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</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="font-size: 1pt; border-top: Black 2pt solid; border-bottom: Black 1pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>UNITED STATES</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>SECURITIES AND EXCHANGE
COMMISSION</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">WASHINGTON, D.C. 20549</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FORM <ix:nonNumeric contextRef="c0" name="dei:DocumentType">20-F</ix:nonNumeric></b></p><div>

</div><p style="text-align: center; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">(Mark One)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:DocumentRegistrationStatement"><span style="font-family: Times New Roman, Times, Serif">&#9744;</span></ix:nonNumeric>&#160;
<b>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>OR</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt:fixed-true" name="dei:DocumentAnnualReport"><span style="font-family: Times New Roman, Times, Serif">&#9746;</span></ix:nonNumeric>&#160;
<b>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>For the fiscal year ended
<ix:nonNumeric contextRef="c0" format="ixt:date-monthname-day-year-en" name="dei:DocumentPeriodEndDate"><ix:nonNumeric contextRef="c0" format="ixt:date-monthname-day-en" name="dei:CurrentFiscalYearEndDate">December 31</ix:nonNumeric>, <ix:nonNumeric contextRef="c0" name="dei:DocumentFiscalYearFocus">2022</ix:nonNumeric></ix:nonNumeric>.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>OR</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:DocumentTransitionReport"><span style="font-family: Times New Roman, Times, Serif">&#9744;</span></ix:nonNumeric>&#160;
<b>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>OR</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:DocumentShellCompanyReport"><span style="font-family: Times New Roman, Times, Serif">&#9744;</span></ix:nonNumeric>&#160;
<b>SHELL COMPANY REPORT PURSUANT TO SECTION&#160;13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Date of event requiring
this shell company report</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">For the transition period
from&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; to&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Commission file number:
<ix:nonNumeric contextRef="c0" name="dei:EntityFileNumber">001-33768</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" name="dei:EntityRegistrantName"><b>FANHUA INC.</b></ix:nonNumeric></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">(Exact name of Registrant
as specified in its charter)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">N/A</p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">(Translation of Registrant&#8217;s
name into English)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" format="ixt-sec:edgarprovcountryen" name="dei:EntityIncorporationStateCountryCode">Cayman Islands</ix:nonNumeric></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">(Jurisdiction of incorporation
or organization)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" name="dei:EntityAddressAddressLine1">60/F</ix:nonNumeric>, <ix:nonNumeric contextRef="c0" name="dei:EntityAddressAddressLine2">Pearl River Tower</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" name="dei:EntityAddressAddressLine3">No.&#160;15 West Zhujiang
Road</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c0" name="dei:EntityAddressCityOrTown">Guangzhou, Guangdong</ix:nonNumeric> <ix:nonNumeric contextRef="c0" name="dei:EntityAddressPostalZipCode">510623</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">People&#8217;s Republic
of <ix:nonNumeric contextRef="c0" format="ixt-sec:countrynameen" name="dei:EntityAddressCountry">China</ix:nonNumeric></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">(Address of principal executive
offices)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c1" name="dei:ContactPersonnelName">Peng Ge</ix:nonNumeric>, Chief Financial
Officer</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Tel: +<ix:nonNumeric contextRef="c1" name="dei:CityAreaCode">86 20</ix:nonNumeric> <ix:nonNumeric contextRef="c1" name="dei:LocalPhoneNumber">83883033</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">E-mail: <ix:nonNumeric contextRef="c1" name="dei:ContactPersonnelEmailAddress">gepeng@fanhuaholdings.com</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">Fax: +<ix:nonNumeric contextRef="c1" name="dei:ContactPersonnelFaxNumber">86 20 83883181</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c1" name="dei:EntityAddressAddressLine1">60/F</ix:nonNumeric>, <ix:nonNumeric contextRef="c1" name="dei:EntityAddressAddressLine2">Pearl River Tower</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c1" name="dei:EntityAddressAddressLine3">No.&#160;15 West Zhujiang
Road</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><ix:nonNumeric contextRef="c1" name="dei:EntityAddressCityOrTown">Guangzhou, Guangdong</ix:nonNumeric> <ix:nonNumeric contextRef="c1" name="dei:EntityAddressPostalZipCode">510623</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">People&#8217;s Republic
of <ix:nonNumeric contextRef="c1" format="ixt-sec:countrynameen" name="dei:EntityAddressCountry">China</ix:nonNumeric></p><div>



</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">(Name, Telephone, E-mail
and/or Facsimile number and Address of Company Contact Person)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>Securities registered
or to be registered pursuant to Section&#160;12(b) of the Act:</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 8pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; border-collapse: collapse; font-size: 10pt"> <tr style="vertical-align: bottom"> <td style="width: 32%; border-bottom: black 1.5pt solid; text-align: center"><span style="font-size: 10pt"><b>Title of Each Class </b></span></td> <td style="width: 2%; padding-bottom: 1.5pt; text-align: center">&#160;</td> <td style="width: 32%; border-bottom: black 1.5pt solid; text-align: center"><span style="font-size: 10pt"><b>Ticker Symbol(s)</b></span></td> <td style="width: 2%; padding-bottom: 1.5pt; text-align: center">&#160;</td> <td style="width: 32%; border-bottom: black 1.5pt solid; text-align: center"><span style="font-size: 10pt"><b>Name of Each Exchange on Which Registered</b></span></td></tr> <tr style="background-color: rgb(204,238,255)"> <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b><ix:nonNumeric contextRef="c0" name="dei:Security12bTitle">Ordinary shares, par value US$0.001 per share</ix:nonNumeric>*</b></span></td> <td style="vertical-align: bottom; text-align: center">&#160;</td> <td style="vertical-align: top; text-align: center"><ix:nonNumeric contextRef="c0" name="dei:TradingSymbol"><span style="font-size: 10pt"><b>FANH</b></span></ix:nonNumeric></td> <td style="vertical-align: bottom; text-align: center">&#160;</td> <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt"><b>The <ix:nonNumeric contextRef="c0" name="dei:SecurityExchangeName">NASDAQ</ix:nonNumeric> Stock Market LLC</b> &#160;</span></td></tr> <tr style="background-color: White"> <td style="vertical-align: bottom; text-align: center"><span style="font-size: 10pt"><b>American depositary shares, each representing 20 ordinary shares</b></span></td> <td style="vertical-align: bottom; text-align: center">&#160;</td> <td style="vertical-align: top; text-align: center">&#160;</td> <td style="vertical-align: bottom; text-align: center">&#160;</td> <td style="vertical-align: top; text-align: center"><span style="font-size: 10pt"><b>(The NASDAQ Global Select Market)</b></span></td></tr> </table><div>
</div><p style="text-align: center; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><span style="font-size: 8pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-size: 10pt">*</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Not for trading, but only in connection with the listing on The NASDAQ
    Global Select Market of American depositary shares, each representing 20 ordinary shares.</span></td></tr>
  </table><div>
</div><p style="text-align: center; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="text-align: center; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">Securities registered or to be registered pursuant
to Section 12(g) of the Act:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>None</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">(Title of Class)</p><div>

</div><p style="text-align: center; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="text-align: center; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>None</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">(Title of Class)</p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>

</div><!-- Field: Page; Sequence: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="margin: 0pt">&#160;</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Indicate
the number of outstanding shares of each of the Issuer&#8217;s classes of capital or common stock as of the close of the period covered
by the annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><b><ix:nonFraction contextRef="c2" decimals="INF" format="ixt:num-dot-decimal" name="dei:EntityCommonStockSharesOutstanding" scale="0" unitRef="shares">1,072,842,484</ix:nonFraction>
ordinary shares, par value US$0.001 per share as of December 31, 2022</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 0.25in">Yes
<span style="font-family: Times New Roman, Times, Serif">&#9744;</span>&#160;<ix:nonNumeric contextRef="c0" name="dei:EntityWellKnownSeasonedIssuer">No</ix:nonNumeric>&#160;<span style="font-family: Times New Roman, Times, Serif">&#9746;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 0.25in">Yes
<span style="font-family: Times New Roman, Times, Serif">&#9744;</span> <ix:nonNumeric contextRef="c0" name="dei:EntityVoluntaryFilers">No</ix:nonNumeric> <span style="font-family: Times New Roman, Times, Serif">&#9746;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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)&#160;has
been subject to such filing requirements for the past 90 days.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 0.25in"><ix:nonNumeric contextRef="c0" name="dei:EntityCurrentReportingStatus">Yes</ix:nonNumeric>
<span style="font-family: Times New Roman, Times, Serif">&#9746;</span> No <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (&#167;232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 0.25in"><ix:nonNumeric contextRef="c0" name="dei:EntityInteractiveDataCurrent">Yes</ix:nonNumeric>
<span style="font-family: Times New Roman, Times, Serif">&#9746;</span> No <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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 definition of &#8220;large accelerated filer,&#8221; &#8220;accelerated filer&#8221; and &#8220;emerging growth company&#8221;
in Rule 12b-2 of the Exchange Act. (Check one):</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; border-collapse: collapse; font-size: 10pt"> <tr style="vertical-align: top"> <td style="width: 9%">&#160;</td> <td style="width: 46%"><span style="font-size: 10pt">Large accelerated filer <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></span></td> <td style="width: 45%"><span style="font-size: 10pt"><ix:nonNumeric contextRef="c0" format="ixt-sec:entityfilercategoryen" name="dei:EntityFilerCategory">Accelerated filer</ix:nonNumeric> <span style="font-family: Times New Roman, Times, Serif">&#9746;</span>&#160;</span></td></tr> <tr style="vertical-align: top"> <td>&#160;</td> <td><span style="font-size: 10pt">Non-accelerated filer&#160;<span style="font-family: Times New Roman, Times, Serif">&#9744;</span></span></td> <td><span style="font-size: 10pt">Emerging growth company&#160;<ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:EntityEmergingGrowthCompany"><span style="font-family: Times New Roman, Times, Serif">&#9744;</span></ix:nonNumeric></span></td></tr> </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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 &#8224; provided
pursuant to Section 13(a) of the Exchange Act. <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">&#8224;</td><td style="text-align: justify">The term &#8220;new or revised financial accounting standard&#8221;
refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.</td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Indicate
by check mark whether the registrant has filed a report on and attestation to its management&#8217;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. <ix:nonNumeric contextRef="c0" format="ixt:fixed-true" name="dei:IcfrAuditorAttestationFlag"><span style="font-family: Times New Roman, Times, Serif">&#9746;</span></ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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. <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-family: Times New Roman, Times, Serif">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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&#8217;s executive officers during the relevant recovery period pursuant to &#167;240.10D-1(b). <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Indicate
by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; border-collapse: collapse; font-size: 10pt"> <tr style="vertical-align: top"> <td style="width: 9%">&#160;</td> <td style="width: 28%"><span style="font-size: 10pt"><ix:nonNumeric contextRef="c0" name="dei:DocumentAccountingStandard">U.S. GAAP</ix:nonNumeric> <span style="font-family: Times New Roman, Times, Serif">&#9746;</span></span></td> <td style="width: 63%"><span style="font-size: 10pt">International Financial Reporting Standards as issued Other <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></span></td></tr> <tr style="vertical-align: top"> <td>&#160;</td> <td>&#160;</td> <td><span style="font-size: 10pt">by the International Accounting Standards Board <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></span></td></tr> </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">If
&#8220;Other&#8221; has been checked in response to the previous question, indicate by check mark which financial statement item the
registrant has elected to follow.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 0.25in">Item
17 <span style="font-family: Times New Roman, Times, Serif">&#9744;</span> Item 18 <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 0.25in">Yes
<span style="font-family: Times New Roman, Times, Serif">&#9744;</span> No <ix:nonNumeric contextRef="c0" format="ixt:fixed-false" name="dei:EntityShellCompany"><span style="font-family: Times New Roman, Times, Serif">&#9746;</span></ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PAST FIVE YEARS)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 22.5pt"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 22.5pt">Yes
<span style="font-family: Times New Roman, Times, Serif">&#9744;</span> No <span style="font-family: Times New Roman, Times, Serif">&#9744;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 22.5pt"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 22.5pt"></p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="font-size: 1pt; border-top: Black 1pt solid; border-bottom: Black 2pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 22.5pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 22.5pt"></p><div>

</div><!-- Field: Page; Sequence: 2 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="margin: 0pt">&#160;</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right; text-indent: 22.5pt"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>TABLE OF CONTENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; border-collapse: collapse; font-size: 10pt">
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="width: 90%"><a href="#a_001"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"><b>INTRODUCTION</b></span></a></td>
    <td style="width: 1%">&#160;</td>
    <td style="text-align: center; width: 9%"> <span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">ii
    </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: center">&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_002"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PART I</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 1 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_003"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 1. Identity of Directors, Senior Management and
    Advisers</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 1 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_004"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 2. Offer Statistics and Expected Timetable</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 1 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_005"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 3. Key Information</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 1 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_006"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 4. Information on the Company</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 45 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_007"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 4A. Unresolved Staff Comments</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 76 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_008"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 5. Operating and Financial Review and Prospects</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 76 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_009"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 6. Directors, Senior Management and Employees</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 93 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_010"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 7. Major Shareholders and Related Party Transactions</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">104  </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_011"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 8. Financial Information</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 104 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_012"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 9. The Offer and Listing</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 106 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_013"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 10. Additional Information</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 107 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_014"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 11. Quantitative and Qualitative Disclosures about
    Market Risk</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 117 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_015"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 12. Description of Securities Other than Equity
    Securities</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 118 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: center">&#160;</td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_016"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PART II</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 119 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_017"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 13. Defaults, Dividend Arrearages and Delinquencies</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 119 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_018"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 14. Material Modifications to the Rights of Security
    Holders and Use of Proceeds</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 119 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_019"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 15. Controls and Procedures</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 119 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_020"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16A. Audit Committee Financial Expert</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 122 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_021"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16B. Code of Ethics</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 122 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_022"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16C. Principal Accountant Fees and Services</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 122 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_023"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16D. Exemptions from the Listing Standards for
    Audit Committees</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 123 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_024"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16E. Purchases of Equity Securities by the Issuer
    and Affiliated Purchasers</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 123 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_025"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16F. Change in Registrant&#8217;s Certifying Accountant</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 123 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_026"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16G. Corporate Governance</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 124 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_027"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16H. Mine Safety Disclosure.</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 124 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_028"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16I. Disclosure Regarding Foreign Jurisdictions
    that Prevent Inspections.</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 124 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_029"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 16J. Insider Trading Policies</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 124 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: center">&#160;</td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_031"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">PART III</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 125 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_031"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 17. Financial Statements</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 125 </span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><a href="#a_032"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 18. Financial Statements</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 125 </span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><a href="#a_033"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">Item 19. Exhibits</span></a></td>
    <td>&#160;</td>
    <td style="text-align: center"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt"> 125 </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="text-transform: uppercase"><b>&#160;</b></span></p><div>

</div><div><a id="a_001"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><span style="text-transform: uppercase"><b>INTRODUCTION</b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
this annual report, unless the context otherwise requires:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">&#8220;we,&#8221; &#8220;us,&#8221;
&#8220;our company,&#8221; &#8220;the Company&#8221; or &#8220;our&#8221; refers to Fanhua Inc., formerly known as CNinsure Inc. and
its subsidiaries and, in the context of describing its operations and consolidated financial information, its variable interest entities
which are its consolidated affiliated entities, if applicable. As described elsewhere in this annual report, we do not own the VIEs,
and the results of the VIEs&#8217; operations only accrue to us through contractual arrangements between the VIEs, and the VIEs&#8217;
nominee shareholders, and certain of our subsidiaries. Accordingly, in appropriate contexts we will describe the VIEs&#8217; activities
separately from those of our direct and indirect owned subsidiaries, and our use of the terms &#8220;we,&#8221; &#8220;us,&#8221; and
&#8220;our&#8221; may not include the VIEs in those contexts;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">&#8220;Parent&#8221; refers
to Fanhua Inc., a Cayman Islands holding company;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">&#8220;consolidated VIEs&#8221;
refers to Shenzhen Xinbao Investment Management Co., Ltd. (&#8220;Xinbao Investment&#8221;) Fanhua RONS (Beijing) Technologies Co., Ltd.
(&#8220;Fanhua RONS Technologies&#8221;) and their subsidiaries;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">&#8220;China&#8221; or &#8220;PRC&#8221;
refers to the People&#8217;s Republic of China, excluding, solely for the purpose of this annual report, Taiwan, Hong Kong Special Administrative
Region (&#8220;Hong Kong&#8221;) and Macau Special Administrative Region(&#8220;Macau&#8221;);</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">&#8220;provinces&#8221; of China refers to the 23 provinces, the four
    municipalities directly administered by the central government (Beijing, Shanghai, Tianjin and Chongqing), the five autonomous regions
    (Xinjiang, Tibet, Inner Mongolia, Ningxia and Guangxi), excluding, solely for the purpose of this annual report, Taiwan, Hong Kong
    and Macau;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">&#8220;shares&#8221; or &#8220;ordinary
shares&#8221; refers to our ordinary shares, par value US$0.001 per share;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">&#8220;ADSs&#8221; refers to
our American depositary shares, each of which represents 20 ordinary shares;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">all references to &#8220;RMB&#8221;
or &#8220;Renminbi&#8221; are to the legal currency of China, all references to &#8220;US$&#8221; and &#8220;U.S. dollars&#8221; are
to the legal currency of the United States and all references to &#8220;HK$&#8221; and &#8220;HK dollars&#8221; are to the legal currency
of Hong Kong;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">&#8220;customer&#8221; refers
to policyholder or our insurance company partner which we define as customer under ASC 606; and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">all discrepancies in any table
between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><b>Our
Corporate Structure</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Fanhua
Inc. is a Cayman Islands holding company primarily operating in China through (i) its PRC subsidiaries, including Fanhua Zhonglian Enterprise
Image Planning (Shenzhen) Co., Ltd., or Zhonglian Enterprise, and Fanhua Xinlian Information Technology Consulting (Shenzhen) Co., Ltd.,
or Xinlian Information, and their subsidiaries in which we hold equity ownership interests, and (ii) contractual arrangements among (x)
our wholly-owned PRC subsidiaries Fanhua Insurance Sales Service Group Company Limited, or Fanhua Group Company and Beijing Fanlian Investment
Co., Ltd., or Fanlian Investment, (y) the consolidated VIEs, namely, Shenzhen Xinbao Investment Management Co., Ltd., or Xinbao Investment,
and Fanhua RONS (Beijing) Technologies Co., Ltd., or Fanhua RONS Technologies, two limited liability companies established under PRC
law, and (z) the individual nominee shareholder of the consolidated VIEs. Fanhua Inc. holds 49% equity interests in Xinbao Investment.
Investors in the ADSs thus are not purchasing, and may never directly hold all equity interests in the consolidated VIEs. PRC laws, regulations,
and rules restrict and impose conditions on direct foreign investment in certain types of business, and we therefore operate these businesses
in China through the consolidated VIEs. For a summary of these contractual arrangements, see &#8220;Item 4. Information on the Company&#8212;C.
Organizational Structure.&#8221; As used in this annual report, &#8220;we&#8221;, &#8220;us&#8221;, or &#8220;our&#8221; refers to Fanhua
Inc. and its subsidiaries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
corporate structure is subject to risks relating to our contractual arrangements with Xinbao Investment, Fanhua RONS Technologies and
their individual nominee shareholders. If the PRC government finds these contractual arrangements non-compliant with the restrictions
on direct foreign investment in the relevant industries, or if the relevant PRC laws, regulations, and rules or the interpretation thereof
change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the consolidated VIEs or forfeit
our rights under the contractual arrangements. Fanhua Inc. and investors in the ADSs face uncertainty about potential future actions
by the PRC government, which could affect the enforceability of our contractual arrangements with Xinbao Investment and Fanhua RONS Technologies
and, consequently, significantly affect the financial condition and results of operations of Fanhua Inc. If we are unable to claim our
right to control the assets of the consolidated VIEs, the ADSs may decline in value or become worthless. See &#8220;Item 3. Key Information&#8212;D.
Risk Factors&#8212;Risks Related to Our Corporate Structure.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
face various legal and operational risks and uncertainties relating to doing business in China. We operate our business primarily in
China, and are subject to complex and evolving PRC laws and regulations. For example, we face risks relating to regulatory approvals
in connection with a future offering of our securities to foreign investors, oversight on cybersecurity and data privacy, and the expanding
efforts in anti-monopoly enforcement. Uncertainties in the PRC legal system and the interpretation and enforcement of PRC laws and regulations
could limit the legal protection available to you and us, hinder our ability to offer or continue to offer the ADSs, result in a material
adverse effect on our business operations, and damage our reputation, which might further cause the ADSs to significantly decline in
value or become worthless. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Doing Business in China.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left"><b>The
Holding Foreign Companies Accountable Act</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt">On
December 16, 2021, the PCAOB issued a report notifying the Commission of its determinations that they are unable to inspect or investigate
completely PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong. The report sets forth lists identifying
the registered public accounting firms headquartered in mainland China and Hong Kong, respectively, that the PCAOB is unable to inspect
or investigate completely. Our financial statements contained in this annual report on Form 20-F for the fiscal year ended December 31,
2022 have been audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, or Deloitte, an independent registered public accounting
firm that is headquartered in Mainland China and is on such lists.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
May 26, 2022, we have been conclusively identified by the Commission as a Commission-Identified Issuer under the Holding Foreign Company
Accountable Act, or the HFCA Act. If, in the future, we have been identified by the Commission for three consecutive years as an issuer
whose registered public accounting firm is determined by the PCAOB that it is unable to inspect or investigate completely because of
a position taken by one or more authorities in China, the Commission may prohibit our shares or ADSs from being traded on a national
securities exchange or in the &#8220;over-the-counter&#8221; trading market in the United States. Additionally, on December 29, 2022,
the Consolidated Appropriations Act, 2023 was signed into law, which, among others, amended the HFCA Act to reduce the number of consecutive
years an issuer can be identified as a Commission-Identified Issuer before the SEC must impose an initial trading prohibition on the
issuer&#8217;s securities from three years to two. Therefore, once an issuer is identified as a Commission-Identified Issuer for two
consecutive years, the SEC is required under the HFCA Act to prohibit the trading of the issuer&#8217;s securities on a national securities
exchange and in the over-the-counter market. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination
and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered
public accounting firms. Therefore, our auditor is currently able to be fully inspected and investigated by the PCAOB. Accordingly, until
such time as the PCAOB issues any new determination, we are at no risk of having our securities subject to a trading prohibition under
the HFCA Act. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and
Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate
completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions
to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following
the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCA Act, our securities would be prohibited
from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified
as a Commission-Identified Issuer for two consecutive years in the future. Furthermore, we and our investors may be deprived of the benefits
of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate
the effectiveness of our independent registered public accounting firm&#8217;s audit procedures or quality control procedures as compared
to auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in our securities
to lose confidence in the audit procedures and reported financial information and the quality of our financial statements. If we fail
to meet the new listing standards specified in the HFCA Act, we could face possible delisting from the Nasdaq, cessation of trading in
the &#8220;over-the-counter&#8221; market, deregistration from the Commission and/or other risks, which may materially and adversely
affect, or effectively terminate, our ADSs trading in the United States.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>


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    </div><!-- Field: /Page --><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><div><a id="a_002"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; text-align: left; margin-top: 0pt; margin-bottom: 0pt"><span style="text-transform: uppercase">PART
I</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -0.65in"><b>&#160;</b></p><div>

</div><div><a id="a_003"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">Item 1. Identity of Directors, Senior Management
and Advisers</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">Not Applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -0.65in"><b>&#160;</b></p><div>

</div><div><a id="a_004"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">Item 2. Offer Statistics and Expected Timetable</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">Not Applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -0.65in"><b>&#160;</b></p><div>

</div><div><a id="a_005"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">Item 3. Key Information</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -0.65in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>The Consolidated VIEs and China Operations</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Fanhua
Inc. is a Cayman Islands holding company primarily operating in China through (i) its PRC subsidiaries, including Zhonglian Enterprise
and Xinlian Information, and their subsidiaries in which we hold equity ownership interests, and (ii) contractual arrangements among
(x) our wholly-owned PRC subsidiary Fanhua Group Company and Fanlian Investment, (y) the consolidated VIEs, Xinbao Investment and Fanhua
RONS Technologies, limited liability companies established under PRC law, and (z) the individual nominee shareholders of the consolidated
VIEs. Fanhua Inc. holds 49% equity interests in Xinbao Investment. Investors in the ADSs thus are not purchasing, and may never directly
hold all equity interests in the consolidated VIEs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
commenced a restructuring in August 2021 to re-establish the VIE structure for our online insurance business where our direct equity
interests in Xinbao Investment were reduced from 100% to 49% and the remaining 51% was nominally held by an employee of the Company on
behalf of the Company. The restructuring completed in December 2021. Concurrently, our wholly-owned PRC subsidiary, Fanhua Group Company,
entered into contractual arrangements with Xinbao Investment and the individual nominee shareholder. These agreements include:(i) a technology
consulting and service agreement, which enables us to receive all of the economic benefits of Xinbao investment and its subsidiaries,
(ii) a loan agreement, powers of attorney and an equity pledge agreement, which provide us with effective control over Xinbao Investment,
and (iii) an exclusive purchase option agreement, which provides us with the option to purchase part of the equity interests in Xinbao
Investment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
June 24, 2022, our wholly owned subsidiary Fanlian Investment transferred all of the equity interests in Fanhua RONS Technologies to
Mr. Peng Ge, our chief financial officer to hold the shares of Fanhua RONS Technologies nominally on behalf of the Company. Concurrently,
Fanlian Investment entered into contractual arrangements with Fanhua RONS Technologies and Mr. Ge. The contractual arrangements are substantially
similar to those among Fanhua Group Company, Xinbao Investment and its individual nominee shareholder.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">For
more details of the restructuring and the contractual arrangements, see &#8220;Item 4. Information on the Company&#8212;C. Organizational
Structure.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
the opinion of the Company&#8217;s legal counsel, (i) the ownership structure relating to the consolidated VIEs of the Company is in
compliance with PRC laws and regulations; (ii) the contractual arrangements with the consolidated VIEs and the individual shareholders
are legal, valid and binding obligation of such party, and enforceable against such party in accordance with their respective terms;
and (iii) the execution, delivery and performance of the consolidated VIEs and its shareholders do not result in any violation of the
provisions of the articles of association and business licenses of the consolidated VIEs, and any violation of any current PRC laws and
regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">However,
control through these contractual arrangements may be less effective than direct ownership, and we could face heightened risks and costs
in enforcing these contractual arrangements, because there are substantial uncertainties regarding the interpretation and application
of current and future PRC laws, regulations, and rules relating to these contractual arrangements, and these contractual arrangements
have not been tested in a court of law. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations,
and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe
penalties or be forced to relinquish our interests in Xinbao Investment and Fanhua RONS Technologies or forfeit our rights under the
contractual arrangements. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Our Corporate Structure<b>&#8212;</b>If
the PRC government finds that the contractual arrangements that establish the structure for operating part of our China business does
not comply with applicable PRC laws and regulations, we could be subject to severe penalties.&#8221; and &#8220;Item 3. Key Information&#8212;D.
Risk Factors&#8212;Risks Related to Our Corporate Structure&#8212;We rely on contractual arrangements with our consolidated VIEs, Xinbao
Investment and Fanhua RONS Technologies, and their shareholders to conduct a small part of our China operations, which may not be as
effective in providing operational control as direct ownership, and these contractual arrangements have not been tested in a court of
law.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
following diagram illustrates the corporate structure of us and the consolidated VIEs, including the names, places of incorporation and
the proportion of ownership interests in our and the consolidated VIEs&#8217; significant subsidiaries and their respective subsidiaries
as of March 31, 2023:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><img alt="" src="image_001.jpg"/>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
diagram above omits the names of subsidiaries that are immaterial individually and in the aggregate. For a complete list of our subsidiaries
as of March 31, 2023, see Exhibit 8.1 to this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>Fund Flows between
Fanhua Inc., its Subsidiaries and the Consolidated VIEs </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Under
PRC law, we may provide funding to our PRC subsidiaries only through capital contributions or loans, and to the consolidated VIEs only
through loans, subject to the satisfaction of applicable government registration and approval requirements. We rely on dividends and
other distributions from our PRC subsidiaries to satisfy part of our liquidity requirement. Under the contractual arrangements among
Fanhua Group Company, the consolidated VIEs, and the shareholders of the consolidated VIEs, Fanhua Group Company is entitled to all of
the economic benefits of the consolidated VIEs and its subsidiaries in the form of service fees. For risks relating to the fund flows
of our China operations, see &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Doing Business in China&#8212;We
rely principally on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements
we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our
ability to conduct our business.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>Assets Transfer Occurred
Between Fanhua Inc., its Subsidiaries and the Consolidated VIEs</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Under
the Contractual Arrangements, Fanhua Group Company and Fanlian Investment provide consultation and training services to the consolidated
VIEs and are entitled to receive service fees from the consolidated VIEs in exchange. The Contractual Arrangements provide that the consolidated
VIEs shall pay a quarterly fee calculated primarily based on a percentage of its revenues.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 7pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Technology consulting and
service agreements were entered into between (i) Fanhua Group Company and (ii) Xinbao Investment and each of its subsidiaries on March
1, 2022 and consulting and service agreements were entered into between (i) Fanlian Investment and (ii) Fanhua RONS Technologies and each
of its subsidiaries. No service fees have been incurred in 2022. The cash flows occurred between our subsidiaries and the consolidated
VIEs included the following: (1) cash received by the VIEs from our subsidiaries as inter-company advances amounted to RMB43.0 million
for the year ended December 31, 2022; and (2) commissions received offset by technology services paid by our subsidiaries to the VIEs
amounted to RMB94.9 million for the year ended December 31, 2022.</p><div>

</div><!-- Field: Page; Sequence: 7; Value: 1 --><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>Dividends or Distributions on Our ADSs or
Ordinary Shares Made to the U.S. Investors and Their Tax Consequences</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
board of directors has discretion as to whether to distribute dividends, subject to applicable laws. Although Fanhua Inc. has previously
paid dividends on a quarterly basis, the amount and form of future dividends will depend on, among other things, our future results of
operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries,
our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. See &#8220;Item 8. Financial
Information&#8212;A. Consolidated Statements and Other Financial Information&#8212;Dividend Policy.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
addition, subject to the passive foreign investment company rules discussed in detail under &#8220;Item 10. Additional Information&#8212;E.
Taxation&#8212;United States Federal Income Taxation&#8212;Passive Foreign Investment Company&#8221;, the gross amount of any distribution
that we make to investors with respect to our ADSs or ordinary shares (including any amounts withheld to reflect PRC or other withholding
taxes) will be taxable as a dividend, to the extent paid out of our current or accumulated earnings and profits, as determined under
United States federal income tax principles. Furthermore, 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. See
&#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Doing Business in China&#8212;Our global income or the dividends
we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse effect on our results
of operations.&#8221; For further discussion on PRC and United States federal income tax considerations of an investment in the ADSs,
see &#8220;Item 10&#8212;Additional Information&#8212;E. Taxation.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>Restrictions on Foreign Exchange and the
Ability to Transfer Cash between Entities, Across Borders and to U.S. Investors </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
cash dividends were 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 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 and if
this occurs in the future, we may not be able to pay dividends in foreign currencies to our shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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, our PRC subsidiaries and the consolidated VIEs can only distribute dividends
upon approval of the shareholders after they have met the PRC requirements for appropriation to the statutory reserves. As a result of
these and other restrictions under the PRC laws and regulations, our PRC subsidiaries and the consolidated VIEs are restricted to transfer
a portion of their net assets to us either in the form of dividends, loans or advances. Even though we currently do not require any such
dividends, loans or advances from our PRC subsidiaries and the consolidated VIEs for working capital and other funding purposes, we may
in the future require additional cash resources from our PRC subsidiaries and the consolidated VIEs due to changes in business conditions,
to fund future acquisitions and developments, or merely pay dividends to or distributions to our shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>Financial Information Related to the VIEs
</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
following tables set forth the summary consolidated balance sheets data as of December 31, 2022 of the Parent, our wholly-owned foreign
subsidiary (&#8220;WOFEs&#8221;), or Fanhua Group Company and Fanlian Investment, that are the primary beneficiaries of the VIEs under
accounting principles generally accepted in the United States, or U.S. GAAP (the &#8220;Primary Beneficiaries of VIEs&#8221;), our other
subsidiaries and the consolidated VIEs and their subsidiaries, and the summary of the consolidated statement of income and cash flows
for the year ended December 31, 2022. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
Our and the consolidated VIEs&#8217; historical results are not necessarily indicative of results expected for future periods. You should
read this information together with our consolidated financial statements and the related notes and &#8220;Item 5. Operating and Financial
Review and Prospects&#8221; included elsewhere in this annual report<b>. </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom">
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    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">38,169</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">112,399</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">378,445</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">&#8212;</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">567,525</td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">27,619</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">659,788</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">417,613</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">208,630</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">3,056,014</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(4,625,415</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">4,035</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">4,035</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">2,520,667</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">64,000</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(3,763,644</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">5,273</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">13,074</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">126,739</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">145,086</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">2,322</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">1,289</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">94,848</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">98,459</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">11,400</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">11,400</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.125in; padding-left: 0.125in">Deferred tax assets</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">5,000</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">15,402</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">20,402</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; padding-bottom: 1.5pt; text-indent: -0.125in; padding-left: 0.125in">Other assets</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">&#8212;</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">387,545</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">140,432</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">&#8212;</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">529,732</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: left; padding-bottom: 4pt; text-indent: -0.125in; padding-left: 0.125in">Total assets</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">3,008,446</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">311,595</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">2,817,528</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">5,341,006</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
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    <td style="border-bottom: Black 4pt double; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; text-align: right">3,089,516</td><td style="padding-bottom: 4pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="font-weight: bold; text-indent: -0.125in; padding-left: 0.125in">Liabilities</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.125in; padding-left: 0.125in">Short-term loan</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">35,679</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">35,679</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">353,752</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">362,352</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -0.125in; padding-left: 0.125in">Accrued commissions</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">267,349</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">267,349</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">3,599</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">3,267</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">2,597</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">164,863</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">174,326</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">455,539</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">455,539</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">711,908</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">3,561,209</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">329,430</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(4,244,963</td><td style="font-size: 10pt; text-align: left">)</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">1,190</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">16,113</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">208,374</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">225,677</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">1,679</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">184</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">44,937</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">46,800</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">31,459</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">31,459</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">6,517</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">12,211</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">18,728</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">&#8212;</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">924</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">&#8212;</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">&#8212;</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">149,816</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 4pt double; font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-size: 10pt; font-weight: bold; text-align: right">186,143</td><td style="padding-bottom: 4pt; font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="font-size: 10pt; font-weight: bold; padding-bottom: 4pt">&#160;</td>
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    <td style="border-bottom: Black 4pt double; font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-size: 10pt; font-weight: bold; text-align: right">6,461,451</td><td style="padding-bottom: 4pt; font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="font-size: 10pt; font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-size: 10pt; font-weight: bold; text-align: right">(9,328,156</td><td style="padding-bottom: 4pt; font-size: 10pt; font-weight: bold; text-align: left">)</td><td style="font-size: 10pt; font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-size: 10pt; font-weight: bold; text-align: right">3,242,118</td><td style="padding-bottom: 4pt; font-size: 10pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#160;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#160;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#160;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#160;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#160;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#160;</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">73,101</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">73,213</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
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    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">&#8212;</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">&#8212;</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
    <td style="font-size: 10pt">&#160;</td><td style="font-size: 10pt; font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="font-size: 10pt; font-weight: bold; text-align: right">(36,227</td><td style="font-size: 10pt; font-weight: bold; text-align: left">)</td><td style="font-size: 10pt; font-weight: bold">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
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  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">Note:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left">(1)</td><td style="text-align: justify">The elimination mainly represents (i) the intercompany service
fee related to agency services for distributing life insurance products and P&amp;C insurance products on behalf of insurance companies
provide by consolidated affiliated entities to subsidiaries and (ii) the intercompany service fee related to technology services provided
by our consolidated variable interest entities to our subsidiaries.</td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 10; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">13,916</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">13,916</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(37,677</td><td style="font-size: 10pt; text-align: left">)</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(2,929,387</td><td style="font-size: 10pt; text-align: left">)</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">&#8212;</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
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    <td style="font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="font-size: 10pt; font-weight: bold; text-align: right">(331</td><td style="font-size: 10pt; font-weight: bold; text-align: left">)</td><td style="font-size: 10pt; font-weight: bold">&#160;</td>
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  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">Note:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: left">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-size: 10pt">(1)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The elimination mainly represents the intercompany service fee related
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-size: 10pt; text-align: left; text-indent: -9pt; padding-left: 9pt">Net cash provided by (used in) transactions with external parties</td><td style="font-size: 10pt">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(16,214</td><td style="font-size: 10pt; text-align: left">)</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(34,333</td><td style="font-size: 10pt; text-align: left">)</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(994,116</td><td style="font-size: 10pt; text-align: left">)</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="font-size: 10pt; text-align: left; text-indent: -9pt; padding-left: 9pt">Net cash provided by (used in) transactions with internal companies</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(689,780</td><td style="font-size: 10pt; text-align: left">)</td><td style="font: 10pt Times New Roman, Times, Serif">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">701,822</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font: 10pt Times New Roman, Times, Serif">&#160;</td>
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    <td style="font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="font-size: 10pt; font-weight: bold; text-align: right">(321,712</td><td style="font-size: 10pt; font-weight: bold; text-align: left">)</td><td style="font-size: 10pt; font-weight: bold">&#160;</td>
    <td style="font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="font-size: 10pt; font-weight: bold; text-align: right">43,032</td><td style="font-size: 10pt; font-weight: bold; text-align: left">&#160;</td><td style="font-size: 10pt; font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(321,712</td><td style="font-size: 10pt; text-align: left">)</td><td style="font: 10pt Times New Roman, Times, Serif">&#160;</td>
    <td style="font: 10pt Times New Roman, Times, Serif; text-align: left">&#160;</td><td style="font: 10pt Times New Roman, Times, Serif; text-align: right">&#8212;</td><td style="font: 10pt Times New Roman, Times, Serif; text-align: left">&#160;</td><td style="font: 10pt Times New Roman, Times, Serif">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-size: 10pt; text-align: left; text-indent: -9pt; padding-left: 9pt">Net cash provided by (used in) transactions with internal companies</td><td style="font: 10pt Times New Roman, Times, Serif">&#160;</td>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(52,476</td><td style="font-size: 10pt; text-align: left">)</td><td style="font-size: 10pt">&#160;</td>
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    <td style="font: 10pt Times New Roman, Times, Serif; text-align: left">&#160;</td><td style="font: 10pt Times New Roman, Times, Serif; text-align: right">&#8212;</td><td style="font: 10pt Times New Roman, Times, Serif; text-align: left">&#160;</td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

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</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
    <td style="font-size: 10pt">&#160;</td><td style="font-size: 10pt; font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">85,072</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">&#8212;</td><td style="font-size: 10pt; text-align: left">&#160;</td></tr>
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">(283,323</td><td style="font-size: 10pt; text-align: left">)</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">261,650</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">344,163</td><td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>Filing Procedures Required from the PRC Authorities
for Offering Securities to Foreign Investors </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Under
applicable laws of mainland China, we and our mainland China subsidiaries may be required to complete certain filing procedures with
the China Securities Regulatory Commission, or the CSRC, in connection with future offering and listing in an overseas market, including
our follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering
activities. If we fail to complete such filing procedures for any future offshore offering or listing, including our follow-on offerings,
issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities, we may
face sanctions by the CSRC or other mainland China regulatory authorities, which may include fines and penalties on our operations in
mainland China, limitations on our operating privileges in mainland China, restrictions on or delays to our future financing transactions
offshore, 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. In addition, we are required to file a report to the CSRC after the
occurrence and public disclosure of certain material corporate events, including but not limited to, change of control and voluntary
or mandatory delisting. For more detailed information, see &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to
Doing Business in China&#8212;The approval of and filing with the CSRC or other government authorities may be required in connection
with our follow-on offshore offerings and capital raising activities under the laws of mainland China, and, if required, we cannot predict
whether or for how long we will be able to obtain such approval or complete such filing.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Summary of Risk Factors</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 20.1pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Investing
in the ADSs involves a high degree of risk. You should carefully consider the risks described under &#8220;Item 3. Key Information&#8212;D.
Risk Factors&#8221; and other information contained in this annual report on Form 20-F, before you decide whether to purchase the ADSs.
Below please find a summary of the principal risks and uncertainties we face, organized under relevant headings:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Risks Related to Our
Business and Industry&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">We may not be successful in implementing our new strategic initiatives,
    which may have an adverse impact on our business and financial results.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">If we fail to attract and retain productive agents, especially entrepreneurial
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">Material changes in the regulatory environment could change the competitive
    landscape of our industry or require us to change the way we do business. The administration, interpretation and enforcement of the
    laws and regulations currently applicable to us could change rapidly. If we fail to comply with applicable laws and regulations,
    we may be subject to civil and criminal penalties or lose the ability to conduct our business.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in; text-align: justify">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Risks Related to Our
Corporate Structure</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
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    the ADSs thus are not purchasing, and may never directly hold, all equity interests in the consolidated VIEs. There are substantial
    uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to such
    agreements that establish the VIE structure for the majority of our and the consolidated VIEs&#8217; operations in China, including
    potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with Xinbao
    Investment and Fanhua RONS Technologies and, consequently, significantly affect the financial condition and results of operations
    of Fanhua Inc. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Risks Related to Doing
Business in China</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>&#160;</b></p><div>

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    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">The approval of and
    filing with the CSRC or other government authorities may be required in connection with our follow-on offshore offerings and capital
    raising activities under the laws of mainland China, and, if required, we cannot predict whether or for how long we will be able
    to obtain such approval or complete such filing.</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p></td></tr>
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    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Uncertainties in the PRC legal system and the interpretation and enforcement
    of PRC laws and regulations could limit the legal protections available to you and us, significantly limit or completely hinder our
    ability to offer or continue to offer our ADSs, cause significant disruption to our and the consolidated VIE&#8217;s business operations,
    and severely damage our and the consolidated VIEs&#8217; reputation, which would materially and adversely affect our and the consolidated
    VIEs&#8217; financial condition and results of operations and cause our ADSs to significantly decline in value or become worthless.
    In addition, rules and regulations in China can change quickly with little advance notice, therefore, our assertions and beliefs
    of the risks imposed by the Chinese legal and regulatory system cannot be certain.</span></td></tr>
  </table><div>
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Our global income or the dividends we receive from our PRC subsidiaries
    may be subject to PRC tax under the EIT Law, which could have a material adverse effect on our results of operations.</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
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    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">We rely principally on dividends and other distributions on equity
    paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries
    to make payments to us could have a material adverse effect on our ability to conduct our business.</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">PRC regulations relating to the establishment of offshore special purpose
    companies by PRC residents and employee stock options granted by overseas-listed companies may increase our administrative burden,
    restrict our overseas and cross-border investment activity, or otherwise adversely affect us. If our shareholders who are PRC residents,
    or our PRC employees who are granted or exercise stock options, fail to make any required registrations or filings under such regulations,
    we may be unable to distribute profits and may become subject to liability under PRC laws. We may also face regulatory uncertainties
    that could restrict our ability to adopt additional equity compensation plans for our directors and employees and other parties under
    PRC law.</span></td></tr>
  </table><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>Risks Related to Our ADSs&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>&#160;</b></p><div>

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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The Accelerating Holding Foreign Companies Accountable Act, which,
    if enacted, would reduce the time period before our ADSs may be prohibited from trading or delisted. The delisting of our ADSs, or
    the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability
    of the PCAOB to conduct adequate inspections deprives our investors with the benefits of such inspections.</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
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    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">We may need additional capital, and the sale of additional ADSs or
    other equity securities could result in additional dilution to our shareholders.</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
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    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Holders of our ADSs may have fewer rights than holders of our ordinary
    shares and must act through the depositary to exercise those rights.</span></td></tr>
  </table><div>
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">You may have to rely primarily on price appreciation of our ADSs for
    any return on your investment.</span></td></tr>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
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    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">As a foreign private issuer, we are exempt from certain disclosure
    requirements under the Exchange Act, which may afford less protection to our shareholders than they would enjoy if we were a domestic
    U.S. company.</span></td></tr>
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    <td>&#160;</td>
    <td>&#160;</td>
    <td style="text-align: justify">&#160;</td></tr>
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    <td>&#160;</td>
    <td><span style="font-family: Times New Roman, Times, Serif; font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">We may be a passive foreign investment company for United States federal
    income tax purposes, which could result in adverse United States federal income tax consequences to United States Holders of our
    ADSs or ordinary shares. </span></td></tr>
  </table><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b>Risks Related to PCAOB Inspections </b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
December 16, 2021, the PCAOB issued a report notifying the Commission of its determinations (the &#8220;PCAOB Determinations&#8221;)
that they are unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and
in Hong Kong. The report sets forth lists identifying the registered public accounting firms headquartered in mainland China and Hong
Kong, respectively, that the PCAOB is unable to inspect or investigate completely. Our financial statements contained in this annual
report on Form 20-F for the fiscal year ended December 31, 2022 have been audited by Deloitte, an independent registered public accounting
firm that is headquartered in Mainland China and is on such lists. On May 26, 2022, we have been conclusively identified by the Commission
as a Commission-Identified Issuer under the Holding Foreign Company Accountable Act, or the HFCA Act. If, in the future, we have been
identified by the Commission for three consecutive years as an issuer whose registered public accounting firm is determined by the PCAOB
that it is unable to inspect or investigate completely because of a position taken by one or more authorities in China, the Commission
may prohibit our shares or ADSs from being traded on a national securities exchange or in the &#8220;over-the-counter&#8221; trading
market in the United States. Additionally, on December 29, 2022, the Consolidated Appropriations Act, 2023 was signed into law, which,
among others, amended the HFCA Act to reduce the number of consecutive years an issuer can be identified as a Commission-Identified Issuer
before the SEC must impose an initial trading prohibition on the issuer&#8217;s securities from three years to two. Therefore, once an
issuer is identified as a Commission-Identified Issuer for two consecutive years, the SEC is required under the HFCA Act to prohibit
the trading of the issuer&#8217;s securities on a national securities exchange and in the over-the-counter market. On December 15, 2022,
the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of
jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. Therefore, our auditor is currently
able to be fully inspected and investigated by the PCAOB. Accordingly, until such time as the PCAOB issues any new determination, we
are at no risk of having our securities subject to a trading prohibition under the HFCA Act. Each year, the PCAOB will determine whether
it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines
in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong
and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed
with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the
relevant fiscal year. In accordance with the HFCA Act, our securities would be prohibited from being traded on a national securities
exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two
consecutive years in the future. Furthermore, we and our investors may be deprived of the benefits of such PCAOB inspections. The inability
of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered
public accounting firm&#8217;s audit procedures or quality control procedures as compared to auditors outside of China that are subject
to the PCAOB inspections, which could cause investors and potential investors in our securities to lose confidence in the audit procedures
and reported financial information and the quality of our financial statements. If we fail to meet the new listing standards specified
in the HFCA Act, we could face possible delisting from the Nasdaq, cessation of trading in the &#8220;over-the-counter&#8221; market,
deregistration from the Commission and/or other risks, which may materially and adversely affect, or effectively terminate, our ADSs
trading in the United States.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -0.65in"><b>&#160;</b></p><div>

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<td style="width: 0in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b>A.</b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b>[Reserved]</b></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -0.65in"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b>B.</b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b>Capitalization and Indebtedness</b></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">Not Applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -0.65in"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b>C.</b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b>Reasons for the Offer and Use
of Proceeds</b></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">Not Applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

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<td style="width: 0in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b>D.</b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b>Risk Factors</b></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;<b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Risks Related to Our
Business and Industry</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We may not be successful
in implementing our new strategic initiatives, which may have an adverse impact on our business and financial results.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
late 2020, we launched new strategic initiatives with focus on (i) building a career-based and professional insurance advisor team with
profound insurance knowledge and capabilities to provide family financial asset allocation services to the emerging middle-class and
mass-affluent individuals and families and empowering all independent agents and agencies in China to become more efficient and professionalized;
(ii) developing digital toolkits and enhancing digital operation capabilities to empower independent agents and increase agent productivity
and (iii) offering an open platform to all independent agents and agencies whereby they can have access to compliance support, industry
leading IT infrastructure, digital technologies, better products and service offerings, and the library of resources and knowhow to improve
their training and skillsets to strengthen their competitiveness in the market. There is no assurance that we will be able to implement
these strategic initiatives in accordance with our expectations, which may result in an adverse impact on our business and financial
results.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>If and when our contracts
with insurance companies are suspended or changed, our business and operating results will be materially and adversely affected.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
primarily act as agents for insurance companies in distributing their products to retail customers. We also provide claims adjusting
services principally to insurance companies. Our relationships with the insurance companies are governed by agreements between us and
the insurance companies. We have entered into strategic partnership agreements with most of our major insurance company partners for
the distribution of life, property and casualty insurance products and the provision of claims adjusting services at the corporate headquarters
level. While this approach allows us to obtain more favorable terms from insurance companies by combining the sales volumes and service
fees of all of our subsidiaries and branches operating insurance agency and claims adjusting businesses, it also means that the termination
of a major contract could have a material adverse effect on our business. Under the framework of the headquarter-to-headquarter agreements,
our subsidiaries and branches operating insurance agency and claims adjusting businesses generally also enter into contracts at a local
level with the respective provincial, city and district branches of the insurance companies. Generally, each branch of these insurance
companies has independent authority to enter into contracts with our relevant subsidiaries and branches, and the termination of a contract
with one branch has no significant effect on our contracts with the other branches. See &#8220;Item 4. Information on the Company&#8212;B.
Business Overview&#8212;Insurance Company Partners.&#8221; These contracts establish, among other things, the scope of our authority,
the pricing of the insurance products we distribute and our fee rates. These contracts typically have a term of one year, and certain
contracts can be terminated by the insurance companies with little advance notice. Moreover, before or upon expiration of a contract,
the insurance company that is a party to that contract may agree to renew it only with changes in material terms, including the amount
of commissions and fees we receive, which could reduce our revenues to be generated from that contract.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">For
the year ended December 31, 2022, our top five insurance company partners were Sinatay Life Insurance Co., Ltd., or Sinatay, Greatwall
Life Insurance Co., Ltd., or Greatwall, Huaxia Life Insurance Co., Ltd., or Huaxia, Aeon Life Insurance Co., Ltd., or Aeon, and Ping
An Property &amp; Casualty Insurance Company of China, or Ping An by net revenues<b>. </b>Among these top five partners, only Sinatay
accounted for more than 10% of our total net revenues individually in 2022, with Sinatay accounting for 19.6%, Greatwall accounting for
9.6%, Huaxia accounting for 9.0%, Aeon accounting for 8.4% and Ping An accounting for 6.8%, respectively.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>If we fail to attract
and retain productive agents, especially entrepreneurial agents, and qualified claims adjustors, our business and operating results could
be materially and adversely affected.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">A
substantial portion of our sales of insurance products are conducted through our individual sales agents. Some of these sales agents
are significantly more productive than others in generating sales. In recent years, some entrepreneurial management staff or senior sales
agents of major insurance companies in China have chosen to leave their employers or principals and become independent agents. We refer
to these individuals as entrepreneurial agents. An entrepreneurial agent is usually able to assemble and lead a team of sales agents.
We have been actively recruiting and will continue to recruit entrepreneurial agents to join our distribution and service network as
our sales agents. Entrepreneurial agents have been instrumental to the development of our life insurance business. In addition, we rely
primarily on our in-house claims adjustors to provide claims adjusting services. Because claims adjustment requires technical skills,
the technical competence of claims adjustors is essential to establishing and maintaining our brand image and relationships with our
customers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
of December 31, 2022, we had 141,088 registered sales agents and 2,170 claims adjustors. Out of the registered sales agents, 60,942 were
performing agents, who are defined as sales agents that have sold at least one insurance policy in 2022, and among these performing agents,
26,344 of them sold at least one life insurance policy in 2022. If we are unable to attract and retain the core group of highly productive
sales agents, particularly entrepreneurial agents, and qualified claims adjustors, our business could be materially and adversely affected.
Competition for sales personnel and claims adjustors from insurance companies and other insurance intermediaries may also force us to
increase the compensation of our sales agents, and claims adjustors, which would increase operating costs and reduce our profitability.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>If our digitalization
initiatives are not successful, our business and results of operations may be materially and adversely affected.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
have devoted significant efforts to developing and managing our online platforms and developing digital technologies to empower our business
operations. In 2012, we launched Baowang (&#8220;<span style="font-family: Times New Roman, Times, Serif">&#20445;&#32593;</span>&#8221;)
(www.baoxian.com), an online insurance distribution platform operated through its application, WeChat public account and mini program],
which aggregates more than 300 insurance products in partnership with over 30 insurers. Its insurance products cover from accident insurance,
indemnity medical insurance, travel insurance, homeowner insurance, and a limited number of internet-specific long term regular life
insurance products. In August 2014, we unveiled eHuzhu (&#8220;e<span style="font-family: Times New Roman, Times, Serif">&#20114;&#21161;</span>&#8221;)
(www.ehuzhu.com), an online mutual aid platform that provides risk-protection programs on a mutual commitment basis among program members.
In September 2017, we launched Lan Zhanggui (&#8220;<span style="font-family: Times New Roman, Times, Serif">&#25042;&#25484;&#26588;</span>&#8221;),
a mobile internet application and WeChat mini program, which provides end-to-end sales support services to our sales agents. In 2020,
we announced an initiative to empower our operation by utilizing digital technologies such as artificial intelligence and big data to
gain more customer insight, match sales leads with the most suitable sales agents to maximize their productivity and help customers find
the products that suit their different needs throughout different stages of their lives. We have launched several digital toolkits including
Fanhua RONS Assistant Digital Operating Platform(&#8220;<span style="font-family: Times New Roman, Times, Serif">&#27867;&#21326;&#27029;&#25968;&#21161;&#29702;</span>&#8221;),
or RONS DOP to empower our agents in online customer engagement, and Fanhua RONS Guanjia (&#8220;<span style="font-family: Times New Roman, Times, Serif">&#27867;&#21326;&#27029;&#25968;&#31649;&#23478;</span>&#8221;),
a comprehensive digital customer service platform. See detailed description about our online platforms and digital toolkits in &#8220;Item
4. Information on the Company&#8212;B. Business Overview&#8221;. The success of our strategies may depend on a number of factors, many
of which are beyond our control, including but not limited to:</p><div>

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</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">the effectiveness of our marketing
campaigns to build brand recognition among consumers and our ability to attract and retain customers;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">the acceptance of third-party
e-commerce platforms as an effective channel for underwriters to distribute their insurance products;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">the acceptance of Lan Zhanggui,
RONS DOP, Fanhua RONS Guanjia as effective tools by sales agents;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">public concerns over security
of e-commerce transactions, privacy and confidentiality of information;</span></td>
</tr></table><div>
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</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">increased competition from
insurance companies which directly sell insurance products through their own websites, call centers, portal websites which provide insurance
product information and links to insurance companies&#8217; websites, and other professional insurance intermediary companies which may
launch independent websites in the future;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">increased competition from
third-party insurance technology companies;</span></td>
</tr></table><div>
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</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">further improvement in our
information technology system designed to facilitate smoother online transactions; and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">further development and changes
in applicable rules and regulations which may increase our operating costs and expenses, impede the execution of our business plan or
change the competitive landscape.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
digitalization efforts may not be successful or yield the benefits that we anticipate. As a result, our business and results of operations
may be materially and adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Regulations on online
insurance distribution are evolving rapidly. If we are unable to adapt to regulatory changes and keep compliant, our business and results
of operations may be materially and adversely affected.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Since
online insurance distribution has emerged only recently in China and is evolving rapidly, the CBIRC may promulgate and implement new
rules and regulations to govern this sector from time to time. On December 7, 2020, the CBIRC promulgated the Measures for the Supervision
of the Internet Insurance Business, or the Measures, which became effective on February 1, 2021 and replaces the Interim Measures for
the Regulation of Internet Insurance Business. The Measures provides clarity on the qualifications for entities to operate online insurance
business in China and sets higher requirements on entities which intend to engage in online insurance business. For example, the Measures
in effect requires that any insurance institution which conducts internet business through its self-operated online platform to directly
own the domain name instead of through its subsidiary, both the insurance institution and its self-operated online platform shall make
Internet Content Provider (&#8220;ICP&#8221;) filing and the insurance institutions engaged in online insurance business shall have IT
systems that are certified as at least Safety Level III Computer Information Systems. We operate our online insurance distribution business
through Baowang (www.baoxian.com), which accounted for 5.0% of our total net revenues in 2022. Shenzhen Baowang previously owned the
domain name of Baowang and held a Value-added Telecommunication Business Operation Permit for ICP services, or ICP license. To remain
compliant with the requirements of the Measures, in September 2020, Shenzhen Baowang transferred the domain name of www.baoxian.com to
its direct parent company, Fanhua RONS which holds a national insurance service operating license. Fanhua RONS has obtained an ICP license
in August 2022. Baowang&#8217;s system has been certified as Safety Level III Computer Information System for three consecutive years.
As advised by our PRC counsel, we have obtained the necessary approvals and licenses, and our operations meet the qualification requirements
of the Measures.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
addition, we provide our insurance information and transaction processing services through mobile apps and mini programs such as &#8220;Lan
Zhanggui&#8221;, &#8220;RONS DOP&#8221; and Fanhua RONS Guanjia. According to the Provisions on the Administration of Mobile Internet
Application Information Services (the &#8220;App Provisions&#8221;) issued by the CAC on June 28, 2016, which was most recently amended
on June 14, 2022, and became effective on August 1, 2022, except for providing internet news information service, any owner or operator
providing other internet information services through a mobile internet application, or an &#8220;app,&#8221; must obtain the relevant
qualification(s) as required by the relevant laws and regulations. The App Provisions, however, do not further clarify the scope of
&#8220;information services,&#8221; nor do they specify what &#8220;relevant qualification(s)&#8221; that a mobile app owner or operator
must obtain. In practice, operational activities of a company conducted through an app are subject to the supervision of the local counterparts
of the Information Communications Administration, which has different polices on the operational activities conducted through websites
and those through mobile apps. In many cases, companies providing information services through standalone mobile apps without any web-based
online services are not required to obtain ICP licenses. However, the interpretation and enforcement of such laws and regulations are
subject to substantial discretion of the local authorities. We cannot rule out the possibility that the local counterparts of the Information
Communications Administration would take the view that our current information services and transaction processing services provided
through mobile apps would require an ICP license or that, without such license, we would be prohibited from rendering such services.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">If
we are unable to adapt to any new changes to the regulation governing online insurance business and remain fully compliant, the business
operation of Baowang and our mobile applications and mini programs could be suspended, which may adversely impact our business results
of operation.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">There
are uncertainties with regard to how the changing laws, regulations and regulatory requirements would apply to our business. We cannot
assure you that our operations will remain fully compliant with the changes in and further development of regulations applicable to us
or we will be able to obtain the necessary approvals and licenses as required in a timely manner.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Any
failure to successfully identify the risks as part of our expansion into the online and mobile insurance distribution business may have
a material adverse impact on our growth, business prospects and results of operations, which could lead to a decline in the price of
our ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>All of our personnel
engaging in insurance agency, or claims adjusting activities are required under relevant PRC regulations to register with the CBIRC&#8217;s
Insurance Intermediaries Regulatory Information System. If our sales personnel fail to finish practice registration, our business may
be materially and adversely affected.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">All
of our personnel who engage in insurance agency and claims adjusting activities are required under relevant PRC regulations to be registered
with the CBIRC&#8217;s Insurance Intermediary Regulatory Information System, or the IIRIS, through the insurance company or insurance
intermediary company to which he or she belongs. See &#8220;Item 4. Information on the Company&#8212;B. Business Overview&#8212;Regulation.&#8221;
In addition, under the relevant PRC regulations, such as the Provisions on the Supervision and Administration of Insurance Agents issued
on November 12, 2020 and Provisions on the Supervision of Insurance Claims Adjusting Firms issued by the CBIRC in February 2018, an insurance
agency or claims adjusting firm that retains a personnel who has not been registered with the IIRIS through the insurance agency or claims
adjusting firm to engage in insurance intermediary activities may be subject to rectification request, warning and fines up to RMB10,000
per intermediary by the CBIRC. If a substantial portion of our sales force were found to have not been properly registered with the IIRIS,
our business may be adversely affected. Moreover, we may be subject to fines and other administrative proceedings for the failure by
our sales agents or sales representatives to register with the CBIRC. Such fines or administrative proceedings could adversely affect
our business, financial condition and results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Material changes
in the regulatory environment could change the competitive landscape of our industry or require us to change the way we do business.
The administration, interpretation and enforcement of the laws and regulations currently applicable to us could change rapidly. If we
fail to comply with applicable laws and regulations, we may be subject to civil and criminal penalties or lose the ability to conduct
our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt">We
operate in a highly regulated industry. The laws and regulations applicable to us are evolving and may change rapidly, which could change
the competitive environment of our industry significantly and cause us to lose some or all of our competitive advantages. In recent years,
the CBIRC and its predecessor have increasingly tightened regulations and supervision of the Chinese insurance market. For example, on
April 2, 2019, the CBIRC issued a Notice to Rectify the Irregularities in the Insurance Intermediary Market in 2019 and subsequently
on May 26, 2020, the CBIRC issued similar guidelines requiring all insurance companies and insurance intermediaries to conduct self-check
on various practices in violation of relevant regulations. In March 2023, the CBIRC issued a Notice to Self-check and Rectify Irregularities
in Internet-based Marketing and Publicity by Insurance Institutions and Insurance Sales Personnel, requiring all insurance institutions
and sales personnel to self-check and rectify irregular marketing activities on the internet starting from April 3, 2023. Insurance institutions
are required to complete the rectification by June 15, 2023 and report the results to the CBIRC by June 30, 2023.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Although
we believe we have not had any material violations to date, we could be required to spend significant time and resources in complying
with the requirement and the attention of our management team and key employees could be diverted to these efforts, which may adversely
affect our business operations.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
CBIRC has extensive authority to supervise and regulate the insurance industry in China. In exercising its authority, the CBIRC is given
wide discretion, and the administration, interpretation and enforcement of the laws and regulations applicable to us involve uncertainties
that could materially and adversely affect our business and results of operations. The People&#8217;s Bank of China and other government
agencies may promulgate new rules governing online financial services. In July 2015, ten government agencies including the People&#8217;s
Bank of China, the Ministry of Finance and CIRC promulgated a guidance letter on how to promote the healthy growth of internet financial
services, which set forth the principles of supervision based on the rule of law, the appropriate level of regulation, proper categorization,
cooperation among different government agencies and promoting innovation. Not only may the laws and regulations applicable to us change
rapidly, but it may also sometimes be unclear how they apply to our business. For example, the laws and regulations applicable to our
online and mobile platforms may be unclear. Our products or services may be determined or alleged to be in violation of the applicable
laws and regulations. Any failure of our products or services to comply with these laws and regulations could result in substantial civil
or criminal liability, adversely affect demand for our services, invalidate all or a portion of our customer contracts, require us to
change or terminate some of our businesses, require us to refund a portion of our services fees, or cause us to be disqualified from
serving customers, and therefore could have a material and adverse effect on our business.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Although
we have not had any material violations to date, we cannot assure you that our operations will always comply with the interpretation
and enforcement of the laws and regulations implemented by the CBIRC. Any determination by a provincial or national government authority
that our activities or those of our vendors or customers violate any of these laws could subject us to civil or criminal penalties, require
us to change or terminate some of our operations or business, or disqualify us from providing services to insurance companies or other
customers; and, thus have a materially adverse effect on our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Our business could
be negatively impacted if we are unable to adapt our services to regulatory changes in China.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">China&#8217;s
insurance regulatory regime is undergoing significant changes. Some of these changes and the further development of regulations applicable
to us may result in additional restrictions on our activities or more intensive competition in this industry, which may adversely affect
our business operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">For
example, on November 5, 2020, China Insurance Industry Association and China Medical Doctor Association jointly published Definition
Framework 2020, announcing changes to the definition of critical illnesses, or CI, which will be adopted after a transition period ending
January 31, 2021. After January 31, 2021, all critical illness products based on the previous definition framework will not be sold in
China. Major changes to the CI definition framework include, among others, (i) setting the upper limit for insurance benefits for mild
illness at no more than 30% of total insured amount; (ii) expanding the types of illnesses covered from 25 types to 28 types of critical
illnesses and three types of mild illness; (iii) exclusion of cancer that is in situ from the scope of CI coverage; and (iv) categorizing
thyroid cancer at different stages into critical illness category and mild illness category. The expected cessation of the critical illness
products under the previous CI definition framework has resulted in strong growth in our sales of critical illness policies in January
2021 followed by a drop afterwards.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
October 12, 2021, the CBIRC promulgated the Notice on Further Regulation of Matters Relating to the Internet Life Insurance Business
of Insurance Institutions, which, among others, raised the qualification requirements for insurance companies and insurance intermediaries
to engage in Internet life insurance business nationwide, limited products that could be sold on the Internet nationwide to accident,
health, term life, 10-year (or longer) traditional life, and 10-year (or longer) annuities and capped the preset expense ratio to be
no higher than 35% for one-year life insurance and first year preset expense ratio no higher than 60% with average expense ratio no higher
than 25% for over-one-year life insurance. Incumbent companies have until the end of 2021 to comply with the new regulations. Subsequently,
many insurance companies which could not meet the qualification requirements have stopped selling life insurance products online before
Jan 1, 2022. As our online insurance business operated through Baowang is subject to this regulation, the disruption in internet life
insurance product supply and the cap on expense ratio have adversely impacted and may continue to impact Baowang which contributed to
5.0% of our total net revenues in 2022.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Any
future change in regulatory requirements may make our products less attractive to consumers or disrupt product supply, and our business
results of operations could fluctuate significantly and be adversely affected.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
July 10, 2017, the CIRC, the predecessor of CBIRC, promulgated the Interim Measures on Retrospective Management of Insurance Sales Behaviors,
effective November 1, 2017 which required (1) ancillary insurance agencies to take video and audio-recording, or double-recording for
the sales of all insurance products that they facilitate and (2) other insurance distribution channels to take double-recording for the
sales of investment-linked insurance products and for the sale of life insurance products with a payment period of more than one year
to the elderly of over 60 years old. On June 11, 2019, the Jiangsu Branch of the CBIRC published the Notice on Deepening the Implementation
of the Retrospective Management of Personal Insurance Sales Behaviors or the Notice, requiring all insurance companies and insurance
intermediary companies to start double-recording process for the sales of all long-term personal insurance products in Jiangsu Province
starting from October 1, 2019. Similar rules have also been implemented in a few other regions, including Ningbo, Zhejiang Province,
certain parts of Shandong since mid-2020 and Shanghai since early 2020. In June 2021, the CBIRC promulgated the Measures on Retrospective
Management of Insurance Sales Behaviors for public consultation which requires that retrospective management must be conducted for face-to-face
sales by sales agents of all life insurance products with a payment period of over one-year or less than one-year but with renewal obligation,
and that insurance institutions must establish sound insurance sales retrospective management working mechanism and designated retrospective
management information system. Retrospective management specially refers to the recording and preservation of the key insurance sales
processes and sales behaviors by means of double recording, sales page management and operation tracking record to ensure future replay
of the sales behaviors, search of important information and accountability of insurance institutions.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 20pt">As a
significant portion of our insurance products are personal life insurance products with a payment period of over one year and are distributed
through our individual sales agents, the sales processes of our sales agents to customers are subject to double recording requirements.
As the double recording process can be complicated and time-consuming, our sales activities in those regions that have previously implemented
such rules have been adversely impacted. If similar rules are implemented nationwide, our sales activities can be materially impacted,
and our compliance cost may be increased, as a result of which our business and results of operations may be adversely affected.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
January 12, 2021, the CBIRC promulgated Measures on The Supervision of Informatization of Insurance Intermediary Institutions, or the
Informatization Measures, requiring insurance intermediary institutions to establish proper information system and provide specific requirements
on the security system, security level protection certification, data security, personal information protection, terminal security and
training.&#160; Insurance intermediary companies must comply with the Information Security Measures to engage in insurance intermediary
business. Insurance intermediaries should conduct self-examination of informatization work in accordance with the Informatization Measures,
and complete rectification within one year from the date of implementation of the Informatization Measures. We have completed self-examination
and rectification and believe we have met the requirements of the Informatization Measures. However, if more stringent requirements are
implemented in the future, our compliance cost may increase which may adversely impact our operation results.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt">Our
mutual-aid platform eHuzhu currently is not subject to any license requirement or any other supervision by the CBIRC because the mutual
aid plans offered on the platform are not technically insurance. If the CBIRC determines to include mutual aid platform into its supervision
in the future, our compliance cost could be increased, and if we are unable to meet the qualification requirement to obtain a proper
license, the operation of eHuzhu could be disrupted. In 2021, a few internet giant-backed mutual aid platforms voluntarily chose to shut
down operations. As of the date of this filing, eHuzhu hasn&#8217;t received any requirement from the CBIRC or other regulatory authority
to terminate operations. If the CBIRC determines eHuzhu&#8217;s operation is not compliant with current regulations, eHuzhu would be
required to terminate its operation, which could harm the interests of the members of eHuzhu and damage our reputation.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt">On
April 15, 2022, the CBIRC issued the Second Draft Measures for the Supervision of Life Insurance Sales Behavior for public consultation,
or the Draft Measure on Life Insurance Sales Behavior, which provides for a comprehensive management on the pre-sale, mid-sale and after-sale
behaviors of life insurance distribution of insurance companies, insurance intermediaries and insurance salespeople, with requirements
focusing on, among others, (i) establishment of a tiered management mechanism for insurance sales practitioners based on their qualifications
and sales abilities before December 31, 2023 for new recruits and before December 31, 2024 for existing sales practitioners; (ii) classification
of life insurance products by product types, complexity, risk level and affordability ; (iii) pre-sales product suitability assessment
on the policyholders; (iv) restriction on compulsory bundled-sales of insurance products with healthcare and elderly-care services; (v)
restriction on inclusion of self-insured policies in sales agents performance assessment and (v) establishment of a compliance management
department independent from sales departments dedicated to the review and supervision of the sales behaviors of the sales practitioners
of the insurance companies or insurance intermediaries. Some of the requirements, if implemented, may incur additional compliance costs
for us. In addition, the Draft Measure on Life Insurance Sales Behavior caps the total commission rate at the pre-set surcharge ratio
of life insurance products, which may reduce our commission revenues and adversely affect our financial results.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;We may be unsuccessful
in identifying suitable acquisition candidates, completing acquisitions, integrating acquired companies or the acquired companies may
not perform to our expectations,, which could adversely affect our growth.</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 20pt">Our
growth strategy partially includes the acquisition of other insurance intermediaries. We expect a substantial portion of our future growth
to come from acquisitions of high-quality independent insurance agencies, brokerages and claims adjusting firms. There is no assurance
that we can successfully identify suitable acquisition candidates. Even if we identify suitable candidates, we may not be able to complete
an acquisition on terms that are commercially acceptable to us. In addition, we compete with other entities to acquire high-quality independent
insurance intermediaries. Many of our competitors may have substantially greater financial resources than we do and may be able to outbid
us for these acquisition targets. If we are unable to complete acquisitions, our growth strategy may be impeded and our earnings or revenue
growth may be negatively affected.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 20pt">Even
if we succeed in acquiring other insurance intermediaries, our ability to integrate an acquired entity and its operations is subject
to a number of factors. These factors include difficulties in the integration of acquired operations and retention of personnel, especially
the sales agents who are not employees of the acquired company, entry into unfamiliar markets, unanticipated problems or legal liabilities,
and tax and accounting issues. The need to address these factors may divert management&#8217;s attention from other aspects of our business
and materially and adversely affect our business prospects. In addition, costs associated with integrating newly acquired companies could
negatively affect our operating margins.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 20pt">Furthermore,
the acquired companies may not perform to our expectations for various reasons, including legislative or regulatory changes that affect
the insurance products in which a company specializes, the loss of key clients after the acquisition closes, general economic factors
that impact a company in a direct way and the cultural incompatibility of an acquired company&#8217;s management team with us. If an
acquired company can not be operated at the same profitability level as our existing operations, the acquisition would have a negative
impact on our operating margin. Our inability to successfully integrate an acquired entity or its failure to perform to our expectations
may materially and adversely affect our business, prospects, results of operations and financial condition.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;Competition
in our industry is intense and, if we are unable to compete effectively with both existing and new market participants, we may lose customers,
and our financial results may be negatively affected.</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
insurance intermediary industry in China is highly fragmented and competitive, and we expect competition to persist and intensify as
more internet giants and other online insurance intermediaries and foreign-invested insurance intermediary companies enter the market.
In insurance product distribution, we face competition from insurance companies that use their in-house sales force, exclusive sales
agents, telemarketing and internet channels to distribute their products, from business entities that distribute insurance products on
an ancillary basis, such as commercial banks, postal offices and automobile dealerships, as well as from other traditional or online
insurance intermediaries. In our claims adjusting business, we primarily compete with other independent claims adjusting firms. We compete
for customers on the basis of product offerings, customer services and reputation. Many of our competitors, both existing and newly emerging,
have greater financial and marketing resources than we do and may be able to offer products and services that we do not currently offer
and may not offer in the future. If we are unable to compete effectively against those competitors, we may lose customers, and our financial
results may be negatively affected.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Because the commission
and fee we earn on the sale of insurance products is based on premiums, commission and fee rates set by insurance companies, any decrease
in these premiums, commission or fee rates may have an adverse effect on our results of operations.</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
are engaged in life and health insurance, property and casualty insurance and claims adjusting businesses and derive revenues primarily
from commissions and fees paid by the insurance companies whose policies our customers purchase and to whom we provide claims adjusting
services. Our commission and fee rates are set by insurance companies and are based on the premiums that the insurance companies charge
or the amount recovered by insurance companies. Commission and fee rates and premiums can change based on the prevailing economic, regulatory,
taxation-related and competitive factors that affect insurance companies. For example, the Draft Measure on the Life Insurance Sales
Behaviors sets a cap on total commissions rate of life insurance products at the pre-set surcharge ratio of the life insurance product.
These factors, which are not within our control, include the ability of insurance companies to place new business, underwriting and non-underwriting
profits of insurance companies, consumer demand for insurance products, the availability of comparable products from other insurance
companies at a lower cost, the availability of alternative insurance products such as government benefits and self-insurance plans, as
well as the tax deductibility of commissions and fees and the consumers themselves. In addition, premium rates for certain insurance
products, such as the mandatory automobile liability insurance that each automobile owner in the PRC is legally required to purchase,
are tightly regulated by CBIRC.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Because
we do not determine, and cannot predict, the timing or extent of premium or commission and fee rate changes, we cannot predict the effect
any of these changes may have on our operations. Any decrease in premiums or commission and fee rates may significantly affect our profitability.
In addition, our budget for future acquisitions, capital expenditures and other expenditures may be disrupted by unexpected decreases
in revenues caused by decreases in premiums or commission and fee rates, thereby adversely affecting our operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Quarterly and annual
variations in our commission and fee revenue may unexpectedly impact our results of operations.</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
commission and fee revenue are subject to both quarterly and annual fluctuations as a result of the seasonality of our business, the
timing of policy renewals and the net effect of new and lost business. Life insurance commission revenue is usually the highest in the
first quarter and lowest in the fourth quarter of any given year as much of the jumpstart sales activities of life insurance companies
occur in January and February during which life insurance companies would increase their sales efforts by offering more incentives for
insurance agents and insurance intermediaries to increase sales, while the preparation for the jumpstart sales starts in the fourth quarter
of each year. Started in 2021, we also record estimated renewal commission revenue for long-term policy based on the expected renewal
rate as well as the possibility of achieving performance targets. This, in a way, mitigates some degree of seasonality issue. Apart from
the outbreak of epidemic and the recognition of estimated renewal commissions, some other factors that cause the quarterly and annual
variations are not within our control. Specifically, regulatory changes to product design may result in cessation of products from time
to time and cause quarterly fluctuation in the results of our operations. In addition, consumer demand for insurance products can influence
the timing of renewals, new business and lost business, which generally includes policies that are not renewed, and cancellations. As
a result, you may not be able to rely on quarterly or annual comparisons of our operating results as an indication of our future performance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Our operating structure
may make it difficult to respond quickly to operational or financial problems, which could negatively affect our financial results.</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
currently operate primarily through our wholly-owned or majority-owned insurance agencies and claims adjusting firms and their branches
and to a smaller extent through our consolidated VIEs located in 31 provinces in China. These companies report their financial results
to our corporate headquarters monthly. If these companies delay either reporting results or informing corporate headquarters of negative
business developments such as losses of relationships with insurance companies, regulatory inquiries or any other negative events, we
may not be able to take action to remedy the situation in a timely fashion. This in turn could have a negative effect on our financial
results. In addition, if one of these companies were to report inaccurate financial information, we might not learn of the inaccuracies
on a timely basis and be able to take corrective measures promptly, which could negatively affect our ability to report our financial
results.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Our future success
depends on the continuing efforts of our senior management team and other key personnel, and our business may be harmed if we lose their
services.</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
future success depends heavily upon the continuing services of the members of our senior management team and other key personnel, in
particular, Mr. Yinan Hu, or Mr. Hu, our chairman of the board of directors and chief executive officer, Mr. Peng Ge, or, Mr. Ge, our
chief financial officer, Mr. Lichong Liu, our chief operating officer and vice president and Mr. Jun Li, our chief digital officer and
vice president. If one or more of our senior executives or other key personnel, are unable or unwilling to continue in their present
positions, we may not be able to replace them easily, or at all. As such, our business may be disrupted and our financial condition and
results of operations may be materially and adversely affected. Competition for senior management and key personnel in our industry is
intense because of a number of factors including the limited pool of qualified candidates. We may not be able to retain the services
of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future. As is
customary in the PRC, we do not have insurance coverage for the loss of our senior management team or other key personnel.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company,
we may lose customers, sensitive trade information, key professionals and staff members. Each of our executive officers and key employees
has entered into an employment agreement with us which contains confidentiality and non-competition provisions. These agreements generally
have an initial term of three years, and are automatically extended for successive one-year terms unless terminated earlier pursuant
to the terms of the agreement. See &#8220;Item 6. Directors, Senior Management and Employees&#8212;A. Directors and Senior Management&#8212;Employment
Agreements&#8221; for a more detailed description of the key terms of these employment agreements. If any disputes arise between any
of our senior executives or key personnel and us, we cannot assure you of the extent to which any of these agreements may be enforced.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Salesperson and employee
misconduct is difficult to detect and deter and could harm our reputation or lead to regulatory sanctions or litigation costs.</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Salesperson
and employee misconduct could result in violations of law by us, regulatory sanctions, litigation or serious reputational or financial
harm. Misconduct could include:</p><div>

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</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">making misrepresentations when marketing or selling insurance to customers;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">hindering insurance applicants from making full and accurate mandatory
    disclosures or inducing applicants to make misrepresentations;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -21.25pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
have internal policies and procedures to deter salesperson or employee misconduct. However, the measures and precautions we take to prevent
and detect these activities may not be effective in all cases. Therefore, salesperson or employee misconduct could lead to a material
adverse effect on our business, results of operations or financial condition. In addition, the general increase in misconduct in the
industry could potentially harm the reputation of the industry and have an adverse impact on our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Our investments in
certain financial products may not yield the benefits we anticipate or incur financial loss, which could adversely affect our cash position.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
order to improve our return on capital, we may from time to time, upon board approval, invest a certain portion of our cash in financial
products, such as trust products, with terms of half a year to two years. These products may involve various risks, including default
risks, interest risks, and other risks. We cannot guarantee these investments will yield the returns we anticipate and we could suffer
financial loss resulting from the purchase of these financial products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>If we fail to maintain
an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent
fraud.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
are subject to reporting obligations under U.S. securities laws. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related
rules adopted by the Securities and Exchange Commission, or the SEC, every public company is required to include a management report
on the company&#8217;s internal controls over financial reporting in its annual report, which contains management&#8217;s assessment
of the effectiveness of the company&#8217;s internal controls over financial reporting. In addition, an independent registered public
accounting firm must attest to and report on the effectiveness of the company&#8217;s internal controls over financial reporting.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our management assessed the effectiveness
of the internal control over financial reporting as of December 31, 2022 using criteria established in &#8220;Internal Control&#8212;Integrated
Framework (2013)&#8221; issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that our internal
control over financial reporting was effective as of December 31, 2022. If we fail to achieve and maintain an effective internal control
environment for our financial reporting, we may not be able to conclude on an ongoing basis that we have effective internal control over
financial reporting in accordance with the Sarbanes-Oxley Act of 2002, which could result in inaccuracies in our consolidated financial
statements and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory filings
on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price
of our ADSs, may be materially and adversely affected. Moreover, if we are not able to conclude that we have effective internal control
over financial reporting, investors may lose confidence in the reliability of our financial statements, which would negatively impact
the trading price of our ADSs. Our reporting obligations as a public company, including our efforts to comply with Section 404 of the
Sarbanes-Oxley Act, will continue to place a significant strain on our management, operational and financial resources and systems for
the foreseeable future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We may face legal
action by former employers or principals of entrepreneurial agents who join our distribution and service network.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Competition
for productive sales agents is intense within the Chinese insurance industry. When an entrepreneurial agent leaves his or her employer
or principal to join our distribution and service network as our sales agent, we may face legal action by his or her former employer
or principal of the entrepreneurial agent on the ground of unfair competition or breach of contract. As of the date of this annual report,
there has been no such action filed or threatened against us. We cannot assure you that this will not happen in the future. Any such
legal actions, regardless of merit, could be expensive and time-consuming and could divert resources and management&#8217;s attention
from the operation of our business. If we were found liable in such a legal action, we might be required to pay substantial damages to
the former employer or principal of the entrepreneurial agent, and our business reputation might be harmed. Moreover, the filing of such
a legal action may discourage potential entrepreneurial agents from leaving their employers or principals, thus reducing the number of
entrepreneurial agents we can recruit and potentially harming our growth prospects.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>If we are required
to write down goodwill and investment in affiliates, our financial condition and results may be materially and adversely affected.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">When
we acquire a business, the amount of the purchase price that is allocated to goodwill is determined by the excess of the fair value of
purchase price and any controlling interest over the net identifiable tangible assets acquired. As of December 31, 2022, goodwill represented
RMB110.0 million (US$15.9 million), or 6.8% of our total shareholders&#8217; equity. Our management performs impairment assessments annually
and we did not recognize any impairment loss between 2016 and 2022. Under current accounting standards, if we determine that goodwill
is impaired, we will be required to write down the value of such assets and recognize corresponding impairment charges.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Prior
to June 28, 2022, we accounted for our 18.5% of equity interests in CNFinance Holdings Limited (&#8220;CNFinance&#8221;) using the equity
method. We review our equity method investment periodically to determine whether a decline in fair value to an amount below the carrying
value is other-than-temporary. As of March 31, 2022, the fair value of the investment in CNFinance as measured by its closing market
price was below the carrying value although the investment in CNFinance generated positive equity income. Based on management&#8217;s
evaluation, it was concluded that the decline in fair value of our investment in CNFinance below its carrying value was deemed to be
other-than-temporary. Accordingly, a provision of an impairment of RMB78.3 million (US$12.3 million) on investment in CNFinance was recognized
in the first quarter of 2022. On June 28, 2022, we completed distribution of 252,995,600 ordinary shares of CNFinance to the Company&#8217;s
shareholders in proportion to their then respective shareholdings in the Company as of the record date on June 9, 2022. Following the
distribution, Fanhua&#8217;s equity stake in CNFinance decreased from approximately 18.5% to approximately 0.01% and we ceased to recognize
share of income of CNFinance. </p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Any
future write-down related to such goodwill and equity method investments may materially and adversely affect our shareholders&#8217;
equity and financial results.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Preparing and forecasting
our financial results requires us to make judgments and estimates which may differ materially from actual results.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Given
the evolving regulatory and competitive environment and the inherent limitations in predicting the future, forecasts of our revenues,
operating income, net income and other financial and operating data may differ materially from actual results. Such discrepancies could
cause a decline in the trading price of our stock. In addition, the preparation of the consolidated financial statements in conformity
with U.S. GAAP requires management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reported period. Our management base their estimates on historical experience and various other factors
which are believed to be reasonable under the circumstances, and the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Significant accounting estimates reflected in our consolidated
financial statements included estimates of allowance for doubtful receivables and estimates associated with equity-method investment
impairment assessments. Actual results could differ from those estimates, which could negatively affect our stock price.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Any significant failure
in our information technology systems could have a material adverse effect on our business and profitability.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
business is highly dependent on the ability of our information technology systems to timely process a large number of transactions across
different markets and products at a time when transaction processes have become increasingly complex and the volume of such transactions
is growing rapidly. The proper functioning of our financial control, accounting, customer database, customer service and other data processing
systems, together with the communication systems of our various subsidiaries, branches and our main offices in Guangzhou, is critical
to our business and our ability to compete effectively. Our business activities could be materially disrupted in the event of a partial
or complete failure of any of these primary information technology or communication systems, which could be caused by, among other things,
software malfunction, computer virus attacks or conversion errors due to system upgrading. In addition, a prolonged failure of our information
technology system could damage our reputation and materially and adversely affect our future prospects and profitability.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>A computer system
failure, cyber-attacks, any failure to protect the confidential information of our customers or other security breaches may disrupt our
business, loss of customers, damage our reputation, result in potential liability and adversely affect our results of operations and
financial condition.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">We
use computer systems to store, retrieve, evaluate and utilize customer and company data and information. Our business is highly dependent
on our ability to access these systems to perform necessary business functions such as selling insurance products, providing customer
support, policy management and claims assistance. Although we have designed and implemented a variety of security measures and backup
plans to prevent or limit the effect of failure, our computer systems may be vulnerable to disruptions as a result of natural disasters,&#160;man-made&#160;disasters,
criminal activities, pandemics or other events beyond our control. In addition, our computer systems may be subject to computer viruses
or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. The failure of our computer systems
for any reason could disrupt our operations and may adversely affect our business, results of operations and financial condition. Although
we have not experienced such a computer system failure or security breach in the past, we cannot assure you that we will not encounter
a failure or security breach in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">Our
customer database holds confidential information concerning our customers. We may be unable to prevent third parties, such as hackers
or criminal organizations, from stealing information provided by our customers to us. Confidential information of our customers may also
be misappropriated or inadvertently disclosed through employee misconduct or mistake. We may also in the future be required to disclose
to government authorities certain confidential information concerning our customers. In addition, many of our customers pay for our insurance
services through third-party online payment services. In such transactions, maintaining complete security during the transmission of
confidential information, such as personal information, is essential to maintaining consumer confidence. We have limited influence over
the security measures of third-party online payment service providers. In addition, our third-party merchants may violate their confidentiality
obligations and disclose information about our customers. Any compromise of our security or third-party service providers&#8217; security
could have a material adverse effect on our reputation, business, prospects, financial condition and results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">Though
we have not experienced any material cybersecurity incidents in the past, if our database were compromised by outside sources or if we
are accused of failing to protect the confidential information of our customers, we may be forced to expend significant financial and
managerial resources in remedying the situation, defending against these accusations and we may face potential liability. Any negative
publicity, especially concerning breaches in our cybersecurity systems, may adversely affect our public image and reputation. Though
we take proactive measures to protect against these risks and we believe that our efforts in this area are sufficient for our business,
we cannot be certain that such measures will prove effective against all cybersecurity risks. In addition, any perception by the public
that online commerce is becoming increasingly unsafe or that the privacy of customer information is vulnerable to attack could inhibit
the growth of online services generally, which in turn may reduce the number of our customers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Our business is subject
to insurance company partner concentration risks arising from dependence on a single or limited number of insurance company partners.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">We
derive a significant portion of net revenues from distributing insurance products supplied by our important insurance company partners.
Among the top five of our insurance company partners, Sinatay accounted for 19.6% of our total net revenues in 2022. </p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">Because
of this concentration in the supply of the insurance products we distribute, our business and operations would be negatively affected
if we experience a partial or complete loss of any of these insurance company partners. In addition, any significant adverse change in
our relationship with any of these insurance company partners could result in loss of revenue, increased costs and distribution delays
that could harm our business and customer relationships. In addition, this concentration can exacerbate our exposure to risks associated
with the termination by key insurance company partners of our agreements or any adverse change in the terms of such agreements, which
could have an adverse impact on our revenues and profitability.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

