and financial condition. We took measures to reduce the impact of the COVID-19, including monitoring our employees’ health on a
daily basis and optimizing our technology system to support remote work arrangements. However, we still experienced lower work efficiency
and productivity, which adversely affected our service quality. Furthermore, we and our customers experienced business disturbances
due to the quarantine measures to contain the spread of COVID-19. We experienced a slowdown in revenue growth and delayed collection
of accounts receivables from our customers. During the year ended December 31, 2023, the COVID-19 pandemic did not have a material impact
on our business operations and financial results.
Our business, results of
operations and financial condition were materially and adversely affected by the COVID-19 pandemic during the years ended December 31,
2021 and 2022, and further uncertainty remains as a result of the COVID-19, such as the changes in the outlook of China’s property
market, slowdown in China’s economic growth or negative business sentiment. In particular, potential impact includes, among others,
the following:
| · | the
impacts of COVID-19 resulted in a general slowdown in China’s real estate industry,
adversely affecting the demand for our services; |
| · | our
customers may not have sufficient budget or cash flow to pay for our services, or may fail
to make the payment in a timely manner, or at all; and |
| · | some
of our customers may not be well capitalized and may be vulnerable to the COVID-19 pandemic
and the slowdown of the macroeconomic conditions, and if they cannot resume their business
during a prolonged virus outbreak, the demand for our services may be negatively affected. |
We face risks related to
natural disasters, health epidemics and other outbreaks, which could significantly disrupt our operations and adversely affect our business,
financial condition or results of operation.
In addition to the impact
of COVID-19, our business could be adversely affected by the effects of the Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, Severe
Acute Respiratory Syndrome, or “SARS,” or other epidemics. Our business operations could be disrupted if any of our employees
is suspected of having the Ebola virus disease, H1N1 flu, H7N9 flu, avian flu, SARS, or other epidemics, since it could require our employees
to be quarantined and/or our offices to be disinfected. In addition, our results of operations could be adversely affected to the extent
that any of these epidemics harm the Chinese and global economy in general.
We are also vulnerable to
natural disasters and other calamities, such as fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins,
war, riots, terrorist attacks or similar events, which could cause construction delays and business interruptions. For example, certain
areas in Henan Province, China, where a significant portion of our development projects are located, experienced a heavy rainfall which
was unexpected and caused widespread flooding in July 2021. The flooding resulted in interruptions of our business and construction in
Henan Province, which materially and adversely affected our results of operations and financial condition in 2021.
We may face PRC regulatory risks relating to
our equity compensation plans.
Under the applicable regulations
and SAFE rules, PRC residents who participate in an employee stock ownership plan or a stock option plan in an overseas publicly listed
company are required to register with SAFE and complete certain other procedures. On February 15, 2012, the SAFE implemented the Notice
on the Administration of Foreign Exchange Matters for Domestic Individuals Participating in the Stock Incentive Plans of Overseas Listed
Companies, or the “Stock Option Notice.” Under the Stock Option Notice, if a PRC resident participates in any employee
stock incentive plan of an overseas listed company, a qualified domestic PRC agent or the PRC subsidiary of such overseas listed company
must, among other things, file, on behalf of such individual, an application with the SAFE or its local counterpart to obtain approval
for an annual allowance with respect to the foreign exchange in connection with the stock holding, unit holding, share option exercises,
or the holding of other types of equities permitted by PRC law. Concurrently, the qualified domestic PRC agent or the PRC subsidiary
must also obtain approval from the SAFE or its local counterpart to open a special foreign exchange account at a PRC domestic bank to
hold the funds required in connection with the stock acquisition or option exercise, any returned principal or profits upon the sale
of shares, any dividends issued on the stock and any other income or expenditures approved by the SAFE or its local counterpart. In addition,
the PRC agent or the PRC subsidiary is required to amend the SAFE registration with respect to the stock options or other awards granted
if there is any material change to the stock options or other awards, the PRC agent or the PRC subsidiary, the overseas listed company,
or any other material changes. If we, or any of these persons mentioned above, fail to comply with the relevant rules or requirements,
we may be subject to penalties, and may become subject to more stringent review and approval processes with respect to our foreign exchange
activities, such as our PRC subsidiaries’ dividend payment to us or borrowing foreign currency loans, all of which may adversely
affect our business and financial condition.
The enactment of the Holding Foreign Companies
Accountable Act and the adoption of any rules, legislations or other efforts to increase U.S. regulatory access to audit information
could cause uncertainty and our securities listed on the NYSE could be delisted or prohibited from being traded “over-the-counter”
if we are unable to meet the PCAOB requirement in time.
The increased regulatory scrutiny of U.S.-listed
companies with operations in China could add uncertainties to our business operations, share price and reputation. U.S. public companies
that have or had a substantial portion of their operations in China have been the subject of heightened scrutiny, criticism and negative
publicity by investors, financial commentators and regulatory agencies, such as the SEC. Much of the scrutiny, criticism and negative
publicity has centered on financial and accounting irregularities and mistakes, a lack of effective internal controls over financial
accounting, inadequate corporate government policies or a lack of adherence thereto and, in many cases, allegations of fraud.
As
part of increased regulatory focus in the United States on access to audit information, the United States enacted the HFCA Act on
December 18, 2020. The HFCA Act includes requirements for the SEC to identify issuers whose audit reports are prepared by auditors that
the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s
local jurisdiction. The HFCA Act also requires public companies on this SEC list to certify that they are not owned or controlled by
a foreign government and make certain additional disclosures in their SEC filings. In addition, under the HFCA Act, if the auditor of
a U.S. listed company’s financial statements is not subject to PCAOB inspections for three consecutive “non-inspection”
years, the SEC is required to prohibit the securities of such issuer from being traded on a U.S. national securities exchange, such as
the NYSE and Nasdaq, or in the U.S. over-the-counter markets.
On
December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements under the HFCA Act,
pursuant to which the SEC would identify a “Commission-Identified Issuer” if an issuer has filed an annual report containing
an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely
because of a position taken by an authority in the foreign jurisdiction, and will then impose a trading prohibition on an issuer after
it is identified as a “Commission-Identified Issuer” for three consecutive years.
On
December 16, 2021, the PCAOB issued its determination that the PCAOB is unable to inspect or investigate completely PCAOB-registered
public accounting firms headquartered in mainland China and in Hong Kong, because of positions taken by PRC authorities in those jurisdictions,
and the PCAOB included in the report of its determination a list of the accounting firms that are headquartered in mainland China or
Hong Kong. This list includes Union Power HK CPA Limited (“Union Power”), the firm which audited our financial statements
for the fiscal year ended December 31, 2021. Subsequently on July 29, 2022, we were added to the conclusive list of “Commission-Identified
Issuer” identified under the HFCA Act on the website of the SEC.
On
December 29, 2022, the Consolidated Appropriations Act, 2023 was signed into law, which, among other things, amended the HFCA Act to
reduce from three years to two years the number of consecutive years an issuer can be identified as an identified issuer before the SEC
can prohibit an issuer’s securities from trading on any U.S. national securities exchange and on the over-the-counter market. Accordingly,
our securities may be prohibited from trading on NYSE or other U.S. stock exchange if our auditor is not inspected by the PCAOB
for two consecutive years, and this ultimately could result in our ADSs being delisted.
On August 26, 2022, the PCAOB
signed a Statement of Protocol Agreement (the “SOP”) with the CSRC and China’s Ministry of Finance. The SOP, together
with two protocol agreements governing inspections and investigations (together, the “SOP Agreements”), establish a specific,
accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in mainland China and
Hong Kong, as required under U.S. law.
On December 15, 2022, PCAOB
Chair Erica Y. Williams released a statement stating that, for the first time in history, the PCAOB has secured complete access to inspect
and investigate registered public accounting firms headquartered in mainland China and Hong Kong, and the PCAOB voted to vacate the previous
December 16, 2021 determinations to the contrary. For this reason, we do not expect to be identified as a Commission-Identified Issuer
following the filing of this annual report.