</div><!-- Field: Page; Sequence: 27; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>If we are unable
to respond in a timely and cost-effective manner to rapid technological change in the insurance intermediary industry, it may result
in a material adverse effect.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
insurance industry is increasingly influenced by rapid technological change, frequent new product and service introductions and evolving
industry standards. For example, the insurance intermediary industry has increased the use of the Internet to communicate benefits and
related information to consumers and to facilitate information exchange, transactions and training. We believe that our future success
will depend on our ability to anticipate and adapt to technological changes and to offer additional products and services that meet evolving
standards on a timely and cost-effective manner. We may not be able to successfully identify new product and service opportunities or
develop and introduce these opportunities in a timely and cost-effective manner. In addition, new products and services that our competitors
develop or introduce may render our products and services uncompetitive. As a result, if we are not able to respond or adapt to technological
changes that may affect our industry in the future, our business and results of operations could be materially and adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We face risks related
to health epidemics, including the COVID-19 outbreak, severe weather conditions and other catastrophes, which could materially and adversely
affect our business. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
business could be materially and adversely affected by the outbreak of health epidemics including COVID-19, severe weather conditions
or other catastrophes. The outbreak of the COVID-19 and the measures to contain its spread has from time to time disrupted our operations
and adversely affected our business financial condition and results of operations. In late 2022, there were surges of COVID-19 cases
in many cities in mainland China, which severely affected our sales activities towards the end of 2022. Mainland China began to modify
its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December. However,
we are unable to predict the continuing duration and extent of the COVID-19 pandemic as well as evolving measures to contain it.&#160;Even
if the direct impact of COVID-19 gradually recedes, the pandemic will have a lingering, long-term effect on business activities and consumption
behavior. There is no assurance that we will be able to adjust our business operations to adapt to these changes and the increasingly
complex environment in which we operate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Any
occurrence of other adverse public health developments or severe weather conditions may also significantly disrupt our staffing and otherwise
reduce the activity level of our work force, thus causing a material and adverse effect on our business operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We may be at risk
of securities class action litigation.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">Historically,
securities class action litigation has often been brought against a company following periods of instability in the market price of its
securities. If we face such litigation, it could result in substantial costs and a diversion of management&#8217;s attention and resources,
which could harm our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">Recently,
U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism
and negative publicity by some investors, financial commentators and regulatory agencies. Much of the scrutiny, criticism and negative
publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting,
inadequate corporate governance policies or a lack of adherence thereto and, in some cases, allegations of fraud. As a result of the
scrutiny, criticism and negative publicity, the publicly traded stocks of many U.S.-listed Chinese companies have sharply decreased in
value and, in some cases, have become virtually worthless. Some of these companies are now subject to shareholder lawsuits and SEC enforcement
actions and are conducting or subject to internal and external investigations into the allegations. We had been targeted by short selling
reports in the past and became subject to class action lawsuits which were subsequently dismissed or settled. Shortselling firms or others
may in the future publish additional short seller reports with respect to our business, officers, directors and shareholders, and we
may become subject to other unfavorable allegations, which might cause further fluctuations in the trading price of our ADSs. Such volatility
in our share price could subject us to increased risk of securities class action lawsuits or derivative actions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Any
future class action lawsuit against us, whether or not successful, could harm our reputation and restrict our ability to raise capital.
In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse
effect on our financial condition and results of operations. Even if such allegations are ultimately proven to be groundless, the allegations
or the process of dealing with them could severely impact our business operations and stockholder&#8217;s equity, and any investment
in our ADSs could be greatly reduced.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We may be subject,
from time to time, to adverse actions taken by other parties, including lawsuits and negative reports and regulatory proceedings, which
may divert resources and the time and attention of our management and may otherwise adversely affect us.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">From
time to time, we may become a party to litigations incidental to the operation of our business, including class action lawsuits and disputes
with other third parties. Litigation usually requires a significant amount of management time and effort, which may adversely affect
our business by diverting management&#8217;s focus from the needs of our business and the development of strategic opportunities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">We
cannot predict the outcome of these lawsuits. Regardless of the outcome, these lawsuits, and any other litigation that may be brought
against us or our current or former directors and officers, could be time-consuming, result in significant expenses and divert the attention
and resources of our management and other key employees. An unfavorable outcome in any of these matters could also exceed coverage provided
under applicable insurance policies, which is limited. Any such unfavorable outcome could have a material effect on our business, financial
condition, results of operations and cash flows. Further, we could be required to pay damages or additional penalties or have other remedies
imposed against us, or our current or former directors or officers, which could harm our reputation, business, financial condition, results
of operations or cash flows.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">In
addition, the CBIRC may from time to time make inquiries and conduct examinations concerning our compliance with PRC laws and regulations.
These administrative proceedings have in the past resulted in administrative sanctions, including fines, which have not been material
to us. While we cannot predict the outcome of any pending or future examination, we do not believe that any pending legal matter will
have a material adverse effect on our business, financial condition or results of operations. However, we cannot assure you that any
future regulatory proceeding will not have an adverse outcome, which could have a material adverse effect on our operating results or
cash flows.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Risks Related to Our
Corporate Structure</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Fanhua Inc. is a
Cayman Islands holding company operating in China primarily through its subsidiaries and a small part of its business through contractual
arrangements with Xinbao Investment and Fanhua RONS Technologies. Investors in the ADSs thus are not purchasing, and may never directly
hold, all equity interests in the consolidated VIEs. There are substantial uncertainties regarding the interpretation and application
of current and future PRC laws, regulations, and rules relating to such agreements that establish the VIE structure for our consolidated
VIEs&#8217; operations in China, including potential future actions by the PRC government, which could affect the enforceability of our
contractual arrangements with Xinbao Investment and Fanhua RONS Technologies and, consequently, adversely affect the financial condition
and results of operations of Fanhua Inc. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations,
and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe
penalties or be forced to relinquish part of our interests in Xinbao Investment and Fanhua RONS Technologies or forfeit our rights under
the contractual arrangements.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
are a company incorporated under the laws of the Cayman Islands, and Fanhua Group Company, our wholly-owned PRC subsidiary, is considered
a foreign-invested enterprise. We operate our online insurance distribution business, which accounted for 5% of our total net revenues
in 2022, through Baoxian.com or Baowang. Previously, the domain name of Baowang was owned by Shenzhen Baowang E-commerce Co., Ltd., or
Shenzhen Baowang, while its direct parent company Fanhua RONS Insurance Sales &amp; Service Co. Ltd. (formerly known as Fanhua Century
Insurance Sales &amp; Service Co., Ltd.) or Fanhua RONS, one wholly-owned subsidiary of Xinbao Investment, owns a national insurance
service operating license. To keep compliance with the Measures on the Supervision of Internet Insurance Business, or the Measures, which
became effective on February 1, 2021 which requires any insurance institution that intends to engage in internet insurance business to
directly own the online platform instead of through its subsidiary, we determined to register Fanhua RONS as the owner of baoxian.com
and apply for a new Value-added Telecommunication Business Operation Permit for ICP services, or an ICP license for Fanhua RONS, although
the Measures only requires the online platform owner to make ICP filing. As the applicant for an ICP license may be subject to foreign
investment restriction, we commenced a restructuring to re-establish the VIE structure for our online insurance business which was completed
in December 2021, pursuant to which our direct equity interests in Xinbao Investment was reduced from 100% to 49% and the remaining 51%
is nominally held by an employee of the Company on behalf of the Company. Concurrently, Fanhua Group Company, entered into contractual
arrangements with Xinbao Investment and the individual nominee shareholder, pursuant to which, we are able to: (i) exercise effective
control over Xinbao Investment and its subsidiaries; (ii) have an exclusive option to purchase part of the equity interests in Xinbao
Investment when and to the extent permitted by PRC law; and (iii) receive all of the economic benefits from the consolidated VIEs in
consideration for the services provided by our subsidiaries in China. The Contractual Arrangements allow us to be the primary beneficiary
of the consolidated VIE and to consolidate the Consolidated VIE&#8217;s results of operations into our financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
preparation for the application of an ICP license for Fanhua RONS Technologies, on June 24, 2022, our wholly owned subsidiary Fanlian
Investment transferred all of the equity interests in Fanhua RONS Technologies to Mr. Peng Ge, our chief financial officer to hold the
shares of Fanhua RONS Technologies nominally on behalf of the Company. Concurrently, Fanlian Investment entered into contractual arrangements
with Fanhua RONS Technologies and Mr. Ge. The contractual arrangements are substantially similar to those among Fanhua Group Company,
Xinbao Investment and its individual nominee shareholder. Fanhua RONS Technologies have obtained the ICP license on December 8, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">If
the Contractual Arrangements that establish the structure for operating our and the consolidated VIEs&#8217; business in the PRC are
found to be in violation of any existing or any PRC laws or regulations in the future, or the PRC government finds that we, or the consolidated
VIEs fails to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the MIIT,
MOFCOM and STA, would have broad discretion in dealing with such violations, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">revoking the business and operating
licenses;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">discontinuing or restricting
the operations;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">imposing fines or confiscating
any of the income from us and the consolidated VIEs that they deem to have been obtained through illegal operations;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">requiring us to restructure
our and the consolidated VIEs&#8217; operations in such a way as to compel us to establish new entities, re-apply for the necessary licenses
or relocate our and the consolidated VIEs&#8217; business, staff and assets;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">imposing additional conditions
or requirements with which we and the consolidated VIEs may not be able to comply;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">restricting or prohibiting
the use of proceeds from the initial public offering or other financing activities to finance our and the consolidated VIEs&#8217; business
and operations in the PRC; or</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">taking other regulatory or
enforcement actions that could be harmful to our and the consolidated VIEs&#8217; business.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Any
of these actions could cause significant disruption or result in a material change to our and the consolidated VIEs&#8217; business operations,
and may materially and adversely affect our and the consolidated VIEs&#8217; business, financial condition and results of operations.
In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results
of Xinbao Investment and Fanhua RONS Techologies and their subsidiaries in our consolidated financial statements, if the PRC governmental
authorities find the consolidated VIEs&#8217; legal structure and Contractual Arrangements to be in violation of PRC laws, rules and
regulations. If any of these penalties results in our inability to direct the activities of Xinbao Investment and Fanhua RONS Techologies
or their subsidiaries that most significantly impact its economic performance and/or our failure to receive the economic benefits from
Xinbao Investment and Fanhua RONS Techologies or their subsidiaries, we may not be able to consolidate Xinbao Investment and Fanhua RONS
Techologies and/or their subsidiaries into our consolidated financial statements in accordance with U.S. GAAP. If we are unable to claim
our right to control the assets of the consolidated VIEs, the ADSs may decline in value or become worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->25<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>The PRC government
has significant authority to exert influence on the China operations of an offshore holding company, such as us. Therefore, investors
in the ADSs and our and the consolidated VIEs&#8217; business face potential uncertainty from the PRC government&#8217;s policy. Changes
in China&#8217;s economic, political or social conditions, or government policies could materially and adversely affect our and the consolidated
VIEs&#8217; business, financial condition, and results of operations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Substantially
all of our and the consolidated VIEs&#8217; operations are located in China. The PRC government has significant authority to exert influence
on the China operations of an offshore holding company, such as us. Despite economic reforms and measures implemented by the PRC government,
the PRC government continues to play a significant role in regulating industrial development, allocation of natural and other resources,
production, pricing and management of currency, and there can be no assurance that the PRC government will continue to pursue a policy
of economic reform or that the direction of reform will continue to be market friendly.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
and the consolidated VIEs&#8217; ability to successfully expand business operations in the PRC depends on a number of factors, including
macro-economic and other market conditions. Demand for our and the consolidated VIEs&#8217; services and our and the consolidated VIEs&#8217;
business, financial condition and results of operations may be materially and adversely affected by the following factors:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">political instability or changes in social conditions of the PRC;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">changes in laws, regulations, and administrative directives or the
    interpretation thereof;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">measures which may be introduced to control inflation or deflation;
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">changes in the rate or method of taxation.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">These
factors are affected by a number of variables which are beyond our and the consolidated VIEs&#8217; control.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We and the consolidated
VIEs are subject to extensive and evolving legal development, non-compliance with which, or changes in which, may materially and adversely
affect our and the consolidated VIEs&#8217; business and prospects, and may result in a material change in our and the consolidated VIEs&#8217;
operations and/or the value of our ADSs or could significantly limit or completely hinder our and the consolidated VIEs&#8217; ability
to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">PRC
companies are subject to various PRC laws, regulations and government policies and the relevant laws, regulations and policies continue
to evolve. Recently, the PRC government is enhancing supervision over companies seeking listings overseas and some specific business
or activities such as the use of variable interest entities and data security or anti-monopoly. The PRC government may adopt new measures
that may affect our and the consolidated VIEs&#8217; operations, or may exert more oversight and control over offerings conducted outside
of China and foreign investment in China-based companies, and we and the consolidated VIEs may be subject to challenges brought by these
new laws, regulations and policies. However, since these laws, regulations and policies are relatively new and the PRC legal system continues
to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations
and rules involve uncertainties. Furthermore, as we and the consolidated VIEs may be subject to additional, yet undetermined, laws and
regulations, compliance may require us to obtain additional permits and licenses, complete or update registrations with relevant regulatory
authorities, adjust our and the consolidated VIEs&#8217; business operations, as well as allocate additional resources to monitor developments
in the relevant regulatory environment. However, under the stringent regulatory environment, it may take much more time for the relevant
regulatory authorities to approve new applications for permits and licenses, and complete or update registrations and we cannot assure
you that we and the consolidated VIEs will be able to comply with these laws and regulations in a timely manner or at all. The failure
to comply with these laws and regulations may delay, or possibly prevent, us to conduct business, accept foreign investments, or listing
overseas.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
occurrence of any of these events may materially and adversely affect our and the consolidated VIEs&#8217; business and prospects and
may result in a material change in our and the consolidated VIEs&#8217; operations and/or the value of our ADSs or could significantly
limit or completely hinder our and the consolidated VIEs&#8217; ability to offer or continue to offer securities to investors. In addition,
if any of changes causes us unable to direct the activities of the consolidated VIEs or lose the right to receive their economic benefits,
we may not be able to consolidate the VIEs into our consolidated financial statements in accordance with U.S. GAAP, which could cause
the value of our ADSs to significantly decline or become worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>It is unclear whether
we and the consolidated VIEs will be subject to the oversight of the Cyberspace Administration of China and how such oversight may impact
us. Our and the consolidated VIEs&#8217; business could be interrupted or we and the consolidated VIEs could be subject to liabilities
which may materially and adversely affect the results of our and the consolidated VIEs&#8217; operation and the value of your investment.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Pursuant
to the PRC Cybersecurity Law and the Measures for Cybersecurity Censorship, if a critical information infrastructure operator that intends
to purchase internet products and services and data processing operators (collectively, the &#8220;operators&#8221;) engaging in data
processing activities that affect or may affect national security must be subject to the cybersecurity review. According to the Regulations
for Safe Protection of Critical Information Infrastructure, or the Safe Protection Regulations, which took effect on September 1, 2021,
critical information infrastructure refers to important network infrastructure and information systems in public telecommunications,
information services, energy sources, transportation and other critical industries and domains, in which any destruction or data leakage
will have severe impact on national security, the nation&#8217;s welfare, the people&#8217;s living and public interests. As of the date
hereof, we and the consolidated VIEs have not received any notice from such authorities identifying us as a critical information infrastructure
operator or requiring us to going through cybersecurity review by the CAC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
December 28, 2021, the CAC, NDRC, MIIT, the MPS, the Ministry of National Security, the MOF, the MOFCOM, the PBOC, the National Radio
and Television Administration, the CSRC, the National Administration of State Secrets Protection and the State Cryptography Administration
jointly released the Measures for Cybersecurity Review Measures, or the Cybersecurity Review Measures, which took effect on February
15, 2022. According to the Cybersecurity Review Measures, the scope of cybersecurity reviews is extended to data processing operators
engaging in data processing activities that affect or may affect national security. The Cybersecurity Review Measures further requires
that any operator applying for listing on a foreign exchange must go through cybersecurity review if it possesses personal information
of more than one million users. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security
risks that may be brought about by any procurement, data processing, or overseas listing. The review focuses on several factors, including,
among others, (i) the risk of theft, leakage, corruption, illegal use or export of any core or important data, or a large amount of personal
information, and (ii) the risk of any critical information infrastructure, core or important data, or a large amount of personal information
being affected, controlled or maliciously exploited by a foreign government after a company is listed overseas.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><span style="font-size: 10pt">Our
PRC counsel is of the view that there is a relatively low likelihood that we and the consolidated VIEs will be subject to the cybersecurity
review by the CAC for a future offering of our securities to foreign investors, given that: (i) we and the consolidated VIEs have not
been recognized as critical information infrastructure operators; (ii) data processed in our and the consolidated VIEs&#8217; business
do not have an impact or potential impact on national security; and (iii) the Cybersecurity Review Measures require operators of online
platforms that hold personal information of more than one million users to file a cybersecurity review with the Cybersecurity Review
Office when they go public abroad. On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering
and Listing by Domestic Companies and five supporting guidelines, or collectively, the Filing Rules, which came into effect on March
31, 2023, pursuant to the new rules, China-based issuers that seek to offer, list their securities or refinancing in an overseas market</span>,
<span style="font-size: 10pt">are required to fulfill relevant filing procedure and report relevant information to the CSRC, and other
pre-procedure of relevant regulatory authorities before filing to CSRC, including but not limited to CAC. However, there remains uncertainty
as to how the Cybersecurity Review Measures will be interpreted and whether the PRC regulatory agencies, including the CAC and the CSRC,
may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and
the Filing Rules. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we and the consolidated
VIE will take all reasonable measures and actions to comply and minimize the adverse effect of such laws on us.</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that
we and the consolidated VIEs can fully or timely comply with such laws. In the event that we and the consolidated VIEs are subject to
any mandatory cybersecurity review and other specific actions required by the CAC, we and the consolidated VIE face uncertainty as to
whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we and the consolidated VIEs
may be further required to suspend our and the consolidated VIEs&#8217; relevant business, shut down our and the consolidated VIE&#8217;s
website, or face other penalties, which could materially and adversely affect our and the consolidated VIEs&#8217; business, financial
condition, and results of operations, and/or the value of our ADSs or could significantly limit or completely hinder our and the consolidated
VIEs&#8217; ability to offer or continue to offer securities to investors. In addition, if any of these events causes us unable to direct
the activities of the consolidated VIEs or lose the right to receive their economic benefits, we may not be able to consolidate the VIEs
into our consolidated financial statements in accordance with U.S. GAAP, which could cause the value of our ADSs to significantly decline
or become worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
November 14, 2021, the CAC published the Regulations on the Cyber Data Security (Draft for Comments until December 13, 2021), which further
regulate the internet data processing activities and emphasize on the supervision and management of network data security, and further
stipulate the obligations of internet platform operators, such as to establish a system for disclosure of platform rules, privacy policies
and algorithmic strategies related to data. Specifically, the draft regulations require data processors to, among others, (i) adopt immediate
remediation measures when they discover that network products and services they use or provide have security defects and vulnerabilities,
or threaten national security or endanger public interest, and (ii) follow a series of detailed requirements with respect to processing
personal information, management of important data and proposed overseas transfer of data. The following activities shall apply for cybersecurity
review: (i) merger, reorganization or division of internet platform operators that have acquired a large number of data resources related
to national security, economic development or public interests affects or may affect national security; (ii) listing abroad of data processors
processing over one million users<span style="font-family: Times New Roman, Times, Serif">&#8217;</span> personal information; (iii)
listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect
national security.The draft measures also require data processors that handle important data or are seeking to be listed overseas to
complete an annual data security self-assessment or entrust a data security service institution to do so, and file a data security assessment
report of previous year to the local branch of applicable regulators before January 31 each year. Such annual assessment, as required
by the draft regulations, would encompass areas including but not limited to the status of important data processing, data security risks
identified and the rectification measures adopted, the effectiveness of data protection measures, the implementation of national data
security laws and regulations, data security incidents that occurred and how they were resolved, and a security assessment with respect
to sharing and provision of important data overseas. As of the date hereof, the draft regulations have been released for public comment
only and have not been formally adopted. The final provisions, interpretation, implementation and the timeline for its adoption are subject
to changes and uncertainties.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
there remain uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure you that we
will be able to comply with new regulatory requirements relating to our future overseas capital raising activities, and may be subject
to more stringent requirements with respect to matters including data privacy and cross-border investigation and enforcement of legal
claims. In the event that we and the consolidated VIEs are subject to any mandatory cybersecurity review and other specific actions required
by the CAC, we and the consolidated VIEs face uncertainty as to whether any clearance or other required actions can be timely completed,
or at all. Given such uncertainty, we and the consolidated VIEs may be further required to suspend our and the consolidated VIEs&#8217;
relevant business, shut down our and the consolidated VIEs&#8217; website, or face other penalties, which could materially and adversely
affect our and the consolidated VIEs&#8217; business, financial condition, and results of operations, and/or the value of our ADSs or
could significantly limit or completely hinder our and the consolidated VIEs&#8217; ability to offer or continue to offer securities
to investors. In addition, if any of these events causes us unable to direct the activities of the consolidated VIEs or lose the right
to receive their economic benefits, we may not be able to consolidate the VIEs into our consolidated financial statements in accordance
with U.S. GAAP, which could cause the value of our ADSs to significantly decline or become worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>The PRC government&#8217;s
oversight over our and the consolidated VIEs&#8217; business operations could result in a material adverse change in our and the consolidated
VIEs&#8217; operations and the value of our ADSs.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
conduct our business in China primarily through our PRC subsidiaries, including Fanhua Group Company and its subsidiaries in which we
hold equity ownership interests, and the contractual arrangements with the consolidated VIEs. Our and the consolidated VIEs&#8217; operations
in China are governed by PRC laws and regulations. The PRC government has significant oversight over the conduct of our and the consolidated
VIEs&#8217; business, and it regulates and may intervene our and the consolidated VIEs&#8217; operations at any time, which could result
in a material adverse change in our and the consolidated VIEs&#8217; operation and/or the value of our ADSs. Also, the PRC government
has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based
issuers like us. Any such action 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 and the consolidated VIEs&#8217; operations could cause the value of our securities to significantly
decline. Therefore, investors of us and the consolidated VIEs and our and the consolidated VIEs&#8217; business face potential uncertainty
from actions taken by the PRC government.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Any failure by the
VIEs or their respective shareholders to perform their obligations under our Contractual Arrangements with them would have a material
adverse effect on our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
have entered into a series of Contractual Arrangements with Xinbao Investment and Fanhua RONS Technologies, our consolidated VIEs and
the shareholders of Xinbao Investment and Fanhua RONS Technologies, respectively. For a description of these Contractual Arrangements,
see &#8220;Item 4. Information on the Company&#8212;C. Organizational Structure.&#8221; If our consolidated VIEs or the shareholder of
Xinbao Investment and Fanhua RONS Technologies fail to perform their respective obligations under the Contractual Arrangements, we may
incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under
PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you that it will
be effective under PRC laws. For example, if the shareholders of Xinbao Investment and Fanhua RONS Technologies were to refuse to transfer
their equity interests in Xinbao Investment and Fanhua RONS Technologies to us or our designee when we exercise the purchase option pursuant
to these Contractual Arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to
compel them to perform their contractual obligations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">All
the agreements under our Contractual Arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration
in China. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance
with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States.
As a result, uncertainties in the PRC legal system could limit our ability to enforce these Contractual Arrangements. Meanwhile, there
are very few precedents and little formal guidance as to how Contractual Arrangements in the context of a variable interest entity should
be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration
should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration
results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losing parties fail to carry
out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts
through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable
to enforce these Contractual Arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these Contractual
Arrangements, we may not be able to exert effective control over Xinbao Investment and Fanhua RONS Technologies and their subsidiaries,
and our ability to conduct our business may be negatively affected. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks
Related to Doing Business in China&#8212;Uncertainties in the PRC legal system and the interpretation and enforcement of PRC laws and
regulations could limit the legal protections available to you and us, significantly limit or completely hinder our ability to offer
or continue to offer our ADSs, cause significant disruption to our and the consolidated VIEs&#8217; business operations, and severely
damage our and the consolidated VIEs&#8217; reputation, which would materially and adversely affect our and the consolidated VIEs&#8217;
financial condition and results of operations and cause our ADSs to significantly decline in value or become worthless. In addition,
rules and regulations in China can change quickly with little advance notice, therefore, our assertions and beliefs of the risks imposed
by the Chinese legal and regulatory system cannot be certain.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We rely on contractual
arrangements to conduct a small part of our China operations, which may not be as effective in providing operational control as direct
ownership.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Although
we have obtained direct equity ownership in almost all of our insurance intermediary operating companies, we have relied on and expect
to continue to rely on contractual arrangements with Xinbao Investment Fanhua RONS Technologies and their individual nominee shareholder
to operate a small part of our business in China. These contractual arrangements may not be as effective as direct ownership in providing
us with control over our consolidated VIEs, and these contractual arrangements have not been tested in a court of law. For a description
of these contractual arrangements, see &#8220;Item 4. Information on the Company&#8212;C. Organizational Structure.&#8221; These contractual
arrangements may not be as effective in providing us with control over the VIEs as direct ownership.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">If
we had direct controlling ownership of our consolidated VIEs, we would be able to exercise our rights as a controlling shareholder to
effect changes in the board of directors of these entities, which in turn could effect changes, subject to any applicable fiduciary obligations,
at the management level. However, under the current contractual arrangements, as a legal matter, if our consolidated VIEs and their shareholders
fail to perform their obligations under these contractual arrangements, we may have to incur substantial costs and expend significant
resources to enforce such arrangements and rely on legal remedies under PRC law, including seeking specific performance or injunctive
relief and claiming damages, which may not be effective. For example, if the shareholders of our consolidated VIEs were to refuse to
transfer their equity interest in such entities to us or our designee when we exercise the call option pursuant to these contractual
arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal action to compel them to fulfill
their contractual obligations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">All
of our contractual arrangements with Xinbao Investment and Fanhua RONS Technologies and their individual nominee shareholders are governed
by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted
in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC
may bear significant difference from those of other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal
system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements,
we may not be able to exert effective control over the VIEs, and our ability to conduct our business may be negatively affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>The individual shareholders
of Xinbao Investment and Fanhua RONS Technologies, our consolidated VIEs, may have potential conflicts of interest with us, which may
materially and adversely affect our business and financial condition.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
of March 31, 2023, Mr. Peng Ge, held 100% of the equity interests in Fanhua RONS Technologies and Mr. Shuangping Jiang, held 51% of the
equity interests in Xinbao Investment with the remaining 49% held by our wholly-owned PRC subsidiary Fanhua Group Company. Conflicts
of interest may arise between the dual roles of Mr. Ge and Mr. Jiang as shareholders of Fanhua RONS Technologies and Xinbao Investment
respectively and as officers of our company. We do not have existing arrangements to address these potential conflicts of interest and
cannot assure you that when conflicts arise, Mr. Ge and Mr. Jiang will act in the best interest of our company or that conflicts will
be resolved in our favor.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Contractual arrangements
we have entered into with Xinbao Investment and Fanhua RONS Technologies may be subject to scrutiny by the PRC tax authorities. A finding
that we owe additional taxes could substantially reduce our consolidated net income and the value of your investment.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Under
PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenged by the PRC tax authorities.
We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between us
and the VIEs are not on an arm&#8217;s-length basis and that we adjusted the income of our consolidated VIEs in the form of a transfer
pricing adjustment. Particularly, the State Administration of Taxation issued a Public Notice, or Public Notice 16, on March 18, 2015,
to further regulate and strengthen the transfer pricing administration on outbound payments by a PRC enterprise to its overseas related
parties. In addition to emphasizing that outbound payments by a PRC enterprise to its overseas related parties must comply with arm&#8217;s-length
principles, Public Notice 16 specifies certain circumstances whereby such payments are not deductible for the purpose of the enterprise
income tax of the PRC enterprise, including payments to an overseas related party which does not undertake any function, bear any risk
or have any substantial operation or activities, payments for services which do not enable the PRC enterprise to obtain direct or indirect
economic benefits, or for services that are unrelated to the functions and risks borne by the PRC enterprise, or relate to the protection
of the investment interests of the direct or indirect investor of the PRC enterprise, or for services that have already been purchased
from a third party or undertaken by the PRC enterprise itself, and royalties paid to an overseas related party which only owns the legal
rights of the intangible assets but has no contribution to the creation of such intangible assets. Although we believe all our related
party transactions, including all payments by our PRC subsidiaries and consolidated VIEs to our non-PRC entities, are made on an arm&#8217;s-length
basis and our estimates are reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in
our financial statements and may materially adversely affect our financial results in the period or periods for which such determination
is made. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions
recorded by our consolidated VIEs, which could in turn increase their respective tax liabilities. Moreover, the PRC tax authorities may
impose penalties on our consolidated VIEs for underpayment of taxes. Our consolidated net income may be materially and adversely affected
by the occurrence of any of the foregoing.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>PRC regulation of
loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans to our PRC subsidiaries
or making additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our
ability to fund and expand our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
are an offshore holding company conducting our operations in China primarily through our PRC subsidiaries and to a small part through
our consolidated VIEs. In order to provide additional funding to our PRC subsidiaries and consolidated VIEs, we may make loans to our
PRC subsidiaries and consolidated VIEs, or we may make additional capital contributions to our PRC subsidiaries and consolidated VIEs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Any
loans we make to any of our directly-held PRC subsidiaries (which are treated as foreign-invested enterprises under PRC law), namely,
Fanhua Zhonglian Enterprise Image Planning (Shenzhen) Co., Ltd., or Zhonglian Enterprise, and Fanhua Xinlian Information Technology Consulting
(Shenzhen) Co., Ltd., or Xinlian Information, cannot exceed statutory limits and must be registered with the State Administration of
Foreign Exchange, or the SAFE, or its local counterparts. Under applicable PRC law, the amount of a foreign-invested enterprise&#8217;s
registered capital represents shareholders&#8217; equity investments over a defined period of time, and the foreign-invested enterprise&#8217;s
total investment represents the total of the company&#8217;s registered capital plus permitted loans. The registered capital/total investment
ratio cannot be lower than the minimum statutory requirement and the excess of the total investment over the registered capital represents
the maximum amount of borrowings that a foreign-invested enterprise is permitted to have under PRC law. Our directly-held PRC subsidiaries
were allowed to incur a total of HK300 million (US$38.2 million) in foreign debts as of March 31, 2023. If we were to provide loans to
our directly-held PRC subsidiaries in excess of the above amount, we would have to apply to the relevant government authorities for an
increase in their permitted total investment amounts. The various applications could be time-consuming and their outcomes would be uncertain.
Concurrently with the loans, we might have to make capital contributions to these subsidiaries in order to maintain the statutory minimum
registered capital/total investment ratio, and such capital contributions involve uncertainties of their own, as discussed below. Furthermore,
even if we make loans to our directly-held PRC subsidiaries that do not exceed their current maximum amount of borrowings, we will have
to register each loan with the SAFE or its local counterpart within 15 days after the signing of the relevant loan agreement. Subject
to the conditions stipulated by the SAFE, the SAFE or its local counterpart will issue a registration certificate of foreign debts to
us within 20 days after reviewing and accepting our application. In practice, it may take longer to complete such SAFE registration process.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Any
loans we make to any of our indirectly-held PRC subsidiaries (those PRC subsidiaries which we hold indirectly through Zhonglian Enterprise
and Xinlian Information) or to any of our consolidated VIEs, all of which are treated as PRC domestic companies rather than foreign-invested
enterprises under PRC law, are also subject to various PRC regulations and approvals. Under applicable PRC regulations, medium- and long-term
international commercial loans to PRC domestic companies are subject to approval by the National Development and Reform Commission. Short-term
international commercial loans to PRC domestic companies are subject to the balance control system effected by the SAFE. Due to the above
restrictions, we are not likely to make loans to any of our indirectly-held PRC subsidiaries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Any
capital contributions we make to our PRC subsidiaries, including directly-held and indirectly-held PRC subsidiaries, must be approved
by the PRC Ministry of Commerce or its local counterparts, and registered with the SAFE or its local counterparts. Such applications
and registrations could be time consuming and their outcomes would be uncertain.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals
on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries, or with respect to future capital contributions
by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise
fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund
and expand our business.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of its capital contribution
in foreign currency into RMB. The notice requires that the capital of a foreign-invested company settled in RMB converted from foreign
currencies shall be used only for purposes within the business scope as approved by the authorities in charge of foreign investment or
by other government authorities and as registered with the State Administration for Industry and Commerce and, unless set forth in the
business scope or in other regulations, may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight
of the flow and use of the capital of a foreign-invested company settled in RMB converted from foreign currencies. The use of such RMB
capital may not be changed without SAFE&#8217;s approval, and may not in any case be used to repay RMB loans if the proceeds of such
loans have not been used. Violations of Circular 142 will result in severe penalties, including heavy fines. As a result, Circular 142
may significantly limit our ability to provide additional funding to our PRC subsidiaries through our directly-held PRC subsidiaries
in the PRC, which may adversely affect our ability to expand our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">However,
on June 9, 2016, SAFE promulgated Circular 16, a notice on reforming and standardizing the administrative provisions on capital account
foreign exchange settlement, which became effective on June 9, 2016. The new notice states that domestic enterprises (including Chinese-funded
enterprises and foreign-invested enterprises, excluding financial institutions) shall be allowed to settle their foreign exchange capitals
on a discretionary basis. The discretionary settlement by a foreign-invested enterprise of its foreign exchange capital shall mean that
the foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital
in its capital account for which the application of discretionary settlement has been specified by relevant policies (including capitals
in foreign currencies, external debts, funds repatriated from overseas listing, etc.). For the time being, foreign-invested enterprises
are allowed to settle 100% of their foreign exchange capitals on a discretionary basis. The SAFE may adjust the foregoing percentage
as appropriate according to balance of payments situations. As a result, Circular 16 will relax the limitation of our ability to provide
additional funding to our PRC subsidiaries through our directly-held PRC subsidiaries in the PRC and consolidated VIEs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Risks Related to Doing
Business in China</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; background-color: white"><b><i>The
approval of and filing with the CSRC or other PRC government authorities may be required in connection with our future offshore offerings,
capital raising activities and aquisitions or other trading arrangements of domestic enterprises conducted by China-based issuers, and
also may be required to go through cybersecurity review under the new laws and the draft laws and regulations of mainland China, and,
if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing or other regulatory
procedures. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 25.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 25.5pt; background-color: white">On
August 8, 2006, MOFCOM, joined by the CSRC, the State-owned Assets Supervision and Administration Commission of the State Council, the
SAT, the State Administration for Industry and Commerce, and SAFE, jointly promulgated regulations entitled the Provisions Regarding
Mergers and Acquisitions of Domestic Entities by Foreign Investors (the &#8220;M&amp;A Rules&#8221;), which took effect as of September
8, 2006, and as amended on June 22, 2009.On September 21, 2006, the CSRC published on its official website a notice specifying the documents
and materials that are required to be submitted for obtaining CSRC approval. The M&amp;A Rules requires an overseas special purpose vehicle
formed for listing purposes through acquisitions of mainland China domestic&#160;companies&#160;and controlled by mainland China companies
or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle&#8217;s securities
on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and our offshore offerings may ultimately
require 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, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or delay in obtaining
the CSRC approval for any of our offshore offerings, or a rescission of such approval is obtained by us, would subject us to sanctions
imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in mainland China,
and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 22.7pt; background-color: white">The
new rules for the filing-based administration of overseas securities offerings and listings by Chinese domestic companies released on
February 17, 2023, or New Filing Rules,&#160;establish a new filing-based regime to regulate overseas offerings and listings by domestic
companies. According to the New Filing Rules, (i) an overseas offering and listing by a domestic company, whether directly or indirectly,
shall be filed with the CSRC; and (ii) the issuer or its affiliated domestic company, as the case may be, shall file with the CSRC for
its initial public offering, follow-on offering, issuance of convertible bonds, offshore relisting after go-private transactions and
other equivalent offing activities. In addition, after a domestic company has offered and listed securities in an overseas markets, it
is required to file a report to the CSRC after the occurrence and public disclosure of certain material corporate events, including but
not limited to, change of control and voluntary or mandatory delisting. According to the New Filing Rules, the Company shall be deemed
to be a domestic enterprise indirectly listed overseas. However, from March 31, 2023, enterprises that have been listed overseas shall
constitute existing enterprises and are not required to conduct the overseas listing filing procedure immediately, but shall carry out
filing procedures as required if they conduct future offshore offerings or capital raising activities or are involved in other circumstances
that require filing with the CSRC.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 22.7pt; background-color: white">On
February 24, 2023, the CSRC, together with other relevant government authorities, issued the&#160;Provisions on Strengthening Confidentiality
and Archives Administration of Overseas&#160;Securities Offering and Listing by Domestic Companies, or the&#160;Archives Rules, which
became effective on March 31, 2023. According to the Archives Rules, domestic mainland China companies, whether offering and listing
securities overseas directly or indirectly, must strictly abide the applicable laws and regulations when providing or publicly disclosing,
either directly or through their overseas listed entities, documents and materials to securities services providers such as securities
companies and accounting firms or overseas regulators in the process of their overseas offering and listing. If such documents or materials
contain any state secrets or government authorities work secrets, domestic companies must obtain the approval from competent governmental
authorities according to the applicable laws, and file with the secrecy administrative department at the same level with the approving
governmental authority. Furthermore, the Archives Rules also provides that securities companies and securities service providers shall
also fulfill the applicable legal procedures when providing overseas regulatory institutions and other relevant institutions and individuals
with documents or materials containing any state secrets or government authorities work secrets or other documents or materials that,
if divulged, will jeopardize national security or public interest.&#160;For more details of the New Filing Rules, please refer to &#8220;Item
4. Information on the Company&#8212;B. Business Overview&#8212;Regulations&#8212;Regulations Relating to Overseas Listing.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 25pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 25pt">In&#160;addition,
we cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements on us. If it
is determined in the future that approval and filing from the CSRC or other regulatory authorities or other procedures, are required
for our offshore offerings or capital raising activities, it is uncertain whether we can or how long it will take us to obtain such approval
or complete such filing procedures and any such approval or filing could be rescinded or rejected. In addition, there are uncertainties
with regard to whether any report filed with the CSRC after the occurrence of certain material corporate events will be subject to any
further action from the CSRC. Any failure to obtain or delay in obtaining such approval or completing such filing procedures for our
offshore, offerings, capital raising activities or certain material corporate events, or a rescission of any such approval or filing
if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or
filing or other government authorization for our offshore offerings, capital raising activities or certain material corporate events.
These regulatory authorities may impose fines and penalties on our operations in mainland China, limit our operating privileges in mainland
China, delay or restrict the repatriation of the proceeds from our offshore offerings into mainland China or take other actions that
could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading
price of our listed securities. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable
for us, to halt our offshore offerings or capital raising activities before settlement and delivery and further actions of the shares
offered or take any actions regarding our material corporate events. 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, delivery and further actions 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 prior offshore offerings or capital raising activities,
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 listed securities.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Uncertainties in
the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to
you and us, significantly limit or completely hinder our ability to offer or continue to offer our ADSs, cause significant disruption
to our and the consolidated VIE&#8217;s business operations, and severely damage our and the consolidated VIEs&#8217; reputation, which
would materially and adversely affect our and the consolidated VIEs&#8217; financial condition and results of operations and cause our
ADSs to significantly decline in value or become worthless. In addition, rules and regulations in China can change quickly with little
advance notice, therefore, our assertions and beliefs of the risks imposed by the Chinese legal and regulatory system cannot be certain.</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations
are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are
not always uniform and enforcement of these laws, regulations and rules involves uncertainties. In addition, rules and regulations in
China can change quickly with little advance notice, therefore, our assertions and beliefs of the risks imposed by the Chinese legal
and regulatory system cannot be certain.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
particular, PRC laws and regulations concerning the insurance industry are developing and evolving. Although we have taken measures to
comply with the laws and regulations that are applicable to our business operations, and avoid conducting any non-compliant activities
under the applicable laws and regulations, such as illegal fund-raising, forming capital pool or providing guarantee to investors, the
PRC government authority may promulgate new laws and regulations regulating the insurance industry in the future. We cannot assure you
that our practice would not be deemed to violate any new PRC laws or regulations relating to insurance. Moreover, developments in the
insurance industry may lead to changes in PRC laws, regulations and policies or in the interpretation and application of existing laws,
regulations and policies that may limit or restrict insurance agency and brokerage services like us, which could materially and adversely
affect our business and operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">From
time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, 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. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published
in a timely manner or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies
and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual,
property (including intellectual property) and procedural rights, could limit the legal protections available to you and us, significantly
limit or completely hinder our ability to offer or continue to offer our ADSs, cause significant disruption to our and the consolidated
VIEs&#8217; business operations, and severely damage our and the consolidated VIEs&#8217; reputation, which would materially and adversely
affect our and the consolidated VIEs&#8217; financial condition and results of operations and cause our ADSs to significantly decline
in value or become worthless.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>A downturn in the
Chinese or global economy could have a material adverse effect on our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Substantially
all of our business operations are conducted in China. Accordingly, our results of operations, financial condition and prospects are
subject to a significant degree to economic, political and legal developments in China. While the PRC economy has experienced significant
growth in the past 30 years or so, growth has been uneven across different regions and among various economic sectors. Economic growth
in China has been slowing in the past few years. The PRC government has implemented various measures to encourage economic development
and guide the allocation of resources. However, these measures may not be successful in transforming the Chinese economy or spurring
growth. While some of these measures benefit the overall PRC economy, they may also have a negative effect on us. For example, our financial
condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations
that are applicable to us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
addition, the global financial markets have experienced significant disruptions between 2008 and 2009, and the United States, Europe
and other economies have experienced periods of recessions. The recovery from the economic downturns of 2008 and 2009 has been uneven
and is facing new challenges, including the high inflation in the US which creates additional global economic uncertainty. There is considerable
uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities
of some of the world&#8217;s leading economies, including the United States and China. There have also been concerns about the economic
effect of the geo-political tensions in the relationship between China and the United States. Economic conditions in China are sensitive
to global economic conditions. Any prolonged slowdown in the global or Chinese economy may have a negative impact on our business, results
of operations and financial condition. Additionally, continued turbulence in the international markets may adversely affect our ability
to access the capital markets to meet liquidity needs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Governmental control
of currency conversion may affect the value of your investment.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
PRC government imposes controls on the convertibility of the RMB into foreign currencies and the remittance of currency out of China.
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 SAFE by complying
with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be 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 also at its discretion restrict access in the future to foreign currencies for current account transactions. Under
our current corporate structure, the primary source of our income at the holding company level is dividend payments from our PRC subsidiaries.
Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency
to pay dividends or other payments to us, or otherwise satisfy their foreign-currency-denominated obligations. If the foreign exchange
control system prevents us from obtaining sufficient foreign currency to satisfy our currency needs, we may not be able to pay dividends
in foreign currencies to our shareholders, including holders of our ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>The PRC Enterprise
Income Tax Law may increase the enterprise income tax rate applicable to some of our PRC subsidiaries, which could have a material adverse
effect on our result of operations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">According
to the PRC Enterprise Income Tax Law, or the EIT Law, which became effective on January 1, 2008, which was subsequently amended on February
24, 2017 and December 29, 2018, as further clarified by subsequent tax regulations implementing the EIT Law, foreign-invested enterprises
and domestic enterprises are subject to enterprise income tax, or EIT, at a uniform rate of 25%, unless otherwise provided.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">According
to the EIT Law and related regulations, such as the Circular on Issues Regarding Tax-related Preferential Policies for Further Implementation
of Western Development Strategy jointly issued by the State Ministry of Finance, General Administration of Customs, China and State Administration
for Taxation, enterprises located in the western China regions that fall into the encouraged industries are entitled to 15% EIT preferential
tax treatment from January 1, 2011 to December 31, 2020. The preferential tax treatment is subsequently extended to December 31, 2030,
according to No. 23 Announcement Concerning the Extension of the EIT Policies for Enterprises Located in Western China issued by the
Ministry of Finance on April 23, 2020. The preferential tax rates enjoyed by some of our PRC subsidiaries incorporated in such regions,
will increase to the uniform 25% EIT rate after 2030. An increase in the EIT rates for those entities pursuant to the EIT Law could result
in an increase in our effective tax rate, which could materially and adversely affect our results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Our global income
or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse
effect on our results of operations.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Under
the EIT Law, an enterprise established outside of the PRC with &#8220;de facto management bodies&#8221; within the PRC is considered
a resident enterprise and will be subject to the EIT at the rate of 25% on its worldwide income. The Implementation Rules of the EIT
Law, or the Implementation Rules, define the term &#8220;de facto management bodies&#8221; as &#8220;establishments that carry out substantial
and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.&#8221;
If we are deemed a resident enterprise, we may be subject to the EIT at 25% on our global income, except that the dividends we receive
from our PRC subsidiary will be exempt from the EIT. If we are considered a resident enterprise and earn income other than dividends
from our PRC subsidiaries, a 25% EIT on our global income could significantly increase our tax burden and materially and adversely affect
our cash flow and profitability.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">PR
Rules, if we are regarded as a resident enterprise, the dividends we receive from our PRC subsidiaries will be exempt from the EIT. If,
however, we are not regarded as a resident enterprise, our PRC subsidiaries will be required to pay a 5% or 10% withholding tax, as the
case may be, for any dividends they pay to us. As a result, the amount of fund available to us to meet our cash requirements, including
the payment of dividends to our shareholders and ADS holders, could be materially reduced.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We rely principally
on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and
any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct
our business.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in; background-color: white">We
are a holding company, and we will rely principally on dividends from our subsidiaries in China and service, license and other fees paid
to our subsidiaries by our consolidated VIEs for our cash requirements, including any debt we may incur. Current PRC regulations permit
our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, according to the PRC Company Law, each of our PRC subsidiaries is required to set aside at least
10% of its after-tax profits each year as reported in its PRC statutory financial statements, if any, to fund a statutory reserve until
such reserve reaches 50% of its registered capital. In addition, each of our PRC subsidiaries that are considered foreign-invested enterprises
is required to further set aside a portion of its after-tax profits as reported in its PRC statutory financial statements to fund the
employee welfare fund at the discretion of its board. In addition, according to the Regulation on the Supervision of Insurance Agents,
our insurance agency subsidiaries are required to either procure professional liability insurance with minimum compensation for each
accident under the one-year professional liability insurance policy no less than RMB1 million, and accumulative compensation under the
one-year insurance policy no less than RMB10 million and the total core business revenue of the professional insurance agency company
in the previous year, or make a contribution to deposit which shall represent 5% of its registered capital. These reserves are not distributable
as cash dividends.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
of December 31, 2022, the aggregate undistributed earnings of the Group&#8217;s subsidiaries and VIEs in the PRC that are available
for distribution were RMB1.4 billion (US$202.9 million). Furthermore, if our
subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to
pay dividends or make other payments to us. Any limitation on the ability of our subsidiaries to distribute dividends or other
payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial
to our businesses, pay dividends, or otherwise fund and conduct our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>PRC regulations relating
to the establishment of offshore special purpose companies by PRC residents and employee stock options granted by overseas-listed companies
may increase our administrative burden, restrict our overseas and cross-border investment activity, or otherwise adversely affect us.
If our shareholders who are PRC residents, or our PRC employees who are granted or exercise stock options, fail to make any required
registrations or filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC
laws. We may also face regulatory uncertainties that could restrict our ability to adopt additional equity compensation plans for our
directors and employees and other parties under PRC law.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
October 21, 2005, the SAFE issued a Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage
in Financing and Inbound Investment via Overseas Special Purpose Vehicles, generally known in China as SAFE Circular 75, requiring PRC
residents to register with the local SAFE branch before establishing or controlling any company outside of China, referred to in the
notice as an &#8220;offshore special purpose company,&#8221; for the purpose of raising capital backed by assets or equities of PRC companies.
PRC residents that are shareholders of offshore special purpose companies established before November 1, 2005 were required to register
with the local SAFE branch before March 31, 2006. On July 4, 2014, the SAFE issued the Notice on the Administration of Foreign Exchange
Involved in Overseas Investment, Financing and Return on Investment Conducted by PRC Residents via Special-Purpose Companies, or SAFE
Circular 37, simultaneously repealing SAFE Circular 75. SAFE Circular 37 also requires PRC residents to register with relevant Foreign
Exchange Bureau for foreign exchange registration of overseas investment before making a contribution to a special purpose company, or
SPC, with legitimate holdings of domestic or overseas assets or interests. See &#8220;Item 4. Information on the Company&#8212;B. Business
Overview&#8212;Regulation&#8212;Regulations on Foreign Exchange&#8212;Foreign Exchange Registration of Offshore Investment by PRC Residents.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
have requested our beneficial owners who to our knowledge are PRC residents to make the necessary applications, filings and amendments
as required under SAFE Circular 37 and other related rules. We attempt to comply, and attempt to ensure that our beneficial owners who
are subject to these rules comply with the relevant requirements. However, we cannot assure you that all of our beneficial owners who
are PRC residents will comply with our request to make or obtain any applicable registrations or comply with other requirements under
SAFE Circular 37 or other related rules. The failure of these beneficial owners to timely amend their SAFE registrations pursuant to
SAFE Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures
set forth in SAFE Circular 37 may subject such beneficial owners to fines and legal sanctions and may also limit our ability to contribute
capital into our PRC subsidiaries, limit our PRC subsidiaries&#8217; ability to distribute dividends to our company or otherwise adversely
affect our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
December 25, 2006, the People&#8217;s Bank of China, or the PBOC, promulgated the Measures for the Administration of Individual Foreign
Exchange, and on January 5, 2007, the SAFE further promulgated implementation rules for those measures. We refer to these regulations
collectively as the Individual Foreign Exchange Rules. The Individual Foreign Exchange Rules became effective on February 1, 2007. According
to these regulations, PRC citizens who are granted shares or share options by a company listed on an overseas stock market according
to its employee share option or share incentive plan are required, through the PRC subsidiary of such overseas listed company or any
other qualified PRC agent, to register with the SAFE and to complete certain other procedures related to the share option or other share
incentive plan. Foreign exchange income received from the sale of shares or dividends distributed by the overseas listed company may
be remitted into a foreign currency account of such PRC citizen or be exchanged into Renminbi. Our PRC citizen employees who have been
granted share options became subject to the Individual Foreign Exchange Rules upon the listing of our ADSs on the Nasdaq.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
February 15, 2012, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Issues Related to Foreign Exchange
Administration in Domestic Individuals&#8217; Participation in Equity Incentive Plans of Companies Listed Abroad, or the No. 7 Notice,
which supersedes the Operation Rules on Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding
Plan or Stock Option Plan of Overseas-Listed Company, or the Stock Option Rule, in its entirety and immediately became effective upon
circulation. No. 7 Notice covers all forms of equity compensation plans including employee stock ownership plans, employee stock option
plans and other equity compensation plans permitted by relevant laws and regulations. According to the No. 7 Notice, all participants
of such plans who are PRC citizens shall register with and obtain approvals from SAFE prior to their participation in the equity incentive
plan of an overseas listed company. Domestic individuals, which include any directors, supervisors, senior managerial personnel or other
employees of a domestic company who are PRC citizens (including citizens of Hong Kong, Macau and Taiwan) or foreign individuals who consecutively
reside in the territory of PRC for one year, who participate in the same equity incentive plan of an overseas listed company shall, through
the domestic companies they serve, collectively entrust a domestic agency to handle issues like foreign exchange registration, account
opening, funds transfer and remittance, and entrust an overseas institution to handle issues like an exercise of options, purchasing
and sale of related stocks or equity, and funds transfer. As an overseas publicly listed company, we and our employees who have been
granted stock options or any type of equity awards may be subject to the No. 7 Notice. If we or our employees who are subject to the
No. 7 Notice fail to comply with these regulations, we may be subject to fines and legal sanctions, which will depend on how the SAFE
interprets, applies and enforces Circular 7. See &#8220;Item 4. Information on the Company&#8212;B. Business Overview&#8212;Regulation&#8212;Regulations
on Foreign Exchange&#8212;SAFE Regulations on Employee Share Options.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Fluctuation in the
value of the RMB may have a material adverse effect on your investment.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political
and economic conditions. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi
internationalization, the PRC government may in the future announce further changes to the exchange rate system and we cannot assure
you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult
to predict how market forces or PRC or United States government policy may impact the exchange rate between the RMB and the U.S. dollar
in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
revenues and costs are mostly denominated in RMB, and a significant portion of our financial assets are also denominated in RMB. We rely
on dividends and other fees paid to us by our subsidiaries in China. Any significant appreciation or depreciation of the RMB against
the U.S. dollar may affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on,
our ADSs in U.S. dollars. For example, a further appreciation of the RMB against the U.S. dollar would make any new RMB-denominated investments
or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes. An appreciation of
the RMB against the U.S. dollar would also result in foreign currency translation losses for financial reporting purposes when we translate
our U.S. dollar-denominated financial assets into the RMB, as the RMB is our reporting currency. Conversely, a significant depreciation
of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our reported earnings, and may adversely affect
the price of our ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Certain PRC regulations
could also make it more difficult for us to pursue growth through acquisitions.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Among
other things, Provisions on the Mergers and Acquisitions of Domestic Enterprises by Foreign Investor, or the M&amp;A Rule, also established
additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and
complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction
in which a foreign investor takes control of a PRC domestic enterprise. In the future, we may grow our business in part by directly acquiring
complementary businesses. Complying with the requirements of the new regulations to complete such transactions could be time consuming,
and any required approval processes, including obtaining approval from the Ministry of Commerce, may prevent us from completing such
transactions on a timely basis, or at all, which could affect our ability to expand our business or maintain our market share.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Risks Related to Our
ADSs</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>If the PCAOB determines
in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong,
we and our investors may be deprived with the benefits of such inspections, which could cause investors and potential investors in the
ADSs to lose confidence in the audit procedures and reported financial information and the quality of our financial statements. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
auditor, the independent registered public accounting firm that issues the audit report included in our annual report filed with the
Securities and Exchange Commission, as an auditor of companies that are traded publicly in the United States and a firm registered with
the PCAOB, 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. </p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate
completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">This
lack of PCAOB inspections of audit work of any auditors performed in China before 2022, including that performed by Deloitte has made
it more difficult to evaluate the effectiveness of our independent registered public accounting firm&#8217;s audit procedures or quality
control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. </p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong
from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if
the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland
China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial
statements filed with the SEC, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections, which could
cause investors and potential investors in the ADSs to lose confidence in the audit procedures and reported financial information and
the quality of our financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Our
ADSs may be prohibited from trading in the United States under the HFCA Act in the future if the PCAOB is unable to inspect or investigate
completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely
affect the value of your investment.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
December 18, 2020, the former U.S. president signed into law the Holding Foreign Companies Accountable Act, or the HFCA Act. In essence,
the HFCA Act requires the SEC to prohibit foreign companies from listing securities on U.S. securities exchanges if a company retains
a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. On December 2, 2021,
the SEC finalized rules implementing the submission and disclosure requirements in the HFCA Act which would go into effect 30 days after
publication in the Federal Registrar.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
addition, on June 22, 2021, the U.S. Senate passed a bill which would reduce the number of consecutive non-inspection years required
for triggering the prohibitions under the HFCA Act from three years to two. On February 4, 2022, the U.S. House of Representatives passed
a bill which contained, among other things, an identical provision. On December 29, 2022, the U. S. president signed the Consolidated
Appropriations Act, 2023, which, among other things, amended the HFCA Act to reduce the number of consecutive non-inspection years
required for triggering the prohibitions under the HFCA Act from three years to two. Therefore, pursuant to 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 PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or
in the over-the-counter trading market in the United States.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
December 16, 2021, the PCAOB issued the PCAOB Determinations that they were unable to inspect or investigate completely PCAOB-registered
public accounting firms headquartered in mainland China and in Hong Kong. The report sets forth lists identifying the registered public
accounting firms headquartered in mainland China and Hong Kong, respectively, that the PCAOB was unable to inspect or investigate completely,
and our auditor, Deloitte, was on such lists.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and Ministry of Finance, taking the first step toward opening
access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely,
consistent with U.S. law. On December 15, 2022, the PCAOB announced that it has secured complete access to inspect and investigate completely
PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong. The PCAOB also vacated its previous determinations
issued in December 2021. Therefore, our auditor is currently able to be fully inspected and investigated by the PCAOB. Accordingly, until
such time as the PCAOB issues any new determination, we are at no risk of having our securities subject to a trading prohibition under
the HFCA Act. </p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Each
year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other
jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting
firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report
on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the
annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCA Act, our securities would be prohibited from being
traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified
Issuer for two consecutive years in the future. If our shares and ADSs 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.
The prospect and implications of possible regulation on this subject, in addition to the prevailing requirements of the HFCA Act, are
uncertain. Such uncertainty could cause the market price of our ADSs to be materially and adversely affected, and our securities could
be delisted or prohibited from being traded &#8220;over-the-counter&#8221; earlier than would be required by the HFCA Act as it currently
provides. If our securities are unable to be listed on another securities exchange by then, such a delisting would substantially impair
your ability to sell or purchase our ADSs 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 ADSs. 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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>The trading price
of our ADSs may be volatile.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
trading price of our ADSs may be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad
market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial
results of other listed companies based in China. The securities of some of these companies have experienced significant volatility since
their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading
performances of other Chinese companies&#8217; securities after their offerings, may affect the attitudes of investors toward Chinese
companies listed in the United States, which consequently may impact the trading performance of our ADSs, regardless of our actual operating
performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting,
corporate structure or matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies
in general, including us, regardless of whether we have conducted any inappropriate activities. U.S. government&#8217;s recent policies
concerning Chinese companies listed in the U.S. may also cause great uncertainty in the listing status of companies like us and result
in fluctuation in the trading rice of our ADSs. In addition, securities markets may from time to time experience significant price and
volume fluctuations that are not related to our operating performance, which may have a material and adverse effect on the trading price
of our ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
addition to the above factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors, including the
following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">changes in the economic performance or market valuations of other insurance
    intermediaries;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">actual or anticipated fluctuations in our quarterly results of operations
    and changes or revisions of our expected results;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">announcements by us or our competitors of acquisitions, strategic relationships,
    joint ventures, capital raisings or capital commitments;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">additions to or departures of our senior management;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">fluctuations of exchange rates between the RMB and the U.S. dollar
    or other foreign currencies;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">potential litigation or administrative investigations;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">sales or perceived potential sales of additional ordinary shares or
    ADSs; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">general economic or political conditions in China and abroad.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
volatility resulting from any of the above factors may affect the price at which you could sell the ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We may need additional
capital, and the sale of additional ADSs or other equity securities could result in additional dilution to our shareholders.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated
cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other
future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy
our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity
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. We cannot assure you that financing
will be available in amounts or on terms acceptable to us, if at all.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Substantial future
sales or perceived potential sales of our ordinary shares, ADSs or other equity securities in the public market could cause the price
of our ADSs to decline.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Additional
sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline.
If any existing shareholder or shareholders sell a substantial amount of ordinary shares in the form of ADSs, the market price of our
ADSs could decline. In addition, we may issue additional ordinary shares as considerations for future acquisitions. If we do so, your
ownership interests in our company would be diluted and this in turn could have an adverse effect on the price of our ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Our corporate actions
are substantially controlled by our officers, directors and principal shareholders.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
of March 31, 2023, our executive officers and directors beneficially owned approximately 24.9% of our outstanding shares. These shareholders
could exert substantial influence over matters requiring approval by our shareholders, including electing directors and approving mergers
or other business combination transactions, and they may not act in the best interests of other noncontrolling shareholders. This concentration
of our share ownership also 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. These
actions may be taken even if they are opposed by our other shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b><i>We cannot guarantee that any share repurchase
plan will be fully consummated or that any share repurchase plan will enhance long-term shareholder value, and share repurchases could
increase the volatility of the trading price of the ADSs and could diminish our cash reserves.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
December 20, 2022, our board of directors announced a share repurchase program which authorized us to repurchase up to US$20 million
of our American depositary shares (&#8220;ADS&#8221;) from time to time. As of March 31, 2023, we had repurchased an aggregate of 72,465
ADSs, at an average price of approximately US$7.85 per ADS for a total amount of approximately US$0.6 million under this share repurchase
program.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
board of directors also has the discretion to authorize additional share repurchase plans in the future. The share repurchase plans do
not obligate us to repurchase any specific dollar amount or to acquire any specific number of ADSs and/or shares. We cannot guarantee
that any share repurchase plan will enhance long-term shareholder value. The share repurchase plans could increase the volatility of
the trading price of the ADSs and may be suspended or terminated at any time. Furthermore, share repurchases could diminish our cash
reserves.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Holders of our ADSs
may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Holders
of ADSs do not have the same rights as our registered shareholders. The holders of our ADSs will not have any direct right to attend
general meetings of our shareholders or to directly cast any votes at such meetings. The holders of our ADSs will only be able to exercise
the voting rights which are carried by the underlying ordinary shares represented by their ADSs indirectly by giving voting instructions
to the depositary in accordance with the provisions of the deposit agreement (&#8220;unrestricted deposit agreement&#8221;), and the
deposit agreement for restricted securities (as defined below) (each also referred to as a &#8220;deposit agreement&#8221;, and together
with the &#8220;deposit agreements&#8221;). Under the deposit agreements, the holders of our ADSs may vote only by giving voting instructions
to the depositary. Upon receipt of the voting instructions from the holders of our ADSs, the depositary will vote the underlying ordinary
shares represented by their ADSs in accordance with these instructions. The holders of our ADSs will not be able to directly exercise
their right to vote with respect to the underlying ordinary shares unless they withdraw such shares and become the registered holder
of such shares prior to the record date for the general meeting. Under our amended and restated memorandum and articles of association,
the minimum notice period required to be given by our company to our registered shareholders to convene a general meeting is fourteen
calendar days. When a general meeting is convened, the holders of our ADSs may not receive sufficient advance notice of the meeting to
permit the holders of our ADSs to withdraw the underlying ordinary shares represented by their ADSs and become the registered holder
of such shares to allow the holders of our ADSs to attend the general meeting and to cast their vote directly with respect to any specific
matter or resolution to be considered and voted upon at the general meeting. Furthermore, under our amended and restated memorandum and
articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting,
our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register
of members or the setting of such a record date may prevent the holders of our ADSs from withdrawing the underlying ordinary shares represented
by their ADSs and becoming the registered holder of such shares prior to the record date, so that they would not be able to attend the
general meeting or to vote directly. If we ask for their instructions, the depositary will notify the holders of our ADSs of the upcoming
vote and will arrange to deliver our voting materials to them. We cannot assure the holders of our ADSs that they will receive the voting
materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying their ADSs. In addition, the
depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out the voting
instructions of the holders of our ADSs. This means that the holders of our ADSs may not be able to exercise their right to direct how
the underlying ordinary shares represented by their ADSs are voted and they may have no legal remedy if the underlying ordinary shares
represented by their ADSs are not voted as they requested. In addition, in their capacity as an ADS holder, the holders of our ADSs will
not be able to call a shareholders&#8217; meeting. Furthermore, you 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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Except
as described in this annual report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching
to the shares evidenced by our ADSs on an individual basis. Holders of ADSs may instruct the depositary to exercise the voting rights
attached to the shares represented by the ADSs. If no instructions are received by the depositary on or before a date established by
the depositary, the depositary shall deem the holders to have instructed it to give a discretionary proxy to a person designated by us
to exercise their voting rights. You 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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Right of holders
of our ADSs to participate in any future rights offerings may be limited, which may cause dilution to their holdings.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights
available to holders of our ADSs in the United States unless we register both the rights and the securities to which the rights relate
under the Securities Act or an exemption from the registration requirements is available. Under the deposit agreements, the depositary
will not make rights available to holders of our ADSs unless both the rights and the underlying securities to be distributed to ADS holders
are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file
a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared
effective and we may not be able to establish a necessary exemption 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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Holders of our restricted
ADSs may be subject to limitations on transfer of their ADSs.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Restricted
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 restricted ADSs generally when our books or the books of the depositary are closed, or at any time if we or
the depositary deems 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 agreements, or for any other reason.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Certain judgments
obtained against us by our shareholders may not be enforceable.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
are an exempted company incorporated under the laws of the Cayman Islands. We conduct our operations outside the United States and substantially
all of our assets are located outside the United States. In addition, substantially all of our directors and officers are nationals or
residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States.
As a result, it may be difficult or impossible for our shareholders to bring an action against us or against them in the United States
in the event that our shareholders believe that their rights have been infringed under the U.S. federal securities laws or otherwise.
Even if our shareholders are successful in bringing an action of this kind, the laws of the Cayman Islands, the PRC or other relevant
jurisdictions may render our shareholders unable to enforce a judgment against our assets or the assets of our directors and officers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Since we are a Cayman
Islands company, the rights of our shareholders may be more limited than those of shareholders of a company organized in the United States.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Under
the laws of some jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary responsibilities
to the minority shareholders. Shareholder action must be taken in good faith, and actions by controlling shareholders which are obviously
unreasonable may be declared null and void. Cayman Island law protecting the interests of minority shareholders may not be as protective
in all circumstances as the law protecting minority shareholders in some U.S. jurisdictions. In addition, the circumstances in which
a shareholder of a Cayman Islands company may sue the company derivatively, and the procedures and defenses that may be available to
the company, may result in the rights of shareholders of a Cayman Islands company being more limited than those of shareholders of a
company organized in the United States.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Furthermore,
our directors have the power to take certain actions without shareholder approval which would require shareholder approval under the
laws of most U.S. jurisdictions. The directors of a Cayman Islands company, without shareholder approval, may implement a sale of any
assets, property, part of the business, or securities of the company. Our ability to create and issue new classes or series of shares
without shareholder approval could have the effect of delaying, deterring or preventing a change in control of our Company without any
further action by our shareholders, including a tender offer to purchase our ordinary shares at a premium over prevailing market prices.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Our articles of association
contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders&#8217; opportunity
to sell their shares, including ordinary shares represented by our ADSs, at a premium.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
amended and restated memorandum and articles of association contain provisions which have the potential to limit the ability of others
to acquire control of our company or cause us to engage in change-of-control transactions. These provisions 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 other rights, 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 ordinary shares, in the form of ADS or otherwise, at such time
and on such terms as they may think appropriate. In the event these preferred shares have better voting rights than our ordinary shares,
in the form of ADSs or otherwise, they 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 ordinary shares and ADSs may be materially and adversely affected.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>You may have to rely
primarily on price appreciation of our ADSs for any return on your investment.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
board of directors has discretion as to whether to distribute dividends, subject to applicable laws. Although our board of directors
has announced a policy to declare and pay dividends on a quarterly basis, the amount and form of future dividends will depend on, among
other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any,
received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board
of directors. Accordingly, the return on your investment in our ADSs will likely depend primarily upon any future price appreciation
of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs.
You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>As a foreign private
issuer, we are exempt from certain disclosure requirements under the Exchange Act, which may afford less protection to our shareholders
than they would enjoy if we were a domestic U.S. company.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
a foreign private issuer, we are exempt from, among other things, the rules prescribing the furnishing and content of proxy statements
under the Exchange Act. In addition, our executive officers, directors and principal shareholders are exempt from the reporting and short-swing
profit and recovery provisions contained in Section 16 of the Exchange Act. We are also not required under the Exchange Act to file periodic
reports and financial statements with the SEC as frequently or as promptly as domestic U.S. companies with securities registered under
the Exchange Act although we have voluntarily filed and will continue to file periodic reports and financial statements. As a result,
our shareholders may be afforded less protection than they would under the Exchange Act rules applicable to domestic U.S. companies.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>You may face difficulties
in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are
incorporated under Cayman Islands law, conduct substantially all of our operations in China and the majority of our officers reside outside
the United States. </i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
are incorporated in the Cayman Islands, and conduct substantially all of our operations in China through our subsidiaries in China. Most
of our officers reside outside the United States and some or all of the assets of those persons are located outside of the United States.
The legal system in Cayman, the PRC or other relevant jurisdictions may not afford our shareholders the same level of protection as the
legal system in the United States would. For instance, the Securities Laws of the PRC regulates only security issuances and trading outside
of the PRC to the extent that such issuance and trading disrupts domestic markets and negatively affects the interest of domestic investors
in the PRC. As such, investors in the United States may not be able to file a lawsuit under the Securities Law in the PRC. Even if you
are successful in bringing an action in the PRC, shareholder claims that are common in the United States, including class action suits
securities law and fraud claims, may be difficult or impossible to pursue as a matter of law or practicality in the PRC. As a result,
it may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China
in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful
in bringing an action of this kind outside the Cayman Islands or China, the laws of the Cayman Islands and of China may render you unable
to effect service of process upon, or to enforce a judgment against our assets or the assets of our directors and officers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
SEC, U.S. Department of Justice, or the DOJ, and other relevant regulatory authorities in the United States play vital roles in enforcing
laws and regulations that protect securities investors. These U.S. authorities may face significant legal and other obstacles to obtaining
information needed for investigations or litigation. Further, these U.S. authorities may have substantial difficulties in bringing and
enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, which will further limit
protections available to our shareholders. According to the Securities Laws of the PRC, without the approval of securities regulators
and other actors within the Chinese government, no entity or individual in China may provide documents and information relating to securities
business activities to overseas regulators. In addition, local authorities in Cayman, the PRC or other relevant jurisdictions often are
constrained in their ability to assist U.S. authorities and overseas investors more generally. There are also legal or other obstacles
to seeking access to funds in a foreign country.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">There
is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, although a judgment obtained in the federal
or state courts of the United States courts will be recognized and enforced in the courts of the Cayman Islands at common law, without
any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of
the Cayman Islands, provided such judgment: (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor
a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine, or a
penalty, and (d) was not 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. A judgment of a court of another jurisdiction may be reciprocally recognized or enforced
if the jurisdiction has a treaty with China or if judgments of the PRC courts have been recognized before in that jurisdiction, subject
to the satisfaction of other requirements. However, China does not have treaties providing for the reciprocal enforcement of judgments
of courts with Japan, the United Kingdom, the United States and most other Western countries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
corporate affairs are governed by our amended and restated memorandum and articles of association and by the Companies Act (As Revised)
(the &#8220;Companies Act&#8221;) 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 duties 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 duties 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
has a less developed body of securities laws as compared to the United States, and provides significantly less protection to investors.
In addition, Cayman Islands companies may not have stood to initiate a shareholder derivative action before the federal courts of the
United States.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
a result of all of the above, our investors 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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>We may be a passive
foreign investment company for United States federal income tax purposes, which could result in adverse United States federal income
tax consequences to United States Holders of our ADSs or ordinary shares.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Based on the market price
of our ADSs, the value of our assets, and the composition of our income and assets, we believe that we were a passive foreign investment
company, or PFIC, for United States federal income tax purposes for our taxable year ended December 31, 2022, however there can be no
assurance to this regard.. We believe we were also a PFIC for 2017 and prior years. In addition, we believe that it is likely that one
or more of our subsidiaries were also PFICs for such years. A non-United States corporation will be a PFIC for United States federal income
tax purposes for any taxable year if, applying applicable look-through rules, either (1) at least 75% of our gross income for such year
is passive income or (2) at least 50% of the value of our assets (generally determined based on an average of the quarterly values of
the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. We
must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Because the value of our
assets for purposes of the PFIC test will generally be determined by reference to the market price of our ADSs or ordinary shares, our
PFIC status will depend in large part on the market price of the ADSs or ordinary shares, which may fluctuate significantly. The determination
of whether we will be a PFIC for any taxable year may also depend in part upon the value of our goodwill and other unbooked intangibles
not reflected on our balance sheet (which may depend upon the market price of our ADSs or ordinary shares from time to time, which may
fluctuate significantly) and also may be affected by how, and how quickly, we spend our liquid assets and the cash we generate from our
operations and raise in any offering. Unless the market price of our ADSs increases or we reduce the amount of cash, short term investments
and other passive assets we hold sufficiently from current levels, we are likely to remain a PFIC for future taxable years. The U.S. Internal
Revenue Service, or the IRS, does not issue rulings with respect to PFIC status, and we cannot assure you that the IRS, or a court, will
agree with any determination we make.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">Because we believe we were
a PFIC for the taxable year ended December 31, 2022 (and 2017 and prior years), United States Holders (as defined in &#8220;Item 10. Additional
Information &#8212; E. Taxation &#8212; United States Federal Income Taxation&#8221;) of our ADSs or ordinary shares generally will be
subject to special and adverse tax rules with respect to any &#8220;excess distribution&#8221; received from us and any gain from a sale
or other disposition of the ADSs or ordinary shares. See &#8220;Item 10. Additional Information &#8212; E. Taxation &#8212; United States
Federal Income Taxation &#8212; Passive Foreign Investment Company.&#8221;</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_006"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">Item 4. Information on the Company</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: -0.65in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>A. History and Development
of the Company</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
started our operation in 1999 through Guangzhou Nanyun Car Rental Services Co., Ltd. and Guangdong Nanfeng Automobile Association Co.,
Ltd. In 2001, we formed China United Financial Services Holdings Limited, or China United Financial Services, a British Virgin Islands
company, as the offshore holding company of our PRC subsidiaries. In June 2004, CISG Holdings Ltd., or CISG Holdings was incorporated
in British Virgin Islands and became our holding company through share exchanges with China United Financial Services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 50; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
anticipation of our initial public offering, we incorporated CNinsure Inc. in the Cayman Islands in April 2007. After a series of restructuring
transactions, CNinsure Inc. became the ultimate holding company of our group. On December 6, 2016, our shareholders approved the change
of our company name from CNinsure Inc. to Fanhua Inc.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">On
October 31, 2007, we listed our ADSs on the Nasdaq Global Market under the symbol &#8220;CISG.&#8221; We and certain selling shareholders
of our company, completed the initial public offering of 13,526,773 ADSs, each representing 20 ordinary shares, on November 5, 2007.
In connection with the name change on December 6, 2016, our ticker symbol was simultaneously changed to &#8220;FANH&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
October 2012, we obtained license approval from the then CIRC to establish an insurance sales service group company and commenced a series
of restructuring, which resulted in Fanhua Insurance Sales Service Group Company Limited (previously known as Shenzhen Nanfeng Investment
Co., Ltd.), or Fanhua Group Company, our wholly-owned subsidiary in the PRC, becoming the onshore holding company of our PRC operating
entities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
a result, we currently conduct our business in China primarily through Fanhua Group Company and its subsidiaries and a small part of
our business through the consolidated VIEs in China. We also own a 4.5% equity interest in Puyi Inc. (NASDAQ: PUYI), a leading third-party
wealth management service provider in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
began our insurance intermediary business in 1999 by distributing auto insurance products and auto loans on an ancillary basis and expanded
our product offerings to other property and casualty insurance products in 2002. We commenced life insurance products distribution in
2006 and began to offer claims adjusting services in 2008. In 2010, we established an insurance brokerage business unit to expand our
product offerings from retail to commercial lines. In 2017, we divested our P&amp;C insurance agency operations and our insurance brokerage
segment to strategically focus on life insurance distribution.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
were approved by our board of directors in May 2022 and completed on June 28, 2022 a distribution of shares of CNFinance Holdings Limited
(&#8220;CNFinance&#8221;) to the Company&#8217;s shareholders on a pro rata basis. Fanhua shareholders received 4.71 CNFinance ordinary
shares for each 20 outstanding Fanhua ordinary shares held as of June 9, 2022, or 0.2355 CNFinance ADSs for each Fanhua ADS, held as
of the close of business on June 9, 2022 set by the depositary for the Fanhua ADSs. We distributed a total of 252,995,600 CNFinance ordinary
shares to holders of our ordinary shares in this manner, which include a total of 156,097,200 CNFinance ordinary shares distributed in
the form of 7,804,860 CNFinance ADSs to our ADS holders through our depositary bank. Following the completion of the distribution, our
equity stake in CNFinance decreased from approximately 18.5% to approximately 0.01%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
principal executive offices are located at 60/F, Pearl River Tower, No. 15 West Zhujiang Road, Guangzhou, Guangdong 510623, People&#8217;s
Republic of China. Our telephone number at this address is +86-20-8388-6888. Our registered office is at the offices of Maples Corporate
Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Capital Expenditure</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
capital expenditures have been used primarily to construct, upgrade and maintain our online platforms and enhance trainings. See &#8220;Item
5. Operating and Financial Review and Prospects&#8212;B. Liquidity and Capital Resources.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>B. Business Overview</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Overview</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Driven
by our cutting-edge technologies and insurance industry expertise, we are the leading independent insurance intermediary group in China,
focusing on providing insurance-oriented family asset allocation services that covers customers&#8217; full lifecycle and one-stop service
platform for individual sales agents and independent insurance intermediaries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 51; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->46<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">With
strategic focus on long-term life insurance products, we offer a broad range of insurance product offerings primarily through a
network of 141,088 registered sales agents across China as of December 31, 2022. We also provide claims adjusting services through
2,170 in-house claims adjustors. Our extensive offline network enable us to facilitate sales of complex insurance products and offer reliable after-sales
services nationwide to our customers, serving as a substantial entry barrier to China&#8217;s insurance agency industry.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
are devoted to offering all the capabilities that our sales agents need to help them run their best practice. Specifically, we provide
a professional support system to empower agents to grow more specialized and professional. Our self-developed digital tools such as Lan
Zhanggui, Fanhua RONS Digital Operating Platform (DOP) and Fanhua Guanjia, offer end-to-end business process management, as well data
and analytic capabilities to enable our agents to manage all critical aspects of their business more efficiently, and to improve their
productivity and service capability.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
also operate Baowang (www.baoxian.com), an online insurance platform that provides customers with a one-stop insurance shopping experience
from policy comparison, live consultation, policy placement, to claims settlement. A variety of critical illness, term life, accident,
medical, travel and homeowner insurance products are available on the platform.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Since
late 2021, to diversify our service offerings to our customers, we start to offer insurance trust consulting/referral service through
our business partners, and healthcare and elderly care services through our healthcare management division.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
vision is to transform from a solely sales-oriented insurance agency to become an industry-level infrastructure platform provider driven
by digital technology and professional expertise. We intend to build an open platform to enable various users on the platform, including
independent insurance agents and insurance sales organizations, to run the most successful businesses, by offering them a unified compliance
service, IT system, digital solutions, diversified product and service offerings, professional training support, capital flow support
and capitalization paths.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 25pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">With
a rapidly aging society and the rise of the middle-class in China, there is burgeoning demand for elderly care and legacy management
among Chinese consumers which provides tremendous growth opportunities in China&#8217;s life insurance market over the long run despite
industry headwinds in recent years. In addition, the separation of insurance underwriting and distribution is a significant trend in
China&#8217;s insurance industry. Historically dominated by in-house sales forces and exclusive agents, insurance distribution channels
in China have gradually shifted towards independent insurance agencies, as demand for insurance products and services has diversified
in recent years, while China&#8217;s life insurance intermediary channel is experiencing structural changes towards professionalization,
digitalization, decentralization and comprehensive financial services. With strong brand recognition, established relationships with
major insurance companies, an extensive distribution and sales network and cutting-edge technology, we intend to take advantage of the
opportunities resulting from the growth and transformation of the insurance agency industry in China to increase our market share by
professionalizing our sales force, enhancing digital capabilities and opening up our platform to more market participations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 25pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Digital Technologies</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Technological
developments and the growth of digital technologies mobile internet access have significantly changed the way we operate our business.
We develop digital toolkits to enable more efficient agent and customer engagement which includes the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b><i>Lan Zhanggui -</i></b> an all-in-one insurance sales and service
    platform that we develop for our sales agents, which allows them to manage their book of insurance business on their fingertips,
    covering all aspects of the business process from insurance product purchase, team management, agent recruitment, customer engagement,
    customer service to e-learning. The platform offers substantially all of our insurance products including long-term life and health
    insurance, accident insurance, travel insurance, and standard medical insurance products.
    It is available in mobile application and WeChat official account versions and accessible through Fanhua WeCom. </span></td></tr>
</table><div>

</div><p style="margin: 0">&#160;</p><div>

</div><p style="margin: 0"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="margin: 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b><i>Fanhua RONS Assistant Digital Operating Platform, or RONS DOP
    &#8212;</i></b>it is a digital marketing platform that we launched in June 2021 for our agents, aiming at empowering them in customer
    acquisition and relationship maintenance. It provides agents with various educational content in the form of daily news, articles,
    posters, videos which can be circulated to potential customers through social media, aiming at enhancing customers&#8217; insurance
    awareness and deepening their understanding of insurance products. It also enables agents to gain better insights into customer needs
    through behavior tracking and automated tagging. In addition, it provides convenient access to Fanhua RONS livestreaming platform
    for resourceful online training courses. The platform is accessible through WeChat public account and Fanhua&#8217;s Lan Zhanggui
    and WeCom.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b><i>Fanhua RONS Guanjia &#8211;&#8211; </i></b>it is a customer service
    platform that we launched in June 2021 to directly connect with our customers, through which they can access various insurance services
    including policy inquiry, policy custody, asset custody, risk assessment, and claims settlement assistance. Service representatives
    will also be available to customers for exclusive services on a one-on-one basis. The platform is accessible primarily through its
    WeChat official account and Lan Zhanggui.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

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    <td style="text-align: justify"><span style="font-size: 10pt"><b>Fanhua WeCom</b> &#8211; Launched in June 2021, other than various
    office supporting solutions, it enables our agents to directly interact with their existing and potential customers in highly efficient
    manner, with easy access to various supportive tools including knowledge bank, FAQ scripts, and a wide variety of marketing materials.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
of March 31, 2023, we, through Fanhua Group Company and contractual arrangements, controlled thirteen insurance intermediary companies
in the PRC, of which nine were insurance agencies including two with national operating licenses, two were insurance brokerage firms
and two were insurance claims adjusting firms. We also operated one e-commerce insurance platform, one healthcare management company
one online mutual aid platform. In addition, as of March 31, 2023, we owned 4.5% of the equity interests in Puyi Inc. (NASDAQ: PUYI),
a leading third-party wealth management services provider focusing on mass affluent and emerging middle-class population.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><b>Online
Mutual Aid Platform</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 20.1pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
line with our commitment to be socially responsible, in 2014, we launched an online mutual aid platform called eHuzhu (www.ehuzhu.com).
The platform provides people with access to alternative risk-protection programs at more affordable costs, especially for the lower-income
group. eHuzhu primarily offers programs that provide mutual aid for cancer and accidental death. Users join as members with a small amount
of deposits which will be used to evenly contribute to the medical costs or death benefits of the claimants, in exchange for benefits
contributed by the rest of the members when in need. As of March 31, 2023, eHuzhu had over 1.7 million paying members, assisting 11,862
families to raise over RMB1.3 billion funds to get through tough times. The platform is accessible primarily through its WeChat official
account.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
addition, eHuzhu organized a variety of public charity activities focusing on care for breast cancer, veterans and COVID-19 patients,
book donations for children and so on. eHuzhu has also set up &#8220;Mutual Aid Villages&#8221; across the country to lower the medical
burden of people in poverty-stricken areas.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 25pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
order to create more value for its members, in 2022, eHuzhu added medical and health services on its platform, through which its members
can access a variety of services including health consultation, medical treatment assistance and medicine delivery.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Acquisitions</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On January 3, 2023, we entered
into definitive agreements with the existing shareholders of Zhongrong Smart Finance Information Technology Co., Ltd. (&#8220;Zhongrong&#8221;),
a leading managing general agency for life insurance distribution in China, to acquire 57.73% of the equity interests of Zhongrong. As
of March 31, 2023, we have acquired 53.44% of the equity interests of Zhongrong with a capital contribution of RMB122.7 million to Zhongrong.
Zhongrong is currently in the process of repurchasing its shares from certain of its existing shareholders which will <span>result
in our</span> shareholding in Zhongrong ultimately increasing to 57.73%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On February 6, 2023 and February
8, 2023, respectively, we entered into definitive agreements with the existing shareholders of Jilin Zhongji Shi&#8217;An Insurance Agency
Co., Ltd (&#8220;Zhongji&#8221;) and Wuhan Taiping Online Insurance Agency Co., Ltd. (&#8220;Taiping&#8221;) to acquire 51% of the equity
interests of Zhongji and Taiping, respectively. As of March 31, 2023, the acquisitions of Zhongji and Taiping have been completed.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">In
connection with the acquisitions, we issued 61,853,580 ordinary shares, 9,107,140 ordinary shares and 13,660,720 ordinary shares of the
Company to the existing shareholders of Zhongrong SF, Taiping Online and Zhongji, respectively. The considerations are adjustable based
on the achievement of such performance targets by the acquired entities from 2023 to 2025 and are subject to a lock-up period of three
years. The lock-up will be released in two batches after 2025.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Segment Information</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
of December 31, 2022, we operated two segments: (1) the insurance agency segment, which mainly consists of providing agency services
for distributing life insurance products and P&amp;C insurance products on behalf of insurance companies, and (2) the claims adjusting
segment, which consists of providing pre-underwriting survey services, claims adjusting services, disposal of residual value services,
loading and unloading supervision services, and consulting services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Insurance Agency
Segment</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
insurance agency segment accounted for 86.0% and 85.4% of our net revenues in 2021 and 2022, respectively. Revenue from this segment
is derived from two broad categories of insurance products: (i) life and health insurance products, and (ii) property and casualty insurance
products both primarily focused on meeting the insurance needs of individuals.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><i>Life
and Health Insurance Products</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
life and health insurance business accounted for 80.4% of our net revenues in 2022. We expect the sale of life insurance products to
be the major source of our revenue in the next several years. The life and health insurance products we distribute can be broadly classified
into the categories set forth below. Due to constant product innovation by insurance companies, some of the insurance products we distribute
combine features of one or more of the categories listed below:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Individual Whole Life Insurance. </i>The individual whole life insurance
    products we distribute provide insurance coverage for the insured person&#8217;s entire life in exchange for the periodic payment
    of fixed premiums over a pre-determined period, generally ranging from five to 20 years, or until the insured reaches a certain age.
    The face amount plus accumulated interest is paid upon the death of the insured.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Individual Health Insurance. </i>The individual health insurance
    products we distribute primarily consist of critical illness insurance products, which provide guaranteed benefits when the insured
    is diagnosed with specified serious illnesses, and medical insurance products, which provide conditional reimbursement for medical
    expenses during the coverage period. In return, the insured makes periodic payments of premiums over a pre-determined period.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Individual Annuity.</i> The individual annuity products we distribute
    generally provide annual benefit payments after the insured attains a certain age, or for a fixed time period, and provide a lump
    sum payment at the end of the coverage period. In addition, the beneficiary designated in the annuity contract will receive guaranteed
    benefits upon the death of the insured during the coverage period. In return, the purchaser of the annuity products makes periodic
    payments of premiums during a pre-determined accumulation period.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Individual Term Life Insurance. </i>The individual term life insurance
    products we distribute provide insurance coverage for the insured for a specified time period or until the attainment of a certain
    age, in return for the periodic payment of fixed premiums over a pre-determined period, generally ranging from five to 20 years.
    Term life insurance policies generally expire without value if the insured survives the coverage period.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Individual Endowment Life Insurance. </i>The individual endowment
    products we distribute generally provide insurance coverage for the insured for a specified time period and maturity benefits if
    the insured reaches a specified age. The individual endowment products we distribute also provide to a beneficiary designated by
    the insured guaranteed benefits upon the death of the insured within the coverage period. In return, the insured makes periodic payments
    of premiums over a pre-determined period, generally ranging from five to 25 years.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

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    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Participating Insurance.</i> The participating insurance products
    we distribute not only provide insurance coverage but also pay dividends generated from the profits of the insurance company providing
    the policy. The dividends are typically paid on an annual basis over the life of the policy. In return, the insured makes periodic
    payments of premiums over a pre-determined period, generally ranging from five to 25 years.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
life insurance products we distributed in 2022 were primarily underwritten by Sinatay, Greatwall, Huaxia, Aeon, and Evergrande.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><i>Property
and Casualty Insurance Products</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
property and casualty insurance business accounted for 5.0% of our net revenues in 2022, primarily representing insurance products we
distributed through Baowang. Our main property and casualty insurance product in terms of net revenues contribution in 2022 is individual
accident insurance and indemnity medical insurance which we distribute through Baowang. We also offer lifestyle insurance such as travel
insurance, homeowner insurance, and other innovative products on Baowang. In addition, we have started to offer certain long-term life
and health insurance products specifically designed for internet distribution channels since 2019. Net revenues generated from such long-term
insurance products were included in the net revenues of our life insurance agency segment. The major insurance products we offer or facilitate
to individual customers through Baowang can be further classified into the following categories:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Individual Accident Insurance. </i>The individual accident insurance
    products we distribute generally provide a guaranteed benefit during the coverage period, which is usually one year or a shorter
    period, in the event of death or disability of the insured as a result of an accident, or a reimbursement of medical expenses to
    the insured in connection with an accident. These products typically require only a single premium payment for each coverage period.
    Because most of the individual accident insurance products we distribute are underwritten by property and casualty insurance companies,
    we classify individual accident insurance products as property and casualty insurance products.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Travel Insurance. </i>The travel insurance products we distribute
    are short-term insurance providing guaranteed benefit in the event of death or disability and covering travel-related emergencies
    and losses, either within one&#8217;s own country, or internationally. These products typically require only a single premium payment
    for each coverage period.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Homeowner Insurance. </i>The homeowner insurance products we distribute
    primarily cover damages to the insured house, along with furniture and household electrical appliance in the house caused by a number
    of incidents such as fire, flood and explosion.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Indemnity medical insurance.</i> The indemnity medical insurance
    products we facilitate typically have a one-year term and provide conditional reimbursement for medical and surgical expenses during
    the coverage period. These products typically require only a single premium payment for each coverage period. Because most of these
    medical insurance products we distribute are underwritten by property and casualty insurance companies, we classify indemnity medical
    products as property and casualty insurance products.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
primarily partnered with Zhong An Online Property and Casualty Insurance Company Limited, or Zhong An, Ping An Property and Casualty
Insurance Company Limited, or Ping An, Ping An Health Insurance Company Limited, China Pacific Property and Casualty Insurance Company
Limited, or China Pacific, JD Alliance Property and Casualty Insurance Company Limited for the distribution of property and casualty
insurance products in 2022.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>Claims Adjusting
Segment</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Total
net revenues derived from our claims adjusting segment accounted for 14.6% of our total net revenues in 2022. We offer the following
insurance claims adjusting services:</p><div>

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</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Pre-underwriting Survey. </i>Before an insurance policy is sold,
    we conduct a survey of the item to be insured to assess its current value and help our clients determine the insurable value and
    the amount to be insured. We also help our clients assess the underwriting risk with respect to the item to be insured through surveys,
    appraisals and analysis.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Claims Adjusting. </i>When an accident involving the insured subject
    matter has occurred, we conduct an onsite survey to determine the cause of the accident and assess damage. We then determine the
    extent of the loss to the insured subject matter and prepare and submit a report to the insurance company summarizing our preliminary
    findings. Upon final conclusion of the case, we prepare and submit a detailed report to the insurance company setting forth details
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
primarily provided claims adjusting services to Ping An, China Pacific, Ant Insurance Agency Co., Ltd., Shanghai Nuanwa Technology Co.,
Ltd., an affiliate of Zhong An and China Life Property and Casualty Insurance Co. Ltd in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"><b>Others</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
also provide referral of certain insurance trust, health care and senior care services as value-added services to our customers to cater
to the needs of the aging population in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
competition intensifies and the insurance market becomes more mature in China, we believe there will be a further division of labor in
the insurance intermediary sector. We expect that more insurance companies will choose to outsource claims adjusting functions to professional
service providers while they focus on the core aspects of their business, including product development and asset and risk management.
We believe we are well-positioned to capture such outsourcing opportunities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Seasonality</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">See
&#8220;Item 5. Operating and Financial Review and Prospects&#8212;A. Operating Results&#8212;Factors Affecting Our Results of Operations&#8212;Seasonality.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Distribution and Service
Network and Marketing</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
have an offline distribution and service network that, as of March 31, 2023, consisted of one insurance sales and service group, nine
insurance agencies including two with national operating licenses, and two insurance brokerage firms, two claims adjusting firms, with
124,682 registered independent sales agents, and 2,063 in-house claims adjustors. Our distribution and service network consisted of 672
sales outlets in 24 provinces and 92 claims services outlets in 31 provinces.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">The
following table sets forth additional information concerning our distribution and service network as of March 31, 2023, broken down by
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">1</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">-</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">1</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">-</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">2</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">1</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">-</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; text-align: right">-</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">1</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">-</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td><td style="font-size: 10pt; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-size: 10pt; text-align: right">5</td><td style="padding-bottom: 1.5pt; font-size: 10pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
market and sell long-term personal lines of life and health insurance products and property and casualty insurance products to customers
mainly through both independent sales agents, most of whom are not our employees, and insurance advisors who are our employees. We also
market and sell certain critical illness, term life, accident, short-term health, travel and homeowner insurance products directly to
customers through our online platform Baowang (www.baoxian.com). We market and sell insurance claims adjusting services primarily to
insurance companies through our in-house professional claims adjustors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Customers</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
sell life and health insurance products including critical illness, annuity insurance, whole life insurance and term life insurance and
endowment insurance primarily to individual customers as well as property and casualty insurance products including individual accident
insurance, homeowner insurance products, liability insurance and travel insurance. Customers for the life and health insurance products
we distribute are primarily individuals under 50 years of age. For the year ended December 31, 2022, no single individual customer who
has purchased insurance products&#160;through us accounted for more than 1% of our net revenues. Our customers for the claims adjusting
services are primarily insurance companies and online mutual-aid platforms.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 57; Value: 1 --><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">As
of December 31, 2022, we had accumulated approximately 12.0  million individual
customers, of which over <span style="font-family: Times New Roman, Times, Serif">2.0 </span> million have
purchased at least one regular long-term life and health insurance policy. By providing certain value-added services to these
customers at no additional charge, we seek to build a loyal customer base that generates referrals and cross-selling
opportunities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Insurance Company
Partners and Others</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of March 31, 2023, we
had established business relationships with 139 insurance companies in the PRC. In the Chinese insurance market, local branches of insurance
companies generally have the authority to enter into contracts in their own names with insurance intermediaries. Since 2007, we have sought
to establish business relationships with insurance companies at the corporate headquarters level in order to leverage the combined sales
volumes of all our subsidiaries located in different parts of China. For the distribution of insurance products, we had outstanding contracts
with 43 life insurance companies, 9 health and pension insurance companies and 21 property and casualty insurance companies, most of which
were signed at the corporate headquarter level as of March 31, 2023. For the provision of claims adjusting services, we also had business
relationship with 104 insurance companies, and 286 other institutions including third party insurance intermediaries, logistics companies,
construction companies and marine and cargo companies as of March 31, 2023.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Competition</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">A
number of industry players are involved in the distribution of insurance products in the PRC. We compete for customers on the basis of
product offerings, customer services and reputation. Because we primarily distribute individual insurance products, our principal competitors
include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Professional insurance intermediaries. </i>The professional insurance
    intermediary sector in China is highly fragmented. Several insurance intermediary companies have received private equity or venture
    capital funding in recent years and are actively pursuing expansion. We believe that we can compete effectively with these insurance
    intermediary companies with our long operating history, strong brand recognition, a strong and stable team of managers, nationwide
    network of sales professionals enabled by digital tools, leading online platforms and diversified product offerings. With increasing
    consolidation expected in the insurance intermediary sector in the coming years, we expect competition within this sector to intensify.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Insurance companies. </i>The distribution of individual life insurance
    products in China historically has been dominated by insurance companies, which usually use both in-house sales forces and exclusive
    sales agents to distribute their own products. In addition, in recent years several major insurance companies have increasingly used
    telemarketing and the Internet to distribute insurance. We believe that we can compete effectively with insurance companies because
    we focus only on distribution and offer our customers a broad range of choices of insurance products underwritten by multiple insurance
    companies.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Entities that offer insurance products online. </i>In recent years,
    domestic insurance companies, Internet companies and professional insurance intermediaries have begun to engage in the Internet insurance
    business. However, each of their insurance e-commerce operations has its own limitations. The insurance products offered on an insurance
    company&#8217;s website are usually confined to those under its own brand. Most Internet companies have limited experience in insurance
    operation with limited or no offline sales and service support. Our better brand recognition, extensive offline sales and service
    network which enables us to offer online and offline integrated services to customers also differentiate us from internet-based professional
    insurance intermediaries. We believe that we can compete effectively with these business entities because we offer customers access
    to a broad range of insurance products underwritten by multiple insurance companies and good after-sale services that are backed
    by our nation-wide service network and better user experience.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><i>Other business entities. </i>In recent years, business entities
    that distribute insurance products as an ancillary business, primarily commercial banks and postal offices, have been playing an
    increasingly important role in the distribution of insurance products, especially life insurance products. However, the insurance
    products distributed by these entities are mostly confined to those related to their main lines of business, such as investment-related
    life insurance products. We believe that we can compete effectively with these business entities because we offer our customers a
    broader variety of products.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->53<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">We
compete primarily with the other major claims adjusting firms in China. We believe that we can compete effectively with other major insurance
claims adjusting firms because we offer our customers a diversified range of claims adjusting services covering medical insurance, property
insurance, auto insurance, marine and cargo insurance, and personal injury and accident insurance and are able to leverage the business
relationships we have developed with insurance companies through the distribution of property and casualty insurance products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>Intellectual Property</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">Our
brand, trade names, trademarks, trade secrets and other intellectual property rights distinguish our business platform, services and
products from those of our competitors and contribute to our competitive advantage in the professional insurance intermediary sector.
To protect our intellectual property, we rely on a combination of trademark, copyright and trade secret laws as well as confidentiality
agreements with our employees, sales agents, contractors and others. As of March 31, 2023, we had 87 registered trademarks in China,
including our corporate logo. Our main website is <span style="text-decoration:underline">www.fanhuaholdings.com</span>.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; background-color: white"><b>Risk
Management</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">Proactive
risk management and a strong risk culture are essential to our long-term success. As a Nasdaq-listed company, we are subject to the requirements
of U.S. Sarbanes-Oxley Act (SOX) of 2002, specifically sections 302 and 404. Accordingly, we have established a comprehensive internal
control and risk management structure that enables us to identify and analyze risks early and take appropriate action.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">Proactive
risk management and a strong risk culture are essential to our long-term success. As a Nasdaq-listed company, we are subject to the requirements
of U.S. Sarbanes-Oxley Act (SOX) of 2002, specifically sections 302 and 404. Accordingly, we have established a comprehensive internal
control and risk management structure that enables us to identify and analyze risks early and take appropriate action.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">The
Board of Directors is the highest decision-making body for corporate risk management and is responsible for the effectiveness of overall
risk management efforts. The Audit Committee under the Board of Directors is established to fully assess the major risks faced by the
Company and supervise the effectiveness of the implementation of the Company&#8217;s risk management system.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">We
established a risk management and internal audit department which works independently from our operations and directly reports to the
Audit Committee. The department holds the primary responsibility of monitoring and supervising risk management of the Company&#8217;s
business operation in compliance with the requirements of SOX.</p><div>

</div><p style="margin-top: 0; margin-bottom: 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">&#9679;</td><td style="text-align: justify">Assisting
                                            the management in identifying, measuring and managing risks in daily business activities
                                            and periodically reporting to the full board of directors, the Audit Committee and executive
                                            suite potential risks facing the Company;</td></tr><tr style="vertical-align: top">
<td>&#160;</td><td>&#160;</td><td style="text-align: justify">&#160;</td></tr>
                                                                                               </table><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">&#9679;</td><td style="text-align: justify">Supervising
                                            the establishment of standard operating processes by various functional departments and business
                                            units and conducting risk assessment and internal tests to carry out independent and un-biased
                                            checks and evaluation on the appropriateness, compliance and effectiveness of the Company&#8217;s
                                            business operations and internal control; and</td></tr><tr style="vertical-align: top">
<td>&#160;</td><td>&#160;</td><td style="text-align: justify">&#160;</td></tr>
                                                                                                   </table><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt"><tr style="vertical-align: top">
<td style="width: 0.25in"></td><td style="width: 0.25in">&#9679;</td><td style="text-align: justify">Monitoring
                                            the implementation of improvement plans on control weakness and providing recommendations
                                            on enhancing risk management capabilities in compliance with Sarbanes-Oxley requirements.</td></tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">In
order to foster the awareness of compliance among all employees and establish a sustainable and effective compliance mechanism, Fanhua
Group Company issued a compliance accountability policy Fanhua Insurance Sales Group Compliance Accountability System which sets forth
the responsibilities for keeping in compliance with relevant laws and regulations by staff at various levels and the accountability for
non-compliance. It also puts forth the process of reporting potential risks when identified to take further actions.&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: justify; text-indent: 17.85pt; background-color: white">The
Compliance Department of the Fanhua Group Comany lead the efforts to monitor and coordinate the implementation of the Compliance Accountability
Policy while our functional departments and subsidiaries holds the primary responsibility for risk control and compliance of our business
operations. When a risk event occurs, functional departments or subsidiaries shall immediately report it to the Compliance Department
to open a case for investigation and management. The functional departments or subsidiaries shall inspect the progress of risk events
and implementation of improvement plans each month, and report progress to the Compliance Department.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="margin: 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Regulation</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Regulations of the Insurance Industry</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The insurance industry in
the PRC is highly regulated. Between 1998 and March 2018, CIRC was the regulatory authority responsible for the supervision of the Chinese
insurance industry. In March 2018, the CBIRC, was established as the result of the merger between CIRC and CBRC, replacing CIRC as the
regulatory authority for the supervision of the Chinese insurance industry. Insurance activities undertaken within the PRC are primarily
governed by the Insurance Law and the related rules and regulations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>Initial Development of
Regulatory Framework</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Chinese Insurance Law
was enacted in 1995. The original insurance law, which we refer to as the 1995 Insurance Law, provided the initial framework for regulating
the domestic insurance industry. Among the steps taken under the 1995 Insurance Law were the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Licensing of insurance companies and insurance intermediaries, such
    as agencies and brokerages. The 1995 Insurance Law established requirements for minimum registered capital levels, form of organization,
    qualification of senior management and adequacy of the information systems for insurance companies and insurance agencies and brokerages.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Separation of property and casualty insurance businesses and life insurance
    businesses. The 1995 Insurance Law classified insurance between property, casualty, liability and credit insurance businesses, on
    the one hand, and life, accident and health insurance businesses on the other, and prohibited insurance companies from engaging in
    both types of businesses.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Regulation of market conduct by participants. The 1995 Insurance Law
    prohibited fraudulent and other unlawful conduct by insurance companies, agencies and brokerages.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Substantive regulation of insurance products. The 1995 Insurance Law
    gave insurance regulators the authority to approve the basic policy terms and premium rates for major insurance products.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Financial condition and performance of insurance companies. The 1995
    Insurance Law established reserve and solvency standards for insurance companies, imposed restrictions on investment powers and established
    mandatory reinsurance requirements, and put in place a reporting regime to facilitate monitoring by insurance regulators.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Supervisory and enforcement powers of the principal regulatory authority.
    The principal regulatory authority, then the PBOC, was given broad powers under the 1995 Insurance Law to regulate the insurance
    industry.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Establishment of the
CIRC and 2002 Amendments to the Insurance Law</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">China&#8217;s insurance
regulatory regime was further strengthened with the establishment of the CIRC in 1998. The CIRC was given the mandate to implement reform
in the insurance industry, minimize insolvency risk for Chinese insurers and promote the development of the insurance market.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The 1995 Insurance Law was
amended in 2002 and the amended insurance law, which we refer to as the 2002 Insurance Law, became effective on January 1, 2003. The
major amendments to the 1995 Insurance Law include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Authorizing the CIRC to be the insurance supervisory and regulatory
    body nationwide. The 2002 Insurance Law expressly grants the CIRC the authority to supervise and administer the insurance industry
    nationwide.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Expanding the permitted scope of business of property and casualty
    insurers. Under the 2002 Insurance Law, property and casualty insurance companies may engage in the short-term health insurance and
    accident insurance businesses upon the CIRC&#8217;s approval.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Providing additional guidelines for the relationship between insurance
    companies and insurance agents. The 2002 Insurance Law requires an insurance company to enter into an agent agreement with each insurance
    agent that will act as an agent for that insurance company. The agent agreement sets forth the rights and obligations of the parties
    to the agreement as well as other matters pursuant to law. An insurance company is responsible for the acts of its agents when the
    acts are within the scope authorized by the insurance company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Relaxing restrictions on the use of funds by insurance companies. Under
    the 2002 Insurance Law, an insurance company may use its funds to make equity investments in insurance-related enterprises, such
    as asset management companies.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Allowing greater freedom for insurance companies to develop insurance
    products. The 2002 Insurance Law allowed insurance companies to set their own policy terms and premium rates, subject to the approval
    of, or a filing with, the CIRC.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>2009 Amendments to the
Insurance Law </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The 2002 Insurance Law was
amended again in 2009 and the amended insurance law, which we refer to as the 2009 Insurance Law, became effective on October 1, 2009.
The major amendments to the 2009 Insurance Law include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Strengthening protection of the insured&#8217;s interests. The 2009
    Insurance Law added a variety of clauses such as incontestable clause, abstained and estoppels clause, common disaster clause and
    amending immunity clause, claims-settlement prescription clause, reasons for claims rejection and contract modification clause.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Strengthening supervision on the qualification of the shareholders
    of the insurance companies and setting forth specific qualification requirements for the major shareholders, directors, supervisors
    and senior managers of insurance companies.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Expanding the business scope of insurers and further relaxing restriction
    on the use of fund by insurers.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">Strengthening supervision on solvency of insurers with stricter measures.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Tightening regulations governing the administration of insurance intermediary
    companies, especially those relating to behaviors of insurance agents.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">According to the 2009 Insurance
Law, the minimum registered capital required to establish an insurance agency or insurance brokerage as a company must comply with the
PRC Company Law. The registered capital or the capital contribution of insurance agencies or insurance brokerages must be paid-up capital
in cash. The 2009 Insurance Law also sets forth some specific qualification requirements for insurance agency and brokerage practitioners.
The senior managers of insurance agencies or insurance brokerages must meet specific qualification requirements, and their appointments
are subject to approval of the CIRC. Personnel of an insurance agency or insurance brokerage engaging in the sales of insurance products
must meet the qualification requirements set by the CIRC and obtain a qualification certificate issued by the CIRC. Under the 2009 Insurance
Law, the parties to an insurance transaction may engage insurance adjusting firms or other independent appraisal firms that are established
in accordance with applicable laws, or persons who possess the requisite professional expertise, to conduct assessment and adjustment
of the insured subject matters. Additionally, the 2009 Insurance Law specifies additional legal obligations for insurance agencies and
brokerages.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>2014 Amendments to the
Insurance Law </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The 2002 Insurance Law was
amended again in 2014 and the amended insurance law, which we refer to as the 2014 Insurance Law, became effective on August 31, 2014.
The major amendments of the 2014 Insurance Law include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Relaxing restrictions on actuaries. The 2014 Insurance Law no longer
    requires Insurance companies shall employ actuaries recognized by the insurance regulatory authority under the State Council. However,
    an insurance company shall also engage professionals, and establish an actuarial reporting system and a compliance reporting system
    as before.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>2015 Amendments to the
Insurance Law</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The 2014 Insurance Law was
amended again in 2015 and the amended insurance law, which we refer to as the 2015 Insurance Law, became effective on April 24, 2015.
The major amendments of the 2015 Insurance Law include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Eliminating the requirement for an insurance agent or broker to obtain
    a qualification certificate issued by the CIRC before providing any insurance agency or brokerage services.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Relaxing the requirement for the establishment or other significant
    corporate events of an insurance agency or brokerage firm. For example, an insurance agency or brokerage firm is allowed to apply
    for a business permit from the CIRC and a business license from the local AIC simultaneously under the 2015 Insurance Law, while
    an insurance agency or brokerage firm had to apply for and receive a business permit issued by the CIRC before it could apply for
    a business license from and register with the relevant local AIC under the 2014 Insurance Law. Prior approval by the CIRC is no longer
    required for the divesture or mergers of insurance agencies or brokerage firms, the change of their organizational form, or the establishment
    or winding-up of a branch by an insurance agency or brokerage firm.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>The CIRC and the CBIRC</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The CBIRC, which was formed
by the merger of China Banking Regulatory Commission (&#8220;CBRC&#8221;) and CIRC in March, 2018, inherits the authority of CIRC, has
extensive authority to supervise insurance companies and insurance intermediaries operating in the PRC, including the power to:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">promulgate regulations applicable to the Chinese insurance industry;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">investigate insurance companies and insurance intermediaries;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">establish investment regulations;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">approve policy terms and premium rates for certain insurance products;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">set the standards for measuring the financial soundness of insurance
    companies and insurance intermediaries;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">require insurance companies and insurance intermediaries to submit
    reports concerning their business operations and condition of assets;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">order the suspension of all or part of an insurance company or an insurance
    intermediary&#8217;s business;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">approve the establishment, change and dissolution of an insurance company,
    an insurance intermediary or their branches;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">review and approve the appointment of senior managers of an insurance
    company, an insurance intermediary or their branches; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">punish insurance companies or intermediaries for improper behaviors
    or misconducts.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Regulation of Insurance
Agents </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The principal regulation
governing insurance agents is the Provisions on the Supervision and Administration of Insurance Agents, or the PSAIA, issued by the CBIRC
on November 12, 2020 and effective on January 1, 2021, replacing the Provision on the Supervision and Administration of Professional
Insurance Agencies issued by the CIRC on September 25, 2009 and amended on April 7, 2013, the Measures on the Supervision and Administration
of Insurance Salespersons issued on January 6, 2013 and the Interim Measures on the Administration of Ancillary-Business Insurance Agency
issued on August 4, 2000.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The term of &#8220;insurance
agent&#8221; refers to an entity or an individual entrusted by insurance companies to handle insurance business by and within the authorization
of, and which collects commissions from insurance companies, and includes a professional insurance agency, ancillary-business insurance
agency and individual insurance sales agent which refers to a captive insurance agent of an insurance company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The practitioner of an insurance
agency refers to an individual engaged in the sales of insurance products or loss assessment and claims settlement services for a professional
insurance agency or ancillary-business insurance agency.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">To engage in insurance agency
business, a professional insurance agency shall obtain an insurance agency business permit issued by the CBIRC, after obtaining a business
license, and satisfy the requirements prescribed by the PSAIA or other relevant regulations on shareholder and management qualification,
capital contribution, articles of association, corporate governance and internal control procedures with viable business model and sound
business and financial information system. An insurance agency may take any of the following forms: (i) a limited liability company;
or (ii) a joint stock limited company. The name of a professional insurance agency shall contain the words &#8220;insurance agency&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The minimum registered capital
for establishing a nationwide professional insurance agency is RMB50 million and that for a regional professional insurance agency is
RMB20 million. The registered capital of a professional insurance agency must be paid-in monetary capital. To operate outside of its
registration place, a nationwide professional insurance agency shall set up local provincial branches first before setting up additional
sub-branches and sales offices.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Professional insurance agencies
shall, within 5 days from the date of occurrence of any of the following circumstances, report to the CBIRC through the supervision information
system and make public disclosure: (i) change of name, domicile or business address; (ii) change of shareholders, registered capital
or the form of organization; (iii) change of name or capital contribution of a shareholder; (iv) amendments to the articles of association;
(v) equity investment in, or establishment of offshore insurance institutions or non-operating institutions; (vi) division, merger, dissolution,
or termination of insurance agency business activities of branches; (vii) change of the principal person-in-charge of a sub-branch; (viii)
administrative punishment, civil punishment or pending investigation of suspected illegal crime; or (ix) other reportable events prescribed
by the insurance regulatory body under the State Council.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 15pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A professional insurance
agency may engage in all or part of the following businesses: (i) selling insurance products on behalf of insurance companies; (ii) collecting
insurance premium on behalf of insurance companies; (iii) insurance-related loss survey and claims settlement on behalf of insurance
companies; or (iv) other relevant businesses stipulated by the insurance regulatory body under the State Council. Insurance agents shall
not engage in insurance agency business beyond the business scope and business area of the insurance companies for which they act as
agents.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 15pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A professional insurance
agency and its sales practitioners and individual insurance agents are not allowed to sell non-insurance financial products, except for
non-insurance financial products approved by relevant financial regulatory authorities provided that all necessary qualification requirements
are being met.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 15pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A professional insurance
agency shall, within 20 days upon obtaining business permits, procure professional liability insurance or make contributions to security
deposits. Minimum compensation for each accident under the one-year professional liability insurance policy shall be no less than RMB1
million, and accumulative compensation under the one-year insurance policy shall be no less than RMB10 million and the total core business
revenue of the professional insurance agency company in the previous year. If a professional agency intends to pay deposit, the deposit
shall be paid at 5% of its registered capital and when it increases its registered capital, the amount of the deposit shall be increased
proportionately.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The senior managers of a
professional insurance agency must meet specific qualification requirements in educational background and relevant industry working experience
set forth in the PSAIA.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An insurance agent shall
perform sales practicing register with the CRIBC&#8217;s Insurance Intermediaries Regulatory Information System for its individual insurance
agent or sales practitioner. Each individual insurance agent or sales practitioner of an insurance agency can only be allowed to register
with one institution.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Specific information disclosure
requirements are also provided in the PSAIA. For example, it is required that a professional insurance agency or its branches shall place
its business license and copies of permit in a prominent position in its domicile or business site. Insurance agents shall make full
disclosure of all relevant information of insurance products to policyholders and make a clear representation of the clauses in the insurance
contract including liability, liability reduction or exemption, cancellation and other expense deductions, cash value, cooling-off period
and etc.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Regulation of Insurance
Brokerages</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The principal regulation
governing insurance brokerages is the Provisions on the Supervision and Administration of Insurance Brokers, or the POSAIB, promulgated
by the CIRC on February 1, 2018 and effective May 1, 2018, replacing the Provisions on the Supervision of Insurance Brokerages issued
on September 25, 2009, as amended on April 27, 2013, and the Measures on the Supervision and Administration of Insurance Brokers and
Insurance Claims Adjustors issued by the CIRC on January 6, 2013.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The term of &#8220;insurance
broker&#8221; refers to an entity which, representing the interests of insurance applicants, acts as an intermediary between insurance
applicants and insurance companies for entering into insurance contracts, and collects commissions for the provision of such brokering
services. The term of &#8220;insurance brokerage practitioner&#8221; refers to a person affiliated with an insurance broker who drafts
insurance application proposals or handles the insurance application formalities for insurance applicants or the insured or assists insurance
applicants or the insured in claiming compensation or who provides clients with disaster or loss prevention or risk assessment or management
consulting services or engages in reinsurance brokerage, among others.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">To engage in insurance brokerage
business within the territory of the PRC, an insurance brokerage shall satisfy the requirements prescribed by the CIRC and obtain an
insurance brokerage business permit issued by the CIRC, after obtaining a business license. An insurance brokerage may take any of the
following forms: (i) a limited liability company; or (ii) a joint stock limited company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The minimum registered capital
of an insurance brokerage company whose business area is not limited to the province in which it is registered is RMB50 million while
the minimum registered capital of an insurance brokerage company whose business area is limited to its place of registration is RMB10
million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 15pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The name of an insurance
broker shall include the words &#8220;insurance brokerage.&#8221; An insurance brokerage must register the information of its affiliated
insurance brokerage practitioners with the IISIS. One person can only be registered with the IISIS through one insurance brokerage.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An insurance brokerage may
conduct the following insurance brokering businesses:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">making insurance proposals, selecting insurance companies and handling
    the insurance application procedures for the insurance applicants;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">reinsurance brokering business;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">providing consulting services to clients with respect to disaster and
    damage prevention, risk assessment and risk management; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">other business activities approved by the CIRC.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An insurance brokerage shall
submit a written report to the CIRC through the IISIS and make public disclosure within five days from the date of occurrence of any
of the following matters: (i) change of name, domicile or business premises; (ii) change of shareholders, registered capital or form
of organization; (iii) change of names of shareholders or capital contributions; (iv) amendment to the articles of association; (v) equity
investment, establishment of offshore insurance-related entities or non-operational organizations; (vi) division, merger and dissolution
or termination of insurance brokering business activities of its branches; (vii) change of the primary person in charge of its branches
other than provincial branches; (viii) being a subject of administrative or criminal penalties, or under investigation for suspected
involvement in any violation of law or a crime; and (x) other reportable events prescribed by the CIRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insurance brokerage and
its practitioners are not allowed to sell non-insurance financial products, except for those products approved by relevant financial
regulatory institutions and the insurance brokerage and its practitioners shall obtain relevant qualifications in order to sell non-insurance
related financial products that meets regulatory requirements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 15pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Personnel of an insurance
brokerage and its branches who engage in any of the insurance brokering businesses described above must comply with the qualification
requirements prescribed by the CIRC. The senior managers of an insurance brokerage must meet specific qualification requirements set
forth in the POSAIB.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Regulation of Insurance
Claims Adjusting Firms</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The principal regulation
governing insurance adjusting firms is the Provisions on the Supervision and Administration of Insurance Claims Adjustors, or the POSAICA,
issued by the CIRC on February 1, 2018 and effective on May 1, 2018, replacing the Provisions on the Supervision of Insurance Claims
Adjusting Firms effective on October 1, 2009, as amended on September 29, 2013 and 2015, and the Regulation of Insurance Brokers and
Insurance Adjustors effective on July 1, 2013.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">According to the POSAICA,
the term &#8220;insurance adjustment&#8221; refers to the assessment, survey, authentication, loss estimation and relevant risk assessment
of the insured subject matters or the insurance incidents conducted by an appraisal firm and its professional appraisers upon the entrustment
of the parties concerned. The term of &#8220;insurance adjusting firm&#8221; refers to an entity and any of its branches which engages
in the aforementioned businesses.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The term &#8220;insurance
adjustment practitioner&#8221; refers to a person retained by an insurance claims adjusting firm to conduct the following activities
on behalf of an entruster: i) inspecting, appraising the value of and assessing the risks of the subject matter before and after it is
insured; ii) surveying, inspecting, estimating the loss of, adjusting and disposing of the residual value of the insured subject matter
after a loss has been incurred; and iii) risk management consulting.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insurance adjustment practitioners
include claims adjustors and assessment practitioners with claims adjustment knowledge and practical experience. A claims adjustor refers
to an individual who has passed the qualification examination for the insurance claims adjustors organized by the CIRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An insurance claims adjusting
firm must meet the requirements prescribed by the China Asset Appraisal Law and applicable regulations issued by the CIRC and must file
its business records with the CIRC and its local offices.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">According to the regulation,
an insurance adjusting firm should take the form of a company or a partnership in accordance with applicable law and retains claims adjustment
practitioners to engage in insurance claims adjusting businesses. A claims adjusting firm in the form of a partnership must have at least
two claims adjustors and two-thirds of its partners should be claims adjustors who have at least three years&#8217; working experience
in claims adjustment and have no record of administrative penalties in relation to claims adjustment activities in the past three years.
A claims adjusting firm in the form of a company must have at least eight claims adjustors and two shareholders among which at least
two-thirds are claims adjustors who have at least three years&#8217; working experience in claims adjustment and have no record of administrative
penalties in relations to claims adjustment activities in the past three years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The establishment of an
insurance claims adjusting firm only requires the application for a business license from and registration with the AIC, instead of both
applying for business license and obtaining approval by the CIRC as previously required.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A claims adjusting firm
may include a nationwide claims adjusting firm and regional claims adjusting firm. A nationwide claims adjusting firm can conduct business
within the territory of the PRC and can establish branches in provinces other than its place of registration while a regional one can
only conduct business and establish branches in the province where it is registered. A claims adjusting firm in the form of a company
must file its business record with the CIRC if it is a nationwide claims adjusting firm or file with the local offices of the CIRC in
the region where it is registered if it is a regional claims adjusting firm. A partnership firm must file its business record with the
CIRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An insurance claims adjusting
firm must meet certain requirements in order to engage in claims adjustment business which include, among others, i) its shareholders
or its partners must meet the requirements mentioned above and its capital contribution must be self-owned, actual and lawful and must
not be non-self-owned capital in various forms such as bank loan; and ii) it must have adequate working capital to support its day-to-day
operation and risk undertaking in accordance with its business development plan. A nationwide entity must have at least RMB2 million
working capital while a regional one must have at least RMB1 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An insurance adjusting firm
may engage in the following businesses:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Upon approval of the CIRC,
an insurance adjusting firm may engage in the following businesses:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">inspecting, appraising the value of and assessing the risks of the
    subject matter before and after it is insured;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">surveying, inspecting, estimating the loss of, adjusting and disposing
    of the insured subject matter after loss has been incurred;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">risk management consulting; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">other business activities approved by the CIRC.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The name of an insurance
adjusting firm must contain the words &#8220;insurance adjusting&#8221; and must avoid duplicating names of existing insurance claims
adjusting firms. In any of the following situations, an insurance adjusting firm shall submit a written report to the CIRC when it within
five days from the date the resolution for change has been passed: (i) change of name, domicile or business premises; (ii) change of
shareholders or partners; (iii) change of registered capital or form of organization; (iv) change of names of shareholders or partners
or capital contributions; (v) amendment to the articles of association or the partnership agreement; (vi) equity investment, establishment
of offshore insurance related entities or non-operational organization; (vii) division, merger and dissolution or termination of insurance
claims adjustment business of its branches; (viii) change of chairman of its board of directors, executive directors or senior management;
(ix) being a subject of administrative or criminal penalties, or under investigation for suspected involvement in a crime; and (x) other
reportable events specified by the CIRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Personnel of an insurance
adjusting firm or its branches engaged in any of the insurance adjusting businesses described above must comply with the qualification
requirements prescribed by the CIRC. The senior managers of an insurance adjusting firm must meet specific qualification requirements
set forth in the POSAICA.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An insurance claims adjustment
practitioner must join an insurance claims adjusting firm in order to conduct insurance claims adjustment activities. The insurance claims
adjusting firm to which he or she belongs must register his or her information with the CIRC&#8217;s Insurance Intermediary Supervision
Information System or IISIS. One person can only conduct insurance adjustment activities for one insurance claims adjusting firm and
can only be registered with the IISIS through one insurance claims adjusting firm.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">At least two insurance claims
adjustment practitioners must be appointed to undertake each case of insurance claims adjustment businesses and the claims adjustment
report shall be signed by at least two insurance claims adjustment practitioners engaged in the claims adjustment activities and chopped
by the claims adjusting firm to which he or she belongs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Regulation of Insurance
Intermediary Service Group Companies </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The principal regulation
governing insurance intermediary groups is the Provisional Measures for Supervision and Administration of the Insurance Intermediary
Service Group Companies (for Trial Implementation) issued by the CIRC on September 22, 2011 with immediate effect. According to the regulation,
the term &#8220;insurance intermediary service group company&#8221; refers to a professional insurance intermediary company that is established
in accordance with applicable laws and regulations and with the approval of the CIRC that exercises sole or shared control of, or is
able to exert major influence over, at least two subsidiaries that are professional insurance intermediary companies primarily engaged
in the insurance intermediary business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An insurance intermediary
service group company must have:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="text-align: justify"><span style="font-size: 10pt">no record of material violation by investors of applicable laws and
    regulations in the previous three years;</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="text-align: justify"><span style="font-size: 10pt">at least five subsidiaries, among which at least two are professional
    insurance intermediary companies which contribute at least 50% of the total revenues of the group;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">chairman (Executive director) and the senior management with qualifications
    stipulated by the CIRC;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
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    <td style="text-align: justify"><span style="font-size: 10pt">perfect governance structure, sound organization, effective risk management
    and internal control management system;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">business premises and office equipment which are suitable for the development
    of the businesses; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">other conditions stipulated by laws, administrative regulations and
    the CIRC.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The name of an insurance
intermediary service group must contain the words &#8220;Group&#8221; or &#8220;Holding.&#8221; Its principal business must be equity
investment, management and provision of supporting services. An insurance intermediary service group company shall, submit a written
report to the CIRC and its local counterparts at the place of registration within five working days after the date of occurrence of the
following: (i) changing its registered name or address; (ii) changing its registered capital; (iii) changing its equity structure by
more than 5% or shareholders holding more than 5% of shares; (iv) changing its articles of association; (v) establishing, acquiring,
merging or closing its subsidiary; (vi) engaging in related party transactions between member companies; (vii) disincorporating; (viii)
significantly changing its business scope; or (ix) making a major strategic investment, suffering a significant investment loss or experiencing
other material events or emergencies that affect or may affect the business management, financial status or risk control of the group.
Senior managers of an insurance intermediary service group company must meet specific qualification requirements and appointment of the
senior managers of an insurance intermediary service group company is subject to review and approval by the CIRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Content Related to Insurance
Industry in the Legal Documents of China&#8217;s Accession to the WTO</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">According to the Circular
of the CIRC on Distributing the Content Related to Insurance Industry in the Legal Documents of China&#8217;s Accession to the World
Trade Organization, or WTO, for the life insurance sector, within three years of China&#8217;s accession to the WTO on December 11, 2001,
geographical restrictions were to be lifted, equity joint venture companies allowed to provide health insurance, group insurance, and
pension/annuity services to Chinese citizens and foreign citizens, and for there to be no other restrictions except those on the proportion
of foreign investment (no more than 50%) and establishment conditions. For the non-life insurance sector, within three years of China&#8217;s
accession, the geographical restrictions were to be lifted and no restrictions allowed other than establishment conditions. For the insurance
brokerage sector, within five years of China&#8217;s accession, the establishment of wholly foreign-funded subsidiary companies was to
be allowed, and no restriction other than establishment conditions and restrictions on business scope.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Content Related to Insurance
Industry in the Closer Economic Partnership Arrangements</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under CEPA Supplement IV
signed in June and July 2007 and CEPA Supplement VIII signed in December 2011, local insurance agencies in Hong Kong and Macau are allowed
to set up wholly-owned insurance agency companies and conduct insurance intermediary businesses in Guangdong Province (including Shenzhen)
on a pilot basis if they fulfill the following criteria:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The applicant must have operated an insurance brokerage businesses
    in Hong Kong and Macau for over 10 years;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The applicant&#8217;s average annual revenue of insurance brokerage
    business for the past three years before application must not be less than HKD500,000 and the total assets as at the end of the year
    before application must not be less than HKD500,000;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Within three years before application, there has been no serious misconduct
    or record of disciplinary action; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The applicant must have set up a representative office in mainland
    China for over one year</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Regulations on Internet
Insurance </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The principal regulation
governing the operation of internet insurance business is the Measures for the Supervision of the Internet Insurance Business, or the
Measures, promulgated on December 7, 2020 and effective on February 1, 2021, replacing the Interim Measures for the Supervision of the
Internet Insurance Business, or the Interim Measures, issued on July 22, 2015 and effective on October 1, 2015.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">According to the Measures,
the term of &#8220;internet insurance business&#8221; refers to the business of concluding insurance contracts and providing insurance
services by insurance institutions with internet technologies. Insurance institutions refer to insurance companies and insurance intermediaries
which include insurance agents (except individual insurance agents), insurance brokerage firms and insurance claims adjusting firms.
Insurance agents (except individual insurance agents) refer to professional insurance agencies, bancassurance-related ancillary insurance
agencies and internet companies that have obtained licenses for engaging in insurance agency business in accordance with applicable laws
and regulations. Non-insurance institutions are not allowed to conduct internet insurance business, including but not limited to, providing
insurance product consultancy services, providing insurance product comparison, price quotation and price comparison services, designing
insurance plans for the insureds and handling insurance application formalities on behalf of the insureds and collecting premiums by
proxy.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A self-operated internet
platform refers to an internet platform established by insurance institutions for conducting insurance business, by which insurance institutions
can operate business independently and have full access to the data on the platform. The internet insurance business of an insurance
institution shall be operated and managed by its headquarter with standardized and centralized business platform, business procedures
and management system.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">To carry out internet insurance
business, an insurance institution shall meet the following requirements, among others: (i) making ICP filing in the case of operating
a mobile application or website; (ii) maintaining independent information management system and core business system to support its internet
insurance business operation; (iii) equipped with a comprehensive working mechanism for network security monitoring, information alert,
emergency management, and cybersecurity protection measures for border protection, intrusion detection, data protection and disaster
recovery; (vi) equipped with certified Safety Level-III Computer Information System for a self-operated online platform that can facilitate
insurance sales and application and no lower than Safety level-II Computer Information System for self-operated online platforms without
insurance sales and application functions; (v) having designated department and personnel for managing the internet insurance business;
(vi) maintaining sound management system and operating procedures; (vii) having a sound Internet insurance business management system
and operating rules; (viii) when an insurance company carries out Internet insurance sales, it shall comply with the relevant regulations
of the CBIRC on solvency, supervision and evaluation of consumer rights and interests protection, etc.; (ix) professional insurance intermediaries
shall be national institutions, and their business areas shall not be limited to the provinces (autonomous regions, municipalities directly
under the Central Government, cities separately listed on the State plan) where the head office&#8217;s business license is registered,
and comply with the relevant provisions of the CBIRC on the classified supervision of insurance professional intermediary institutions;
(x) other conditions prescribed by the Bancassurance Regulatory Commission.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insurance institutions shall
carefully evaluate their own risk management and control capacity and customer service capacity, and rationally determine and choose
insurance products and the scope of sales activities suitable for internet operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insurance institutions engaging
in internet insurance business shall establish official website and set up internet insurance column for information disclosure.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Measures also specifies
requirements on disclosure of information such as information regarding insurance products sold on the internet, the qualification of
the insurance institutions operating the internet insurance business, contact methods for local support and compliant provides guidelines
for the operations of the insurance institutions that engage in internet insurance business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Regulation on Internet
Life Insurance</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Notice on Further Regulation
of Matters Relating to the Internet Life Insurance Business of Insurance Institutions, or the Notice, was issued on October 12, 2021,
effective immediately. According to the Notice, internet life insurance business refers to the business activities of insurance companies
to launch and sell internet life insurance products, conclude insurance contracts and provide insurance services by setting up self-operated
network platforms or entrusting insurance intermediaries on their self-operated network platforms.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insurance companies that
meet relevant requirements of this Notice can conduct internet life insurance business without branches nationwide. If an insurance company
entrusts an insurance intermediary to carry out internet life insurance business, the insurance intermediary should be a national institution.
Where internet and offline distributions are both involved in a life insurance business, internet life insurance products shall not be
sold, and the business area shall not be extended to areas without branches.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In order to carry out internet
life insurance business, insurers (excluding internet insurance companies) shall meet the following conditions: (i) the comprehensive
solvency ratio shall reach 120% and the core solvency ratio shall be no less than 75% for four consecutive quarters; (ii) the comprehensive
risk rating shall be Class B or above for four consecutive quarters; (iii) the liability reserve adequacy ratio shall be higher than
100% for four consecutive quarters; (iv) the corporate governance level shall be C (qualified) or above; and (v) other conditions stipulated
by the CBIRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Internet life insurance
products are limited to accident insurance, health insurance (excluding long-term care insurance), term life insurance, life insurance
with a coverage period of more than 10 years (excluding term life insurance), annuity insurance with a coverage period of more than 10
years, and other life insurance products stipulated by the CBIRC. Internet life insurance products that do not meet the requirements
shall not be sold online, and their sales webpages shall not be publicly displayed on the internet or directly linked to from other webpages.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An insurance company applying
for approval or distributing a newly approved life insurance with a payment period of more than 10 years (excluding term life insurance)
and annuity insurance products with a coverage period of more than 10 years must meet the following conditions: (i) the comprehensive
solvency ratio shall exceed 150% and the core solvency ratio shall be no less than 100% for four consecutive quarters; (ii) the comprehensive
solvency margin shall exceed RMB3 billion for four consecutive quarters; (iii) the comprehensive risk rating shall be above Class A for
four consecutive quarters (or six quarters within two years); (iv) no major administrative penalty imposed on the internet insurance
business in the previous year; (v) the corporate governance level shall be B (good) or above; and (vi) other conditions stipulated by
the CBIRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insurance intermediaries
selling life insurance with a payment period of more than 10 years (excluding term life insurance) and annuity insurance products with
a coverage period of more than 10 years shall meet the following conditions: (i) experience in internet life insurance business for more
than three years; (ii) complete sales management, policy management and customer service systems, as well as a safe, efficient and real-time
internet payment and settlement system and process; (iii) no major administrative penalty imposed on the internet insurance business
in the previous year; and (iv) other conditions stipulated by the CBIRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Regulations on Foreign Exchange</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Foreign Currency Exchange</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Foreign exchange regulation
in China is primarily governed by the following rules:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Foreign Currency Administration Rules (1996), as amended pursuant to
    the Decision on Revising the Foreign Currency Administration Rules promulgated by the State Council on January 14, 1997 and the Foreign
    Currency Administration Rules promulgated by the State Council on August 5, 2008; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Administration Rules of the Settlement, Sale and Payment of Foreign
    Exchange.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under the Foreign Currency
Administration Rules, the RMB is convertible for current account items, including the distribution of dividends, interest payments, trade
and service-related foreign exchange transactions. Conversion of RMB for capital account items, such as direct investment, loan, security
investment and repatriation of investment, however, is still subject to the approval of the SAFE.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under the Administration
Rules of the Settlement, Sale and Payment of Foreign Exchange, foreign-invested enterprises may only buy, sell or remit foreign currencies
at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital
account item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of China are
also subject to limitations, which include approvals by the Ministry of Commerce, the SAFE and the State Development and Reform Commission.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Foreign Exchange Registration
of Offshore Investment by PRC Residents</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to the SAFE Circular
37, issued on July 4, 2014, prior to making contribution to a SPC with legitimate holdings of domestic or overseas assets or interests,
a PRC resident (including PRC institutions and resident individuals) shall apply to the relevant Foreign Exchange Bureau for foreign
exchange registration of overseas investment. A PRC resident who makes contribution with legitimate holdings of domestic assets or interests
shall apply for registration to the Foreign Exchange Bureau at its place of registration or the Foreign Exchange Bureau at the locus
of the assets or interests of the relevant PRC enterprise. A PRC resident who makes contribution with legitimate holdings of overseas
assets or interests shall apply for registration to the Foreign Exchange Bureau at its place of registration or household register. Where
a registered overseas SPC experiences changes of its PRC resident individual shareholder, its name, operating period or other basic information,
or experiences changes of material matters, such as the increase or reduction of contribution by the PRC resident individual, the transfer
or replacement of equity, or merger or division, the PRC resident shall promptly change the foreign exchange registration of overseas
investment with the Foreign Exchange Bureau concerned. Under SAFE Circular 37, failure to comply with the registration procedures set
forth above may result in the penalties, including imposition of restrictions on a PRC subsidiary&#8217;s foreign exchange activities
and its ability to distribute dividends to the SPV. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Doing
Business in China&#8212;PRC regulations relating to the establishment of offshore special purpose companies by PRC residents and employee
stock options granted by overseas-listed companies may increase our administrative burden, restrict our overseas and cross-border investment
activity, or otherwise adversely affect us. If our shareholders who are PRC residents, or our PRC employees who are granted or exercise
stock options, fail to make any required registrations or filings under such regulations, we may be unable to distribute profits and
may become subject to liability under PRC laws. We may also face regulatory uncertainties that could restrict our ability to adopt additional
equity compensation plans for our directors and employees and other parties under PRC law.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>SAFE Regulations on Employee
Share Options</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On December 25, 2006, the
PBOC promulgated the &#8220;Measures for the Administration of Individual Foreign Exchange,&#8221; and on January 5, 2007, the SAFE further
promulgated the implementation rules on those measures. Both became effective on February 1, 2007. According to the implementation rules,
PRC citizens who are granted shares or share options by a company listed on an overseas stock market according to its employee share
option or share incentive plan are required, through the PRC subsidiary of such overseas listed company or any other qualified PRC agent,
to register with the SAFE and to complete certain other procedures related to the share option or other share incentive plan. Foreign
exchange income received from the sale of shares or dividends distributed by the overseas listed company may be remitted into a foreign
currency account of such PRC citizen or be exchanged into Renminbi. Our PRC citizen employees who have been granted share options are
subject to the Individual Foreign Exchange Rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On March 28, 2007, SAFE
promulgated the Operating Rules for Administration of Foreign Exchange in Domestic Individuals&#8217; Participation in Employee Stock
Ownership Plans and Stock Option plans of Companies Listed Abroad, or the Operating Rules. Stock Option Rule. On February 15, 2012, SAFE
promulgated the No. 7 Notice, which supersedes the Stock Option Rule in its entirety and immediately became effective upon circulation.
According to the No. 7 Notice, domestic individuals, which include any directors, supervisors, senior managerial personnel or other employees
of a domestic company who are Chinese citizens (including citizens of Hong Kong, Macau and Taiwan) or foreign individuals who consecutively
reside in the territory of PRC for one year, who participate in the same equity incentive plan of an overseas listed company shall, through
the domestic companies they serve, collectively entrust a domestic agency to handle issues such as foreign exchange registration, account
opening, funds transfer and remittance, and entrust an overseas institution to handle issues such as exercise of options, purchasing
and sale of related stocks or equity, and funds transfer. Where a domestic agency needs to remit funds out of China as required for individuals&#8217;
participation in an equity incentive plan, the domestic agency shall apply with the local office of the SAFE for a foreign exchange payment
quota on a yearly basis. A domestic agency shall open a domestic special foreign exchange account in the bank. After repatriation of
foreign currency income earned by individuals from participation in an equity incentive plan, the domestic agency shall request the bank
to transfer the funds from its special foreign currency account to respective personal foreign currency deposit accounts. In the case
of any significant change to the equity incentive plan of a company listed abroad (such as amendment to any major terms of the original
plan, addition of a new plan, or other changes to the original plan due to merger, acquisition or reorganization of the overseas listed
company or the domestic company or other major events), the domestic agency or the overseas trustee, the domestic agency shall, within
three months of the occurrence of such changes, go through procedures for change of foreign exchange registration with the local office
of the SAFE. The SAFE and its branches shall supervise, administer and inspect foreign exchange operations related to individuals&#8217;
participation in equity incentive plans of companies listed abroad, and may take regulatory measures and impose administrative sanctions
on individuals, domestic companies, domestic agencies and banks violating the provisions of the No. 7 Notice.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We and our employees who
have been granted applicable equity awards shall be subject to the No. 7 Notice. If we fail to comply with the No. 7 Notice, we and/or
our employees who are subject to the No. 7 Notice may face sanctions imposed by foreign exchange authority or any other PRC government
authorities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><b><i>Foreign Investment Security Review
Measures</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&#160;</p><div>

</div><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in; background-color: white">On December 19, 2020,
the NDRC and MOFCOM promulgated the&#160;<i>Foreign Investment Security Review Measures</i>, which took effect on January 18, 2021. Under
the Foreign Investment Security Review Measures, investments in military, national defense-related areas or in locations in proximity
to military facilities, or investments that would result in acquiring the actual control of assets in certain key sectors, such as critical
agricultural products, energy and resources, equipment manufacturing, infrastructure, transport, cultural products and services, IT,
internet products and services, financial services and technology sectors, are required to be approved by designated governmental authorities
in advance. Although the term &#8220;investment through other means&#8221; is not clearly defined under the Foreign Investment Security
Review Measures, we cannot rule out the possibility that control through contractual arrangement may be regarded as a form of actual
control and therefore require approval from the competent governmental authority. As the Foreign Investment Security Review Measures
were recently promulgated, there are great uncertainties with respect to its interpretation and implementation. Accordingly, there are
substantial uncertainties as to whether our VIE structure may be deemed as a method of foreign investment in the future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: left; margin-top: 0pt; margin-bottom: 0pt; background-color: white"><b>Regulation on Information
Security</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: left; margin-top: 0pt; margin-bottom: 0pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">The
Standing Committee of the National People&#8217;s Congress promulgated the&#160;<i>Cybersecurity Law of the PRC,&#160;</i>or the Cybersecurity
Law, which became effective on June 1, 2017, to protect cyberspace security and order. Pursuant to the Cybersecurity Law, any individual
or organization using the network must comply with the constitution and the applicable laws, follow the public order and respect social
moralities, and must not endanger cybersecurity, or engage in activities by making use of the network that endanger the national security,
honor and interests; incite subversion of state power; overthrow the socialist system; incite secession, undermining national unity,
terrorism and extremism promotion, ethnic hatred and discrimination; spread violence and disseminate pornographic information, fabricating
and spreading false information that disturbs economic and social order; or infringe on the fame, privacy, intellectual property and
other legitimate rights and interests of others. The Cybersecurity Law sets forth various security protection obligations for network
operators, which are defined as &#8220;owners and administrators of networks and network service providers,&#8221; including, among others,
complying with a series of requirements of tiered cyber protection systems; verifying users&#8217; real identity; localizing the personal
information and important data gathered and produced by key information infrastructure operators during operations within the PRC; and
providing assistance and support to government authorities where necessary for protecting national security and investigating crimes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">On
December 28, 2021, the Cyberspace Administration of China, or the CAC, the NDRC, the MIIT, and several other administrations jointly
promulgated the Cybersecurity Review Measures, which took effect on February 15, 2022. The Cybersecurity Review Measures replaces its
previous version promulgated on April 13, 2020. According to the Cybersecurity Review Measures, (i) when the purchase of network products
and services by a critical information infrastructures operator or the data processing activities conducted by a network platform operator
affect or may affect national security, a cybersecurity review shall be conducted pursuant to the Cybersecurity Review Measures. The
aforesaid operators shall file for a cybersecurity review with Cybersecurity Review Office under the CAC if their behavior affects or
may affect national security; (ii) an application for cybersecurity review shall be made by an issuer who is a network platform operator
holding personal information of more than one million users before such issuer applies to list its securities on a foreign stock exchange;
and (iii) the relevant PRC governmental authorities may initiate cybersecurity review if such governmental authorities determine that
the issuer&#8217;s network products or services, or data processing activities affect or may affect national security. Cybersecurity
reviews focus on assessing the following national security risks factors associated with relevant objects or circumstances: (i) the risk
of illegal control, interference or destruction of critical information infrastructure, arising from the purchase and utilization of
network products and services; (ii) the harm on the business continuity of critical information infrastructure incurring from a disruption
of network products and services supply; (iii) the safety, openness, transparency, diversity of sources of network products and services;
the reliability of suppliers; and the risk of supply disruption due to political, diplomatic, trade and other reasons; (iv) the level
of compliance with the PRC laws, administrative regulations and ministry rules of the suppliers of network products and services; (v)
the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or
illegally exited the country; (vi) the risk of critical information infrastructure, core data, important data or a large amount of personal
information being affected, controlled, or maliciously used by foreign governments and the network information security risk in relation
to listing abroad; and (vii) other factors that may harm critical information infrastructure, cyber security and/or data security.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">The
Administrative Provisions on the Account Information of Internet Users, which was promulgated by the CAC on June 27, 2022 and became
effective on August 1, 2022, sets out guidelines on the administration of the account information of internet users. Internet-based information
service providers shall perform their responsibilities as the administrative subjects of the account information of internet users, have
in place professionals and technical capacity appropriate to the scale of services, and establish, improve and strictly implement the
authentication of real identity information, verification of account information, security of information content, ecological governance,
emergency responses, protection of personal information and other management systems.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">On
July 7, 2022, the CAC promulgated the Data Outbound Transfer Security Assessment Measures, or the Security Assessment Measures, which
became effective on September 1, 2022. The Security Assessment Measures provide that, among others, data processors shall apply to competent
authorities for security assessment when (i) the data processors transferring important data abroad; (ii) a CIIO and personal information
processor that has processed personal information of more than one million people, transferring personal information abroad; (iii) a
data processor who has provided personal information of one hundred thousand individuals or sensitive personal information of ten thousands
individuals to overseas recipients, in each case as calculated cumulatively, since January 1 of the previous year; and (iv) other circumstances
where the security assessment of data cross-border transfer is required as prescribed by the CAC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">To
comply with these laws and regulations, we have adopted security policies and measures to to strengthen our defense against security
threats and protect our cyber system and customer information, thereby ensuring security and continuity of our services. We also provide
regular training to ensure that our employees understand that information security is everyone&#8217;s responsibility.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt; text-indent: 0pt; background-color: white"><b>Regulation on Internet
Privacy</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: -27pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">Pursuant
to the Administrative Provisions on Mobile Internet Applications Information Services, effective on August 1, 2016 and amended on June
14, 2022 and effective on August 1, 2022, owners or operators of mobile applications that provide information services shall obtain the
relevant qualifications prescribed by laws and regulations, strictly implement their information content administrator responsibilities
and carry out certain duties, including to authenticate the real identity information of users, establish and complete information content
inspection and management mechanisms, perform the data security protection obligations and regulate personal information processing activities.
On May 8, 2017, the Supreme People&#8217;s Court and the Supreme People&#8217;s Procuratorate released the Interpretations of the Supreme
People&#8217;s Court and the Supreme People&#8217;s Procuratorate on Several Issues Concerning the Application of Law in the Handling
of Criminal Cases Involving Infringement of Citizens&#8217; Personal Information, which clarifies several concepts regarding the crime
of &#8220;infringement of citizens&#8217; personal information&#8221; stipulated by Article 253A of the&#160;<i>Criminal Law of the People&#8217;s
Republic of China</i>, including &#8220;citizen&#8217;s personal information,&#8221; &#8220;provision&#8221; and &#8220;unlawful acquisition
of citizens&#8217; personal information.&#8221; Also, it specifies the standards for determining the &#8220;serious circumstances&#8221;
and &#8220;particularly serious circumstances&#8221; of this crime.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">On
June 10, 2021, the&#160;<i>Data Security Law&#160;</i>was promulgated by the Standing Committee of the National People&#8217;s Congress
and became effective on September 1, 2021. The Data Security Law mainly sets forth specific provisions regarding establishing basic systems
for data security management, including a hierarchical data classification management system, risk assessment system, monitoring and
early warning system, and emergency disposal system. In addition, it clarifies the data security protection obligations of organizations
and individuals carrying out data activities and implementing data security protection responsibility.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">On
August 20, 2021, the&#160;<i>Personal Information Protection Law&#160;</i>was promulgated by the Standing Committee of the National People&#8217;s
Congress and became effective on November 1, 2021. The Personal Information Protection Law provides for various requirements on personal
information protection, including the legal basis for data collection and processing, requirements on data localization and cross-border
data transfer, requirements for consent of personal data collection and processing, and requirements on processing sensitive personal
information. The Personal Information Protection Law also provides that the customers shall be entitled to opt out of the information
recommendation or commercial marketing to individuals conducted by means of automated decision-making, or to be provided simultaneously
with options not specific to individuals&#8217; characteristics.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">To
comply with these laws and regulations, we collect and use personal information and data from our customers with their prior consent,
and have established information security systems to protect customers&#8217; privacy. There are uncertainties with respect to the interpretation
and implementation of these data security laws and regulations, so our data-related measures may be subject to additional compliance
requirements and regulatory burdens, and we may be required to make further adjustments to our business practices to comply with the
interpretation and implementation of such laws.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Regulations on Dividend Distribution</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Before January 1, 2020,
the principal regulations governing dividend distributions of wholly foreign-owned companies include:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Wholly Foreign-Owned Enterprise Law (1986), as amended pursuant to
    the Decision of the Standing Committee of the National People&#8217;s Congress on Revising the Wholly Foreign-Owned Enterprise Law
    promulgated on October 31, 2000 and The Decision of the Standing Committee of the National People&#8217;s Congress on Revising the
    &#8220;Law of the People&#8217;s Republic of China on Foreign-invested Enterprises&#8221; which promulgated on September 3,2016 and
    took effect on October 1, 2016; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Wholly Foreign-Owned Enterprise Law Implementing Rules (1990), as amended
    pursuant to the Decision of the State Council on Amending the Rules for the Implementation of the Law on Foreign-Owned Enterprises
    promulgated by the State Council on April 12, 2001 and the Decision of the State Council on Amending the Rules for the Implementation
    of the Law of the People&#8217;s Republic of China on Foreign-capital Enterprises which took effect as of the promulgation date of
    March 1, 2014.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under these regulations,
wholly foreign-owned companies in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC
accounting standards. In addition, these wholly foreign-owned companies are required to set aside at least 10% of their respective accumulated
profits each year, if any, to fund certain reserve funds, until the accumulative amount of such fund reaches 50% of its registered capital.
These reserve funds are not distributable as cash dividends.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">With the Foreign Investment
Law becoming effective on January 1, 2020, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture
Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations are
no longer applicable. The Foreign Investment Law and its implementation rule, named as Implementing Regulations of the Foreign Investment
Law of the People&#8217;s Republic of China, or the Implementing Regulations, does not specify the rules of dividend distribution of
wholly foreign-owned companies, however, article 31 of the Foreign Investment Law states that the organizational form, organizational
structure and their activities of a foreign-invested enterprise shall be governed by the provisions of the PRC Company Law, PRC Partnership
Enterprise Law and other relevant laws, article 46 of the Implementing Regulations states that after the organizational forms, organizational
structures, etc. of existing Foreign-invested Enterprises have been adjusted pursuant to the law, existing parties to Sino-foreign equity
or cooperative joint ventures may continue to handle relevant matters according to the method of equity or interest transfer, the method
of income distribution, the method of surplus assets distribution, etc. agreed in the relevant contracts. Therefore, relevant PRC laws
such as PRC Company Law may apply to the dividend distribution of Foreign-owned companies, and the methods of dividend distribution stated
in the current articles of association of the foreign-owned companies may still be applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Regulation on Overseas Listing</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On August 8, 2006, six PRC
regulatory agencies, namely, the PRC Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration
for Taxation, the State Administration for Industry and Commerce, the CSRC and the SAFE, jointly adopted the Provisions on Foreign Investors&#8217;
Merger with and Acquisition of Domestic Enterprises, or the Order No. 10 (2006) which became effective on September 8, 2006 and was amended
on June 22, 2009. The Order No. 10 (2006) purports, among other things, to require offshore SPVs, formed for overseas listing purposes
and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas
stock exchange. On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials required
to be submitted to it by SPVs seeking CSRC approval of their overseas listings.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic
Companies, or the Overseas Listing Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. According
to the Overseas Listing Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly,
should fulfill the filing procedure and report relevant information to the CSRC; (2) if the issuer meets both of the following conditions,
the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) the total
assets, net assets, revenues or profits of the domestic operating entity of the issuer in the most recent accounting year account for
more than 50% of the corresponding figure in the issuer&#8217;s audited consolidated financial statements for the same period; (ii) the
senior managers in charge of business operation and management of the issuer are mostly Chinese citizens or have domicile in China, and
its main places of business are located in China or main business activities are conducted in China; and (3) where a domestic company
seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity, which
shall, as the filing entity, fulfil the due filing and reporting obligations with the CSRC, and where an issuer makes an application
for listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is
submitted.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">Simultaneously,
the CSRC issued the Notice on the Administrative Arrangements for the Filing of Overseas Offering and Listing by Domestic Companies,
which, among others, clarifies that the domestic companies that have already been listed overseas on or before the effective date of
the Overseas Listing Trial Measures (i.e., March 31, 2023) shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers
are not required to complete the filling procedures, and they shall be required to file with the CSRC when subsequent matters such as
refinancing are involved.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">According
to the Overseas Listing Trial Measures, an overseas listed company shall file with the CSRC within three business days after the completion
of its subsequent securities offering on the same market, and an overseas listed company shall file with the CSRC within three business
days after its application of offering and listing on a different market. If an overseas listed company purchases PRC domestic assets
through a single or multiple acquisitions, share swaps, shares transfers or other means, and such purchase constitutes direct or indirect
listing of PRC domestic assets, a filing with the CSRC is also required. In addition, an overseas listed company is required to report
to the CSRC the occurrence of any of the following material events within three business days after the occurrence and announcement thereof:
(i) a change of control of the listed company; (ii) the investigation, sanction or other measures undertaken by any foreign securities
regulatory agencies or relevant competent authorities in respect of the listed company; (iii) a change of listing status or transfer
of listing segment; and (iv) the voluntary or mandatory delisting of the listed company. If an issuer&#8217;s main business undergoes
material change and is therefore beyond the scope of business stated in the filing, such issuer shall submit to the CSRC an <i>ad hoc
</i>report and relevant legal opinion issued by a domestic law firm within three business days after occurrence of the change.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">Our
PRC legal counsel, Hai Run Law Firm, has advised us that, should we seek to (i) offer or list subsequent securities on U.S. stock exchanges,
(ii) offer or list securities on other overseas stock exchange, or (iii) purchase PRC domestic assets through a single or multiple acquisitions,
share swaps, shares transfers or other means, and such purchase constitutes direct or indirect listing of PRC domestic assets, we are
required to file with the CSRC. However, our PRC legal counsel has further advised us that there are substantial uncertainties as to
how the M&amp;A Rules and Overseas Listing Trial Measures will be interpreted or implemented in the context of an overseas offering,
and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations
in any form relating to the M&amp;A Rules and Overseas Listing Trial Measures.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in; background-color: white">On
February 24, 2023, the Provisions on Strengthening the Confidentiality and Archives Administration of Overseas Securities Issuance and
Listing by Domestic Enterprises was promulgated, or the Provision on Confidentiality, which became effective on March 31, 2023. Pursuant
to the Provision on Confidentiality, where a domestic enterprise publicly discloses or provides documents and materials involving state
secrets and working secrets of state organs, or Relevant Documents and Materials, to the relevant securities companies, securities service
institutions, overseas regulatory authorities and other entities and individuals, or provides or publicly discloses Relevant Documents
and Materials through its overseas listing subjects, it shall report to the competent department with the examination and approval authority
for approval in accordance with the law, and submit to the secrecy administration department of the same level for filing. Where a domestic
enterprises provides accounting archives or copies of such archives to entities and individuals such as securities companies, securities
service institutions and overseas regulatory authorities, it shall complete the corresponding procedures pursuant to relevant rules of
the State. The working materials formed within the territory of the PRC by the securities companies and securities service institutions
that provide corresponding services for the overseas issuance and listing of domestic enterprises shall be kept within the territory
of the PRC, and outbound transfers of such materials shall go through approval procedures in accordance with relevant rules of the State.</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">At the time of our initial
public offering in October 2007, while the application of the M&amp;A Rule remained unclear, our then PRC counsel at the time, Commerce
&amp; Finance Law Offices, had advised us that, based on their understanding of the then PRC laws and regulations as well as the procedures
announced on September 21, 2006:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the CSRC had jurisdiction over our initial public offering;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="width: 100%; font-size: 10pt">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the CSRC had not issued any definitive rule or interpretation concerning
    whether offerings like our initial public offering are subject to the M&amp;A Rule; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">despite the above, given that we had completed our inbound investment
    before September 8, 2006, the effective date of the M&amp;A Rule, an application was not required under the M&amp;A Rule to be submitted
    to the CSRC for its approval of the listing and trading of our ADSs on the Nasdaq Global Market, unless we are clearly required to
    do so by subsequent rules of the CSRC.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Based on the advice of our
PRC counsel, we did not seek CSRC&#8217;s approval for our initial public offering. Any requirement to obtain prior CSRC approval and
a failure to obtain this approval, if required, could have a material adverse effect on our business, operating results, reputation and
trading price of our ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Regulations on Tax</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>PRC Enterprise Income
Tax </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The PRC EIT is calculated
based on the taxable income determined under the PRC accounting standards and regulations, as well as the EIT law. On March 16, 2007,
the National People&#8217;s Congress of China enacted the EIT Law, a new EIT law which became effective on January 1, 2008, which was
subsequently amended on March 16, 2007, February 24, 2017 and December 29, 2018. On December 6, 2007, the State Council promulgated the
Implementation Rules which also became effective on January 1, 2008. On December&#160;26, 2007, the State Council issued the Notice on
Implementation of Enterprise Income Tax Transition Preferential Policy under the EIT Law, or the Transition Preferential Policy Circular,
which became effective simultaneously with the EIT Law. The EIT Law imposes a uniform EIT rate of 25% on all domestic enterprises and
foreign-invested enterprises unless they qualify under certain exceptions. Under the EIT Law, as further clarified by the Implementation
Rules, the Transition Preferential Policy Circular and other related regulations, enterprises that were established and already enjoyed
preferential tax treatments before March 16, 2007 will continue to enjoy them in the following manners: (i) in the case of preferential
tax rates, for a five-year period starting from January 1, 2008, during which the tax rate will gradually increase to 25%; or (ii) in
the case of preferential tax exemption or reduction for a specified term, until the expiration of such term. However, if such an enterprise
has not enjoyed the preferential treatments yet because of its failure to make a profit, its term for preferential treatment will be
deemed to start from 2008. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Doing Business in China&#8212;The
PRC Enterprise Income Tax Law may increase the enterprise income tax rate applicable to some of our PRC subsidiaries which could have
a material adverse effect on our result of operations.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under the New Income Tax
law, enterprises are classified as either resident or non-resident. A resident enterprise refers to one that is incorporated under the
PRC law or under the law of a jurisdiction outside the PRC with its &#8220;de facto management organization&#8221; located within the
PRC. Non-resident enterprise refers to one that is incorporated under the law of a jurisdiction outside the PRC with its &#8220;de facto
management organization&#8221; located also outside the PRC, but which has either set up institutions or establishments in the PRC or
has income originating from the PRC without setting up any institution or establishment in the PRC. Under the New Enterprise Income Tax,
Implementation Regulation, or the New EIT Implementation Regulations, &#8220;de facto management organization&#8221; is defined as the
organization of an enterprise through which substantial and comprehensive management and control over the business, operations, personnel,
accounting and properties of the enterprise are exercised. Under the New Income Tax Law and the New EIT Implementation Regulation, a
resident enterprise&#8217;s global net income will be subject to a 25% EIT rate. On April 22, 2009, the State Administration of Taxation,
or the SAT, issued SAT Circular 82, which provides certain specific criteria for determining whether the &#8220;de facto management body&#8221;
of a PRC-controlled enterprise that is incorporated offshore is located in China. In addition, the SAT issued a bulletin on July 27,
2011 providing more guidance on the implementation of Circular 82 and clarifying matters such as resident status determination. Due to
the present uncertainties resulting from the limited PRC tax guidance on this issue and because substantially all of our operations and
all of our senior management are located within China, we may be considered a PRC resident enterprise for EIT purposes, in which case:
(i) we would be subject to the PRC EIT at the rate of 25% on our worldwide income; and (ii) dividends income received by us from our
PRC subsidiaries, however, would be exempt from the PRC withholding tax since such income is exempted under the EIT Law for a PRC resident
enterprise recipient. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Doing Business in China&#8212;Our
global income or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material
adverse effect on our results of operations.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>PRC Business Tax and
VAT</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Taxpayers providing taxable
services in China are required to pay a business tax at a normal tax rate of 5% of their revenues, unless otherwise provided. According
to the Announcement on the VAT Reform Pilot Program of the Transportation and Selected Modern Service Sectors issued by the State Tax
Bureau in July 2012, the transportation and some selected modern service sectors, including research and development and technical services,
information technology services, cultural creative services, logistics support services, tangible personal property leasing services,
and assurance and consulting service sectors, should pay value-added tax instead of business tax based on a predetermined timetable (hereinafter
referred to as the &#8220;VAT Reform&#8221;), effective September 1, 2012 for entities in Beijing and November 1, 2012 for entities in
Guangdong. The VAT Reform expanded nation-wide from August 1, 2013.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In March 2016, during the
fourth session of the 12th National People&#8217;s Congress, it was announced that the VAT reform will be fully rolled out and extended
to all industries including construction, real estate, financial services and lifestyle services. Subsequently, the SAT and Ministry
of Finance jointly issued a Notice on Preparing for the Full Implementation of the VAT Reform (Cai Shui [2016] No. 36). Accordingly,
we started to pay value-added tax instead of business tax from May 1, 2016.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Dividend Withholding
Tax </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under the PRC tax laws effective
prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises are exempt from PRC withholding tax. Pursuant
to the EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and distributed to us by our PRC subsidiaries
through our BVI subsidiary are subject to a 10% withholding tax, provided that we are determined by the relevant PRC tax authorities
to be a &#8220;non-resident enterprise&#8221; under the EIT Law. Pursuant to the Avoidance of Double Taxation Arrangement, which became
effective on January 1, 2007, which was subsequently amended on January 30, 2008, May 27, 2010, April 1, 2015 and July 19, 2019, dividends
from our PRC subsidiaries paid to us through our Hong Kong wholly-owned subsidiary CNinsure Holdings Ltd. are subject to a withholding
tax at a rate of 5%. However, as described above, we may be considered a PRC resident enterprise for EIT purposes, in which case dividends
received by us from our PRC subsidiary would be exempt from the PRC withholding tax because such income is exempted under the EIT Law
for a PRC resident enterprise recipient. In July 2018, CNinsure Holdings Ltd. was determined by Hong Kong Taxation Bureau to be a Hong
Kong resident enterprise and completed the application and filing process for enjoying the tax treaty in PRC Taxation Bureau therefore
we have applied 5% withholding tax rate for the dividends paid by our PRC subsidiaries since then. As there remains uncertainty regarding
the interpretation and implementation of the EIT Law and the Implementation Rules, it is uncertain whether any dividends to be distributed
by us, if we are deemed a PRC resident enterprise, to our non-PRC shareholders and ADS holders would be subject to any PRC withholding
tax. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Doing Business in China&#8212;Our global income
or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse
effect on our results of operations.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>C. Organizational Structure</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Corporate Structure</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of March 31, 2023, we,
through Fanhua Group Company, have controlling equity ownership in one insurance sales services company with a national operating license,
one managing general agency with brokerage license, five regional insurance agencies, two insurance claims adjusting firms and one healthcare
management service company which also operates an online mutual aid platform. In addition, through contractual arrangements, we control
one insurance sales services company with a national operating license to operate online insurance distribution business, two regional
insurance agencies and one brokerage firm. We also own 4.5% equity interest of Puyi Inc..</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Fanhua Group Company and
its direct and indirect subsidiaries and our consolidated VIEs hold the licenses and permits necessary to conduct our insurance intermediary
business and internet insurance distribution business in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Major Changes in our Corporate Structure</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Historically, PRC laws and
regulations restricted foreign investment in and ownership of insurance intermediary companies and internet companies. Accordingly, from
December 2005 to May 2016, we conducted all or part of our business in China through contractual arrangements among our PRC subsidiaries,
then-existing VIEs and their shareholders. We relied on contractual arrangements to control and receive economic benefits from our then-existing
VIEs. In October 2011, we commenced a restructuring of our company. Through a series of equity transfers, we had obtained direct controlling
or significant equity ownership in all of our insurance intermediary companies and our online operations by May 2016. The contractual
arrangements were terminated between January 2015 and May 2016.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->71<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In October 2015, we, through
our wholly-owned subsidiary Meidiya Investment entered into act-in-concert agreements with 5 equity interest holders of Fanhua Insurance
Surveyors &amp; Loss Adjustors Company Limited, or FHISLA and controls 69.0% of voting interests in aggregate. The act-in-concert agreements
were effective from October 26, 2015 and will remain effective for as long as FHISLA is in operation, until and only when all contracting
parties agree to cease the agreement. Per the act-in-concert agreements, all the disagreements will ultimately be determined by Meidiya
Investment, the shareholder of the highest shareholding amongst the act-in-concert group in FHISLA. Accordingly, we control 69.0% of
voting rights in aggregate, which exceeds two-thirds of the voting requirement to pass all resolutions in shareholder meetings of FHISLA.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">To remain compliant with
the regulatory requirements for conducting online insurance business through Baoxian.com, we commenced a restructuring of our online
operations in 2021. As a result of the restructuring, Fanhua Group Company&#8217;s direct equity interests in Xinbao Investment, which
directly owns 100% of Fanhua RONS, the licensed operating entity of Baoxian.com, was reduced from 100% to 49% and the remaining 51% equity
interests were owned by an individual who is nominally holding the shares on behalf of Fanhua. Concurrently, Fanhua Group Company entered
into contractual arrangements with Xinbao Investment and its individual nominee shareholder to control and receive economic benefits
from the consolidated VIEs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;On June 24, 2022,
our wholly owned subsidiary Fanlian Investment transferred all of the equity interests in Fanhua RONS Technologies to Mr. Peng Ge, our
chief financial officer to hold the shares of Fanhua RONS Technologies nominally on behalf of the Company. Concurrently, Fanlian Investment
entered into contractual arrangements with Fanhua RONS Technologies and Mr. Ge. The contractual arrangements are substantially similar
to those among Fanhua Group Company, Xinbao Investment and its individual nominee shareholder.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As a result, we currently
conduct our insurance agency and claims adjusting business in China primarily through our wholly-owned subsidiary Fanhua Group Company,
and its subsidiaries and a small part of our business through our consolidated VIEs in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following diagram illustrates
the corporate structure of us and the consolidated VIEs, including the names, places of incorporation and the proportion of ownership
interests in our and the consolidated VIEs&#8217; significant subsidiaries and their respective subsidiaries as of March 31, 2023:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><img alt="" src="image_001.jpg"/></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The diagram above omits
the names of subsidiaries that are immaterial individually and in the aggregate. For a complete list of our subsidiaries as of March
31, 2023, see Exhibit 8.1 to this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following is a summary
of the key terms of our contractual arrangements with our consolidated VIEs Xinbao Investment, Fanhua RONS Technologies and their respective
subsidiaries, and with their respective individual nominee shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Agreements that Provide Us Effective Control
over Xinbao Investment and Fanhua RONS Technologies</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Loan Agreement. </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Xinbao Investment.
</i></b>On December 6, 2021, Mr. Shuangping Jiang, the shareholder of Xinbao Investment, entered into a loan agreement with Fanhua Group
Company, or the Fanhua Group Company Loan. The principal loan amounts extended by Fanhua Group Company to Mr. Shuangping Jiang is RMB4.1
million, equal to his capital contributions to Xinbao Investment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The term of the loan agreement
is for ten years, which cannot be automatically extended but may be extended upon written agreement of the parties. If the loan is not
extended, then upon its expiration and subject to then applicable PRC laws, the loan can be repaid only with the proceeds from a transfer
of the individual shareholder&#8217;s equity interests in Xinbao Investment to Fanhua Group Company or another person or entity designated
by Fanhua Group Company. Fanhua Group Company may accelerate the loan repayment upon certain events, including if the individual shareholder
resigns or is dismissed from employment by us or if Fanhua Group Company exercises its option to purchase the shareholder&#8217;s equity
interests in Xinbao Investment pursuant to the exclusive purchase option agreements described below.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The loan agreement contains
a number of covenants that restrict the actions the individual shareholder can take or cause Xinbao Investment to take, and also require
the individual shareholder to take or cause Xinbao Investment to take specific actions. For example, the individual shareholders must:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">not transfer, pledge or otherwise dispose of or encumber his equity
    interests in Xinbao Investment, except for equity pledge for the benefit of Fanhua Group Company, without the prior written consent
    of Fanhua Group Company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">not take any action that will have a material impact on the assets,
    business and liabilities of Xinbao Investment without the prior written consent of Fanhua Group Company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">not vote for, or execute any resolution to approve, the sale, transfer,
    mortgage, or disposal of, or the creation of any encumbrance on, any legal or beneficial interests in the equity of Xinbao Investment,
    except to Fanhua Group Company or its designee, without the prior written consent of Fanhua Group Company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">not vote for, or execute any resolutions to approve, any merger or
    consolidation with any person, or any acquisition of or investment in any person by Xinbao Investment without the prior written consent
    of Fanhua Group Company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">vote to elect the director candidates nominated by Fanhua Group Company;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">cause Xinbao Investment not to supplement, amend or modify its articles
    of association in any manner, increase or decrease its registered capital or change the capital structure in any way without the
    prior written consent of Fanhua Group Company; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">cause Xinbao Investment not to execute any contract with a value exceeding
    RMB100,000, except in the ordinary course of business, without the prior written consent of Fanhua Group Company.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt"><b><i>Fanhua RONS Technologies.
</i></b>The individual shareholder of Fanhua RONS Technologies, being Mr. Peng Ge, who is our chief financial officer, entered into a
loan agreement on July 1, 2022 with our subsidiary Fanlian Investment, or the Fanlian Loan, for a zero interest loan from Fanlian Investment.
The principal amount lent to Mr. Ge is RMB20.0 million (US$2.9 million). The terms of the Fanlian Loan are similar to those of the Fanhua
Group Company Loans described above.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt"></p><div>

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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 17.85pt"><b>Equity Pledge Agreement.
</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 17.85pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 17.85pt"><b><i>Xinbao Investment.
</i></b>Mr. Shuangping Jiang entered into an equity pledge agreement on December 6, 2021, pledging his equity interest in Xinbao Investment
to Fanhua Group Company to secure his obligations under the loan agreement. Mr. Jiang also agreed not to transfer or create any encumbrances
adverse to Fanhua Group Company on his equity interests in Xinbao Investment. During the term of the equity pledge agreement, Fanhua
Group Company is entitled to all the dividends declared on the pledged equity interests. The equity pledge agreement will expire when
the individual shareholder fully performs his obligations under the loan agreement. The equity pledge was recorded on the shareholder&#8217;
register of Xinbao Investment, and registered with the relevant local administration of industry and commerce.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 17.85pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><b><i>Fanhua RONS Technologies</i></b><i>.
</i>Mr. Peng Ge, entered into an equity pledge agreement on July 1, 2022, pledging his equity interests in Fanhua RONS Technologies to
Fanlian Investment to secure his obligations under the Fanlian Loan. Terms of the equity pledge agreement is substantially similar to
equity pledge agreements for Xinbao Investment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Power of Attorney.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 17.85pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 17.85pt"><b><i>Xinbao Investment.
</i></b>Mr. Jiang executed powers of attorney on December 6, 2021, each appointing a person designated by Fanhua Group Company as his
attorney-in-fact on all matters requiring shareholder approval. Further, if Fanhua Group Company designates the shareholder to attend
a shareholder&#8217;s meeting of Xinbao Investment, the individual shareholder agrees to vote his shares as instructed by Fanhua Group
Company. The term of the power of attorney is for ten years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 17.85pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt"><b><i>Fanhua RONS Technologies</i></b><i>.
</i>Mr. Peng Ge, the individual shareholders of Fanhua RONS Technologies, executed powers of attorney on July 1, 2022 appointing a person
designated by Fanlian Investment as his attorney-in-fact on all matters requiring shareholder approval. Further, if Fanlian Investment
designates the shareholder to attend a shareholder&#8217;s meeting of Fanhua RONS Technologies, the individual shareholder agrees to
vote his shares as instructed by Fanlian Investment. The term of the power of attorney is for ten years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Agreement that Provides Us the Option to Purchase
the Equity Interests in Xinbao Investment</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Exclusive Purchase Option
Agreement.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Xinbao Investment. </b>Mr.
Jiang entered into an exclusive purchase option agreement on December 6, 2021 to irrevocably grant Fanhua Group Company an exclusive
option to purchase all of his equity interests in Xinbao Investment, when and to the extent permitted by PRC law. The purchase price
will be the minimum price permitted under applicable PRC law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Fanhua RONS Technologies.
</b>Mr. Ge entered into an exclusive purchase option agreement on July 1, 2022 to irrevocably grant Fanlian Investment an exclusive option
to purchase all of his equity interests in Fanhua RONS Technologies, when and to the extent permitted by PRC law. The purchase price
will be the minimum price permitted under applicable PRC law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Agreements that Transfer Economic Benefits
to Us</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Technology Consulting
and Service Agreement.</b> Pursuant to technology service agreements between (i) Fanhua Group Company, and (ii) Xinbao Investment and
each of its subsidiaries, Fanhua Group Company agreed to provide Xinbao and its subsidiaries with training services and consulting and
other services relating to IT platform and internal control compliance. In exchange, Xinbao and its subsidiaries agree to pay a quarterly
fee calculated primarily based on a percentage of their revenues, which is currently waved until further written notice by Fanhua Group
Company. Each of these agreements has a term of one year and will be automatically renewed for one-year term.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt"><b><i>Consulting and Service
Agreement</i></b>. Pursuant to the consulting and service agreements entered into between (i) Fanlian Investment, and (ii) Fanhua RONS
Technologies and each of its subsidiaries, Fanlian Investment agreed to provide financial and tax consulting services to Fanhua RONS
Technologies and each of its subsidiaries in exchange for fees payable quarterly calculated as a percentage of revenues of Fanhua RONS
Technologies and each of its subsidiaries. Each of these agreements has an initial term of one year and will be automatically renewed
for one-year term. The fee is currently waved by Fanlian Investment until further written notice by Fanlian Investment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt"></p><div>