However, whether the PCAOB
will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in mainland
China and Hong Kong is subject to uncertainties and depends on a number of factors out of our and our auditor’s control. The PCAOB
continues to demand complete access in mainland China and Hong Kong moving forward. The PCAOB has also indicated that it will act immediately
to consider the need to issue new determinations with the HFCA Act if needed.
On December 28, 2022, we
appointed Assentsure PAC, or Assentsure, as our independent registered public accounting firm for the fiscal year ending December 31,
2022 and Assentsure remains our independent registered public accounting firm for the fiscal year ending December 31, 2023. Assentsure
is headquartered in Singapore and subject to the inspections by the PCAOB on a regular basis. As an auditor of companies that are traded
publicly in the United States and a firm registered with the PCAOB, Assentsure is subject to laws in the United States pursuant
to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. It is not subject
to the determinations issued by the PCAOB on December 16, 2021. Therefore we believe the appointment of Assentsure would substantially
reduce the risk of us being continued to be identified as “Commission-Identified Issuer” under the HFCA Act, and the risk
of our securities being prohibited from being traded on a national securities exchange or in the over the counter trading market in the
United States due to rules under the HFCA Act.
If
we continue to be identified as a “Commission-Identified Issuer”, the ramification of such identification includes volatility
in the trading price of our securities. We are also subject to the additional compliance requirements under the HFCA Act and potentially
other requirements under related proposed rules. If our shares are prohibited from trading in the United States, there is no certainty
that we will be able to list on a non-U.S. exchange or that a market for our shares will develop outside of the United States. Such a
prohibition would substantially impair your ability to sell or purchase our shares when you wish to do so, and the risk and uncertainty
associated with delisting would have a negative impact on the price of our shares. Also, such a prohibition would significantly affect
our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business,
financial condition, and prospects.
If for whatever reason the
PCAOB is unable to conduct full inspections of our auditor, such uncertainty could cause the market price of our securities to be materially
and adversely affected, and our securities could be delisted or prohibited from being traded “over-the-counter”. If our securities
were unable to be listed on another securities exchange by then, such a delisting would substantially impair your ability to sell or
purchase our securities when you wish to do so, and the risk and uncertainty associated with a potential delisting would have a negative
impact on the price of our securities.
It may be difficult for
overseas regulators to conduct investigation or collect evidence within China.
Shareholder claims or regulatory
investigation that are common in the United States generally are difficult to pursue as a matter of law or practicality in China. For
example, in China, there are significant legal and other obstacles to providing information needed for regulatory investigations or litigations
initiated outside China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory
authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities
regulatory authorities in the Unities States may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore,
according to Article 177 of the PRC Securities Law, or “Article 177,” which became effective in March 2020, no overseas securities
regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. While detailed
interpretation of or implementation rules under Article 177 have yet to be promulgated, the inability for an overseas securities regulator
to directly conduct investigation or evidence collection activities within China may further increase difficulties faced by you in protecting
your interests.
We may be adversely affected
by the settlement order between the SEC and certain PRC-based accounting firms, including our independent registered public accounting
firm.
In December 2012, the SEC
instituted proceedings under Rule 102(e)(1)(iii) of the SEC’s Rules of Practice and also under the Sarbanes-Oxley Act against five
PRC-based accounting firms, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder
by failing to provide to the SEC the firms’ work papers related to their audits of certain PRC-based companies that are publicly
traded in the United States. Rule 102(e)(1)(iii) grants the SEC the authority to deny to any person, temporarily or permanently, the
ability to practice before the SEC who is found by the SEC, after notice and opportunity for a hearing, to have willfully violated any
such laws or rules and regulations. On January 22, 2014, an initial administrative law decision was issued, censuring these accounting
firms and suspending four of the five firms from practicing before the SEC for a period of six months. Four of these PRC-based accounting
firms appealed to the SEC against this decision and, on February 6, 2015, each of the four PRC-based accounting firms agreed to a censure
and to pay a fine to the SEC to settle the dispute and avoid suspension of their ability to practice before the SEC. The firms’
ability to continue to serve all their respective clients is not affected by the settlement. The settlement requires the firms to follow
detailed procedures to seek to provide the SEC with access to Chinese firms’ audit documents via the CRSC. If the firms do not
follow these procedures, the SEC could impose penalties such as suspensions, or it could restart the administrative proceedings. Under
the terms of the settlement, the underlying proceeding against the four PRC-based accounting firms was deemed dismissed with prejudice
for four years after entry of the settlement. The four-year mark occurred on February 6, 2019. We cannot predict if the SEC will further
challenge the four PRC-based accounting firms’ compliance with the U.S. law in connection with the U.S. regulatory requests for
audit work papers or if the results of such challenge would result in the SEC imposing penalties, such as suspensions.
In the event that the PRC-based
“big four” accounting firms become subject to additional legal challenges by the SEC or PCAOB, depending upon the final outcome,
listed companies in the U.S. with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations
in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Securities
Exchange Act of 1934, as amended, or the “Exchange Act,” including possible delisting. Moreover, any negative news about
any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, U.S.-listed companies and
the market price of our ADSs may be adversely affected.
If the auditor of our audit
report in our annual report filed with the SEC were denied, even temporarily, the ability to practice before the SEC and we were unable
to timely find another registered public accounting firm to audit and issue an opinion on our consolidated financial statements, our
consolidated financial statements could be determined not to be in compliance with the requirements of the Exchange Act. Such a determination
could ultimately lead to delisting of the ADSs from the NYSE or deregistration from the SEC, or both, which would substantially reduce
or effectively terminate the trading of the ADSs in the U.S.
In addition, on May
26, 2015, the MOF issued Notice on the Interim Provisions on the Audits Conducted by Accounting Firms concerning the Overseas Listing
of Chinese Domestic Companies, or “Circular 9,” which became effective on July 1, 2015. In accordance with Circular 9, auditors
based outside of China, including our independent registered public accounting firm, are required to cooperate with mainland Chinese
auditors with requisite qualifications and enter into written arrangements with mainland Chinese auditors in order to conduct audit work
for overseas listed mainland Chinese companies, and auditors based outside of China shall undertake the auditing responsibilities which
may be incurred. Hence, our independent registered public accounting firm may need to establish appropriate arrangements with mainland
Chinese auditors in order to continue to audit our financial statements, which may be difficult in light of the SEC’s administrative
proceedings and the settlement described above. If our auditor were unable to have alternate support or cooperation arrangements or otherwise
were unable to address issues related to the production of documents in accordance with the settlement order in the SEC proceedings and
we were unable to timely find another independent registered public accounting firm to audit and issue an opinion on our financial statements,
our financial statements could be determined to not be in compliance with the requirements of the Exchange Act. Such a determination
could ultimately lead to delisting of our ADSs from the NYSE or deregistration from the SEC, or both.
Risks Related to our ADSs
The trading price of our
ADSs has been, and is likely to continue to be, volatile, which could result in substantial losses to holders of our ADSs as well as
the potential suspension of listing or delisting of our ADRs.
The trading price of our
ADSs has been, and is likely to continue to be, volatile and could fluctuate widely in response to a variety of factors, many of which
are beyond our control. For example, the high and low closing prices of our ADSs in fiscal year 2023 were US$7.48 and US$2.00, respectively.