</div><!-- Field: Page; Sequence: 79; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->74<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.7pt">Because of our contractual
arrangements with Xinbao Investment, Fanhua RONS Technologies and their subsidiaries and their individual nominee shareholders, we are
the primary beneficiary of Xinbao Investment and Fanhua RONS Technologies and their subsidiaries and we consolidate them into our consolidated
financial statements. For the year ended December 31, 2022, aggregate revenues derived from these consolidated VIEs amounted to 5.1% of
our total consolidated net revenues, based on our corporate structure as of December 31, 2022. As of December 31, 2022, the assets of
our consolidated VIEs accounted for an aggregate of 3.3% of our consolidated total assets.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The cash flows that have
occurred between our subsidiaries and our consolidated VIEs are summarized as the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The cash flows occurred between
our subsidiaries and the consolidated VIEs included the following: (1) cash received by the VIEs from our subsidiaries as inter-company
advances amounted to RMB43.0 million for the year ended December 31, 2022; and (2) commissions received offset by technology services
paid by our subsidiaries to the VIEs amounted to RMB94.9 million for the year ended December 31, 2022.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Due to the restriction on
foreign investment in the internet industry, we expect to continue to rely on contractual arrangements to control and receive economic
benefits from our current consolidated VIEs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In the opinion of Hai Run
Law Firm, our PRC legal counsel:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 19.6pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">both the direct and indirect controlling equity ownership structures
    of our subsidiaries and our consolidated VIEs in China have complied with all existing PRC laws and regulations</span></td></tr>
  <tr style="vertical-align: top">
    <td>&#160;</td>
    <td><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the contractual arrangements among our PRC subsidiaries, Xinbao Investment,
    Fanhua RONS Technologies, their subsidiaries, and their individual shareholders governed by PRC law are valid, binding and enforceable,
    and will not result in any violation of PRC laws or regulations currently in effect; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the business operations of our PRC subsidiaries and our consolidated
    VIEs comply in all material respects with existing PRC laws and regulations.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have been advised by
our PRC legal counsel, however, that there are uncertainties regarding the interpretation and application of PRC laws and regulations,
such contractual arrangements may not be as effective as direct ownership in providing operational control. Accordingly, the PRC regulatory
authorities may in the future take a view that is contrary to the above opinion of our PRC legal counsel. We have been further advised
by our PRC counsel that if the PRC government finds that the agreements establishing the structure for operating our online operations
do not comply with PRC government restrictions on foreign investment in the internet industry, we could be subject to severe penalties
including being prohibited from continuing operations. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to
Our Corporate Structure&#8212;Fanhua Inc. is a Cayman Islands holding company operating in China primarily through its subsidiaries and
a small part of its business through contractual arrangements with Xinbao Investment and Fanhua RONS Technologies. Investors in the ADSs
thus are not purchasing, and may never directly hold, all equity interests in the consolidated VIEs. There are substantial uncertainties
regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to such agreements that
establish the VIE structure for our consolidated VIEs&#8217; operations in China, including potential future actions by the PRC government,
which could affect the enforceability of our contractual arrangements with Xinbao Investment and Fanhua RONS Technologies and, consequently,
adversely affect the financial condition and results of operations of Fanhua Inc. If the PRC government finds such agreements non-compliant
with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the
future, we could be subject to severe penalties or be forced to relinquish part of our interests in Xinbao Investment and Fanhua RONS
Technologies or forfeit our rights under the contractual arrangements.&#8221; To date we have not encountered any interference or encumbrance
from the PRC government on account of operating our business through these agreements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>D. Property, Plants and Equipment</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our headquarter is located
in Guangzhou, China, where we leased approximately 2,828.8 square meters of office space as of December 31, 2022. Office space leased
by our subsidiaries and consolidated VIEs, including certain space used and paid by sales teams, was approximately 162,087.9 square meters
as of December 31, 2022. In 2022, our total rental expenses were RMB98.8 million (US$14.3million).</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_007"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 4A. Unresolved Staff Comments</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">None.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_008"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 5. Operating and Financial Review and Prospects</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements
and the related notes included in this annual report. This discussion and analysis contain forward-looking statements based upon current
expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8221;
or in other parts of this annual report. For discussion of 2020 items and year-over-year comparisons between 2021 and 2020 that are not
included in this annual report on Form 20-F, refer to &#8220;Item 5. Operating and Financial Review and Prospects&#8221; found in our
Form 20-F for the year ended December 31, 2021, that was filed with the Securities and Exchange Commission on April 29, 2022.</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>A. Operating Results</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Factors Affecting Our Results of Operations</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As an insurance intermediary
in China, our financial condition and results of operations are affected by a variety of factors, including:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">business relationship with important insurance company partners;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">total premium payments to Chinese insurance companies;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the extent to which insurance companies in the PRC outsource the distribution
    of their products and claims adjusting functions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">premium rate levels and commission and fee rates;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the size and productivity of our sales force;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">commission rates for individual sales agents;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">product and service mix;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">share-based compensation expenses;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">seasonality; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Impact on our business and financial results due to the COVID-19 pandemic;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Successful implementation of our professionalization, digitalization
    and open platform strategy</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Business Relationship with Important Insurance
Company Partners</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We derive significant revenue
from our important insurance company partners. Among these top five of our insurance company partners, Sinatay accounted for 19.6% of
our total net revenues in 2022. As a result, any significant changes to our business relationship with the important insurance company
partners could have a material impact on our revenue and profit.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Total Premium Payments to Chinese Insurance
Companies</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Chinese insurance industry
has grown substantially in the past decade. Between 2012 and 2022, total insurance premiums increased from RMB1.5 trillion to RMB4.9
trillion, representing a compound annual growth rate, or CAGR, of 12.3%, according to the CBIRC. Although the growth has slowed down
significantly from 2020 to 2022 due to economic uncertainty, the impact of COVID-19, tightening regulation and industry transformation,
among others, we believe that certain macroeconomic and demographic factors, such as increasing per capita GDP, and an aging population
and people&#8217;s increasing awareness of insurance protection, have contributed to and will continue to drive the growth of the Chinese
insurance industry in the long term.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We derive our revenue primarily
from commissions and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the
insurance companies. Accordingly, industry-wide premium growth will have a positive impact on us. Any downturn in the Chinese insurance
industry, whether caused by a general slowdown of the PRC economy or otherwise, may adversely affect our financial condition and results
of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 81; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->76<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The Extent to Which Insurance Companies
in the PRC Outsource the Distribution of their Products and Claims Adjusting Functions</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Historically, insurance
companies in the PRC have relied primarily on their exclusive individual sales agents and direct sales force to sell their products.
However, in recent years, as a result of increased competition, consumers&#8217; demand for more choices and regulatory focus on long
term protection-oriented life insurance products, more and more insurance companies gradually expanded their distribution channels to
include insurance intermediaries such as commercial banks, postal offices, professional insurance agencies and professional insurance
brokerages. In addition, because of the increasingly high cost of establishing and maintaining distribution networks of their own, more
and more medium-size insurance companies have chosen to rely primarily on insurance intermediaries to distribute their products while
they focus on other aspects of their business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As insurance companies in
the PRC become more accustomed to outsourcing the distribution of their products to insurance intermediaries, they may allow insurance
intermediaries to distribute a wider variety of insurance products and may provide more monetary incentives to more productive and effective
insurance intermediaries. These and other similar measures designed to boost sales through insurance intermediaries can have a positive
impact on our financial condition and results of operations. Similarly, as competition intensifies and the insurance market becomes more
mature in China, we expect that more insurance companies will choose to outsource claims adjusting functions to professional service
providers such as our affiliated claims adjusting firms while they focus on the core aspects of their business, including product development
and asset and risk management.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Premium Rate Levels and Commission and
Fee Rates</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Because the commissions
and fees we receive from insurance companies for the distribution of insurance products are generally calculated as a percentage of premiums
paid by our customers to the insurance companies, our revenue and results of operations are affected by premium rate levels and commission
and fee rates. Premium rate levels and commission and fee rates can change based on the prevailing economic conditions, competitive and
regulatory landscape, and other factors that affect insurance companies. These other factors include the ability of insurance companies
to place new business, underwriting and non-underwriting profits of insurance companies, consumer demand for insurance products, the
availability of comparable products from other insurance companies at a lower cost, and the tax deductibility of commissions and fees.
In general, we can negotiate for better rates as an incentive for generating a larger volume of business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Since China&#8217;s entry
into the WTO in December 2001, competition among insurance companies has intensified as a result of a significant increase in the number
of insurance companies and the existing insurance companies&#8217; expansion into new geographic markets. This competition has led to
a gradual increase in the commission and fee rates offered to insurance intermediaries, and such an increase has had a positive impact
on our results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 25pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The Size and Productivity of Our Sales
Force</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As a distributor of insurance
products, we generate revenue primarily through our sales force who are individual sales agents in our distribution and service network.
Some entrepreneurial management staff or senior sales agents of major insurance companies in China have chosen to leave their employers
or principals and become independent agents. We refer to these independent agents as &#8220;entrepreneurial agents.&#8221; An entrepreneurial
agent is usually able to assemble and lead a team of sales agents. We have been actively recruiting and will continue to recruit entrepreneurial
agents to join our distribution and service network as our sales agents. Entrepreneurial agents have been instrumental to the development
of our life insurance business. The size of our sales force, its productivity, as measured by the average number of insurance products
sold per performing sales agent that refers to a sales agent who has sold at least one insurance policy, the average premium per product
sold and the average premiums generated per performing sales agent during any specified period, directly affect our revenue and results
of operations. In recent years, as the result of our efforts to streamline our sales force with more focus on better performing sales
agents as well as the adverse impact of the COVID-19 on the sales activities of our sales agents, the size of our sales force has decreased
substantially which had adversely affected our financial results. However, we have embarked on a series of strategic initiatives to professionalize
our sales force and recruit more productive agents, which we expect to bring positive results on the number of our performing agents
and their productivity and as a result have positive impact on our financial performance within the next few years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->77<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Commission Rates for
Individual Sales Agents</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A large component of our
operating costs is commissions paid to our individual sales agents. In order to retain sales agents, we must pay commissions at a level
comparable to the commissions paid by our competitors. Intensified competition for productive sales agents within the Chinese insurance
industry and rising salaries in China may lead to a significant increase in commission rates which could have a negative impact on our
results of operations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Product and Service Mix</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We began distributing auto
insurance products in 1999, expanded our product offerings to other property and casualty insurance products in 2002, and started distributing
long-term individual life and health insurance products in 2006, primarily to individual customers. We further broadened our service
offering to cover insurance claims adjusting services in 2008.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Insurance Agency Segment</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our largest segment by revenue,
the insurance agency segment, provides a broad range of life and health and property and casualty insurance products to individual customers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Most individual life and
health insurance policies we distribute require periodic payment of premiums, typically annually, during a pre-determined payment period,
generally ranging from three to 25 years. For each of such policies that we distribute, insurance companies will pay us a first-year
commission and fee based on a percentage of the first-year premiums, and subsequent commissions and fees based on smaller percentages
of the renewal premiums paid by the insured throughout the renewal term of the policy. Therefore, once we distribute a life and health
insurance policy with a periodic payment schedule, it can bring us a steady flow of commission and fee revenue throughout the renewal
term as long as the insured fulfills his or her premium payment commitment and continuously renews the policy.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Because of the recurring
nature of commissions derived from long term life and health insurance business, and the higher gross margin of our life insurance business
than that of our property and casualty insurance business, we intend to continue our focus on distributing more long-term life and health
insurance products, which we believe will have a positive impact on our revenue and gross margin in the long term.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The property and casualty
insurance policies we distribute primarily consist of individual accident insurance, indemnity medical insurance, travel insurance, and
homeowner insurance that we distribute through Baoxian.com. Because the insurance products that we distribute through Baoxian.com are
mostly underwritten by property and casualty insurance companies, we classify them as property and casualty insurance products. These
property and casualty insurance policies we distribute are typically for a one-year term, with a single premium payable at the beginning
of the term. As a result, the insured has to purchase new policies through us every year. Accordingly, we receive a single commission
or fee for each property and casualty policy we distribute.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Claims Adjusting Segment</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The fees we receive for
our claims adjusting services are calculated based on the types of insurance products involved. For services provided in connection with
property and casualty insurance (other than marine cargo insurance and automobile insurance), our fees are calculated as a percentage
of the recovered amount from insurance companies plus travel expenses. For services provided in connection with marine cargo insurance,
our fees are charged primarily on an hourly basis and, in some cases, as a percentage of the amount recovered from insurance companies.
For services provided in connection with auto insurance, individual accident insurance and health insurance, our fees are generally fixed
and the amounts collected are based on the types of services provided. In some cases, our fees are charged based on the number of claims
adjustors involved in providing the services. We pay our in-house claims adjustors a base salary plus a commission calculated based on
a small percentage of the service fees we receive from insurance companies or the insured. The claims adjusting business has become and
likely will continue to be a steady source of our net revenues. The operating margin of our claims adjusting segment are generally lower
than those of our insurance agency segment although its gross margin is relatively higher. We expect revenues from our claims adjusting
business as a percentage of our total net revenues to remain stable over the next few years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Share-based Compensation Expenses</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our historical results of
operations have been affected by the share-based compensation expenses incurred. See &#8220;Item 5. Operating and Financial Review and
Prospects&#8212;A. Operating Results&#8212;Factors Affecting Our Results of Operations&#8212;&#8212;Share-based Compensation Expenses&#8221;
for a more detailed discussion of our historical share-based compensation expenses. In order to attract and retain the best personnel
for positions of substantial responsibility, provide additional incentives to employees, directors and consultants and promote the success
of our business, we adopted share incentive plans in 2007 and 2022. See &#8220;Item 6. Directors, Senior Management and Employees&#8212;B.
Compensation&#8212;Share Incentives&#8212;2007 Share Incentive Plan.&#8221; All of the share-based compensation expenses related to the
options granted under the 2007 Share Incentive Plan have been amortized as of December 31, 2016. On June 14, 2018, we announced the 521
Plan, which enabled the Participants, consisting of certain key employees and independent sales agent team leaders, to invest in the
Company by purchasing a total of 280,000,000 ordinary shares of the Company, representing 14 million of the Company&#8217;s ADSs at the
subscription price of US$27.38 per ADS. Accordingly, we recognized share-based compensation expenses in 2019. In 2020, RMB0.4 million
of cumulative cost recognized in prior periods related to the 521 Plan was reversed as the performance target was not probable to be
met. In December 2020, the 521 Plan was canceled without any replacement awards. In 2021, no share-based compensation expenses were incurred.
On August 12, 2022, our board of directors adopted a new share incentive plan under which we have reserved 161,143,768 ordinary shares
for issuance, which was approximately 15% of our outstanding ordinary shares as of June 30, 2022. Simultaneously, our board of directors
approved the grant of options to purchase an aggregate of 4,000,000 ordinary shares to independent directors pursuant to the 2022 Share
Incentive Plan (the &#8220;2022 Option 1&#8221;). Accordingly, we recognized share-based compensation expenses of RMB461,000 in 2022.
In February 2023, our board of directors approved the grant options to purchase an aggregate of 13,680,000 ordinary shares to certain
top agents. See &#8220;Item 6. Directors, Senior Management and Employees&#8212;B. Compensation&#8212;Share Incentives&#8212;2022 Share
Incentive Plan.&#8221; We expect share-based compensation expenses to be a significant component of our operating expenses in the near
future.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Seasonality</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our quarterly results of
operations are affected by seasonal variations caused by business mix, insurance companies&#8217; business practices and consumer demand.
For life insurance business, much of the jumpstart sales activities of life insurance companies occur during the first quarter of a year,
while business activities slow down in the fourth quarter of a year as life insurance companies focus on the preparation for the jumpstart
sales season of the coming year by preparing to launch new products, making marketing plans and organizing training. During the jumpstart
sales season, life insurance companies will offer incentives that are more attractive to insurance intermediaries and sales agents to
boost sales. Accordingly, our commission and fee revenue derived from life insurance business is generally the highest in the first quarter
of a year and the lowest in the fourth quarter of a year. For property and casualty insurance products that we distribute on Baoxian.com,
there was no obvious seasonal fluctuation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Impact on our business and financial results
due to the COVID-19 pandemic</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In 2022, the PRC government
adopted a dynamic zero-case policy to contain the periodic resurgences of the COVID-19 pandemic which has largely been effective. However,
our business was negatively impacted, primarily because (i) consumers&#8217; consumption confidence for non-necessity products or services
was adversely affected due to increased uncertainty in China&#8217;s economic outlook; and (ii) offline activities related to customer
engagement, agent recruitment and training were disrupted from time to time as a result of the social-distancing measures imposed in
regions where there were new coronavirus cases.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In addition, the business
operation of our non-consolidated affiliated investees has also been adversely impacted by the COVID-19 outbreak which had affected the
fair value of our investment in affiliates.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Successful implementation of our professionalization,
digitalization and open platform strategy</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In late 2020, we launched
new strategic initiatives to upgrade our sales organization by developing high-caliber, productive and professional insurance advisor
teams in economically developed cities in China. We also intend to build an integrated digital platform utilizing artificial intelligence,
big data and cloud computing to optimize the use of data to provide the most appropriate products for existing and potential customers
and increase agent productivity. In addition, we intend to build an open platform to share our advantages in technology, system, contractual
relationship, and nationwide network with various industry participants to help them monetize their existing customer resources and to
strengthen our value proposition to the market. We expect these new strategic initiatives to be new engines to drive our long-term growth.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may
result in an adverse impact on our business and financial results.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Key Performance Indicators</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of December 31, 2021
and 2022, we operated two segments: (1) the insurance agency segment, which mainly consisted of providing agency services for distributing
life insurance products and P&amp;C insurance products on behalf of insurance companies, and (2) the claims adjusting segment, which
consists of providing pre-underwriting survey services, claims adjusting services, disposal of residual value services, loading and unloading
supervision services, and consulting services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Operating segments are defined
as components of an enterprise about which separate financial information is available and evaluated regularly by our chief operating
decision maker in deciding how to allocate resources and in assessing performance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Net Revenues</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our revenues are net of
PRC tax surcharges and value-added tax incurred. In 2021 and 2022, we generated net revenues of RMB3,271.1 million (US$513.3 million)
and RMB2,781.6 million (US$403.3 million), respectively. We derive net revenues from the following sources:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
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    for the distribution of (i) life and health insurance products, and (ii) commoditized property and casualty products sold through
    Baoxian.com, which accounted for 86.0% and 85.4% of our net revenues for 2021 and 2022, respectively;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following table sets
forth our total net revenues earned from each of our reporting segments both in absolute amounts and as percentages of total net revenues,
for the periods indicated:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: justify; padding-bottom: 4pt; text-indent: -7.1pt; padding-left: 7.1pt">Total net revenues</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
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    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">403,296</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">100.0</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">&#160;</td></tr>
  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insurance agency segment
primarily covers distribution of life and health insurance products and property and casualty insurance products to individuals. Net
revenues from the insurance agency segment decreased from 2021 to 2022 in both absolute amount and as a percentage of our total net revenues.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Net revenues generated from
distribution of long-term life and health insurance products have become our primary source of revenue. We began distributing individual
life and health insurance products in 2006. Net revenues generated from distribution of life and health insurance products decreased
from 2021 to 2022, both in absolute amounts and as a percentage of our net revenues primarily due to the impact of COVID-19. The decrease
was mainly due to (i) high base in the first quarter of 2021 as a result of the strong sales of critical illness products prior to the
transition to the new critical illness definition framework and (ii) the decrease in the weighted average renewal commission rate of
renewal premium collected, and to a lesser extent, due to the change in the product mix. We expect our life insurance business to grow
and bring in significant revenue that will continue to represent a high percentage of our total net revenues in the next several years.
We believe this growth will be driven by a number of factors including stronger demand for traditional life and health insurance products
as a result of the aging population and the Chinese consumers&#8217; increasing awareness of the benefits of insurance.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Net revenues generated from
distribution of property and casualty insurance products increased from 2021 to 2022 in absolute amounts of our net revenues, primarily
due to the contribution from a newly acquired brokerage firm. We expect our net revenues to be derived from distribution of property
and casualty insurance products to remain stable in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We began providing claims
adjusting services in 2008. Net revenues from our claims adjusting segment decreased from 2021 to 2022, primarily due to the impact of
COVID-19. We expect that net revenues from claims adjusting services as a percentage of our total net revenues will be stable in the
next few years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The commissions and fees
we receive from the distribution of insurance products are based on a percentage of the premiums paid by the insured. Commission and
fee rates generally depend on the type of insurance products, the particular insurance company and the region in which the insurance
products are sold. We typically receive payment of the commissions and fees from insurance companies for insurance products on a monthly
basis. Some of the fees are paid to us annually or semi-annually in the form of additional performance bonuses after we achieve specified
premium volume or policy renewal goals as agreed upon between the insurance companies and us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We are compensated primarily
by insurance companies for our claims adjusting services. The fees we receive for our claims adjusting services depend on the types of
insurance products involved. For services provided in connection with marine cargo insurance, our fees are charged primarily on an hourly
basis and, in some cases, as a percentage of the amount recovered from insurance companies. For claims adjusting services related to
auto insurance, individual accident insurance and health insurance, our fees are generally fixed on a per claim basis, or in some cases,
on a per head basis. These fees are typically paid to us on a quarterly basis. For services provided in connection with other property
and casualty insurance, our fees are calculated as a percentage of the recovered amount from insurance companies plus travel expenses.
We typically receive payment for these fees on a semi-annual or annual basis.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Operating Costs and Expenses</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our operating costs and
expenses consist of costs incurred in connection with the distribution of insurance products and the provision of claims adjusting services,
selling expenses and general and administrative expenses. The following table sets forth the components of our operating costs and expenses,
both in absolute amounts and as percentages of our net revenues, for the periods indicated.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(2,115,167</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(64.7</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(1,795,603</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(260,338</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(64.6</td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(306,463</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(9.4</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(272,706</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(39,539</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(9.8</td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(16.7</td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(544,630</td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="font-weight: bold; text-align: justify; padding-bottom: 4pt; text-indent: -7.1pt; padding-left: 7.1pt">Total operating costs and expenses</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
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    <td style="border-bottom: Black 4pt double; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; font-weight: bold; text-align: right">(378,841</td><td style="padding-bottom: 4pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>Operating Costs</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We incur costs primarily
in connection with the distributions of insurance products and the provision of claims adjusting services. Our operating costs decreased
from 2021 to 2022, which was in line with the decrease in revenue during the same period. We rely mainly on individual sales agents and
to a much lesser degree, on Baoxian.com for the distributions of insurance products. For claims adjusting services, we rely mainly on
our in-house claims adjustors. Operating costs incurred as a percentage of net revenues decreased from 2021 to 2022, primarily due to
the slower growth of our renewal life insurance business and the decrease in volume-based commission from new life insurance business.
We anticipate that our operating costs as a percentage of our total net revenues to remain stable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 86; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->81<!-- Field: /Sequence --> -</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Selling Expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our selling expenses primarily
consist of:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">salaries and employment benefits for employees who work in back office
    below the provincial management level;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">office rental, telecommunications and office supply expenses incurred
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Selling expenses in 2022
were RMB272.7 million (US$39.5 million) , representing a decrease of 11.0% from RMB306.5 million in 2021. The decrease was due to decreased
sales events and rental costs of our sales outlets, partially offset by increased headcount in our Yuntong branches. We expect that our
selling expenses will increase as we grow in size, and we also intend to spend more on marketing and advertising to enhance our brand
recognition and promote our online platforms.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>General and Administrative
Expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our general and administrative
expenses principally comprise:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">salaries and benefits for our administrative staff;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">share-based compensation expenses for managerial and administrative
    staff;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">research and development expenses in relation to our mobile and online
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">bad debt expenses for doubtful receivables;</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">General and administrative
expenses were RMB544.6 million (US$79.0 million) for 2022, representing a decrease of 0.5% from RMB547.6 million in 2021. The decrease
was mainly due to cost savings from office expenses, partially offset by increased headcount in our IT center. We expect that our general
and administrative expenses will increase as we hire additional administrative personnel, pay higher labor costs and incur additional
costs in connection with the expansion of our business, and our efforts to invest in digital capabilities and develop our online insurance
platforms.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Share-based compensation
expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In 2021, no share-based compensation
expenses were incurred. On August 12, 2022, our board of directors adopted a new share incentive plan under which we have reserved 161,143,768
ordinary shares for issuance, which was approximately 15% of our outstanding ordinary shares as of June 30, 2022. Simultaneously, our
board of directors approved the grant of options to purchase an aggregate of 4,000,000 ordinary shares to independent directors pursuant
to the 2022 Share Incentive Plan (the &#8220;2022 Option 1&#8221;). Accordingly, we recognized share-based compensation expenses of RMB0.5
million in 2022. In February 2023, our board of directors approved the grant options to purchase an aggregate of 13,680,000 ordinary shares
to certain top agents. See &#8220;Item 6. Directors, Senior Management and Employees&#8212;B. Compensation&#8212;Share Incentives&#8212;2022
Share Incentive Plan.&#8221; We expect share-based compensation expenses to be a significant component of our operating expenses in the
near future.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><!-- Field: Page; Sequence: 87; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Taxation</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We and each of our subsidiaries
file separate income tax returns.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>The Cayman Islands, the British Virgin
Islands and Hong Kong</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under the current laws of
the Cayman Islands and the British Virgin Islands, we and our subsidiaries incorporated in the British Virgin Islands are not subject
to income or capital gains taxes. In addition, dividend payments are not subject to withholding tax in those jurisdictions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On March 21, 2018, the Hong
Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the &#8220;Bill&#8221;) which introduces the two-tiered
profits tax rates regime. The Bill was signed into law on March 28, 2018 and was gazetted on the following day. Under the two-tiered
profits tax rates regime, the first 2 million Hong Kong Dollar of profits of the qualifying group entity will be taxed at 8.25%, and
profits above HK$2 million will be taxed at 16.5%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The provision for current
income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the current rate of taxation of 8.25% for the
years ended December 31, 2021 and 2022. Payment of dividends is not subject to withholding tax in Hong Kong.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>PRC</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>EIT</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">According to the PRC Enterprise
Income Tax Law, which became effective on January 1, 2008 and was subsequently amended on March 16, 2007, February 24, 2017 and December
29, 2018, as further clarified by subsequent tax regulations implementing the EIT law, foreign invested enterprises and domestic enterprises
are subject to enterprise income tax, or EIT, at a uniform rate of 25%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to the relevant
laws and regulations in the PRC, Shenzhen Huazhong United Technology Co., Ltd., or Shenzhen Huazhong, our wholly-owned subsidiary, was
recognized as a software company and thus exempted from PRC Income Tax for two years starting from its first profit-making year, followed
by a 50% reduction for the next three years. For Shenzhen Huazhong, 2017 was the first profit-making year and accordingly it has made
a 12.5% tax provision for its profits for the years ended December 31, 2021. Its tax holiday expired in 2021.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt; background-color: white"></p><div>

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</div><p style="margin: 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to the Circular
on Issues Regarding Tax-related Preferential Policies for Further Implementation of Western Development Strategy jointly issued by the
State Ministry of Finance, General Administration of Customs, China and State Administration for Taxation, enterprises located in the
western China regions that fall into the encouraged industries are entitled to 15% EIT preferential tax treatment from January 1, 2011
to December 31, 2020. The preferential tax treatment is extended to December 31, 2030, pursuant to No. 23 Announcement Concerning the
Extension of the EIT Policies for Enterprises Located in Western China issued by the Ministry of Finance on April 23, 2020. In September
2018, our wholly-owned subsidiary, Fanhua Lianxing Insurance Sales Co., Ltd. (&#8220;Lianxing&#8221;), which is the holding vehicle of
our life insurance operations, was relocated to Tianfu New Area, Sichuan province, PRC. Subsequently, Lianxing will enjoy 15% EIT tax
rate instead of a unified 25% from September 1, 2018 to December 31, 2030. Tibet Zhuli Investment Co. Ltd. (&#8220;Tibet Zhuli&#8221;),
our wholly-owned subsidiary, was entitled to a preferential tax rate of 9% for the period from 2015 to 2020, and 15% for 2021 as it was
established with approval in Tibet, PRC, before January 1, 2018. Tibet Zhuli was not entitled to the tax holiday in 2022.

</p><p style="margin: 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to the Circular
on Inclusive Tax Relief Policies for Small Low-Profit Enterprises (&#8220;SLPEs&#8221;), or Circular [2019] No. 13, jointly issued by
the State Ministry of Finance and State Administration for Taxation in January 2019, an SLPE is entitled to a preferential tax rate of
20% with a 75% reduction on its annual taxable income for the portion not exceeding RMB1 million and a 50% reduction for the portion between
RMB1 million to RMB3 million. Further to the Circular [2019] No. 13, Announcement on Preferential Tax Policies for SLPEs and Individually-owned
Businesses (&#8220;IOBs&#8221;) was jointly issued by the State Ministry of Finance and State Administration for Taxation in April 2021,
which provides SLPEs and IOBs an additional 50% reduction on annual taxable income for the portion not exceeding RMB1 million. Pursuant
to the Circular on Inclusive Tax Relief Policies for Small Low-Profit Enterprises (&#8220;SLPEs&#8221;), or Circular [2022] No. 13, jointly
issued by the State Ministry of Finance and State Administration for Taxation in March 2022, an SLPE is entitled to a preferential tax
rate of 20% with a 75% reduction on its annual taxable income for the portion between RMB1 million to RMB3 million. Accordingly, Shenzhen
Baowang E-commerce Co., Ltd., the wholly-owned subsidiary of one of the VIEs enjoyed a preferential tax rate of 20% with a 75% reduction
on their annual taxable income from January 1, 2019 to December 31, 2022. Shenzhen Fanhua Training Co., Ltd. a subsidiary of our claims
adjusting segment, enjoy a preferential tax rate of 20% with 75% on their annual taxable income from January 1, 2019 to December 31, 2020
and an 87.5% reduction on their annual taxable income from January 1, 2021 to December 31, 2022. Shanghai Fanhua Teamhead Insurance Surveyors
&amp; Loss Adjustors Co., Ltd., enjoyed a preferential tax rate of 20% with a 87.5% reduction on its annual taxable income for the portion
not exceeding RMB1 million and a 50% reduction for the portion between RMB1 million to RMB3 million from January 1 2020 to December 31,
2021, and enjoyed a preferential tax rate of 20% with a 87.5% reduction on its annual taxable income for the portion not exceeding RMB1
million and a 75% reduction for the portion between RMB1 million to RMB3 million for the fiscal year of 2022. Suzhou Feibao Smart Service
Consulting Co., Ltd. (previously known as Suzhou Junzhou Healthcare Management Co., Ltd.) is currently entitled to a tax exemption as
it has not yet achieved profitability.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Business Tax and VAT</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">With respect to all of our
PRC entities for the period immediately prior to the implementation of the VAT reform program, revenues from our services are subject
to a 5% PRC business tax. Revenues from our online advertising services are subject to an additional 3% cultural business construction
fee.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In March 2016, during the
fourth session of the 12<sup>th </sup>National People&#8217;s Congress, it was announced that the VAT reform will be fully rolled out
and extended to all industries including construction, real estate, financial services and lifestyle services. Subsequently, the State
Administration of Taxation and Ministry of Finance jointly issued a Notice on Preparing for the Full Implementation of the VAT Reform
(Cai Shui [2016] No. 36). Accordingly, revenues from our services are subject to value-added tax instead of business tax starting from
May 1, 2016.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>PRC Urban Maintenance
and Construction Tax and Education Surcharge</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"><i>&#160;</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Any entity, foreign-invested
or purely domestic, or individual that is subject to consumption tax, VAT and business tax is also required to pay PRC urban maintenance
and construction tax. The rates of urban maintenance and construction tax are 7%, 5% or 1% of the amount of consumption tax, VAT and
business tax actually paid depending on where the taxpayer is located. All entities and individuals who pay consumption tax, VAT and
business tax are also required to pay education surcharge at a rate of 3%, and local education surcharges at a rate of 2%, of the amount
of VAT, business tax and consumption tax actually paid.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Results of Operations</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following table sets
forth our net revenues, operating costs and expenses and income from operations by reportable segments for the periods indicated.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We are currently operating
under two reporting operating segments: (1) insurance agency, and (2) claims adjusting<b>. </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;&#160;&#160;</p><div>

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    <td colspan="14" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">For the Year Ended December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
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  <tr style="vertical-align: bottom">
    <td style="font-weight: bold">Consolidated Statement of Income Data</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom">
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    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 52%; text-indent: -0.125in; padding-left: 0.125in">Agency</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">2,811,936</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">(15.5</td><td style="width: 1%; text-align: left">)</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">2,376,851</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right">344,611</td><td style="width: 1%; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(16.8</td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="font-style: italic; text-align: left">&#160;</td><td style="font-style: italic; text-align: right">(1,742,640</td><td style="font-style: italic; text-align: left">)</td><td>&#160;</td>
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    <td style="font-style: italic; text-align: left">&#160;</td><td style="font-style: italic; text-align: right">(1,436,606</td><td style="font-style: italic; text-align: left">)</td><td style="font-style: italic">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; text-indent: -0.125in; padding-left: 0.25in">P&amp;C insurance business</td><td style="font-style: italic">&#160;</td>
    <td style="font-style: italic; text-align: left">&#160;</td><td style="font-style: italic; text-align: right">(93,185</td><td style="font-style: italic; text-align: left">)</td><td>&#160;</td>
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    <td style="font-style: italic; text-align: left">&#160;</td><td style="font-style: italic; text-align: right">(90,966</td><td style="font-style: italic; text-align: left">)</td><td style="font-style: italic">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">393,492</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">308,657</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">44,751</td><td style="text-align: left">&#160;</td></tr>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Year ended December 31, 2022 Compared to Year Ended December 31,
2021</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Net Revenues </i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our total net revenues decreased
by 15.0% from RMB3, 271.1 million in 2021 to RMB2,781.6 million (US$403.3 million) in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt">Net
                                            revenues from our insurance agency segment decreased by 15.5% from RMB2,811.9 million in
                                            2021 to RMB2,376.8 million (US$344.6 million) in 2022. The decrease was primarily due to
                                            a decline in net revenues derived from life insurance business, from RMB2,679.7 million in
                                            2021 to RMB2,237.3 million (US$324.4 million) in 2022, while net revenues derived from the
                                            P&amp;C insurance business were RMB139.5 million (US$20.2million) for 2022, which remained
                                            relatively stable compared with RMB132.2 million in 2021.</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">The decrease in net revenues generated from the life insurance agency
    business was partially offset by the revenue recognized related to variable consideration estimates amounting to RMB245.7 million.
    Excluding the estimated amount, the decrease in net revenues was mainly due to changes in product mix, despite an increase in total
    life insurance GWP. The decrease was mainly due to (i) high base in the first quarter of 2021 as a result of the strong sales of
    critical illness products prior to the transition to the new critical illness definition framework and (ii) the decrease in the weighted
    average renewal commission rate of renewal premium collected, and to a lesser extent, due to the change in the product mix. In 2022,
    total life insurance GWP increased by 10.2% year-over-year to RMB12,409.0 million, of which FYP increased by 2.0% year-over-year
    to RMB 2,556.9 million and renewal premiums increased by 12.6% year-over-year to RMB9,852.1 million. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">Revenues for the P&amp;C insurance
business were mainly derived from commissions generated for internet-based insurance products sold on Baowang, including medical insurance,
accident insurance, travel insurance and homeowner insurance products. Net revenues generated from the P&amp;C insurance business accounted
for 5.0% of our total net revenues in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Net revenues from our claims adjusting segment decreased by
    11.8%&#160;&#160;from RMB459.2 million in 2021 to RMB404.8 million (US$58.7 million) for 2022. The decrease was due to the
    disruption to our claims adjusting business as a result of the lockdowns in response to the COVID-19 outbreaks in multiple areas in
    China and contraction of our medical-insurance related claims adjusting business.&#160;&#160;Revenues generated from the claims
    adjusting business accounted for 14.6% of our total net revenues in 2022.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Operating Costs and Expenses</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Operating costs and expenses
decreased by 12.0% from RMB2,969.2 million in 2021 to RMB2,612.9 million (US$378.8 million)for 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Operating Costs. </i>Our
operating costs decreased by 15.1% from RMB2,115.2 million in 2021 to RMB1,795.6 million (US$260.3 million) in 2022, primarily because
of the decrease in operating cost in life insurance business.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Operating costs for our insurance agency segment decreased by 16.8%
    from RMB1,835.8 million in 2021 to RMB1,527.6 million (US$221.5 million) in 2022, primarily due to a decrease of 17.6% in costs for
    the life insurance agency business from RMB1,742.6 million in 2021 to RMB1,436.6 million (US$208.3 million) in 2022, which was mainly
    due to decline in revenue generated from our life business, and a decrease of 2.4% in costs for the property and casualty insurance
    agency business from RMB93.2 million in 2021 to RMB91.0 million (US$13.2 million) in 2022, which is in line with the decrease in
    revenue generated from the property and casualty insurance agency business.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
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    from RMB279.3 million in 2021 to RMB268.0 million (US$38.9 million)&#160;&#160;in 2022, largely in line with the decrease in costs
    for the claims adjusting business.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Selling
Expenses.</i> Our selling expenses decreased by 11.0% from RMB306.5 million in 2021 to RMB272.7 million (US$39.5 million) in 2022,
primarily attributable to decreased sales events and rental costs of our sales outlets, partially offset by increased headcount in
our Yuntong branches.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>General and Administrative
Expenses. </i>Our general and administrative expenses decreased by 0.5% from RMB547.6 million in 2021 to RMB544.6 million (US$79.0 million)
in 2022, primarily due to the cost savings from office expenses, partially offset by increased headcount in our IT center</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>Income from Operations</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As a result of the foregoing
factors, we recorded an operating income of RMB168.7 million (US$24.5 million) for 2022, decreased by 44.1% from RMB301.9 million in
2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
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21.6% from RMB393.5 million&#160;&#160;in 2021 to RMB308.7 million (US$44.8 million) in 2022, which was primarily due to the decrease
of life insurance business.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    headquarters, which was not allocated to each business segment. Operating loss incurred by the headquarters increased by 18.2% from
    RMB108.4million in 2021 to RMB128.1 million (US$18.6million) in 2022, mainly due to increased expenditures for the execution of the
    Professionalization, Digitalization and Open Platform strategy.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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income represents income received from short-term investments in interbank deposits. Our investment income decreased by 45.9% from RMB32.9
million in 2021 to RMB17.8 million (US$2.6 million) in 2022. The decrease in yields from short-term investments in financial products
was mainly due to decrease in investable cash primarily due to dividend payments and share buyback.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Interest Income. </i>Our
interest income increased by from RMB3.0 million in 2021 to RMB13.7million (US$2.0 million) in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Income Tax Expens</i>e</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our income tax expense
decreased by 54.7% from RMB90.6 million in 2021 to RMB41.0 million (US$5.9 million) in 2022. The effective tax rate for 2022 was
20.9% compared with 24.4% in 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Share of Income of Affiliates, net of Impairment</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our share of income of affiliates,
net of impairment was a loss of RMB69.6 million(US$10.1 million) for 2022, as compared to the share of income of affiliates, net of impairment
of a loss of RMB20.6 million in 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The share of income and
impairment of affiliates included (i) an other-than-temporary impairment loss of RMB78.3 million (US$11.3 million) on investment in CNFinance,
reflecting a write-down to the fair value of the investment as measured by its closing market price on March 31, 2022, compared to the
impairment loss of RMB29.3 million in 2021, and (ii) share of income from CNFinance of RMB11.3million (US$1.6 million) for 2022, compared
to share of income from CNFinance of RMB12.0 million in 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>Net Income Attributable to the Non-controlling Interests</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The net loss attributable
to the non-controlling interests was RMB14.5 million (US$2.1 million) in 2022, as compared to the net income attributable to the non-controlling
interests of RMB9.0 million in 2021, primarily due to the decrease in profits from our subsidiaries operating claims adjusting business
in which we currently own 44.7% equity interests.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Net Income Attributable to the Company&#8217;s
Shareholders</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As a result of the foregoing
factors, our net income attributable to our shareholders decreased by 60.0% from RMB251.0 million in 2021 to RMB100.3 million (US$14.5
million) in 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Foreign Currency</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have foreign currency
bank deposits which are primarily denominated in U.S. dollars. The exchange rate between U.S. dollar and RMB has declined from an average
of RMB8.2264 per U.S. dollar in July 2005 to RMB6.8972 per U.S. dollar in December 2022. The fluctuation of the exchange rate between
the RMB and U.S. dollar and HK dollar resulted in a foreign currency translation gain of RMB3.7 million (US$0.5 million) in 2022, when
we translated our financial assets from U.S. dollar and HK dollar into RMB. We have not hedged exposures to exchange fluctuations using
any hedging instruments. See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Doing Business in China&#8212;Fluctuation
in the value of the RMB may have a material adverse effect on your investment.&#8221; and &#8220;Item 11. Quantitative and Qualitative
Disclosures about Market Risk&#8212;Foreign Exchange Risk.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>B. Liquidity and Capital Resources</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Cash Flows and Working Capital</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our principal sources of
liquidity have been cash generated from our operating activities. As of December 31, 2022, we had RMB567.5 million (US$82.3 million)
in cash and cash equivalents, and RMB347.8 million (US$50.4 million) in short-term investments. Our cash and cash equivalents consist
of cash on hand and bank deposits and our short term investments consisting of short-term, highly liquid investments that are readily
convertible to known amounts of cash, and have an insignificant risk of changes in value related to changes in interest rates. Our principal
uses of cash have been to fund dividend distribution, maintenance and development of online and digital platforms including Lan Zhanggui,
Baoxian.com, eHuzhu, Fanhua RONS DOP, Fanhua RONS Guanjia, Fanhua WeCom, investment to digitalize our mid-office and back-office functions,
establishment of new branches and sales outlets, working capital requirements, automobiles and office equipment purchases, office renovation
and rental deposits.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We expect to require cash
to fund our ongoing business needs, particularly acquisitions of quality insurance intermediary companies which we expect to fund in
stock payment and cash to a lesser degree, further expansion of our distribution and service network with the focus on developing a more
professional sales force in major cities and the development of digital capabilities. <b>We also intend to spend more on marketing and
advertising to enhance our brand recognition and promote our online platforms.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We believe that our current
cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including
our cash needs for working capital and capital expenditures, for at least the next 12 months. We may, however, require additional cash
due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.
If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow
from lending institutions. Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. The sale of additional
equity securities, including convertible debt securities, would dilute our earnings per share. The incurrence of debt would divert cash
for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict
our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as
required, our business operations and prospects may suffer.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following table sets
forth a summary of our cash flows for the periods indicated:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">RMB</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(18,495</td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(260,298</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(20,371</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(2,954</td><td style="text-align: left">)</td></tr>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(10,181</td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(1,477</td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">648,211</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">93,981</td><td style="text-align: left">&#160;</td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Operating Activities</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Net cash generated from operating
activities amounted to RMB137.8million (US$20.0 million) for the year ended December 31, 2022, primarily attributable to (i) a net income
of RMB85.7 million (US$12.4 million), (ii) adjustments of depreciation expense of RMB19.5 million (US$2.8 million), non-cash operating
lease expense of RMB90.4 million (US$13.1 million), provision for allowance for credit losses on financial assets of RMB30.7 million (US$4.5
million), share of income of affiliates, net of impairment of RMB69.6 million (US$10.1 million) and investment income of RMB10.9 million
(US$1.6 million), which were non-cash items and, (iii) increases of contract assets of RMB204.2 million (US$29.6 million), accrued commissions
of RMB127.6 million (US$18.5 million) and accounts payable of RMB22.1 million (US$3.2 million), offset by decrease of other current asset
of RMB8.6 million (US$1.3 million), other receivables of RMB37.3 million (US$5.4 million) insurance premium payables of RMB7.4 million
(US$1.1 million) related to property and casualty insurance business contributed by channel vendors of Baowang, other payables and accrued
expenses of RMB16.3million (US$2.4 million), accrued payroll of RMB15.8 million (US$2.3 million), other tax liability of RMB36.6 million
(US$5.3 million) and lease liability of RMB88.6 million (US$12.8 million).</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Net cash generated from operating
activities amounted to RMB126.2 million for the year ended December 31, 2021, primarily attributable to (i) a net income of RMB259.9 million
(ii) adjustments of depreciation expense of RMB18.3 million, non-cash operating lease expense of RMB101.4 million, and investment income
of RMB3.2 million, which were non-cash items and, (iii) increases of accounts receivable of RMB5.5 million, contract assets of RMB257.2
million, other receivables of RMB31.1 million, accrued commissions of RMB139.7 million and accrued payroll of RMB6.3 million, offset by
(i) decrease of accounts payable of RMB37.1 million, (ii) decrease of insurance premium payables of RMB1.4 million related to property
and casualty insurance business contributed by channel vendors of Baowang, (iii) decrease of income tax payable of RMB15.9million, and
(iv) decrease of lease liability of RMB101.2 million.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Investing Activities</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Net cash used in investing
activities for the year ended December 31, 2022 was RMB127.6 million (US$18.5 million), primarily attributable to cash used to purchase
short-term investment products of RMB2,550.3 million (US$369.8 million), prepayment for purchase of short-term investments of RMB540.0
million (US$78.3 million), cash lent to third parties of RMB205.8 million(US$29.8 million), purchase of property, plant and equipment
of RMB77.7 million (US$11.3 million) and payment for business acquisition of RMB21.6 million(US$3.1 million), offset by proceeds from
the disposal of short-term investments of RMB3,239.6 million (US$469.7 million) that matured and repayment of loan receivables from a
third party of RMB24.5 million(US$3.6 million).</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Net cash generated from
investing activities for the year ended December 31, 2021 was RMB450.4 million, primarily attributable to proceeds from the disposal
of short-term investments of RMB8,646.5 million that matured offset by cash used to purchase short-term investment products of RMB8,184.4
million and purchase of property, plant and equipment of RMB30.8 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Financing Activities</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Net cash used in financing
activities was RMB20.4 million (US$3.0 million) for the year ended December 31, 2022, attributable to settlement of dividend payable payments
totaling RMB52.1 million (US$7.5 million), partially offset by proceeds from bank and other borrowings of RMB35.7million(US$5.2 million).</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Net cash used in financing
activities was RMB260.3 million for the year ended December 31, 2021, attributable to dividend payments totaling RMB242.5 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Material cash requirements</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our material cash requirements
as of December 31, 2022 and any subsequent interim period primarily include our capital expenditures, operating lease obligations and
tax liabilities.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We incurred capital expenditures
of RMB15.3 million, RMB30.8 million and RMB77.7 million (US$11.3 million) for the years ended December 31, 2020, 2021 and 2022, respectively.
Our capital expenditures have been used primarily to construct our IT infrastructure and online platforms, and to purchase automobiles
and office equipment for newly-established sales outlets. We estimate that our cash commitments including our capital expenditures will
increase substantially in the following two or three years as we pursue selective acquisitions of quality insurance intermediaries companies
in combination of stock payments and cash to accelerate the expansion of our open platform and we increase investments to enhance the
professional skills of our existing sales force through training and digital empowerment, maintain and upgrade our IT infrastructure and
digital platforms and enhance digital operation capabilities. We anticipate funding our future capital expenditures primarily with net
cash flows from financing and operating activities.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.3in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our operating lease obligations
consist of undiscounted minimum lease payment included in the measurement of operating lease liabilities under the lease agreements for
our office premises. Our leasing expense was RMB106.6 million, RMB114.6 million and RMB98.8 million (US$14.3 million) in 2020, 2021 and
2022, respectively. The majority of our operating lease commitments are related to our office lease agreements in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.4pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We had uncertain tax liabilities
of RMB36.6 million (US$5.3 million) for 2022. As we are unable to make reasonably reliable estimates of the period of cash settlement
with the respective taxing authority, such liabilities are excluded from the contractual obligations discussed above. Other than the
contractual obligations and commercial commitments discussed above, we did not have any other material long-term debt obligations, operating
lease obligations, purchase obligations or other material long-term liabilities as of December 31, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of December 31, 2021
and 2022, total outstanding of balance short-term loans amounted to&#160;nil and RMB35,679, respectively, which consisted of RMB denominated
borrowings made by the Company&#8217;s subsidiaries from financial institutions in mainland China and were repayable within one year.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Holding Company Structure</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We are a holding company
with no material operations of our own. We conduct our operations through our subsidiaries and our consolidated VIEs, Xinbao Investment,
Fanhua RONS Technologies and their affiliates in China. As a result, our ability to pay dividends and to finance any debt we may incur
depends upon dividends paid by our subsidiaries and service fees paid by our consolidated VIEs. If our subsidiaries or consolidated VIEs
incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
Our wholly-owned subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance
with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and consolidated VIEs in China is required to
set aside at least 10% of its after-tax profits as reported in the PRC statutory financial statements each year, if any, to fund a statutory
reserve until such reserve reach 50% of its registered capital, and before the Foreign Investment Law becomes effective on January 1,
2020, our wholly-owned subsidiaries had to set aside a portion of its after-tax profits to fund the employee welfare fund at the discretion
of its board. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future
losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in
the event of liquidation of the companies. Furthermore, the EIT Law that took effect on January 1, 2008 has eliminated the exemption
of EIT on dividends derived by foreign investors from foreign-invested enterprises and imposes on foreign-invested enterprises an obligation
to withhold tax on dividends distributed by such foreign-invested enterprises. As of December 31, 2022, our restricted net asset was
RMB1,461.2 million (US$211.9 million). This amount is composed of the registered equity of our PRC subsidiaries and the statutory reserves
described above. Our ability to pay dividends primarily depends upon dividends paid by our subsidiaries. As of December 31, 2022, we
had aggregate undistributed earnings of approximately RMB1,399.7 million (US$202.9 million) that were available for distribution. These
undistributed earnings are considered to be indefinitely reinvested, and will be subject to PRC dividend withholding taxes upon distribution.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->90<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>C. Research and Development, Patents and Licenses, etc.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">See &#8220;Item 4. Information
on the Company&#8212;B. Business Overview&#8212;Intellectual Property.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>D. Trend Information</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Other than as disclosed
elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January
1, 2022 to December 31, 2022 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability,
liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating
results or financial conditions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>E. Critical Accounting Policies and Estimates </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We prepare financial statements
in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect the reported amounts of our
assets and liabilities and the disclosure of our contingent assets and liabilities at the end of each fiscal period, as well as the reported
amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical
experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available
information and assumptions that we believe to be reasonable. This forms our basis for making judgments about matters that are not readily
apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results
could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The selection of critical
accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported
results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. The following
descriptions of critical accounting estimates should be read in conjunction with our consolidated financial statements and other disclosures
included in this annual report. For further information, see Note 2 to our consolidated financial statements in this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Revenue Recognition</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Revenue is recognized when
control of promised goods or services is transferred to our customers in an amount of consideration to which an entity expects to be
entitled to in exchange for those goods or services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We derive agency revenue
by serving as a sales agent to distribute various life insurance and P&amp;C insurance products on behalf of the insurance companies
by which we are entitled to receive initial commission from the insurance companies based on the premium paid by the policyholders for
the related insurance policy sold. For life insurance agency, we are also entitled to subsequent renewal commission and compensation,
and renewal performance bonus (collectively referred to as &#8220;renewal commissions&#8221;) which represent variable considerations
and are contingent on future renewals of initial policies or we achieve our performance target as such life insurance products are long-term
products.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">When estimating the variable
consideration, we use the expected value method based on accumulated historical data and experiences. We also consider constraints when
determining the estimated variable consideration, which we refer to as &#8220;estimated constrained values&#8221;.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For years prior to 2021,
revenue related to the variable consideration is recorded when it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur, i.e., when a policyholder pays the renewal premium to the insurance company, and the policy is renewed
because we were not able to conclude a significant reversal to the estimated variable consideration is not probable, considering factors
such as a) we have limited history of selling our current life insurance products with our current customers, such that our past experience
in outdated products is of little predictive value in renewal(s) rate estimate; b) the occurrence of renewal is outside of our control
and the estimate of renewal premium rates is complex and requires significant assumptions; and c) the contingency lasts across a long
period of time.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We perform ongoing evaluation
of the appropriateness of the constraint applied, and consider the sufficiency of evidence that would suggest that the long-term expectation
underlying the assumptions has changed. Starting from January 1, 2021, we believe that we have already accumulated sufficient historical
data and experiences at a confidence level that through which we can utilize to make a reasonable estimate of variable considerations
of the portfolio of contracts. The estimated renewal commissions are contingent on future renewals of initial policies or achievement
of certain performance targets. Given the material uncertainty around the subsequent renewal of the insurance policies, the estimated
renewal commissions expected to be collected are recognized as revenue only to the extent that it is probable that a significant reversal
in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved. With the passage of time
and accumulation of historical experiences and data, the judgment and assumptions are to be continuously re-evaluated and adjusted as
needed when more information becomes available.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following describes
how we apply the expected value method and our key considerations and judgments under the expected value method:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Determining portfolio of contracts:</b> We set up portfolios segregated
    by renewal term of the underlying policies which we refer to as a &#8220;batch&#8221; under the expected value method, by grouping
    long-term life insurance policies into batches of policies with various renewal terms. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.8pt; text-align: justify; text-indent: -19.5pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Accumulating historical data and experiences:</b> We believe that
    accumulating sufficient renewal years&#8217; data for new products sold as the basis for the estimate is necessary for making a reasonable
    estimate that is representative and comparable to those policies sold in subsequent periods. On-going accumulation of historical
    renewal data and experiences represents the growth of our confidence for making a reasonable estimate without a significant subsequent
    reversal in revenue recognized.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Estimating variability for each variable renewal consideration:
    </b>For each of the variable renewal commissions, there is only one underlying variability (i.e., the renewal rates for each of the
    subsequent years of the policy period which is contingent on policyholders&#8217; renewal). Given the payment term for each of the
    renewal commissions is different, we thus separately estimate the future renewal rates of batches of policies based on accumulated
    historical renewal information.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.8pt; text-align: justify; text-indent: -19.5pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Considering constraints on estimates:</b> In estimating the variable
    consideration, we evaluated the following factors that could increase the likelihood or magnitude of a reversal:</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.8pt; text-align: justify; text-indent: -19.5pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">-</span></td><td style="text-align: justify"><span style="font-size: 10pt">we have limited history of selling
our current life insurance products and co-operating with our current customers, such that our confidence for making a reasonable estimate
of future renewal(s) of long-term life insurance policies is limited;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">-</span></td><td style="text-align: justify"><span style="font-size: 10pt">the occurrence of renewal is
outside our control and the estimate of renewal rates is complex and requires significant judgment;</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">-</span></td><td style="text-align: justify"><span style="font-size: 10pt">the estimate of variable consideration
associated with policy renewals has a broad range of possible consideration amounts; and</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.5in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">-</span></td><td style="text-align: justify"><span style="font-size: 10pt">the contingency is not expected
to be resolved for a long period of time</span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 0.25in">Along with the
accumulation of historical renewal data and experiences, we re-evaluate the appropriateness of the constraint applied on an on-going
basis and adjust the constraint accordingly when we observe more evidence that would suggest that the long-term expectation underlying
the assumptions has changed. Accordingly, the constraint applied to the total estimated renewal commissions we expect to receive for
all sold long-term life insurance products decreased from 86% as of December 31, 2021 to 69% as of December 31, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->92<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 42.4pt; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0.25in">&#160;</td>
    <td style="width: 0.25in"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Ongoing reassessment of the estimated constrained values</b>: We
    continue to reassess the estimated constrained values at the end of each reporting period on a quarterly basis, including continuing
    to review and evaluate the reasonableness of the applied assumptions by comparing the original estimated constrained values with
    the actual renewal commissions collected to monitor and determine whether any changes to the assumptions are needed.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 40.8pt; text-align: justify; text-indent: -19.5pt">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Investment in Affiliates</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We use the equity method
of accounting for investments in which we have the ability to exercise significant influence, but do not have a controlling interest.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We continually review our
investment in equity investees to determine whether a decline in fair value to an amount below the carrying value is other-than temporary.
The primary factors we consider in our determination are the duration and severity of the decline in fair value; the financial condition,
operating performance and the prospects of the equity investee; and other company specific information such as the stock price of the
investee and its corresponding volatility, if publicly traded, our intent and ability to hold the investment until recovery, and changes
in the macro-economic, competitive and operational environment of the investee. If the decline in fair value is deemed to be other-than-temporary,
the carrying value of the equity investee is written down to fair value.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The fair values of the investments
in equity investees are determined based on valuation techniques using the best information available, including but not limited to such
as quoted prices for the investments or similar investments in active markets, the investees&#8217; current and expected future performance,
industry trend and projected revenue growth rates and profit margin, forecasted cash flows based on discounted rates and terminal growth
rates, etc.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Recent Accounting Pronouncements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">No recently issued accounting
pronouncements not yet adopted that may potentially impact our financial position and results of operations.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_009"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 6. Directors, Senior Management and Employees</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>A. Directors and Senior Management</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following table sets
forth information regarding our directors and executive officers as of the date of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
    <td style="border-bottom: Black 1.5pt solid; vertical-align: top; font-weight: bold; text-align: left">Directors and Executive Officers</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">Age</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: center">Position/Title</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="vertical-align: top; width: 35%; text-align: left">Yinan Hu</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: center">&#160;</td><td style="width: 8%; text-align: center">57</td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
    <td style="width: 53%; text-align: left">Chief Executive Officer and Chairman of the Board of Directors</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="vertical-align: top; text-align: left">Peng Ge</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center">51</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: justify">Chief Financial Officer and Director</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="vertical-align: top; text-align: left">Lichong Liu</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center">50</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: justify">Chief Operating Officer and Vice President</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="vertical-align: top; text-align: left">Jun Li</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center">49</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: justify">Chief Digital Officer and Vice President</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="vertical-align: top; text-align: left">Yunxiang Tang</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center">77</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: justify">Independent Director</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="vertical-align: top; text-align: left">Stephen Markscheid</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center">69</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: justify">Independent Director</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="vertical-align: top; text-align: left">Allen Warren Lueth</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center">54</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: justify">Independent Director</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="vertical-align: top; text-align: left">Mengbo Yin</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center">67</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: justify">Independent Director</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Mr. Yinan Hu</i> is our
co-founder and has been our chairman of the board of directors and chief executive officer since December 2021 and has been our director
since our inception in 1998. He is currently a member of the board of directors of Puyi Inc., which is a public company listed in the
U.S. From 1998 to September 2017, he was the chairman of our board of directors. From 1998 to October 2011, Mr. Hu served as our chief
executive officer. From 1993 to 1998, Mr. Hu served as chairman of the board of directors of Guangdong Nanfeng Enterprises Co., Ltd.,
a company he co-founded that engaged in import and export, manufacturing of wooden doors and construction. From 1991 to 1995, Mr. Hu
was an instructor of money and banking at Guangdong Institute for Managers in Finance and Trade. Mr. Hu received a bachelor&#8217;s degree
and a master&#8217;s degree in economics from Southwestern University of Finance and Economics in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Mr. Peng Ge</i> has been
our chief financial officer since April 2008 and has been our director since December 2016. From 2005 to April 2008, he served as the
general manager of the finance and accounting department and vice president of our company. From August 2007 to September 2008, he was
also a director of our company. From 1999 to 2005, Mr. Ge headed our Beijing operations. From 1994 to 1999, Mr. Ge was a financial manager
at a subsidiary of China National Native Produce and Animal By-Products Import &amp; Export Corporation. Mr. Ge received his bachelor&#8217;s
degree in international accounting and his MBA degree from the University of International Business and Economics in China.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Mr. Lichong Liu</i> has
been our chief operating officer since March 2022 and has served as chairman of Fanhua Group Company since January 2022. Mr. Lichong
Liu joined Fanhua in 2006, and has previously served in various leadership positions including chief executive officer of Fanhua Group
Company, vice president of Fanhua&#8217;s life insurance unit, and general manager of Fanhua Hebei and Shandong agency branches. Prior
to that, he had served as general manager of the sub-branches of Pingan Life Insurance Co., Ltd., Taikang Life Insurance Co., Ltd. and
New China Life Insurance Co., Ltd. and held managerial roles in the provincial branches of these companies. Mr. Liu holds a bachelor&#8217;s
degree of Finance from Renmin University of China and a master&#8217;s degree of Advanced Business Administration from the Business School
of The Hong Kong University of Science and Technology.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Mr. Jun Li </i>has been
our chief digital officer since March 2022 and has been the vice president of Fanhua Group Company since January 2022. Mr. Li joined
Fanhua in 2008, and has previously served as chief technology officer of Fanhua Insurance Sales Service Group Company Limited and Baowang,
the company&#8217;s online insurance distribution platform, general manager of Fanhua&#8217;s Information Technology Department and director
of Fanhua&#8217;s Information Center. Prior to joining Fanhua, he had served as head of technology development in China Life Insurance
Co., Ltd. and Aviva-COFCO Life Insurance Co., Ltd. Mr. Li holds a master&#8217;s degree of Computer Application from Wuhan University,
and certificates for Senior Engineer, System Analyst, and Certified Database Tuning Expert.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Mr. Yunxiang Tang</i>,
a senior economist, has been our independent director since May 2012. Mr. Tang served as general manager of the People&#8217;s Insurance
Company (Group) of China Limited, or the PICC and chairman of the Board of Directors of PICC P&amp;C, PICC Asset Management Company Limited,
PICC Life Insurance Company Limited and PICC Health Insurance Company Limited from 2000 to 2007. He was the president of Insurance Association
of China from 2001 to 2003 and vice chairman of the CIRC from 1998 to 2000. Prior to that, he served in different senior leadership roles
in the financial regulatory authorities, including head of the PBOC Guangdong Branch and chief of State Administration of Foreign Exchange,
Guangdong Branch and assistant governor of the PBOC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Mr. Stephen Markscheid
</i>has been our independent director since August 2007. Mr. Markscheid is managing partner of Aerion Capital, a family office. He is
a member of the board of directors of Jinko Solar, Inc., UGE Inc., Monterey Capital Acquisition, and Four Leaf Acquisition, which are
public companies listed in U.S. and Kingwisoft Technology Group Limited, a public company listed in Hong Kong. He is also a trustee emeritus
of Princeton-in-Asia, a nonprofit social service organization affiliated with Princeton University. He was a member of the board of directors
of a number of other listed companies, including TKK Symphony Acquisition Corporation (currently named Glory Star New Media Group Holdings
Limited), Ener-Core, Inc., China Ming Yang Wind Power Group and ChinaCast Education Corporation. He acted as a director and interim chief
executive officer and chief financial officer of Fellazo Inc. in 2020. From 2014 to 2017, he was a partner of Wilton Partners, a Shanghai-based
boutique investment bank. From 2007 to 2011, he was the chief executive officer of Synergenz BioScience, Inc., a genomics company based
in Hong Kong. Prior to that, Mr. Markscheid was the chief executive officer of HuaMei Capital Company, Inc., a Sino-U.S. investment advisory
firm from 2006 to 2007. From 1998 to 2006, Mr. Markscheid worked for GE Capital. During his time with GE Capital, he led GE Capital&#8217;s
business development activities in China and Asia Pacific, primarily acquisitions and direct investments. Prior to joining GE, Mr. Markscheid
worked with the Boston Consulting Group throughout Asia from 1994 to 1997. Prior to that, Mr. Markscheid had been a commercial banker
for ten years in London, Chicago, New York, Hong Kong and Beijing with Chase Manhattan Bank and First National Bank of Chicago. Prior
to that, he worked with the US-China Business Council in Washington D.C. and Beijing. Mr. Markscheid received his bachelor&#8217;s degree
in East Asian studies from Princeton University, a master&#8217;s degree in international affairs and economics from the School of Advanced
International Studies at Johns Hopkins University, and an MBA degree from Columbia University.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Mr. Allen Lueth</i> has
been our independent director since August 2007. Mr. Lueth is currently a member of the board of directors of Greatview Aseptic Packaging
Company Limited, a company listed in Hong Kong. Since February 2021, Mr. Lueth has served as CEO of Great Leap Brewery, a company engaged
in the brewing and selling of beer in the PRC through third-party sales and its restaurants. From September 2019 to February 2021 Mr.
Lueth served as the president and chief financial officer of International Institute of Education Group, a company mainly engaged in
language education in the PRC. From 2017 to 2019 and 2010 to 2017, Mr. Lueth served as a chief financial officer for Asia-Pacific region
and a vice president of finance for the PRC region for Cardinal Health, a Fortune 500 company engaged in the healthcare industry, respectively.
From 2005 to 2010, Mr. Lueth served as a vice president of finance and strategy for the PRC region for Zuellig Pharma China, which was
then acquired by Cardinal Health in 2010. Mr. Lueth worked for GE Capital from 1998 to 2004 in a variety of roles, including chief financial
officer and chief executive officer for the Taiwan operations, and the representative for China. Earlier, he served with Coopers &amp;
Lybrand as an auditor. Mr. Lueth obtained his certificate as a certified public accountant in 1991 and a certified management accountant
in 1994. Mr. Lueth received his bachelor of science in accounting degree from the University of Minnesota and an MBA degree from the
J.L. Kellogg School of Management.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Dr. Mengbo Yin</i> has
been our independent director since September 2008. He is currently a PhD advisor at Southwestern University of Finance and Economics
in China, where he also serves as head of the university&#8217;s postgraduate department. Previously, he was the dean of the university&#8217;s
school of finance from 1996 to 2007. Professor Yin received his master&#8217;s and PhD degrees in finance from Southwestern University
of Finance and Economics in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Employment Agreements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Each of our executive officers
has entered into an employment agreement with us. Under these agreements, each of our executive officers is employed for a specified
time period. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the employee,
including but not limited to a conviction or plea of guilty to a felony, negligence or dishonesty to our detriment, failure to perform
the agreed-to duties after a reasonable opportunity to cure the failure and failure to achieve the performance measures specified in
the employment agreement. An executive officer may terminate his employment at any time with one-month prior written notice if there
is a material reduction in his authority, duties and responsibilities or in his annual salary before the next annual salary review. Furthermore,
we may terminate an executive officer&#8217;s employment at any time without cause upon two-month advance written notice. In the event
of a termination without cause by us, we will provide the executive officer a lump-sum severance payment in the amount of RMB0.5 million,
unless otherwise specifically required by applicable law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Each executive officer has
agreed to hold, both during and after the employment agreement expires or is earlier terminated, in strict confidence and not to use,
except as required in the performance of his duties in connection with the employment, any confidential information, trade secrets and
know-how of our company or the confidential information of any third-party, including our consolidated VIE and our subsidiaries, received
by us. In addition, each executive officer has agreed to be bound by non-competition restrictions set forth in his employment agreement.
Specifically, each executive officer has agreed not to, while employed by us and for one year following the termination or expiration
of the employment agreement, (i) approach our clients, customers or contacts or other persons or entities introduced to the executive
officer for the purpose of doing business with such person or entities, and will not interfere with the business relationship between
us and such persons and/or entities; (ii) assume employment with or provide services as a director for any of our competitors, or engage,
whether as principal, partner or otherwise, in any business which is in direct or indirect competition with our business; or (iii) seek
directly or indirectly, to solicit the services of any of our employees who is employed by us at the date of the executive officer&#8217;s
termination, or in the year preceding such termination.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>B. Compensation</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In 2022, the aggregate cash
compensation, including reimbursement of expenses, to our executive officers which include executive directors was approximately RMB4.9
million (US$0.7 million), and the aggregate cash compensation to our non-executive directors was approximately RMB1.8 million (US$0.3
million). We did not set aside or accrue any amounts to provide pension, retirement or similar benefits for our executive officers and
directors except for statutory social security payment.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Share Incentives</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>2007 Share Incentive Plan</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In order to attract and
retain the best available personnel for positions of substantial responsibility, provide additional incentive to employees, directors
and consultants and promote the success of our business, a share incentive plan was adopted by our board of directors and shareholders
in 2007, as amended and restated in December 2008. We have reserved 136,874,658 ordinary shares for issuance under our 2007 Share Incentive
Plan, which was approximately 15% of our outstanding ordinary shares at the time we authorized the number of ordinary shares reserved
for issuance. The 2007 Share Incentive Plan expired upon the tenth anniversary of the shareholder approval of the 2007 Share Incentive
Plan.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of March 31, 2023, all
of the options under 2007 Share Incentive Plan had been exercised or forfeited, of which options to purchase 35,806,518 ordinary shares
were cash exercised and collectively held by two employee shareholding vehicles on behalf of employees who beneficially own the shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;<b><i>2022 Share Incentive Plan</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On August 12, 2022, our
board of directors adopted a share incentive plan under which we have reserved 161,143,768 ordinary shares for issuance, which was approximately
15% of our outstanding ordinary shares as of June 30, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Simultaneously, our board
of directors approved the grant of options to purchase an aggregate of 4,000,000 ordinary shares to independent directors pursuant to
the 2022 Share Incentive Plan (the &#8220;2022 Option 1&#8221;). The exercise price of these options is US$0.2305 per ordinary share,
equal to the closing price of our ADS on the Nasdaq Global Select Market one day prior to the grant date (after adjusting for the 20
ordinary shares to 1 ADS ratio). The options are scheduled to vest over a four-year period starting from August 31, 2023, subject to
their continued service with us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On February 6, 2023, our
board of directors approved the grant options to purchase an aggregate of 13,680,000 ordinary shares to certain top agents who have met
the requirements for Million Dollar Round Table Membership, pursuant to the 2022 Share Incentive Plan (the &#8220;2022 Option 2&#8221;).
The exercise price of these options is US$0.05 per ordinary share. The options are scheduled to vest over a two-year period starting
from March 31, 2024, subject to the achievement of certain key performance indicators by the option holders and their continued service
with us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following paragraphs
describe the principal terms of 2022 Share Incentive Plan as currently in effect.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt"><i>Types of Awards</i>.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The types of awards we may
grant under our 2022 Share Incentive Plan include the following:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px; font-size: 10pt">&#160;</td>
    <td style="width: 24px; font-size: 10pt"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="font-size: 10pt; text-align: justify"><span style="font-size: 10pt">options to purchase our ordinary shares;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">restricted shares, which represent non-transferable ordinary shares,
    that may be subject to forfeiture, restrictions on transferability and other restrictions; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">restricted share units, which represent the right to receive our ordinary
    shares at a specified date in the future, which may be subject to forfeiture.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Awards may be designated
in the form of ADSs instead of ordinary shares. If we designate an award in the form of ADSs, the number of shares issuable under the
2007 Share Incentive Plan will be adjusted to reflect the ratio of ADSs to ordinary shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Eligibility</i>. We may
grant awards to employees, directors and consultants of our company or any of our related entities, which include our subsidiaries or
any entities in which we hold a substantial ownership interest. However, we may grant options that are intended to qualify as incentive
share options, or ISOs, only to our employees and employees of our majority-owned subsidiaries.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Plan Administration</i>.
The compensation committee of our board of directors, or a committee designated by the compensation committee, will administer the 2022
Share Incentive Plan. However, awards made to our independent directors must be approved by the entire board of directors. The compensation
committee or the full board of directors, as appropriate, will determine the individuals who will receive grants, the types of awards
to be granted and terms and conditions of each award grant, including any vesting or forfeiture restrictions.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Award Agreement</i>.
Awards granted under our 2022 Share Incentive Plan will be evidenced by an award agreement that will set forth the terms, conditions
and limitations for each award. In addition, in the case of options, the award agreement may also specify whether the option constitutes
an ISO or a non-qualifying share option.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Acceleration of Awards
upon Corporate Transactions</i>. The outstanding awards will accelerate upon occurrence of a change-of-control corporate transaction
where the successor entity does not assume our outstanding awards under the 2007 Share Incentive Plan. In such event, each outstanding
award will become fully vested and immediately exercisable, and the transfer restrictions on the awards will be released and any forfeiture
provisions will terminate immediately before the date of the change-of-control transaction. If the successor entity assumes our outstanding
awards and later terminates the grantee&#8217;s service without cause within 12 months of the change-of-control transaction, the outstanding
awards will automatically become fully vested and exercisable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Exercise Price and Term
of Awards</i>. The exercise price per share subject to an option will be determined by the plan administrator and set forth in the award
agreement which may be a fixed or variable price related to the fair market value of our ordinary shares; <i>provided</i>, <i>however</i>,
that no options may be granted to an individual subject to taxation in the United States at less than the fair market value on the date
of grant. To the extent not prohibited by applicable laws or any exchange rule, a downward adjustment of the exercise prices of any outstanding
options may be made in the absolute discretion of the plan administrator and will be effective without the approval of our shareholders
or the approval of the affected participants. If we grant an ISO to an employee who, at the time of that grant, owns shares representing
more than 10% of the voting power of all classes of our share capital, the exercise price cannot be less than 110% of the fair market
value of our ordinary shares on the date of that grant. The term of each award will be stated in the award agreement. The term of an
award shall not exceed 10 years from the date of the grant, except that five years is maximum term of an ISO granted to an employee who
holds more than 10% of the voting power of our share capital.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Amendment and Termination</i>.
Our board of directors may at any time amend, suspend or terminate the 2022 Share Incentive Plan. Amendments to the 2022 Share Incentive
Plan are subject to shareholder approval to the extent required by law, or stock exchange rules or regulations. Additionally, shareholder
approval will be specifically required to increase the number of shares available for issuance under the 2022 Share Incentive Plan or
to extend the term of an option beyond ten years. Unless terminated earlier, the 2022 Share Incentive Plan will expire and no further
awards may be granted after the tenth anniversary of the shareholder approval of the 2007 Share Incentive Plan.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of March 31, 2023, options
to purchase 17,680,000 ordinary shares of the Company were outstanding. The following table summarizes, as of March 31, 2023, the outstanding
options that we granted to our directors and to other individuals as a group.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="font-weight: bold; border-bottom: Black 1.5pt solid">Name</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    (Per Ordinary<br/>
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    <td style="border-bottom: Black 1.5pt solid; text-align: center"><b>Grant Date</b></td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: center"><b>Expiration Date</b></td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="width: 44%; text-align: left">Yunxiang Tang</td><td style="width: 1%">&#160;</td>
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    <td style="text-align: center; width: 15%">August 12, 2022</td><td style="width: 1%">&#160;</td>
    <td style="text-align: center; width: 15%">August 12, 2032</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Stephen Markscheid</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">0.2305</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: center">August 12, 2022</td><td>&#160;</td>
    <td style="text-align: center">August 12, 2032</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Allen Warren Lueth</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">0.2305</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: center">August 12, 2022</td><td>&#160;</td>
    <td style="text-align: center">August 12, 2032</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Mengbo Yin</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">800,000</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">0.2305</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: center">August 12, 2022</td><td>&#160;</td>
    <td style="text-align: center">August 12, 2032</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Other individuals as a group</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">0.05</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: center">February 6, 2033</td></tr>
  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>C. Board Practices</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Board of Directors</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our board of directors consists
of six directors. Under our currently effective amended and restated memorandum and articles of association, a director is not required
to hold any shares in our company by way of qualification. A director may vote with respect to any contract, proposed contract or arrangement
in which he is materially interested. The directors may exercise all the powers of our company to borrow money, mortgage its undertaking,
property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation
of our company or of any third-party. The directors may receive such remuneration as our board of directors may determine from time to
time. There is no age limit requirement for directors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Board conducts self-assessment
of its performance annually in compliance with corporate governance requirements, which encompasses the directors&#8217; involvement
in business operations, the effectiveness of board oversight, board composition, board culture, management of major issues, and processes
of board operation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In compliance with Rule
5605 of the Nasdaq Listing Rules, a majority of our directors and all of the committee members of our board of directors are independent
directors. During 2022, our board of directors met in person or passed resolutions by unanimous written consent six times. In addition,
our independent directors held executive sessions without the presence of non-independent directors or members of management twice during
2022. We have no specific policy with respect to director attendance at our annual general meetings of shareholders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have a diverse board consisting
of members from a wide variety of backgrounds, expertise, skills, and experiences. The members of the board consisted of industry professionals
with insurance and financial backgrounds including one independent director who has worked in financial risk assessment.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 15pt">The membership of our Board
currently does not include women. But we are in the process of actively seeking female directors to refresh the composition of our Board,
and adding new independent members to further strengthen the Board&#8217;s expertise and skill set and to introduce fresh perspectives.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Committees of the Board of Directors</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have established four
committees under the board of directors: the audit committee, the compensation committee, the corporate governance and nominating committee
and financial reporting and disclosure committee and have adopted a charter for each of the committees. Each committee&#8217;s members
and functions are described below.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Audit Committee</i>.
</b>Our audit committee consists of Allen Lueth (chairman), Stephen Markscheid and Mengbo Yin, all of whom satisfy the &#8220;independence&#8221;
requirements of Rule 5605 of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act of 1934. The audit committee oversees
our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible
for, among other things:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">selecting the independent auditors and pre-approving all auditing and
    non-auditing services permitted to be performed by the independent auditors;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">reviewing with the independent auditors any audit problems or difficulties
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">reviewing and approving all proposed related-party transactions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">discussing the annual audited financial statements with management
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">reviewing major issues as to the adequacy of our internal controls
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">annually reviewing and reassessing the adequacy of our audit committee
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">meeting separately and periodically with management, the independent
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">reporting regularly to the full board of directors.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In 2022, our audit committee
held meetings or passed resolutions by unanimous written consent four times.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt"><b><i>Compensation Committee</i>.
</b>Our compensation committee consists of Stephen Markscheid (chairman), Allen Lueth and Yunxiang Tang, all of whom satisfy the &#8220;independence&#8221;
requirements of Rule 5605 of the Nasdaq Listing Rules. Our compensation committee assists the board of directors in reviewing and approving
the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors
and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated.
The compensation committee is responsible for, among other things:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">reviewing and recommending to the board with respect to the total compensation
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">approving and overseeing the total compensation package for our executives
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In 2022, our compensation
committee held meetings or passed resolutions by unanimous written consent twice.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Corporate Governance
and Nominating Committee</i>. </b>Our corporate governance and nominating committee consists of Mengbo Yin (chairman), Allen Lueth and
Stephen Markscheid, all of whom satisfy the &#8220;independence&#8221; requirements of Rule 5605 of the Nasdaq Listing Rules. The corporate
governance and nominating committee assists our board of directors in identifying individuals qualified to become our directors and in
determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among
other things:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">identifying and recommending to the board the names of directors to
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In 2022, our corporate governance
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Financial Reporting
and Disclosure Committee. </i></b>Our financial reporting and disclosure committee consists of Peng Ge (chairman), Allen Lueth, and two
of our non-executive employees including our financial controller and our internal legal counsel. The financial reporting and disclosure
committee assist our CEO and CFO (collectively, the &#8220;Senior Officers&#8221;) in fulfilling their responsibility to oversee the
accuracy, completeness and timeliness of our public reporting and disclosure. The financial reporting and disclosure committee is responsible
for, among other things:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    that are designed to ensure that: (i) information required to be disclosed by us to the SEC and other information that our company
    publicly discloses is recorded, processed, summarized and reported accurately and on a timely basis; and (ii) information is accumulated
    and communicated to management, including the Senior Officers, as appropriate to allow timely decisions regarding such reporting
    and disclosure (collectively, the &#8220;Reporting and Disclosure Controls and Procedures&#8221;);</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">reviewing the Company&#8217;s: (i) periodic and current reports, proxy
    statements, information statements, registration statements and any other information filed with or furnished to the SEC; (ii) press
    releases containing financial information, earnings guidance, information about material acquisitions or dispositions or other information
    material to the Company&#8217;s securityholders; (iii) correspondence broadly disseminated to securityholders; (iv)&#160;other relevant
    communications or presentations (collectively, the &#8220;Reporting and Disclosure Statements&#8221;); and (v) unusual and complex
    transactions, new accounting standard adoption and disclosure, new SEC reporting requirements.</span></td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In 2022, our financial reporting
and disclosure committee held meetings by unanimous written consent twice.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Duties of Directors</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under Cayman Islands law,
our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in what they
consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors
also owe a duty to our company to act with skill and care. It was previously considered that a director need not exhibit in the performance
of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience.
However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these
authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance
with our amended and restated memorandum and articles of association as amended and restated from time to time. Our company has the right
to seek damages if a duty owed by our directors is breached. In certain limited circumstances, it may be possible for our shareholders
to bring a derivative action on behalf of our company if a duty owed by our directors to our company is breached.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Terms of Directors and Executive Officers</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">All directors hold office
until their successors have been duly elected and qualified. Outside of certain specified circumstances, including resigning, becoming
bankrupt or being of unsound mind or being absent from board meetings without special leave of absence for six consecutive months and
the board of directors resolves that his office be vacated, a director may only be removed by a special resolution of the shareholders.
Officers are elected by and serve at the discretion of the board of directors. We do not have contracts in place with any of our directors
providing for benefits upon termination of employment. For the period during which the directors and executives have served in the office,
please see &#8220;Item 6. Directors, Senior Management and Employees&#8212;A. Directors and Senior Management.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Board Diversity</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