In addition, the performance and fluctuation of the market prices of other companies with business operations located mainly in China
that have listed their securities in Hong Kong and/or the U.S. may affect the volatility in the prices of and trading volumes for our
ADSs. Some of these companies have experienced significant volatility, including significant price declines after their initial public
offerings. The trading performances of these companies’ securities at the time of or after their offerings may affect the overall
investor sentiment towards other companies with business operations located mainly in China and listed in Hong Kong and/or the U.S. and
consequently, may impact the trading performance of our ADSs. In addition to market and industry factors, the prices and trading volumes
for our ADSs may be highly volatile for specific business reasons, including:
| · | variations
in our results of operations or earnings that are not in line with market or research analyst
expectations or changes in financial estimates by securities research analysts; |
| · | publication
of operating or industry metrics by third parties, including government statistical agencies,
that differ from expectations of industry or financial analysts; |
| · | announcements
made by us or our competitors of new product and service offerings, acquisitions, strategic
relationships, joint ventures or capital commitments; |
| · | press
and other reports, whether or not true, about our business, including negative reports published
by short sellers, regardless of their veracity or materiality to us; |
| · | litigation
and regulatory allegations or proceedings that involve us; |
| · | changes
in pricing we or our competitors adopt; |
| · | additions
to or departures of our management; |
| · | actual
or perceived general industry, regulatory, economic and business conditions and trends in
China and globally, due to various reasons, including changes in geopolitical landscape,
as some investors or analysts may invest in or value our ADSs based on the economic performance
of the Chinese economy, which may not be correlated to our financial performance; |
| · | political
or market instability or disruptions, and actual or perceived social unrest in the U.S.,
Hong Kong or other jurisdictions; |
| · | fluctuations
of exchange rates among the Renminbi, the Hong Kong dollar and the U.S. dollar; and |
| · | sales
or perceived potential sales or other dispositions of existing or additional ADSs or other
equity or equity-linked securities. |
Any of these factors may
result in large and sudden changes in the volume and trading price of our ADSs. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that are unrelated to the operating performance of particular companies and industries.
When the trading price of
our ADRs falls below US$1.00, we are considered below compliance standards pursuant to the listing requirements of the NYSE and could
result in the delisting of our ADRs by the NYSE. As the average trading price of our ADRs remained below US$1.00 for 30 consecutive trading
days or more, the NYSE sent us a deficiency notice on December 14, 2021 and required the stock price to be brought back above US$1.00
within six months prior to May 13, 2022. On May 2, 2022, the NSYE notified us that a calculation of the Company’s average stock
price from the 30-trading days ended April 29, 2022 had been above the US$1.00 based on a 30-trading day average. As a result, the Company
regained compliance. However, our average trading price over the 30 consecutive trading days ended June 23, 2022 fell below US$1.00 again,
for which, the NYSE sent us a deficiency notice on June 24, 2022 and required the stock price to be brought back above US$1.00 within
six months prior to December 23, 2022. On December 27, 2022, the NYSE confirmed that a calculation of the Company’s average stock
price for the 30-trading days ended December 27, 2022 had been above the NYSE’s minimum requirement of $1.00 based on a 30-trading
day average. As a result, the Company regained compliance.
Our ADRs could also be delisted
if (i) our average market capitalization over a consecutive 30 trading-day period is less than $15 million, or (ii) our ADRs trades at
an “abnormally low” price, in the determination of the NYSE. In either case, our ADRs would be suspended from trading on
the NYSE immediately, without an opportunity to cure, and the NYSE would begin the process to delist our ADRs. If any of these were to
occur, there is no assurance that we would be able to appeal, or that any appeal we undertake in these or other circumstances would be
successful, nor is there any assurance that we will remain in compliance with the other NYSE continued listing standards.
If the NYSE delists our ADRs
due to our failure to regain compliance with the NYSE minimum price requirement or because we fail to comply with another continued listing
standard, and we are unable to obtain listing on another national securities exchange, we could face significant material adverse consequences,
including:
| · | a
limited availability of market quotations for our securities; |
| · | reduced
liquidity for our securities; |
| · | a
determination that our ADRs are a “penny stock” which will require brokers trading
in our ADRs to adhere to more stringent rules and possibly result in a reduced level of trading
activity in the secondary trading market for our securities; |
| · | a
limited amount of news and analyst coverage; |
| · | such
delisting may constitute a breach of certain of our contractual obligations or agreements
we have entered into; and |
| · | a
decreased ability to issue additional securities or obtain additional financing in the future. |
We may raise additional
capital through the sale of additional equity or debt securities, which could result in additional dilution to our shareholders, or impose
upon us additional financial obligations.
We may require additional
cash resources to finance our continued growth or other future developments, including any investments or acquisitions we may decide
to pursue. The amount and timing of such additional financing needs will vary depending on the timing of our property developments, investments
and/or acquisitions, and the amount of cash flow from our operations. If our resources are insufficient to satisfy our cash requirements,
we may seek to sell additional equity or debt securities. Sales of additional equity or convertible securities could result in additional
dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating
and financing covenants that would restrict our operations, including our ability to pay dividends or redeem stock. We cannot guarantee
that financing will be available in amounts or on terms acceptable to us, if at all.
Substantial future sales
or the perception of sales of our ADSs in the public market could cause the price of our ADSs to decline.
The sales of our ADSs or
common shares in the public market, or the perception that such sales could occur, could cause the market price of our ADSs to decline.
As of December 31, 2023, we had 113,671,841 common shares outstanding, including 74,405,372 common shares represented by 3,720,269 ADSs.
All ADSs are freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the
“Securities Act,” other than those held by affiliates which are subject to volume and other restrictions as applicable under
Rule 144 under the Securities Act. The remaining common shares outstanding are available for sale, subject to any volume and other restrictions
as applicable under Rule 144. The sale or perceived sale of a substantial amount of our ADSs by any principal shareholder could adversely
affect the prevailing market price for our ADSs. Such sales or perceived sales might also make it more difficult for us to sell equity
or equity-related securities in the future at a time and price that we deem appropriate. To the extent that common shares (in the form
of ADSs) are sold into the market, the market price of our ADSs could decline.
The interests of our major
shareholders may not be aligned with the interests of our other shareholders.
As of December 31, 2023,
Mr. Yong Zhang, Chairman of our board of directors, and Ms. Yuyan Yang, also a board member, beneficially owned 27.75% and 25.30%, respectively
of our share capital. Accordingly, they each have substantial influence over our business, including decisions regarding mergers, consolidations
and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration
of ownership by our major shareholders may result in actions being taken even if opposed by our other shareholders. In addition, it may
discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a
premium for their shares as part of a sale of our company and might reduce the price of our ADSs.
If we fail to maintain an
effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent
fraud.
We are subject to reporting
obligations under the U.S. securities laws, including the SEC’s disclosure rules relating to an effective system of internal controls
over financial reporting and of disclosure controls. If we fail to maintain effective internal control over financial reporting in the
future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal
control over financial reporting at a reasonable assurance level.
Moreover, effective internal
control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud. As
a result, our failure to maintain effective internal control over financial reporting could result in the loss of investor confidence
in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our
ADSs. Furthermore, we have incurred, and expect to continue to incur, considerable costs and devote significant management time and efforts
and other resources to comply with Section 404 of the Sarbanes-Oxley Act.
We are a foreign private
issuer with the meaning of the rules under the Exchange Act, as such we are exempt from certain provisions applicable to U.S. domestic
public companies.
Because we qualify as a foreign
private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States
that are applicable to United States domestic issuers, including:
| · | the
rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form
10-Q or current report on Form 8-K; |
| · | the
section of the Exchange Act regulating the solicitation of proxies, consents or authorizations
in respect of a security registered under the Exchange Act; |
| · | the
section of the Exchange Act requiring directors, officers and 10% holders to file public
reporting of their stock ownership and trading activities and imposing liability on insiders
who profit from trades made in a short period of time; |
| · | the
selective disclosure rules under Regulation FD restricting issuers from selectively disclosing
material nonpublic information. |
Accordingly, the information
we are required to file with or furnish to the SEC is less extensive and less frequent compared to that required to be filed with the
SEC by U.S. domestic issuers.
As a company incorporated
in the Cayman Islands, we are permitted to adopt certain home country practices for corporate governance matters that differ significantly
from the NYSE corporate governance listing standards; these practices may afford less protection to shareholders than they would enjoy
if we complied fully with the corporate governance listing standards.
Our ADSs are listed on the
NYSE. The NYSE corporate governance listing standards permit a foreign private issuer, like us, to follow the corporate governance practices
of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly
from the NYSE corporate governance listing standards. For example, Cayman Islands does not require us to comply with the following corporate
governance listing standards of the NYSE:
| · | having
the majority of our board of directors composed of independent directors; |
| · | having
a minimum of three members in our audit committee; |
| · | holding
annual shareholders’ meetings; |
| · | having
a compensation committee composed entirely of independent directors; |
| · | having
a nominating and corporate governance committee composed entirely of independent directors;
and |
| · | requiring
members of the audit committee to satisfy certain independence criteria in addition to those
of Rule 10A-3 of the Exchange Act; |
| · | requiring
shareholders to approve the adoption or material revision of any equity compensation plan;
and |
| · | requiring
shareholders to approve certain issuances of our equity securities. |
We are currently following
home country practice on the requirements described above. Accordingly, the majority of our board of directors is composed of management
or former management directors. Each of our compensation committee and governance and nominating committee include non-independent directors.
In addition, we are not required to put forward for a shareholder vote new equity plans or change to existing equity plans or other significant
share issuance. For a more detailed discussion of the ways in which our corporate governance differs from that of a U.S. domestic company
listed on the NYSE, see “Item 16G. Corporate Governance.” As a result of our use of the “home country practice”
exception from the NYSE corporate governance rules, you do not have same shareholder protections as you would if we were a U.S. domestic
public company or if we complied fully with the corporate governance listing standards.
We are not required to follow
customary practices applicable to U.S. domestic companies with respect to determining and disclosing executive compensation.
As a foreign private issuer,
we are not subject to many of the corporate governance and disclosure requirements relating to executive compensation matters under the
U.S. securities laws. Under our compensation committee charter, only 50% of the members of the committee at any time (less than a majority)
must be independent of management, while a U.S. domestic issuer is required to form a compensation committee composing entirely of independent
directors. We are also not required to and do not report compensation of senior management or directors on an individual basis. As a
result, investors are not able to assess for themselves appropriateness or reasonableness of the amount or form of compensation for individual
executives. The SEC has adopted a rule requiring disclosure of a chief executive officer pay relative to that of the median total compensation
for employees, which does not apply to foreign private issuers.
We have entered into agreements
that provide for the payment of annual bonuses based on a percentage of net income to certain of our executive officers. In other cases,
we have made arrangements or established bonus plans that provide for the payment of performance bonuses to employees, including executive
officers, based on assessment of their contributions to our business development, improvement of operation management, and fund financing
activities. These accrual and payments could result in a decrease of our net profit attributable to public shareholders.
You may not have the same
voting rights as the holders of our common shares and may not receive voting materials in time to be able to exercise your right to vote.
Holders of our ADSs will
not be able to exercise voting rights attaching to the underlying common shares represented by our ADSs on an individual basis. Holders
of our ADSs appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the common shares
represented by the ADSs. Holders of ADSs may not receive voting materials in time to instruct the depositary to vote, and it is possible
that you, or persons, who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise
a right to vote. As soon as practicable after the depositary receives from us a notice of a shareholders’ meeting, the depositary
will distribute to registered holders of ADSs a notice stating (a) such information as is contained in such notice and any solicitation
materials, (b) that each registered holder on the record date set for such purpose will, subject to any applicable provisions of Cayman
Islands law, be entitled to instruct the depositary as to the exercise of the voting rights, and (c) the manner in which such instructions
may be given, including instructions to give a discretionary proxy to a person designated by us. The depositary will not itself exercise
any voting discretion in respect of any common shares nor will it provide any instructions with respect to the common shares represented
by any ADSs for which voting instructions were not timely and properly received. There can be no guarantee that registered holders of
ADSs will receive the notice described above with sufficient time to enable them to return any voting instructions to the depositary
in a timely manner. To the extent you hold your ADSs through a bank, broker or other nominee, you will be relying upon such institutions
with respect to voting matters.
You may experience difficulties
in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other
foreign law against us or our management named in the annual report.
We are incorporated in the
Cayman Islands and conduct substantially all of our operations in China through our wholly-owned subsidiaries in China. Most of our assets
are located in China. In addition, many of our directors and senior executive officers reside within China and some or all of the assets
of those persons are located outside of the United States. As a result, it may not be possible to effect service of process within the
United States, or elsewhere outside China, upon our directors and senior executive officers, including with respect to matters arising
under the U.S. federal securities law or applicable state securities law. Even if you are successful in bringing an action of this kind,
the respective law of the Cayman Islands and China may render you unable to enforce a judgment against our assets or the assets of our
directors and officers. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state
courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of
such judgments), the courts of the Cayman Islands will, at common law, recognize and enforce a foreign money judgment of a foreign court
of competent jurisdiction without any re-examination of the merits of the underlying dispute based on the principle that a
judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the liquidated sum for which such judgment
has been given, provided such judgment (i) is final and conclusive, (ii) is not in respect of taxes, a fine or a penalty; and
(iii) has not been obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public
policy of the Cayman Islands. However, the Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under
civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of the Cayman Islands to give
rise to obligations to make payments that are penal or punitive in nature. A Cayman Islands court may stay enforcement proceedings if
concurrent proceedings are being brought elsewhere. Moreover, the PRC does not have treaties with the United States or many other countries
providing for the reciprocal recognition and enforcement of judgment of courts.
You may not be able to participate
in rights offerings and may experience dilution of your holdings as a result.
We may, from time to time,
distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, the depositary
will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are
either registered under the Securities Act or are exempt from registration under the Securities Act with respect to all holders of ADSs.
We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to
cause such a registration statement to be declared effective. In addition, we may not be able to take advantage of any exemptions from
registration under the Securities Act. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may
experience dilution in their holdings as a result.
You may be subject to limitations on transfer
of your ADSs.
Your ADSs are transferable
on the books of the depositary. However, the depositary may close its transfer books at any time, or from time to time, when it deems
expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers
of ADSs generally when our books, or the books of the depositary, are closed, or at any time if we, or the depositary, deem it advisable
to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement,
or for any other reason.
We are a Cayman Islands
exempted company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under
the U.S. law, you may have less protection of your shareholder rights than you would under the U.S. law.
Our corporate affairs are
governed by our memorandum and articles of association and by the Companies Act of the Cayman Islands, as amended from time to time,
and the common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority
shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the
common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent
in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands.
The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established
as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands have a less developed
body of securities laws as compared to the United States, and provide significantly less protection to investors. In addition, Cayman
Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.
In mergers and consolidations
where the merged company or consolidated company will continue to be a Cayman Islands entity, dissenting shareholders have the right
to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by the Cayman Islands courts)
if they follow required procedures, subject to certain exceptions. However, they may not be comparable to the appraisal rights that would
ordinarily be available to dissenting shareholders of a U.S. company.
As a result of all of the
above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors
or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
Our articles of association
may contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our common shares and ADSs.
Our second amended and restated
articles of association contain provisions limiting the ability of others to acquire control of our company or cause us to engage in
change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their
shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender
offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue
preferred shares in one or more series and to fix their designations, powers, preferences, privileges and relative participating, optional
or special rights and their qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights,
terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our common shares,
in the form of ADSs or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control
of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of
our ADSs may fall and the voting and other rights of the holders of our common shares and ADSs may be materially and adversely affected.
We may be classified as
a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs
or common shares.