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  <tr style="background-color: #D9D9D9">
    <td colspan="5" style="border: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt; text-align: center"><span style="font-size: 10pt"><b>Board
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  <tr>
    <td style="border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt"><span style="font-size: 10pt">Country
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    <td colspan="4" style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt; text-align: center"><span style="font-size: 10pt">China</span></td></tr>
  <tr>
    <td style="border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt"><span style="font-size: 10pt">Foreign
    Private Issuer</span></td>
    <td colspan="4" style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt; text-align: center"><span style="font-size: 10pt">Yes</span></td></tr>
  <tr>
    <td style="border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt"><span style="font-size: 10pt">Disclosure
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    <td colspan="4" style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt; text-align: center"><span style="font-size: 10pt">No</span></td></tr>
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    <td style="border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt"><span style="font-size: 10pt">Total
    Number of Directors</span></td>
    <td colspan="4" style="border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt; text-align: center"><span style="font-size: 10pt">6</span></td></tr>
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    <td style="width: 49%; border-right: black 1pt solid; border-bottom: black 1pt solid; border-left: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt">&#160;</td>
    <td style="width: 11%; border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt; text-align: center"><span style="font-size: 10pt"><b>Female</b></span></td>
    <td style="width: 11%; border-bottom: black 1pt solid; border-right: black 1pt solid; padding-right: 5.15pt; padding-left: 5.15pt; text-align: center"><span style="font-size: 10pt"><b>Male</b></span></td>
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  <tr>
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  <tr>
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  <tr>
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  <tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>D. Employees</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Employees, Sales Agents and Training</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We had 4,926, 5,785 and
5,328 employees as of December 31, 2020, 2021 and 2022, respectively. We consider our relations with our employees to be good. The following
table sets forth the number of our employees by function as of December 31, 2022:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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of<br/>
Employees</b></p></td><td style="padding-bottom: 1.5pt">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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Total</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following table sets forth the number of
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following table sets forth the number of
our employees by age as of December 31, 2022:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of December 31, 2020,
2021 and 2022, we had 362,580, 284,053 and 141,088 registered sales agents respectively. A majority of these sales agents are independent
sales agents who are not our employees and are only compensated by commissions. We have contractual relationships with these sales agents.
Our insurance advisors are our employees and are compensated by both base salaries and commissions. We primarily distribute life insurance
policies with a periodic premium payment schedule. For the sale of each of such life insurance policy, we pay the sales agent who has
generated the sale periodic commissions based on a percentage of the commissions and fees we receive from the insurance companies for
the sale and renewal of that policy, generally up to the first five years of the premium payment period, and retain all commissions and
fees we continue to receive from insurance companies for the rest of the premium payment period. For the sale of each life insurance
policy with a single premium payment schedule or property and casualty insurance policy, we pay the sales agent who has generated the
sale a single commission based on a percentage of the commission and fee we receive from insurance companies for the sale of that policy.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For our traditional sales
force, our life insurance sales agents are typically organized into sales teams with a multilevel hierarchy, typically with five layers.
A life insurance sales agent not only receives a commission for the insurance policies that he or she sells, but also a commission for
insurance policies sold by agents under his or her management. As to our Yuntong branches, our insurance advisors are organized in two
layers consisting of one senior financial advisor leading several junior financial advisors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our sales agents, in-house
sales representatives and claims adjustors are valuable to us and are instrumental in helping us build and maintain long-term relationships
with our customers. Therefore, we place a strong emphasis on training our sales force. We provide training to both new sales agents and
existing sales agents, on a monthly or quarterly basis, both offline and online. For new sales agents, we offer orientation courses that
are designed to familiarize them with corporate culture, insurance products, and sales skills. For the existing sales agents, we offer
on-the-job training courses that aim to enhance their sales skills and knowledge of various insurance products and develop skills to
build and manage their own sales teams. Online training courses are also available on Lan Zhanggui and Fanhua RONS Livestreaming Platform,
which enable sales agents to attend the courses anytime anywhere. We have also established an open source lecturer platform which allows
insurance veterans to upload self-developed courses and viewable on fee basis. As part of our efforts to professionalize our sales force,
we will allocate more resources to enhance training. With the data insight gained through digital technologies, agents will be categorized
into different levels based on various criteria including their qualification, capabilities and productivity and targeted training courses
will be provided to help improve their professional skills and productivity.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We believe in our employees&#8217;
potential and provide training and development opportunities intended to maximize their performance and professional growth. To ensure
that new employees integrate into our culture and their daily work, we provide a robust new-hire experience, as well as extensive ongoing
training for existing employees to acquaint them with our business. We require all of our employees to complete courses in key regulatory
areas, such as insider trading and anti-money laundering compliance, and we offer professional development opportunities through training
sessions and cross-departmental workshops, resulting in over&#160;140,000 completed courses and workshops and approximately 134,000 development
hours for our employees. In addition, we have mentorship programs that pair newer employees with more experienced professionals, giving
mentees access to experience, expertise, and guidance. Finally, to help employees determine the next steps in their careers, we have
a Career Growth Portal that provides employees with tools, resources, training courses and assessments as they chart their career paths.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 17.85pt; background-color: white">We
need employees well-equipped with professional knowledge to support our frontline sales agents and provide our clients with best quality
of services. To maximize their performance and professional growth, we provide ample training opportunities through our well-established
training platform e-learning system and &#8220;Fanhua Academy&#8221; available through Lan Zhanggui. Various courses were delivered by
a large team of internal lecturers which include the Group&#8217;s senior management, department heads and senior employees with deep
experience in various areas of our operations and external courses to acquaint them with our business and unlease their potential. To
maintain training standards, we evaluate our lecturers and present awards for outstanding performance on an annual basis.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 107; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->102<!-- Field: /Sequence --> -</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>E. Share Ownership</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We currently do not have
specific stock ownership requirements for our CEO and other members of our management. The following table sets forth information with
respect to the beneficial ownership of our shares, as of March 31, 2023, by:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">each of our current directors and executive officers; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of March 31, 2023, there
were 1,157,463,924 ordinary shares outstanding. Beneficial ownership is determined in accordance with the rules and regulations of the
SEC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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Shares<br/>
Beneficially Owned(1) </b></p></td><td style="padding-bottom: 1.5pt">&#160;</td></tr>
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 1.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-size: 10pt">*</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Less than 1% of our total outstanding ordinary shares.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-size: 10pt">&#8224;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Except for our independent directors, the business address of our directors
    and executive officers is c/o 60/F, Pearl River Tower, No. 15 West Zhujiang Road, Guangzhou, Guangdong 510623, People&#8217;s Republic
    of China.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-size: 10pt">(1)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Percentage of beneficial ownership of each director and executive officer
    is based on 1,157,463,924 ordinary shares outstanding as of March 31, 2023.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-size: 10pt">(2)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Includes (i) 10,041,200 ordinary shares in the form of ADSs directly
held by Mr. Hu, (ii) 189,698,110 ordinary shares of our company directly held by Sea Synergy Limited, or Sea Synergy, and (iii) 10,661,460
ordinary shares of our company held through Kingsford Resources Ltd., or Kingsford Resources. Sea Synergy is 100% held by a family trust,
of which Mr. Hu is the settlor and co-beneficiary. Pursuant to Section 13(d) of the Exchange Act and the rules promulgated thereunder,
Mr. Hu may be deemed to beneficially own all of the Ordinary Shares of the Issuer held by Sea Synergy. Kingsford Resources is a shareholding
vehicle that we established to hold shares of the Company on behalf of certain executive officers. Mr. Hu directly holds 27.2% of the
equity interests of Kingsford Resources which directly holds 39,252,100 ordinary shares of the Issuer. </span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-size: 10pt">(3)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Includes (i) 48,562,260 ordinary share held by Green Ease, which is
    100% held by High Rank Investments Limited, or High Rank and (ii) 5,000,000 ordinary shares held through Kingsford Resources. High
    Rank was 100% held by a family trust, of which Mr. Ge is the settlor and co-beneficiary. Pursuant to Section 13(d) of the Exchange
    Act and the rules promulgated thereunder, High Rank Investments and Mr. Ge may be deemed to beneficially own all of the Ordinary
    Shares of the Issuer held by High Rank. Mr. Ge directly holds 12.7% of the equity interests of Kingsford Resources.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-size: 10pt">(4)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Includes (i) 22,787,600 ordinary share held through Kingsford Resources;
and (ii) 332,000 ordinary shares in the form of ADSs directly held by Mr. Liu. Mr. Liu directly holds 58.1% of the equity interests of
Kingsford Resources.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px"><span style="font-size: 10pt">(5)</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">Includes 189,698,110 ordinary shares of the Company directly held by
    Sea Synergy. The registered address of Sea Synergy is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin
    Islands.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">None of our existing shareholders
have different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a
change of control of our company. As of March 31, 2023, J.P. Morgan Chase Bank, N.A., or J.P. Morgan, the depositary for our ADS program,
is our only record holder in the United States, holding approximately 57.3% of our total outstanding ordinary shares. The number of beneficial
owners of our ADSs in the United States is likely much larger than the number of record holders of our ordinary shares in the United
States.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 108; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->103<!-- Field: /Sequence --> -</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_010"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 7. Major Shareholders and Related Party Transactions</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Major Shareholders</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Please refer to &#8220;Item
6. Directors, Senior Management and Employees&#8212;E. Share Ownership.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>B.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Related Party Transactions</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Proposed Going Private Transaction</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On December 16, 2021, our
board of directors received a preliminary non-binding proposal letter from a consortium led by Mr. Yinan Hu, our founder, chairman and
CEO, proposing to acquire all of the outstanding ordinary shares of the Company not already owned by the consortium for $9.8 per ADS,
or $0.49 per ordinary share in a going private transaction. On December 19, 2022, Mr. Hu withdrew the preliminary non-binding going private
proposal, effective immediately.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;<b><i>Transactions with Puyi Inc.</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On December 28, 2020, we
entered into a framework strategic partnership agreement, or the Agreement, with Puyi Enterprise Management Advisory Co., Ltd., or Puyi
Enterprise, an affiliate of Puyi Inc., pursuant to which, both parties, on the basis of full compliance with relevant regulatory and
legal requirements, will share customer and channel resources and explore collaboration opportunities on the provision of value-added
asset management services to Chinese households, by leveraging both parties&#8217; respective strength in insurance and financial services.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to the framework
agreement, starting from January 2021, Puyi Enterprise has been providing referral and marketing services of our insurance products to
their clients when their clients have such needs while our agents will be responsible for handling the purchasing procedures and other
services. In 2022, we incurred a total of RMB13.5 million commission cost and RMB7.0 million training cost to Puyi Enterprise and the
balance of accounts payable as of December 31, 2022 was RMB5.0 million.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Employment Agreements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">See &#8220;Item 6. Directors,
Senior Management and Employees&#8212;A. Directors and Senior Management&#8212;Employment Agreements&#8221; for a description of the
employment agreements we have entered into with our senior executive officers.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Share Options</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Please refer to &#8220;Item
6. Directors, Senior Management and Employees&#8212;B. Compensation.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>C.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Interests of Experts and Counsel</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_011"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 8. Financial Information</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Consolidated Statements and Other Financial Information</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">See &#8220;Item 18. Financial
Statements.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Legal and Regulatory Proceedings</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We are currently not a party
to any material litigation or legal proceeding that may have a material adverse impact on our business or operations. However, we are
and may continue to be subject to various claims and legal actions arising in the ordinary course of business. In addition, the CBIRC
may make inquiries and conduct examinations concerning our compliance with PRC laws and regulations from time to time. These administrative
proceedings have resulted in administrative sanctions, including fines of RMB1.0 million in aggregate in 2022, which were not material
to us. While we cannot predict the outcome of any pending or future examination, we do not believe that any pending legal matter will
have a material adverse effect on our business, financial condition or results of operations. However, we cannot assure you that any
future regulatory proceeding will not have an adverse outcome, which could have a material adverse effect on our operating results or
cash flows.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 109; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->104<!-- Field: /Sequence --> -</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Dividend Policy</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our board of directors has
discretion as to whether to distribute dividends, subject to certain restrictions under Cayman Islands law, namely that our company may
only pay dividends out of profits or share premium account, and provided always that in no circumstances may a dividend be paid unless,
immediately following the date on which it is to be paid, our company will be able to pay its debts as they fall due in the ordinary
course of business. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount
recommended by our directors. The timing, amount and form of dividends, if any, will depend on, among other things, our future results
of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries,
our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On February 28, 2017, our
board of directors approved a cash dividend policy, which provided for an annual cash dividend to shareholders of no less than 30% of
our net income attributable to shareholders in the previous fiscal year. On April 20, 2017, our board of directors declared an annual
cash dividend of US$0.006 per ordinary share, or US$0.12 per ADS, payable on or around May 18, 2017 to shareholders of record on May
8, 2017.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On September 18, 2017, our
board of directors modified the dividend policy to adopt a quarterly payment schedule in lieu of an annual dividend, with the dividend
payout ratio of no less than 50% of net operating income attributable to the Company&#8217;s shareholders instead of no less than 30%
under the annual dividend policy previously announced on&#160;April 20, 2017. The following table summarizes the quarterly dividend payments
since the announcement of the quarterly dividend policy.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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(Per
Ordinary<br/>
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</b></p> <p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>( US$)</b></p></td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: center">&#160;</td><td style="text-align: center"><span style="font-size: 10pt">December 5, 2019</span></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">0.0150</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">0.0125</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: center">&#160;</td><td style="text-align: center"><span style="font-size: 10pt">September 8, 2020</span></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">0.0125</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: center">&#160;</td><td style="text-align: center"><span style="font-size: 10pt">December 9, 2020</span></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: center">December 23, 2020</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">0.0125</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: center">&#160;</td><td style="text-align: center"><span style="font-size: 10pt">March 31, 2021</span></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">May 27, 2021</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">0.0075</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: center">&#160;</td><td style="text-align: center"><span style="font-size: 10pt">June 11, 2021</span></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: center">June 25, 2021</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">August 23, 2021</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">0.0075</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: center">&#160;</td><td style="text-align: center"><span style="font-size: 10pt">September 7, 2021</span></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: center">September 23, 2021</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">November 23, 2021</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">0.0075</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: right">0.15</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center"><span style="font-size: 10pt">December 8, 2021</span></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: center">December 22, 2021</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">March 28, 2022</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">0.0075</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: right">0.15</td><td>&#160;</td>
    <td style="text-align: center">&#160;</td><td style="text-align: center"><span style="font-size: 10pt">April 12, 2022</span></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: center">April 26, 2022</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On May 26, 2022, in lieu
of cash dividend, our board of directors approved the distribution of 252,995,600 ordinary shares of CNFinance to the Company&#8217;s
shareholders of record as of the close of business on June 9, 2022. The Company&#8217;s shareholders of record received 4.71 ordinary
shares of CNFinance for each 20 issued and outstanding ordinary shares of the Company, or 0.2355 ADSs of CNFinance for each ADS of the
Company. The distribution was completed on June 28, 2022, after which our equity stake in CNFinance decreased from approximately 18.5%
to approximately 0.01%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 110; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->105<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">When we pay dividends, we
pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the
fees and expenses payable thereunder. Any dividend we declare will be distributed by the depositary bank to the holders of our ADSs.
Cash dividends on our ordinary shares, will be paid in U.S. dollars. Currently, we have no plan to repatriate the remaining undistributed
earnings from our subsidiaries in China and we intend to retain all of our available funds held by subsidiaries in China and their future
earnings to operate and expand our business.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We are a holding company
incorporated in the Cayman Islands. We rely on dividends from our subsidiaries and service fees from our consolidated VIEs in China or
share premium to fund our payment of dividends, if any, to our shareholders. Current PRC regulations permit our subsidiaries to pay dividends
to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition,
each of our subsidiaries and consolidated VIEs in China is required to set aside a certain amount of its accumulated after-tax profits
each year, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends. Further, if our subsidiaries
and consolidated VIEs in China incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends
or make other payments to us. Furthermore, there are still uncertainties under the new PRC EIT law and the related regulations regarding
whether the dividends we receive from our PRC subsidiaries or dividends paid to our shareholders will be subject to PRC withholding tax.
See &#8220;Item 3. Key Information&#8212;D. Risk Factors&#8212;Risks Related to Doing Business in China&#8212;Our global income or the
dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse effect
on our results of operations.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>B.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Significant Changes</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have not experienced
any significant changes since the date of our audited consolidated financial statements included in this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_012"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 9. The Offer and Listing</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Offer and Listing Details</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>B.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Plan of Distribution</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>C.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Markets</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our ADSs, each representing
20 ordinary shares, are listed on the Nasdaq Global Select Market under the symbol &#8220;FANH.&#8221; From October 31, 2007 until December
6, 2016, our ticker symbol was &#8220;CISG.&#8221; From October 31, 2007 until January 1, 2009, our ADSs were listed on the Nasdaq Global
Market.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>D.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Selling Shareholders</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>E.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Dilution</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>F.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Expenses of the Issue</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 111; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->106<!-- Field: /Sequence --> -</p></div><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_013"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 10. Additional Information</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>A.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Share Capital</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>B.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Memorandum and Articles of Association</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following are summaries
of material provisions of our amended and restated memorandum and articles of association, as adopted by our shareholders by special
resolution at the extraordinary general meeting held on December 6, 2016, as well as the Cayman Companies Act insofar as they relate
to the material terms of our ordinary shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Registered Office and Objects</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The registered office of
our company is at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands,
or at such other place within the Cayman Islands as our board of directors may decide. The objects for which our company is established
are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Act or as the same may
be revised from time to time, or any other law of the Cayman Islands.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Board of Directors</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">See &#8220;Item 6. Directors,
Senior Management and Employees&#8212;C. Board Practices&#8212;Board of Directors.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Ordinary Shares</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>General</i></b>. Our
authorized share capital consists of 10,000,000,000 ordinary shares, with a par value of US$0.001 each. All of our issued and outstanding
ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders
who are nonresidents of the Cayman Islands may freely hold and vote their shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Dividend Rights</i></b>.
The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to the Companies
Act.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Voting Rights</i></b>.
On a show of hands, each shareholder present in person or by proxy (or, for a corporation or other non-natural person, present by its
duly authorized representative or proxy) at a general meeting shall have one vote and on a poll, shall have one vote for each share registered
in his name in the register of members of our company. Voting at any meeting of shareholders is by show of hands unless a poll is demanded.
A poll may be demanded by the chairman of the meeting or by any one or more shareholders together holding at least ten percent of our
paid-up voting share capital, present in person or by proxy.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A quorum required for a
meeting of shareholders consists of shareholders holding in aggregate not less than one-third of our issued voting share capital present
in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. We may, but are not obliged,
to hold an annual general meeting of shareholders. General meetings may be convened by our board of directors on its own initiative or
upon a request to the directors by shareholders holding in aggregate not less than one-third of our voting share capital. Advance notice
of at least 14 calendar days is required for the convening of our annual general meeting and other shareholders&#8217; meetings.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">An ordinary resolution to
be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast in
a general meeting or may be approved in writing by all of the shareholders entitled to vote at a general meeting, while a special resolution
requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast in a general meeting or may
be passed as a unanimous written resolution. A special resolution is required for important matters such as a change of name. Holders
of the ordinary shares may effect certain changes by ordinary resolution, including consolidating and dividing all or any of our share
capital into shares of a larger amount than our existing shares, and canceling any shares which have not been taken or agreed to be taken.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->107<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Transfer of Shares</i></b>.
Subject to the restrictions of our articles of association, as applicable, any of our shareholders may transfer all or any of his or
her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Liquidation</i></b>.
On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for
distribution among the holders of ordinary shares may be distributed among the holders of the ordinary shares as determined by the liquidator,
subject to sanction of an ordinary resolution of our company.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Calls on Shares and
Forfeiture of Shares</i></b>. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their
shares in a notice served to such shareholders at least 14 days prior to the specified time of payment. The shares that have been called
upon and remain unpaid on the specified time are subject to forfeiture.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Redemption, Repurchase
and Surrender of Shares</i></b>. Subject to the provisions of the Companies Act and our articles of association, we may issue shares
on terms that they are subject to redemption, at our option or at the option of the holders, on such terms and in such manner as our
board of directors may determine before the issue of such shares. We also may purchase our own shares, provided that our shareholders
have approved the manner of purchase by ordinary resolution or the manner of purchase is in accordance with that specified in our articles
of association. The manner of purchase specified in our articles of association, which cover purchases of shares listed on an internationally
recognized stock exchange and shares not so listed, is in accordance with Section 37(2) of the Companies Act or any modification or reenactment
thereof for the time being in force. In addition, our company may accept the surrender of any fully paid share for no consideration.
Pursuant to the Companies Act, upon the repurchase, redemption or surrender of shares, the board of directors can determine whether or
not to cancel those shares or hold them as treasury shares pending cancellation, transfer or sale. The company must obtain authorization
to hold such shares as treasury shares either in accordance with the procedures set out in the company&#8217;s articles of association
or (if there are none) by a board resolution before being repurchased, redeemed or surrendered in accordance with the usual rules and
articles.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Variations of Rights
of Shares</i></b>. If at any time the share capital is divided into different classes of shares, the rights attached to any class of
shares (unless otherwise provided by the terms of issue of the shares of that class) may, subject to our articles of association, be
varied or abrogated with the written consent of the holders of a majority of the issued shares of that class or with the sanction of
a special resolution passed at a general meeting of the holders of the shares of that class.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Inspection of Books
and Records</i></b>. Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our
register of members or our corporate records (other than our memorandum and articles of association, special resolutions, and our register
of mortgages and charges). However, we make our annual reports, which contain our audited financial statements, available to our shareholders.
See &#8220;Item 10. Additional Information&#8212;H. Documents on Display.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 19.6pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>C.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Material Contracts</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have not entered into
any material contracts other than in the ordinary course of business and other than those described in &#8220;Item 4. Information on
the Company&#8221; or elsewhere in this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>D.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Exchange Controls</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">See &#8220;Item 4. Information
on the Company&#8212;B. Business Overview&#8212;Regulation&#8212;Regulations on Foreign Exchange.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->108<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>E.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Taxation</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following summary of
the material Cayman Islands, PRC and United States federal income tax consequences of an investment in our ADSs or ordinary shares is
based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to prospective
and retroactive change and is included here for information purposes only. This summary is not intended to be, and should not be construed
as, legal or tax advice, does not consider any investor&#8217;s particular circumstances, and does not deal with all possible tax consequences
relating to an investment in our ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Cayman Islands Taxation</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">According to Maples and
Calder (Hong Kong) LLP, our Cayman Islands counsel, the Cayman Islands currently levies no taxes on individuals or corporations based
upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax, estate duty or gift tax. No Cayman
Islands stamp duty will be payable unless an instrument is executed in, or after execution brought within the jurisdiction of the Cayman
Islands, or produced before a court of the Cayman Islands. The Cayman Islands is a party to a double tax treaty with the United Kingdom
but otherwise is not a party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman
Islands.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>PRC Taxation</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under the former PRC Income
Tax Law for Enterprises with Foreign Investment and Foreign Enterprises, any dividends payable by foreign-invested enterprises to non-PRC
investors were exempt from any PRC withholding tax. In addition, any interest or dividends payable, or distributions made, by us to holders
or beneficial owners of our ADSs or ordinary shares would not have been subject to any PRC tax, provided that such holders or beneficial
owners, including individuals and enterprises, were not deemed to be PRC residents under the PRC tax law and had not become subject to
PRC tax.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under the EIT Law, which
took effect as of January 1, 2008, which was subsequently amended on March 16, 2007, February 24, 2017 and December 29, 2018, enterprises
established under the laws of non-PRC jurisdictions but whose &#8220;de facto management body&#8221; is located in China are considered
&#8220;resident enterprises&#8221; for PRC tax purposes. Under the implementation regulations issued by the State Council relating to
the new law, &#8220;de facto management bodies&#8221; are defined as the bodies that have material and overall management control over
the business, personnel, accounts and properties of an enterprise. On April 22, 2009, SAT, issued SAT Circular 82, which provides certain
specific criteria for determining whether the &#8220;de facto management body&#8221; of a PRC-controlled enterprise that is incorporated
offshore is located in China. In addition, the SAT issued a bulletin on July 27, 2011 providing more guidance on the implementation of
Circular 82 and clarifying matters such as resident status determination. Substantially all of our management are currently based in
China, and may remain in China in the future. If we were treated as a &#8220;resident enterprise&#8221; for PRC tax purposes, we would
be subject to PRC income tax on our worldwide income at a uniform tax rate of 25%, but dividends received by us from our PRC subsidiaries
may be exempt from the income tax.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under the new law and its
implementation regulations, dividends paid to a non-PRC investor are generally subject to a 10% or 5% PRC withholding tax, if such dividends
are derived from sources within China and the non-PRC investor is considered to be a non-resident enterprise without any establishment
or place of business within China or if the dividends paid have no connection with the non-PRC investor&#8217;s establishment or place
of business within China, unless such tax is eliminated or reduced under an applicable tax treaty. Similarly, any gain realized on the
transfer of ADSs or shares by such an investor is also subject to a 10% or 5% PRC withholding tax if such gain is regarded as income
derived from sources within China, unless such tax is eliminated or reduced under an applicable tax treaty.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If we were considered a
PRC &#8220;resident enterprise,&#8221; it is possible that the dividends we pay with respect to our ADSs or ordinary shares, or the gain
you may realize from the transfer of our ADSs or ordinary shares, would be treated as income derived from sources within China and be
subject to the 10% or 5% PRC withholding tax.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Income Tax and Withholding Tax</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The EIT Law, applies a uniform
25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises. The EIT Law imposes a withholding tax of
10% on dividends distributed by a PRC foreign-invested enterprise to its immediate holding company outside of China, if such immediate
holding company is considered a &#8220;non-resident enterprise&#8221; without any establishment or place within China or if the received
dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding
company&#8217;s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. Holding
companies in Hong Kong, for example, are subject to a 5% withholding tax rate. The Cayman Islands, where we are incorporated, does not
have such a tax treaty with China. Thus, dividends paid to us by our subsidiaries in China may be subject to the 10% withholding tax
if we are considered a &#8220;non-resident enterprise&#8221; under the EIT Law.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under the EIT Law and its
implementation rules, any interest or premium with respect to the notes and any gains realized on the transfer of the notes by holders
who are deemed under the EIT Law as non-resident enterprise may be subject to PRC enterprises income tax if such interest, premium or
gains are regarded as income derived from sources within the PRC. Under the EIT Law, a &#8220;non-resident enterprise&#8221; means an
enterprise established under the laws of a jurisdiction other than the PRC and whose actual administrative organization is not in the
PRC but has established offices or premises in the PRC, or which has not established any offices or premises in the PRC but has obtained
incomes derived from sources within the PRC.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The EIT Law provides that
enterprises established outside of China whose &#8220;de facto management bodies&#8221; are located in China are considered &#8220;resident
enterprises&#8221; and are therefore subject to PRC enterprise income tax at the rate of 25% with respect to their income sourced from
both within and outside of China. The Implementing Regulation defines the term &#8220;de facto management body&#8221; as a management
body that exercises substantial and overall control and management over the production and operations, personnel, accounting and properties
of an enterprise. Circular 82 provides certain specific criteria for determining whether the &#8220;de facto management body&#8221; of
a Chinese-controlled offshore-incorporated enterprise is located in China. The Resident Enterprise Administrative Measures provide clarification
for resident status determination and competent tax authorities. However, Circular 82 and the Resident Enterprise Administrative Measures
apply only to offshore enterprises controlled by PRC enterprises, not those invested in or controlled by PRC individuals, like our company.
Currently there are no further detailed rules or precedents applicable to us regarding the procedures and specific criteria for determining
&#8220;de facto management body&#8221; for a company of our type. It is still unclear if the PRC tax authorities would determine that
we should be classified as a PRC &#8220;resident enterprise.&#8221;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Although we have not been
notified that we are treated as a PRC resident enterprise, we cannot assure you that we will not be treated as a &#8220;resident enterprise&#8221;
under the EIT Law, any aforesaid circulars or any amended regulations in the future. If we are treated as a PRC resident enterprise for
PRC enterprise income tax purposes, among other things, we would be subject to the PRC enterprise income tax at the rate of 25% on our
worldwide taxable income. Furthermore, if we are treated as a PRC resident enterprise, payments of dividends and/or other expenses of
similar nature by us may be regarded as derived from sources within the PRC and therefore we may be obligated to withhold PRC income
tax at 10% on payments of dividends on the ADSs or shares and/or interest or other expenses of similar nature on the notes to non-PRC
resident enterprise investors. In the case of non-PRC resident individual investors, the tax may be withheld at a rate of 20%.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In addition, if we are treated
as a PRC resident enterprise, any gain realized on the transfer of the ADSs and/or ordinary shares by non-PRC resident investors may
be regarded as derived from sources within the PRC and accordingly may be subject to a 10% PRC income tax in the case of non-PRC resident
enterprises or 20% in the case of non-PRC resident individuals. The PRC tax on interest or gains may be reduced or exempted under applicable
tax treaties between the PRC and the ADS holder&#8217;s home country. For example, according to an arrangement between the PRC and Hong
Kong, for the avoidance of double taxation, ADS holders who are Hong Kong residents, including both enterprise holders and individual
holders, may be exempted from PRC income tax on capital gains derived from a sale or exchange of the notes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->110<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>United States Federal Income Taxation </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following
discussion describes the material United States federal income tax considerations to a United States Holder (as defined below), of
an investment in our ADSs or ordinary shares. This discussion is based on the federal income tax laws of the United States as of the
date of this annual report on Form 20-F, including the United States Internal Revenue Code of 1986, as amended (the
&#8220;Code&#8221;), existing and proposed Treasury Regulations promulgated thereunder, judicial authority, published administrative
positions of the United States Internal Revenue Service (&#8220;IRS&#8221;) and other applicable authorities, all as of the date of
this annual report on Form 20-F. All of the foregoing authorities are subject to differing interpretations or changes, which could
apply retroactively or significantly affect the tax considerations described below. We have not sought any ruling from the IRS with
respect to the statements made or the conclusions reached in the following discussion and there can be no assurance that the IRS or
a court will agree with our statements or conclusions. In addition, this summary of the United States federal income tax
considerations does not discuss the Medicare Tax on net investment income, any tax considerations arising under the United States
federal non-income tax laws (such as estate or gift tax), or the laws of any state, local, or non-United States taxing
jurisdiction.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">This discussion applies
only to a United States Holder (as defined below) that holds ADSs or ordinary shares as &#8220;capital assets&#8221; for United States
federal income tax purposes (generally, property held for investment). The discussion neither addresses the tax considerations to any
particular investor nor describes all aspects of the tax considerations applicable to persons in special tax situations, such as:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">banks and certain other financial institutions;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">persons holding ADSs or ordinary shares as part of a straddle, hedging,
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">persons holding ADSs or ordinary shares through a bank, financial institution
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">persons that actually or constructively own ADSs or ordinary shares
    representing 10% or more of our voting power or value;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">persons who acquired ADSs or ordinary shares pursuant to the exercise
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt">partnerships or other pass-through entities, or persons holding ADSs
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">persons required to accelerate the recognition of any item of gross
    income with respect to our ADSs or ordinary shares as a result of such income being recognized on an applicable financial statement;
    or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">persons that hold, directly, indirectly or by attribution, ADSs, ordinary
    shares or other ownership interests in us prior to our initial public offering.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If a partnership (including
an entity or arrangement treated as a flow-through entity for United States federal income tax purposes) holds our ADSs or ordinary shares,
the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership.
A partnership or a partner in a partnership holding our ADSs or ordinary shares should consult its tax advisors regarding the tax consequences
of investing in and holding our ADSs or ordinary shares.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 116; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->111<!-- Field: /Sequence --> -</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following discussion
is for informational purposes only and is not a substitute for careful tax planning and advice. Investors should consult their tax advisors
with respect to the application of the United States federal income tax laws to their particular situations, as well as any tax consequences
arising under the federal estate or gift tax laws or the laws of any state, local or non-Untied States taxing jurisdiction and under
any applicable tax treaty.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For purposes of the discussion
below, a &#8220;United States Holder&#8221; is a beneficial owner of our ADSs or ordinary shares that is, for United States federal income
tax purposes:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">an individual who is a citizen or resident of the United States;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">a corporation (or other entity treated as a corporation for United
    States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District
    of Columbia;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">an estate, the income of which is subject to United States federal
    income taxation regardless of its source; or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">a trust, if (i) a court within the United States is able to exercise
    primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial
    decisions or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election
    is in place under applicable Treasury Regulations to treat such trust as a domestic trust.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>ADSs</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If you own our ADSs, then
you should be treated as the owner of the underlying ordinary shares represented by those ADSs for United States federal income tax purposes.
The remainder of this discussion assumes that a United States Holder of our ADSs will be treated in this manner. Accordingly, deposits
or withdrawals of ordinary shares for ADSs should not be subject to United States federal income tax.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Passive Foreign Investment Company</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Based on the market price
of our ADSs, the value of our assets and the composition of our income and assets, we believe we were a passive foreign investment company
(&#8220;PFIC&#8221;) for United States federal income tax purposes for our taxable year ending December 31, 2022, however there can be
no assurance to this regard. We believe we were also a PFIC for 2017 and prior years. In addition, we believe that it is likely that one
or more of our subsidiaries were also PFICs for such years.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A non-United States corporation
such as ourselves will be treated as a PFIC for United States federal income tax purposes for any taxable year if, applying applicable
look-through rules, either:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">at least 75% of our gross income for such year is passive income; or</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">at least 50% of the value of our assets (generally determined based
    on a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For this purpose, passive
income generally includes dividends, interest, royalties and rents (other than certain royalties and rents derived in the active conduct
of a trade or business and not derived from a related person). We will be treated as owning a proportionate share of the assets and earning
a proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% by value of the stock.
Although the law in this regard is unclear, we treat the VIEs as being owned by us for United States federal income tax purposes, because
we exercise effective control over the operation of such entities and because we are entitled to substantially all of their economic
benefits, and, as a result, we consolidate their results of operations in our consolidated United States GAAP financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The composition of our income
and assets will be affected by the market price of our ADSs and how, and how quickly, we spend our liquid assets and the cash we generate
from our operations and raise in any offering. Unless the market price of our ADSs increases or we reduce the amount of cash, short term
investments and other passive assets we hold sufficiently from current levels, we believe that we are likely to remain a PFIC for future
taxable years. However, the determination of PFIC status is based on an annual determination that cannot be made until the close of a
taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of our assets on a quarterly
basis and the character of each item of income that we earn, and is subject to uncertainty in several respects. Accordingly, we cannot
assure you that the IRS will not take a contrary position.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Changes in the composition
of our income and assets may cause us to cease to be or become a PFIC. The determination of whether we will be a PFIC for any taxable
year may depend in part upon the value of our goodwill and other unbooked intangibles not reflected on our balance sheet (which may depend
upon the market price of our ADSs or ordinary shares from time to time, which may fluctuate significantly) and also may be affected by
how, and how quickly, we spend our liquid assets and the cash we generate from our operations and raise in any offering. Among other
matters, if our market capitalization increases, we may cease to be a PFIC because our liquid assets and cash (which are for this purpose
considered assets that produce passive income) may then represent a smaller percentage of our overall assets. Further, while we believe
our classification methodology and valuation approach is reasonable, it is possible that the IRS may challenge our classification or
valuation of our goodwill and other unbooked intangibles, which may result in our being or becoming a non-PFIC for the current or one
or more future taxable years.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If we are a PFIC for any taxable
year (as we believe we were for 2022, 2017 and prior years) during which you hold ADSs or ordinary shares, we will continue to be treated
as a PFIC with respect to you for all succeeding years during which you hold ADSs or ordinary shares, unless we cease to be a PFIC (as
we believe we did in 2018) and you make a &#8220;deemed sale&#8221; election with respect to the ADSs or ordinary shares, as applicable.
If such an election is made, you will be deemed to have sold the ADSs or ordinary shares you hold at their fair market value and any
gain from such deemed sale would be subject to the rules described in the following two paragraphs. After the deemed sale election, so
long as we do not become a PFIC in a subsequent taxable year, the ADSs or ordinary shares with respect to which such election was made
will not be treated as shares in a PFIC and, as a result, you will not be subject to the rules described below with respect to any &#8220;excess
distribution&#8221; you receive from us or any gain from an actual sale or other disposition of the ADSs or ordinary shares. <b>You are
strongly urged to consult your tax advisors as to the possibility and consequences of making a deemed sale election if we are and then
cease to be a PFIC and such an election becomes available to you.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If we are a PFIC for any taxable
year (as we believe we were for 2022, 2017 and prior years) during which you hold ADSs or ordinary shares, then, unless you make a &#8220;mark-to-market&#8221;
election (as discussed below), you generally will be subject to special and adverse tax rules with respect to any &#8220;excess distribution&#8221;
that you receive from us and any gain that you recognize from a sale or other disposition, including a pledge, of the ADSs or ordinary
shares. For this purpose, distributions that you receive in a taxable year that are greater than 125% of the average annual distributions
that you received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares will
be treated as an excess distribution. Under these rules:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the excess distribution or recognized gain will be allocated ratably
    over your holding period for the ADSs or ordinary shares;</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the amount of the excess distribution or recognized gain allocated
    to the taxable year of distribution or gain, and to any taxable years in your holding period prior to the first taxable year in which
    we were treated as a PFIC, will be treated as ordinary income; and</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 24px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt">&#9679;</span></td>
    <td style="text-align: justify"><span style="font-size: 10pt">the amount of the excess distribution or recognized gain allocated
    to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for
    each such year and the resulting tax will be subject to the interest charge generally applicable to underpayments of tax.</span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If we are a PFIC for any
taxable year (as we believe we were for 2022, 2017 and prior years) during which you hold our ADSs or ordinary shares and any of our
non-United States subsidiaries that are corporations (or other corporations in which we own equity interests) is also a PFIC, you would
be treated as owning a proportionate amount (by value) of the shares of each such non-United States entity classified as a PFIC (each
such entity, &#8220;a lower-tier PFIC&#8221;) for purposes of the application of these rules. You should consult your tax advisors regarding
the application of the PFIC rules to any of our lower-tier PFICs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 118; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->113<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If we are a PFIC for any
taxable year (as we believe we were for 2022, 2017 and prior years) during which you hold ADSs or ordinary shares, then in lieu of being
subject to the tax and interest-charge rules discussed above, you may make an election to include gain on our ADSs or ordinary shares
as ordinary income under a mark-to-market method, provided that our ADSs or ordinary shares constitute &#8220;marketable stock&#8221;
(as defined below). If you make a mark-to-market election for our ADSs or ordinary shares, you will include in gross income for each
year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the ADSs or ordinary shares you hold as of
the close of your taxable year over your adjusted basis in such ADSs or ordinary shares. You will be allowed a deduction for the excess,
if any, of the adjusted basis of the ADSs or ordinary shares over their fair market value as of the close of the taxable year. However,
deductions will be allowable only to the extent of any net mark-to-market gains on the ADSs or ordinary shares included in your income
for prior taxable years. Amounts included in your income under a mark-to-market election, as well as any gain from the actual sale or
other disposition of the ADSs or ordinary shares, will be treated as ordinary income. Ordinary loss treatment will apply to the deductible
portion of any mark-to-market loss on the ADSs or ordinary shares, as well as to any loss from the actual sale or other disposition of
the ADSs or ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included
for such ADSs or ordinary shares. Your basis in the ADSs or ordinary shares will be adjusted to reflect any such income or loss amounts.
If you make a valid mark-to-market election, any distributions we make would generally be subject to the tax rules discussed below under
&#8220;Item. 10 Additional Information&#8212;E. Taxation&#8212;United States Federal Income Taxation&#8212;Dividends and Other Distributions
on the ADSs or Ordinary Shares,&#8221; except the lower capital gains rate applicable to qualified dividend income generally would not
apply.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The mark-to-market election
is available only for &#8220;marketable stock.&#8221; Marketable stock is stock that is regularly traded on a qualified exchange or other
market, as defined in applicable Treasury Regulations. Our ADSs, but not our ordinary shares, are listed on the Nasdaq Global Select
Market, which is a qualified exchange or other market for these purposes. Consequently, if the ADSs remain listed on the Nasdaq Global
Select Market and are regularly traded, and you are a holder of ADSs, we expect that the mark-to-market election will be available to
you, but no assurances are given in this regard.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If you make a mark-to-market
election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs are
no longer regularly traded on a qualified exchange or other market, or the IRS consents to the revocation of the election. You are urged
to consult your tax advisors regarding the availability of mark-to-market election, and whether making the election would be advisable
in your particular circumstances.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Because a mark-to-market
election cannot be made for any lower tier PFICs that we may own, if we were a PFIC for any taxable year (as we believe we were for 2022,
2017 and prior years), a United States Holder that makes the mark-to-market election may continue to be subject to the tax and interest
charges under the general PFIC rules with respect to such United States Holder&#8217;s indirect interest in any investments held by us
that are treated as an equity interest in a PFIC for United States federal income tax purposes.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In certain circumstances,
a United States shareholder in a PFIC may avoid the adverse tax and interest-charge regime described above by making a &#8220;qualified
electing fund&#8221; election to include in income its share of the corporation&#8217;s income on a current basis. However, you may make
a qualified electing fund election with respect to your ADSs or ordinary shares only if we agree to furnish you annually with a PFIC
annual information statement as specified in the applicable Treasury Regulations. We do not intend to prepare or provide the information
that would enable you to make a qualified electing fund election.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A United States Holder that
holds our ADSs or ordinary shares in any year in which we are a PFIC (as we believe we were for 2022, 2017 and prior years) will be required
to file an annual report containing such information as the United States Treasury Department may require. <b>You are strongly urged
to consult your tax advisors regarding the impact of our being a PFIC in 2022 on your investment in our ADSs or ordinary shares, as well
as the application of the PFIC rules to your investment in our ADSs or ordinary shares and the availability, application and consequences
of the elections discussed above. </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Dividends and Other Distributions on the
ADSs or Ordinary Shares</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Subject to the passive foreign
investment company rules discussed above, the gross amount of any distribution that we make to you with respect to our ADSs or ordinary
shares (including any amounts withheld to reflect PRC or other withholding taxes) will be taxable as a dividend, to the extent paid out
of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including
any withheld taxes) will be includable in your gross income on the day actually or constructively received by you, if you own the ordinary
shares, or by the depositary, if you own ADSs. Because we do not intend to determine our earnings and profits on the basis of United
States federal income tax principles, any distribution paid will generally be reported as a &#8220;dividend&#8221; for United States
federal income tax purposes. Such dividends will not be eligible for the dividends-received deduction allowed to qualifying corporations
under the Code.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Dividends received by a
non-corporate United States Holder may qualify for the lower rates of tax applicable to &#8220;qualified dividend income,&#8221; if the
dividends are paid by a &#8220;qualified foreign corporation&#8221; and other conditions discussed below are met. A non-United States
corporation is treated as a qualified foreign corporation (i) with respect to dividends paid by that corporation on shares (or American
depositary shares backed by such shares) that are readily tradable on an established securities market in the United States or (ii) if
such non-United States corporation is eligible for the benefits of a qualifying income tax treaty with the United States that includes
an exchange of information program. However, a non-United States corporation will not be treated as a qualified foreign corporation if
it is a passive foreign investment company in the taxable year in which the dividend is paid or the preceding taxable year.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under a published IRS Notice,
common or ordinary shares, or American depositary shares representing such shares, are considered to be readily tradable on an established
securities market in the United States if they are listed on the Nasdaq Global Select Market, as are our ADSs (but not our ordinary shares).
Based on existing guidance, it is unclear whether the ordinary shares will be considered to be readily tradable on an established securities
market in the United States, because only the ADSs, and not the underlying ordinary shares, are listed on a securities market in the
United States. We believe, but we cannot assure you, that dividends we pay, if any, on the ordinary shares that are represented by ADSs,
but not on the ordinary shares that are not so represented, will, subject to applicable limitations, be eligible for the reduced rates
of taxation. In addition, if we are treated as a PRC resident enterprise under the PRC tax law (see &#8220;Item 10. Additional Information&#8212;E.
Taxation&#8212;PRC Taxation&#8221;), then we may be eligible for the benefits of the income tax treaty between the United States and
the PRC. If we are eligible for such benefits, then dividends that we pay on our ordinary shares, regardless of whether such shares are
represented by ADSs, would, subject to applicable limitations, be eligible for the reduced rates of taxation.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Even if dividends would
be treated as paid by a qualified foreign corporation, a non-corporate United States Holder will not be eligible for reduced rates of
taxation if it does not hold our ADSs or ordinary shares for more than 60 days during the 121-day period beginning 60 days before the
ex-dividend date or if the United States Holder elects to treat the dividend income as &#8220;investment income&#8221; pursuant to Section
163(d)(4) of the Code. In addition, the rate reduction will not apply to dividends of a qualified foreign corporation if the non-corporate
United States Holder receiving the dividend is obligated to make related payments with respect to positions in substantially similar
or related property.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">You should consult your
tax advisors regarding the availability of the lower tax rates applicable to qualified dividend income for any dividends that we pay
with respect to the ADSs or ordinary shares, as well as the effect of any change in applicable law after the date of this annual report
on Form 20-F.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Any PRC or other non-United
States withholding taxes imposed on dividends paid to you with respect to the ADSs or ordinary shares generally will be treated as foreign
taxes eligible for credit against your United States federal income tax liability, subject to the various limitations and disallowance
rules that apply to foreign tax credits generally. For purposes of calculating the foreign tax credit, dividends paid to you with respect
to the ADSs or ordinary shares will be treated as income from sources outside the United States and generally will constitute passive
category income. The rules relating to the determination of the foreign tax credit are complex and recently issued Treasury Regulations
have introduced additional requirements and limitations to the foreign tax credit rules. You should consult your tax advisors regarding
the availability of a foreign tax credit in your particular circumstances.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Disposition of the ADSs or Ordinary Shares</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">You will recognize gain
or loss on a sale or exchange of the ADSs or ordinary shares in an amount equal to the difference between the amount realized on the
sale or exchange and your tax basis in the ADSs or ordinary shares. Subject to the discussion under &#8220;Item 10. Additional Information&#8212;E.
Taxation&#8212;United States Federal Income Taxation&#8212;Passive Foreign Investment Company,&#8221; above, such gain or loss generally
will be capital gain or loss. Capital gains of a non-corporate United States Holder, including an individual that has held the ADSs or
ordinary shares for more than one year currently are eligible for reduced tax rates. The deductibility of capital losses is subject to
limitations.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Any gain or loss that you
recognize on a disposition of the ADSs or ordinary shares generally will be treated as United States-source income or loss for foreign
tax credit limitation purposes. However, if we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax is imposed on
gain from the disposition of the ADSs or ordinary shares (see &#8220;Item 10. Additional Information&#8212;E. Taxation&#8212;PRC Taxation&#8221;),
then a United States Holder that is eligible for the benefits of the income tax treaty between the United States and the PRC may elect
to treat the gain as PRC-source income for foreign tax credit purposes. If such an election is made, the gain so treated will be treated
as a separate class or &#8220;basket&#8221; of income for foreign tax credit purposes. You should consult your tax advisors regarding
the proper treatment of gain or loss, as well as the availability of a foreign tax credit, in your particular circumstances.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 120; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->115<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Information Reporting and Backup Withholding</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Information reporting to
the IRS and backup withholding generally will apply to dividends in respect of our ADSs or ordinary shares, and the proceeds from the
sale or exchange of our ADSs or ordinary shares, that are paid to you within the United States (and in certain cases, outside the United
States), unless you furnish a correct taxpayer identification number and make any other required certification, generally on IRS Form
W-9 or you otherwise establish an exemption from information reporting and backup withholding. Backup withholding is not an additional
tax. Amounts withheld as backup withholding generally are allowed as a credit against your United States federal income tax liability,
and you may be entitled to obtain a refund of any excess amounts withheld under the backup withholding rules if you file an appropriate
claim for refund with the IRS and furnish any required information in a timely manner.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">United States Holders who
are individuals (and certain entities closely held by individuals) generally will be required to report our name, address and such information
relating to an interest in the ADSs or ordinary shares as is necessary to identify the class or issue of which the ADSs or ordinary shares
are a part. These requirements are subject to exceptions, including an exception for ADSs or ordinary shares held in accounts maintained
by certain financial institutions and an exception applicable if the aggregate value of all &#8220;specified foreign financial assets&#8221;
(as defined in the Code) does not exceed US$50,000.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">United States Holders should
consult their tax advisors regarding the application of the information reporting and backup withholding rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>F.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Dividends and Paying Agents</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 49.65pt; text-align: justify; text-indent: -49.65pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 49.65pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>G.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Statement by Experts</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 49.65pt; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>H.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Documents on Display</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We previously filed with
the SEC a registration statement on Form F-1 (File No. 333-146605) and a prospectus under the Securities Act with respect to the ordinary
shares represented by the ADSs. We also filed with the SEC a related registration statement on Form F-6 (File Number 333-146765) with
respect to the ADSs.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We are subject to periodic
reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required
to file reports, including annual reports on Form 20-F, and other information with the SEC. All documents filed by us with the SEC can
be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. The SEC also maintains a website at <i>www.sec.gov</i> that contains
reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using
its EDGAR system.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As a foreign private issuer,
we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and
our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial
statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 121; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->116<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We intend to furnish J.P.
Morgan, the depositary of our ADSs, with all notices of shareholders&#8217; meetings and other reports and communications that are made
generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs
and, upon our written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders&#8217;
meeting received by the depositary from us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In accordance with Rule
5250(d) of the Nasdaq Listing Rules, we will post this annual report on Form 20-F on our website at http://ir.fanhuaholdings.com/sec.cfm.
In addition, we will provide hard copies of our annual report free of charge to shareholders and ADS holders upon request.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
    <td style="width: 0px">&#160;</td>
    <td style="width: 24px"><span style="font-size: 10pt"><b>I.</b></span></td>
    <td style="text-align: justify"><span style="font-size: 10pt"><b>Subsidiary Information</b></span></td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For a list of our subsidiaries
as of March 31, 2023, see Exhibit 8.1 to this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_014"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 11. Quantitative and Qualitative Disclosures about Market
Risk</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Interest Rate Risk</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our exposure to interest
rate risk primarily relates to the interest income generated by bank deposits and short-term, highly liquid investments with original
maturities of 90 days or less, and interest expenses incurred by short-term borrowing. Interest-earning instruments carry a degree of
interest rate risk, and our future interest income may be lower than expected. We have not been exposed nor do we anticipate being exposed
to material risks due to changes in interest rates. We have not used any derivative financial instruments to manage our interest risk
exposure.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Foreign Exchange Risk</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Substantially all of our
revenues and expenses are denominated in RMB. Our exposure to foreign exchange risk primarily relates to the cash and cash equivalent
denominated in U.S. dollars that we keep offshore for dividend payments. We have not hedged exposures denominated in foreign currencies
using any derivative financial instruments. Although in general, our exposure to foreign exchange risks should be limited, the value
of your investment in our ADSs will be affected by the foreign exchange rate between U.S. dollars and RMB because the value of our business
is effectively denominated in RMB, while the ADSs will be traded in U.S. dollars.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The value of the RMB against
the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China&#8217;s political and economic
conditions. The conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC. On July 21,
2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under such policy, the RMB
is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Removal of the U.S. dollar
peg has resulted in an approximately more than 25.0% appreciation of the RMB against the U.S. dollar over the following eight years.
In April 2012, the trading band has been widened to 1%, and in March 2014 it was further widened to 2%, which allows the Renminbi to
fluctuate against the U.S. dollar by up to 2% above or below the central parity rate published by the PBOC. In August 2015, the PBOC
changed the way it calculates the mid-point price of Renminbi against U.S. dollar, requiring the market-makers who submit for the PBOC&#8217;s
reference rates to consider the previous day&#8217;s closing spot rate, foreign-exchange demand and supply as well as changes in major
currency rates. This change, and other changes such as widening the trading band that may be implemented, may increase volatility in
the value of the Renminbi against foreign currencies. The PRC government may from time to time make further adjustments to the exchange
rate system in the future. To the extent that we need to convert our U.S. dollar or other currencies-denominated assets into RMB for
our operations, appreciation of the RMB against the U.S. dollar or other currencies would have an adverse effect on the RMB amount we
receive from the conversion. We had U.S. dollar-denominated financial assets amounting to US$6.2 million and HK dollar-denominated financial
assets amounting to HK$5.3 million as of December 31, 2022. A 10% appreciation of the RMB against the U.S. dollar and HK dollar would
have resulted in a decrease of RMB4.7 million (US$0.7 million) in the value of our U.S. dollar-denominated and HK dollar-denominated
financial assets. Conversely, if we decide to convert our RMB denominated cash amounts into U.S. dollars amounts or other currencies
amounts for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation
of the U.S. dollar or other currencies against the RMB would have a negative effect on the U.S. dollar or other currencies amount available
to us.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 122; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->117<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="font-size: 2pt">&#160;</span></p><div>

</div><div><a id="a_015"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 12. Description of Securities Other than Equity Securities</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><span style="font-size: 5pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">A.</span></td><td style="text-align: justify"><span style="font-size: 10pt"><span style="text-decoration:underline">Debt Securities</span></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 5pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="font-size: 5pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">B.</span></td><td style="text-align: justify"><span style="font-size: 10pt"><span style="text-decoration:underline">Warrants and Rights</span></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 5pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="font-size: 5pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">C.</span></td><td style="text-align: justify"><span style="font-size: 10pt"><span style="text-decoration:underline">Other Securities</span></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 5pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="font-size: 5pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">D.</span></td><td style="text-align: justify"><span style="font-size: 10pt"><span style="text-decoration:underline">American Depositary Shares</span></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 5pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Fees Payable by ADS Holders</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 5pt">&#160;</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have appointed J.P. Morgan
as our depositary. A copy of our Form of Deposit Agreement with J.P. Morgan was filed with the SEC as an exhibit to our Form F-6 registration
statement initially filed on October 17, 2007 and amended on December 7, 2016 and November 28, 2017, or the Deposit Agreement. Pursuant
to the Deposit Agreement, holders of our ADSs may have to pay to J.P. Morgan, either directly or indirectly, fees or charges up to the
amounts set forth in the table below.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="font-size: 5pt">&#160;</span></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr>
    <td colspan="2" style="border-bottom: black 1.5pt solid; padding-left: 0pt; text-indent: 0pt; white-space: nowrap; vertical-align: bottom"><span style="font-size: 10pt"><b>Category</b></span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; border-bottom: black 1.5pt solid; white-space: nowrap; vertical-align: bottom; text-align: center; text-indent: 0pt"><span style="font-size: 10pt"><b>Depositary
    Actions</b></span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; border-bottom: black 1.5pt solid; white-space: nowrap; vertical-align: bottom; text-align: center; text-indent: 0pt"><span style="font-size: 10pt"><b>Associated
    Fees</b></span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top; width: 5%"><span style="font-size: 10pt">(a)</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top; width: 15%"> <span style="font-size: 10pt">Depositing or substituting the underlying shares</span></td>
    <td style="padding-left: 0pt; width: 1%; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; width: 53%; text-indent: 0pt"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Each person to whom American depositary receipts (&#8220;ADRs&#8221;)
    are issued against deposits of shares, including deposits and issuances in respect of:</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; Share distributions,
    stock split, rights, merger</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; Exchange of securities
    or any other transaction or event or other distribution affecting the ADSs or the Deposited Securities</p></td>
    <td style="padding-left: 0pt; width: 1%; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; width: 25%; text-indent: 0pt"><span style="font-size: 10pt">US$5.00 for each 100 ADSs (or portion thereof) evidenced by the new
    ADRs delivered</span></td></tr>
  <tr style="background-color: White">
    <td colspan="2" style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">(b) </span></td>
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">Receiving or distributing dividends</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 10pt">Distribution of dividends</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 10pt">US$0.02 or less per ADS</span></td></tr>
  <tr style="background-color: White">
    <td colspan="2" style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">(c) </span></td>
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">Selling or exercising rights</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 10pt">Distribution or sale of securities, the fee being in an amount equal
    to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 10pt">US$5.00 for each 100 ADSs (or portion thereof)</span></td></tr>
  <tr style="background-color: White">
    <td colspan="2" style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">(d) </span></td>
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">Withdrawing an underlying security</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 10pt">Acceptance of ADRs surrendered for withdrawal of deposited securities</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 10pt">US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs
    surrendered</span></td></tr>
  <tr style="background-color: White">
    <td colspan="2" style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">(e) </span></td>
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">Transferring, splitting or grouping receipts</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; white-space: nowrap; vertical-align: top; text-indent: 0pt"><span style="font-size: 10pt">Transfers, combining or grouping of depositary
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    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; white-space: nowrap; vertical-align: top; text-indent: 0pt"><span style="font-size: 10pt">US$1.50 per ADS</span></td></tr>
  <tr style="background-color: White">
    <td colspan="2" style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; white-space: nowrap; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; white-space: nowrap; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td></tr>
  <tr style="background-color: rgb(204,238,255)">
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">(f) </span></td>
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 10pt">General depositary services, particularly those charged on an annual basis.</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; Other services performed
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    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; Provide information about
    the depositary&#8217;s right, if any, to collect fees and charges by offsetting them against dividends received and deposited securities</p></td>
    <td style="padding-left: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 10pt">US$0.02 per ADS (or portion thereof) not more than once each calendar
    year and payable at the sole discretion of the depositary by billing Holders or by deducting such charge from one or more cash dividends
    or other cash distributions</span></td></tr>

<tr style="background-color: White">
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td>
    <td style="padding-left: 0pt; vertical-align: top; text-indent: 0pt"><span style="font-size: 5pt">&#160;</span></td></tr>
<tr style="background-color: rgb(204,238,255)">
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top; width: 5%"><span style="font-size: 10pt">(g) </span></td>
    <td style="padding-left: 0pt; text-indent: 0pt; vertical-align: top; width: 15%"><span style="font-size: 10pt">Expenses of the depositary</span></td>
    <td style="padding-left: 0pt; width: 1%; text-indent: 0pt">&#160;</td>
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    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; Compliance with foreign
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    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; The depositary&#8217;s
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    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; Stock transfer or other
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    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; Cable, telex, facsimile
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    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; Expenses of the depositary
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    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 6.95pt; text-indent: -6.95pt">&#9679; Any other charge payable
    by depositary or its agents</p></td>
    <td style="padding-left: 0pt; width: 1%; text-indent: 0pt">&#160;</td>
    <td style="padding-left: 0pt; vertical-align: top; width: 25%; text-indent: 0pt"><span style="font-size: 10pt">Expenses payable at the sole discretion of the depositary by billing
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 6pt"><b><i>&#160;</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Payment from the Depositary</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 6pt"><b><i>&#160;</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Direct Payments</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><span style="font-size: 6pt"><b><i>&#160;</i></b></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">J.P. Morgan, as depositary,
has agreed to reimburse certain reasonable company expenses related to our ADR program and incurred by us in connection with the program.
For the years ended December 31, 2021 and 2022, the depositary reimbursed US$1.1 million and US$2.6 million, respectively. For the years
ended December 31, 2021 and 2022, 30% of the depositary reimbursement has been deducted as withholding income tax, respectively. The
amounts the depositary reimbursed are not perforce related to the fees collected by the depositary from ADR holders.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->118<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_016"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">PART II</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><div><a id="a_017"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 13. Defaults, Dividend Arrearages and Delinquencies</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">None.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_018"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A.&#8211;D. <span style="text-decoration:underline">Material Modifications to the
Rights of Security Holders</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">None.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">E. <span style="text-decoration:underline">Use of Proceeds</span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">None.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_019"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 15. Controls and Procedures</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Evaluation of Disclosure Controls and Procedures</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our management, with the
participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as
required by Rule 13a-15(b) under the Exchange Act.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Based upon this evaluation,
our management, with the participation of our chief executive officer and chief financial officer, has concluded that, as of December
31, 2022, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in by the SEC&#8217;s rules and forms, and that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->119<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Management&#8217;s Annual Report on Internal
Control over Financial Reporting</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such item is defined in Rules 13a-15(f) under
the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted
accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of a company&#8217;s assets, (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting
principles, and that a company&#8217;s receipts and expenditures are being made only in accordance with authorizations of a company&#8217;s
management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of a company&#8217;s assets that could have a material effect on the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As required by Section 404
of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our management assessed the effectiveness of the internal control
over financial reporting as of December 31, 2022 using criteria established in &#8220;Internal Control &#8212; Integrated Framework (2013)&#8221;
issued by the Committee of Sponsoring Organizations of the Treadway Commission.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Based on this assessment,
management concluded that our internal control over financial reporting was effective as of December 31, 2022, based on the criteria
established in &#8220;Internal Control&#8212;Integrated Framework (2013)&#8221; issued by the Committee of Sponsoring Organizations of
the Treadway Commission.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->120<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Report of Independent Registered Public Accounting
Firm</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">To the Shareholders and the Board of Directors of Fanhua Inc.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><i>Opinion on Internal Control over Financial Reporting</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have audited the internal
control over financial reporting of Fanhua Inc. and its subsidiaries (the &#8220;Company&#8221;) as of December 31, 2022, based on criteria
established in <i>Internal Control &#8212; Integrated Framework (2013)</i> issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2022, based on criteria established <i>in Internal Control &#8212; Integrated Framework (2013)</i> issued
by COSO.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States) (&#8220;PCAOB&#8221;), the consolidated
financial statements as of and for the year ended December 31, 2022, of the Company and our report dated April 25, 2023, expressed an
unqualified opinion on those financial statements and included explanatory paragraphs relating to the translation of Renminbi amounts
into United States dollars amounts on those financial statements and the financial statements.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Basis for Opinion</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Company&#8217;s management
is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management&#8217;s Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company&#8217;s internal control over financial reporting based on our audit. 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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We conducted our audit in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><i>Definition and Limitations of Internal Control
over Financial Reporting</i></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A company&#8217;s internal
control over financial reporting is a process designed 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. A company&#8217;s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company&#8217;s assets that could have a material effect on the financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 10pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Shenzhen, the People&#8217;s Republic of China</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">April 25, 2023</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 126; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->121<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Changes in Internal Control over Financial
Reporting</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Management has evaluated,
with the participation of our chief executive officer and chief financial officer, whether any changes in our internal control over financial
reporting that occurred during our last fiscal year have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Based on the evaluation we
conducted, management has concluded that except for the changes implemented by management in controls over the process to estimate variable
renewal commissions in relation to long-term life insurance products and the change in control owner of certain control activities due
to change to management, there has been no such change during the period covered by this annual report on Form 20-F.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22.5pt">&#160;</p><div>

</div><div><a id="a_020"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16A. Audit Committee Financial Expert</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our board of directors has
determined that Allen Lueth, an independent director (under the standards set forth in Rule 5605 of the Nasdaq Listing Rules and Rule
10A-3 under the Exchange Act) and member of our audit committee, is an audit committee financial expert.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_021"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16B. Code of Ethics</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">Our board of directors adopted
a code of business conduct and ethics that applies to our directors, officers and employees. We have posted a copy of our code of business
conduct and ethics on our investor relations website at http://ir.fanhuaholdings.com/governance.cfm.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_022"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16C. Principal Accountant Fees and Services</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On August 25, 2021, we engaged
Deloitte Touche Tohmatsu Certified Public Accountants LLP (&#8220;Deloitte&#8221;) as our independent registered public accounting firm,
and dismissed Deloitte Touche Tohmatsu (&#8220;Deloitte Hong Kong&#8221;). See also &#8220;Item 16F. Change in Registrant&#8217;s Certifying
Accountant.&#8221; The following table sets forth the aggregate fees by categories specified below in connection with certain professional
services rendered by Deloitte Hong Kong and Deloitte (PCAOB No. 1113) for the periods indicated.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify">Tax fees(3)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#8212;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 1.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: -0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The policy of our audit committee
is to pre-approve all audit and non-audit services provided by our independent registered public accounting firm, including audit services,
audit-related services, tax services and other services as described above, which are approved by the Audit Committee prior to the completion
of the audit.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"></p><div>

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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_023"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16D. Exemptions from the Listing Standards for Audit Committees</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_024"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">On December 20, 2022, our board
of directors announced a share repurchase program which authorized us to repurchase up to US$20 million of its American depositary shares
(&#8220;ADS&#8221;) from time to time. As of March 31, 2023 we had repurchased an aggregate of 72,465 ADSs (representing 1,449,300 ordinary
shares) of the Company, at an average price of approximately US$7.85 per ADS for a total amount of approximately US$0.6 million under
this share repurchase program.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">The following table summarizes
the shares repurchase activity for the periods indicated.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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Number&#160;of<br/>
ADSs<br/>
Purchased</b></p></td><td style="white-space: nowrap; padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="white-space: nowrap; padding-bottom: 1.5pt; font-weight: bold">&#160;</td>
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Paid<br/>
 per ADSs</td><td style="white-space: nowrap; padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="white-space: nowrap; padding-bottom: 1.5pt; font-weight: bold">&#160;</td>
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 Purchased as Part of<br/>
 Publicly Announced<br/>
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 Value&#160;of&#160;ADSs&#160;that&#160;May<br/>
 Yet Be Purchased under<br/>
 the Program</td><td style="white-space: nowrap; padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left; padding-bottom: 1.5pt">Total</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">72,465</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">US$</td><td style="text-align: right">&#160;&#160;&#160;&#160;&#160;&#160;&#160;19,431,348.2</td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">There were no other purchases of any class of registered equity securities
of the Company by the Company or, to our knowledge, by any affiliated purchaser.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;&#160;</p><div>

</div><div><a id="a_025"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16F. Change in Registrant&#8217;s Certifying Accountant</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On August 25, 2021, we engaged
Deloitte as our independent registered public accounting firm, and dismissed Deloitte Hong Kong. The change of our independent registered
public accounting firm had been approved by our board and the audit committee of our board, and the decision was not made due to any disagreements
between us and Deloitte Hong Kong.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The reports of Deloitte Hong
Kong on our consolidated financial statements for the fiscal years ended December&#160;31, 2019 and 2020 did not contain an adverse opinion
or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">During the fiscal years ended
December&#160;31, 2019 and 2020 and the subsequent interim period through August 25, 2021, there have been no (i)&#160;disagreements between
us and Deloitte Hong Kong on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedure,
which disagreements if not resolved to the satisfaction of Deloitte Hong Kong would have caused them to make reference thereto in their
reports on the consolidated financial statements for such years, or (ii)&#160;reportable events as defined in Item 16F(a)(1)(v) of the
instructions to Form&#160;20-F.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have provided Deloitte
Hong Kong with a copy of the disclosures here under this Item 16F and required under Item 16F of Form&#160;20-F&#160;and requested from
Deloitte Hong Kong a letter addressed to the SEC indicating whether it agrees with such disclosures. A copy of Deloitte Hong Kong&#8217;s
letter dated April 29, 2022 was attached as Exhibit 15.5 in our annual report on Form 20-F filed with the Commission on April 29, 2022.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24.5pt; background-color: white">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">During the fiscal years ended
December&#160;31, 2019 and 2020 and the subsequent interim period through August 25, 2021, neither we nor anyone on behalf of us has consulted
with Deloitte regarding (i)&#160;the application of accounting principles to a specific transaction, either completed or proposed, or
the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice
was provided to us that Deloitte concluded was an important factor considered by us in reaching a decision as to any accounting, audit,
or financial reporting issue, (ii)&#160;any matter that was the subject of a disagreement pursuant to Item 16F(a)(1)(iv) of the instructions
to Form&#160;20-F,&#160;or (iii)&#160;any reportable event pursuant to Item 16F(a)(1)(v) of the instructions to Form&#160;20-F.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"></p><div>

</div><!-- Field: Page; Sequence: 128; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->123<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_026"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16G. Corporate Governance</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Nasdaq Stock Market Rule
5620(a) requires each issuer to hold an annual meeting of shareholders no later than one year after the end of the issuer&#8217;s fiscal
year-end. However, Nasdaq Stock Market Rule 5615(a)(3) permits foreign private issuers like us to follow &#8220;home country practice&#8221;
in certain corporate governance matters. Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel, has provided a letter to the Nasdaq
Stock Market certifying that under Cayman Islands law, we are not required to hold annual shareholder meetings every year. We followed
home country practice with respect to annual meetings and did not hold an annual meeting of shareholders from 2009 to 2015 and from 2017
to 2021. However, we held an extraordinary general meeting on December 6, 2016 and obtained requisite shareholders&#8217; approval to
change the Company name from &#8220;CNinsure Inc.&#8221; to &#8220;Fanhua Inc.&#8221;. We may hold annual or extraordinary shareholder
meetings in the future if there are significant issues that require shareholders&#8217; approvals.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We obtained approvals from
the board of directors on November 27, 2014 and December 12, 2014 to issue up to 150,000,000 ordinary shares of the Company (the &#8220;Shares&#8221;)
to our employees, excluding directors and officers. The purchase prices for the Shares are based on the average closing prices for the
then 20 trading days prior to the board approvals.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On August 29, 2018, we obtained
approvals from the board of directors to resell 28,475,480 ordinary shares, in the form of 1,423,774 ADS of treasury stocks and newly
issue and sell 101,524,520 ordinary shares in the form of 5,076,226 ADSs to participants in our 521 plan consisting of our key employees
and entrepreneurial team leaders, at $25.52 per ADS, or the weighted average of the closing prices of the share repurchases under the
2018 Share Repurchase Program.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On August 12, 2022, our
board of directors adopted a share incentive plan under which we have reserved 161,143,768 ordinary shares for issuance, which was approximately
15% of our issued and outstanding ordinary shares as of June 30, 2022.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to the Nasdaq Stock
Market Rule 5635(c), shareholder approval is required prior to the issuance of securities when a stock option or purchase plan is to
be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may
be acquired by officers, directors, employees, or consultants, except for a few situations stated thereunder. In relations to the 521
Plan Transaction and the 2022 Share Incentive Plan mentioned above, Maples and Calder (Hong Kong) LLP, our Cayman Island counsel, has
provided letters to the Nasdaq Stock Market certifying that under Cayman Islands law, we are not required to obtain shareholder approval
in respect of the issuance of securities in the circumstances set out in Nasdaq Stock Market Rule 5635(c). We follow home country practices
accordingly.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Other than the annual meeting
and share purchase plan to employees practices described above, there are no significant differences between our corporate governance
practices and those followed by U.S. domestic companies under Nasdaq Stock Market Rules.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_027"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16H. Mine Safety Disclosure.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_028"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">In May 2022, we were conclusively
listed by the SEC as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal
year ended December 31, 2021. Our auditor, a registered public accounting firm that the PCAOB was unable to inspect or investigate completely
in 2021, issued the audit report for us for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB announced that it
has secured complete access to inspect and investigate completely PCAOB-registered public accounting firms headquartered in mainland China
and Hong Kong. The PCAOB also vacated its previous determinations issued in December 2021. For this reason, we do not expect to be identified
as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of the date of this
annual report, to our knowledge, no governmental entities in the Cayman Islands own any shares of Fanhua Inc. or the consolidated
VIEs in China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of the date this annual
report, Hongkong Chiho Limited, a company incorporated in Hong Kong, holds 0.3% of the total outstanding ordinary shares of Fanhua Inc.
China&#8217;s state-owned legal persons indirectly own 100% of the equity interests in Hongkong Chiho Limited and in turn indirectly
holds approximately 0.3% of the total outstanding ordinary shares of Fanhua Inc. To our knowledge, no other governmental entities in
China own any shares of Fanhua Inc. or the consolidated VIEs as of the date of this annual report. The governmental entities in China
do not have a controlling financial interest in Fanhua Inc. or the consolidated VIEs as of the date of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of the date of this annual report, to our knowledge, (i) none of
the members of the board of directors of Fanhua Inc. or our operating entities, including the consolidated VIEs, is an official of the
Chinese Communist Party, and (ii) none of the currently effective memorandum and articles of association (or equivalent organizing document)
of Fanhua Inc. or the consolidated VIEs contains any charter of the Chinese Communist Party.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><div><a id="a_029"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 16J. Insider Trading Policies.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Not applicable.</p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt"></p><div>

</div><!-- Field: Page; Sequence: 129; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->124<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><div><a id="a_030"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">PART III</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><div><a id="a_031"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 17. Financial Statements</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">We have elected to provide
financial statements pursuant to Item 18.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_032"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 18. Financial Statements</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">The consolidated financial
statements of Fanhua Inc. and its subsidiaries and VIEs are included at the end of this annual report.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">&#160;</p><div>

</div><div><a id="a_033"></a></div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">Item 19. Exhibits</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr>
    <td style="padding: 0pt; border-bottom: black 1.5pt solid; vertical-align: bottom; width: 10%; text-indent: 0pt"><span style="font-size: 10pt"><b>Exhibit Number</b></span></td>
    <td style="padding: 0pt; vertical-align: top; width: 1%; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; border-bottom: black 1.5pt solid; text-align: justify; vertical-align: top; width: 89%; text-indent: 0pt"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Description of Document</b></p></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">1.1</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="https://www.sec.gov/Archives/edgar/data/1413855/000119312507216115/dex32.htm"><span style="font-size: 10pt">Amended
    and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.2 of our F-1 registration
    statement (File No. 333-146605), as adopted by special resolution dated December 6, 2016, initially filed with the Commission on
    October 10, 2007)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">1.2</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="https://www.sec.gov/Archives/edgar/data/1413855/000136231008008418/c78562exv99w2.htm"><span style="font-size: 10pt">Amendments
    to the Articles of Association adopted by the shareholders of the Registrant on December 18, 2008 (incorporated by reference to Exhibit
    99.2 of our report on Form 6-K furnished to the Commission on December 22, 2008)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">1.3</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="https://www.sec.gov/Archives/edgar/data/1413855/000121390017003986/f20f2016ex1iii_fanhuainc.htm"><span style="font-size: 10pt">Amendments
    to the Articles of Association adopted by the shareholders of the Registrant on December 6, 2016 (incorporated by reference to Exhibit
    1.3 of our annual report on Form 20-F initially filed with the Commission on April 19, 2017)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">2.1</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="http://www.sec.gov/Archives/edgar/data/1413855/000119380517003531/e617517_ex99-a.htm"><span style="font-size: 10pt">Registrant&#8217;s
    Specimen American Depositary Receipt (included in Exhibit 2.3)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">2.2</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="https://www.sec.gov/Archives/edgar/data/1413855/000119312507216115/dex42.htm"><span style="font-size: 10pt">Registrant&#8217;s
    Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 of our F-1 registration statement (File No. 333-146605),
    as amended, initially filed with the Commission on October 10, 2007)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">2.3</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="https://www.sec.gov/Archives/edgar/data/1413855/000119380517003531/e617517_ex99-a.htm"><span style="font-size: 10pt">Form
    of Deposit Agreement among the Registrant, the depositary and holder of the American Depositary Receipts, as amended and restated
    (incorporated by reference to Exhibit 99.(a) of our F-6 registration statement (File No. 333-146765), filed with the Commission on
    November 28, 2017</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">2.4</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><span style="font-size: 10pt"><a href="http://www.sec.gov/Archives/edgar/data/1413855/000121390022022703/f20f2021ex2-4_fanhuainc.htm">Description of Securities (incorporated by reference to Exhibit 2.4 of our annual report on Form 20-F (File No. 001-33768), filed with the Securities and Exchange Commission on April 29, 2022)</a></span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">4.1</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="https://www.sec.gov/Archives/edgar/data/1413855/000136231008008418/c78562exv99w3.htm"><span style="font-size: 10pt">2007
    Share Incentive Plan (as amended and restated effective December 18, 2008) (incorporated by reference to Exhibit 99.3 of our report
    on Form 6-K furnished to the Commission on December 22, 2008)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">4.2</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="https://www.sec.gov/Archives/edgar/data/1413855/000119312507216115/dex103.htm"><span style="font-size: 10pt">Form
    of Indemnification Agreement with the Registrant&#8217;s directors and officers (incorporated by reference to Exhibit 10.3 of our
    F-1 registration statement (File No. 333-146605), as amended, initially filed with the Commission on October 10, 2007)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">4.3</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="https://www.sec.gov/Archives/edgar/data/1413855/000119312507216115/dex104.htm"><span style="font-size: 10pt">Form
    of Director Agreement with Independent Directors of the Registrant (incorporated by reference to Exhibit 10.4 of our F-1 registration
    statement (File No. 333-146605), as amended, initially filed with the Commission on October 10, 2007)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">4.4</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="https://www.sec.gov/Archives/edgar/data/1413855/000136231009007689/c85487exv4w4.htm"><span style="font-size: 10pt">Form
    of Employment Agreement between the Registrant and an Executive Officer of the Registrant (incorporated by reference to Exhibit 4.4
    of our annual report on Form 20-F filed with the Commission on May 15, 2009)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">4.5&#8224;</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="http://www.sec.gov/Archives/edgar/data/1413855/000121390022022703/f20f2021ex4-6_fanhuainc.htm"><span style="font-size: 10pt">English translation of Loan Agreement dated December 6, 2021 between Fanhua Insurance Sales and Service Group Company Limited and Shuangping Jiang (incorporated by reference to Exhibit 4.6 of our annual report on Form 20-F filed with the Commission on April 29, 2022)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">4.6&#8224;</span><p style="margin: 0pt 0; font: 10pt Times New Roman, Times, Serif"></p></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="http://www.sec.gov/Archives/edgar/data/1413855/000121390022022703/f20f2021ex4-7_fanhuainc.htm"><span style="font-size: 10pt">English translation of Equity Pledge Contract dated December 6, 2021 among Fanhua Insurance Sales and Service Group Company Limited, Shuangping Jiang and Shenzhen Xinbao Investment Management Co., Ltd. (incorporated by reference to Exhibit 4.7 of our annual report on Form 20-F filed with the Commission on April 29, 2022)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td style="padding: 0pt; text-indent: 0pt"><span style="font-size: 10pt">4.7&#8224;</span></td>
    <td style="padding: 0pt; text-indent: 0pt">&#160;</td>
    <td style="padding: 0pt; text-align: justify; text-indent: 0pt"><a href="http://www.sec.gov/Archives/edgar/data/1413855/000121390022022703/f20f2021ex4-8_fanhuainc.htm"><span style="font-size: 10pt">English translation of Exclusive Purchase Option Contract dated December 6, 2021 among Fanhua Insurance Sales and Service Group Company Limited, Shuangping Jiang and Shenzhen Xinbao Investment Management Co., Ltd. (incorporated by reference to Exhibit 4.8 of our annual report on Form 20-F filed with the Commission on April 29, 2022)</span></a></td></tr>
</table><div>
</div><p style="font: bold 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="margin: 0"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: normal 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">- <!-- Field: Sequence; Type: Arabic; Name: PageNo -->125<!-- Field: /Sequence --> -</p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="margin: 0">&#160;</p><div>

</div><p style="margin: 0"></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<tr>
    <td style="border-bottom: black 1.5pt solid; vertical-align: bottom; width: 10%"><span style="font-size: 10pt"><b>Exhibit Number</b></span></td>
    <td style="vertical-align: top; padding-bottom: 1.5pt; width: 1%">&#160;</td>
    <td style="border-bottom: black 1.5pt solid; text-align: justify; vertical-align: top; width: 89%"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;&#160;</p>
    <p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Description of Document</b></p></td></tr>

<tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td style="width: 10%"><span style="font-size: 10pt">4.8&#8224;</span></td>
    <td style="width: 1%">&#160;</td>
    <td style="text-align: justify; width: 89%"><a href="http://www.sec.gov/Archives/edgar/data/1413855/000121390022022703/f20f2021ex4-9_fanhuainc.htm"><span style="font-size: 10pt">English translation of Power of Attorney dated December 6, 2021 of Shuangping Jiang (incorporated by reference to Exhibit 4.9 of our annual report on Form 20-F filed with the Commission on April 29, 2022)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><span style="font-size: 10pt">4.9&#8224;</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1413855/000121390022022703/f20f2021ex4-10_fanhua.htm"><span style="font-size: 10pt">English translation of Technology Consulting and Service Agreement dated March 1, 2022 between Fanhua Insurance Sales and Service Group Company Limited and Shenzhen Xinbao Investment Management Co., Ltd. (incorporated by reference to Exhibit 4.10 of our annual report on Form 20-F filed with the Commission on April 29, 2022)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-size: 10pt">4.10*</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-size: 10pt"><a href="f20f2022ex4-10_fanhuainc.htm">2022 Share Incentive Plan</a></span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><span style="font-size: 10pt">4.11*&#8224;</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex4-11_fanhuainc.htm"><span style="font-size: 10pt">English
    translation of Loan Agreement dated July 1, 2022 between Beijing Fanlian Investment Co., Ltd. and Peng
    Ge</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-size: 10pt">4.12*&#8224;</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-size: 10pt"><a href="f20f2022ex4-12_fanhuainc.htm">English translation of Equity Pledge Contract dated July 1, 2022 among Beijing Fanlian Investment Co., Ltd., Peng Ge and Fanhua RONS (Beijing) Technologies Co., Ltd.</a></span></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><span style="font-size: 10pt">4.13*&#8224;</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-size: 10pt"><a href="f20f2022ex4-13_fanhuainc.htm">English translation of Exclusive Purchase Option Contract dated July 1, 2022 among Beijing Fanlian Investment Co., Ltd., Peng Ge and Fanhua RONS (Beijing) Technologies Co., Ltd.</a></span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-size: 10pt">4.14*&#8224;</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex4-14_fanhuainc.htm"><span style="font-size: 10pt">English
    translation of Power of Attorney dated July 1, 2022 of Peng Ge</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><span style="font-size: 10pt">4.15*</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><span style="font-size: 10pt"><a href="f20f2022ex4-15_fanhuainc.htm">English translation of Form of Consulting and Service Agreement among Fanlian Investment Co., Ltd. and Fanhua RONS Technologies Co., Ltd. and each of its subsidiaries</a>&#160;&#160;</span></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-size: 10pt">8.1*</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex8-1_fanhuainc.htm"><span style="font-size: 10pt">Subsidiaries and Affiliated Entities of the Registrant</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><span style="font-size: 10pt">11.1</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="http://www.sec.gov/Archives/edgar/data/1413855/000119312507216115/dex991.htm"><span style="font-size: 10pt">Code
    of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 of our F-1 registration statement (File
    No. 333-146605), as amended, initially filed with the Commission on October 10, 2007)</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-size: 10pt">12.1*</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex12-1_fanhuainc.htm"><span style="font-size: 10pt">CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><span style="font-size: 10pt">12.2*</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex12-2_fanhuainc.htm"><span style="font-size: 10pt">CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-size: 10pt">13.1**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex13-1_fanhuainc.htm"><span style="font-size: 10pt">CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><span style="font-size: 10pt">13.2**</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex13-2_fanhuainc.htm"><span style="font-size: 10pt">CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-size: 10pt">15.1*</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex15-1_fanhuainc.htm"><span style="font-size: 10pt">Consent of Maples and Calder (Hong Kong) LLP</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><span style="font-size: 10pt">15.2*</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex15-2_fanhuainc.htm"><span style="font-size: 10pt">Consent of Hai Run Law Firm</span></a></td></tr>
  <tr style="vertical-align: top; background-color: rgb(204,238,255)">
    <td><span style="font-size: 10pt">15.3*</span></td>
    <td>&#160;</td>
    <td style="text-align: justify"><a href="f20f2022ex15-3_fanhuainc.htm"><span style="font-size: 10pt">Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP</span></a></td></tr>
  <tr style="vertical-align: top; background-color: White">
    <td><span style="font-size: 10pt">15.4*</span></td>
    <td>&#160;</td>
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    <td style="text-align: justify"><span style="font-size: 10pt"><a href="f20f2022ex15-6_fanhuainc.htm">Submission under Item 16I(a) of Form 20-F in relation to the Holding Foreign Companies Accountable Act</a></span></td></tr>
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<td style="width: 0in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">*</span></td><td style="text-align: justify"><span style="font-size: 10pt">Filed with this Annual Report
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</tr></table><div>

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<td style="width: 0in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">**</span></td><td style="text-align: justify"><span style="font-size: 10pt">Furnished with this Annual Report
on Form 20-F.</span></td>
</tr></table><div>


</div><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0in"></td><td style="width: 0.25in; text-align: left">&#8224;</td><td style="text-align: justify">Portions of this exhibit have been omitted in accordance with
Instruction 4 to Item 19 of Form 20-F</td>
</tr></table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.55pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.55pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.55pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>SIGNATURES</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 20pt">The registrant hereby certifies
that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
  <tr style="vertical-align: top">
    <td>&#160;</td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td colspan="3" style="text-align: justify">&#160;</td></tr>
  <tr style="vertical-align: top">
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    <td style="text-align: justify"><span style="font-size: 10pt">By:</span></td>
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  <tr style="vertical-align: top">
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
    <td style="text-align: justify">&#160;</td>
    <td style="text-align: justify">&#160;</td>
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  <tr style="vertical-align: top">
    <td><span style="font-size: 10pt">Date: April 25, 2023</span></td>
    <td>&#160;</td>
    <td colspan="2">&#160;</td></tr>
  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse"> <tr> <td style="text-indent: -0.125in; padding-left: 0.125in; vertical-align: top; width: 90%; text-align: right">&#160;</td> <td style="vertical-align: top; width: 1%">&#160;</td> <td style="border-bottom: black 1.5pt solid; vertical-align: bottom; width: 9%; text-align: center"><span style="font-size: 10pt"><b>Page</b></span></td></tr> <tr> <td style="text-indent: -0.125in; padding-left: 0.125in; vertical-align: top; text-align: right">&#160;</td> <td style="vertical-align: top">&#160;</td> <td style="vertical-align: bottom; text-align: center">&#160;</td></tr> <tr style="background-color: #CCEEFF"> <td style="text-indent: -0.125in; padding-left: 0.125in; vertical-align: top; text-align: justify"><span style="font-size: 10pt"><a href="#f_001">Report of Independent Registered Public Accounting Firm - Deloitte Touche Tohmatsu Certified Public Accountants LLP (PCAOB No. <ix:nonNumeric contextRef="c0" name="dei:AuditorFirmId">1113</ix:nonNumeric>)</a></span></td> <td style="vertical-align: top">&#160;</td> <td style="vertical-align: bottom; 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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 8.65pt; text-align: justify"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><div><a id="f_001"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>To the Shareholders and the Board of Directors of Fanhua Inc.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Opinion on the Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">We have audited the accompanying
consolidated balance sheets of Fanhua Inc. and its subsidiaries (the &#8220;Company&#8221;) as of December 31, 2022 and 2021, the related
consolidated statements of income and comprehensive income, shareholders&#8217; equity, and cash flows, for each of the two years in the
period ended December 31, 2022, and the related notes and schedule I (collectively referred to as the &#8220;financial statements&#8221;).
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022,
in conformity with accounting principles generally accepted in the United States of America.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt"><span>We did not audit the financial
statements of CNFinance Holdings Limited, or CNFinance, the Company&#8217;s investment in which is accounted for by use of the equity
method. The accompanying financial statements of the Company include its equity investment in CNFinance of RMB329 million as of December
31, 2021, and its equity earnings in CNFinance of RMB11 million for the year ended December 31, 2021. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for CNFinance, is
based solely on the report of the other auditors.</span></p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">We have also audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States) (&#8220;PCAOB&#8221;), the Company&#8217;s internal
control over financial reporting as of December 31, 2022, based on criteria established in <i>Internal Control &#8211; Integrated Framework
(2013)</i> issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 25, 2023, expressed
an unqualified opinion on the Company&#8217;s internal control over financial reporting.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Convenience Translation</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">Our audits also comprehended
the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity
with the basis stated in Note 2(u) to the financial statements. Such United States dollar amounts are presented solely for the convenience
of readers outside of People&#8217;s Republic of China.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Basis for Opinion</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">These financial statements
are the responsibility of the Company&#8217;s management. Our responsibility is to express an opinion on the Company&#8217;s 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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">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 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 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
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 financial statements. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 22pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>Critical Audit Matter</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The critical audit matter
communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to
be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the 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 financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>Revenue recognition: Estimate of variable
renewal commissions for long-term life insurance products and impact on revenue recognized &#8212; Refer to Note 2(q) to the financial
statements</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Critical Audit Matter
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Company recognized agency
revenues for the life insurance business of approximately RMB2,237.3 million in 2022 of which RMB245.7 million relates to estimated variable
renewal commissions for long-term life insurance products. As described in Note 2(q) to its financial statements, the Company uses the
expected value method and considers constraints as well to estimate variable renewal commissions, which are contingent on future renewals
of initial policies or achievement of certain performance targets. Given the material uncertainty around the future renewal of the insurance
policies, the estimated renewal commissions expected to be collected are recognized as revenue only to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Auditing management&#8217;s
determination of estimated variable renewal commissions was complex and highly judgmental due to the complexity of the models used and
the subjectivity required by the Company to estimate the amount for future renewals of policies, calculate the amount of commission revenue
that is probable of not being reversed, and determine the timing and amount of any revenue adjustment that results from changes in the
estimates of previously recorded estimated renewal commissions. The Company utilizes statistical methodologies to estimate renewal rate(s),
which is a key driver when estimating the amount of future renewals of policies. To determine the constraint to be applied to estimated
renewal commissions, the Company evaluates historical experiences and data and applies judgment. For the ongoing evaluation of assumptions,
the Company also analyzes whether circumstances have changed and considers any known or potential modifications to the inputs into estimated
renewal commissions model and the factors that can impact the amount of renewal commissions expected to be collected in future periods
such as commission rates, insurance products composition, renewal terms of insurance products and changes in relevant laws and regulations.
The judgment and assumptions are continuously re-evaluated and adjusted as needed along with the accumulation of historical experiences
and data when new information becomes available.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Given the significant judgment
required to determine the amount of estimated variable renewal commissions, performing audit procedures to evaluate the reasonableness
of management&#8217;s assessment required a high degree of auditor judgment and an increased extent of effort.</p><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>How the Critical Audit
Matter Was Addressed in the Audit</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Our audit procedures related
to the evaluation of the reasonableness of the Company&#8217;s estimate of variable renewal commissions for long-term life insurance products
discussed above included the following, among others:</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
  <tr style="vertical-align: top">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 35.7pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 35.7pt; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; width: 100%">
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  </table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify">&#160;&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">/s/ <ix:nonNumeric contextRef="c0" name="dei:AuditorName">Deloitte Touche Tohmatsu</ix:nonNumeric> Certified Public Accountants LLP</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><ix:nonNumeric contextRef="c0" name="dei:AuditorLocation">Shenzhen, the People&#8217;s Republic of China</ix:nonNumeric></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">April 25, 2023</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We have served as the Company&#8217;s auditor
since 2021.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 135; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->3<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><div><a id="f_002"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>To the Shareholders and the Board of Directors
of Fanhua Inc.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Opinion on the Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We have audited the
accompanying consolidated statement of income and comprehensive income, shareholders&#8217; equity, and cash flows of Fanhua Inc.
and its subsidiaries (the &#8220;Company&#8221;) <span>for the year ended</span> December 31,
2020, and the related notes and schedule I (collectively referred to as the &#8220;financial statements&#8221;). In our opinion,
based on our audits and the report of the other auditor, the financial statements present fairly, in all material respects, and the
results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">We did not audit the financial statements of CNFinance
Holdings Limited, or CNFinance, the Company&#8217;s investment in which is accounted for by use of the equity method. The accompanying
financial statements of the Company include its equity earnings in CNFinance of RMB18 million for the year ended December 31, 2020. This
statement was audited by other auditors whose report (which, as to 2020, included an explanatory paragraph concerning completion of a
reorganization) has been furnished to us, and our opinion, insofar as it relates to the amounts included for CNFinance, is based solely
on the report of the other auditors.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Basis for Opinion</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">These financial statements are the responsibility
of the Company&#8217;s management. Our responsibility is to express an opinion on the Company&#8217;s 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.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">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 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 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 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 financial statements. We believe that our audits and the report of the other auditors provide a reasonable basis for
our opinion.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">/s/ Deloitte Touche Tohmatsu</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Certified Public Accountants</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Hong Kong</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">April 25, 2023</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">We began serving as the Company&#8217;s auditor
in 2007. In 2021 we became the predecessor auditor.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 136; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><div><a id="f_003"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>Consolidated Balance Sheets<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%">
  <tr style="vertical-align: bottom">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 137; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->5<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Consolidated Balance Sheets&#8212;(Continued)<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Consolidated Balance Sheets&#8212;(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part of
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><div><a id="f_004"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Consolidated Statements of Income and Comprehensive
Income<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; text-indent: -1.55pt; padding-left: 8.65pt">P&amp;C insurance business</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: left; text-indent: -8.65pt; padding-left: 8.65pt">Income from operations</td><td style="font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:OtherNonoperatingIncomeExpense" scale="3" sign="-" unitRef="usd">554</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  </table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 140; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->8<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Consolidated Statements of Income and Comprehensive
Income&#8212;Continued<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td>&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part of
the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>




</div><div><a id="f_005"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>Consolidated Statements of Shareholders&#8217;
Equity<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

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  <tr style="font: 8pt Times New Roman, Times, Serif; vertical-align: bottom; background-color: White">
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  <tr style="font: 8pt Times New Roman, Times, Serif; vertical-align: bottom; background-color: White">
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    <td style="font: 8pt Times New Roman, Times, Serif; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td><td style="font: 8pt Times New Roman, Times, Serif; text-align: right"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#8212;</span></td><td style="font: 8pt Times New Roman, Times, Serif; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td><td style="font: 8pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td>
    <td style="font: 8pt Times New Roman, Times, Serif; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td><td style="font: 8pt Times New Roman, Times, Serif; text-align: right"><span style="-sec-ix-hidden: hidden-fact-54; font-family: Times New Roman, Times, Serif; font-size: 8pt">&#8212;</span></td><td style="font: 8pt Times New Roman, Times, Serif; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td><td style="font: 8pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td>
    <td style="font: 8pt Times New Roman, Times, Serif; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td><td style="font: 8pt Times New Roman, Times, Serif; text-align: right"><span style="-sec-ix-hidden: hidden-fact-55; font-family: Times New Roman, Times, Serif; font-size: 8pt">&#8212;</span></td><td style="font: 8pt Times New Roman, Times, Serif; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td><td style="font: 8pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td>
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    <td style="font: 8pt Times New Roman, Times, Serif; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td><td style="font: 8pt Times New Roman, Times, Serif; text-align: right"><span style="-sec-ix-hidden: hidden-fact-57; font-family: Times New Roman, Times, Serif; font-size: 8pt">&#8212;</span></td><td style="font: 8pt Times New Roman, Times, Serif; text-align: left"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td><td style="font: 8pt Times New Roman, Times, Serif"><span style="font-family: Times New Roman, Times, Serif; font-size: 8pt">&#160;</span></td>
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  <tr style="font: 8pt Times New Roman, Times, Serif; vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->10<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Consolidated Statements of Shareholders&#8217; Equity&#8212;(Continued)<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 8pt Times New Roman, Times, Serif; border-collapse: collapse; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part of
the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 143; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->11<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><div><a id="f_006"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>Consolidated Statements of Cash Flows</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

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  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: center">&#160;</td><td style="text-align: center; font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: center">&#160;</td><td style="text-align: center; font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Interest accrued for other receivables (loan receivables)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-154">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-155">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font-weight: bold; text-align: left">Changes in operating assets and liabilities:</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Accounts receivable</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsReceivable" scale="3" unitRef="usd">216</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Contract assets</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInContractWithCustomerAsset" scale="3" unitRef="cny">67,294</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInContractWithCustomerAsset" scale="3" unitRef="cny">204,249</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Insurance premium receivables</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInPremiumsReceivable" scale="3" sign="-" unitRef="cny">5,067</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-156">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-157">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-158">&#8212;</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Other receivables</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherReceivables" scale="3" sign="-" unitRef="cny">4,452</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Other current assets</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherCurrentAssets" scale="3" sign="-" unitRef="cny">13,839</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherCurrentAssets" scale="3" sign="-" unitRef="usd">1,250</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Other non-current assets</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherNoncurrentAssets" scale="3" sign="-" unitRef="cny">2,245</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherNoncurrentAssets" scale="3" sign="-" unitRef="cny">2,284</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherNoncurrentAssets" scale="3" unitRef="cny">51</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherNoncurrentAssets" scale="3" unitRef="usd">7</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Accounts payable</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsPayable" scale="3" sign="-" unitRef="cny">5,496</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsPayable" scale="3" sign="-" unitRef="cny">37,104</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsPayable" scale="3" unitRef="cny">22,099</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccountsPayable" scale="3" unitRef="usd">3,204</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Accrued commissions</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-159">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedLiabilities" scale="3" unitRef="cny">139,706</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedLiabilities" scale="3" unitRef="cny">127,643</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedLiabilities" scale="3" unitRef="usd">18,506</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Insurance premium payables</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="fanh:InsurancePremiumPayables" scale="3" sign="-" unitRef="cny">17,520</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="fanh:InsurancePremiumPayables" scale="3" unitRef="cny">1,367</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="fanh:InsurancePremiumPayables" scale="3" unitRef="cny">7,375</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="fanh:InsurancePremiumPayables" scale="3" unitRef="usd">1,068</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Other payables and accrued expenses</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherAccountsPayableAndAccruedLiabilities" scale="3" sign="-" unitRef="cny">32,159</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherAccountsPayableAndAccruedLiabilities" scale="3" sign="-" unitRef="cny">131</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherAccountsPayableAndAccruedLiabilities" scale="3" sign="-" unitRef="cny">16,264</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInOtherAccountsPayableAndAccruedLiabilities" scale="3" sign="-" unitRef="usd">2,358</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Accrued payroll</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInEmployeeRelatedLiabilities" scale="3" unitRef="cny">4,075</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInEmployeeRelatedLiabilities" scale="3" unitRef="cny">6,265</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInEmployeeRelatedLiabilities" scale="3" sign="-" unitRef="cny">15,771</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInEmployeeRelatedLiabilities" scale="3" sign="-" unitRef="usd">2,286</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Income taxes payable</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedIncomeTaxesPayable" scale="3" sign="-" unitRef="cny">9,269</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedIncomeTaxesPayable" scale="3" sign="-" unitRef="cny">15,880</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedIncomeTaxesPayable" scale="3" sign="-" unitRef="cny">262</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncreaseDecreaseInAccruedIncomeTaxesPayable" scale="3" sign="-" unitRef="usd">38</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Lease liability</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="fanh:FinanceLeaseLiabilities" scale="3" unitRef="cny">98,866</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquirePropertyPlantAndEquipment" scale="3" unitRef="cny">15,250</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Disposal of subsidiaries, net of cash disposed of <span style="-sec-ix-hidden: hidden-fact-163">nil</span>, RMB<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashDivestedFromDeconsolidation" scale="3" unitRef="cny">2,040</ix:nonFraction> and <span style="-sec-ix-hidden: hidden-fact-164">nil</span> in 2020, 2021 and 2022, respectively</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-160">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-161">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-162">&#8212;</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Cash lent to third parties</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="fanh:PaymentToAcquireLoansReceivable" scale="3" unitRef="cny">90,000</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-165">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="fanh:PaymentToAcquireLoansReceivable" scale="3" unitRef="cny">205,800</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  </table><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>




</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 144; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->12<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>Consolidated Statements of Cash Flows</b>&#8212;<b>(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="14" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Year Ended December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2021</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2022</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">2022</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold">&#160;</td>
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    <td colspan="2" style="font-weight: bold; text-align: center">RMB</td><td style="font-weight: bold">&#160;</td><td style="font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: center">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: center">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: center">&#160;</td><td>&#160;</td><td style="font-weight: bold">&#160;</td>
    <td colspan="2" style="font-weight: bold; text-align: center">Note 2(u)</td><td style="font-weight: bold">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; width: 52%; text-align: left">Repayment of loan receivables from  third parties</td><td style="width: 1%">&#160;</td>
    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="fanh:ProceedsFromLoansReceivable" scale="3" sign="-" unitRef="cny">90,000</ix:nonFraction></td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Prepayment for purchase of short-term investments</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Proceeds from bank borrowings</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-174">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:RepaymentsOfOtherDebt" scale="3" unitRef="cny">250,312</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-175">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-176">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-177">&#8212;</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Dividends paid</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsOfDividends" scale="3" unitRef="cny">388,499</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Dividend distributed to noncontrolling interest</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-178">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="fanh:DividendDistributedToNoncontrollingInterest" scale="3" unitRef="cny">7,580</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-179">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-180">&#8212;</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left">Repurchase of ordinary shares from open&#160;market</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-181">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-182">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; padding-bottom: 1.5pt">Others</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-183">&#8212;</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:ProceedsFromPaymentsForOtherFinancingActivities" scale="3" sign="-" unitRef="cny">10,200</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:ProceedsFromPaymentsForOtherFinancingActivities" scale="3" unitRef="cny">3</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-184">&#8212;</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font-weight: bold; text-align: left; padding-bottom: 1.5pt">Net cash used in financing activities</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInFinancingActivities" scale="3" sign="-" unitRef="cny">638,811</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInFinancingActivities" scale="3" sign="-" unitRef="cny">260,298</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInFinancingActivities" scale="3" sign="-" unitRef="cny">20,371</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInFinancingActivities" scale="3" sign="-" unitRef="usd">2,954</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font-weight: bold; text-align: left; padding-bottom: 1.5pt">Net increase (decrease) in cash and cash equivalents, and restricted cash</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect" scale="3" unitRef="cny">88,825</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect" scale="3" unitRef="cny">316,299</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect" scale="3" sign="-" unitRef="cny">10,181</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect" scale="3" sign="-" unitRef="usd">1,477</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font-weight: bold; text-align: left">Cash and cash equivalents and restricted cash at beginning of year</td><td style="font-weight: bold">&#160;</td>
    <td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; text-align: right"><ix:nonFraction contextRef="c13" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsIncludingDisposalGroupAndDiscontinuedOperations" scale="3" unitRef="cny">265,605</ix:nonFraction></td><td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold">&#160;</td>
    <td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; text-align: right"><ix:nonFraction contextRef="c28" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsIncludingDisposalGroupAndDiscontinuedOperations" scale="3" unitRef="cny">350,098</ix:nonFraction></td><td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold">&#160;</td>
    <td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; text-align: right"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsIncludingDisposalGroupAndDiscontinuedOperations" scale="3" unitRef="cny">656,522</ix:nonFraction></td><td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold">&#160;</td>
    <td style="font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; text-align: right"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsIncludingDisposalGroupAndDiscontinuedOperations" scale="3" unitRef="usd">95,187</ix:nonFraction></td><td style="font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-indent: -0.125in; padding-left: 0.125in; text-align: left; padding-bottom: 1.5pt">Effect of exchange rate changes on cash and cash equivalents</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:EffectOfExchangeRateOnCashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents" scale="3" sign="-" unitRef="cny">9,875</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
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    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:EffectOfExchangeRateOnCashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents" scale="3" unitRef="usd">271</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-indent: -0.125in; padding-left: 0.125in; font-weight: bold; text-align: left">Supplemental disclosure of non-cash operating activity:</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-185">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-186">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-187">&#8212;</div></td><td style="text-align: left">&#160;</td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></p><div>

</div><!-- Field: Page; Sequence: 145; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->13<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Consolidated Statements of Cash Flows</b>&#8212;<b>(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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    <td colspan="2" style="text-align: center">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: center">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: center">&#160;</td><td>&#160;</td><td style="font-weight: bold">&#160;</td>
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    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td></tr>
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    <td style="text-indent: -0.125in; padding-left: 0.125in">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">The accompanying notes are an integral part of
the consolidated financial statements.</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></p><div>

</div><!-- Field: Page; Sequence: 146; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->14<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><div><a id="f_007"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>(1) Organization and Description of Business</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation id="_OrganizationConsolidationAndPresentationOfFinancialStatementsDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Fanhua Inc. (the &#8220;Company&#8221;)
(formally known as &#8220;CNinsure Inc.&#8221;) was incorporated in the Cayman Islands on April 10, 2007 and listed on the Nasdaq on October
31, 2007. The Company, its subsidiaries and the consolidated variable interest entities (the &#8220;VIEs&#8221;) are collectively referred
to as the &#8220;Group&#8221;. The Group is principally engaged in the provision of agency services and insurance claims adjusting services
in the People&#8217;s Republic of China (the &#8220;PRC&#8221;).</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_1" escape="true" name="us-gaap:SignificantAccountingPoliciesTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_2" id="_SignificantAccountingPoliciesTextBlock-c0_cont_1"><ix:nonNumeric contextRef="c0" continuedAt="_ConsolidationPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:ConsolidationPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(a)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Basis of Presentation
and Consolidation</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:nonNumeric></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_3" id="_SignificantAccountingPoliciesTextBlock-c0_cont_2"><ix:continuation continuedAt="_ConsolidationPolicyTextBlock-c0_cont_2" id="_ConsolidationPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The consolidated financial
statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America
(&#8220;US GAAP&#8221;). The consolidated financial statements include the financial statements of the Company, all its subsidiaries and
those VIEs of which the Company is the primary beneficiary from the dates they were acquired or incorporated. All intercompany balances
and transactions have been eliminated in consolidation.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_4" id="_SignificantAccountingPoliciesTextBlock-c0_cont_3"><ix:continuation id="_ConsolidationPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In order to comply with the
PRC laws and regulations which prohibit or restrict foreign control of companies involved in provision of internet content and other restricted
businesses, the Group operates certain of its businesses which are subject to restrictions in the PRC through PRC domestic companies,
whose equity interests are held by certain individuals (&#8220;Nominee Shareholders&#8221;). The Group obtained control over these PRC
domestic companies by entering into a series of contractual arrangements with these PRC domestic companies and their respective Nominee
Shareholders. Management concluded that these PRC domestic companies are consolidated VIEs of the Group, of which the Group is the primary
beneficiary. As such, the Group consolidated the financial results of these PRC domestic companies and their subsidiaries in the Group&#8217;s
consolidated financial statements. See Note 10 for details.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_5" id="_SignificantAccountingPoliciesTextBlock-c0_cont_4"><ix:nonNumeric contextRef="c0" continuedAt="_UseOfEstimates-c0_cont_1" escape="true" name="us-gaap:UseOfEstimates"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(b)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Use of Estimates</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:nonNumeric></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_6" id="_SignificantAccountingPoliciesTextBlock-c0_cont_5"><ix:continuation id="_UseOfEstimates-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The preparation of the consolidated
financial statements in conformity with US GAAP requires management of the Group to make a number of estimates and assumptions relating
to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reported period. The Group evaluates estimates, including
those related to the amounts of variable considerations of revenue contracts with respect to long-term life insurance products, the allowance
for credit losses of accounts receivable, contract assets, other receivables, fair values of certain debt and equity investments, the
useful lives of property, plant and equipment, impairment of long-lived assets, goodwill, investments in affiliates and other long-term
equity investments, and deferred tax valuation allowance among others. The Group, based their estimates on historical experience and various
other factors, believed to be reasonable under the circumstances, that the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those
estimates.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->15<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_7" id="_SignificantAccountingPoliciesTextBlock-c0_cont_6"><ix:nonNumeric contextRef="c0" continuedAt="_CashAndCashEquivalentsPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:CashAndCashEquivalentsPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(c)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Cash and Cash Equivalents
and Restricted Cash</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:nonNumeric></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_8" id="_SignificantAccountingPoliciesTextBlock-c0_cont_7"><ix:continuation continuedAt="_CashAndCashEquivalentsPolicyTextBlock-c0_cont_2" id="_CashAndCashEquivalentsPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Cash and cash equivalents
consist of cash on hand, bank deposits and short-term, highly liquid investments, which have original maturities of three months or less,
and that are readily convertible to known amounts of cash, and have insignificant risk of changes in value related to changes in interest
rates.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_9" id="_SignificantAccountingPoliciesTextBlock-c0_cont_8"><ix:continuation id="_CashAndCashEquivalentsPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In its capacity as an insurance
agent, the Group collects premiums from the insureds and remits the premiums to the appropriate insurance companies. Accordingly, as reported
in the consolidated statements of balance sheets, &#8220;premiums&#8221; are receivables from the insureds of RMB<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="fanh:InsurancePremiumReceivables" scale="3" unitRef="cny">24,459</ix:nonFraction> and RMB<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="fanh:InsurancePremiumReceivables" scale="3" unitRef="cny">15,847</ix:nonFraction>
as of December 31, 2021 and 2022, respectively. Unremitted net insurance premiums are held in a fiduciary capacity until disbursed by
the Group. The Group invests these unremitted funds only in cash accounts held for a short term, and reports such amounts as restricted
cash in the consolidated balance sheets. Also, restricted cash balance includes the entrustment deposit received from the members of eHuzhu,
an online mutual aid platform operated by the Group, which is to be used during the one-year operating cycle and is therefore classified
as a current asset. The balance for entrustment deposit was RMB<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="fanh:GuaranteeAndEntrustmentDeposits" scale="3" unitRef="cny">51,844</ix:nonFraction> and RMB<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="fanh:GuaranteeAndEntrustmentDeposits" scale="3" unitRef="cny">44,110</ix:nonFraction> as of December 31, 2021 and 2022, respectively. Further,
restricted cash balance includes guarantee deposit required by China Banking and Insurance Regulatory Commission (&#8220;CBIRC&#8221;)
in order to protect insurance premium appropriation by insurance agency which is restricted as to withdrawal for other than current operations.
Thus, the Group classified the balance for guarantee deposit as a non-current asset. The balance for guarantee was RMB<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="fanh:GuaranteeBalance" scale="3" unitRef="cny">15,595</ix:nonFraction> and RMB<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="fanh:GuaranteeBalance" scale="3" unitRef="cny">20,729</ix:nonFraction>
as of December 31, 2021 and 2022, respectively.<b>&#160;</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>&#160;</i></b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_10" id="_SignificantAccountingPoliciesTextBlock-c0_cont_9"><ix:nonNumeric contextRef="c0" continuedAt="fanh_ShortTermInvestmentsPolicyTextBlock-c0_cont_1" escape="true" name="fanh:ShortTermInvestmentsPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(d)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Short Term Investments</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:nonNumeric></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_11" id="_SignificantAccountingPoliciesTextBlock-c0_cont_10"><ix:continuation continuedAt="fanh_ShortTermInvestmentsPolicyTextBlock-c0_cont_2" id="fanh_ShortTermInvestmentsPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">All highly liquid investments
with original maturities less than twelve months or investments that are expected to be realized in cash during the next twelve months
are classified as short-term investments. The Group accounts for short-term debt investments in accordance with ASC Topic 320, <i>Investments
&#8211; Debt Securities</i> (&#8220;ASC 320&#8221;). The Company classifies the short-term investments in debt securities as held-to-maturity
or available-for-sale, whose classification determines the respective accounting methods stipulated by ASC 320. Dividend and interest
income for all categories of investments in securities are included in earnings. Any realized gains or losses on the sale of the short-term
investments are determined on a specific identification method, and such gains and losses are reflected in earnings during the period
in which gains or losses are realized.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_12" id="_SignificantAccountingPoliciesTextBlock-c0_cont_11"><ix:continuation continuedAt="fanh_ShortTermInvestmentsPolicyTextBlock-c0_cont_3" id="fanh_ShortTermInvestmentsPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Securities that the Group
has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost less
allowance for credit losses. The Group has no debt investments classified as trading. The Group&#8217;s short term investments are mainly
available-for-sale debt securities that do not have a quoted market price in an active market. Available-for-sale investments are carried
at fair values and the unrealized gains or losses from the changes in fair values are included in accumulated other comprehensive income
or loss. The Group benchmarks the values of its other investments against fair values of comparable investments and reference to product
valuation reports as of the balance sheet date, and categorizes all fair value measures of short term investments as level 2 of the fair
value hierarchy.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 148; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->16<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(d)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Short Term Investments
</i>(Continued)</b></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_13" id="_SignificantAccountingPoliciesTextBlock-c0_cont_12"><ix:continuation continuedAt="fanh_ShortTermInvestmentsPolicyTextBlock-c0_cont_4" id="fanh_ShortTermInvestmentsPolicyTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group evaluates each
individual available-for-sale debt securities periodically for impairment. For investments where the Group does not intend to sell, the
Group evaluates whether a decline in fair value is due to deterioration in credit risk. Credit-related impairment losses, not to exceed
the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses on the consolidated
balance sheet with corresponding adjustment in the consolidated statements of income and comprehensive income. Subsequent increases in
fair value due to credit improvement are recognized through reversal of the credit loss and corresponding reduction in the allowance for
credit loss. Any decline in fair value that is non-credit related is recorded in accumulated other comprehensive income as a component
of shareholder&#8217;s equity. As of December 31, 2022, there were no investments held by the Group that had been in continuous unrealized
loss position.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_14" id="_SignificantAccountingPoliciesTextBlock-c0_cont_13"><ix:continuation id="fanh_ShortTermInvestmentsPolicyTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">No impairment loss on short
term investments was identified for years ended December 31, 2020, 2021 and 2022, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_15" id="_SignificantAccountingPoliciesTextBlock-c0_cont_14"><ix:nonNumeric contextRef="c0" continuedAt="_ReceivablesPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:ReceivablesPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(e)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Accounts Receivable and
Contract Assets</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">&#160;</p></ix:nonNumeric></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_16" id="_SignificantAccountingPoliciesTextBlock-c0_cont_15"><ix:continuation continuedAt="_ReceivablesPolicyTextBlock-c0_cont_2" id="_ReceivablesPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Accounts receivable are recorded
at the amount that the Group expects to collect and do not bear interest. Accounts receivables represent fees receivable on agency and
claims adjusting services primarily from insurance companies.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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estimates allowances for expected credit losses using relevant available information from internal and external sources, related to past
events, the age of the accounts receivable and contract assets balances, current conditions, and reasonable and supportable forecasts.
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</div><div>