The rules governing passive
foreign investment companies, or “PFICs,” can have adverse effects for U.S. federal income tax purposes. The tests for determining
PFIC status for a taxable year depend upon the relative values of certain categories of assets and the relative amounts of certain kinds
of income. The determination of whether we are a PFIC depends on the particular facts and circumstances (such as the valuation of our
assets, including goodwill and other intangible assets) and may also be affected by the application of the PFIC rules, which are subject
to differing interpretations. Based on our estimated gross income, the average value of our assets, including goodwill and the nature
of our business, although not free from doubt, we do not believe that we were classified as a PFIC for U.S. federal income tax purposes
for the taxable year ended December 31, 2023.
If we are a PFIC, U.S. holders
of our common shares or ADSs would be subject to adverse U.S. federal income tax consequences, such as ineligibility for any preferred
tax rates on capital gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting
requirements under U.S. federal income tax laws and regulations. A U.S. holder of our common shares or ADSs may be able to mitigate some
of the adverse U.S. federal income tax consequences described above with respect to owning the common shares or ADSs if we are classified
as a PFIC, provided that such U.S. Holder is eligible to make, and validly makes, a “mark-to-market” election. However, because
we are a holding company and a mark-to-market election would not apply to any lower-tier PFICs we own, it is unclear that making the
election would have any benefit to a U.S. holder. In certain circumstances, a U.S. holder can make a “qualified electing fund”
election to mitigate some of the adverse tax consequences described with respect to an ownership interest in a PFIC by including in income
its share of the PFIC’s income on a current basis. However, we do not currently intend to prepare or provide the information that
would enable a U.S. holder to make a qualified electing fund election.
See “Item 10. Additional
Information — E. Taxation — U.S. Federal Income Taxation — Passive Foreign Investment Company.”
ITEM 4 INFORMATION ON THE
COMPANY
B.
Regulation
China
Regulatory Developments
on Data Privacy
In November 2016, the SCNPC
promulgated the Cyber Security Law of the PRC, or the “Cyber Security Law,” which took effect on June 1, 2017. In accordance
with the Cyber Security Law, network operators must comply with applicable laws and regulations and fulfill their obligations to safeguard
network security in conducting business and providing services. Network service providers must take technical and other necessary measures
as required by laws, regulations and mandatory requirements to safeguard the operation of networks, respond to network security effectively,
prevent illegal and criminal activities, and maintain the integrity, confidentiality and usability of network data. On September 12,
2022, the CAC released the Draft Amendment to the Cyber Security Law, which increases the legal liability for violations under the current
Cyber Security Law, integrates and unifies the penalties for violations of network operation security protection obligations, violations
of critical information infrastructure security protection obligations and violations of personal information protection obligations.
Since the Amendment was only released in draft form for purposes of soliciting public comments at this stage, uncertainties exist with
respect to the enactment timetable, final content, interpretation and implementation of this proposed Amendment.
For the further purposes
of regulating data processing activities, safeguarding data security, promoting data development and utilization, protecting the lawful
rights and interests of individuals and organizations, and maintaining national sovereignty, security, and development interests, on
June 10, 2021, the SCNPC published the Data Security Law of the People’s Republic of China, or the PRC Data Securities Law, which
took effect on September 1, 2021. The PRC Data Security Law is applicable to both data processing activities carried out within the territory
of mainland China and data processing activities carried out outside mainland China that may harm the national security, public interests
or the legitimate rights and interests of citizens or organizations of mainland China. The PRC Data Security Law requires all data processing
(which includes the collection, storage, use, processing, transmission, provision, publication of data) to be conducted in a legitimate
and proper manner. The PRC Data Security Law imposes certain data security and privacy obligations on entities and individuals carrying
out data processing activities, including, but not limited to, establishing whole-process data security management systems, organizing
data security trainings, implementing necessary measures to ensure data security, strengthening risk monitoring, notifying users and
authorities of security incidents, and the conduction of regular risk assessments. The PRC Data Security Law also provides that the government
shall establish data security review mechanism for data processing activities that affect or may affect national security. Violation
of the PRC Data Security Law may cause such administrative penalties such as warnings, fines, confiscation of illegal gains, suspension
of business and revocation of licenses and civil and criminal liabilities.
The
PRC Data Security Law and the Regulations on Security Protection of Critical Information Infrastructure promulgated by the State Council
on July 30, 2021, among others, provide for a security review procedure for the data activities conducted by critical information infrastructure
operators that may affect national security. As of the date of this annual report, no detailed rules or implementation measures
specific to the real estate industry have been issued by any authority and we have not been informed as a critical information infrastructure
operator by any government authorities. Furthermore, the exact scope of “critical information infrastructure operators” under
the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and
enforcement of these laws. Therefore, it is uncertain whether we would be deemed as a critical information infrastructure operator under
PRC law. If we are deemed as a critical information infrastructure operator under the PRC cybersecurity laws and regulations, we must
fulfill certain obligations as required under these laws and regulations, including, among others, storing personal information and important
data collected and produced within the PRC territory during our operations in the Chinese mainland, which we have fulfilled in our business,
and we may be subject to review when purchasing internet products and services.
On December 28, 2021, the
Cyberspace Administration of China amended the Measures for Cybersecurity Review, or the “Cybersecurity Review Measures,”
which became effective on February 15, 2022. The scope of review under the Cybersecurity Review Measures extends to critical information
infrastructure operators that intend to purchase internet products and services and data processing operators engaging in data processing
activities which affect or may affect national security. According to Article 7 of the Cybersecurity Review Measures, operators who possess
the personal information of over a million users must apply to the Cybersecurity Review Office to conduct cybersecurity review procedures
before listing in a foreign country. Additionally, the Cybersecurity Review Measures also provide that if the relevant authorities consider
certain network products and services, data processing activities or listings in foreign countries to affect or potentially affect national
security, then the authorities may initiate a cybersecurity review even if the operators do not have an obligation to independently perform
a cybersecurity review under such circumstances.
On July 7, 2022, the CAC
promulgated the Measures for the Security Assessment of Cross-border Data Transmission, which came into effect on September 1, 2022 and
regulate security assessment procedures with respect to cross-border data transfer by data processor of important data and personal information
that is collected and generated during operations within the PRC. According to these measures, personal data processors will be subject
to security assessment procedures conducted by the CAC prior to any cross-border transfers of data if the transfer involves: (i) important
data; (ii) personal information transferred overseas by operators of critical information infrastructure or data processors that have
processed personal data of more than one million persons; (iii) personal information transferred overseas by data processors who have
provided personal data of 100,000 persons or sensitive personal data of 10,000 persons overseas since January 1 of the previous year;
or (iv) other circumstances as requested by the CAC. Furthermore, any cross-border data transfer activities conducted in violation of
the Measures for the Security Assessment of Cross-border Data Transmission before the effectiveness of these measures are required to
be brought into compliance with the measures by March 2023.
On March 22, 2024, the CAC
issued the long-awaited Provisions on Facilitating and Regulating Cross-Border Data Transfers, effective as of the same date.
The CAC simultaneously updated the Guidelines to Applications for Security Assessment of Outbound Data Transfers and the Guidelines
for Filing the Standard Contract for Outbound Cross-Border Transfer of Personal Information to harmonize the current rules applicable
to cross-border data transfers. These regulations benefit many multinational companies that are involved in the activity of transferring
personal information and other data out of China. The essence of these regulations consists of exceptions to existing data compliance
requirements (such as the need to conduct “security assessments” and to complete “standard contracts”) set out
under pre-existing laws and regulations concerning outbound cross-border data transfers.
As
of the date of this annual report, we have not been involved in any formal investigations on cybersecurity review made by the CAC on
such basis, and are not required to go through cybersecurity review by the CAC. However, if we are not able to comply with the
cybersecurity and network data security requirements in a timely manner, or at all, we may be subject to government enforcement actions
and investigations, fines, penalties, suspension of our non-compliant operations, among other sanctions, which could materially and adversely
affect our business and results of operations, significantly limit or completely hinder our ability to continue to offer securities to
investors, or cause the value of such securities to significantly decline. In particular, if it is determined in the future that the
approval of the CAC or any other regulatory authority is required for our offering, any failure to complete such procedures for our offshore
offerings, would subject us to sanctions by the CAC or other PRC regulatory authorities. Based on the foregoing, our PRC legal counsel
does not expect that, as of the date of this annual report, the current applicable PRC laws on cybersecurity review would have a material
adverse impact on our business.
On August 20, 2021, the SCNPC
of China promulgated the Personal Information Protection Law, which became effective on November 1, 2021, and which integrates various
scattered rules with respect to personal information rights and privacy protection. The Personal Information Protection Law stipulates
that, among other requirements, (i) all processing of personal information should have a clear and reasonable purpose which should be
directly related to the processing purpose and should be conducted in a method that has the minimum impact on personal rights and interests,
and (ii) the collection of personal information should be limited to the minimum scope that is necessary to achieve the processing purpose
and should avoid any excessive collection of personal information. Personal information processors are required to adopt necessary measures
to safeguard the security of the personal information they handle. Any offending entities could be ordered to undertake corrective measures,
or to suspend or terminate their provision of services, and to potentially face confiscation of unlawful income, fines or other penalties.
Our
websites only collect basic user personal information that is necessary to provide the corresponding services. We do not collect
any sensitive personal information or other excessive personal information that is not related to the corresponding services. We update
our privacy policies from time to time to meet the latest regulatory requirements of the CAC and other authorities and adopt technical
measures to protect data and ensure cybersecurity in a systematic way.Nonetheless, the Personal Information Protection Law raises the
protection requirements for processing personal information, and many specific requirements of the Personal Information Protection Law
remain to be clarified by the CAC, other regulatory authorities, and courts in practice. We may be required to make further adjustments
to our business practices to comply with the personal information protection laws and regulations.
Many
data-related laws and regulations in China are relatively new and certain concepts thereunder remain subject to discretionary and potentially
competing interpretations by relevant regulators. If any data that Xinyuan possesses belongs to data categories that are subject to heightened
scrutiny under such laws and regulations, then Xinyuan could be required to adopt stricter measures for the protection and management
of such data. In general, compliance with currently existing PRC laws and regulations, as well as additional laws and regulations that
PRC regulatory bodies may enact in the future, related to data security and personal information protection can be costly and would likely
result in additional expenses to Xinyuan. Any failure to comply with such laws and regulations could also subject Xinyuan to negative
publicity, which could harm our reputation and business operations. There are also uncertainties with respect to how such laws and regulations
will be implemented and interpreted in practice, or whether more restrictive laws or regulations may be promulgated in the future. We
are also in the process of evaluating the potential impact of the newly promulgated Regulations on Administration of Cyber Data Security,
which relates to cybersecurity, privacy, data protection and information security. This regulation was stipulated on September 24, 2024
and will take effect on January 1, 2025, and we are monitoring its effect on our current business practices. All these laws and regulations
may result in additional expenses and obligations to us and subject us to negative publicity, which could harm our reputation and negatively
affect the trading price of the ADSs. We expect that these areas will receive greater public scrutiny and attention from regulators
and more frequent and rigid investigation or review by regulators, which will increase our compliance costs and subject us to heightened
risks and challenges. If we are unable to manage these risks, we could become subject to penalties, fines, suspension of business and
revocation of required licenses, and our reputation and results of operations could be materially and adversely affected. We believe,
to the best of our knowledge, that our business operations are compliant with the currently effective PRC laws relating to cybersecurity,
data security, and personal data and privacy laws in all material respects. We have taken and will continue to take reasonable measures
to comply with such laws and regulations.
PART III
|
|
|
Exhibit Number |
|
Description
of Document |
1.1** |
|
Second Amended and Restated Memorandum
and Articles of Association of Xinyuan Real Estate Co., Ltd. |
|
|
|
2.1 |
|
Deposit
Agreement, dated as of December 11, 2007, among Xinyuan Real Estate Co., Ltd., JPMorgan Chase Bank, N.A., as depositary, and holders
of American Depositary Shares (incorporated by reference to Exhibit 2.5 to Amendment No. 1. to the registrant’s annual report
(File No. 001-33863), as amended, initially filed with the SEC on September 29, 2009) |
|
|
|
2.2 |
|
Amendment
to Deposit Agreement, including the form of ADR, dated November 9, 2017 (incorporated by reference to Exhibit 99.(a)(2) to the registrant’s
F-6EF (File No. 333-221449) filed with the SEC on November 9, 2017) |
|
|
|
2.3 |
|
Form
of Amendment No. 2 to Deposit Agreement, including the form of ADR, dated November 15, 2022 (incorporated by reference to Exhibit
99.(a)(3) to the registrant’s F-6 POS (File No. 333-221449) filed with the SEC on November 15, 2022) |
|
|
|
2.4 |
|
Indenture,
dated as of December 6, 2013, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule 1 thereto as Subsidiary Guarantors,
and Citicorp International Limited, as Trustee and Shared Security Agreement (incorporated by reference to Exhibit 99.1 to the registrant’s
Form 6-K (File No. 001-33863) filed with the SEC on December 9, 2013) |
|
|
|
2.5 |
|
Indenture
Supplement No. 1 dated as of February 13, 2015, among Citicorp International Limited as Trustee, Citicorp International Limited as
Shared Security Agent, Xinyuan Real Estate Co., Ltd. and the entities listed in Schedules I thereto as the Subsidiary Guarantors
to the Indenture, dated as of May 3, 2013 with respect to the registrant’s 13% June 2019 Senior Secured Notes (incorporated
by reference to Exhibit 99.2 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on February 13, 2015) |
|
|
|
2.6 |
|
Indenture
Supplement No. 2, dated as of February 3, 2016, among Citicorp International Limited as Trustee, Citicorp International Limited as
Shared Security Agent, Xinyuan Real Estate Co., Ltd. and the entities listed in Schedule I as the Subsidiary Guarantors, to the Indenture,
dated as of December 6, 2013, with respect to the registrant’s 13% June 2019 Senior Secured Notes (incorporated by reference
to Exhibit 99.3 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on February 3, 2016) |
|
|
|
2.7 |
|
Global
note representing the 13% June 2019 Senior Secured Notes (US$200,000,000 aggregate principal amount) (incorporated by reference to
Exhibit 99.2 to the registrant’s Form 6-K (File No. 00133863) filed with the SEC on December 9, 2013) |
|
|
|
2.8 |
|
Indenture,
dated as of August 30, 2016, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors,
and Citicorp International Limited, as Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s
Form 6-K (File No. 00133863) filed with the SEC on August 30, 2016) |
|
|
|
2.9 |
|
Global
note representing the 8.125% August 2019 Senior Secured Notes (US$300,000,000 aggregate principal amount) (incorporated by reference
to Exhibit 99.2 to the registrant’s Form 6-K (File No. 00133863) filed with the SEC on August 30, 2016) |
|
|
|
2.10 |
|
Indenture,
dated as of February 28, 2017, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors,
and Citicorp International Limited, as Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s
Form 6-K (File No. 00133863) filed with the SEC on February 28, 2017) |
Exhibit Number |
|
Description
of Document |
2.11 |
|
Global
note representing the 7.75% February 2021 Senior Secured Notes (US$300,000,000 aggregate principal amount) (incorporated by reference