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</div><div>

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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 39.95pt; text-align: justify; text-indent: -4.5pt"><b><i>&#160;</i></b>&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(e)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Accounts Receivable and
Contract Assets </i>(Continued)</b></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 35.45pt">&#160;</p><div>

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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_21" id="_SignificantAccountingPoliciesTextBlock-c0_cont_20"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfCreditLossesForFinancingReceivablesCurrentTableTextBlock"><ix:continuation id="_ReceivablesPolicyTextBlock-c0_cont_6"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right"><ix:nonFraction contextRef="c13" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:AllowanceForDoubtfulAccountsReceivable" scale="3" unitRef="cny">20,495</ix:nonFraction></td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-190">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: justify; text-indent: -8.65pt; padding-left: 8.65pt">Current period provision (reversal of) for expected
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_27" id="_SignificantAccountingPoliciesTextBlock-c0_cont_26"><ix:nonNumeric contextRef="c0" continuedAt="_BusinessCombinationsPolicy-c0_cont_1" escape="true" name="us-gaap:BusinessCombinationsPolicy"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_28" id="_SignificantAccountingPoliciesTextBlock-c0_cont_27"><ix:continuation continuedAt="_BusinessCombinationsPolicy-c0_cont_2" id="_BusinessCombinationsPolicy-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In determining whether a
particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes,
at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The Group has an option
to apply a &#8216;concentration test&#8217; that permits a simplified assessment of whether an acquired set of activities and assets is
not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated
in a single identifiable asset or group of similar identifiable assets.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_29" id="_SignificantAccountingPoliciesTextBlock-c0_cont_28"><ix:continuation continuedAt="_BusinessCombinationsPolicy-c0_cont_3" id="_BusinessCombinationsPolicy-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Transactions in which the
acquired is considered a business are accounted for as a business combination as described below. Conversely, transactions not considered
as business acquisition are accounted for as acquisition of assets and liabilities. In such transactions, the cost of acquisition is allocated
proportionately to the acquired identifiable assets and liabilities, based on their proportionate fair value on the acquisition date.
In an assets acquisition, no goodwill is recognized, and no deferred taxes are recognized in respect of the temporary differences existing
on the acquisition date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_30" id="_SignificantAccountingPoliciesTextBlock-c0_cont_29"><ix:continuation continuedAt="_BusinessCombinationsPolicy-c0_cont_4" id="_BusinessCombinationsPolicy-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group accounts for its
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of an acquisition is measured as the aggregate of the acquisition date fair value of the assets transferred, liabilities incurred by the
Group to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred.
Identifiable assets acquired and liabilities assumed are measured separately at their fair value as of the acquisition date, irrespective
of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests
and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net
assets of the acquiree, is recorded as goodwill.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_31" id="_SignificantAccountingPoliciesTextBlock-c0_cont_30"><ix:continuation id="_BusinessCombinationsPolicy-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For the Group&#8217;s majority-owned
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not attributable, directly or indirectly, to the Group. Consolidated net income on the consolidated statements of income and comprehensive
income includes the net income attributable to non-controlling interests. The cumulative results of operations attributable to non-controlling
interests, are recorded as non-controlling interests on the Group&#8217;s consolidated balance sheets.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p></ix:continuation></ix:continuation><div>
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</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_32" id="_SignificantAccountingPoliciesTextBlock-c0_cont_31"><ix:nonNumeric contextRef="c0" continuedAt="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:GoodwillAndIntangibleAssetsPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font-size: 10pt; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(h)</i></b></span></td><td style="text-align: justify"><b><i>Goodwill and Other Intangible Assets</i></b></td>
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_33" id="_SignificantAccountingPoliciesTextBlock-c0_cont_32"><ix:continuation continuedAt="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_2" id="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Goodwill and amortization
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_34" id="_SignificantAccountingPoliciesTextBlock-c0_cont_33"><ix:continuation continuedAt="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_3" id="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Goodwill represents the excess
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impairment at the reporting unit level at least on an annual basis at the balance sheet date or more frequently if certain indicators
arise. The Group operated in two reporting units for the years ended December 31, 2021 and 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_35" id="_SignificantAccountingPoliciesTextBlock-c0_cont_34"><ix:continuation continuedAt="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_4" id="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The impairment test
is performed as of year-end or if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting
unit below its carrying amount by comparing the fair value of a reporting unit with its carrying value. If the fair value of the reporting
unit exceeds its carrying amount, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit
is less than the carrying value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting
unit&#8217;s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_36" id="_SignificantAccountingPoliciesTextBlock-c0_cont_35"><ix:continuation continuedAt="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_5" id="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The impairment review is
highly judgmental and involves the use of significant estimates and assumptions. These estimates and assumptions have a significant impact
on the amount of any impairment charge recorded. Estimates of fair value are primarily determined by using discounted cash flows. Discounted
cash flows method is dependent upon assumptions of future sales trends, market conditions and cash flows of each reporting unit over several
years. Actual cash flows in the future may differ significantly from those previously forecasted. Other significant assumptions include
growth rates and the discount rate applicable to future cash flows.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p></ix:continuation></ix:continuation><div>


</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(h)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Goodwill and Other Intangible
Assets </i>(Continued)</b></span></td>
</tr></table><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Goodwill and amortization
of intangible assets</i> (Continued)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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compared the carrying value of each reporting unit, inclusive of assigned goodwill, to its respective fair value. The fair value of all
reporting units was estimated by using the income approach. Based on this quantitative test, it was determined that the fair value of
each reporting unit tested exceeded its carrying amount and, therefore, the management concluded that goodwill was not impaired as of
December 31, 2021and 2022, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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assets are required to be determined separately from goodwill based on their fair values. In particular, an intangible asset acquired
in a business combination should be recognized as an asset separate from goodwill if it satisfies either the &#8220;contractual-legal&#8221;
or &#8220;separability&#8221; criterion. Intangible assets with a finite economic life are carried at cost less accumulated amortization.
Amortization for identifiable intangible assets categorized as customer relationships is computed using the accelerated method, while
amortization for other identifiable intangible assets is computed using the straight-line method over the intangible assets&#8217; economic
lives. Intangible assets with indefinite economic lives are not amortized but carried at cost less any subsequent accumulated impairment
losses. If an intangible asset that is not being amortized is subsequently determined to have a finite economic life, it will be tested
for impairment and then amortized prospectively over its estimated remaining economic life and accounted for in the same manner as other
intangible assets that are subject to amortization. Intangible assets with indefinite economic lives are tested for impairment annually
or more frequently if events or changes in circumstances indicate that they might be impaired.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_40" id="_SignificantAccountingPoliciesTextBlock-c0_cont_39"><ix:continuation continuedAt="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_9" id="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Impairment of intangible
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</div><div>

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of identifiable intangible assets with determinable useful lives whenever events or changes in circumstances indicate that these assets&#8217;
carrying amounts may not be recoverable. The Group measures the carrying amount of identifiable intangible assets with determinable useful
lives against the estimated undiscounted future cash flows associated with each asset. Impairment exists when the sum of the expected
future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which
the carrying value of the asset exceeds its fair value. Fair value is estimated based on various valuation techniques, including the discounted
value of estimated future cash flows. The evaluation of asset impairment requires the Group to make assumptions about future cash flows
over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed
and estimated amounts. The Group recognized no impairment losses on identifiable intangible assets with determinable useful lives in the
years ended December 31, 2020, 2021 and 2022.<i>&#160;</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_42" id="_SignificantAccountingPoliciesTextBlock-c0_cont_41"><ix:continuation continuedAt="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_11" id="_GoodwillAndIntangibleAssetsPolicyTextBlock-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Impairment of indefinite-lived
intangible assets</i>&#160;</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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is not subject to amortization is tested for impairment at least annually or more frequently if events or changes in circumstances indicate
that the asset might be impaired. Such impairment test is to compare the fair values of assets with their carrying amounts and an impairment
loss is recognized if and when the carrying amounts exceed the fair values. The estimates of fair values of intangible assets not subject
to amortization are determined using various discounted cash flow valuation methodologies. Significant assumptions are inherent in this
process, including estimates of discount rates or market price. Discount rate assumptions are based on an assessment of the risk inherent
in the respective intangible assets. Market prices are based on a potential purchase quote from a third party, if any. The Group recognized
no impairment losses on its indefinite-lived intangible assets in the years ended December 31, 2020, 2021 and 2022.<b><i>&#160;</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_44" id="_SignificantAccountingPoliciesTextBlock-c0_cont_43"><ix:nonNumeric contextRef="c0" continuedAt="_InvestmentPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:InvestmentPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(i)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Investment in Affiliates</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:nonNumeric></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_45" id="_SignificantAccountingPoliciesTextBlock-c0_cont_44"><ix:continuation continuedAt="_InvestmentPolicyTextBlock-c0_cont_2" id="_InvestmentPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group uses the equity
method of accounting for investments in which the Group has the ability to exercise significant influence, but does not have a controlling
interest.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_46" id="_SignificantAccountingPoliciesTextBlock-c0_cont_45"><ix:continuation id="_InvestmentPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group continually reviews
its investment in equity investees to determine whether a decline in fair value to an amount below the carrying value is other-than-temporary.
The primary factors the Group considers in its determination are the duration and severity of the decline in fair value; the financial
condition, operating performance and the prospects of the equity investee; and other company specific information such as the stock price
of the investee and its corresponding volatility, if publicly traded, the Group&#8217;s intent and ability to hold the investment until
recovery, and changes in the macro-economic, competitive and operational environment of the investee. If the decline in fair value is
deemed to be other-than-temporary, the carrying value of the equity investee is written down to fair value.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;&#160;</b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_47" id="_SignificantAccountingPoliciesTextBlock-c0_cont_46"><ix:nonNumeric contextRef="c0" continuedAt="_EquityMethodInvestmentsPolicy-c0_cont_1" escape="true" name="us-gaap:EquityMethodInvestmentsPolicy"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(j)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Long-term
Equity Investments</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;&#160;</p></ix:nonNumeric></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_48" id="_SignificantAccountingPoliciesTextBlock-c0_cont_47"><ix:continuation continuedAt="_EquityMethodInvestmentsPolicy-c0_cont_2" id="_EquityMethodInvestmentsPolicy-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Other non-current assets
mainly represent long-term equity investments accounted for under the measurement alternative method.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_49" id="_SignificantAccountingPoliciesTextBlock-c0_cont_48"><ix:continuation continuedAt="_EquityMethodInvestmentsPolicy-c0_cont_3" id="_EquityMethodInvestmentsPolicy-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Equity securities without
readily determinable fair value</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_50" id="_SignificantAccountingPoliciesTextBlock-c0_cont_49"><ix:continuation continuedAt="_EquityMethodInvestmentsPolicy-c0_cont_4" id="_EquityMethodInvestmentsPolicy-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group has long-term investments
in equity security of certain privately held companies which the Group exerts no significant influence or a controlling interest. As a
result of adoption of &#8220;<i>Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities</i>&#8221; (&#8220;ASU 2016-01&#8221;) in January 1, 2019, equity securities without readily determinable fair values that
do not qualify for the practical expedient in ASC 820, Fair Value Measurements and Disclosure to estimate fair value using the net asset
value per share (or its equivalent) of the investment, are measured and recorded using a measurement alternative that measures the securities
at cost less impairment, if any, plus or minus changes resulting from qualifying observable price changes. Significant judgments are required
to determine whether observable price changes are orderly transactions and identical or similar to an investment held by the Group.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_51" id="_SignificantAccountingPoliciesTextBlock-c0_cont_50"><ix:continuation continuedAt="_EquityMethodInvestmentsPolicy-c0_cont_5" id="_EquityMethodInvestmentsPolicy-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">During each reporting period,
the Group makes a qualitative assessment considering impairment indicators to separately evaluate whether each of its equity securities
without readily determinable fair value is impaired. Impairment indicators that the Group considers include, but are not limited to a
significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, factors such
as negative cash flows from operations and working capital deficiencies that raise significant concerns about the investee&#8217;s ability
to continue as a going concern, current economic and market conditions and other specific information. If a qualitative assessment indicates
that the investment is impaired, the entity has to estimate the investment&#8217;s fair value in accordance with the principles of ASC
820. If the fair value is less than the investment&#8217;s carrying value, the Group recognizes an impairment loss in earnings equal to
the difference between the carrying value and fair value.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_52" id="_SignificantAccountingPoliciesTextBlock-c0_cont_51"><ix:continuation id="_EquityMethodInvestmentsPolicy-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group recorded an impairment
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of income and comprehensive income.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 153; Value: 1 --><div>
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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"></p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_53" id="_SignificantAccountingPoliciesTextBlock-c0_cont_52"><ix:nonNumeric contextRef="c0" continuedAt="_ImpairmentOrDisposalOfLongLivedAssetsPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:ImpairmentOrDisposalOfLongLivedAssetsPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(k)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Impairment of Long-Lived
Assets</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:nonNumeric></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_54" id="_SignificantAccountingPoliciesTextBlock-c0_cont_53"><ix:continuation id="_ImpairmentOrDisposalOfLongLivedAssetsPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Property, plant, and equipment
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized for the amount by which the carrying value of the asset exceeds the fair value of the asset.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_55" id="_SignificantAccountingPoliciesTextBlock-c0_cont_54"><ix:nonNumeric contextRef="c0" continuedAt="fanh_InsurancePremiumPayablesPolicyTextBlock-c0_cont_1" escape="true" name="fanh:InsurancePremiumPayablesPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(l)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Insurance Premium Payables</i></b></span></td>
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_56" id="_SignificantAccountingPoliciesTextBlock-c0_cont_55"><ix:continuation id="fanh_InsurancePremiumPayablesPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Insurance premium payables
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_57" id="_SignificantAccountingPoliciesTextBlock-c0_cont_56"><ix:nonNumeric contextRef="c0" continuedAt="fanh_TreasurySharesPolicyTextBlock-c0_cont_1" escape="true" name="fanh:TreasurySharesPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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ordinary shares repurchased by the Group that are no longer outstanding and are held by the Group. The repurchased ordinary shares are
recorded whereby the total par value of shares acquired is recorded as treasury stock and the difference between the par value and the
amount of cash paid is recorded in additional paid-in capital. If additional paid-in capital is not available or is not sufficient, the
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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"></p><div>

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for under the asset and liability method. Deferred income taxes are recognized for temporary differences between the tax basis of assets
and liabilities and their reported amounts in the consolidated financial statements, net operating loss carryforwards and credits by applying
enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_61" id="_SignificantAccountingPoliciesTextBlock-c0_cont_60"><ix:continuation id="_IncomeTaxPolicyTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group records uncertain
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not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that
meet the more-likely-than-not recognition threshold, the Group recognizes the largest amount of tax benefit that is more than 50 percent
likely to be realized upon ultimate settlement with the related tax authority. The Group recognizes interest and penalties related to
unrecognized tax benefits, if any, on the income tax expense line in the accompanying consolidated statement of income and comprehensive
income. Accrued interest or penalties are included on the other tax liabilities line in the consolidated balance sheets.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_62" id="_SignificantAccountingPoliciesTextBlock-c0_cont_61"><ix:nonNumeric contextRef="c0" continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_1" escape="true" name="us-gaap:ShareBasedCompensationOptionAndIncentivePlansPolicy"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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by recognizing the related cost in the consolidated statements of income and comprehensive income. The Group recognizes compensation cost
for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period
for the entire award, provided that the amount of compensation cost recognized at any date must at least equal to the portion of the grant-date
value of the award that is vested at that date. For awards with both service and performance conditions, if each tranche has an independent
performance condition for a specified period of service, the Group recognizes the compensation cost of each tranche as a separate award
on a straight-line basis; if each tranche has performance conditions that are dependent of activities that occur in the prior service
periods, the Group recognizes the compensation cost on a straight-line basis over the requisite service period for each separately vesting
portion of the award as if the award was, in-substance, multiple awards. The Group has made an accounting policy election to account for
forfeitures when they occur for an award with only service conditions. For an award with a performance condition, the Group continues
to assess at each reporting period whether it is probable that the performance condition will be achieved. No compensation cost is recognized
for instruments that employees and nonemployees forfeit because a service condition or a performance condition is not satisfied.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>
</div><div>


</div><!-- Field: Page; Sequence: 154; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><p style="margin-top: 0; margin-bottom: 0"></p><div>

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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_65" id="_SignificantAccountingPoliciesTextBlock-c0_cont_64"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_4" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Compensation cost related
to employee stock options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized
over the service period, which is usually the vesting period. If an award requires satisfaction of one or more performance or service
conditions (or any combination thereof), compensation cost is recognized if the requisite service is rendered, while no compensation cost
is recognized if the requisite service is not rendered.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_66" id="_SignificantAccountingPoliciesTextBlock-c0_cont_65"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_5" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-align: justify; text-indent: 0.55pt"><i>Nonemployee
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_67" id="_SignificantAccountingPoliciesTextBlock-c0_cont_66"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_6" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Consistent with the accounting
requirement for employee share-based compensation, nonemployee share-based compensation within the scope of Topic 718 are measured at
grant-date fair value of the equity instruments, which the Group is obligated to issue when the service has been rendered and any other
conditions necessary to earn the right to benefit from the instruments have been satisfied.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_68" id="_SignificantAccountingPoliciesTextBlock-c0_cont_67"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_7" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Classification of award</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_69" id="_SignificantAccountingPoliciesTextBlock-c0_cont_68"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_8" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Options or similar instruments
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_70" id="_SignificantAccountingPoliciesTextBlock-c0_cont_69"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_9" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_8"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 63.8pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_71" id="_SignificantAccountingPoliciesTextBlock-c0_cont_70"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_10" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_9"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_72" id="_SignificantAccountingPoliciesTextBlock-c0_cont_71"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_11" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group measures a liability
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settlement. The corresponding credit is recorded as a share-based liability. Compensation cost for each period until settlement shall
be based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the
reporting date) in the fair value of the instrument for each reporting date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_73" id="_SignificantAccountingPoliciesTextBlock-c0_cont_72"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_12" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group measures an equity
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</div><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in">&#160;</p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
<tr style="vertical-align: top; text-align: justify">
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</tr>
</table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_74" id="_SignificantAccountingPoliciesTextBlock-c0_cont_73"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_13" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Modification of an Award</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_75" id="_SignificantAccountingPoliciesTextBlock-c0_cont_74"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_14" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A change in any of the terms
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excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are modified,
measured based on the fair value of the awards and other pertinent factors at the&#160;modification&#160;date. For vested awards, the
Group recognizes incremental compensation cost in the period the&#160;modification&#160;occurs. For unvested awards, the Group recognizes
over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation
cost for the original award on the&#160;modification&#160;date. If the fair value of the modified award is lower than the fair value of
the original award immediately before&#160;modification, the minimum compensation cost the Group recognizes is the cost of the original&#160;award.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_76" id="_SignificantAccountingPoliciesTextBlock-c0_cont_75"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_15" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Cancellation of an Award</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>&#160;</i></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_77" id="_SignificantAccountingPoliciesTextBlock-c0_cont_76"><ix:continuation continuedAt="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_16" id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">A cancellation of an award
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for as a repurchase for no consideration. Accordingly, any previously unrecognized compensation cost shall be recognized immediately at
the cancellation date.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_78" id="_SignificantAccountingPoliciesTextBlock-c0_cont_77"><ix:continuation id="_ShareBasedCompensationOptionAndIncentivePlansPolicy-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Share-based compensation
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_79" id="_SignificantAccountingPoliciesTextBlock-c0_cont_78"><ix:nonNumeric contextRef="c0" continuedAt="_PensionAndOtherPostretirementPlansPolicy-c0_cont_1" escape="true" name="us-gaap:PensionAndOtherPostretirementPlansPolicy"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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governments for its employees. The Group is required to make contributions to these plans at a percentage of the salaries, bonuses and
certain allowances of the employees. Under these plans, certain pension, medical and other welfare benefits are provided to employees.
The Group has no other material obligation for the payment of employee benefits associated with these plans other than the annual contributions
described above. The contributions are charged to the consolidated statements of income and comprehensive income as they become payable
in accordance with the rules of the above mentioned defined contribution plans.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_81" id="_SignificantAccountingPoliciesTextBlock-c0_cont_80"><ix:nonNumeric contextRef="c0" continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:RevenueRecognitionPolicyTextBlock"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt"><b><i>(q)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Revenue Recognition</i></b></span></td>
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from contracts with insurance companies is derived principally from the provision of agency and claims adjusting services, and insurance
companies are defined as the Group&#8217;s customers under ASC 606 &#8220;Revenue from Contracts with Customers&#8221; (&#8220;ASC 606&#8221;).
The Group disaggregates its revenue from different types of service contracts with customers by principal service categories, as the Group
believes it best depicts the nature, amount, timing and uncertainty of its revenue and cash flows. See Note 22 for detailed disaggregated
revenue information that is disclosed for each reportable segment.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 156; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->24<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
<tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="text-align: left; width: 0.25in"><span style="font-size: 10pt"><b><i>(q)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Revenue Recognition </i>(Continued)</b></span></td>
</tr>
</table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_84" id="_SignificantAccountingPoliciesTextBlock-c0_cont_83"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_4" id="_RevenueRecognitionPolicyTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.75in; text-align: justify; text-indent: -0.5in"><i>Insurance agency
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_85" id="_SignificantAccountingPoliciesTextBlock-c0_cont_84"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_5" id="_RevenueRecognitionPolicyTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group derives agency
revenue serving as a sales agent to distribute various life insurance and property and casualty (&#8220;P&amp;C&#8221;) insurance products
on behalf of insurance companies by which the Group is entitled to receive an initial commission from the insurance companies based on
the premium paid by the policyholders for the related insurance policy sold. For life insurance agency, the Group is also entitled to
renewal commissions when the policyholder renews the policy within the renewal term of the original policy as such life insurance products
are typically long-term products.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_86" id="_SignificantAccountingPoliciesTextBlock-c0_cont_85"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_6" id="_RevenueRecognitionPolicyTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group has identified
its promise to sell insurance products on behalf of an insurance company as the performance obligation in its contracts with the insurance
companies. The Group&#8217;s performance obligation to the insurance company is satisfied and revenue is recognized at a point in time
when an insurance policy becomes effective. Specifically for life insurance agency business, certain contracts include the promise to
provide certain post-sales administrative services to policyholders on behalf of the insurance company, such as responding to the policyholder
inquiries, facilitating the renewal process and/or gathering information from the policyholder to assist the insurance companies to update
the contact information of the policy holder, the Group has concluded such services are administrative in nature and immaterial, and none
of these activities on their own results in a transfer of a good or services to the insurance company in the context of the contract.
Accordingly, no performance obligation exists after a policy becomes effective.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_87" id="_SignificantAccountingPoliciesTextBlock-c0_cont_86"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_7" id="_RevenueRecognitionPolicyTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="text-decoration:underline">Initial placement of an
insurance policy</span></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_88" id="_SignificantAccountingPoliciesTextBlock-c0_cont_87"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_8" id="_RevenueRecognitionPolicyTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group recognizes agency
revenue related P&amp;C insurance products (which is short term in nature and related premiums are collected upfront) when an insurance
policy becomes effective. The commission to be earned is required to be partially refunded contingently on policy cancellations. Based
on its past experience, subsequent commission adjustments in connection with P&amp;C insurance policy cancellations have been de minims
to date, and are recognized upon notification from the insurance carriers. Actual commission and fee adjustments in connection with the
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_89" id="_SignificantAccountingPoliciesTextBlock-c0_cont_88"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_9" id="_RevenueRecognitionPolicyTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For life insurance products,
there is generally a 10 to 15 days hesitation period after an initial placement of a life insurance policy, during which the policyholder
has a legal right to unconditionally cancel the effective policy regardless of the reasons. According to relevant terms of the insurance
agency contracts with customers, the Group reconciles information of policies sold which also includes policies that have been cancelled
by policyholders within the hesitation period, with the insurance companies on a monthly basis. Therefore, the Group estimates cancellation
of policies that have become effective but are still within the hesitation period based on subsequent actual data at each reporting date.
The cancellation of an effective life insurance policy by the policyholder after the hesitation period does not require the Group to refund
initial commission to insurance companies, but rather impacts the Group&#8217;s estimate on future commission related to renewal(s) of
the policy.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
<tr style="vertical-align: top; text-align: justify"><td style="width: 0.25in"></td><td style="text-align: left; width: 0.25in"><span style="font-size: 10pt"><b><i>(q)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Revenue Recognition </i>(Continued)</b></span></td>
</tr>
</table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Insurance agency services
revenue </i>(Continued)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="text-decoration:underline">Initial placement of
an insurance policy</span> (Continued)</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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agency, the Group may receive a performance bonus from insurance companies as agreed and per contract provisions. Once the Group achieves
a certain sales volume based on respective agency agreements, the bonus will become due. Performance bonus represents a form of variable
consideration associated with certain sales volume, for which the Group earns commissions. The Group estimates the amount of consideration
with a constraint applied that will be received in the coming year such that a significant reversal of revenue is not probable, and includes
performance bonus as part of the transaction price. For the years ended December 31, 2020, 2021 and 2022, the Group recognized contingent
performance bonus of RMB<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="fanh:RecognizedContingentPerformanceBonus" scale="3" unitRef="cny">17,265</ix:nonFraction>, RMB<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="fanh:RecognizedContingentPerformanceBonus" scale="3" unitRef="cny">3,887</ix:nonFraction> and RMB<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="fanh:RecognizedContingentPerformanceBonus" scale="3" unitRef="cny">11,387</ix:nonFraction>, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_91" id="_SignificantAccountingPoliciesTextBlock-c0_cont_90"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_11" id="_RevenueRecognitionPolicyTextBlock-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="text-decoration:underline">Renewals of a life insurance
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_92" id="_SignificantAccountingPoliciesTextBlock-c0_cont_91"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_12" id="_RevenueRecognitionPolicyTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For the long-term life insurance
products, in addition to the initial commission earned, the Group is also entitled to subsequent renewal commission and compensation,
and renewal performance bonus which represents variable considerations and are contingent on future renewals of initial policies or the
Group achieves its performance target.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_93" id="_SignificantAccountingPoliciesTextBlock-c0_cont_92"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_13" id="_RevenueRecognitionPolicyTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">When making estimates of
the amount of variable consideration to which the Group expects to be entitled, the Group uses the expected value method and evaluates
many factors, including but not limited to, insurance companies mix, product mix, renewal term of various products, renewal premium rates
and commission rates, to determine the method(s) of measurement, relevant inputs and the underlying assumptions. The Group considers constraints
as well when determining the amount which should be included in the transaction price.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p></ix:continuation></ix:continuation><div>

</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_94" id="_SignificantAccountingPoliciesTextBlock-c0_cont_93"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_14" id="_RevenueRecognitionPolicyTextBlock-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For years prior to 2021,
revenue related to the variable consideration is recorded when it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur, i.e., when a policyholder pays the renewal premium to the insurance company, and the policy is renewed
because the Group was not able to conclude a significant reversal to the estimated variable consideration is not probable, considering
factors such as a) the Group has limited history of selling its current life insurance products with its current customers, such that
the Group&#8217;s past experience in outdated products is of little predictive value in renewal(s) rate estimate; b) the occurrence of
a renewal is outside the Group&#8217;s control and the estimate of renewal premium rates is complex and requires significant assumptions;
and c) the contingency lasts across a long period of time.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_95" id="_SignificantAccountingPoliciesTextBlock-c0_cont_94"><ix:continuation continuedAt="_RevenueRecognitionPolicyTextBlock-c0_cont_15" id="_RevenueRecognitionPolicyTextBlock-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group performs ongoing
evaluation of the appropriateness of the constraint applied, and will consider the sufficiency of evidence that would suggest that the
long-term expectation underlying the assumptions has changed. Starting from January 1, 2021, the Group believes that it has already accumulated
adequate scale of historical data and experiences at a confidence level that through which the Group can utilize to make a reasonable
estimate of variable considerations over its portfolio of contracts. The estimated renewal commissions are contingent on future renewals
of initial policies or achievement of certain performance targets. Given the material uncertainty around the future renewal of the insurance
policies, the estimated renewal commissions expected to be collected are recognized as revenue only to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved.
The judgment and assumptions are continuously re-evaluated and adjusted as needed along with the accumulation of historical experiences
and data when new information becomes available. Actual renewal commissions in the future may differ significantly from those previously
estimated.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->26<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

</div><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%">
<tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="text-align: left; width: 0.25in"><span style="font-size: 10pt"><b><i>(q)</i></b></span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Revenue Recognition </i>(Continued)</b></span></td>
</tr>
</table><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="font-weight: normal"><i>Insurance
agency services revenue</i> <span style="font-style: normal">(Continued)</span></span></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="text-decoration:underline">Renewals of a life insurance
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</div><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

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participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to
be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability. The established fair value hierarchy requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument&#8217;s categorization
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_113" id="_SignificantAccountingPoliciesTextBlock-c0_cont_112"><ix:continuation continuedAt="_FairValueOfFinancialInstrumentsPolicy-c0_cont_5" id="_FairValueOfFinancialInstrumentsPolicy-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Measured at fair value
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</div><div>

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Markets for<br/>
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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

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Markets for<br/>
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the unrealized gains or losses from the changes in fair values are included in accumulated other comprehensive income or loss, at the
balance sheet date. It is classified as Level 2 of the fair value hierarchy since fair value measurement at the reporting date is benchmarked
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value on a nonrecurring basis when they are deemed to be impaired. The fair values of these investments and intangible assets are determined
based on valuation techniques using the best information available, and may include management judgments, future performance projections,
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rate, etc. to the discounted cash flow valuation methodology that are significant to the measurement of the fair value of these assets
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

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sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using
the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate
component of other comprehensive income or loss in the consolidated statements of income and comprehensive income. The Group has chosen
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when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into RMB at rates of exchange
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</div><div>

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developments that affect supply and demand in the China Foreign Exchange Trading System market of cash and cash equivalents and restricted
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pre-underwriting survey services, claim adjusting services, disposal of residual value services, loading and unloading supervision services,
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under the 521 Plan. Therefore, these shares are excluded from basic earnings per share until the shares are fully vested upon the achievement
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</div><div>


</div><!-- Field: Page; Sequence: 162; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

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</div><div>

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</div><div>

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to control the use of the identified asset. At the commencement of each lease, management determines its classification as an operating
or finance lease. For leases that qualify as operating leases, the Group recognizes a right-of-use (&#8220;ROU&#8221;) asset and a lease
liability based on the present value of the lease payments over the lease term in the consolidated statements of balance sheets at commencement
date. As all of the leases do not have implicit rates available, the Group uses incremental borrowing rates based on the information available
at lease commencement date in determining the present value of future payments. The incremental borrowing rates are estimated to approximate
the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased assets are
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</div><div>

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initial direct costs incurred and lease incentives. For office space leases, the Group identifies the lease and non-lease components (e.g.,
common-area maintenance costs) and accounts for non-lease components separately from lease component. The Group&#8217;s office space lease
contracts have only one separate lease component and have no non-components (e.g., property tax or insurance). Most of the office space
lease contracts have no non-lease components. For the office space lease contracts include non-lease components, the fixed lease payment
is typically itemized in the office space lease contract for separate lease component and non-lease components. Therefore, the Group does
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</div><div>

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lease payments is recognized on a straight-line basis over the lease term. The Group has made an accounting policy election to exempt
leases with an initial term of 12 months or less without a purchase option that is likely to be exercised from being recognized on the
balance sheet. Payments related to those leases continue to be recognized in the consolidated statement of income and comprehensive income
on a straight-line basis over the lease term.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:continuation><div>

</div><div>

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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(2) Summary of Significant Accounting Policies
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify"><b><i>&#160;</i></b></p><div>

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</div><div>

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</div><div>

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</div><div>

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with specific policies promoted by the local governments. The Group records such government subsidies as other income or reduction of
expenses or cost of revenues when it has fulfilled all of its obligation related to the subsidy. The Group recognized RMB<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="fanh:RecognizedAmount" scale="3" unitRef="cny">27,352</ix:nonFraction>, RMB<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="fanh:RecognizedAmount" scale="3" unitRef="cny">17,448</ix:nonFraction>
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_148" id="_SignificantAccountingPoliciesTextBlock-c0_cont_147"><ix:nonNumeric contextRef="c0" continuedAt="_NewAccountingPronouncementsPolicyPolicyTextBlock-c0_cont_1" escape="true" name="us-gaap:NewAccountingPronouncementsPolicyPolicyTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>(ab) Recently
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</div><div>

</div><ix:continuation continuedAt="_SignificantAccountingPoliciesTextBlock-c0_cont_149" id="_SignificantAccountingPoliciesTextBlock-c0_cont_148"><ix:continuation continuedAt="_NewAccountingPronouncementsPolicyPolicyTextBlock-c0_cont_2" id="_NewAccountingPronouncementsPolicyPolicyTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Government Assistance
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by Business Entities about Government Assistance (&#8220;ASU 2021-10&#8221;)</i>. It requires issuers to make annual disclosures about
government assistance, including the nature of the transaction, the related accounting policy, the financial statement line items affected
and the amounts applicable to each financial statement line item, as well as any significant terms and conditions, including commitments
and contingencies. The amendments in this Update are effective for all entities within their scope for financial statements issued for
annual periods beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022 with no material impact on its
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</div><div>

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Assets and Contract Liabilities from Contracts with Customers (&#8220;ASU 2021-08&#8221;)</i>, which provides guidance on the acquirer&#8217;s
accounting for acquired revenue contracts with customers in a business combination. The amendments require an acquirer to recognize and
measure contract assets and contract liabilities acquired in a business combination at the acquisition date in accordance with ASC 606
as if it had originated the contracts. This guidance also provides certain practical expedients for acquirers when recognizing and measuring
acquired contract assets and contract liabilities from revenue contracts in a business combination. The new guidance should be applied
prospectively to business combinations occurring on or after the date of adoption. This guidance is effective for fiscal years beginning
after December 15, 2022, including interim periods therein. Early adoption is permitted. The Group early adopted the new standard beginning
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b><i>&#160;</i></b></p><div>


</div><!-- Field: Page; Sequence: 164; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->32<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><div>

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</div><div>

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</div><div>

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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: right"></p><div>

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</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_6" id="_BusinessCombinationDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Goodwill arising from the
acquisition of this agency intermediate was attributable to the benefit of expected synergies as of the date of acquisition and recorded
in insurance agency segment. The resulted goodwill is not expected to be tax deductible for tax purposes.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_7" id="_BusinessCombinationDisclosureTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The result of operation of
aforementioned acquisition has been consolidated by the Group from August 2022, and the results of operations for the aforementioned acquisition
is not material to the Group&#8217;s consolidated financial statements as a whole.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_8" id="_BusinessCombinationDisclosureTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pro forma financial information
is not presented for the aforementioned business acquisition in the fiscal year 2022 as it is immaterial to the reported results.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_BusinessCombinationDisclosureTextBlock-c0_cont_9" id="_BusinessCombinationDisclosureTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Disposal of subsidiaries
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</div><div>

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of the consideration remained outstanding as a payable which was subsequently settled in 2022.</p></ix:continuation><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_3" id="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" continuedAt="fanh_ScheduleOfOtherReceivablesTableTextBlock-c0_cont_1" escape="true" name="fanh:ScheduleOfOtherReceivablesTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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    <td style="text-align: justify">Advances to entrepreneurial agents (i)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" id="ix_2_fact" name="fanh:DueFromEntrepreneurialAgentsCurrent" scale="3" unitRef="cny">907</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" id="ix_3_fact" name="fanh:DueFromEntrepreneurialAgentsCurrent" scale="3" unitRef="cny">81</ix:nonFraction></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: justify">Advances to a third party channel vendor (ii)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" id="ix_4_fact" name="fanh:DueFromthirdPartyChannelVendor" scale="3" unitRef="cny">17,898</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify">Rental deposits</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:DepositsAssetsCurrent" scale="3" unitRef="cny">21,864</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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    <td style="text-align: justify">Amount due from third parties (iii)</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: justify; padding-bottom: 4pt">Other receivables, net</td><td style="padding-bottom: 4pt">&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_4" id="_LoansNotesTradeAndOtherReceivablesDisclosureTextBlock-c0_cont_3"><ix:continuation continuedAt="fanh_ScheduleOfOtherReceivablesTableTextBlock-c0_cont_2" id="fanh_ScheduleOfOtherReceivablesTableTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">(i)</span></td><td style="text-align: justify"><ix:footnote id="ix_0_footnote" xml:lang="en-US"><span style="font-size: 10pt">Amounts represented advances to
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</div><div>



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</div><div>

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</div><div>

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</div><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

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</div><div>

</div><ix:continuation id="_OtherCurrentAssetsTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfOtherAssetsNoncurrentTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%">
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</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
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</div><p style="font: 8pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p><div>

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</div><div>

</div><ix:continuation continuedAt="_GoodwillDisclosureTextBlock-c0_cont_2" id="_GoodwillDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The gross amount of goodwill
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</div><div>

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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation id="_GoodwillDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group performed annual
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2021 and 2022.</p></ix:continuation><div>

</div><p style="font: 8pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_EquityMethodInvestmentsDisclosureTextBlock-c0_cont_3" id="_EquityMethodInvestmentsDisclosureTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:EquityMethodInvestmentsTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><ix:continuation continuedAt="_EquityMethodInvestmentsDisclosureTextBlock-c0_cont_4" id="_EquityMethodInvestmentsDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>Investment in CNFinance
Holdings Limited (&#8220;CNFinance&#8221;)</i></p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt"><i>&#160;</i></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_EquityMethodInvestmentsDisclosureTextBlock-c0_cont_5" id="_EquityMethodInvestmentsDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group invested <ix:nonFraction contextRef="c102" decimals="3" format="ixt:num-dot-decimal" name="fanh:EquityInterest" scale="-2" unitRef="pure">18.5</ix:nonFraction>%
equity interest of CNFinance after CNFinance&#8217;s listing in New York Stock Exchange &#8220;NYSE&#8221; (symbol: CNF) on November 7,
2018. CNFinance is a leading home equity loan service provider incorporated in the Cayman Islands and based in Guangzhou, PRC. Investment
in CNFinance is accounted for using the equity method as the Group has significant influence by the right to nominate one board member
out of seven.</p><p style="font: 8pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_EquityMethodInvestmentsDisclosureTextBlock-c0_cont_6" id="_EquityMethodInvestmentsDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On May 27, 2022 (the &#8220;Declare
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the remaining equity investment in CNFinance using equity method as the Company no longer has significant influence over this investee.
For the year ended December 31, 2022, due to the continued decline in the share price of CNFinance, the Group recognized an other-than-temporary
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</div><div>

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</div><div>

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</div><div>

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</div><div>

</div><ix:continuation id="_EquityMethodInvestmentsDisclosureTextBlock-c0_cont_9"><p style="text-align: justify; font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 20pt">Upon the completion of the disposal of CNFinance,
the remaining two investees did not meet the significance test in accordance with SEC Regulation S-X, Rule 1-02(w) (i.e., the asset, investment,
or income test). In accordance with SEC Regulation S-X, Rules 4-08(g), the Group did not disclose the investee&#8217;s summarized financial
information for the year ended December 31, 2022.</p></ix:continuation><div>

</div><p style="font: 8pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>


</div><!-- Field: Page; Sequence: 167; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->35<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b><i>(In thousands, except
for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; text-indent: 39.95pt">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_LesseeOperatingLeasesTextBlock-c0_cont_1" escape="true" name="us-gaap:LesseeOperatingLeasesTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(9) Leases</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_LesseeOperatingLeasesTextBlock-c0_cont_2" id="_LesseeOperatingLeasesTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group&#8217;s lease for office
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that have not yet commenced.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_LesseeOperatingLeasesTextBlock-c0_cont_3" id="_LesseeOperatingLeasesTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following represents
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</div><div>

</div><ix:continuation continuedAt="_LesseeOperatingLeasesTextBlock-c0_cont_4" id="_LesseeOperatingLeasesTextBlock-c0_cont_3"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:LeaseCostTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>

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</div><div>

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</div><div>

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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_LesseeOperatingLeasesTextBlock-c0_cont_9" id="_LesseeOperatingLeasesTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Supplemental cash flow information
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</div><div>

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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(9) Leases (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: justify; text-indent: 2.55pt">&#160;</p><div>

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</div><div>

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  <tr style="vertical-align: bottom">
    <td style="text-align: justify">&#160;</td><td style="font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_2" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>VIE related to Xinbao
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</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_3" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 17.85pt">The Measures on the Supervision
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</div><div>

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Investment&#8221;), used to conduct its online P&amp;C insurance business through an online platform (www.baoxian.com) owned and operated
by another subsidiary within the Group. To comply with the newly implemented rules, the Group transferred the domain name and ICP license
to Fanhua RONS. As the applicant for an ICP license may be subject to foreign investment restriction, the Group commenced a restructuring
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</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_7" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21pt">In preparation for the application
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Investment Co., Ltd. (&#8220;Fanlian Investment&#8221;), a wholly owned subsidiary, transferred its entire equity interests holding in
Fanhua RONS Technologies to Mr. Peng Ge, the chief financial officer of the Group, who holds the equity interests on behalf of Fanlian
Investment. Concurrently, Fanlian Investment entered into contractual arrangements with Fanhua RONS Technologies and Mr. Ge which are
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</div><div>


</div><!-- Field: Page; Sequence: 169; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(10) Variable Interest Entities (&#8220;VIEs&#8221;)
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>VIE related to Xinbao
Investment and Fanhua RONS Technologies </i>(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_8" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As a result, the Group currently
conducts its insurance agency and claims adjusting business in China primarily through its wholly-owned subsidiaries Fanhua Group Company
and Fanlian Investment (collectively the &#8220;relevant PRC entities&#8221;), and its subsidiaries and the VIEs for part of its online
insurance business in China. The following is a summary of the contractual agreements that the Group entered into with Xinbao Investment,
Fanhua RONS Technologies and their individual nominee shareholders:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_9" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Agreements that Provide
the Group Effective Control over Xinbao Investment <i>and Fanhua RONS Technologies</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 63.8pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_10" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_9"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Loan Agreement</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_11" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Mr. Jiang and Mr. Ge (collectively
the &#8220;nominee shareholders&#8221;) entered into a loan agreement, with the Group&#8217;s wholly-owned subsidiaries. The principal loan
amounts equal to the capital contributions to VIEs.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_12" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The term of the loan agreement
is for <ix:nonNumeric contextRef="c0" format="ixt-sec:durwordsen" name="us-gaap:FederalHomeLoanBankAdvancesMaturityPeriodFixedRate">ten years</ix:nonNumeric>, which may be extended only upon written agreement of the parties. If the loan is not extended, then upon its expiration
and subject to then applicable PRC laws, the loan can be repaid only with the proceeds from a transfer of the individual shareholder&#8217;s
equity interests in VIEs to relevant PRC entities or another person or entity designated by them. Relevant PRC entities may accelerate
the loan repayment upon certain events, including but not limited to if the individual shareholder resigns or is dismissed from employment
by us or if relevant PRC entities exercise its option to purchase the shareholder&#8217;s equity interests in VIEs pursuant to the exclusive
purchase option agreements described below.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_13" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_12"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Equity Pledge Agreement</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_14" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Relevant nominee shareholders
entered into an equity pledge agreement, pledging their respective equity interests in VIEs to relevant PRC entities to secure their obligations
under the loan agreement. Relevant nominee shareholders also agreed not to transfer or create any encumbrances adverse to relevant PRC
entities on their equity interests in VIEs. During the term of the equity pledge agreement, relevant PRC entities are entitled to all
the dividends declared on the pledged equity interests. The equity pledge agreements will expire when the individual shareholders fully
performs their respective obligations under the loan agreement. The equity pledge was recorded on the shareholder&#8217; register of VIEs,
and registered with the relevant local administration of industry and commerce.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 35.45pt; text-align: justify">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_15" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_14"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Power of Attorney</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_16" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Relevant nominee shareholders
executed powers of attorney, each appointing a person designated by relevant PRC entities as his attorney-in-fact on all matters requiring
shareholder approval. Further, if relevant PRC entities designate the shareholder to attend a shareholder&#8217;s meeting of VIEs, the
individual shareholder agrees to vote his shares as instructed by relevant PRC entities. The term of the power of attorney is for <ix:nonNumeric contextRef="c0" format="ixt-sec:durwordsen" name="fanh:PowerOfAttorney">ten
years</ix:nonNumeric>.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_17" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_16"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Agreements that Transfer
Economic Benefits to the Group</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 63.8pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_18" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_17"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Exclusive Purchase Option
Agreement</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 63.8pt; text-align: justify; text-indent: -28.35pt">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_19" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_18"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">Relevant nominee shareholders
entered into an exclusive purchase option agreement to irrevocably grant relevant PRC entities an exclusive option to purchase part or
all of their equity interests in VIEs, when and to the extent permitted by PRC law. The purchase price will be the minimum price permitted
under applicable PRC law.<b>&#160;</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt"><b>&#160;</b></p></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 170; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->38<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(10) Variable Interest Entities (&#8220;VIEs&#8221;)
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>VIE related to Xinbao
Investment and Fanhua RONS Technologies</i> (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Agreements that Transfer
Economic Benefits to the Group (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 63.8pt; text-align: justify; text-indent: -28.35pt">&#160;</p><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_20" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_19"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">&#9679;</span></td><td style="text-align: justify"><span style="font-size: 10pt"><b><i>Technology Consulting
and Service Agreement</i></b></span></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_21" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_20"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to technology service
agreements between (i) relevant PRC entities, and (ii) VIEs, relevant PRC entities agreed to provide VIEs with training services and consulting
and other services relating to IT platform and internal control compliance. In exchange, VIEs agree to pay a quarterly fee calculated
primarily based on a percentage of its revenues. The agreement has a term of <ix:nonNumeric contextRef="c0" format="ixt-sec:durwordsen" name="fanh:MutualAgreement">one year</ix:nonNumeric> and can be renewed each year upon mutual agreement.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_22" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_21"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Because of contractual arrangements
with VIEs and their nominee shareholders, the Group is the primary beneficiary of VIEs and their subsidiaries and consolidated them into
consolidated financial statements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_23" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_22"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>VIEs related to the
521 Plan</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_24" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_23"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On June 14, 2018, the Group
announced that its board of directors approved a 521 Share Incentive Plan (the &#8220;521 plan&#8221;). The 521 Plan is designed to incentivize
the Group&#8217;s employees and independent sales agents (collectively the &#8220;Participants&#8221;). The 521 Plan provides Participants
an opportunity to benefit from appreciation of the Company&#8217;s ordinary shares by purchasing the Company&#8217;s ordinary shares at
a stated subscription price in exchange for employee and non-employee services, if service and performance conditions are achieved. <ix:nonFraction contextRef="c113" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:DefinedContributionPlanEmployerMatchingContributionPercentOfMatch" scale="-2" unitRef="pure">10</ix:nonFraction>%
of the subscription price is paid by the Participant on or around the grant date, while the remaining <ix:nonFraction contextRef="c114" decimals="2" format="ixt:num-dot-decimal" name="us-gaap:LongTermDebtPercentageBearingFixedInterestRate" scale="-2" unitRef="pure">90</ix:nonFraction>% of the subscription prices is
financed through interest-bearing loans from the Group. The vesting of the awards is contingent on performance conditions being met during
the requisite service periods.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_25" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_24"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Pursuant to the 521 Plan,
the Group set up three companies which are Fanhua Employees Holdings Limited, Step Tall Limited and Treasure Chariot Limited (collectively
the &#8220;521 Plan Employee Companies&#8221;) to hold the Group&#8217;s ordinary shares on behalf of the Participants of the 521 Plan.
Each of the 521 Plan Employee Companies is a legal entity formed in the British Virgin Islands with a sole shareholder appointed by the
Group. Each shareholder is either an employee, or a founder who is also a shareholder and director of the Group.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_26" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The following is a summary
of the contractual agreements that the Group entered into relating to the 521 Plan:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_27" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The nature and structure
of the 521 Plan Employee Companies is that they are investment vehicle companies holding the Company&#8217;s shares on behalf of the Participants
for the purpose of the 521 Plan. Loan agreements and entrusted share purchase agreements were signed among the Group&#8217;s wholly-owned
subsidiary CISG Holdings Ltd., the 521 Plan Employee Companies and each of the Participants. To effect the 521 Plan, Participants agreed
to pay <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="fanh:ParticipantsAgreedPercentage" scale="-2" unitRef="pure">10</ix:nonFraction>% of the subscription price and executed a loan agreement with the Group for a loan representing <ix:nonFraction contextRef="c2" decimals="2" format="ixt:num-dot-decimal" name="fanh:LoanAgreementPercentage" scale="-2" unitRef="pure">90</ix:nonFraction>% of the subscription price
of the ordinary shares under the 521 Plan. Participants executed an entrusted share purchase agreement with one of the 521 Employee Companies
whereby the 521 Plan Employee Company will legally hold the ordinary shares on behalf of the Participants. As of December 31, 2018 and
2019, the loan agreements provide a total of US$<ix:nonFraction contextRef="c115" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:LoansAndLeasesReceivableAllowanceCovered" scale="0" unitRef="usd">184,815</ix:nonFraction> and US$<ix:nonFraction contextRef="c13" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:LoansAndLeasesReceivableAllowanceCovered" scale="0" unitRef="usd">344,988</ix:nonFraction>, respectively, in loans to the VIEs and Participants of the 521
Plan with the sole purpose of providing funds necessary for the purchase of the Group&#8217;s ordinary shares under the 521 Plan. All
the ordinary shares are pledged as collateral to the Group for the loans and are not yet vested, the Participants cannot direct the sale
of the ordinary shares without the consent of the Group until the ordinary shares are fully vested in accordance with the 521 Plan&#8217;s
agreed target performance. The loan agreement and the entrusted share purchase agreement shall terminate after five years or upon termination
of agency relationship and employment relationship or the settlement of the loan, whichever comes first.<b>&#160;</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p></ix:continuation><div>

</div><div>


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    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(10) Variable Interest Entities (&#8220;VIEs&#8221;)
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b><i>&#160;</i></b>&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>VIE related to Xinbao
Investment and Fanhua RONS Technologies</i> (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Agreements that Transfer
Economic Benefits to the Group (Continued)</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>VIEs related to the
521 Plan</i> (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_28" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_27"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The sole director and sole
shareholder of each of the 521 Plan Employee Companies is either a significant shareholder and director, or an employee of the Group,
who has executed powers of attorney on behalf of the Group. Under the power of attorney, they will follow, without any conditions, the
Group&#8217;s instructions to manage all the activities of each of the 521 Plan Employee Companies. In addition, the Group can replace
the sole director and shareholder of each of the 521 Plan Employee Companies to another designated party at its discretion.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_29" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_28"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The ordinary shares are the
only significant assets held by the 521 Plan Employee Companies. Through the loan agreements, entrusted share purchase agreements and
letters of undertaking described above, the Group controls the decision-making rights of the 521 Plan Employee Companies with respect
to the shares held by the 521 Plan Employee Companies as collateral to the loans issued to the Participants during the vesting period.
Given the only substantial recourse to the loans issued by the Group are the ordinary shares, the Group has potential exposure to the
economics of the 521 Plan Employee Companies resulting from the fluctuation in value of the ADS (principally decreases), which is more
than insignificant. Further, the Group will also participate in the variability and absorb the economic benefits of the 521 Plan Employee
Companies, through an increase in value of the shares held by the 521 Plan Employee Companies, if the performance conditions are not met
or partially met based on the profit distribution arrangements. Based on above, the Group is the primary beneficiary of the 521 Plan Employee
Companies and consolidates them because it has the power to direct the activities that most significantly impact the 521 Plan Employee
Companies&#8217; economic performance, and the obligation to absorb losses of the 521 Plan Employee Companies that could potentially be
significant to them and the right to receive benefits from the 521 Plan Employee Companies that could potentially be significant to the
521 Plan Employee Companies. Therefore, the Group has variable interests in the 521 Plan Employee Companies during the vesting period.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_30" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_29"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As disclosed in Note 21(b),
the Group entered into supplemental agreements with all remaining Participants in December 2020 to cancel the 521 Plan upon which the
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share rights deposits back to the Participants, and terminated the Participants&#8217; obligation to repay the Group the non-recourse
loan principal and interest, and all the relevant original contractual agreements including the loan agreements, entrusted share purchase
agreements and letters of undertaking described above were agreed to be terminated and lapsed. As a result, the Group no longer has power
to direct the significant activities of the 521 Plan Employee Companies, and no longer bears potentially significant economic exposure
through its indirect interests to the 521 Plan Employee Companies, and stopped consolidating the 521 Plan Employee Companies upon the
cancellation of the 521 Plan.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>
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</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_31" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_30"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In December 2020, upon the
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</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_32" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_31"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Risks in relation to the
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</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_33" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_32"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In the opinion of the Company&#8217;s
legal counsel, (i) the ownership structure relating to the consolidated VIEs of the Company is in compliance with PRC laws and regulations;
(ii) the contractual arrangements with the consolidated VIEs and the individual shareholders are legal, valid and binding obligation of
such party, and enforceable against such party in accordance with their respective terms; and (iii) the execution, delivery and performance
of the consolidated VIEs and its shareholders do not result in any violation of the provisions of the articles of association and business
licenses of the VIEs, and any violation of any current PRC laws and regulations.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>
</div><div>


</div><!-- Field: Page; Sequence: 172; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(10) Variable Interest Entities (&#8220;VIEs&#8221;)
(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>Risks in relation to the
VIE Arrangement (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_34" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_33"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Uncertainties in the PRC
legal system could cause the Company&#8217;s current corporate structure to be found in violation of any existing and/or future PRC laws
or regulations and could limit the Company&#8217;s ability, through the Primary Beneficiary, to enforce its rights under these contractual
arrangements. Furthermore, the shareholders of the VIEs may have interests that are different from those of the Company, which could potentially
increase the risk that the shareholders would seek to breach the existing terms of the aforementioned agreements.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_35" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_34"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In addition, if the current
structure or any of the contractual arrangements were found to be in violation of any existing or future PRC laws, the Company may be
subject to penalties, which may include but not be limited to, the cancellation or revocation of the Company&#8217;s business and operating
licenses, being required to restructure the Company&#8217;s operations or discontinue the Company&#8217;s operating activities. The imposition
of any of these or other penalties may result in a material and adverse effect on the Company&#8217;s ability to conduct its operations.
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</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_36" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_35"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Summarized below is the information
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</div><div>

</div><ix:continuation continuedAt="_VariableInterestEntityDisclosureTextBlock-c0_cont_37" id="_VariableInterestEntityDisclosureTextBlock-c0_cont_36"><ix:nonNumeric contextRef="c0" continuedAt="_ScheduleOfVariableInterestEntitiesTextBlock-c0_cont_1" escape="true" name="us-gaap:ScheduleOfVariableInterestEntitiesTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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</div><div>

</div><ix:continuation id="_VariableInterestEntityDisclosureTextBlock-c0_cont_38"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><span style="font-family: Times New Roman, Times, Serif">As
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based on the corporate structure as of the end of 2022. As of December 31, 2022, the VIEs accounted for an aggregate of 3.3% of the consolidated
total assets.</ix:nonNumeric> The creditors of the VIEs&#8217; third-party liabilities did not have recourse to the general credit of the Company in normal
course of business. The Company has not provided any financial support that it was not previously contractually required to provide to
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_ShortTermDebtTextBlock-c0_cont_1" escape="true" name="us-gaap:ShortTermDebtTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(12) Short-term loan</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">&#160;</p></ix:nonNumeric><div>

</div><div>

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</div><div>

</div><ix:continuation id="_ShortTermDebtTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 21.3pt">As of December 31, 2021 and
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

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</div><div>

</div><ix:continuation continuedAt="_CompensationAndEmployeeBenefitPlansTextBlock-c0_cont_2" id="_CompensationAndEmployeeBenefitPlansTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Employees of the Group located
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plans.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

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benefits. The contribution percentages may be different from district to district which is subject to the specific requirement of local
regime government. The PRC government is directly responsible for the payments of the benefits to these employees.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:IncomeTaxDisclosureTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(14) Income Taxes</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:nonNumeric><div>

</div><div>

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company incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to tax on its income
or capital gains. In addition, upon any payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax is
imposed.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_3" id="_IncomeTaxDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Subsidiaries in Hong Kong
are subject to Hong Kong Profits Tax rate at <ix:nonFraction contextRef="c121" decimals="3" format="ixt:num-dot-decimal" name="fanh:ProfitsTaxRate" scale="-2" unitRef="pure">16.5</ix:nonFraction>%, and foreign-derived income is exempted from income tax.&#160;Under the two-tiered
profits tax rates regime,&#160;the provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by
applying the current rate of taxation of <ix:nonFraction contextRef="c4" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:EffectiveIncomeTaxRateReconciliationNondeductibleExpenseMealsAndEntertainment" scale="-2" unitRef="pure"><ix:nonFraction contextRef="c5" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:EffectiveIncomeTaxRateReconciliationNondeductibleExpenseMealsAndEntertainment" scale="-2" unitRef="pure"><ix:nonFraction contextRef="c0" decimals="4" format="ixt:num-dot-decimal" name="us-gaap:EffectiveIncomeTaxRateReconciliationNondeductibleExpenseMealsAndEntertainment" scale="-2" unitRef="pure">8.25</ix:nonFraction></ix:nonFraction></ix:nonFraction>% for the years ended December 31, 2020, 2021 and 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

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except for certain entities that are entitled to preferential tax treatments.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

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Fanhua Lianxing Insurance Sales Co., Ltd., the Group&#8217;s wholly-owned subsidiary, which is the holding entity of the Group&#8217;s
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</div><div>

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laws and regulations in the PRC, Shenzhen Huazhong United Technology Co., Ltd. (&#8220;Shenzhen Huazhong&#8221;), a subsidiary of the
Group, was regarded as a software company and thus exempted from PRC Income Tax for two years starting from its first profit-making year,
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</div><div>

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Hong Kong for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the &#8220;PRC-HK
DTA&#8221;).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

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wholly-owned subsidiaries, CNinsure Holdings Limited, was determined by Hong Kong Taxation Bureau to be a Hong Kong resident enterprise
since July 2018. The Hong Kong resident certificate was issued by the Hong Kong Inland Revenue Department valid till the year ending December
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for the dividends paid by PRC subsidiaries for the years ended December 31, 2020, 2021 and 2022 under Bulletin [2018] No. 9 (e.g. beneficial
ownership, shareholding percentage and holding period).</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

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income tax positions by prescribing a minimum recognition threshold in the financial statements. The Group&#8217;s liabilities for unrecognized
tax benefits were included in other tax liabilities. As of December 31, 2021 and 2022, the balance of unrecognized tax benefits is comprised
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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(14) Income Taxes (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p><div>

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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_11" id="_IncomeTaxDisclosureTextBlock-c0_cont_10"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfUnrecognizedTaxBenefitsRollForwardTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

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years that remain subject to examination by the relevant tax authorities. Based on the outcome of any future examinations, or as a result
of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits
for tax positions taken regarding previously filed tax returns, might materially change from those recorded as liabilities for uncertain
tax positions in the Group&#8217;s consolidated financial statements. In addition, the outcome of these examinations may impact the valuation
of certain deferred tax assets (such as net operating losses) in future periods. The Group&#8217;s policy is to recognize interest and
penalties accrued on any unrecognized tax benefits, if any, as a component of income tax expense. The Group does not anticipate any significant
increases or decreases to its liability for unrecognized tax benefits within the next twelve months.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;&#160;</p></ix:continuation><div>

</div><div>

</div><ix:nonNumeric contextRef="c0" name="fanh:IncomeTaxesDescription"><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_13" id="_IncomeTaxDisclosureTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">According to the PRC Tax
Administration and Collection Law, the statute of limitations is three years if the underpayment of income taxes is due to computational
errors made by the taxpayer. The statute of limitations will be extended to five years under special circumstances, which are not clearly
defined, but an underpayment of income tax liability exceeding RMB100 is specifically listed as a special circumstance. In the case of
a transfer pricing related adjustment, the statute of limitations is ten years. There is no statute of limitations in the case of tax
evasion. During the current year, the Group reversed transfer pricing related uncertain tax position amounting to RMB36,566 when its statute
of limitation expired in 2022.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_14" id="_IncomeTaxDisclosureTextBlock-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Income tax expenses are comprised
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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_15" id="_IncomeTaxDisclosureTextBlock-c0_cont_14"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfComponentsOfIncomeTaxExpenseBenefitTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="width: 1%; text-align: left">&#160;</td><td style="width: 9%; text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CurrentIncomeTaxExpenseBenefit" scale="3" unitRef="cny">67,609</ix:nonFraction></td><td style="width: 1%; text-align: left">&#160;</td><td style="width: 1%">&#160;</td>
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    <td style="border-bottom: Black 4pt double; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; text-align: right"><ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:IncomeTaxExpenseBenefit" scale="3" unitRef="cny">83,387</ix:nonFraction></td><td style="padding-bottom: 4pt; text-align: left">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
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</div><div>


</div><!-- Field: Page; Sequence: 176; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->44<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"></p><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(14) Income Taxes (Continued)</b></p><div>


</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_16" id="_IncomeTaxDisclosureTextBlock-c0_cont_15"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The principal components
of the deferred income tax assets and liabilities are as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_17" id="_IncomeTaxDisclosureTextBlock-c0_cont_16"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfDeferredTaxAssetsAndLiabilitiesTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
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    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td></tr>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_18" id="_IncomeTaxDisclosureTextBlock-c0_cont_17"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group considers positive
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assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the
duration of statutory carry forward periods, the Group&#8217;s experience with tax attributes expiring unused and tax planning alternatives.
Valuation allowances have been established for deferred tax assets based on a more-likely-than-not threshold. The Group&#8217;s ability
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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_19" id="_IncomeTaxDisclosureTextBlock-c0_cont_18"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group had total operating
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</div><div>


</div><!-- Field: Page; Sequence: 177; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->45<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(14) Income Taxes (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_20" id="_IncomeTaxDisclosureTextBlock-c0_cont_19"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Reconciliation between the
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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_21" id="_IncomeTaxDisclosureTextBlock-c0_cont_20"><ix:nonNumeric contextRef="c0" continuedAt="_ScheduleOfEffectiveIncomeTaxRateReconciliationTableTextBlock-c0_cont_1" escape="true" name="us-gaap:ScheduleOfEffectiveIncomeTaxRateReconciliationTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_22" id="_IncomeTaxDisclosureTextBlock-c0_cont_21"><ix:continuation id="_ScheduleOfEffectiveIncomeTaxRateReconciliationTableTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0%"></td><td style="width: 0.25in; text-align: left"><span style="font-size: 10pt">*</span></td><td style="text-align: justify"><ix:footnote id="ix_3_footnote" xml:lang="en-US"><span style="font-size: 10pt"><i>The effect of non-taxable
income represents an income tax exemption according to the Notice (Cai Shui [2002] No. 128) promulgated by the State Administration of
Taxation and Ministry of Finance in China on dividend income derived from a purchased open-end securities investment fund product that
the Group recorded as short term investment.</i></span></ix:footnote></td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation></ix:continuation><div>
</div><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_23" id="_IncomeTaxDisclosureTextBlock-c0_cont_22"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Additional PRC income taxes
that would have been payable without the tax exemption amounted to approximately RMB<ix:nonFraction contextRef="c4" decimals="-3" format="ixt:num-dot-decimal" name="fanh:IncomeTaxReconciliationIncomeTaxRateDifferentials" scale="3" unitRef="cny">18,114</ix:nonFraction>, RMB<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="fanh:IncomeTaxReconciliationIncomeTaxRateDifferentials" scale="3" unitRef="cny">13,523</ix:nonFraction> and RMB<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="fanh:IncomeTaxReconciliationIncomeTaxRateDifferentials" scale="3" unitRef="cny">12,671</ix:nonFraction> for the years ended
December 31, 2020, 2021 and 2022, respectively. Without such exemption, the Group&#8217;s basic net profit per share for the years ended
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</div><div>

</div><ix:nonNumeric contextRef="c5" name="fanh:DividendPaidDescription"><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_24" id="_IncomeTaxDisclosureTextBlock-c0_cont_23"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">If the entities were to be
non-resident for PRC tax purposes, dividends paid to it out of profits earned after January 1, 2008 would be subject to a withholding
tax. In the case of dividends paid by PRC subsidiaries, the withholding tax would be 10%, whereas in the case of dividends paid by PRC
subsidiaries which are 25% or more directly owned by tax residents in the Hong Kong Special Administrative Region, the withholding tax
would be 5%. The Group&#8217;s subsidiary, CNinsure Holdings Limited qualified as Hong Kong resident and was entitled to enjoy a 5% reduced
tax rate under Bulletin [2018] No. 9 for the years ended December 31, 2020 and 2021, respectively.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation></ix:nonNumeric><div>

</div><div>

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distributed or they were determined to be no longer permanently reinvested, the Group would have to record a deferred tax liability in
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</div><div>


</div><!-- Field: Page; Sequence: 178; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->46<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(14) Income Taxes (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><ix:continuation continuedAt="_IncomeTaxDisclosureTextBlock-c0_cont_26" id="_IncomeTaxDisclosureTextBlock-c0_cont_25"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">During the years ended December
31, 2020<span style="font-family: Times New Roman, Times, Serif">&#65292;</span>2021 and 2022, the Group provided RMB<ix:nonFraction contextRef="c28" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:DeferredTaxAssetsDeferredIncome" scale="3" unitRef="cny">18,483</ix:nonFraction>, RMB<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:DeferredTaxAssetsDeferredIncome" scale="3" unitRef="cny">10,349</ix:nonFraction>
and <span style="-sec-ix-hidden: hidden-fact-221">nil</span>, respectively, deferred income tax for the declared dividend distribution based on a <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="fanh:DividendDistributionWithholdingTaxRate" scale="-2" unitRef="pure">5</ix:nonFraction>% withholding tax rate.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_IncomeTaxDisclosureTextBlock-c0_cont_26"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under applicable accounting
principles, a deferred tax liability should be recorded for taxable temporary differences attributable to the excess of financial reporting
over tax basis, including those differences attributable to a more-than-50-percent-owned domestic subsidiary. However, recognition is
not required in situations where the tax law provides a means by which the reported amount of that investment can be recovered tax-free
and the enterprise expects that it will ultimately use that means.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:StockholdersEquityNoteDisclosureTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(15) Capital Structure </b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation id="_StockholdersEquityNoteDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">During 2022, <ix:nonNumeric contextRef="c0" name="fanh:CapitalStructureDescription">the Company
repurchased an aggregate of 72,465 ADSs from the open market, representing 0.1% of the total shares outstanding as of December 31, 2022,
at an average price of US$7.85 per ADS for a total amount of approximately RMB3,984, under its share buyback program to repurchase up
to US$20 million ADSs, as previously announced by its board of directors in December 2022. The Group accounts for repurchased ordinary
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_EarningsPerShareTextBlock-c0_cont_1" escape="true" name="us-gaap:EarningsPerShareTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(16) Net Income per Share</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:nonNumeric><div>

</div><div>

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and diluted net income per ordinary share is as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_EarningsPerShareTextBlock-c0_cont_3" id="_EarningsPerShareTextBlock-c0_cont_2"><ix:nonNumeric contextRef="c0" continuedAt="_ScheduleOfEarningsPerShareBasicAndDilutedTableTextBlock-c0_cont_1" escape="true" name="us-gaap:ScheduleOfEarningsPerShareBasicAndDilutedTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
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    <td style="text-align: center">&#160;</td><td style="font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom">
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    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td></tr>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  </table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:nonNumeric></ix:continuation><div>

</div><div>


</div><!-- Field: Page; Sequence: 179; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->47<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(16) Net Income per Share (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><ix:continuation id="_EarningsPerShareTextBlock-c0_cont_3"><ix:continuation id="_ScheduleOfEarningsPerShareBasicAndDilutedTableTextBlock-c0_cont_1"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom">
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  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold">&#160;</td>
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  <tr style="vertical-align: bottom">
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    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2" style="text-align: right">&#160;</td><td>&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="fanh_DistributionOfProfitsDisclosureTextBlock-c0_cont_1" escape="true" name="fanh:DistributionOfProfitsDisclosureTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(17) Distribution of Profits</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="fanh_DistributionOfProfitsDisclosureTextBlock-c0_cont_2" id="fanh_DistributionOfProfitsDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As stipulated by the relevant
PRC laws and regulations applicable to China&#8217;s foreign investment enterprise, the Group&#8217;s subsidiaries and VIEs in the PRC
are required to maintain non-distributable reserves which include a statutory surplus reserve as of December 31, 2021 and 2022. Appropriations
to the statutory surplus reserve are required to be made at not less than <ix:nonFraction contextRef="c130" decimals="2" format="ixt:num-dot-decimal" name="fanh:AppropriationsToStatutoryCapitalAndSurplus" scale="-2" unitRef="pure">10</ix:nonFraction>% of individual company&#8217;s net profit as reported in
the PRC statutory financial statements of the Company&#8217;s subsidiaries and VIEs. The appropriations to statutory surplus reserve are
required until the balance reaches <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="fanh:AppropriationsToStatutoryCapitalAndSurplus" scale="-2" unitRef="pure">50</ix:nonFraction>% of the registered capital of respective subsidiaries and VIEs.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="fanh_DistributionOfProfitsDisclosureTextBlock-c0_cont_3" id="fanh_DistributionOfProfitsDisclosureTextBlock-c0_cont_2"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The statutory surplus reserve
is used to offset future losses. These reserves represent appropriations of retained earnings determined according to PRC law and may
not be distributed. The accumulated amounts contributed to the statutory reserves were RMB<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:RetainedEarningsAppropriated" scale="3" unitRef="cny">557,221</ix:nonFraction> and RMB<ix:nonFraction contextRef="c2" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:RetainedEarningsAppropriated" scale="3" unitRef="cny">559,520</ix:nonFraction> as of December 31, 2021
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</div><div>

</div><ix:continuation id="fanh_DistributionOfProfitsDisclosureTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Under PRC laws and regulations,
there are restrictions on the Company&#8217;s PRC subsidiaries and VIEs with respect to transferring certain of their net assets to the
Company either in the form of dividends, loans, or advances. Amounts of restricted net assets include paid in capital and statutory surplus
reserve of the Company&#8217;s PRC subsidiaries and the net assets of the VIEs in which the Company has no legal ownership, totaling&#160;RMB<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetRegulatoryAssets" scale="3" unitRef="cny">1,458,915</ix:nonFraction>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><ix:nonNumeric contextRef="c0" continuedAt="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_1" escape="true" name="us-gaap:RelatedPartyTransactionsDisclosureTextBlock"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(18) Related-party Balances and Transactions</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:nonNumeric><div>

</div><div>

</div><ix:continuation continuedAt="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_2" id="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The principal related-party
balances as of December 31, 2021 and 2022, and transactions for the years ended December 31, 2020, 2021 and 2022 are as follows:</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

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<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">(i)</td><td style="text-align: justify">On December 28, 2020, the Group entered into a framework
strategic partnership agreement, or, the &#8220;Agreement&#8221;, with Puyi Enterprise Management Consulting Co., Ltd (&#8220;Puyi Consulting&#8221;),
which was controlled by Puyi, the Group&#8217;s affiliate. Pursuant to the Agreement, both parties, on the basis of full compliance with
relevant regulatory and legal requirements will share customer and channel resources and explore collaboration opportunities on the provision
of value-added asset management services to Chinese households, by leveraging both parties&#8217; respective strength in insurance and
financial services. For the year ended December 31, 2021, the Group incurred RMB<ix:nonFraction contextRef="c5" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsForLeasingCostsCommissionsAndTenantImprovements" scale="3" unitRef="cny">5,386</ix:nonFraction> commission cost to Puyi Consulting and the balance
of accounts payable as of December 31, 2021 was RMB<ix:nonFraction contextRef="c3" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:AccountsPayableRelatedPartiesCurrent" scale="3" unitRef="cny">2,894</ix:nonFraction>. For the year ended December 31, 2022, the Group incurred RMB<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsForLeasingCostsCommissionsAndTenantImprovements" scale="3" unitRef="cny">13,548</ix:nonFraction> commission
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services and product offerings, the Group provided referral services of publicly-raised and privately-raised fund products provided by
Puyi&#8217;s clients, the Group referred Puyi&#8217;s financial advisors to their clients and Puyi&#8217;s financial advisors will be
responsible for providing product information and handling purchasing procedures. For the year ended December 31, 2022, the Group incurred
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</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_RelatedPartyTransactionsDisclosureTextBlock-c0_cont_3"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">(ii)</td><td style="text-align: justify">On March 7, 2022, the Group entered into an agreement with
Puyi Consulting. Pursuant to this agreement, Puyi Consulting provided training services and customer salon support services to the Group.
For the year ended December 31, 2022, the Group incurred RMB<ix:nonFraction contextRef="c0" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:ProfessionalAndContractServicesExpense" scale="3" unitRef="cny">7,017</ix:nonFraction> services expense to Puyi Consulting and the balance of other payable
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</tr></table></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p><div>

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</div><div>

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<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">(i)</td><td style="text-align: justify">See Note 9 for the Group&#8217;s commitments for future minimum
lease payments under operating leases.</td>
</tr></table><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_CommitmentsAndContingenciesDisclosureTextBlock-c0_cont_2"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
<td style="width: 0.25in"></td><td style="width: 0.25in; text-align: left">(ii)</td><td style="text-align: justify">As of December 31, 2022, there was no pending legal proceeding
to which the Group is a party that will have a material effect on the Group&#8217;s business, results of operations or cash flows.</td>
</tr></table></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><div>

</div><ix:continuation continuedAt="_ConcentrationRiskDisclosureTextBlock-c0_cont_2" id="_ConcentrationRiskDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Concentration risks</i></b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

</div><ix:continuation continuedAt="_ConcentrationRiskDisclosureTextBlock-c0_cont_4" id="_ConcentrationRiskDisclosureTextBlock-c0_cont_3"><ix:nonNumeric contextRef="c0" continuedAt="fanh_ScheduleOfConcentrationOfRiskRevenuesTableTextBlock-c0_cont_1" escape="true" name="fanh:ScheduleOfConcentrationOfRiskRevenuesTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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</div><div>

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</div><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Page; Sequence: 181; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Notes to the Consolidated Financial Statements</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b><i>(In thousands, except for shares and per
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(20) Concentrations of Credit Risk (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-align: justify; text-indent: -0.5in"><b><i>&#160;</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b><i>Concentration risks
</i>(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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</div><div>

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</div><div>

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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

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a result of such option modification in November 2014. The fair value of the options was determined by using the Black-Scholes option
pricing model.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_4" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_3"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For the years ended December
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</div><div>


</div><!-- Field: Page; Sequence: 182; Value: 1 --><div>
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    </div><!-- Field: /Page --><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(21) Share-based Compensation (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt"><b>&#160; </b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>(a) 2012 Option G (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_5" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For the year ended December
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_6" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_5"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfShareBasedCompensationActivityTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="padding-bottom: 4pt">Outstanding as of December 31, 2022</td><td style="padding-bottom: 4pt">&#160;</td>
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    <td style="border-bottom: Black 4pt double; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; text-align: right"><div style="-sec-ix-hidden: hidden-fact-242">&#8212;</div></td><td style="padding-bottom: 4pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="padding-bottom: 4pt">Exercisable as of December 31, 2022</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; text-align: right"><div style="-sec-ix-hidden: hidden-fact-243">&#8212;</div></td><td style="padding-bottom: 4pt; text-align: left">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; text-align: right"><div style="-sec-ix-hidden: hidden-fact-244">&#8212;</div></td><td style="padding-bottom: 4pt; text-align: left">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
    <td style="border-bottom: Black 4pt double; text-align: left">&#160;</td><td style="border-bottom: Black 4pt double; text-align: right"><div style="-sec-ix-hidden: hidden-fact-245">&#8212;</div></td><td style="padding-bottom: 4pt; text-align: left">&#160;</td><td style="padding-bottom: 4pt">&#160;</td>
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_7" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_6"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of December 31, 2022,
all of the above options were fully vested and exercised.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_8" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>(b) The 521 Plan</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><b>&#160;</b></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_9" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The 521 Plan was designed
to incentivize the Participants and was originally accounted for as grant of share options.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_10" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Participants&#8217; rights
to ownership benefits of the shares are subject to the Participants&#8217; achievement of service and performance vesting conditions.
Each award agreement contains a condition for service from January 1, 2019 through December 31, 2023 (which coincides with loan maturity
date) as well as individually determined performance conditions based on cumulative sales over the service period. <ix:nonNumeric contextRef="c154" name="fanh:TerminationOfEmploymentOrAgencyContract">Upon&#160;a modification
of the settlement terms of the 521 Plan from cash settlement to net share settlement of vested ADS options&#160;in November 2019, the
Group will settle the vested ADS option with shares of the Group at a value equal to the excess of the settlement date fair value of the
ADS over the loan principal plus interest.</ix:nonNumeric> The modification resulted in a change of awards&#8217; classification from liability to equity.&#160;At
the modification date, the Group reclassified the amounts previously recorded as a share-based compensation liability as a component of
equity in the form of a credit to additional paid-in capital.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_11" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">In December 2020, the Group
entered into supplemental agreements with all remaining Participants to cancel the 521 Plan. In accordance with the supplemental agreements,
all the relevant original contractual agreements were terminated and lapsed and upon which, the 521 Plan Employee Companies returned a
total of <ix:nonFraction contextRef="c28" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:CommonStockSharesSubscribedButUnissued" scale="0" unitRef="shares">280,000,000</ix:nonFraction> subscribed ordinary shares to the Group, and as a condition, the Group refunded all share rights deposits amounting
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and accumulated interest. By the end of 2020, the transaction was completed and the returned shares were all cancelled.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_12" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">For the year ended December
31, 2019, the Group recognized RMB<ix:nonFraction contextRef="c155" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:AllocatedShareBasedCompensationExpense" scale="0" unitRef="cny">393</ix:nonFraction> share-based compensation expense related to the 521 plan, while for the year ended December 31,
2020, the Group reversed RMB<ix:nonFraction contextRef="c156" decimals="0" format="ixt:num-dot-decimal" name="fanh:ReversedStockOption" scale="0" unitRef="cny">393</ix:nonFraction> as the stock options related to the 521 Plan were estimated to be improbable to vest. As of December 31,
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</div><div>


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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->51<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(21) Share-based Compensation (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_13" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>(c) 2022 Options</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_14" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_13"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">On August 12, 2022, the Company
granted share options (&#8220;2022 Options&#8221;) to its independent directors to purchase up to <ix:nonFraction contextRef="c157" decimals="0" format="ixt:num-dot-decimal" name="us-gaap:ExcessStockSharesIssued" scale="0" unitRef="shares">4,000,000</ix:nonFraction> ordinary shares of the Company.
Pursuant to the option agreements entered into between the Company and the option grantees, the options vest over a four-year service
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and the remaining <ix:nonFraction contextRef="c161" decimals="2" format="ixt:num-dot-decimal" name="fanh:OptionsGrantPercentage" scale="-2" unitRef="pure">20</ix:nonFraction>% (&#8220;Option D4&#8221;) of the options being vested on August 31 of each of the years starting from 2023 to 2026,
respectively, subject to the continuous service of the option grantees. The 2022 Options expire no later than August 1, 2032, subject
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_15" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_14"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The Group used the Black-Scholes
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_16" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_15"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfShareBasedPaymentAwardStockOptionsValuationAssumptionsTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%">
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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_17" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_16"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_19" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_18"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_21" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_20"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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</div><div>

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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_23" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_22"><table cellpadding="0" cellspacing="0" style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; width: 100%"><tr style="vertical-align: top; text-align: justify">
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</div><div>

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</div><div>


</div><!-- Field: Page; Sequence: 184; Value: 1 --><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(21) Share-based Compensation (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><b>(c) 2022 Options (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&#160;</p><div>

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</div><div>

</div><ix:continuation continuedAt="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_27" id="_DisclosureOfCompensationRelatedCostsShareBasedPaymentsTextBlock-c0_cont_26"><ix:nonNumeric contextRef="c0" escape="true" name="us-gaap:ScheduleOfShareBasedCompensationStockOptionsActivityTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%">
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</div><div>

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pre-underwriting survey services, claim adjusting services, disposal of residual value services, loading and unloading supervision services,
and consulting services. Operating segments are defined as components of an enterprise about which separate financial information is available
and evaluated regularly by the Group&#8217;s chief operating decision maker (&#8220;CODM&#8221;) in deciding how to allocate resources and
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</div><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>(22) Segment Reporting (Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

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to reportable segments and corporate related items.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p></ix:continuation><div>

</div><div>

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</div><div>

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the identifiable assets of the Group is located in the PRC. Accordingly, no geographical segments are presented.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.<br/>
Notes to the Consolidated Financial Statements<br/>
<i>(In thousands, except for shares and per share data)</i></b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p><div>

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</div><div>

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insurance intermediaries companies</i></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

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issued to the existing shareholders of Zhongrong as of March 31, 2023. The consideration, adjustable based on the achievement of
certain performance targets in the next three years by Zhongrong, is subject to a lock-up period of three years and will be released
from lock-up in two batches after 2025.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

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</div><div>

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Group entered into an another definitive agreement with the existing shareholders of Wuhan Taiping Online Insurance Agency Co., Ltd. (&#8220;Taiping&#8221;),
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issued to the existing shareholders of Taiping as of March 31, 2023. The consideration, adjustable based on the achievement of certain
performance targets in the next three years by Taiping, is subject to a lock-up period of three years and will be released from lock-up
in two batches after 2025.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"><i>&#160;</i></p></ix:continuation><div>

</div><div>

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</div><div>

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</div><div>

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period starting from March 31, 2024, subject to the achievement of certain key performance indicators by the option holders and their
continued service with the Group. The Group is in the process of assessing the accounting treatment of the above mentioned share incentive
program.</p></ix:continuation><div>
</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>


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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&#160;</p><div>

</div><div><a id="f_008"></a></div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>SCHEDULE I&#8212;CONDENSED FINANCIAL INFORMATION
OF THE COMPANY</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Balance Sheets</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>(<i>In thousands, except for shares and per
share data</i>)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
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    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->56<!-- Field: /Sequence --></p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>SCHEDULE I&#8212;CONDENSED FINANCIAL INFORMATION
OF THE COMPANY&#8212;(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_2" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_1"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Statements of Income and Comprehensive Income</b></p></ix:continuation><div>

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</div><div>

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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-261">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: left; padding-bottom: 4pt; text-indent: -8.65pt; padding-left: 8.65pt">Comprehensive income attributable to the Company&#8217;s shareholders</td><td style="font-weight: bold; padding-bottom: 4pt">&#160;</td>
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</div><div>