to Exhibit 99.2 to the registrant’s Form 6-K (File No. 00133863) filed with the SEC on February 28, 2017) |
|
|
|
2.12 |
|
Indenture,
dated as of November 22, 2017, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors,
and Citicorp International Limited, as Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s
Form 6-K (File No. 001-33863) filed with the SEC on November 22, 2017) |
|
|
|
2.13 |
|
Global
note representing 8.875% Senior Notes due 2020 (US$200,000,000 aggregate principal amount) (incorporated by reference to Exhibit
99.2 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on November 22, 2017) |
|
|
|
2.14 |
|
Global
note representing 8.875% Senior Notes due 2020 (US$100,000,000 aggregate principal amount) (incorporated by reference to Exhibit
99.2 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on December 4, 2017) |
|
|
|
2.15 |
|
Indenture,
dated as of March 19, 2018, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors,
and Citicorp International Limited, as Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s
Form 6-K (File No. 001-33863) filed with the SEC on March 19, 2018) |
|
|
|
2.16 |
|
Global
note representing 9.875% Senior Notes due 2020 (US$200,000,000 aggregate principal amount) (incorporated by reference to Exhibit
99.2 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on March 19, 2018) |
|
|
|
2.17 |
|
Indenture,
dated as of April 15, 2019, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors,
and Citicorp International Limited, as Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s
Form 6-K (File No. 001-33863) filed with the SEC on April 18, 2019) |
|
|
|
2.18 |
|
Global
note representing 14.2% Senior Notes due 2021 (US $200,000,000 aggregate principal amount) (incorporated by reference to Exhibit
2.17 to the registrant’s Form 20-F(File No. 001-33863) filed with the SEC on April 29, 2019) |
|
|
|
2.19 |
|
Global
note representing 14.2% Senior Notes due 2021 (US $100,000,000 aggregate principal amount) (incorporated by reference to Exhibit
2.18 to the registrant’s Form 20-F(File No. 001-33863) filed with the SEC on April 29, 2019) |
|
|
|
2.20 |
|
Global
note representing 12% Senior Notes due 2022 (RMB160,000,000 aggregate principal amount) (incorporated by reference to Exhibit 99.1
to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on June 30, 2020) |
|
|
|
2.21 |
|
Global
note representing 12% Senior Notes due 2022 (RMB354,500,000 aggregate principal amount) (incorporated by reference to Exhibit 99.1
to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on August 12, 2020) |
|
|
|
2.22 |
|
Global
note representing 14.5% Senior Notes due 2023 (US $300,000,000 aggregate principal amount) (incorporated by reference to Exhibit
99.1 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on September 18, 2020) |
|
|
|
2.23 |
|
Global
note representing 14% Senior Notes due 2024 (US $170,000,000 aggregate principal amount) (incorporated by reference to Exhibit 99.1
to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on January 25, 2021) |
|
|
|
2.24 |
|
Global
note representing 3% Senior Notes due 2027 (US$331,303,941 aggregate principal amount) (incorporated by reference to Exhibit 99.1
to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on August 22, 2023) |
Exhibit Number |
|
Description
of Document |
2.25** |
|
Supplemental
Indenture, dated as of April 29, 2024, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary
Guarantors, and Citicorp International Limited, as Trustee, related to 3.0% Senior Notes Due 2027 |
|
|
|
2.26 |
|
Description
of Securities (incorporated by reference to Exhibit 2.19 to the registrant’s annual report on Form 20-F (File No. 001-33863),
filed with the SEC on April 29, 2020) |
|
|
|
4.1 |
|
2007
Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the registrant’s F-1 registration statement (File No.
333-147477), as amended, initially filed with the SEC on November 16, 2007) |
|
|
|
4.2 |
|
2014
Restricted Stock Unit Plan (incorporated by reference to Exhibit 4.3 to the registrant’s annual report on Form 20-F (File No.
001-33863), filed with the SEC on April 27, 2015) |
|
|
|
4.3 |
|
2015
Stock Option Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Form S-8 (File No. 333-205371) filed with
the SEC on June 30, 2015) |
|
|
|
4.4 |
|
English
Summary of the Capital Lease Agreement dated as of October 23, 2012, by and among MinshengHongtai (Tianjin) Aviation Leasing Co.,
Ltd., and Henan Xinyuan Real Estate Co., Ltd. (Original Language: Chinese) (incorporated by reference to Exhibit 4.7 to the registrant’s
annual report on Form 20-F (File No. 001-33863), filed with the SEC on April 15, 2013) |
|
|
|
4.5 |
|
English
Summary of the Guarantee Agreement dated as of October 23, 2012, by and among MinshengHongtai (Tianjin) Aviation Leasing Co., Ltd.,
Xinyuan (China) Real Estate, Ltd. and Henan Xinyuan Real Estate Co., Ltd. (Original Language: Chinese) (incorporated by reference
to Exhibit 4.8 to the registrant’s annual report on Form 20-F for the year ended December 31, 2012 (File No. 00133863), filed
with the SEC on April 15, 2013) |
|
|
|
4.6 |
|
2020
Restricted Stock Unit Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Form S-8 (File No. 333-239620) filed
with the SEC on July 1, 2020) |
|
|
|
8.1** |
|
Subsidiaries
of Xinyuan Real Estate Co., Ltd. |
|
|
|
11.1 |
|
Code
of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 to the registrant’s F-1 registration
statement (File No. 333-147477), as amended, initially filed with the SEC on November 16, 2007) |
|
|
|
12.1* |
|
CEO Certification Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
12.2* |
|
CFO Certification Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
13.1*** |
|
CEO
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
13.2*** |
|
CFO
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
15.1* |
|
Consent
of Union Power HK CPA Limited |
|
|
|
15.2** |
|
Consent
of Assentsure PAC |
|
|
|
15.3 |
|
Letter
of Union Power HK CPA Limited to the SEC, dated May 30, 2023 (incorporated by reference to Exhibit 15.3 to the registrant’s
annual report on Form 20-F (File No. 001-33863), as amended, initially filed with the SEC on May 30, 2023) |
|
|
|
97.1** |
|
Compensation
Recovery Policy of the Registrant |
|
|
|
101.INS** |
|
Inline
XBRL Instance Document |
Exhibit Number |
|
Description
of Document |
101.SCH** |
|
Inline
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL** |
|
Inline
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF** |
|
Inline
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB** |
|
Inline
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE** |
|
Taxonomy
Extension Presentation Linkbase Document |
|
|
|
104* |
|
Cover
Page Interactive Data File (embedded within the Inline XBRL document) |
| ** | Previously
filed with the annual report on Form 20-F on May 15, 2024 |
*** Previously furnished with the
annual report on Form 20-F on May 15, 2024
SIGNATURES
The
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized
the undersigned to sign this annual report on its behalf.
|
Xinyuan
Real Estate Co., Ltd. |
|
|
|
By: |
/s/
Yong Zhang |
|
Name:
|
Yong
Zhang |
|
Title:
|
Chief
Executive Officer |
Date:
October 29, 2024
Report of Independent Registered Public Accounting
Firm
To the Shareholders and the
Board of Directors of Xinyuan Real Estate Co., Ltd.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets of Xinyuan Real Estate Co., Ltd. and subsidiaries (the “Company”) as of December 31, 2023 and
2022, the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for the years
ended December 31, 2023 and 2022, and the related notes (collectively referred to as the “consolidated financial statements”).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the year ended December 31, 2023 and 2022,
in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s
internal control over financial reporting as of December 31, 2023 and 2022, based on criteria established in Internal Control-Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated May 15, 2024 and
May 30, 2023 expressed an unqualified opinion.
Material Uncertainty relating to Going Concern
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 (b) to the
consolidated financial statements, the Company’s ability to generate funds to meet short term operating cash requirements and loan
repayments is reliant on the Company’s ability to sell the real estate properties it holds, or to obtain alternative financing.
The timing of these sales is uncertain and as a result the Company is currently reliant on long term investor loans being renewed when
they come up for repayment. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s
plans relating to these matters are also described in Note 2(b). The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters
communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated
or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
Revenue Recognition and Contracts with Customers
– Long-Term Fixed Price Contracts
Critical Audit Matter Description
All real estate sales contracts are long-term
fixed price contracts whereby revenue is recognized over the contract term (“over time”) as the work progresses and control
of the goods and services is transferred to the customer. Revenue for these contracts is recognized based on the extent of progress toward
completion, generally measured by using a cost-to-cost basis input method.
Accounting for real estate sales contracts requires
management’s judgment in estimating total contract costs. Contract costs, which can be incurred over several years, are largely
determined based on negotiated or estimated construction contract terms and consider factors such as historical performance, technical
and schedule risk, internal and subcontractor performance trends, and anticipated labor costs.
Given the significant judgments necessary to
estimate costs associated with these long-term contracts, auditing real estate sales contracts requires a high degree of auditor judgment.
How the Critical Audit Matter Was Addressed
in the Audit
Our audit procedures related to real estate sales
contracts included the following, among others:
| · | We
tested the effectiveness of internal controls over the recognition of revenue and the determination
of estimated contract costs including controls over the review of management’s assumptions
and key inputs used to recognize revenue and costs on real estate sales contracts using the
cost-to-cost input method. |
| · | We
evaluated the appropriateness and consistency of management’s methods and assumptions
used to recognize revenue and costs on real estate sales contracts using the cost-to-cost
input method to recognize revenue over time. |
| · | We
selected a sample of real estate sales contracts and tested the estimates of total cost for
each of the real estate sales contracts by: |
| o | Testing
the estimated costs to complete projects that were not completed during the year ended December
31, 2023 by comparing the estimated cost to complete at December 31, 2023 to actual cost
incurred subsequent to December 31, 2023. |
| o | Evaluating
management’s ability to achieve the estimates of total cost by corroborating inquiries
with Company personnel, including project managers, and comparing the estimates to documentation
such as management’s work plans, contract terms and requirements, and purchase orders
with suppliers. Our evaluation of management’s assumptions included consideration of
historical and current project performance such as consistency of gross margin, identified
risks related to project timing including technical and schedule matters, and the status
of construction progress. |
Impairments – Real Estate Properties Development Completed
and Under Development
Critical Audit Matter Description
At
December 31, 2023, the Company’s real estate properties development completed and under development was US$3,307,964,969.
As described in Note 2 to the consolidated financial statements, the Company’s evaluation of impairment of real estate involves
an assessment of the carrying value of real estate properties development completed and under development when events or changes in circumstances
indicate that the carrying value may not be recoverable.
Auditing the Company’s process to evaluate
real estate properties development completed and under development for impairment was complex due to the subjectivity in determining
whether impairment indicators were present. Additionally, for real estate assets where indicators of impairment were determined to be
present, the determination of the future undiscounted cash flows involved significant judgment. In particular, the undiscounted cash
flows and fair value estimates were sensitive to significant assumptions, including future revenue, construction costs and selling expenses,
which are affected by expectations about future market or economic conditions.
How the Critical Audit Matter Was Addressed
in the Audit
Our audit procedures related to real estate properties
development completed and under development impairment included the following, among others:
| · | We
tested the effectiveness of controls over impairment of real estate properties development
completed and under development, including those over impairment indicators and the determination
of future undiscounted cash flows and forecasted sales price for real estate properties development
completed and under development. |
| · | We
evaluated the undiscounted future cash flows analysis, including estimates of future occupancy
levels, market rental revenue, and capitalization rates, in addition to the assessment of
expected remaining holding period and changes in management’s intent with respect to
the expected holding period for each real estate asset with possible impairment indicators
by: |
| 1. | Making
inquiries of accounting and operations management and board of directors. |
| 2. | Comparing
the source data and management’s assumptions to the Company’s historical results
and external market sources. |
| 3. | Testing
the mathematical accuracy of the undiscounted future cash flows analysis. |
Going concern
Critical Audit Matter Description
As discussed in Note 2 (b) to the consolidated
financial statements, the Company’s ability to generate funds to meet short term operating cash requirements and loan repayments
is reliant on the Company’s ability to sell the real estate properties it holds, or to obtain alternative financing. The timing
of these sales is uncertain and as a result the Company is currently reliant on long term investor loans being renewed when they come
up for repayment.
We determined that Company’s ability to
continue as a going concern is a critical matter due to the estimation and uncertainty regarding the Company’s available funding
and the risk of bias in management’s judgement and assumptions in their determination.
How the Critical Audit Matter Was Addressed
in the Audit
Our audit procedures relating to the Company’s
assertion on its ability to continue as a going concern included the following, among others: We inquired of Company management and reviewed
Company records and documents to assess whether there are additional factors that contribute to the uncertainties disclosed. We assessed
whether the Company’s identification of conditions and events that indicate there could be substantial doubt about its ability
to continue as a going concern for a reasonable period of time was appropriate and adequately disclosed. We reviewed a cash flow projection
prepared by management incorporating management’s plan and performed sensitivity analysis of significant assumptions to evaluate
the changes in the cash flow projection that would result from changes in the assumptions.
/s/ Assentsure
PAC
We have served as the Company’s auditor
since 2022.
Singapore
May 15, 2024
PCAOB ID No: 6783
Exhibit 12.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Yong Zhang, certify that:
1. I
have reviewed this amendment No.1 to annual report on Form 20-F/A of Xinyuan Real Estate Co., Ltd.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The
company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed
in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over
financial reporting; and
5. The
company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: October 29, 2024
Yong Zhang
Chairman and Chief Executive Officer
(Principal Executive Officer)
Exhibit 12.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Yong Zhang, certify that:
1. I
have reviewed this amendment No.1 to annual report on Form 20-F/A of Xinyuan Real Estate Co., Ltd.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered
by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;
4. The
company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed
in this report any change in the company’s internal control over financial reporting that occurred during the period covered by
the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over
financial reporting; and
5. The
company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the
equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
Date: October 29, 2024
Yong Zhang
Chairman and Chief Executive Officer
(Principal Executive Officer)
Exhibit 15.1
Consent of Independent Registered Public Accounting
Firm
We consent to the incorporation by reference in the following Registration
Statements:
(1) Registration Statement
(Form S-8 No. 333-152637) pertaining to Xinyuan Real Estate Co., Ltd. 2007 Equity Incentive Plan and 2007 Long Term Incentive Plan,
(2) Registration Statement
(Form S-8 No. 333-198525) pertaining to Xinyuan Real Estate Co., Ltd. 2014 Restricted Stock Unit Plan,
(3) Registration Statement
(Form S-8 No. 333-205371) pertaining to Xinyuan Real Estate Co., Ltd. 2015 Stock Option Plan, and
(4) Registration Statement
(Form S-8 No. 333-239620) pertaining to Xinyuan Real Estate Co., Ltd. 2020 Restricted Stock Unit Plan;
of our reports dated July 29, 2022, with respect
to the consolidated financial statements of Xinyuan Real Estate Co., Ltd. and the effectiveness of internal control over financial reporting
of Xinyuan Real Estate Co., Ltd. included in this Annual Report (Form 20-F) of Xinyuan Real Estate Co., Ltd. for the year ended December
31, 2023.
/s/ Union Power HK CPA Limited
Union Power HK CPA Limited
Hong Kong
May 15, 2024
v3.24.3
Cover
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12 Months Ended |
Dec. 31, 2023
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Current Fiscal Year End Date |
--12-31
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Entity File Number |
001-33863
|
Entity Registrant Name |
XINYUAN
REAL ESTATE CO., LTD.
|
Entity Central Index Key |
0001398453
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Entity Incorporation, State or Country Code |
E9
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Entity Address, Address Line One |
27/F,
China Central Place, Tower II
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79
Jianguo Road
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Chaoyang
District
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Entity Address, Country |
CN
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Beijing
100025
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American
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XIN
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NYSE
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Xinyuan
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27F,
China Central Place, Tower II
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79
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Chaoyang
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CN
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Beijing
100025
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86-10
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8588-9255
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Yong
Zhang
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irteam@xyre.com
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