</div><!-- Field: Page; Sequence: 189; Value: 1 --><div>
    </div><div style="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1.5pt solid"><p style="font: 10pt Times New Roman, Times, Serif; text-align: center; margin-top: 0pt; margin-bottom: 0pt">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->57<!-- Field: /Sequence --></p></div><div>
    </div><div style="break-before: page; margin-top: 6pt; margin-bottom: 12pt"><p style="margin: 0pt">&#160;</p></div><div>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>SCHEDULE I&#8212;CONDENSED FINANCIAL INFORMATION
OF THE COMPANY&#8212;(Continued)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 5pt; text-align: center; text-indent: -5pt"><b>&#160;</b></p><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_5" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_4"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 5pt; text-align: center; text-indent: -5pt"><b>Statements of Cash
Flows</b></p></ix:continuation><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_6" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_5"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>(<i>In thousands</i>)</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_7" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_6"><ix:nonNumeric contextRef="c0" escape="true" name="srt:ScheduleOfCondensedCashFlowStatementTableTextBlock"><table cellpadding="0" cellspacing="0" style="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
  <tr style="vertical-align: bottom">
    <td style="text-align: center">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td colspan="14" style="font-weight: bold; text-align: center; border-bottom: Black 1.5pt solid">Year Ended December 31,</td><td style="padding-bottom: 1.5pt; font-weight: bold">&#160;</td></tr>
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    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
    <td colspan="2">&#160;</td><td>&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
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  <tr style="vertical-align: bottom; background-color: White">
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    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-265">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: left">Changes in operating assets and liabilities:</td><td>&#160;</td>
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    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="font-weight: bold; text-align: left; padding-bottom: 1.5pt">Net cash (used in) from operating activities</td><td style="padding-bottom: 1.5pt">&#160;</td>
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  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: left">Cash flows (used in) generated from investing activities</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Purchase of short-term investments</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c190" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireShortTermInvestments" scale="3" sign="-" unitRef="cny">71,382</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-268">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-269">&#160;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-270">&#160;</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Changes in investment in subsidiaries and an affiliate</td><td>&#160;</td>
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  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Advances to subsidiaries and affiliates</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c190" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireBusinessesAndInterestInAffiliates" scale="3" unitRef="cny">660,004</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c191" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireBusinessesAndInterestInAffiliates" scale="3" unitRef="cny">157,582</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireBusinessesAndInterestInAffiliates" scale="3" sign="-" unitRef="cny">689,780</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsToAcquireBusinessesAndInterestInAffiliates" scale="3" sign="-" unitRef="usd">100,009</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt">Proceeds from disposal of short-term investments</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c190" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:ProceedsFromSaleOfShortTermInvestments" scale="3" unitRef="cny">73,310</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-271">&#8212;</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:ProceedsFromSaleOfShortTermInvestments" scale="3" unitRef="cny">10,095</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:ProceedsFromSaleOfShortTermInvestments" scale="3" unitRef="usd">1,464</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="font-weight: bold; text-align: left; padding-bottom: 1.5pt">Net cash generated from investing activities</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c190" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInInvestingActivities" scale="3" unitRef="cny">688,127</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c191" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInInvestingActivities" scale="3" unitRef="cny">201,339</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInInvestingActivities" scale="3" unitRef="cny">227,321</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right"><ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInInvestingActivities" scale="3" unitRef="usd">32,959</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: left">Cash flows generated from (used in) financing activities:</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">&#160;</td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Proceeds on exercise of stock options</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-272">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-273">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="fanh:ProceedsOfEmployeeAndGranteeSubscriptions" scale="3" unitRef="cny">2</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-274">&#8212;</div></td><td style="text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left">Dividends paid</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c190" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsOfDividendsCommonStock" scale="3" sign="-" unitRef="cny">388,499</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c191" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsOfDividendsCommonStock" scale="3" sign="-" unitRef="cny">242,518</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsOfDividendsCommonStock" scale="3" sign="-" unitRef="cny">317,730</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:PaymentsOfDividendsCommonStock" scale="3" sign="-" unitRef="usd">46,067</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="text-align: left">Repurchase of ordinary shares from open market</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-275">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><div style="-sec-ix-hidden: hidden-fact-276">&#8212;</div></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:ProceedsFromIssuanceOfCommonStock" scale="3" sign="-" unitRef="cny">3,984</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:ProceedsFromIssuanceOfCommonStock" scale="3" sign="-" unitRef="usd">578</ix:nonFraction></td><td style="text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="text-align: left; padding-bottom: 1.5pt">Repayment of subscription from the 521 Plan participants</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right">(<ix:nonFraction contextRef="c190" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:ProceedsFromIssuanceOfSharesUnderIncentiveAndShareBasedCompensationPlans" scale="3" sign="-" unitRef="cny">250,312</ix:nonFraction></td><td style="padding-bottom: 1.5pt; text-align: left">)</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-277">&#8212;</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-278">&#8212;</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td><td style="padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; text-align: right"><div style="-sec-ix-hidden: hidden-fact-279">&#8212;</div></td><td style="padding-bottom: 1.5pt; text-align: left">&#160;</td></tr>
  <tr style="vertical-align: bottom; background-color: White">
    <td style="font-weight: bold; text-align: left; padding-bottom: 1.5pt">Net cash generated used in financing activities</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c190" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInFinancingActivities" scale="3" sign="-" unitRef="cny">638,811</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c191" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInFinancingActivities" scale="3" sign="-" unitRef="cny">242,518</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInFinancingActivities" scale="3" sign="-" unitRef="cny">321,712</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td><td style="font-weight: bold; padding-bottom: 1.5pt">&#160;</td>
    <td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: left">&#160;</td><td style="border-bottom: Black 1.5pt solid; font-weight: bold; text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:NetCashProvidedByUsedInFinancingActivities" scale="3" sign="-" unitRef="usd">46,645</ix:nonFraction></td><td style="padding-bottom: 1.5pt; font-weight: bold; text-align: left">)</td></tr>
  <tr style="vertical-align: bottom; background-color: rgb(204,238,255)">
    <td style="font-weight: bold; text-align: left">Net increase (decrease) in cash and cash equivalents</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right"><ix:nonFraction contextRef="c190" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect" scale="3" unitRef="cny">38,363</ix:nonFraction></td><td style="text-align: left">&#160;</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c191" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect" scale="3" sign="-" unitRef="cny">41,963</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect" scale="3" sign="-" unitRef="cny">87,052</ix:nonFraction></td><td style="text-align: left">)</td><td>&#160;</td>
    <td style="text-align: left">&#160;</td><td style="text-align: right">(<ix:nonFraction contextRef="c192" decimals="-3" format="ixt:num-dot-decimal" name="us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalentsPeriodIncreaseDecreaseIncludingExchangeRateEffect" scale="3" sign="-" unitRef="usd">12,621</ix:nonFraction></td><td style="text-align: left">)</td></tr>
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</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"><b>FANHUA INC.</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>Note to Schedule I</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>(<i>In thousands, except for shares</i>)</b></p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><b>&#160;</b></p><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_8" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_7"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Schedule I has been provided
pursuant to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, which require condensed financial information
as to the financial position, cash flows and results of operations of a parent company as of the same dates and for the same periods for
which audited consolidated financial statements have been presented when the restricted net assets of the consolidated and unconsolidated
subsidiaries (including variable interest entities) together exceed <ix:nonFraction contextRef="c0" decimals="2" format="ixt:num-dot-decimal" name="fanh:MaximumPercentageOfConsolidatedNetAssets" scale="-2" unitRef="pure">25</ix:nonFraction> percent of consolidated net assets as of the end of the most recently
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</div><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_9" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_8"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of December 31, 2022,
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</div><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_10" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_9"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">As of December 31, 2022,
there were no material contingencies, significant provisions of long-term obligations, and mandatory dividend or redemption requirements
of redeemable shares or guarantees of the Company except for those which have been separately disclosed in the consolidated financial
statements, if any.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>&#160;</b></p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_11" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_10"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><b>Basis of preparation</b></p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 39.95pt">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation continuedAt="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_12" id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_11"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">The condensed financial information
of the Company has been prepared using the same accounting policies as set out in the accompanying consolidated financial statements except
that the equity method has been used to account for investments in its subsidiaries.</p><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p></ix:continuation><div>

</div><div>

</div><ix:continuation id="_CondensedFinancialInformationOfParentCompanyOnlyDisclosureTextBlock-c0_cont_12"><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">Certain information and footnote
disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The footnote
disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in
conjunction with the notes to the consolidated financial statements of the Group as of December 31, 2021 and 2022 and the years ended
2020, 2021 and 2022.</p></ix:continuation><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in">&#160;</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center">F-59</p><div>

</div><p style="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.25in"></p><div>

</div><!-- Field: Rule-Page --><div style="margin-top: 0pt; margin-bottom: 0pt; width: 100%"><div style="font-size: 1pt; border-top: Black 1.5pt solid">&#160;</div></div><!-- Field: /Rule-Page --><div>

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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM
20-F
(Mark One)
☐
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
December 31
,
2022
.
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
For the transition period
from             to
Commission file number:
001-33768
FANHUA INC.
(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)
60/F
,
Pearl River Tower
No. 15 West Zhujiang
Road
Guangzhou, Guangdong
510623
People's Republic
of
China
(Address of principal executive
offices)
Peng Ge
, Chief Financial
Officer
Tel: +
86 20
83883033
E-mail:
gepeng@fanhuaholdings.com
Fax: +
86 20 83883181
60/F
,
Pearl River Tower
No. 15 West Zhujiang
Road
Guangzhou, Guangdong
510623
People's Republic
of
China
(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
Ticker Symbol(s)
Name of Each Exchange on Which Registered
Ordinary shares, par value US$0.001 per share
*
FANH
The
NASDAQ
Stock Market LLC
American depositary shares, each representing 20 ordinary shares
(The NASDAQ Global Select Market)
*
Not for trading, but only in connection with the listing on The NASDAQ
    Global Select Market of American depositary shares, each representing 20 ordinary shares.
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.
1,072,842,484
ordinary shares, par value US$0.001 per share as of December 31, 2022
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
☐
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
☐
No
☒
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.
Yes
☒
No
☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 and post such files).
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 definition of "large accelerated filer," "accelerated filer" and "emerging growth company"
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
☐
Accelerated filer
☒
Non-accelerated filer
☐
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.
☒
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
☒
International Financial Reporting Standards as issued Other
☐
by the International Accounting Standards Board
☐
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
☐
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
☐
TABLE OF CONTENTS
INTRODUCTION
ii
PART I
1
Item 1. Identity of Directors, Senior Management and
    Advisers
1
Item 2. Offer Statistics and Expected Timetable
1
Item 3. Key Information
1
Item 4. Information on the Company
45
Item 4A. Unresolved Staff Comments
76
Item 5. Operating and Financial Review and Prospects
76
Item 6. Directors, Senior Management and Employees
93
Item 7. Major Shareholders and Related Party Transactions
104
Item 8. Financial Information
104
Item 9. The Offer and Listing
106
Item 10. Additional Information
107
Item 11. Quantitative and Qualitative Disclosures about
    Market Risk
117
Item 12. Description of Securities Other than Equity
    Securities
118
PART II
119
Item 13. Defaults, Dividend Arrearages and Delinquencies
119
Item 14. Material Modifications to the Rights of Security
    Holders and Use of Proceeds
119
Item 15. Controls and Procedures
119
Item 16A. Audit Committee Financial Expert
122
Item 16B. Code of Ethics
122
Item 16C. Principal Accountant Fees and Services
122
Item 16D. Exemptions from the Listing Standards for
    Audit Committees
123
Item 16E. Purchases of Equity Securities by the Issuer
    and Affiliated Purchasers
123
Item 16F. Change in Registrant's Certifying Accountant
123
Item 16G. Corporate Governance
124
Item 16H. Mine Safety Disclosure.
124
Item 16I. Disclosure Regarding Foreign Jurisdictions
    that Prevent Inspections.
124
Item 16J. Insider Trading Policies
124
PART III
125
Item 17. Financial Statements
125
Item 18. Financial Statements
125
Item 19. Exhibits
125
-
i
-
INTRODUCTION
In
this annual report, unless the context otherwise requires:
●
"we," "us,"
"our company," "the Company" or "our" refers to Fanhua Inc., formerly known as CNinsure Inc. and
its subsidiaries and, in the context of describing its operations and consolidated financial information, its variable interest entities
which are its consolidated affiliated entities, if applicable. As described elsewhere in this annual report, we do not own the VIEs,
and the results of the VIEs' operations only accrue to us through contractual arrangements between the VIEs, and the VIEs'
nominee shareholders, and certain of our subsidiaries. Accordingly, in appropriate contexts we will describe the VIEs' activities
separately from those of our direct and indirect owned subsidiaries, and our use of the terms "we," "us," and
"our" may not include the VIEs in those contexts;
●
"Parent" refers
to Fanhua Inc., a Cayman Islands holding company;
●
"consolidated VIEs"
refers to Shenzhen Xinbao Investment Management Co., Ltd. ("Xinbao Investment") Fanhua RONS (Beijing) Technologies Co., Ltd.
("Fanhua RONS Technologies") and their subsidiaries;
●
"China" or "PRC"
refers to the People's Republic of China, excluding, solely for the purpose of this annual report, Taiwan, Hong Kong Special Administrative
Region ("Hong Kong") and Macau Special Administrative Region("Macau");
●
"provinces" of China refers to the 23 provinces, the four
    municipalities directly administered by the central government (Beijing, Shanghai, Tianjin and Chongqing), the five autonomous regions
    (Xinjiang, Tibet, Inner Mongolia, Ningxia and Guangxi), excluding, solely for the purpose of this annual report, Taiwan, Hong Kong
    and Macau;
●
"shares" or "ordinary
shares" refers to our ordinary shares, par value US$0.001 per share;
●
"ADSs" refers to
our American depositary shares, each of which represents 20 ordinary shares;
●
all references to "RMB"
or "Renminbi" are to the legal currency of China, all references to "US$" and "U.S. dollars" are
to the legal currency of the United States and all references to "HK$" and "HK dollars" are to the legal currency
of Hong Kong;
●
"customer" refers
to policyholder or our insurance company partner which we define as customer under ASC 606; and
●
all discrepancies in any table
between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding.
Our
Corporate Structure
Fanhua
Inc. is a Cayman Islands holding company primarily operating in China through (i) its PRC subsidiaries, including Fanhua Zhonglian Enterprise
Image Planning (Shenzhen) Co., Ltd., or Zhonglian Enterprise, and Fanhua Xinlian Information Technology Consulting (Shenzhen) Co., Ltd.,
or Xinlian Information, and their subsidiaries in which we hold equity ownership interests, and (ii) contractual arrangements among (x)
our wholly-owned PRC subsidiaries Fanhua Insurance Sales Service Group Company Limited, or Fanhua Group Company and Beijing Fanlian Investment
Co., Ltd., or Fanlian Investment, (y) the consolidated VIEs, namely, Shenzhen Xinbao Investment Management Co., Ltd., or Xinbao Investment,
and Fanhua RONS (Beijing) Technologies Co., Ltd., or Fanhua RONS Technologies, two limited liability companies established under PRC
law, and (z) the individual nominee shareholder of the consolidated VIEs. Fanhua Inc. holds 49% equity interests in Xinbao Investment.
Investors in the ADSs thus are not purchasing, and may never directly hold all equity interests in the consolidated VIEs. PRC laws, regulations,
and rules restrict and impose conditions on direct foreign investment in certain types of business, and we therefore operate these businesses
in China through the consolidated VIEs. For a summary of these contractual arrangements, see "Item 4. Information on the Company—C.
Organizational Structure." As used in this annual report, "we", "us", or "our" refers to Fanhua
Inc. and its subsidiaries.
-
ii
-
Our
corporate structure is subject to risks relating to our contractual arrangements with Xinbao Investment, Fanhua RONS Technologies and
their individual nominee shareholders. If the PRC government finds these contractual arrangements non-compliant with the restrictions
on direct foreign investment in the relevant industries, or if the relevant PRC laws, regulations, and rules or the interpretation thereof
change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the consolidated VIEs or forfeit
our rights under the contractual arrangements. Fanhua Inc. and investors in the ADSs face uncertainty about potential future actions
by the PRC government, which could affect the enforceability of our contractual arrangements with Xinbao Investment and Fanhua RONS Technologies
and, consequently, significantly affect the financial condition and results of operations of Fanhua Inc. If we are unable to claim our
right to control the assets of the consolidated VIEs, the ADSs may decline in value or become worthless. See "Item 3. Key Information—D.
Risk Factors—Risks Related to Our Corporate Structure."
We
face various legal and operational risks and uncertainties relating to doing business in China. We operate our business primarily in
China, and are subject to complex and evolving PRC laws and regulations. For example, we face risks relating to regulatory approvals
in connection with a future offering of our securities to foreign investors, oversight on cybersecurity and data privacy, and the expanding
efforts in anti-monopoly enforcement. Uncertainties in the PRC legal system and the interpretation and enforcement of PRC laws and regulations
could limit the legal protection available to you and us, hinder our ability to offer or continue to offer the ADSs, result in a material
adverse effect on our business operations, and damage our reputation, which might further cause the ADSs to significantly decline in
value or become worthless. See "Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China."
The
Holding Foreign Companies Accountable Act
On
December 16, 2021, the PCAOB issued a report notifying the Commission of its determinations that they are unable to inspect or investigate
completely PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong. The report sets forth lists identifying
the registered public accounting firms headquartered in mainland China and Hong Kong, respectively, that the PCAOB is unable to inspect
or investigate completely. Our financial statements contained in this annual report on Form 20-F for the fiscal year ended December 31,
2022 have been audited by Deloitte Touche Tohmatsu Certified Public Accountants LLP, or Deloitte, an independent registered public accounting
firm that is headquartered in Mainland China and is on such lists.
On
May 26, 2022, we have been conclusively identified by the Commission as a Commission-Identified Issuer under the Holding Foreign Company
Accountable Act, or the HFCA Act. If, in the future, we have been identified by the Commission for three consecutive years as an issuer
whose registered public accounting firm is determined by the PCAOB that it is unable to inspect or investigate completely because of
a position taken by one or more authorities in China, the Commission may prohibit our shares or ADSs from being traded on a national
securities exchange or in the "over-the-counter" trading market in the United States. Additionally, on December 29, 2022,
the Consolidated Appropriations Act, 2023 was signed into law, which, among others, amended the HFCA Act to reduce the number of consecutive
years an issuer can be identified as a Commission-Identified Issuer before the SEC must impose an initial trading prohibition on the
issuer's securities from three years to two. Therefore, once an issuer is identified as a Commission-Identified Issuer for two
consecutive years, the SEC is required under the HFCA Act to prohibit the trading of the issuer's securities on a national securities
exchange and in the over-the-counter market. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination
and removed mainland China and Hong Kong from the list of jurisdictions where it is unable to inspect or investigate completely registered
public accounting firms. Therefore, our auditor is currently able to be fully inspected and investigated by the PCAOB. Accordingly, until
such time as the PCAOB issues any new determination, we are at no risk of having our securities subject to a trading prohibition under
the HFCA Act. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and
Hong Kong, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate
completely accounting firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions
to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following
the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCA Act, our securities would be prohibited
from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified
as a Commission-Identified Issuer for two consecutive years in the future. Furthermore, we and our investors may be deprived of the benefits
of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate
the effectiveness of our independent registered public accounting firm's audit procedures or quality control procedures as compared
to auditors outside of China that are subject to the PCAOB inspections, which could cause investors and potential investors in our securities
to lose confidence in the audit procedures and reported financial information and the quality of our financial statements. If we fail
to meet the new listing standards specified in the HFCA Act, we could face possible delisting from the Nasdaq, cessation of trading in
the "over-the-counter" market, deregistration from the Commission and/or other risks, which may materially and adversely
affect, or effectively terminate, our ADSs trading in the United States.
-
iii
-
PART
I
Item 1. Identity of Directors, Senior Management
and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
The Consolidated VIEs and China Operations
Fanhua
Inc. is a Cayman Islands holding company primarily operating in China through (i) its PRC subsidiaries, including Zhonglian Enterprise
and Xinlian Information, and their subsidiaries in which we hold equity ownership interests, and (ii) contractual arrangements among
(x) our wholly-owned PRC subsidiary Fanhua Group Company and Fanlian Investment, (y) the consolidated VIEs, Xinbao Investment and Fanhua
RONS Technologies, limited liability companies established under PRC law, and (z) the individual nominee shareholders of the consolidated
VIEs. Fanhua Inc. holds 49% equity interests in Xinbao Investment. Investors in the ADSs thus are not purchasing, and may never directly
hold all equity interests in the consolidated VIEs.
We
commenced a restructuring in August 2021 to re-establish the VIE structure for our online insurance business where our direct equity
interests in Xinbao Investment were reduced from 100% to 49% and the remaining 51% was nominally held by an employee of the Company on
behalf of the Company. The restructuring completed in December 2021. Concurrently, our wholly-owned PRC subsidiary, Fanhua Group Company,
entered into contractual arrangements with Xinbao Investment and the individual nominee shareholder. These agreements include:(i) a technology
consulting and service agreement, which enables us to receive all of the economic benefits of Xinbao investment and its subsidiaries,
(ii) a loan agreement, powers of attorney and an equity pledge agreement, which provide us with effective control over Xinbao Investment,
and (iii) an exclusive purchase option agreement, which provides us with the option to purchase part of the equity interests in Xinbao
Investment.
On
June 24, 2022, our wholly owned subsidiary Fanlian Investment transferred all of the equity interests in Fanhua RONS Technologies to
Mr. Peng Ge, our chief financial officer to hold the shares of Fanhua RONS Technologies nominally on behalf of the Company. Concurrently,
Fanlian Investment entered into contractual arrangements with Fanhua RONS Technologies and Mr. Ge. The contractual arrangements are substantially
similar to those among Fanhua Group Company, Xinbao Investment and its individual nominee shareholder.
For
more details of the restructuring and the contractual arrangements, see "Item 4. Information on the Company—C. Organizational
Structure."
In
the opinion of the Company's legal counsel, (i) the ownership structure relating to the consolidated VIEs of the Company is in
compliance with PRC laws and regulations; (ii) the contractual arrangements with the consolidated VIEs and the individual shareholders
are legal, valid and binding obligation of such party, and enforceable against such party in accordance with their respective terms;
and (iii) the execution, delivery and performance of the consolidated VIEs and its shareholders do not result in any violation of the
provisions of the articles of association and business licenses of the consolidated VIEs, and any violation of any current PRC laws and
regulations.
However,
control through these contractual arrangements may be less effective than direct ownership, and we could face heightened risks and costs
in enforcing these contractual arrangements, because there are substantial uncertainties regarding the interpretation and application
of current and future PRC laws, regulations, and rules relating to these contractual arrangements, and these contractual arrangements
have not been tested in a court of law. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations,
and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe
penalties or be forced to relinquish our interests in Xinbao Investment and Fanhua RONS Technologies or forfeit our rights under the
contractual arrangements. See "Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure
—
If
the PRC government finds that the contractual arrangements that establish the structure for operating part of our China business does
not comply with applicable PRC laws and regulations, we could be subject to severe penalties." and "Item 3. Key Information—D.
Risk Factors—Risks Related to Our Corporate Structure—We rely on contractual arrangements with our consolidated VIEs, Xinbao
Investment and Fanhua RONS Technologies, and their shareholders to conduct a small part of our China operations, which may not be as
effective in providing operational control as direct ownership, and these contractual arrangements have not been tested in a court of
law."
-
1
-
The
following diagram illustrates the corporate structure of us and the consolidated VIEs, including the names, places of incorporation and
the proportion of ownership interests in our and the consolidated VIEs' significant subsidiaries and their respective subsidiaries
as of March 31, 2023:
The
diagram above omits the names of subsidiaries that are immaterial individually and in the aggregate. For a complete list of our subsidiaries
as of March 31, 2023, see Exhibit 8.1 to this annual report.
Fund Flows between
Fanhua Inc., its Subsidiaries and the Consolidated VIEs
Under
PRC law, we may provide funding to our PRC subsidiaries only through capital contributions or loans, and to the consolidated VIEs only
through loans, subject to the satisfaction of applicable government registration and approval requirements. We rely on dividends and
other distributions from our PRC subsidiaries to satisfy part of our liquidity requirement. Under the contractual arrangements among
Fanhua Group Company, the consolidated VIEs, and the shareholders of the consolidated VIEs, Fanhua Group Company is entitled to all of
the economic benefits of the consolidated VIEs and its subsidiaries in the form of service fees. For risks relating to the fund flows
of our China operations, see "Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—We
rely principally on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements
we may have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our
ability to conduct our business."
Assets Transfer Occurred
Between Fanhua Inc., its Subsidiaries and the Consolidated VIEs
Under
the Contractual Arrangements, Fanhua Group Company and Fanlian Investment provide consultation and training services to the consolidated
VIEs and are entitled to receive service fees from the consolidated VIEs in exchange. The Contractual Arrangements provide that the consolidated
VIEs shall pay a quarterly fee calculated primarily based on a percentage of its revenues.
Technology consulting and
service agreements were entered into between (i) Fanhua Group Company and (ii) Xinbao Investment and each of its subsidiaries on March
1, 2022 and consulting and service agreements were entered into between (i) Fanlian Investment and (ii) Fanhua RONS Technologies and each
of its subsidiaries. No service fees have been incurred in 2022. The cash flows occurred between our subsidiaries and the consolidated
VIEs included the following: (1) cash received by the VIEs from our subsidiaries as inter-company advances amounted to RMB43.0 million
for the year ended December 31, 2022; and (2) commissions received offset by technology services paid by our subsidiaries to the VIEs
amounted to RMB94.9 million for the year ended December 31, 2022.
-
2
-
Dividends or Distributions on Our ADSs or
Ordinary Shares Made to the U.S. Investors and Their Tax Consequences
Our
board of directors has discretion as to whether to distribute dividends, subject to applicable laws. Although Fanhua Inc. has previously
paid dividends on a quarterly basis, the amount and form of future dividends will depend on, among other things, our future results of
operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries,
our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. See "Item 8. Financial
Information—A. Consolidated Statements and Other Financial Information—Dividend Policy."
In
addition, subject to the passive foreign investment company rules discussed in detail under "Item 10. Additional Information—E.
Taxation—United States Federal Income Taxation—Passive Foreign Investment Company", the gross amount of any distribution
that we make to investors with respect to our ADSs or ordinary shares (including any amounts withheld to reflect PRC or other withholding
taxes) will be taxable as a dividend, to the extent paid out of our current or accumulated earnings and profits, as determined under
United States federal income tax principles. Furthermore, 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. See
"Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our global income or the dividends
we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse effect on our results
of operations." For further discussion on PRC and United States federal income tax considerations of an investment in the ADSs,
see "Item 10—Additional Information—E. Taxation."
Restrictions on Foreign Exchange and the
Ability to Transfer Cash between Entities, Across Borders and to U.S. Investors
Our
cash dividends were 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 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 and if
this occurs in the future, we may not be able to pay dividends in foreign currencies to our shareholders.
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, our PRC subsidiaries and the consolidated VIEs can only distribute dividends
upon approval of the shareholders after they have met the PRC requirements for appropriation to the statutory reserves. As a result of
these and other restrictions under the PRC laws and regulations, our PRC subsidiaries and the consolidated VIEs are restricted to transfer
a portion of their net assets to us either in the form of dividends, loans or advances. Even though we currently do not require any such
dividends, loans or advances from our PRC subsidiaries and the consolidated VIEs for working capital and other funding purposes, we may
in the future require additional cash resources from our PRC subsidiaries and the consolidated VIEs due to changes in business conditions,
to fund future acquisitions and developments, or merely pay dividends to or distributions to our shareholders.
-
3
-
Financial Information Related to the VIEs
The
following tables set forth the summary consolidated balance sheets data as of December 31, 2022 of the Parent, our wholly-owned foreign
subsidiary ("WOFEs"), or Fanhua Group Company and Fanlian Investment, that are the primary beneficiaries of the VIEs under
accounting principles generally accepted in the United States, or U.S. GAAP (the "Primary Beneficiaries of VIEs"), our other
subsidiaries and the consolidated VIEs and their subsidiaries, and the summary of the consolidated statement of income and cash flows
for the year ended December 31, 2022. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP.
Our and the consolidated VIEs' historical results are not necessarily indicative of results expected for future periods. You should
read this information together with our consolidated financial statements and the related notes and "Item 5. Operating and Financial
Review and Prospects" included elsewhere in this annual report
.
As of December 31, 2022
Parent
Consolidated
VIEs and
their
subsidiaries
WOFEs
Other
Subsidiaries
Eliminating
adjustments
Consolidated
total
(RMB in thousands)
Assets
Cash and cash equivalents
38,512
38,169
112,399
378,445
—
567,525
Restricted cash
—
27,115
—
53,571
—
80,686
Short term investments
27,619
—
—
320,135
—
347,754
Accounts receivable, net
—
21,380
—
372,220
—
393,600
Contract assets, net
—
—
—
659,788
—
659,788
Other receivables, net
—
1,951
181,086
48,012
—
231,049
Amounts due from internal companies
417,613
208,630
943,158
3,056,014
(4,625,415
)
—
Investment in an affiliate
4,035
—
—
—
—
4,035
Investments in subsidiaries and the VIEs and VIEs' subsidiaries
2,520,667
—
1,178,977
64,000
(3,763,644
)
—
Right-of-use assets, net
—
5,273
13,074
126,739
—
145,086
Property, plant, and equipment, net
—
2,322
1,289
94,848
—
98,459
Other non-current assets
—
—
11,400
—
11,400
Deferred tax assets
—
5,000
—
15,402
—
20,402
Other assets
—
1,755
387,545
140,432
—
529,732
Total assets
3,008,446
311,595
2,817,528
5,341,006
(8,389,059
)
3,089,516
Liabilities
Short-term loan
—
—
—
35,679
—
35,679
Accounts payable
—
8,600
—
353,752
—
362,352
Accrued commissions
—
—
—
267,349
—
267,349
Other payables and accrued expenses
3,599
3,267
2,597
164,863
—
174,326
Amounts due to internal companies
1,381,444
170,839
2,102,968
972,406
(4,627,657
)
—
Income tax payable
—
7,509
852
121,663
—
130,024
Deferred tax liabilities
—
—
—
102,455
—
102,455
Operating lease liability
—
4,955
14,107
117,432
—
136,494
Accrued payroll
—
10,941
4,853
80,485
—
96,279
Other tax liabilities
—
26,147
—
10,500
—
36,647
Insurance premium payable
—
16,571
—
9
—
16,580
Total liabilities
1,385,043
248,829
2,125,377
2,226,593
(4,627,657
)
1,358,185
Total net assets
1,623,403
62,766
692,151
3,114,413
(3,761,402
)
1,731,331
-
4
-
As of December 31, 2021
Parent
Consolidated
VIE and its
subsidiaries
WOFEs
Other
Subsidiaries
Eliminating
adjustments
Consolidated
total
(RMB in thousands)
Assets
Cash and cash equivalents
14,507
2,301
211,909
335,907
—
564,624
Restricted cash
—
30,343
—
61,555
—
91,898
Short term investments
34,705
—
537,953
298,024
—
870,682
Accounts receivable, net
—
32,406
—
415,698
(57,772
)
390,332
Contract assets, net
—
—
—
455,539
—
455,539
Other receivables, net
—
949
1,590
58,216
—
60,755
Amounts due from internal companies
635,953
116,351
711,908
3,561,209
(5,025,421
)
—
Investment in an affiliate
6,378
—
—
329,430
—
335,808
Investments in subsidiaries and the VIE and VIE's subsidiaries
3,328,864
—
416,099
500,000
(4,244,963
)
—
Right-of-use assets, net
—
1,190
16,113
208,374
—
225,677
Property, plant, and equipment, net
—
1,679
184
44,937
—
46,800
Other non-current assets
—
—
—
31,459
—
31,459
Deferred tax assets
—
—
6,517
12,211
—
18,728
Other assets
—
924
—
148,892
—
149,816
Total assets
4,020,407
186,143
1,902,273
6,461,451
(9,328,156
)
3,242,118
Liabilities
Accounts payable
—
62,132
—
330,792
(57,203
)
335,721
Accrued commissions
—
—
—
139,706
—
139,706
Other payables and accrued expenses
2,903
1,601
4,261
169,392
—
178,157
Amounts due to internal companies
2,179,619
35,933
1,346,557
1,463,881
(5,025,990
)
—
Income tax payable
—
6,617
4,440
119,165
—
130,222
Deferred tax liabilities
—
—
211
73,505
—
73,716
Operating lease liability
—
1,286
17,071
196,938
—
215,295
Accrued payroll
—
2,166
4,435
105,071
—
111,672
Other tax liabilities
—
—
112
73,101
—
73,213
Insurance premium payable
—
24,054
—
—
—
24,054
Total liabilities
2,182,522
133,789
1,377,087
2,671,551
(5,083,193
)
1,281,756
Total net assets
1,837,885
52,354
525,186
3,789,900
(4,244,963
)
1,960,362
For the year ended December 31, 2022
Parent
Consolidated
VIEs and their
subsidiaries
WOFEs
Other
subsidiaries
Eliminating
adjustments (1)
Consolidated
total
(RMB in thousands)
Total net revenues
—
165,270
—
2,747,360
(131,016
)
2,781,614
Third-party revenues
—
141,086
—
2,640,528
—
2,781,614
Intra-Group revenues
—
24,184
—
106,832
(131,016
)
—
Total operating costs and expenses
(11,318
)
(173,131
)
(36,227
)
(2,523,279
)
131,016
(2,612,939
)
Third-party operating costs and expenses
(11,062
)
(67,789
)
(36,126
)
(2,497,962
)
—
(2,612,939
)
Intra-Group operating costs and expenses
(256
)
(105,342
)
(101
)
(25,317
)
131,016
—
Income (loss) from operations
(11,318
)
(7,861
)
(36,227
)
224,081
—
168,675
Interest income
5
388
11,606
1,675
—
13,674
Investment income
—
—
6,600
11,209
—
17,809
Others, net
17,495
578
(149
)
(21,747
)
—
(3,823
)
Share of income from subsidiaries and the VIEs and VIEs' subsidiaries
96,432
—
156,578
—
(253,010
)
—
Share of income of affiliates, net of impairment
(2,342
)
—
—
(67,254
)
—
(69,596
)
Income tax expenses
—
2,759
(2,906
)
(40,869
)
—
(41,016
)
Net income
100,272
(4,136
)
135,502
107,095
(253,010
)
85,723
Note:
(1)
The elimination mainly represents (i) the intercompany service
fee related to agency services for distributing life insurance products and P&C insurance products on behalf of insurance companies
provide by consolidated affiliated entities to subsidiaries and (ii) the intercompany service fee related to technology services provided
by our consolidated variable interest entities to our subsidiaries.
-
5
-
For the year ended December 31, 2021
Parent
Consolidated
VIE and its
subsidiaries
WOFEs
Other
subsidiaries
Eliminating
adjustments (1)
Consolidated
total
(RMB in thousands)
Total net revenues
—
16,267
—
3,268,763
(13,916
)
3,271,114
Third-party revenues
—
16,267
—
3,254,847
—
3,271,114
Intra-Group revenues
—
—
—
13,916
(13,916
)
—
Total operating costs and expenses
(331
)
(15,730
)
(37,677
)
(2,929,387
)
13,916
(2,969,209
)
Third-party operating costs and expenses
(331
)
(1,814
)
(37,677
)
(2,929,387
)
—
(2,969,209
)
Intra-Group operating costs and expenses
—
(13,916
)
—
—
13,916
—
Income (loss) from operations
(331
)
537
(37,677
)
339,376
—
301,905
Interest income
2
60
374
2,535
—
2,971
Investment income
—
—
21,767
11,131
—
32,898
Others, net
—
90
12,014
21,210
—
33,314
Share of income from subsidiaries and the VIE and VIE's subsidiaries
254,526
—
300,599
—
(555,125
)
—
Share of loss of affiliates
(3,208
)
—
—
(17,365
)
—
(20,573
)
Income tax expenses
—
(172
)
1,760
(92,162
)
—
(90,574
)
Net income
250,989
515
298,837
264,725
(555,125
)
259,941
Note:
(1)
The elimination mainly represents the intercompany service fee related
    to agency services for distributing life insurance products and P&C insurance products on behalf of insurance companies provide
    by consolidated affiliated entities to subsidiaries.
For the year ended December 31, 2022
Parent
Consolidated
VIEs and their
subsidiaries
WOFEs
Other
subsidiaries
Eliminating
adjustments
Consolidated
total
(RMB in thousands)
Cash flows from operating activities:
7,339
3,822
(12,794
)
139,385
—
137,752
Net cash (used in) provided by transactions with external parties
7,339
98,715
(12,794
)
44,492
—
137,752
Net cash (used in) provided by transactions with internal companies
—
(94,893
)
—
94,893
—
—
Cash flows from investing activities:
227,321
(16,214
)
(34,333
)
(1,006,158
)
701,822
(127,562
)
Net cash provided by (used in) transactions with external parties
917,101
(16,214
)
(34,333
)
(994,116
)
—
(127,562
)
Net cash provided by (used in) transactions with internal companies
(689,780
)
—
—
(12,042
)
701,822
—
Cash flows from financing activities:
(321,712
)
43,032
(52,476
)
1,012,607
(701,822
)
(20,371
)
Net cash used in transactions with external parties
(321,712
)
—
—
301,341
—
(20,371
)
Net cash provided by (used in) transactions with internal companies
—
43,032
(52,476
)
711,266
(701,822
)
—
-
6
-
For the year ended December 31, 2021
Parent
Consolidated
VIE and its
subsidiaries
WOFEs
Other
subsidiaries
Eliminating
adjustments
Consolidated
total
(RMB in thousands)
Cash flows from operating activities:
(784
)
32,674
(7,013
)
101,321
—
126,198
Net cash (used in) provided by transactions with external parties
(784
)
48,923
(7,013
)
85,072
—
126,198
Net cash (used in) provided by transactions with internal companies
—
(16,249
)
—
16,249
—
—
Cash flows from investing activities:
201,339
(73,430
)
(283,323
)
261,650
344,163
450,399
Net cash provided by (used in) transactions with external parties
43,757
—
(283,323
)
689,965
—
450,399
Net cash provided by (used in) transactions with internal companies
157,582
(73,430
)
—
(428,315
)
344,163
—
Cash flows from financing activities:
(242,518
)
—
501,745
(175,362
)
(344,163
)
(260,298
)
Net cash used in transactions with external parties
(242,518
)
—
—
(17,780
)
—
(260,298
)
Net cash provided by (used in) transactions with internal companies
—
—
501,745
(157,582
)
(344,163
)
—
Filing Procedures Required from the PRC Authorities
for Offering Securities to Foreign Investors
Under
applicable laws of mainland China, we and our mainland China subsidiaries may be required to complete certain filing procedures with
the China Securities Regulatory Commission, or the CSRC, in connection with future offering and listing in an overseas market, including
our follow-on offerings, issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering
activities. If we fail to complete such filing procedures for any future offshore offering or listing, including our follow-on offerings,
issuance of convertible bonds, offshore relisting after going-private transactions, and other equivalent offering activities, we may
face sanctions by the CSRC or other mainland China regulatory authorities, which may include fines and penalties on our operations in
mainland China, limitations on our operating privileges in mainland China, restrictions on or delays to our future financing transactions
offshore, 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. In addition, we are required to file a report to the CSRC after the
occurrence and public disclosure of certain material corporate events, including but not limited to, change of control and voluntary
or mandatory delisting. For more detailed information, see "Item 3. Key Information—D. Risk Factors—Risks Related to
Doing Business in China—The approval of and filing with the CSRC or other government authorities may be required in connection
with our follow-on offshore offerings and capital raising activities under the laws of mainland China, and, if required, we cannot predict
whether or for how long we will be able to obtain such approval or complete such filing."
Summary of Risk Factors
Investing
in the ADSs involves a high degree of risk. You should carefully consider the risks described under "Item 3. Key Information—D.
Risk Factors" and other information contained in this annual report on Form 20-F, before you decide whether to purchase the ADSs.
Below please find a summary of the principal risks and uncertainties we face, organized under relevant headings:
Risks Related to Our
Business and Industry
●
We may not be successful in implementing our new strategic initiatives,
    which may have an adverse impact on our business and financial results.
●
If and when our contracts with insurance companies are suspended or
    changed, our business and operating results will be materially and adversely affected.
●
If we fail to attract and retain productive agents, especially entrepreneurial
    agents, and qualified claims adjustors, our business and operating results could be materially and adversely affected.
-
7
-
●
Material changes in the regulatory environment could change the competitive
    landscape of our industry or require us to change the way we do business. The administration, interpretation and enforcement of the
    laws and regulations currently applicable to us could change rapidly. If we fail to comply with applicable laws and regulations,
    we may be subject to civil and criminal penalties or lose the ability to conduct our business.
●
We
    may be unsuccessful in identifying suitable acquisition candidates, completing acquisitions, integrating acquired companies or the
    acquired companies may not perform to our expectations, which could adversely affect our growth.
●
Because the commission and fee we earn on the sale of insurance products
    is based on premiums, commission and fee rates set by insurance companies, any decrease in these premiums, commission or fee rates
    may have an adverse effect on our results of operations.
●
Our operating structure may make it difficult to respond quickly to
    operational or financial problems, which could negatively affect our financial results.
●
Any significant failure in our information technology systems, cyber-attacks,
    any failure to protect the confidential information of our customers or other security breaches may disrupt our business, loss of
    customers, damage our reputation, result in potential liability and adversely affect our results of operations and financial condition.
●
Our business is subject to insurance company partner concentration
    risks arising from dependence on a single or limited number of insurance company partners.
Risks Related to Our
Corporate Structure
●
Fanhua Inc. is a Cayman Islands holding company primarily operating
    in China through its subsidiaries and contractual arrangements with Xinbao Investment and Fanhua RONS Technologies. Investors in
    the ADSs thus are not purchasing, and may never directly hold, all equity interests in the consolidated VIEs. There are substantial
    uncertainties regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to such
    agreements that establish the VIE structure for the majority of our and the consolidated VIEs' operations in China, including
    potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with Xinbao
    Investment and Fanhua RONS Technologies and, consequently, significantly affect the financial condition and results of operations
    of Fanhua Inc. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations, and rules, or if these
    laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced
    to relinquish our interests in Xinbao Investment and Fanhua RONS Technologies or forfeit our rights under the contractual arrangements;
●
The PRC government has significant authority to exert influence on
    the China operations of an offshore holding company, such as us. Therefore, investors in the ADSs and the business of us and the
    consolidated VIEs face potential uncertainty from the PRC government's policy. Changes in China's economic, political
    or social conditions, or government policies could materially and adversely affect our and the consolidated VIE's business,
    financial condition, and results of operations;
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8
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●
Any failure by the VIEs or their respective shareholders to perform
    their obligations under our Contractual Arrangements with them would have an adverse effect on our business.
●
We rely on contractual arrangements to conduct a small part of our
    China operations, which may not be as effective in providing operational control as direct ownership; and
Risks Related to Doing
Business in China
●
The approval of and
    filing with the CSRC or other government authorities may be required in connection with our follow-on offshore offerings and capital
    raising activities under the laws of mainland China, and, if required, we cannot predict whether or for how long we will be able
    to obtain such approval or complete such filing.
●
Uncertainties in the PRC legal system and the interpretation and enforcement
    of PRC laws and regulations could limit the legal protections available to you and us, significantly limit or completely hinder our
    ability to offer or continue to offer our ADSs, cause significant disruption to our and the consolidated VIE's business operations,
    and severely damage our and the consolidated VIEs' reputation, which would materially and adversely affect our and the consolidated
    VIEs' financial condition and results of operations and cause our ADSs to significantly decline in value or become worthless.
    In addition, rules and regulations in China can change quickly with little advance notice, therefore, our assertions and beliefs
    of the risks imposed by the Chinese legal and regulatory system cannot be certain.
●
Our global income or the dividends we receive from our PRC subsidiaries
    may be subject to PRC tax under the EIT Law, which could have a material adverse effect on our results of operations.
●
We rely principally on dividends and other distributions on equity
    paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries
    to make payments to us could have a material adverse effect on our ability to conduct our business.
●
PRC regulations relating to the establishment of offshore special purpose
    companies by PRC residents and employee stock options granted by overseas-listed companies may increase our administrative burden,
    restrict our overseas and cross-border investment activity, or otherwise adversely affect us. If our shareholders who are PRC residents,
    or our PRC employees who are granted or exercise stock options, fail to make any required registrations or filings under such regulations,
    we may be unable to distribute profits and may become subject to liability under PRC laws. We may also face regulatory uncertainties
    that could restrict our ability to adopt additional equity compensation plans for our directors and employees and other parties under
    PRC law.
Risks Related to Our ADSs
●
The Accelerating Holding Foreign Companies Accountable Act, which,
    if enacted, would reduce the time period before our ADSs may be prohibited from trading or delisted. The delisting of our ADSs, or
    the threat of their being delisted, may materially and adversely affect the value of your investment. Additionally, the inability
    of the PCAOB to conduct adequate inspections deprives our investors with the benefits of such inspections.
●
We may need additional capital, and the sale of additional ADSs or
    other equity securities could result in additional dilution to our shareholders.
●
Holders of our ADSs may have fewer rights than holders of our ordinary
    shares and must act through the depositary to exercise those rights.
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9
-
●
You may have to rely primarily on price appreciation of our ADSs for
    any return on your investment.
●
As a foreign private issuer, we are exempt from certain disclosure
    requirements under the Exchange Act, which may afford less protection to our shareholders than they would enjoy if we were a domestic
    U.S. company.
●
We may be a passive foreign investment company for United States federal
    income tax purposes, which could result in adverse United States federal income tax consequences to United States Holders of our
    ADSs or ordinary shares.
Risks Related to PCAOB Inspections
On
December 16, 2021, the PCAOB issued a report notifying the Commission of its determinations (the "PCAOB Determinations")
that they are unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in mainland China and
in Hong Kong. The report sets forth lists identifying the registered public accounting firms headquartered in mainland China and Hong
Kong, respectively, that the PCAOB is unable to inspect or investigate completely. Our financial statements contained in this annual
report on Form 20-F for the fiscal year ended December 31, 2022 have been audited by Deloitte, an independent registered public accounting
firm that is headquartered in Mainland China and is on such lists. On May 26, 2022, we have been conclusively identified by the Commission
as a Commission-Identified Issuer under the Holding Foreign Company Accountable Act, or the HFCA Act. If, in the future, we have been
identified by the Commission for three consecutive years as an issuer whose registered public accounting firm is determined by the PCAOB
that it is unable to inspect or investigate completely because of a position taken by one or more authorities in China, the Commission
may prohibit our shares or ADSs from being traded on a national securities exchange or in the "over-the-counter" trading
market in the United States. Additionally, on December 29, 2022, the Consolidated Appropriations Act, 2023 was signed into law, which,
among others, amended the HFCA Act to reduce the number of consecutive years an issuer can be identified as a Commission-Identified Issuer
before the SEC must impose an initial trading prohibition on the issuer's securities from three years to two. Therefore, once an
issuer is identified as a Commission-Identified Issuer for two consecutive years, the SEC is required under the HFCA Act to prohibit
the trading of the issuer's securities on a national securities exchange and in the over-the-counter market. On December 15, 2022,
the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong from the list of
jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. Therefore, our auditor is currently
able to be fully inspected and investigated by the PCAOB. Accordingly, until such time as the PCAOB issues any new determination, we
are at no risk of having our securities subject to a trading prohibition under the HFCA Act. Each year, the PCAOB will determine whether
it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB determines
in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong
and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed
with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the
relevant fiscal year. In accordance with the HFCA Act, our securities would be prohibited from being traded on a national securities
exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two
consecutive years in the future. Furthermore, we and our investors may be deprived of the benefits of such PCAOB inspections. The inability
of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our independent registered
public accounting firm's audit procedures or quality control procedures as compared to auditors outside of China that are subject
to the PCAOB inspections, which could cause investors and potential investors in our securities to lose confidence in the audit procedures
and reported financial information and the quality of our financial statements. If we fail to meet the new listing standards specified
in the HFCA Act, we could face possible delisting from the Nasdaq, cessation of trading in the "over-the-counter" market,
deregistration from the Commission and/or other risks, which may materially and adversely affect, or effectively terminate, our ADSs
trading in the United States.
A.
[Reserved]
B.
Capitalization and Indebtedness
Not Applicable.
C.
Reasons for the Offer and Use
of Proceeds
Not Applicable.
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10
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D.
Risk Factors
Risks Related to Our
Business and Industry
We may not be successful
in implementing our new strategic initiatives, which may have an adverse impact on our business and financial results.
In
late 2020, we launched new strategic initiatives with focus on (i) building a career-based and professional insurance advisor team with
profound insurance knowledge and capabilities to provide family financial asset allocation services to the emerging middle-class and
mass-affluent individuals and families and empowering all independent agents and agencies in China to become more efficient and professionalized;
(ii) developing digital toolkits and enhancing digital operation capabilities to empower independent agents and increase agent productivity
and (iii) offering an open platform to all independent agents and agencies whereby they can have access to compliance support, industry
leading IT infrastructure, digital technologies, better products and service offerings, and the library of resources and knowhow to improve
their training and skillsets to strengthen their competitiveness in the market. There is no assurance that we will be able to implement
these strategic initiatives in accordance with our expectations, which may result in an adverse impact on our business and financial
results.
If and when our contracts
with insurance companies are suspended or changed, our business and operating results will be materially and adversely affected.
We
primarily act as agents for insurance companies in distributing their products to retail customers. We also provide claims adjusting
services principally to insurance companies. Our relationships with the insurance companies are governed by agreements between us and
the insurance companies. We have entered into strategic partnership agreements with most of our major insurance company partners for
the distribution of life, property and casualty insurance products and the provision of claims adjusting services at the corporate headquarters
level. While this approach allows us to obtain more favorable terms from insurance companies by combining the sales volumes and service
fees of all of our subsidiaries and branches operating insurance agency and claims adjusting businesses, it also means that the termination
of a major contract could have a material adverse effect on our business. Under the framework of the headquarter-to-headquarter agreements,
our subsidiaries and branches operating insurance agency and claims adjusting businesses generally also enter into contracts at a local
level with the respective provincial, city and district branches of the insurance companies. Generally, each branch of these insurance
companies has independent authority to enter into contracts with our relevant subsidiaries and branches, and the termination of a contract
with one branch has no significant effect on our contracts with the other branches. See "Item 4. Information on the Company—B.
Business Overview—Insurance Company Partners." These contracts establish, among other things, the scope of our authority,
the pricing of the insurance products we distribute and our fee rates. These contracts typically have a term of one year, and certain
contracts can be terminated by the insurance companies with little advance notice. Moreover, before or upon expiration of a contract,
the insurance company that is a party to that contract may agree to renew it only with changes in material terms, including the amount
of commissions and fees we receive, which could reduce our revenues to be generated from that contract.
For
the year ended December 31, 2022, our top five insurance company partners were Sinatay Life Insurance Co., Ltd., or Sinatay, Greatwall
Life Insurance Co., Ltd., or Greatwall, Huaxia Life Insurance Co., Ltd., or Huaxia, Aeon Life Insurance Co., Ltd., or Aeon, and Ping
An Property & Casualty Insurance Company of China, or Ping An by net revenues
.
Among these top five partners, only Sinatay
accounted for more than 10% of our total net revenues individually in 2022, with Sinatay accounting for 19.6%, Greatwall accounting for
9.6%, Huaxia accounting for 9.0%, Aeon accounting for 8.4% and Ping An accounting for 6.8%, respectively.
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11
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If we fail to attract
and retain productive agents, especially entrepreneurial agents, and qualified claims adjustors, our business and operating results could
be materially and adversely affected.
A
substantial portion of our sales of insurance products are conducted through our individual sales agents. Some of these sales agents
are significantly more productive than others in generating sales. In recent years, some entrepreneurial management staff or senior sales
agents of major insurance companies in China have chosen to leave their employers or principals and become independent agents. We refer
to these individuals as entrepreneurial agents. An entrepreneurial agent is usually able to assemble and lead a team of sales agents.
We have been actively recruiting and will continue to recruit entrepreneurial agents to join our distribution and service network as
our sales agents. Entrepreneurial agents have been instrumental to the development of our life insurance business. In addition, we rely
primarily on our in-house claims adjustors to provide claims adjusting services. Because claims adjustment requires technical skills,
the technical competence of claims adjustors is essential to establishing and maintaining our brand image and relationships with our
customers.
As
of December 31, 2022, we had 141,088 registered sales agents and 2,170 claims adjustors. Out of the registered sales agents, 60,942 were
performing agents, who are defined as sales agents that have sold at least one insurance policy in 2022, and among these performing agents,
26,344 of them sold at least one life insurance policy in 2022. If we are unable to attract and retain the core group of highly productive
sales agents, particularly entrepreneurial agents, and qualified claims adjustors, our business could be materially and adversely affected.
Competition for sales personnel and claims adjustors from insurance companies and other insurance intermediaries may also force us to
increase the compensation of our sales agents, and claims adjustors, which would increase operating costs and reduce our profitability.
If our digitalization
initiatives are not successful, our business and results of operations may be materially and adversely affected.
We
have devoted significant efforts to developing and managing our online platforms and developing digital technologies to empower our business
operations. In 2012, we launched Baowang ("
保网
")
(www.baoxian.com), an online insurance distribution platform operated through its application, WeChat public account and mini program],
which aggregates more than 300 insurance products in partnership with over 30 insurers. Its insurance products cover from accident insurance,
indemnity medical insurance, travel insurance, homeowner insurance, and a limited number of internet-specific long term regular life
insurance products. In August 2014, we unveiled eHuzhu ("e
互助
")
(www.ehuzhu.com), an online mutual aid platform that provides risk-protection programs on a mutual commitment basis among program members.
In September 2017, we launched Lan Zhanggui ("
懒掌柜
"),
a mobile internet application and WeChat mini program, which provides end-to-end sales support services to our sales agents. In 2020,
we announced an initiative to empower our operation by utilizing digital technologies such as artificial intelligence and big data to
gain more customer insight, match sales leads with the most suitable sales agents to maximize their productivity and help customers find
the products that suit their different needs throughout different stages of their lives. We have launched several digital toolkits including
Fanhua RONS Assistant Digital Operating Platform("
泛华榕数助理
"),
or RONS DOP to empower our agents in online customer engagement, and Fanhua RONS Guanjia ("
泛华榕数管家
"),
a comprehensive digital customer service platform. See detailed description about our online platforms and digital toolkits in "Item
4. Information on the Company—B. Business Overview". The success of our strategies may depend on a number of factors, many
of which are beyond our control, including but not limited to:
●
the effectiveness of our marketing
campaigns to build brand recognition among consumers and our ability to attract and retain customers;
●
the acceptance of third-party
e-commerce platforms as an effective channel for underwriters to distribute their insurance products;
●
the acceptance of Lan Zhanggui,
RONS DOP, Fanhua RONS Guanjia as effective tools by sales agents;
●
public concerns over security
of e-commerce transactions, privacy and confidentiality of information;
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12
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●
increased competition from
insurance companies which directly sell insurance products through their own websites, call centers, portal websites which provide insurance
product information and links to insurance companies' websites, and other professional insurance intermediary companies which may
launch independent websites in the future;
●
increased competition from
third-party insurance technology companies;
●
further improvement in our
information technology system designed to facilitate smoother online transactions; and
●
further development and changes
in applicable rules and regulations which may increase our operating costs and expenses, impede the execution of our business plan or
change the competitive landscape.
Our
digitalization efforts may not be successful or yield the benefits that we anticipate. As a result, our business and results of operations
may be materially and adversely affected.
Regulations on online
insurance distribution are evolving rapidly. If we are unable to adapt to regulatory changes and keep compliant, our business and results
of operations may be materially and adversely affected.
Since
online insurance distribution has emerged only recently in China and is evolving rapidly, the CBIRC may promulgate and implement new
rules and regulations to govern this sector from time to time. On December 7, 2020, the CBIRC promulgated the Measures for the Supervision
of the Internet Insurance Business, or the Measures, which became effective on February 1, 2021 and replaces the Interim Measures for
the Regulation of Internet Insurance Business. The Measures provides clarity on the qualifications for entities to operate online insurance
business in China and sets higher requirements on entities which intend to engage in online insurance business. For example, the Measures
in effect requires that any insurance institution which conducts internet business through its self-operated online platform to directly
own the domain name instead of through its subsidiary, both the insurance institution and its self-operated online platform shall make
Internet Content Provider ("ICP") filing and the insurance institutions engaged in online insurance business shall have IT
systems that are certified as at least Safety Level III Computer Information Systems. We operate our online insurance distribution business
through Baowang (www.baoxian.com), which accounted for 5.0% of our total net revenues in 2022. Shenzhen Baowang previously owned the
domain name of Baowang and held a Value-added Telecommunication Business Operation Permit for ICP services, or ICP license. To remain
compliant with the requirements of the Measures, in September 2020, Shenzhen Baowang transferred the domain name of www.baoxian.com to
its direct parent company, Fanhua RONS which holds a national insurance service operating license. Fanhua RONS has obtained an ICP license
in August 2022. Baowang's system has been certified as Safety Level III Computer Information System for three consecutive years.
As advised by our PRC counsel, we have obtained the necessary approvals and licenses, and our operations meet the qualification requirements
of the Measures.
In
addition, we provide our insurance information and transaction processing services through mobile apps and mini programs such as "Lan
Zhanggui", "RONS DOP" and Fanhua RONS Guanjia. According to the Provisions on the Administration of Mobile Internet
Application Information Services (the "App Provisions") issued by the CAC on June 28, 2016, which was most recently amended
on June 14, 2022, and became effective on August 1, 2022, except for providing internet news information service, any owner or operator
providing other internet information services through a mobile internet application, or an "app," must obtain the relevant
qualification(s) as required by the relevant laws and regulations. The App Provisions, however, do not further clarify the scope of
"information services," nor do they specify what "relevant qualification(s)" that a mobile app owner or operator
must obtain. In practice, operational activities of a company conducted through an app are subject to the supervision of the local counterparts
of the Information Communications Administration, which has different polices on the operational activities conducted through websites
and those through mobile apps. In many cases, companies providing information services through standalone mobile apps without any web-based
online services are not required to obtain ICP licenses. However, the interpretation and enforcement of such laws and regulations are
subject to substantial discretion of the local authorities. We cannot rule out the possibility that the local counterparts of the Information
Communications Administration would take the view that our current information services and transaction processing services provided
through mobile apps would require an ICP license or that, without such license, we would be prohibited from rendering such services.
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13
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If
we are unable to adapt to any new changes to the regulation governing online insurance business and remain fully compliant, the business
operation of Baowang and our mobile applications and mini programs could be suspended, which may adversely impact our business results
of operation.
There
are uncertainties with regard to how the changing laws, regulations and regulatory requirements would apply to our business. We cannot
assure you that our operations will remain fully compliant with the changes in and further development of regulations applicable to us
or we will be able to obtain the necessary approvals and licenses as required in a timely manner.
Any
failure to successfully identify the risks as part of our expansion into the online and mobile insurance distribution business may have
a material adverse impact on our growth, business prospects and results of operations, which could lead to a decline in the price of
our ADSs.
All of our personnel
engaging in insurance agency, or claims adjusting activities are required under relevant PRC regulations to register with the CBIRC's
Insurance Intermediaries Regulatory Information System. If our sales personnel fail to finish practice registration, our business may
be materially and adversely affected.
All
of our personnel who engage in insurance agency and claims adjusting activities are required under relevant PRC regulations to be registered
with the CBIRC's Insurance Intermediary Regulatory Information System, or the IIRIS, through the insurance company or insurance
intermediary company to which he or she belongs. See "Item 4. Information on the Company—B. Business Overview—Regulation."
In addition, under the relevant PRC regulations, such as the Provisions on the Supervision and Administration of Insurance Agents issued
on November 12, 2020 and Provisions on the Supervision of Insurance Claims Adjusting Firms issued by the CBIRC in February 2018, an insurance
agency or claims adjusting firm that retains a personnel who has not been registered with the IIRIS through the insurance agency or claims
adjusting firm to engage in insurance intermediary activities may be subject to rectification request, warning and fines up to RMB10,000
per intermediary by the CBIRC. If a substantial portion of our sales force were found to have not been properly registered with the IIRIS,
our business may be adversely affected. Moreover, we may be subject to fines and other administrative proceedings for the failure by
our sales agents or sales representatives to register with the CBIRC. Such fines or administrative proceedings could adversely affect
our business, financial condition and results of operations.
Material changes
in the regulatory environment could change the competitive landscape of our industry or require us to change the way we do business.
The administration, interpretation and enforcement of the laws and regulations currently applicable to us could change rapidly. If we
fail to comply with applicable laws and regulations, we may be subject to civil and criminal penalties or lose the ability to conduct
our business.
We
operate in a highly regulated industry. The laws and regulations applicable to us are evolving and may change rapidly, which could change
the competitive environment of our industry significantly and cause us to lose some or all of our competitive advantages. In recent years,
the CBIRC and its predecessor have increasingly tightened regulations and supervision of the Chinese insurance market. For example, on
April 2, 2019, the CBIRC issued a Notice to Rectify the Irregularities in the Insurance Intermediary Market in 2019 and subsequently
on May 26, 2020, the CBIRC issued similar guidelines requiring all insurance companies and insurance intermediaries to conduct self-check
on various practices in violation of relevant regulations. In March 2023, the CBIRC issued a Notice to Self-check and Rectify Irregularities
in Internet-based Marketing and Publicity by Insurance Institutions and Insurance Sales Personnel, requiring all insurance institutions
and sales personnel to self-check and rectify irregular marketing activities on the internet starting from April 3, 2023. Insurance institutions
are required to complete the rectification by June 15, 2023 and report the results to the CBIRC by June 30, 2023.
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14
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Although
we believe we have not had any material violations to date, we could be required to spend significant time and resources in complying
with the requirement and the attention of our management team and key employees could be diverted to these efforts, which may adversely
affect our business operations.
The
CBIRC has extensive authority to supervise and regulate the insurance industry in China. In exercising its authority, the CBIRC is given
wide discretion, and the administration, interpretation and enforcement of the laws and regulations applicable to us involve uncertainties
that could materially and adversely affect our business and results of operations. The People's Bank of China and other government
agencies may promulgate new rules governing online financial services. In July 2015, ten government agencies including the People's
Bank of China, the Ministry of Finance and CIRC promulgated a guidance letter on how to promote the healthy growth of internet financial
services, which set forth the principles of supervision based on the rule of law, the appropriate level of regulation, proper categorization,
cooperation among different government agencies and promoting innovation. Not only may the laws and regulations applicable to us change
rapidly, but it may also sometimes be unclear how they apply to our business. For example, the laws and regulations applicable to our
online and mobile platforms may be unclear. Our products or services may be determined or alleged to be in violation of the applicable
laws and regulations. Any failure of our products or services to comply with these laws and regulations could result in substantial civil
or criminal liability, adversely affect demand for our services, invalidate all or a portion of our customer contracts, require us to
change or terminate some of our businesses, require us to refund a portion of our services fees, or cause us to be disqualified from
serving customers, and therefore could have a material and adverse effect on our business.
Although
we have not had any material violations to date, we cannot assure you that our operations will always comply with the interpretation
and enforcement of the laws and regulations implemented by the CBIRC. Any determination by a provincial or national government authority
that our activities or those of our vendors or customers violate any of these laws could subject us to civil or criminal penalties, require
us to change or terminate some of our operations or business, or disqualify us from providing services to insurance companies or other
customers; and, thus have a materially adverse effect on our business.
Our business could
be negatively impacted if we are unable to adapt our services to regulatory changes in China.
China's
insurance regulatory regime is undergoing significant changes. Some of these changes and the further development of regulations applicable
to us may result in additional restrictions on our activities or more intensive competition in this industry, which may adversely affect
our business operations.
For
example, on November 5, 2020, China Insurance Industry Association and China Medical Doctor Association jointly published Definition
Framework 2020, announcing changes to the definition of critical illnesses, or CI, which will be adopted after a transition period ending
January 31, 2021. After January 31, 2021, all critical illness products based on the previous definition framework will not be sold in
China. Major changes to the CI definition framework include, among others, (i) setting the upper limit for insurance benefits for mild
illness at no more than 30% of total insured amount; (ii) expanding the types of illnesses covered from 25 types to 28 types of critical
illnesses and three types of mild illness; (iii) exclusion of cancer that is in situ from the scope of CI coverage; and (iv) categorizing
thyroid cancer at different stages into critical illness category and mild illness category. The expected cessation of the critical illness
products under the previous CI definition framework has resulted in strong growth in our sales of critical illness policies in January
2021 followed by a drop afterwards.
On
October 12, 2021, the CBIRC promulgated the Notice on Further Regulation of Matters Relating to the Internet Life Insurance Business
of Insurance Institutions, which, among others, raised the qualification requirements for insurance companies and insurance intermediaries
to engage in Internet life insurance business nationwide, limited products that could be sold on the Internet nationwide to accident,
health, term life, 10-year (or longer) traditional life, and 10-year (or longer) annuities and capped the preset expense ratio to be
no higher than 35% for one-year life insurance and first year preset expense ratio no higher than 60% with average expense ratio no higher
than 25% for over-one-year life insurance. Incumbent companies have until the end of 2021 to comply with the new regulations. Subsequently,
many insurance companies which could not meet the qualification requirements have stopped selling life insurance products online before
Jan 1, 2022. As our online insurance business operated through Baowang is subject to this regulation, the disruption in internet life
insurance product supply and the cap on expense ratio have adversely impacted and may continue to impact Baowang which contributed to
5.0% of our total net revenues in 2022.
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15
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Any
future change in regulatory requirements may make our products less attractive to consumers or disrupt product supply, and our business
results of operations could fluctuate significantly and be adversely affected.
On
July 10, 2017, the CIRC, the predecessor of CBIRC, promulgated the Interim Measures on Retrospective Management of Insurance Sales Behaviors,
effective November 1, 2017 which required (1) ancillary insurance agencies to take video and audio-recording, or double-recording for
the sales of all insurance products that they facilitate and (2) other insurance distribution channels to take double-recording for the
sales of investment-linked insurance products and for the sale of life insurance products with a payment period of more than one year
to the elderly of over 60 years old. On June 11, 2019, the Jiangsu Branch of the CBIRC published the Notice on Deepening the Implementation
of the Retrospective Management of Personal Insurance Sales Behaviors or the Notice, requiring all insurance companies and insurance
intermediary companies to start double-recording process for the sales of all long-term personal insurance products in Jiangsu Province
starting from October 1, 2019. Similar rules have also been implemented in a few other regions, including Ningbo, Zhejiang Province,
certain parts of Shandong since mid-2020 and Shanghai since early 2020. In June 2021, the CBIRC promulgated the Measures on Retrospective
Management of Insurance Sales Behaviors for public consultation which requires that retrospective management must be conducted for face-to-face
sales by sales agents of all life insurance products with a payment period of over one-year or less than one-year but with renewal obligation,
and that insurance institutions must establish sound insurance sales retrospective management working mechanism and designated retrospective
management information system. Retrospective management specially refers to the recording and preservation of the key insurance sales
processes and sales behaviors by means of double recording, sales page management and operation tracking record to ensure future replay
of the sales behaviors, search of important information and accountability of insurance institutions.
As a
significant portion of our insurance products are personal life insurance products with a payment period of over one year and are distributed
through our individual sales agents, the sales processes of our sales agents to customers are subject to double recording requirements.
As the double recording process can be complicated and time-consuming, our sales activities in those regions that have previously implemented
such rules have been adversely impacted. If similar rules are implemented nationwide, our sales activities can be materially impacted,
and our compliance cost may be increased, as a result of which our business and results of operations may be adversely affected.
On
January 12, 2021, the CBIRC promulgated Measures on The Supervision of Informatization of Insurance Intermediary Institutions, or the
Informatization Measures, requiring insurance intermediary institutions to establish proper information system and provide specific requirements
on the security system, security level protection certification, data security, personal information protection, terminal security and
training.  Insurance intermediary companies must comply with the Information Security Measures to engage in insurance intermediary
business. Insurance intermediaries should conduct self-examination of informatization work in accordance with the Informatization Measures,
and complete rectification within one year from the date of implementation of the Informatization Measures. We have completed self-examination
and rectification and believe we have met the requirements of the Informatization Measures. However, if more stringent requirements are
implemented in the future, our compliance cost may increase which may adversely impact our operation results.
Our
mutual-aid platform eHuzhu currently is not subject to any license requirement or any other supervision by the CBIRC because the mutual
aid plans offered on the platform are not technically insurance. If the CBIRC determines to include mutual aid platform into its supervision
in the future, our compliance cost could be increased, and if we are unable to meet the qualification requirement to obtain a proper
license, the operation of eHuzhu could be disrupted. In 2021, a few internet giant-backed mutual aid platforms voluntarily chose to shut
down operations. As of the date of this filing, eHuzhu hasn't received any requirement from the CBIRC or other regulatory authority
to terminate operations. If the CBIRC determines eHuzhu's operation is not compliant with current regulations, eHuzhu would be
required to terminate its operation, which could harm the interests of the members of eHuzhu and damage our reputation.
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On
April 15, 2022, the CBIRC issued the Second Draft Measures for the Supervision of Life Insurance Sales Behavior for public consultation,
or the Draft Measure on Life Insurance Sales Behavior, which provides for a comprehensive management on the pre-sale, mid-sale and after-sale
behaviors of life insurance distribution of insurance companies, insurance intermediaries and insurance salespeople, with requirements
focusing on, among others, (i) establishment of a tiered management mechanism for insurance sales practitioners based on their qualifications
and sales abilities before December 31, 2023 for new recruits and before December 31, 2024 for existing sales practitioners; (ii) classification
of life insurance products by product types, complexity, risk level and affordability ; (iii) pre-sales product suitability assessment
on the policyholders; (iv) restriction on compulsory bundled-sales of insurance products with healthcare and elderly-care services; (v)
restriction on inclusion of self-insured policies in sales agents performance assessment and (v) establishment of a compliance management
department independent from sales departments dedicated to the review and supervision of the sales behaviors of the sales practitioners
of the insurance companies or insurance intermediaries. Some of the requirements, if implemented, may incur additional compliance costs
for us. In addition, the Draft Measure on Life Insurance Sales Behavior caps the total commission rate at the pre-set surcharge ratio
of life insurance products, which may reduce our commission revenues and adversely affect our financial results.
We may be unsuccessful
in identifying suitable acquisition candidates, completing acquisitions, integrating acquired companies or the acquired companies may
not perform to our expectations,, which could adversely affect our growth.
Our
growth strategy partially includes the acquisition of other insurance intermediaries. We expect a substantial portion of our future growth
to come from acquisitions of high-quality independent insurance agencies, brokerages and claims adjusting firms. There is no assurance
that we can successfully identify suitable acquisition candidates. Even if we identify suitable candidates, we may not be able to complete
an acquisition on terms that are commercially acceptable to us. In addition, we compete with other entities to acquire high-quality independent
insurance intermediaries. Many of our competitors may have substantially greater financial resources than we do and may be able to outbid
us for these acquisition targets. If we are unable to complete acquisitions, our growth strategy may be impeded and our earnings or revenue
growth may be negatively affected.
Even
if we succeed in acquiring other insurance intermediaries, our ability to integrate an acquired entity and its operations is subject
to a number of factors. These factors include difficulties in the integration of acquired operations and retention of personnel, especially
the sales agents who are not employees of the acquired company, entry into unfamiliar markets, unanticipated problems or legal liabilities,
and tax and accounting issues. The need to address these factors may divert management's attention from other aspects of our business
and materially and adversely affect our business prospects. In addition, costs associated with integrating newly acquired companies could
negatively affect our operating margins.
Furthermore,
the acquired companies may not perform to our expectations for various reasons, including legislative or regulatory changes that affect
the insurance products in which a company specializes, the loss of key clients after the acquisition closes, general economic factors
that impact a company in a direct way and the cultural incompatibility of an acquired company's management team with us. If an
acquired company can not be operated at the same profitability level as our existing operations, the acquisition would have a negative
impact on our operating margin. Our inability to successfully integrate an acquired entity or its failure to perform to our expectations
may materially and adversely affect our business, prospects, results of operations and financial condition.
Competition
in our industry is intense and, if we are unable to compete effectively with both existing and new market participants, we may lose customers,
and our financial results may be negatively affected.
The
insurance intermediary industry in China is highly fragmented and competitive, and we expect competition to persist and intensify as
more internet giants and other online insurance intermediaries and foreign-invested insurance intermediary companies enter the market.
In insurance product distribution, we face competition from insurance companies that use their in-house sales force, exclusive sales
agents, telemarketing and internet channels to distribute their products, from business entities that distribute insurance products on
an ancillary basis, such as commercial banks, postal offices and automobile dealerships, as well as from other traditional or online
insurance intermediaries. In our claims adjusting business, we primarily compete with other independent claims adjusting firms. We compete
for customers on the basis of product offerings, customer services and reputation. Many of our competitors, both existing and newly emerging,
have greater financial and marketing resources than we do and may be able to offer products and services that we do not currently offer
and may not offer in the future. If we are unable to compete effectively against those competitors, we may lose customers, and our financial
results may be negatively affected.
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Because the commission
and fee we earn on the sale of insurance products is based on premiums, commission and fee rates set by insurance companies, any decrease
in these premiums, commission or fee rates may have an adverse effect on our results of operations.
We
are engaged in life and health insurance, property and casualty insurance and claims adjusting businesses and derive revenues primarily
from commissions and fees paid by the insurance companies whose policies our customers purchase and to whom we provide claims adjusting
services. Our commission and fee rates are set by insurance companies and are based on the premiums that the insurance companies charge
or the amount recovered by insurance companies. Commission and fee rates and premiums can change based on the prevailing economic, regulatory,
taxation-related and competitive factors that affect insurance companies. For example, the Draft Measure on the Life Insurance Sales
Behaviors sets a cap on total commissions rate of life insurance products at the pre-set surcharge ratio of the life insurance product.
These factors, which are not within our control, include the ability of insurance companies to place new business, underwriting and non-underwriting
profits of insurance companies, consumer demand for insurance products, the availability of comparable products from other insurance
companies at a lower cost, the availability of alternative insurance products such as government benefits and self-insurance plans, as
well as the tax deductibility of commissions and fees and the consumers themselves. In addition, premium rates for certain insurance
products, such as the mandatory automobile liability insurance that each automobile owner in the PRC is legally required to purchase,
are tightly regulated by CBIRC.
Because
we do not determine, and cannot predict, the timing or extent of premium or commission and fee rate changes, we cannot predict the effect
any of these changes may have on our operations. Any decrease in premiums or commission and fee rates may significantly affect our profitability.
In addition, our budget for future acquisitions, capital expenditures and other expenditures may be disrupted by unexpected decreases
in revenues caused by decreases in premiums or commission and fee rates, thereby adversely affecting our operations.
Quarterly and annual
variations in our commission and fee revenue may unexpectedly impact our results of operations.
Our
commission and fee revenue are subject to both quarterly and annual fluctuations as a result of the seasonality of our business, the
timing of policy renewals and the net effect of new and lost business. Life insurance commission revenue is usually the highest in the
first quarter and lowest in the fourth quarter of any given year as much of the jumpstart sales activities of life insurance companies
occur in January and February during which life insurance companies would increase their sales efforts by offering more incentives for
insurance agents and insurance intermediaries to increase sales, while the preparation for the jumpstart sales starts in the fourth quarter
of each year. Started in 2021, we also record estimated renewal commission revenue for long-term policy based on the expected renewal
rate as well as the possibility of achieving performance targets. This, in a way, mitigates some degree of seasonality issue. Apart from
the outbreak of epidemic and the recognition of estimated renewal commissions, some other factors that cause the quarterly and annual
variations are not within our control. Specifically, regulatory changes to product design may result in cessation of products from time
to time and cause quarterly fluctuation in the results of our operations. In addition, consumer demand for insurance products can influence
the timing of renewals, new business and lost business, which generally includes policies that are not renewed, and cancellations. As
a result, you may not be able to rely on quarterly or annual comparisons of our operating results as an indication of our future performance.
Our operating structure
may make it difficult to respond quickly to operational or financial problems, which could negatively affect our financial results.
We
currently operate primarily through our wholly-owned or majority-owned insurance agencies and claims adjusting firms and their branches
and to a smaller extent through our consolidated VIEs located in 31 provinces in China. These companies report their financial results
to our corporate headquarters monthly. If these companies delay either reporting results or informing corporate headquarters of negative
business developments such as losses of relationships with insurance companies, regulatory inquiries or any other negative events, we
may not be able to take action to remedy the situation in a timely fashion. This in turn could have a negative effect on our financial
results. In addition, if one of these companies were to report inaccurate financial information, we might not learn of the inaccuracies
on a timely basis and be able to take corrective measures promptly, which could negatively affect our ability to report our financial
results.
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Our future success
depends on the continuing efforts of our senior management team and other key personnel, and our business may be harmed if we lose their
services.
Our
future success depends heavily upon the continuing services of the members of our senior management team and other key personnel, in
particular, Mr. Yinan Hu, or Mr. Hu, our chairman of the board of directors and chief executive officer, Mr. Peng Ge, or, Mr. Ge, our
chief financial officer, Mr. Lichong Liu, our chief operating officer and vice president and Mr. Jun Li, our chief digital officer and
vice president. If one or more of our senior executives or other key personnel, are unable or unwilling to continue in their present
positions, we may not be able to replace them easily, or at all. As such, our business may be disrupted and our financial condition and
results of operations may be materially and adversely affected. Competition for senior management and key personnel in our industry is
intense because of a number of factors including the limited pool of qualified candidates. We may not be able to retain the services
of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future. As is
customary in the PRC, we do not have insurance coverage for the loss of our senior management team or other key personnel.
In
addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company,
we may lose customers, sensitive trade information, key professionals and staff members. Each of our executive officers and key employees
has entered into an employment agreement with us which contains confidentiality and non-competition provisions. These agreements generally
have an initial term of three years, and are automatically extended for successive one-year terms unless terminated earlier pursuant
to the terms of the agreement. See "Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management—Employment
Agreements" for a more detailed description of the key terms of these employment agreements. If any disputes arise between any
of our senior executives or key personnel and us, we cannot assure you of the extent to which any of these agreements may be enforced.
Salesperson and employee
misconduct is difficult to detect and deter and could harm our reputation or lead to regulatory sanctions or litigation costs.
Salesperson
and employee misconduct could result in violations of law by us, regulatory sanctions, litigation or serious reputational or financial
harm. Misconduct could include:
●
making misrepresentations when marketing or selling insurance to customers;
●
hindering insurance applicants from making full and accurate mandatory
    disclosures or inducing applicants to make misrepresentations;
●
hiding or falsifying material information in relation to insurance
    contracts;
●
fabricating or altering insurance contracts without authorization from
    relevant parties, selling false policies, or providing false documents on behalf of the applicants;
●
falsifying insurance agency business or fraudulently returning insurance
    policies to obtain commissions;
●
colluding with applicants, insureds, or beneficiaries to obtain insurance
    benefits;
●
engaging in false claims; or
●
otherwise not complying with laws and regulations or our control policies
    or procedures.
We
have internal policies and procedures to deter salesperson or employee misconduct. However, the measures and precautions we take to prevent
and detect these activities may not be effective in all cases. Therefore, salesperson or employee misconduct could lead to a material
adverse effect on our business, results of operations or financial condition. In addition, the general increase in misconduct in the
industry could potentially harm the reputation of the industry and have an adverse impact on our business.
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Our investments in
certain financial products may not yield the benefits we anticipate or incur financial loss, which could adversely affect our cash position.
In
order to improve our return on capital, we may from time to time, upon board approval, invest a certain portion of our cash in financial
products, such as trust products, with terms of half a year to two years. These products may involve various risks, including default
risks, interest risks, and other risks. We cannot guarantee these investments will yield the returns we anticipate and we could suffer
financial loss resulting from the purchase of these financial products.
If we fail to maintain
an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent
fraud.
We
are subject to reporting obligations under U.S. securities laws. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related
rules adopted by the Securities and Exchange Commission, or the SEC, every public company is required to include a management report
on the company's internal controls over financial reporting in its annual report, which contains management's assessment
of the effectiveness of the company's internal controls over financial reporting. In addition, an independent registered public
accounting firm must attest to and report on the effectiveness of the company's internal controls over financial reporting.
As
required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our management assessed the effectiveness
of the internal control over financial reporting as of December 31, 2022 using criteria established in "Internal Control—Integrated
Framework (2013)" issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that our internal
control over financial reporting was effective as of December 31, 2022. If we fail to achieve and maintain an effective internal control
environment for our financial reporting, we may not be able to conclude on an ongoing basis that we have effective internal control over
financial reporting in accordance with the Sarbanes-Oxley Act of 2002, which could result in inaccuracies in our consolidated financial
statements and could also impair our ability to comply with applicable financial reporting requirements and make related regulatory filings
on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price
of our ADSs, may be materially and adversely affected. Moreover, if we are not able to conclude that we have effective internal control
over financial reporting, investors may lose confidence in the reliability of our financial statements, which would negatively impact
the trading price of our ADSs. Our reporting obligations as a public company, including our efforts to comply with Section 404 of the
Sarbanes-Oxley Act, will continue to place a significant strain on our management, operational and financial resources and systems for
the foreseeable future.
We may face legal
action by former employers or principals of entrepreneurial agents who join our distribution and service network.
Competition
for productive sales agents is intense within the Chinese insurance industry. When an entrepreneurial agent leaves his or her employer
or principal to join our distribution and service network as our sales agent, we may face legal action by his or her former employer
or principal of the entrepreneurial agent on the ground of unfair competition or breach of contract. As of the date of this annual report,
there has been no such action filed or threatened against us. We cannot assure you that this will not happen in the future. Any such
legal actions, regardless of merit, could be expensive and time-consuming and could divert resources and management's attention
from the operation of our business. If we were found liable in such a legal action, we might be required to pay substantial damages to
the former employer or principal of the entrepreneurial agent, and our business reputation might be harmed. Moreover, the filing of such
a legal action may discourage potential entrepreneurial agents from leaving their employers or principals, thus reducing the number of
entrepreneurial agents we can recruit and potentially harming our growth prospects.
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20
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If we are required
to write down goodwill and investment in affiliates, our financial condition and results may be materially and adversely affected.
When
we acquire a business, the amount of the purchase price that is allocated to goodwill is determined by the excess of the fair value of
purchase price and any controlling interest over the net identifiable tangible assets acquired. As of December 31, 2022, goodwill represented
RMB110.0 million (US$15.9 million), or 6.8% of our total shareholders' equity. Our management performs impairment assessments annually
and we did not recognize any impairment loss between 2016 and 2022. Under current accounting standards, if we determine that goodwill
is impaired, we will be required to write down the value of such assets and recognize corresponding impairment charges.
Prior
to June 28, 2022, we accounted for our 18.5% of equity interests in CNFinance Holdings Limited ("CNFinance") using the equity
method. We review our equity method investment periodically to determine whether a decline in fair value to an amount below the carrying
value is other-than-temporary. As of March 31, 2022, the fair value of the investment in CNFinance as measured by its closing market
price was below the carrying value although the investment in CNFinance generated positive equity income. Based on management's
evaluation, it was concluded that the decline in fair value of our investment in CNFinance below its carrying value was deemed to be
other-than-temporary. Accordingly, a provision of an impairment of RMB78.3 million (US$12.3 million) on investment in CNFinance was recognized
in the first quarter of 2022. On June 28, 2022, we completed distribution of 252,995,600 ordinary shares of CNFinance to the Company's
shareholders in proportion to their then respective shareholdings in the Company as of the record date on June 9, 2022. Following the
distribution, Fanhua's equity stake in CNFinance decreased from approximately 18.5% to approximately 0.01% and we ceased to recognize
share of income of CNFinance.
Any
future write-down related to such goodwill and equity method investments may materially and adversely affect our shareholders'
equity and financial results.
Preparing and forecasting
our financial results requires us to make judgments and estimates which may differ materially from actual results.
Given
the evolving regulatory and competitive environment and the inherent limitations in predicting the future, forecasts of our revenues,
operating income, net income and other financial and operating data may differ materially from actual results. Such discrepancies could
cause a decline in the trading price of our stock. In addition, the preparation of the consolidated financial statements in conformity
with U.S. GAAP requires management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts
of revenues and expenses during the reported period. Our management base their estimates on historical experience and various other factors
which are believed to be reasonable under the circumstances, and the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other sources. Significant accounting estimates reflected in our consolidated
financial statements included estimates of allowance for doubtful receivables and estimates associated with equity-method investment
impairment assessments. Actual results could differ from those estimates, which could negatively affect our stock price.
Any significant failure
in our information technology systems could have a material adverse effect on our business and profitability.
Our
business is highly dependent on the ability of our information technology systems to timely process a large number of transactions across
different markets and products at a time when transaction processes have become increasingly complex and the volume of such transactions
is growing rapidly. The proper functioning of our financial control, accounting, customer database, customer service and other data processing
systems, together with the communication systems of our various subsidiaries, branches and our main offices in Guangzhou, is critical
to our business and our ability to compete effectively. Our business activities could be materially disrupted in the event of a partial
or complete failure of any of these primary information technology or communication systems, which could be caused by, among other things,
software malfunction, computer virus attacks or conversion errors due to system upgrading. In addition, a prolonged failure of our information
technology system could damage our reputation and materially and adversely affect our future prospects and profitability.
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A computer system
failure, cyber-attacks, any failure to protect the confidential information of our customers or other security breaches may disrupt our
business, loss of customers, damage our reputation, result in potential liability and adversely affect our results of operations and
financial condition.
We
use computer systems to store, retrieve, evaluate and utilize customer and company data and information. Our business is highly dependent
on our ability to access these systems to perform necessary business functions such as selling insurance products, providing customer
support, policy management and claims assistance. Although we have designed and implemented a variety of security measures and backup
plans to prevent or limit the effect of failure, our computer systems may be vulnerable to disruptions as a result of natural disasters, man-made disasters,
criminal activities, pandemics or other events beyond our control. In addition, our computer systems may be subject to computer viruses
or other malicious codes, unauthorized access, cyber-attacks or other computer-related penetrations. The failure of our computer systems
for any reason could disrupt our operations and may adversely affect our business, results of operations and financial condition. Although
we have not experienced such a computer system failure or security breach in the past, we cannot assure you that we will not encounter
a failure or security breach in the future.
Our
customer database holds confidential information concerning our customers. We may be unable to prevent third parties, such as hackers
or criminal organizations, from stealing information provided by our customers to us. Confidential information of our customers may also
be misappropriated or inadvertently disclosed through employee misconduct or mistake. We may also in the future be required to disclose
to government authorities certain confidential information concerning our customers. In addition, many of our customers pay for our insurance
services through third-party online payment services. In such transactions, maintaining complete security during the transmission of
confidential information, such as personal information, is essential to maintaining consumer confidence. We have limited influence over
the security measures of third-party online payment service providers. In addition, our third-party merchants may violate their confidentiality
obligations and disclose information about our customers. Any compromise of our security or third-party service providers' security
could have a material adverse effect on our reputation, business, prospects, financial condition and results of operations.
Though
we have not experienced any material cybersecurity incidents in the past, if our database were compromised by outside sources or if we
are accused of failing to protect the confidential information of our customers, we may be forced to expend significant financial and
managerial resources in remedying the situation, defending against these accusations and we may face potential liability. Any negative
publicity, especially concerning breaches in our cybersecurity systems, may adversely affect our public image and reputation. Though
we take proactive measures to protect against these risks and we believe that our efforts in this area are sufficient for our business,
we cannot be certain that such measures will prove effective against all cybersecurity risks. In addition, any perception by the public
that online commerce is becoming increasingly unsafe or that the privacy of customer information is vulnerable to attack could inhibit
the growth of online services generally, which in turn may reduce the number of our customers.
Our business is subject
to insurance company partner concentration risks arising from dependence on a single or limited number of insurance company partners.
We
derive a significant portion of net revenues from distributing insurance products supplied by our important insurance company partners.
Among the top five of our insurance company partners, Sinatay accounted for 19.6% of our total net revenues in 2022.
Because
of this concentration in the supply of the insurance products we distribute, our business and operations would be negatively affected
if we experience a partial or complete loss of any of these insurance company partners. In addition, any significant adverse change in
our relationship with any of these insurance company partners could result in loss of revenue, increased costs and distribution delays
that could harm our business and customer relationships. In addition, this concentration can exacerbate our exposure to risks associated
with the termination by key insurance company partners of our agreements or any adverse change in the terms of such agreements, which
could have an adverse impact on our revenues and profitability.
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22
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If we are unable
to respond in a timely and cost-effective manner to rapid technological change in the insurance intermediary industry, it may result
in a material adverse effect.
The
insurance industry is increasingly influenced by rapid technological change, frequent new product and service introductions and evolving
industry standards. For example, the insurance intermediary industry has increased the use of the Internet to communicate benefits and
related information to consumers and to facilitate information exchange, transactions and training. We believe that our future success
will depend on our ability to anticipate and adapt to technological changes and to offer additional products and services that meet evolving
standards on a timely and cost-effective manner. We may not be able to successfully identify new product and service opportunities or
develop and introduce these opportunities in a timely and cost-effective manner. In addition, new products and services that our competitors
develop or introduce may render our products and services uncompetitive. As a result, if we are not able to respond or adapt to technological
changes that may affect our industry in the future, our business and results of operations could be materially and adversely affected.
We face risks related
to health epidemics, including the COVID-19 outbreak, severe weather conditions and other catastrophes, which could materially and adversely
affect our business.
Our
business could be materially and adversely affected by the outbreak of health epidemics including COVID-19, severe weather conditions
or other catastrophes. The outbreak of the COVID-19 and the measures to contain its spread has from time to time disrupted our operations
and adversely affected our business financial condition and results of operations. In late 2022, there were surges of COVID-19 cases
in many cities in mainland China, which severely affected our sales activities towards the end of 2022. Mainland China began to modify
its zero-COVID policy at the end of 2022, and most of the travel restrictions and quarantine requirements were lifted in December. However,
we are unable to predict the continuing duration and extent of the COVID-19 pandemic as well as evolving measures to contain it. Even
if the direct impact of COVID-19 gradually recedes, the pandemic will have a lingering, long-term effect on business activities and consumption
behavior. There is no assurance that we will be able to adjust our business operations to adapt to these changes and the increasingly
complex environment in which we operate.
Any
occurrence of other adverse public health developments or severe weather conditions may also significantly disrupt our staffing and otherwise
reduce the activity level of our work force, thus causing a material and adverse effect on our business operations.
We may be at risk
of securities class action litigation.
Historically,
securities class action litigation has often been brought against a company following periods of instability in the market price of its
securities. If we face such litigation, it could result in substantial costs and a diversion of management's attention and resources,
which could harm our business.
Recently,
U.S. public companies that have substantially all of their operations in China, have been the subject of intense scrutiny, criticism
and negative publicity by some investors, financial commentators and regulatory agencies. Much of the scrutiny, criticism and negative
publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting,
inadequate corporate governance policies or a lack of adherence thereto and, in some cases, allegations of fraud. As a result of the
scrutiny, criticism and negative publicity, the publicly traded stocks of many U.S.-listed Chinese companies have sharply decreased in
value and, in some cases, have become virtually worthless. Some of these companies are now subject to shareholder lawsuits and SEC enforcement
actions and are conducting or subject to internal and external investigations into the allegations. We had been targeted by short selling
reports in the past and became subject to class action lawsuits which were subsequently dismissed or settled. Shortselling firms or others
may in the future publish additional short seller reports with respect to our business, officers, directors and shareholders, and we
may become subject to other unfavorable allegations, which might cause further fluctuations in the trading price of our ADSs. Such volatility
in our share price could subject us to increased risk of securities class action lawsuits or derivative actions.
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23
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Any
future class action lawsuit against us, whether or not successful, could harm our reputation and restrict our ability to raise capital.
In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse
effect on our financial condition and results of operations. Even if such allegations are ultimately proven to be groundless, the allegations
or the process of dealing with them could severely impact our business operations and stockholder's equity, and any investment
in our ADSs could be greatly reduced.
We may be subject,
from time to time, to adverse actions taken by other parties, including lawsuits and negative reports and regulatory proceedings, which
may divert resources and the time and attention of our management and may otherwise adversely affect us.
From
time to time, we may become a party to litigations incidental to the operation of our business, including class action lawsuits and disputes
with other third parties. Litigation usually requires a significant amount of management time and effort, which may adversely affect
our business by diverting management's focus from the needs of our business and the development of strategic opportunities.
We
cannot predict the outcome of these lawsuits. Regardless of the outcome, these lawsuits, and any other litigation that may be brought
against us or our current or former directors and officers, could be time-consuming, result in significant expenses and divert the attention
and resources of our management and other key employees. An unfavorable outcome in any of these matters could also exceed coverage provided
under applicable insurance policies, which is limited. Any such unfavorable outcome could have a material effect on our business, financial
condition, results of operations and cash flows. Further, we could be required to pay damages or additional penalties or have other remedies
imposed against us, or our current or former directors or officers, which could harm our reputation, business, financial condition, results
of operations or cash flows.
In
addition, the CBIRC may from time to time make inquiries and conduct examinations concerning our compliance with PRC laws and regulations.
These administrative proceedings have in the past resulted in administrative sanctions, including fines, which have not been material
to us. While we cannot predict the outcome of any pending or future examination, we do not believe that any pending legal matter will
have a material adverse effect on our business, financial condition or results of operations. However, we cannot assure you that any
future regulatory proceeding will not have an adverse outcome, which could have a material adverse effect on our operating results or
cash flows.
Risks Related to Our
Corporate Structure
Fanhua Inc. is a
Cayman Islands holding company operating in China primarily through its subsidiaries and a small part of its business through contractual
arrangements with Xinbao Investment and Fanhua RONS Technologies. Investors in the ADSs thus are not purchasing, and may never directly
hold, all equity interests in the consolidated VIEs. There are substantial uncertainties regarding the interpretation and application
of current and future PRC laws, regulations, and rules relating to such agreements that establish the VIE structure for our consolidated
VIEs' operations in China, including potential future actions by the PRC government, which could affect the enforceability of our
contractual arrangements with Xinbao Investment and Fanhua RONS Technologies and, consequently, adversely affect the financial condition
and results of operations of Fanhua Inc. If the PRC government finds such agreements non-compliant with relevant PRC laws, regulations,
and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe
penalties or be forced to relinquish part of our interests in Xinbao Investment and Fanhua RONS Technologies or forfeit our rights under
the contractual arrangements.
We
are a company incorporated under the laws of the Cayman Islands, and Fanhua Group Company, our wholly-owned PRC subsidiary, is considered
a foreign-invested enterprise. We operate our online insurance distribution business, which accounted for 5% of our total net revenues
in 2022, through Baoxian.com or Baowang. Previously, the domain name of Baowang was owned by Shenzhen Baowang E-commerce Co., Ltd., or
Shenzhen Baowang, while its direct parent company Fanhua RONS Insurance Sales & Service Co. Ltd. (formerly known as Fanhua Century
Insurance Sales & Service Co., Ltd.) or Fanhua RONS, one wholly-owned subsidiary of Xinbao Investment, owns a national insurance
service operating license. To keep compliance with the Measures on the Supervision of Internet Insurance Business, or the Measures, which
became effective on February 1, 2021 which requires any insurance institution that intends to engage in internet insurance business to
directly own the online platform instead of through its subsidiary, we determined to register Fanhua RONS as the owner of baoxian.com
and apply for a new Value-added Telecommunication Business Operation Permit for ICP services, or an ICP license for Fanhua RONS, although
the Measures only requires the online platform owner to make ICP filing. As the applicant for an ICP license may be subject to foreign
investment restriction, we commenced a restructuring to re-establish the VIE structure for our online insurance business which was completed
in December 2021, pursuant to which our direct equity interests in Xinbao Investment was reduced from 100% to 49% and the remaining 51%
is nominally held by an employee of the Company on behalf of the Company. Concurrently, Fanhua Group Company, entered into contractual
arrangements with Xinbao Investment and the individual nominee shareholder, pursuant to which, we are able to: (i) exercise effective
control over Xinbao Investment and its subsidiaries; (ii) have an exclusive option to purchase part of the equity interests in Xinbao
Investment when and to the extent permitted by PRC law; and (iii) receive all of the economic benefits from the consolidated VIEs in
consideration for the services provided by our subsidiaries in China. The Contractual Arrangements allow us to be the primary beneficiary
of the consolidated VIE and to consolidate the Consolidated VIE's results of operations into our financial statements.
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In
preparation for the application of an ICP license for Fanhua RONS Technologies, on June 24, 2022, our wholly owned subsidiary Fanlian
Investment transferred all of the equity interests in Fanhua RONS Technologies to Mr. Peng Ge, our chief financial officer to hold the
shares of Fanhua RONS Technologies nominally on behalf of the Company. Concurrently, Fanlian Investment entered into contractual arrangements
with Fanhua RONS Technologies and Mr. Ge. The contractual arrangements are substantially similar to those among Fanhua Group Company,
Xinbao Investment and its individual nominee shareholder. Fanhua RONS Technologies have obtained the ICP license on December 8, 2022.
If
the Contractual Arrangements that establish the structure for operating our and the consolidated VIEs' business in the PRC are
found to be in violation of any existing or any PRC laws or regulations in the future, or the PRC government finds that we, or the consolidated
VIEs fails to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities, including the MIIT,
MOFCOM and STA, would have broad discretion in dealing with such violations, including:
●
revoking the business and operating
licenses;
●
discontinuing or restricting
the operations;
●
imposing fines or confiscating
any of the income from us and the consolidated VIEs that they deem to have been obtained through illegal operations;
●
requiring us to restructure
our and the consolidated VIEs' operations in such a way as to compel us to establish new entities, re-apply for the necessary licenses
or relocate our and the consolidated VIEs' business, staff and assets;
●
imposing additional conditions
or requirements with which we and the consolidated VIEs may not be able to comply;
●
restricting or prohibiting
the use of proceeds from the initial public offering or other financing activities to finance our and the consolidated VIEs' business
and operations in the PRC; or
●
taking other regulatory or
enforcement actions that could be harmful to our and the consolidated VIEs' business.
Any
of these actions could cause significant disruption or result in a material change to our and the consolidated VIEs' business operations,
and may materially and adversely affect our and the consolidated VIEs' business, financial condition and results of operations.
In addition, it is unclear what impact the PRC government actions would have on us and on our ability to consolidate the financial results
of Xinbao Investment and Fanhua RONS Techologies and their subsidiaries in our consolidated financial statements, if the PRC governmental
authorities find the consolidated VIEs' legal structure and Contractual Arrangements to be in violation of PRC laws, rules and
regulations. If any of these penalties results in our inability to direct the activities of Xinbao Investment and Fanhua RONS Techologies
or their subsidiaries that most significantly impact its economic performance and/or our failure to receive the economic benefits from
Xinbao Investment and Fanhua RONS Techologies or their subsidiaries, we may not be able to consolidate Xinbao Investment and Fanhua RONS
Techologies and/or their subsidiaries into our consolidated financial statements in accordance with U.S. GAAP. If we are unable to claim
our right to control the assets of the consolidated VIEs, the ADSs may decline in value or become worthless.
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25
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The PRC government
has significant authority to exert influence on the China operations of an offshore holding company, such as us. Therefore, investors
in the ADSs and our and the consolidated VIEs' business face potential uncertainty from the PRC government's policy. Changes
in China's economic, political or social conditions, or government policies could materially and adversely affect our and the consolidated
VIEs' business, financial condition, and results of operations.
Substantially
all of our and the consolidated VIEs' operations are located in China. The PRC government has significant authority to exert influence
on the China operations of an offshore holding company, such as us. Despite economic reforms and measures implemented by the PRC government,
the PRC government continues to play a significant role in regulating industrial development, allocation of natural and other resources,
production, pricing and management of currency, and there can be no assurance that the PRC government will continue to pursue a policy
of economic reform or that the direction of reform will continue to be market friendly.
Our
and the consolidated VIEs' ability to successfully expand business operations in the PRC depends on a number of factors, including
macro-economic and other market conditions. Demand for our and the consolidated VIEs' services and our and the consolidated VIEs'
business, financial condition and results of operations may be materially and adversely affected by the following factors:
●
political instability or changes in social conditions of the PRC;
●
changes in laws, regulations, and administrative directives or the
    interpretation thereof;
●
measures which may be introduced to control inflation or deflation;
    and
●
changes in the rate or method of taxation.
These
factors are affected by a number of variables which are beyond our and the consolidated VIEs' control.
We and the consolidated
VIEs are subject to extensive and evolving legal development, non-compliance with which, or changes in which, may materially and adversely
affect our and the consolidated VIEs' business and prospects, and may result in a material change in our and the consolidated VIEs'
operations and/or the value of our ADSs or could significantly limit or completely hinder our and the consolidated VIEs' ability
to offer or continue to offer securities to investors and cause the value of our securities to significantly decline or be worthless.
PRC
companies are subject to various PRC laws, regulations and government policies and the relevant laws, regulations and policies continue
to evolve. Recently, the PRC government is enhancing supervision over companies seeking listings overseas and some specific business
or activities such as the use of variable interest entities and data security or anti-monopoly. The PRC government may adopt new measures
that may affect our and the consolidated VIEs' operations, or may exert more oversight and control over offerings conducted outside
of China and foreign investment in China-based companies, and we and the consolidated VIEs may be subject to challenges brought by these
new laws, regulations and policies. However, since these laws, regulations and policies are relatively new and the PRC legal system continues
to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations
and rules involve uncertainties. Furthermore, as we and the consolidated VIEs may be subject to additional, yet undetermined, laws and
regulations, compliance may require us to obtain additional permits and licenses, complete or update registrations with relevant regulatory
authorities, adjust our and the consolidated VIEs' business operations, as well as allocate additional resources to monitor developments
in the relevant regulatory environment. However, under the stringent regulatory environment, it may take much more time for the relevant
regulatory authorities to approve new applications for permits and licenses, and complete or update registrations and we cannot assure
you that we and the consolidated VIEs will be able to comply with these laws and regulations in a timely manner or at all. The failure
to comply with these laws and regulations may delay, or possibly prevent, us to conduct business, accept foreign investments, or listing
overseas.
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26
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The
occurrence of any of these events may materially and adversely affect our and the consolidated VIEs' business and prospects and
may result in a material change in our and the consolidated VIEs' operations and/or the value of our ADSs or could significantly
limit or completely hinder our and the consolidated VIEs' ability to offer or continue to offer securities to investors. In addition,
if any of changes causes us unable to direct the activities of the consolidated VIEs or lose the right to receive their economic benefits,
we may not be able to consolidate the VIEs into our consolidated financial statements in accordance with U.S. GAAP, which could cause
the value of our ADSs to significantly decline or become worthless.
It is unclear whether
we and the consolidated VIEs will be subject to the oversight of the Cyberspace Administration of China and how such oversight may impact
us. Our and the consolidated VIEs' business could be interrupted or we and the consolidated VIEs could be subject to liabilities
which may materially and adversely affect the results of our and the consolidated VIEs' operation and the value of your investment.
Pursuant
to the PRC Cybersecurity Law and the Measures for Cybersecurity Censorship, if a critical information infrastructure operator that intends
to purchase internet products and services and data processing operators (collectively, the "operators") engaging in data
processing activities that affect or may affect national security must be subject to the cybersecurity review. According to the Regulations
for Safe Protection of Critical Information Infrastructure, or the Safe Protection Regulations, which took effect on September 1, 2021,
critical information infrastructure refers to important network infrastructure and information systems in public telecommunications,
information services, energy sources, transportation and other critical industries and domains, in which any destruction or data leakage
will have severe impact on national security, the nation's welfare, the people's living and public interests. As of the date
hereof, we and the consolidated VIEs have not received any notice from such authorities identifying us as a critical information infrastructure
operator or requiring us to going through cybersecurity review by the CAC.
On
December 28, 2021, the CAC, NDRC, MIIT, the MPS, the Ministry of National Security, the MOF, the MOFCOM, the PBOC, the National Radio
and Television Administration, the CSRC, the National Administration of State Secrets Protection and the State Cryptography Administration
jointly released the Measures for Cybersecurity Review Measures, or the Cybersecurity Review Measures, which took effect on February
15, 2022. According to the Cybersecurity Review Measures, the scope of cybersecurity reviews is extended to data processing operators
engaging in data processing activities that affect or may affect national security. The Cybersecurity Review Measures further requires
that any operator applying for listing on a foreign exchange must go through cybersecurity review if it possesses personal information
of more than one million users. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security
risks that may be brought about by any procurement, data processing, or overseas listing. The review focuses on several factors, including,
among others, (i) the risk of theft, leakage, corruption, illegal use or export of any core or important data, or a large amount of personal
information, and (ii) the risk of any critical information infrastructure, core or important data, or a large amount of personal information
being affected, controlled or maliciously exploited by a foreign government after a company is listed overseas.
Our
PRC counsel is of the view that there is a relatively low likelihood that we and the consolidated VIEs will be subject to the cybersecurity
review by the CAC for a future offering of our securities to foreign investors, given that: (i) we and the consolidated VIEs have not
been recognized as critical information infrastructure operators; (ii) data processed in our and the consolidated VIEs' business
do not have an impact or potential impact on national security; and (iii) the Cybersecurity Review Measures require operators of online
platforms that hold personal information of more than one million users to file a cybersecurity review with the Cybersecurity Review
Office when they go public abroad. On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering
and Listing by Domestic Companies and five supporting guidelines, or collectively, the Filing Rules, which came into effect on March
31, 2023, pursuant to the new rules, China-based issuers that seek to offer, list their securities or refinancing in an overseas market
,
are required to fulfill relevant filing procedure and report relevant information to the CSRC, and other
pre-procedure of relevant regulatory authorities before filing to CSRC, including but not limited to CAC. However, there remains uncertainty
as to how the Cybersecurity Review Measures will be interpreted and whether the PRC regulatory agencies, including the CAC and the CSRC,
may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and
the Filing Rules. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we and the consolidated
VIE will take all reasonable measures and actions to comply and minimize the adverse effect of such laws on us.
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27
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We
cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do, and there is no assurance that
we and the consolidated VIEs can fully or timely comply with such laws. In the event that we and the consolidated VIEs are subject to
any mandatory cybersecurity review and other specific actions required by the CAC, we and the consolidated VIE face uncertainty as to
whether any clearance or other required actions can be timely completed, or at all. Given such uncertainty, we and the consolidated VIEs
may be further required to suspend our and the consolidated VIEs' relevant business, shut down our and the consolidated VIE's
website, or face other penalties, which could materially and adversely affect our and the consolidated VIEs' business, financial
condition, and results of operations, and/or the value of our ADSs or could significantly limit or completely hinder our and the consolidated
VIEs' ability to offer or continue to offer securities to investors. In addition, if any of these events causes us unable to direct
the activities of the consolidated VIEs or lose the right to receive their economic benefits, we may not be able to consolidate the VIEs
into our consolidated financial statements in accordance with U.S. GAAP, which could cause the value of our ADSs to significantly decline
or become worthless.
On
November 14, 2021, the CAC published the Regulations on the Cyber Data Security (Draft for Comments until December 13, 2021), which further
regulate the internet data processing activities and emphasize on the supervision and management of network data security, and further
stipulate the obligations of internet platform operators, such as to establish a system for disclosure of platform rules, privacy policies
and algorithmic strategies related to data. Specifically, the draft regulations require data processors to, among others, (i) adopt immediate
remediation measures when they discover that network products and services they use or provide have security defects and vulnerabilities,
or threaten national security or endanger public interest, and (ii) follow a series of detailed requirements with respect to processing
personal information, management of important data and proposed overseas transfer of data. The following activities shall apply for cybersecurity
review: (i) merger, reorganization or division of internet platform operators that have acquired a large number of data resources related
to national security, economic development or public interests affects or may affect national security; (ii) listing abroad of data processors
processing over one million users
'
personal information; (iii)
listing in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect
national security.The draft measures also require data processors that handle important data or are seeking to be listed overseas to
complete an annual data security self-assessment or entrust a data security service institution to do so, and file a data security assessment
report of previous year to the local branch of applicable regulators before January 31 each year. Such annual assessment, as required
by the draft regulations, would encompass areas including but not limited to the status of important data processing, data security risks
identified and the rectification measures adopted, the effectiveness of data protection measures, the implementation of national data
security laws and regulations, data security incidents that occurred and how they were resolved, and a security assessment with respect
to sharing and provision of important data overseas. As of the date hereof, the draft regulations have been released for public comment
only and have not been formally adopted. The final provisions, interpretation, implementation and the timeline for its adoption are subject
to changes and uncertainties.
As
there remain uncertainties regarding the interpretation and implementation of such regulatory guidance, we cannot assure you that we
will be able to comply with new regulatory requirements relating to our future overseas capital raising activities, and may be subject
to more stringent requirements with respect to matters including data privacy and cross-border investigation and enforcement of legal
claims. In the event that we and the consolidated VIEs are subject to any mandatory cybersecurity review and other specific actions required
by the CAC, we and the consolidated VIEs face uncertainty as to whether any clearance or other required actions can be timely completed,
or at all. Given such uncertainty, we and the consolidated VIEs may be further required to suspend our and the consolidated VIEs'
relevant business, shut down our and the consolidated VIEs' website, or face other penalties, which could materially and adversely
affect our and the consolidated VIEs' business, financial condition, and results of operations, and/or the value of our ADSs or
could significantly limit or completely hinder our and the consolidated VIEs' ability to offer or continue to offer securities
to investors. In addition, if any of these events causes us unable to direct the activities of the consolidated VIEs or lose the right
to receive their economic benefits, we may not be able to consolidate the VIEs into our consolidated financial statements in accordance
with U.S. GAAP, which could cause the value of our ADSs to significantly decline or become worthless.
The PRC government's
oversight over our and the consolidated VIEs' business operations could result in a material adverse change in our and the consolidated
VIEs' operations and the value of our ADSs.
We
conduct our business in China primarily through our PRC subsidiaries, including Fanhua Group Company and its subsidiaries in which we
hold equity ownership interests, and the contractual arrangements with the consolidated VIEs. Our and the consolidated VIEs' operations
in China are governed by PRC laws and regulations. The PRC government has significant oversight over the conduct of our and the consolidated
VIEs' business, and it regulates and may intervene our and the consolidated VIEs' operations at any time, which could result
in a material adverse change in our and the consolidated VIEs' operation and/or the value of our ADSs. Also, the PRC government
has recently indicated an intent to exert more oversight over offerings that are conducted overseas and/or foreign investment in China-based
issuers like us. Any such action 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 and the consolidated VIEs' operations could cause the value of our securities to significantly
decline. Therefore, investors of us and the consolidated VIEs and our and the consolidated VIEs' business face potential uncertainty
from actions taken by the PRC government.
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28
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Any failure by the
VIEs or their respective shareholders to perform their obligations under our Contractual Arrangements with them would have a material
adverse effect on our business.
We
have entered into a series of Contractual Arrangements with Xinbao Investment and Fanhua RONS Technologies, our consolidated VIEs and
the shareholders of Xinbao Investment and Fanhua RONS Technologies, respectively. For a description of these Contractual Arrangements,
see "Item 4. Information on the Company—C. Organizational Structure." If our consolidated VIEs or the shareholder of
Xinbao Investment and Fanhua RONS Technologies fail to perform their respective obligations under the Contractual Arrangements, we may
incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under
PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you that it will
be effective under PRC laws. For example, if the shareholders of Xinbao Investment and Fanhua RONS Technologies were to refuse to transfer
their equity interests in Xinbao Investment and Fanhua RONS Technologies to us or our designee when we exercise the purchase option pursuant
to these Contractual Arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal actions to
compel them to perform their contractual obligations.
All
the agreements under our Contractual Arrangements are governed by PRC laws and provide for the resolution of disputes through arbitration
in China. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance
with PRC legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions, such as the United States.
As a result, uncertainties in the PRC legal system could limit our ability to enforce these Contractual Arrangements. Meanwhile, there
are very few precedents and little formal guidance as to how Contractual Arrangements in the context of a variable interest entity should
be interpreted or enforced under PRC laws. There remain significant uncertainties regarding the ultimate outcome of such arbitration
should legal action become necessary. In addition, under PRC laws, rulings by arbitrators are final and parties cannot appeal arbitration
results in court unless such rulings are revoked or determined unenforceable by a competent court. If the losing parties fail to carry
out the arbitration awards within a prescribed time limit, the prevailing parties may only enforce the arbitration awards in PRC courts
through arbitration award recognition proceedings, which would require additional expenses and delay. In the event that we are unable
to enforce these Contractual Arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these Contractual
Arrangements, we may not be able to exert effective control over Xinbao Investment and Fanhua RONS Technologies and their subsidiaries,
and our ability to conduct our business may be negatively affected. See "Item 3. Key Information—D. Risk Factors—Risks
Related to Doing Business in China—Uncertainties in the PRC legal system and the interpretation and enforcement of PRC laws and
regulations could limit the legal protections available to you and us, significantly limit or completely hinder our ability to offer
or continue to offer our ADSs, cause significant disruption to our and the consolidated VIEs' business operations, and severely
damage our and the consolidated VIEs' reputation, which would materially and adversely affect our and the consolidated VIEs'
financial condition and results of operations and cause our ADSs to significantly decline in value or become worthless. In addition,
rules and regulations in China can change quickly with little advance notice, therefore, our assertions and beliefs of the risks imposed
by the Chinese legal and regulatory system cannot be certain."
We rely on contractual
arrangements to conduct a small part of our China operations, which may not be as effective in providing operational control as direct
ownership.
Although
we have obtained direct equity ownership in almost all of our insurance intermediary operating companies, we have relied on and expect
to continue to rely on contractual arrangements with Xinbao Investment Fanhua RONS Technologies and their individual nominee shareholder
to operate a small part of our business in China. These contractual arrangements may not be as effective as direct ownership in providing
us with control over our consolidated VIEs, and these contractual arrangements have not been tested in a court of law. For a description
of these contractual arrangements, see "Item 4. Information on the Company—C. Organizational Structure." These contractual
arrangements may not be as effective in providing us with control over the VIEs as direct ownership.
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29
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If
we had direct controlling ownership of our consolidated VIEs, we would be able to exercise our rights as a controlling shareholder to
effect changes in the board of directors of these entities, which in turn could effect changes, subject to any applicable fiduciary obligations,
at the management level. However, under the current contractual arrangements, as a legal matter, if our consolidated VIEs and their shareholders
fail to perform their obligations under these contractual arrangements, we may have to incur substantial costs and expend significant
resources to enforce such arrangements and rely on legal remedies under PRC law, including seeking specific performance or injunctive
relief and claiming damages, which may not be effective. For example, if the shareholders of our consolidated VIEs were to refuse to
transfer their equity interest in such entities to us or our designee when we exercise the call option pursuant to these contractual
arrangements, or if they were otherwise to act in bad faith toward us, then we may have to take legal action to compel them to fulfill
their contractual obligations.
All
of our contractual arrangements with Xinbao Investment and Fanhua RONS Technologies and their individual nominee shareholders are governed
by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted
in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC
may bear significant difference from those of other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal
system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements,
we may not be able to exert effective control over the VIEs, and our ability to conduct our business may be negatively affected.
The individual shareholders
of Xinbao Investment and Fanhua RONS Technologies, our consolidated VIEs, may have potential conflicts of interest with us, which may
materially and adversely affect our business and financial condition.
As
of March 31, 2023, Mr. Peng Ge, held 100% of the equity interests in Fanhua RONS Technologies and Mr. Shuangping Jiang, held 51% of the
equity interests in Xinbao Investment with the remaining 49% held by our wholly-owned PRC subsidiary Fanhua Group Company. Conflicts
of interest may arise between the dual roles of Mr. Ge and Mr. Jiang as shareholders of Fanhua RONS Technologies and Xinbao Investment
respectively and as officers of our company. We do not have existing arrangements to address these potential conflicts of interest and
cannot assure you that when conflicts arise, Mr. Ge and Mr. Jiang will act in the best interest of our company or that conflicts will
be resolved in our favor.
Contractual arrangements
we have entered into with Xinbao Investment and Fanhua RONS Technologies may be subject to scrutiny by the PRC tax authorities. A finding
that we owe additional taxes could substantially reduce our consolidated net income and the value of your investment.
Under
PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenged by the PRC tax authorities.
We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements between us
and the VIEs are not on an arm's-length basis and that we adjusted the income of our consolidated VIEs in the form of a transfer
pricing adjustment. Particularly, the State Administration of Taxation issued a Public Notice, or Public Notice 16, on March 18, 2015,
to further regulate and strengthen the transfer pricing administration on outbound payments by a PRC enterprise to its overseas related
parties. In addition to emphasizing that outbound payments by a PRC enterprise to its overseas related parties must comply with arm's-length
principles, Public Notice 16 specifies certain circumstances whereby such payments are not deductible for the purpose of the enterprise
income tax of the PRC enterprise, including payments to an overseas related party which does not undertake any function, bear any risk
or have any substantial operation or activities, payments for services which do not enable the PRC enterprise to obtain direct or indirect
economic benefits, or for services that are unrelated to the functions and risks borne by the PRC enterprise, or relate to the protection
of the investment interests of the direct or indirect investor of the PRC enterprise, or for services that have already been purchased
from a third party or undertaken by the PRC enterprise itself, and royalties paid to an overseas related party which only owns the legal
rights of the intangible assets but has no contribution to the creation of such intangible assets. Although we believe all our related
party transactions, including all payments by our PRC subsidiaries and consolidated VIEs to our non-PRC entities, are made on an arm's-length
basis and our estimates are reasonable, the ultimate decisions by the relevant tax authorities may differ from the amounts recorded in
our financial statements and may materially adversely affect our financial results in the period or periods for which such determination
is made. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions
recorded by our consolidated VIEs, which could in turn increase their respective tax liabilities. Moreover, the PRC tax authorities may
impose penalties on our consolidated VIEs for underpayment of taxes. Our consolidated net income may be materially and adversely affected
by the occurrence of any of the foregoing.
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30
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PRC regulation of
loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans to our PRC subsidiaries
or making additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our
ability to fund and expand our business.
We
are an offshore holding company conducting our operations in China primarily through our PRC subsidiaries and to a small part through
our consolidated VIEs. In order to provide additional funding to our PRC subsidiaries and consolidated VIEs, we may make loans to our
PRC subsidiaries and consolidated VIEs, or we may make additional capital contributions to our PRC subsidiaries and consolidated VIEs.
Any
loans we make to any of our directly-held PRC subsidiaries (which are treated as foreign-invested enterprises under PRC law), namely,
Fanhua Zhonglian Enterprise Image Planning (Shenzhen) Co., Ltd., or Zhonglian Enterprise, and Fanhua Xinlian Information Technology Consulting
(Shenzhen) Co., Ltd., or Xinlian Information, cannot exceed statutory limits and must be registered with the State Administration of
Foreign Exchange, or the SAFE, or its local counterparts. Under applicable PRC law, the amount of a foreign-invested enterprise's
registered capital represents shareholders' equity investments over a defined period of time, and the foreign-invested enterprise's
total investment represents the total of the company's registered capital plus permitted loans. The registered capital/total investment
ratio cannot be lower than the minimum statutory requirement and the excess of the total investment over the registered capital represents
the maximum amount of borrowings that a foreign-invested enterprise is permitted to have under PRC law. Our directly-held PRC subsidiaries
were allowed to incur a total of HK300 million (US$38.2 million) in foreign debts as of March 31, 2023. If we were to provide loans to
our directly-held PRC subsidiaries in excess of the above amount, we would have to apply to the relevant government authorities for an
increase in their permitted total investment amounts. The various applications could be time-consuming and their outcomes would be uncertain.
Concurrently with the loans, we might have to make capital contributions to these subsidiaries in order to maintain the statutory minimum
registered capital/total investment ratio, and such capital contributions involve uncertainties of their own, as discussed below. Furthermore,
even if we make loans to our directly-held PRC subsidiaries that do not exceed their current maximum amount of borrowings, we will have
to register each loan with the SAFE or its local counterpart within 15 days after the signing of the relevant loan agreement. Subject
to the conditions stipulated by the SAFE, the SAFE or its local counterpart will issue a registration certificate of foreign debts to
us within 20 days after reviewing and accepting our application. In practice, it may take longer to complete such SAFE registration process.
Any
loans we make to any of our indirectly-held PRC subsidiaries (those PRC subsidiaries which we hold indirectly through Zhonglian Enterprise
and Xinlian Information) or to any of our consolidated VIEs, all of which are treated as PRC domestic companies rather than foreign-invested
enterprises under PRC law, are also subject to various PRC regulations and approvals. Under applicable PRC regulations, medium- and long-term
international commercial loans to PRC domestic companies are subject to approval by the National Development and Reform Commission. Short-term
international commercial loans to PRC domestic companies are subject to the balance control system effected by the SAFE. Due to the above
restrictions, we are not likely to make loans to any of our indirectly-held PRC subsidiaries.
Any
capital contributions we make to our PRC subsidiaries, including directly-held and indirectly-held PRC subsidiaries, must be approved
by the PRC Ministry of Commerce or its local counterparts, and registered with the SAFE or its local counterparts. Such applications
and registrations could be time consuming and their outcomes would be uncertain.
We
cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals
on a timely basis, if at all, with respect to future loans by us to our PRC subsidiaries, or with respect to future capital contributions
by us to our PRC subsidiaries. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise
fund our PRC operations may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund
and expand our business.
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On
August 29, 2008, SAFE promulgated Circular 142, a notice regulating the conversion by a foreign-invested company of its capital contribution
in foreign currency into RMB. The notice requires that the capital of a foreign-invested company settled in RMB converted from foreign
currencies shall be used only for purposes within the business scope as approved by the authorities in charge of foreign investment or
by other government authorities and as registered with the State Administration for Industry and Commerce and, unless set forth in the
business scope or in other regulations, may not be used for equity investments within the PRC. In addition, SAFE strengthened its oversight
of the flow and use of the capital of a foreign-invested company settled in RMB converted from foreign currencies. The use of such RMB
capital may not be changed without SAFE's approval, and may not in any case be used to repay RMB loans if the proceeds of such
loans have not been used. Violations of Circular 142 will result in severe penalties, including heavy fines. As a result, Circular 142
may significantly limit our ability to provide additional funding to our PRC subsidiaries through our directly-held PRC subsidiaries
in the PRC, which may adversely affect our ability to expand our business.
However,
on June 9, 2016, SAFE promulgated Circular 16, a notice on reforming and standardizing the administrative provisions on capital account
foreign exchange settlement, which became effective on June 9, 2016. The new notice states that domestic enterprises (including Chinese-funded
enterprises and foreign-invested enterprises, excluding financial institutions) shall be allowed to settle their foreign exchange capitals
on a discretionary basis. The discretionary settlement by a foreign-invested enterprise of its foreign exchange capital shall mean that
the foreign-invested enterprise may, according to its actual business needs, settle with a bank the portion of the foreign exchange capital
in its capital account for which the application of discretionary settlement has been specified by relevant policies (including capitals
in foreign currencies, external debts, funds repatriated from overseas listing, etc.). For the time being, foreign-invested enterprises
are allowed to settle 100% of their foreign exchange capitals on a discretionary basis. The SAFE may adjust the foregoing percentage
as appropriate according to balance of payments situations. As a result, Circular 16 will relax the limitation of our ability to provide
additional funding to our PRC subsidiaries through our directly-held PRC subsidiaries in the PRC and consolidated VIEs.
Risks Related to Doing
Business in China
The
approval of and filing with the CSRC or other PRC government authorities may be required in connection with our future offshore offerings,
capital raising activities and aquisitions or other trading arrangements of domestic enterprises conducted by China-based issuers, and
also may be required to go through cybersecurity review under the new laws and the draft laws and regulations of mainland China, and,
if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such filing or other regulatory
procedures.
On
August 8, 2006, MOFCOM, joined by the CSRC, the State-owned Assets Supervision and Administration Commission of the State Council, the
SAT, the State Administration for Industry and Commerce, and SAFE, jointly promulgated regulations entitled the Provisions Regarding
Mergers and Acquisitions of Domestic Entities by Foreign Investors (the "M&A Rules"), which took effect as of September
8, 2006, and as amended on June 22, 2009.On September 21, 2006, the CSRC published on its official website a notice specifying the documents
and materials that are required to be submitted for obtaining CSRC approval. The M&A Rules requires an overseas special purpose vehicle
formed for listing purposes through acquisitions of mainland China domestic companies and controlled by mainland China companies
or individuals to obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle's securities
on an overseas stock exchange. The interpretation and application of the regulations remain unclear, and our offshore offerings may ultimately
require 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, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or delay in obtaining
the CSRC approval for any of our offshore offerings, or a rescission of such approval is obtained by us, would subject us to sanctions
imposed by the CSRC or other PRC regulatory authorities, which could include fines and penalties on our operations in mainland China,
and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.
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The
new rules for the filing-based administration of overseas securities offerings and listings by Chinese domestic companies released on
February 17, 2023, or New Filing Rules, establish a new filing-based regime to regulate overseas offerings and listings by domestic
companies. According to the New Filing Rules, (i) an overseas offering and listing by a domestic company, whether directly or indirectly,
shall be filed with the CSRC; and (ii) the issuer or its affiliated domestic company, as the case may be, shall file with the CSRC for
its initial public offering, follow-on offering, issuance of convertible bonds, offshore relisting after go-private transactions and
other equivalent offing activities. In addition, after a domestic company has offered and listed securities in an overseas markets, it
is required to file a report to the CSRC after the occurrence and public disclosure of certain material corporate events, including but
not limited to, change of control and voluntary or mandatory delisting. According to the New Filing Rules, the Company shall be deemed
to be a domestic enterprise indirectly listed overseas. However, from March 31, 2023, enterprises that have been listed overseas shall
constitute existing enterprises and are not required to conduct the overseas listing filing procedure immediately, but shall carry out
filing procedures as required if they conduct future offshore offerings or capital raising activities or are involved in other circumstances
that require filing with the CSRC.
On
February 24, 2023, the CSRC, together with other relevant government authorities, issued the Provisions on Strengthening Confidentiality
and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Archives Rules, which
became effective on March 31, 2023. According to the Archives Rules, domestic mainland China companies, whether offering and listing
securities overseas directly or indirectly, must strictly abide the applicable laws and regulations when providing or publicly disclosing,
either directly or through their overseas listed entities, documents and materials to securities services providers such as securities
companies and accounting firms or overseas regulators in the process of their overseas offering and listing. If such documents or materials
contain any state secrets or government authorities work secrets, domestic companies must obtain the approval from competent governmental
authorities according to the applicable laws, and file with the secrecy administrative department at the same level with the approving
governmental authority. Furthermore, the Archives Rules also provides that securities companies and securities service providers shall
also fulfill the applicable legal procedures when providing overseas regulatory institutions and other relevant institutions and individuals
with documents or materials containing any state secrets or government authorities work secrets or other documents or materials that,
if divulged, will jeopardize national security or public interest. For more details of the New Filing Rules, please refer to "Item
4. Information on the Company—B. Business Overview—Regulations—Regulations Relating to Overseas Listing."
In addition,
we cannot assure you that any new rules or regulations promulgated in the future will not impose additional requirements on us. If it
is determined in the future that approval and filing from the CSRC or other regulatory authorities or other procedures, are required
for our offshore offerings or capital raising activities, it is uncertain whether we can or how long it will take us to obtain such approval
or complete such filing procedures and any such approval or filing could be rescinded or rejected. In addition, there are uncertainties
with regard to whether any report filed with the CSRC after the occurrence of certain material corporate events will be subject to any
further action from the CSRC. Any failure to obtain or delay in obtaining such approval or completing such filing procedures for our
offshore, offerings, capital raising activities or certain material corporate events, or a rescission of any such approval or filing
if obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory authorities for failure to seek CSRC approval or
filing or other government authorization for our offshore offerings, capital raising activities or certain material corporate events.
These regulatory authorities may impose fines and penalties on our operations in mainland China, limit our operating privileges in mainland
China, delay or restrict the repatriation of the proceeds from our offshore offerings into mainland China or take other actions that
could materially and adversely affect our business, financial condition, results of operations, and prospects, as well as the trading
price of our listed securities. The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it advisable
for us, to halt our offshore offerings or capital raising activities before settlement and delivery and further actions of the shares
offered or take any actions regarding our material corporate events. 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, delivery and further actions 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 prior offshore offerings or capital raising activities,
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 listed securities.
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Uncertainties in
the PRC legal system and the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to
you and us, significantly limit or completely hinder our ability to offer or continue to offer our ADSs, cause significant disruption
to our and the consolidated VIE's business operations, and severely damage our and the consolidated VIEs' reputation, which
would materially and adversely affect our and the consolidated VIEs' financial condition and results of operations and cause our
ADSs to significantly decline in value or become worthless. In addition, rules and regulations in China can change quickly with little
advance notice, therefore, our assertions and beliefs of the risks imposed by the Chinese legal and regulatory system cannot be certain.
The
PRC legal system is based on written statutes and prior court decisions have limited value as precedents. Since these laws and regulations
are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are
not always uniform and enforcement of these laws, regulations and rules involves uncertainties. In addition, rules and regulations in
China can change quickly with little advance notice, therefore, our assertions and beliefs of the risks imposed by the Chinese legal
and regulatory system cannot be certain.
In
particular, PRC laws and regulations concerning the insurance industry are developing and evolving. Although we have taken measures to
comply with the laws and regulations that are applicable to our business operations, and avoid conducting any non-compliant activities
under the applicable laws and regulations, such as illegal fund-raising, forming capital pool or providing guarantee to investors, the
PRC government authority may promulgate new laws and regulations regulating the insurance industry in the future. We cannot assure you
that our practice would not be deemed to violate any new PRC laws or regulations relating to insurance. Moreover, developments in the
insurance industry may lead to changes in PRC laws, regulations and policies or in the interpretation and application of existing laws,
regulations and policies that may limit or restrict insurance agency and brokerage services like us, which could materially and adversely
affect our business and operations.
From
time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, 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. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published
in a timely manner or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies
and rules until sometime after the violation. Such uncertainties, including uncertainty over the scope and effect of our contractual,
property (including intellectual property) and procedural rights, could limit the legal protections available to you and us, significantly
limit or completely hinder our ability to offer or continue to offer our ADSs, cause significant disruption to our and the consolidated
VIEs' business operations, and severely damage our and the consolidated VIEs' reputation, which would materially and adversely
affect our and the consolidated VIEs' financial condition and results of operations and cause our ADSs to significantly decline
in value or become worthless.
A downturn in the
Chinese or global economy could have a material adverse effect on our business.
Substantially
all of our business operations are conducted in China. Accordingly, our results of operations, financial condition and prospects are
subject to a significant degree to economic, political and legal developments in China. While the PRC economy has experienced significant
growth in the past 30 years or so, growth has been uneven across different regions and among various economic sectors. Economic growth
in China has been slowing in the past few years. The PRC government has implemented various measures to encourage economic development
and guide the allocation of resources. However, these measures may not be successful in transforming the Chinese economy or spurring
growth. While some of these measures benefit the overall PRC economy, they may also have a negative effect on us. For example, our financial
condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations
that are applicable to us.
In
addition, the global financial markets have experienced significant disruptions between 2008 and 2009, and the United States, Europe
and other economies have experienced periods of recessions. The recovery from the economic downturns of 2008 and 2009 has been uneven
and is facing new challenges, including the high inflation in the US which creates additional global economic uncertainty. There is considerable
uncertainty over the long-term effects of the expansionary monetary and fiscal policies adopted by the central banks and financial authorities
of some of the world's leading economies, including the United States and China. There have also been concerns about the economic
effect of the geo-political tensions in the relationship between China and the United States. Economic conditions in China are sensitive
to global economic conditions. Any prolonged slowdown in the global or Chinese economy may have a negative impact on our business, results
of operations and financial condition. Additionally, continued turbulence in the international markets may adversely affect our ability
to access the capital markets to meet liquidity needs.
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Governmental control
of currency conversion may affect the value of your investment.
The
PRC government imposes controls on the convertibility of the RMB into foreign currencies and the remittance of currency out of China.
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 SAFE by complying
with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be 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 also at its discretion restrict access in the future to foreign currencies for current account transactions. Under
our current corporate structure, the primary source of our income at the holding company level is dividend payments from our PRC subsidiaries.
Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries to remit sufficient foreign currency
to pay dividends or other payments to us, or otherwise satisfy their foreign-currency-denominated obligations. If the foreign exchange
control system prevents us from obtaining sufficient foreign currency to satisfy our currency needs, we may not be able to pay dividends
in foreign currencies to our shareholders, including holders of our ADSs.
The PRC Enterprise
Income Tax Law may increase the enterprise income tax rate applicable to some of our PRC subsidiaries, which could have a material adverse
effect on our result of operations.
According
to the PRC Enterprise Income Tax Law, or the EIT Law, which became effective on January 1, 2008, which was subsequently amended on February
24, 2017 and December 29, 2018, as further clarified by subsequent tax regulations implementing the EIT Law, foreign-invested enterprises
and domestic enterprises are subject to enterprise income tax, or EIT, at a uniform rate of 25%, unless otherwise provided.
According
to the EIT Law and related regulations, such as the Circular on Issues Regarding Tax-related Preferential Policies for Further Implementation
of Western Development Strategy jointly issued by the State Ministry of Finance, General Administration of Customs, China and State Administration
for Taxation, enterprises located in the western China regions that fall into the encouraged industries are entitled to 15% EIT preferential
tax treatment from January 1, 2011 to December 31, 2020. The preferential tax treatment is subsequently extended to December 31, 2030,
according to No. 23 Announcement Concerning the Extension of the EIT Policies for Enterprises Located in Western China issued by the
Ministry of Finance on April 23, 2020. The preferential tax rates enjoyed by some of our PRC subsidiaries incorporated in such regions,
will increase to the uniform 25% EIT rate after 2030. An increase in the EIT rates for those entities pursuant to the EIT Law could result
in an increase in our effective tax rate, which could materially and adversely affect our results of operations.
Our global income
or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse
effect on our results of operations.
Under
the EIT Law, an enterprise established outside of the PRC with "de facto management bodies" within the PRC is considered
a resident enterprise and will be subject to the EIT at the rate of 25% on its worldwide income. The Implementation Rules of the EIT
Law, or the Implementation Rules, define the term "de facto management bodies" as "establishments that carry out substantial
and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise."
If we are deemed a resident enterprise, we may be subject to the EIT at 25% on our global income, except that the dividends we receive
from our PRC subsidiary will be exempt from the EIT. If we are considered a resident enterprise and earn income other than dividends
from our PRC subsidiaries, a 25% EIT on our global income could significantly increase our tax burden and materially and adversely affect
our cash flow and profitability.
PR
Rules, if we are regarded as a resident enterprise, the dividends we receive from our PRC subsidiaries will be exempt from the EIT. If,
however, we are not regarded as a resident enterprise, our PRC subsidiaries will be required to pay a 5% or 10% withholding tax, as the
case may be, for any dividends they pay to us. As a result, the amount of fund available to us to meet our cash requirements, including
the payment of dividends to our shareholders and ADS holders, could be materially reduced.
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We rely principally
on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and
any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct
our business.
We
are a holding company, and we will rely principally on dividends from our subsidiaries in China and service, license and other fees paid
to our subsidiaries by our consolidated VIEs for our cash requirements, including any debt we may incur. Current PRC regulations permit
our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting
standards and regulations. In addition, according to the PRC Company Law, each of our PRC subsidiaries is required to set aside at least
10% of its after-tax profits each year as reported in its PRC statutory financial statements, if any, to fund a statutory reserve until
such reserve reaches 50% of its registered capital. In addition, each of our PRC subsidiaries that are considered foreign-invested enterprises
is required to further set aside a portion of its after-tax profits as reported in its PRC statutory financial statements to fund the
employee welfare fund at the discretion of its board. In addition, according to the Regulation on the Supervision of Insurance Agents,
our insurance agency subsidiaries are required to either procure professional liability insurance with minimum compensation for each
accident under the one-year professional liability insurance policy no less than RMB1 million, and accumulative compensation under the
one-year insurance policy no less than RMB10 million and the total core business revenue of the professional insurance agency company
in the previous year, or make a contribution to deposit which shall represent 5% of its registered capital. These reserves are not distributable
as cash dividends.
As
of December 31, 2022, the aggregate undistributed earnings of the Group's subsidiaries and VIEs in the PRC that are available
for distribution were RMB1.4 billion (US$202.9 million). Furthermore, if our
subsidiaries in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to
pay dividends or make other payments to us. Any limitation on the ability of our subsidiaries to distribute dividends or other
payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial
to our businesses, pay dividends, or otherwise fund and conduct our business.
PRC regulations relating
to the establishment of offshore special purpose companies by PRC residents and employee stock options granted by overseas-listed companies
may increase our administrative burden, restrict our overseas and cross-border investment activity, or otherwise adversely affect us.
If our shareholders who are PRC residents, or our PRC employees who are granted or exercise stock options, fail to make any required
registrations or filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC
laws. We may also face regulatory uncertainties that could restrict our ability to adopt additional equity compensation plans for our
directors and employees and other parties under PRC law.
On
October 21, 2005, the SAFE issued a Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage
in Financing and Inbound Investment via Overseas Special Purpose Vehicles, generally known in China as SAFE Circular 75, requiring PRC
residents to register with the local SAFE branch before establishing or controlling any company outside of China, referred to in the
notice as an "offshore special purpose company," for the purpose of raising capital backed by assets or equities of PRC companies.
PRC residents that are shareholders of offshore special purpose companies established before November 1, 2005 were required to register
with the local SAFE branch before March 31, 2006. On July 4, 2014, the SAFE issued the Notice on the Administration of Foreign Exchange
Involved in Overseas Investment, Financing and Return on Investment Conducted by PRC Residents via Special-Purpose Companies, or SAFE
Circular 37, simultaneously repealing SAFE Circular 75. SAFE Circular 37 also requires PRC residents to register with relevant Foreign
Exchange Bureau for foreign exchange registration of overseas investment before making a contribution to a special purpose company, or
SPC, with legitimate holdings of domestic or overseas assets or interests. See "Item 4. Information on the Company—B. Business
Overview—Regulation—Regulations on Foreign Exchange—Foreign Exchange Registration of Offshore Investment by PRC Residents."
We
have requested our beneficial owners who to our knowledge are PRC residents to make the necessary applications, filings and amendments
as required under SAFE Circular 37 and other related rules. We attempt to comply, and attempt to ensure that our beneficial owners who
are subject to these rules comply with the relevant requirements. However, we cannot assure you that all of our beneficial owners who
are PRC residents will comply with our request to make or obtain any applicable registrations or comply with other requirements under
SAFE Circular 37 or other related rules. The failure of these beneficial owners to timely amend their SAFE registrations pursuant to
SAFE Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures
set forth in SAFE Circular 37 may subject such beneficial owners to fines and legal sanctions and may also limit our ability to contribute
capital into our PRC subsidiaries, limit our PRC subsidiaries' ability to distribute dividends to our company or otherwise adversely
affect our business.
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On
December 25, 2006, the People's Bank of China, or the PBOC, promulgated the Measures for the Administration of Individual Foreign
Exchange, and on January 5, 2007, the SAFE further promulgated implementation rules for those measures. We refer to these regulations
collectively as the Individual Foreign Exchange Rules. The Individual Foreign Exchange Rules became effective on February 1, 2007. According
to these regulations, PRC citizens who are granted shares or share options by a company listed on an overseas stock market according
to its employee share option or share incentive plan are required, through the PRC subsidiary of such overseas listed company or any
other qualified PRC agent, to register with the SAFE and to complete certain other procedures related to the share option or other share
incentive plan. Foreign exchange income received from the sale of shares or dividends distributed by the overseas listed company may
be remitted into a foreign currency account of such PRC citizen or be exchanged into Renminbi. Our PRC citizen employees who have been
granted share options became subject to the Individual Foreign Exchange Rules upon the listing of our ADSs on the Nasdaq.
On
February 15, 2012, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Issues Related to Foreign Exchange
Administration in Domestic Individuals' Participation in Equity Incentive Plans of Companies Listed Abroad, or the No. 7 Notice,
which supersedes the Operation Rules on Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding
Plan or Stock Option Plan of Overseas-Listed Company, or the Stock Option Rule, in its entirety and immediately became effective upon
circulation. No. 7 Notice covers all forms of equity compensation plans including employee stock ownership plans, employee stock option
plans and other equity compensation plans permitted by relevant laws and regulations. According to the No. 7 Notice, all participants
of such plans who are PRC citizens shall register with and obtain approvals from SAFE prior to their participation in the equity incentive
plan of an overseas listed company. Domestic individuals, which include any directors, supervisors, senior managerial personnel or other
employees of a domestic company who are PRC citizens (including citizens of Hong Kong, Macau and Taiwan) or foreign individuals who consecutively
reside in the territory of PRC for one year, who participate in the same equity incentive plan of an overseas listed company shall, through
the domestic companies they serve, collectively entrust a domestic agency to handle issues like foreign exchange registration, account
opening, funds transfer and remittance, and entrust an overseas institution to handle issues like an exercise of options, purchasing
and sale of related stocks or equity, and funds transfer. As an overseas publicly listed company, we and our employees who have been
granted stock options or any type of equity awards may be subject to the No. 7 Notice. If we or our employees who are subject to the
No. 7 Notice fail to comply with these regulations, we may be subject to fines and legal sanctions, which will depend on how the SAFE
interprets, applies and enforces Circular 7. See "Item 4. Information on the Company—B. Business Overview—Regulation—Regulations
on Foreign Exchange—SAFE Regulations on Employee Share Options."
Fluctuation in the
value of the RMB may have a material adverse effect on your investment.
The
value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political
and economic conditions. With the development of the foreign exchange market and progress towards interest rate liberalization and Renminbi
internationalization, the PRC government may in the future announce further changes to the exchange rate system and we cannot assure
you that the Renminbi will not appreciate or depreciate significantly in value against the U.S. dollar in the future. It is difficult
to predict how market forces or PRC or United States government policy may impact the exchange rate between the RMB and the U.S. dollar
in the future.
Our
revenues and costs are mostly denominated in RMB, and a significant portion of our financial assets are also denominated in RMB. We rely
on dividends and other fees paid to us by our subsidiaries in China. Any significant appreciation or depreciation of the RMB against
the U.S. dollar may affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on,
our ADSs in U.S. dollars. For example, a further appreciation of the RMB against the U.S. dollar would make any new RMB-denominated investments
or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes. An appreciation of
the RMB against the U.S. dollar would also result in foreign currency translation losses for financial reporting purposes when we translate
our U.S. dollar-denominated financial assets into the RMB, as the RMB is our reporting currency. Conversely, a significant depreciation
of the RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our reported earnings, and may adversely affect
the price of our ADSs.
Certain PRC regulations
could also make it more difficult for us to pursue growth through acquisitions.
Among
other things, Provisions on the Mergers and Acquisitions of Domestic Enterprises by Foreign Investor, or the M&A Rule, also established
additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and
complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction
in which a foreign investor takes control of a PRC domestic enterprise. In the future, we may grow our business in part by directly acquiring
complementary businesses. Complying with the requirements of the new regulations to complete such transactions could be time consuming,
and any required approval processes, including obtaining approval from the Ministry of Commerce, may prevent us from completing such
transactions on a timely basis, or at all, which could affect our ability to expand our business or maintain our market share.
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Risks Related to Our
ADSs
If the PCAOB determines
in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland China and Hong Kong,
we and our investors may be deprived with the benefits of such inspections, which could cause investors and potential investors in the
ADSs to lose confidence in the audit procedures and reported financial information and the quality of our financial statements.
Our
auditor, the independent registered public accounting firm that issues the audit report included in our annual report filed with the
Securities and Exchange Commission, as an auditor of companies that are traded publicly in the United States and a firm registered with
the PCAOB, 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.
On
December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB was unable to inspect or investigate
completely registered public accounting firms headquartered in mainland China and Hong Kong, including our auditor.
This
lack of PCAOB inspections of audit work of any auditors performed in China before 2022, including that performed by Deloitte has made
it more difficult to evaluate the effectiveness of our independent registered public accounting firm's audit procedures or quality
control procedures as compared to auditors outside of China that are subject to the PCAOB inspections.
On
December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed mainland China and Hong Kong
from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if
the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in mainland
China and Hong Kong, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial
statements filed with the SEC, we and investors in our ADSs would be deprived of the benefits of such PCAOB inspections, which could
cause investors and potential investors in the ADSs to lose confidence in the audit procedures and reported financial information and
the quality of our financial statements.
Our
ADSs may be prohibited from trading in the United States under the HFCA Act in the future if the PCAOB is unable to inspect or investigate
completely auditors located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely
affect the value of your investment.
On
December 18, 2020, the former U.S. president signed into law the Holding Foreign Companies Accountable Act, or the HFCA Act. In essence,
the HFCA Act requires the SEC to prohibit foreign companies from listing securities on U.S. securities exchanges if a company retains
a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. On December 2, 2021,
the SEC finalized rules implementing the submission and disclosure requirements in the HFCA Act which would go into effect 30 days after
publication in the Federal Registrar.
In
addition, on June 22, 2021, the U.S. Senate passed a bill which would reduce the number of consecutive non-inspection years required
for triggering the prohibitions under the HFCA Act from three years to two. On February 4, 2022, the U.S. House of Representatives passed
a bill which contained, among other things, an identical provision. On December 29, 2022, the U. S. president signed the Consolidated
Appropriations Act, 2023, which, among other things, amended the HFCA Act to reduce the number of consecutive non-inspection years
required for triggering the prohibitions under the HFCA Act from three years to two. Therefore, pursuant to 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 PCAOB for two consecutive years, the SEC will prohibit our shares or ADSs from being traded on a national securities exchange or
in the over-the-counter trading market in the United States.
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On
December 16, 2021, the PCAOB issued the PCAOB Determinations that they were unable to inspect or investigate completely PCAOB-registered
public accounting firms headquartered in mainland China and in Hong Kong. The report sets forth lists identifying the registered public
accounting firms headquartered in mainland China and Hong Kong, respectively, that the PCAOB was unable to inspect or investigate completely,
and our auditor, Deloitte, was on such lists.
On
August 26, 2022, the PCAOB signed a Statement of Protocol with the CSRC and Ministry of Finance, taking the first step toward opening
access for the PCAOB to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong completely,
consistent with U.S. law. On December 15, 2022, the PCAOB announced that it has secured complete access to inspect and investigate completely
PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong. The PCAOB also vacated its previous determinations
issued in December 2021. Therefore, our auditor is currently able to be fully inspected and investigated by the PCAOB. Accordingly, until
such time as the PCAOB issues any new determination, we are at no risk of having our securities subject to a trading prohibition under
the HFCA Act.
Each
year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other
jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting
firms in mainland China and Hong Kong and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report
on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the
annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCA Act, our securities would be prohibited from being
traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified
Issuer for two consecutive years in the future. If our shares and ADSs 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.
The prospect and implications of possible regulation on this subject, in addition to the prevailing requirements of the HFCA Act, are
uncertain. Such uncertainty could cause the market price of our ADSs to be materially and adversely affected, and our securities could
be delisted or prohibited from being traded "over-the-counter" earlier than would be required by the HFCA Act as it currently
provides. If our securities are unable to be listed on another securities exchange by then, such a delisting would substantially impair
your ability to sell or purchase our ADSs 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 ADSs. 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.
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The trading price
of our ADSs may be volatile.
The
trading price of our ADSs may be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad
market and industry factors, like the performance and fluctuation in the market prices or the underperformance or deteriorating financial
results of other listed companies based in China. The securities of some of these companies have experienced significant volatility since
their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading
performances of other Chinese companies' securities after their offerings, may affect the attitudes of investors toward Chinese
companies listed in the United States, which consequently may impact the trading performance of our ADSs, regardless of our actual operating
performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting,
corporate structure or matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies
in general, including us, regardless of whether we have conducted any inappropriate activities. U.S. government's recent policies
concerning Chinese companies listed in the U.S. may also cause great uncertainty in the listing status of companies like us and result
in fluctuation in the trading rice of our ADSs. In addition, securities markets may from time to time experience significant price and
volume fluctuations that are not related to our operating performance, which may have a material and adverse effect on the trading price
of our ADSs.
In
addition to the above factors, the price and trading volume of our ADSs may be highly volatile due to multiple factors, including the
following:
●
changes in the economic performance or market valuations of other insurance
    intermediaries;
●
actual or anticipated fluctuations in our quarterly results of operations
    and changes or revisions of our expected results;
●
changes in financial estimates by securities research analysts;
●
conditions in the Chinese insurance industry;
●
announcements by us or our competitors of acquisitions, strategic relationships,
    joint ventures, capital raisings or capital commitments;
●
additions to or departures of our senior management;
●
fluctuations of exchange rates between the RMB and the U.S. dollar
    or other foreign currencies;
●
potential litigation or administrative investigations;
●
sales or perceived potential sales of additional ordinary shares or
    ADSs; and
●
general economic or political conditions in China and abroad.
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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.
The
volatility resulting from any of the above factors may affect the price at which you could sell the ADSs.
We may need additional
capital, and the sale of additional ADSs or other equity securities could result in additional dilution to our shareholders.
We
believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated
cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other
future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy
our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity
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. We cannot assure you that financing
will be available in amounts or on terms acceptable to us, if at all.
Substantial future
sales or perceived potential sales of our ordinary shares, ADSs or other equity securities in the public market could cause the price
of our ADSs to decline.
Additional
sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline.
If any existing shareholder or shareholders sell a substantial amount of ordinary shares in the form of ADSs, the market price of our
ADSs could decline. In addition, we may issue additional ordinary shares as considerations for future acquisitions. If we do so, your
ownership interests in our company would be diluted and this in turn could have an adverse effect on the price of our ADSs.
Our corporate actions
are substantially controlled by our officers, directors and principal shareholders.
As
of March 31, 2023, our executive officers and directors beneficially owned approximately 24.9% of our outstanding shares. These shareholders
could exert substantial influence over matters requiring approval by our shareholders, including electing directors and approving mergers
or other business combination transactions, and they may not act in the best interests of other noncontrolling shareholders. This concentration
of our share ownership also 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. These
actions may be taken even if they are opposed by our other shareholders.
We cannot guarantee that any share repurchase
plan will be fully consummated or that any share repurchase plan will enhance long-term shareholder value, and share repurchases could
increase the volatility of the trading price of the ADSs and could diminish our cash reserves.
On
December 20, 2022, our board of directors announced a share repurchase program which authorized us to repurchase up to US$20 million
of our American depositary shares ("ADS") from time to time. As of March 31, 2023, we had repurchased an aggregate of 72,465
ADSs, at an average price of approximately US$7.85 per ADS for a total amount of approximately US$0.6 million under this share repurchase
program.
Our
board of directors also has the discretion to authorize additional share repurchase plans in the future. The share repurchase plans do
not obligate us to repurchase any specific dollar amount or to acquire any specific number of ADSs and/or shares. We cannot guarantee
that any share repurchase plan will enhance long-term shareholder value. The share repurchase plans could increase the volatility of
the trading price of the ADSs and may be suspended or terminated at any time. Furthermore, share repurchases could diminish our cash
reserves.
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Holders of our ADSs
may have fewer rights than holders of our ordinary shares and must act through the depositary to exercise those rights.
Holders
of ADSs do not have the same rights as our registered shareholders. The holders of our ADSs will not have any direct right to attend
general meetings of our shareholders or to directly cast any votes at such meetings. The holders of our ADSs will only be able to exercise
the voting rights which are carried by the underlying ordinary shares represented by their ADSs indirectly by giving voting instructions
to the depositary in accordance with the provisions of the deposit agreement ("unrestricted deposit agreement"), and the
deposit agreement for restricted securities (as defined below) (each also referred to as a "deposit agreement", and together
with the "deposit agreements"). Under the deposit agreements, the holders of our ADSs may vote only by giving voting instructions
to the depositary. Upon receipt of the voting instructions from the holders of our ADSs, the depositary will vote the underlying ordinary
shares represented by their ADSs in accordance with these instructions. The holders of our ADSs will not be able to directly exercise
their right to vote with respect to the underlying ordinary shares unless they withdraw such shares and become the registered holder
of such shares prior to the record date for the general meeting. Under our amended and restated memorandum and articles of association,
the minimum notice period required to be given by our company to our registered shareholders to convene a general meeting is fourteen
calendar days. When a general meeting is convened, the holders of our ADSs may not receive sufficient advance notice of the meeting to
permit the holders of our ADSs to withdraw the underlying ordinary shares represented by their ADSs and become the registered holder
of such shares to allow the holders of our ADSs to attend the general meeting and to cast their vote directly with respect to any specific
matter or resolution to be considered and voted upon at the general meeting. Furthermore, under our amended and restated memorandum and
articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting,
our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register
of members or the setting of such a record date may prevent the holders of our ADSs from withdrawing the underlying ordinary shares represented
by their ADSs and becoming the registered holder of such shares prior to the record date, so that they would not be able to attend the
general meeting or to vote directly. If we ask for their instructions, the depositary will notify the holders of our ADSs of the upcoming
vote and will arrange to deliver our voting materials to them. We cannot assure the holders of our ADSs that they will receive the voting
materials in time to ensure that they can instruct the depositary to vote the ordinary shares underlying their ADSs. In addition, the
depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out the voting
instructions of the holders of our ADSs. This means that the holders of our ADSs may not be able to exercise their right to direct how
the underlying ordinary shares represented by their ADSs are voted and they may have no legal remedy if the underlying ordinary shares
represented by their ADSs are not voted as they requested. In addition, in their capacity as an ADS holder, the holders of our ADSs will
not be able to call a shareholders' meeting. Furthermore, you 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.
Except
as described in this annual report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching
to the shares evidenced by our ADSs on an individual basis. Holders of ADSs may instruct the depositary to exercise the voting rights
attached to the shares represented by the ADSs. If no instructions are received by the depositary on or before a date established by
the depositary, the depositary shall deem the holders to have instructed it to give a discretionary proxy to a person designated by us
to exercise their voting rights. You 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.
Right of holders
of our ADSs to participate in any future rights offerings may be limited, which may cause dilution to their holdings.
We
may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights
available to holders of our ADSs in the United States unless we register both the rights and the securities to which the rights relate
under the Securities Act or an exemption from the registration requirements is available. Under the deposit agreements, the depositary
will not make rights available to holders of our ADSs unless both the rights and the underlying securities to be distributed to ADS holders
are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file
a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared
effective and we may not be able to establish a necessary exemption 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.
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Holders of our restricted
ADSs may be subject to limitations on transfer of their ADSs.
Restricted
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 restricted ADSs generally when our books or the books of the depositary are closed, or at any time if we or
the depositary deems 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 agreements, or for any other reason.
Certain judgments
obtained against us by our shareholders may not be enforceable.
We
are an exempted company incorporated under the laws of the Cayman Islands. We conduct our operations outside the United States and substantially
all of our assets are located outside the United States. In addition, substantially all of our directors and officers are nationals or
residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States.
As a result, it may be difficult or impossible for our shareholders to bring an action against us or against them in the United States
in the event that our shareholders believe that their rights have been infringed under the U.S. federal securities laws or otherwise.
Even if our shareholders are successful in bringing an action of this kind, the laws of the Cayman Islands, the PRC or other relevant
jurisdictions may render our shareholders unable to enforce a judgment against our assets or the assets of our directors and officers.
Since we are a Cayman
Islands company, the rights of our shareholders may be more limited than those of shareholders of a company organized in the United States.
Under
the laws of some jurisdictions in the United States, majority and controlling shareholders generally have certain fiduciary responsibilities
to the minority shareholders. Shareholder action must be taken in good faith, and actions by controlling shareholders which are obviously
unreasonable may be declared null and void. Cayman Island law protecting the interests of minority shareholders may not be as protective
in all circumstances as the law protecting minority shareholders in some U.S. jurisdictions. In addition, the circumstances in which
a shareholder of a Cayman Islands company may sue the company derivatively, and the procedures and defenses that may be available to
the company, may result in the rights of shareholders of a Cayman Islands company being more limited than those of shareholders of a
company organized in the United States.
Furthermore,
our directors have the power to take certain actions without shareholder approval which would require shareholder approval under the
laws of most U.S. jurisdictions. The directors of a Cayman Islands company, without shareholder approval, may implement a sale of any
assets, property, part of the business, or securities of the company. Our ability to create and issue new classes or series of shares
without shareholder approval could have the effect of delaying, deterring or preventing a change in control of our Company without any
further action by our shareholders, including a tender offer to purchase our ordinary shares at a premium over prevailing market prices.
Our articles of association
contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders' opportunity
to sell their shares, including ordinary shares represented by our ADSs, at a premium.
Our
amended and restated memorandum and articles of association contain provisions which have the potential to limit the ability of others
to acquire control of our company or cause us to engage in change-of-control transactions. These provisions 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 other rights, 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 ordinary shares, in the form of ADS or otherwise, at such time
and on such terms as they may think appropriate. In the event these preferred shares have better voting rights than our ordinary shares,
in the form of ADSs or otherwise, they 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 ordinary shares and ADSs may be materially and adversely affected.
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You may have to rely
primarily on price appreciation of our ADSs for any return on your investment.
Our
board of directors has discretion as to whether to distribute dividends, subject to applicable laws. Although our board of directors
has announced a policy to declare and pay dividends on a quarterly basis, the amount and form of future dividends will depend on, among
other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any,
received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board
of directors. Accordingly, the return on your investment in our ADSs will likely depend primarily upon any future price appreciation
of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain the price at which you purchased the ADSs.
You may not realize a return on your investment in our ADSs and you may even lose your entire investment in our ADSs.
As a foreign private
issuer, we are exempt from certain disclosure requirements under the Exchange Act, which may afford less protection to our shareholders
than they would enjoy if we were a domestic U.S. company.
As
a foreign private issuer, we are exempt from, among other things, the rules prescribing the furnishing and content of proxy statements
under the Exchange Act. In addition, our executive officers, directors and principal shareholders are exempt from the reporting and short-swing
profit and recovery provisions contained in Section 16 of the Exchange Act. We are also not required under the Exchange Act to file periodic
reports and financial statements with the SEC as frequently or as promptly as domestic U.S. companies with securities registered under
the Exchange Act although we have voluntarily filed and will continue to file periodic reports and financial statements. As a result,
our shareholders may be afforded less protection than they would under the Exchange Act rules applicable to domestic U.S. companies.
You may face difficulties
in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are
incorporated under Cayman Islands law, conduct substantially all of our operations in China and the majority of our officers reside outside
the United States.
We
are incorporated in the Cayman Islands, and conduct substantially all of our operations in China through our subsidiaries in China. Most
of our officers reside outside the United States and some or all of the assets of those persons are located outside of the United States.
The legal system in Cayman, the PRC or other relevant jurisdictions may not afford our shareholders the same level of protection as the
legal system in the United States would. For instance, the Securities Laws of the PRC regulates only security issuances and trading outside
of the PRC to the extent that such issuance and trading disrupts domestic markets and negatively affects the interest of domestic investors
in the PRC. As such, investors in the United States may not be able to file a lawsuit under the Securities Law in the PRC. Even if you
are successful in bringing an action in the PRC, shareholder claims that are common in the United States, including class action suits
securities law and fraud claims, may be difficult or impossible to pursue as a matter of law or practicality in the PRC. As a result,
it may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China
in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful
in bringing an action of this kind outside the Cayman Islands or China, the laws of the Cayman Islands and of China may render you unable
to effect service of process upon, or to enforce a judgment against our assets or the assets of our directors and officers.
The
SEC, U.S. Department of Justice, or the DOJ, and other relevant regulatory authorities in the United States play vital roles in enforcing
laws and regulations that protect securities investors. These U.S. authorities may face significant legal and other obstacles to obtaining
information needed for investigations or litigation. Further, these U.S. authorities may have substantial difficulties in bringing and
enforcing actions against non-U.S. companies and non-U.S. persons, including company directors and officers, which will further limit
protections available to our shareholders. According to the Securities Laws of the PRC, without the approval of securities regulators
and other actors within the Chinese government, no entity or individual in China may provide documents and information relating to securities
business activities to overseas regulators. In addition, local authorities in Cayman, the PRC or other relevant jurisdictions often are
constrained in their ability to assist U.S. authorities and overseas investors more generally. There are also legal or other obstacles
to seeking access to funds in a foreign country.
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There
is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, although a judgment obtained in the federal
or state courts of the United States courts will be recognized and enforced in the courts of the Cayman Islands at common law, without
any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of
the Cayman Islands, provided such judgment: (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor
a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine, or a
penalty, and (d) was not 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. A judgment of a court of another jurisdiction may be reciprocally recognized or enforced
if the jurisdiction has a treaty with China or if judgments of the PRC courts have been recognized before in that jurisdiction, subject
to the satisfaction of other requirements. However, China does not have treaties providing for the reciprocal enforcement of judgments
of courts with Japan, the United Kingdom, the United States and most other Western countries.
Our
corporate affairs are governed by our amended and restated memorandum and articles of association and by the Companies Act (As Revised)
(the "Companies Act") 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 duties 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 duties 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
has a less developed body of securities laws as compared to the United States, and provides significantly less protection to investors.
In addition, Cayman Islands companies may not have stood to initiate a shareholder derivative action before the federal courts of the
United States.
As
a result of all of the above, our investors 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.
We may be a passive
foreign investment company for United States federal income tax purposes, which could result in adverse United States federal income
tax consequences to United States Holders of our ADSs or ordinary shares.
Based on the market price
of our ADSs, the value of our assets, and the composition of our income and assets, we believe that we were a passive foreign investment
company, or PFIC, for United States federal income tax purposes for our taxable year ended December 31, 2022, however there can be no
assurance to this regard.. We believe we were also a PFIC for 2017 and prior years. In addition, we believe that it is likely that one
or more of our subsidiaries were also PFICs for such years. A non-United States corporation will be a PFIC for United States federal income
tax purposes for any taxable year if, applying applicable look-through rules, either (1) at least 75% of our gross income for such year
is passive income or (2) at least 50% of the value of our assets (generally determined based on an average of the quarterly values of
the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income. We
must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year.
Because the value of our
assets for purposes of the PFIC test will generally be determined by reference to the market price of our ADSs or ordinary shares, our
PFIC status will depend in large part on the market price of the ADSs or ordinary shares, which may fluctuate significantly. The determination
of whether we will be a PFIC for any taxable year may also depend in part upon the value of our goodwill and other unbooked intangibles
not reflected on our balance sheet (which may depend upon the market price of our ADSs or ordinary shares from time to time, which may
fluctuate significantly) and also may be affected by how, and how quickly, we spend our liquid assets and the cash we generate from our
operations and raise in any offering. Unless the market price of our ADSs increases or we reduce the amount of cash, short term investments
and other passive assets we hold sufficiently from current levels, we are likely to remain a PFIC for future taxable years. The U.S. Internal
Revenue Service, or the IRS, does not issue rulings with respect to PFIC status, and we cannot assure you that the IRS, or a court, will
agree with any determination we make.
Because we believe we were
a PFIC for the taxable year ended December 31, 2022 (and 2017 and prior years), United States Holders (as defined in "Item 10. Additional
Information — E. Taxation — United States Federal Income Taxation") of our ADSs or ordinary shares generally will be
subject to special and adverse tax rules with respect to any "excess distribution" received from us and any gain from a sale
or other disposition of the ADSs or ordinary shares. See "Item 10. Additional Information — E. Taxation — United States
Federal Income Taxation — Passive Foreign Investment Company."
Item 4. Information on the Company
A. History and Development
of the Company
We
started our operation in 1999 through Guangzhou Nanyun Car Rental Services Co., Ltd. and Guangdong Nanfeng Automobile Association Co.,
Ltd. In 2001, we formed China United Financial Services Holdings Limited, or China United Financial Services, a British Virgin Islands
company, as the offshore holding company of our PRC subsidiaries. In June 2004, CISG Holdings Ltd., or CISG Holdings was incorporated
in British Virgin Islands and became our holding company through share exchanges with China United Financial Services.
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In
anticipation of our initial public offering, we incorporated CNinsure Inc. in the Cayman Islands in April 2007. After a series of restructuring
transactions, CNinsure Inc. became the ultimate holding company of our group. On December 6, 2016, our shareholders approved the change
of our company name from CNinsure Inc. to Fanhua Inc.
On
October 31, 2007, we listed our ADSs on the Nasdaq Global Market under the symbol "CISG." We and certain selling shareholders
of our company, completed the initial public offering of 13,526,773 ADSs, each representing 20 ordinary shares, on November 5, 2007.
In connection with the name change on December 6, 2016, our ticker symbol was simultaneously changed to "FANH".
In
October 2012, we obtained license approval from the then CIRC to establish an insurance sales service group company and commenced a series
of restructuring, which resulted in Fanhua Insurance Sales Service Group Company Limited (previously known as Shenzhen Nanfeng Investment
Co., Ltd.), or Fanhua Group Company, our wholly-owned subsidiary in the PRC, becoming the onshore holding company of our PRC operating
entities.
As
a result, we currently conduct our business in China primarily through Fanhua Group Company and its subsidiaries and a small part of
our business through the consolidated VIEs in China. We also own a 4.5% equity interest in Puyi Inc. (NASDAQ: PUYI), a leading third-party
wealth management service provider in China.
We
began our insurance intermediary business in 1999 by distributing auto insurance products and auto loans on an ancillary basis and expanded
our product offerings to other property and casualty insurance products in 2002. We commenced life insurance products distribution in
2006 and began to offer claims adjusting services in 2008. In 2010, we established an insurance brokerage business unit to expand our
product offerings from retail to commercial lines. In 2017, we divested our P&C insurance agency operations and our insurance brokerage
segment to strategically focus on life insurance distribution.
We
were approved by our board of directors in May 2022 and completed on June 28, 2022 a distribution of shares of CNFinance Holdings Limited
("CNFinance") to the Company's shareholders on a pro rata basis. Fanhua shareholders received 4.71 CNFinance ordinary
shares for each 20 outstanding Fanhua ordinary shares held as of June 9, 2022, or 0.2355 CNFinance ADSs for each Fanhua ADS, held as
of the close of business on June 9, 2022 set by the depositary for the Fanhua ADSs. We distributed a total of 252,995,600 CNFinance ordinary
shares to holders of our ordinary shares in this manner, which include a total of 156,097,200 CNFinance ordinary shares distributed in
the form of 7,804,860 CNFinance ADSs to our ADS holders through our depositary bank. Following the completion of the distribution, our
equity stake in CNFinance decreased from approximately 18.5% to approximately 0.01%.
Our
principal executive offices are located at 60/F, Pearl River Tower, No. 15 West Zhujiang Road, Guangzhou, Guangdong 510623, People's
Republic of China. Our telephone number at this address is +86-20-8388-6888. Our registered office is at the offices of Maples Corporate
Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.
Capital Expenditure
Our
capital expenditures have been used primarily to construct, upgrade and maintain our online platforms and enhance trainings. See "Item
5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources."
B. Business Overview
Overview
Driven
by our cutting-edge technologies and insurance industry expertise, we are the leading independent insurance intermediary group in China,
focusing on providing insurance-oriented family asset allocation services that covers customers' full lifecycle and one-stop service
platform for individual sales agents and independent insurance intermediaries.
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With
strategic focus on long-term life insurance products, we offer a broad range of insurance product offerings primarily through a
network of 141,088 registered sales agents across China as of December 31, 2022. We also provide claims adjusting services through
2,170 in-house claims adjustors. Our extensive offline network enable us to facilitate sales of complex insurance products and offer reliable after-sales
services nationwide to our customers, serving as a substantial entry barrier to China's insurance agency industry.
We
are devoted to offering all the capabilities that our sales agents need to help them run their best practice. Specifically, we provide
a professional support system to empower agents to grow more specialized and professional. Our self-developed digital tools such as Lan
Zhanggui, Fanhua RONS Digital Operating Platform (DOP) and Fanhua Guanjia, offer end-to-end business process management, as well data
and analytic capabilities to enable our agents to manage all critical aspects of their business more efficiently, and to improve their
productivity and service capability.
We
also operate Baowang (www.baoxian.com), an online insurance platform that provides customers with a one-stop insurance shopping experience
from policy comparison, live consultation, policy placement, to claims settlement. A variety of critical illness, term life, accident,
medical, travel and homeowner insurance products are available on the platform.
Since
late 2021, to diversify our service offerings to our customers, we start to offer insurance trust consulting/referral service through
our business partners, and healthcare and elderly care services through our healthcare management division.
Our
vision is to transform from a solely sales-oriented insurance agency to become an industry-level infrastructure platform provider driven
by digital technology and professional expertise. We intend to build an open platform to enable various users on the platform, including
independent insurance agents and insurance sales organizations, to run the most successful businesses, by offering them a unified compliance
service, IT system, digital solutions, diversified product and service offerings, professional training support, capital flow support
and capitalization paths.
With
a rapidly aging society and the rise of the middle-class in China, there is burgeoning demand for elderly care and legacy management
among Chinese consumers which provides tremendous growth opportunities in China's life insurance market over the long run despite
industry headwinds in recent years. In addition, the separation of insurance underwriting and distribution is a significant trend in
China's insurance industry. Historically dominated by in-house sales forces and exclusive agents, insurance distribution channels
in China have gradually shifted towards independent insurance agencies, as demand for insurance products and services has diversified
in recent years, while China's life insurance intermediary channel is experiencing structural changes towards professionalization,
digitalization, decentralization and comprehensive financial services. With strong brand recognition, established relationships with
major insurance companies, an extensive distribution and sales network and cutting-edge technology, we intend to take advantage of the
opportunities resulting from the growth and transformation of the insurance agency industry in China to increase our market share by
professionalizing our sales force, enhancing digital capabilities and opening up our platform to more market participations.
Digital Technologies
Technological
developments and the growth of digital technologies mobile internet access have significantly changed the way we operate our business.
We develop digital toolkits to enable more efficient agent and customer engagement which includes the following:
●
Lan Zhanggui -
an all-in-one insurance sales and service
    platform that we develop for our sales agents, which allows them to manage their book of insurance business on their fingertips,
    covering all aspects of the business process from insurance product purchase, team management, agent recruitment, customer engagement,
    customer service to e-learning. The platform offers substantially all of our insurance products including long-term life and health
    insurance, accident insurance, travel insurance, and standard medical insurance products.
    It is available in mobile application and WeChat official account versions and accessible through Fanhua WeCom.
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●
Fanhua RONS Assistant Digital Operating Platform, or RONS DOP
    —
it is a digital marketing platform that we launched in June 2021 for our agents, aiming at empowering them in customer
    acquisition and relationship maintenance. It provides agents with various educational content in the form of daily news, articles,
    posters, videos which can be circulated to potential customers through social media, aiming at enhancing customers' insurance
    awareness and deepening their understanding of insurance products. It also enables agents to gain better insights into customer needs
    through behavior tracking and automated tagging. In addition, it provides convenient access to Fanhua RONS livestreaming platform
    for resourceful online training courses. The platform is accessible through WeChat public account and Fanhua's Lan Zhanggui
    and WeCom.
●
Fanhua RONS Guanjia ––
it is a customer service
    platform that we launched in June 2021 to directly connect with our customers, through which they can access various insurance services
    including policy inquiry, policy custody, asset custody, risk assessment, and claims settlement assistance. Service representatives
    will also be available to customers for exclusive services on a one-on-one basis. The platform is accessible primarily through its
    WeChat official account and Lan Zhanggui.
●
Fanhua WeCom
– Launched in June 2021, other than various
    office supporting solutions, it enables our agents to directly interact with their existing and potential customers in highly efficient
    manner, with easy access to various supportive tools including knowledge bank, FAQ scripts, and a wide variety of marketing materials.
As
of March 31, 2023, we, through Fanhua Group Company and contractual arrangements, controlled thirteen insurance intermediary companies
in the PRC, of which nine were insurance agencies including two with national operating licenses, two were insurance brokerage firms
and two were insurance claims adjusting firms. We also operated one e-commerce insurance platform, one healthcare management company
one online mutual aid platform. In addition, as of March 31, 2023, we owned 4.5% of the equity interests in Puyi Inc. (NASDAQ: PUYI),
a leading third-party wealth management services provider focusing on mass affluent and emerging middle-class population.
Online
Mutual Aid Platform
In
line with our commitment to be socially responsible, in 2014, we launched an online mutual aid platform called eHuzhu (www.ehuzhu.com).
The platform provides people with access to alternative risk-protection programs at more affordable costs, especially for the lower-income
group. eHuzhu primarily offers programs that provide mutual aid for cancer and accidental death. Users join as members with a small amount
of deposits which will be used to evenly contribute to the medical costs or death benefits of the claimants, in exchange for benefits
contributed by the rest of the members when in need. As of March 31, 2023, eHuzhu had over 1.7 million paying members, assisting 11,862
families to raise over RMB1.3 billion funds to get through tough times. The platform is accessible primarily through its WeChat official
account.
In
addition, eHuzhu organized a variety of public charity activities focusing on care for breast cancer, veterans and COVID-19 patients,
book donations for children and so on. eHuzhu has also set up "Mutual Aid Villages" across the country to lower the medical
burden of people in poverty-stricken areas.
In
order to create more value for its members, in 2022, eHuzhu added medical and health services on its platform, through which its members
can access a variety of services including health consultation, medical treatment assistance and medicine delivery.
Acquisitions
On January 3, 2023, we entered
into definitive agreements with the existing shareholders of Zhongrong Smart Finance Information Technology Co., Ltd. ("Zhongrong"),
a leading managing general agency for life insurance distribution in China, to acquire 57.73% of the equity interests of Zhongrong. As
of March 31, 2023, we have acquired 53.44% of the equity interests of Zhongrong with a capital contribution of RMB122.7 million to Zhongrong.
Zhongrong is currently in the process of repurchasing its shares from certain of its existing shareholders which will
result
in our
shareholding in Zhongrong ultimately increasing to 57.73%.
On February 6, 2023 and February
8, 2023, respectively, we entered into definitive agreements with the existing shareholders of Jilin Zhongji Shi'An Insurance Agency
Co., Ltd ("Zhongji") and Wuhan Taiping Online Insurance Agency Co., Ltd. ("Taiping") to acquire 51% of the equity
interests of Zhongji and Taiping, respectively. As of March 31, 2023, the acquisitions of Zhongji and Taiping have been completed.
In
connection with the acquisitions, we issued 61,853,580 ordinary shares, 9,107,140 ordinary shares and 13,660,720 ordinary shares of the
Company to the existing shareholders of Zhongrong SF, Taiping Online and Zhongji, respectively. The considerations are adjustable based
on the achievement of such performance targets by the acquired entities from 2023 to 2025 and are subject to a lock-up period of three
years. The lock-up will be released in two batches after 2025.
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Segment Information
As
of December 31, 2022, we operated two segments: (1) the insurance agency segment, which mainly consists of providing agency services
for distributing life insurance products and P&C insurance products on behalf of insurance companies, and (2) the claims adjusting
segment, which consists of providing pre-underwriting survey services, claims adjusting services, disposal of residual value services,
loading and unloading supervision services, and consulting services.
Insurance Agency
Segment
Our
insurance agency segment accounted for 86.0% and 85.4% of our net revenues in 2021 and 2022, respectively. Revenue from this segment
is derived from two broad categories of insurance products: (i) life and health insurance products, and (ii) property and casualty insurance
products both primarily focused on meeting the insurance needs of individuals.
Life
and Health Insurance Products
Our
life and health insurance business accounted for 80.4% of our net revenues in 2022. We expect the sale of life insurance products to
be the major source of our revenue in the next several years. The life and health insurance products we distribute can be broadly classified
into the categories set forth below. Due to constant product innovation by insurance companies, some of the insurance products we distribute
combine features of one or more of the categories listed below:
●
Individual Whole Life Insurance.
The individual whole life insurance
    products we distribute provide insurance coverage for the insured person's entire life in exchange for the periodic payment
    of fixed premiums over a pre-determined period, generally ranging from five to 20 years, or until the insured reaches a certain age.
    The face amount plus accumulated interest is paid upon the death of the insured.
●
Individual Health Insurance.
The individual health insurance
    products we distribute primarily consist of critical illness insurance products, which provide guaranteed benefits when the insured
    is diagnosed with specified serious illnesses, and medical insurance products, which provide conditional reimbursement for medical
    expenses during the coverage period. In return, the insured makes periodic payments of premiums over a pre-determined period.
●
Individual Annuity.
The individual annuity products we distribute
    generally provide annual benefit payments after the insured attains a certain age, or for a fixed time period, and provide a lump
    sum payment at the end of the coverage period. In addition, the beneficiary designated in the annuity contract will receive guaranteed
    benefits upon the death of the insured during the coverage period. In return, the purchaser of the annuity products makes periodic
    payments of premiums during a pre-determined accumulation period.
●
Individual Term Life Insurance.
The individual term life insurance
    products we distribute provide insurance coverage for the insured for a specified time period or until the attainment of a certain
    age, in return for the periodic payment of fixed premiums over a pre-determined period, generally ranging from five to 20 years.
    Term life insurance policies generally expire without value if the insured survives the coverage period.
●
Individual Endowment Life Insurance.
The individual endowment
    products we distribute generally provide insurance coverage for the insured for a specified time period and maturity benefits if
    the insured reaches a specified age. The individual endowment products we distribute also provide to a beneficiary designated by
    the insured guaranteed benefits upon the death of the insured within the coverage period. In return, the insured makes periodic payments
    of premiums over a pre-determined period, generally ranging from five to 25 years.
●
Participating Insurance.
The participating insurance products
    we distribute not only provide insurance coverage but also pay dividends generated from the profits of the insurance company providing
    the policy. The dividends are typically paid on an annual basis over the life of the policy. In return, the insured makes periodic
    payments of premiums over a pre-determined period, generally ranging from five to 25 years.
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The
life insurance products we distributed in 2022 were primarily underwritten by Sinatay, Greatwall, Huaxia, Aeon, and Evergrande.
Property
and Casualty Insurance Products
Our
property and casualty insurance business accounted for 5.0% of our net revenues in 2022, primarily representing insurance products we
distributed through Baowang. Our main property and casualty insurance product in terms of net revenues contribution in 2022 is individual
accident insurance and indemnity medical insurance which we distribute through Baowang. We also offer lifestyle insurance such as travel
insurance, homeowner insurance, and other innovative products on Baowang. In addition, we have started to offer certain long-term life
and health insurance products specifically designed for internet distribution channels since 2019. Net revenues generated from such long-term
insurance products were included in the net revenues of our life insurance agency segment. The major insurance products we offer or facilitate
to individual customers through Baowang can be further classified into the following categories:
●
Individual Accident Insurance.
The individual accident insurance
    products we distribute generally provide a guaranteed benefit during the coverage period, which is usually one year or a shorter
    period, in the event of death or disability of the insured as a result of an accident, or a reimbursement of medical expenses to
    the insured in connection with an accident. These products typically require only a single premium payment for each coverage period.
    Because most of the individual accident insurance products we distribute are underwritten by property and casualty insurance companies,
    we classify individual accident insurance products as property and casualty insurance products.
●
Travel Insurance.
The travel insurance products we distribute
    are short-term insurance providing guaranteed benefit in the event of death or disability and covering travel-related emergencies
    and losses, either within one's own country, or internationally. These products typically require only a single premium payment
    for each coverage period.
●
Homeowner Insurance.
The homeowner insurance products we distribute
    primarily cover damages to the insured house, along with furniture and household electrical appliance in the house caused by a number
    of incidents such as fire, flood and explosion.
●
Indemnity medical insurance.
The indemnity medical insurance
    products we facilitate typically have a one-year term and provide conditional reimbursement for medical and surgical expenses during
    the coverage period. These products typically require only a single premium payment for each coverage period. Because most of these
    medical insurance products we distribute are underwritten by property and casualty insurance companies, we classify indemnity medical
    products as property and casualty insurance products.
We
primarily partnered with Zhong An Online Property and Casualty Insurance Company Limited, or Zhong An, Ping An Property and Casualty
Insurance Company Limited, or Ping An, Ping An Health Insurance Company Limited, China Pacific Property and Casualty Insurance Company
Limited, or China Pacific, JD Alliance Property and Casualty Insurance Company Limited for the distribution of property and casualty
insurance products in 2022.
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Claims Adjusting
Segment
Total
net revenues derived from our claims adjusting segment accounted for 14.6% of our total net revenues in 2022. We offer the following
insurance claims adjusting services:
●
Pre-underwriting Survey.
Before an insurance policy is sold,
    we conduct a survey of the item to be insured to assess its current value and help our clients determine the insurable value and
    the amount to be insured. We also help our clients assess the underwriting risk with respect to the item to be insured through surveys,
    appraisals and analysis.
●
Claims Adjusting.
When an accident involving the insured subject
    matter has occurred, we conduct an onsite survey to determine the cause of the accident and assess damage. We then determine the
    extent of the loss to the insured subject matter and prepare and submit a report to the insurance company summarizing our preliminary
    findings. Upon final conclusion of the case, we prepare and submit a detailed report to the insurance company setting forth details
    of the accident, cause of the loss, details of the loss, adjustment and determination of loss, an indemnity proposal and, where appropriate,
    a request for payment.
●
Disposal of Residual Value.
In the course of providing claims
    adjusting services, we also can appraise the residual value of the insured property and offer suggestions on the disposal of such
    property. Upon appointment by the insurance company, we handle the actual disposal of the insured property through auction, discounted
    sale, lease or other means.
●
Loading and Unloading Supervision.
Upon appointment by ship
    owners, shippers, consignees or insurance companies, we can monitor and record the loading and unloading processes of specific cargos.
●
Consulting Services.
We provide consulting services to both
    the insured and the insurance companies on risk assessment and management, disaster and damage prevention, investigation, and loss
    assessment.
We
primarily provided claims adjusting services to Ping An, China Pacific, Ant Insurance Agency Co., Ltd., Shanghai Nuanwa Technology Co.,
Ltd., an affiliate of Zhong An and China Life Property and Casualty Insurance Co. Ltd in 2022.
Others
We
also provide referral of certain insurance trust, health care and senior care services as value-added services to our customers to cater
to the needs of the aging population in China.
As
competition intensifies and the insurance market becomes more mature in China, we believe there will be a further division of labor in
the insurance intermediary sector. We expect that more insurance companies will choose to outsource claims adjusting functions to professional
service providers while they focus on the core aspects of their business, including product development and asset and risk management.
We believe we are well-positioned to capture such outsourcing opportunities.
Seasonality
See
"Item 5. Operating and Financial Review and Prospects—A. Operating Results—Factors Affecting Our Results of Operations—Seasonality."
Distribution and Service
Network and Marketing
We
have an offline distribution and service network that, as of March 31, 2023, consisted of one insurance sales and service group, nine
insurance agencies including two with national operating licenses, and two insurance brokerage firms, two claims adjusting firms, with
124,682 registered independent sales agents, and 2,063 in-house claims adjustors. Our distribution and service network consisted of 672
sales outlets in 24 provinces and 92 claims services outlets in 31 provinces.
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The
following table sets forth additional information concerning our distribution and service network as of March 31, 2023, broken down by
provinces:
Province
Number of
Sales and
Service
Outlets
Number of
Sales
Agents
Number of
In-house
Adjustors
Shandong
128
21,105
79
Hebei
87
15,373
35
Sichuan
69
5,093
88
Guangdong
58
9,386
423
Hunan
52
3,650
31
Zhejiang
49
4,862
145
Anhui
37
6,498
36
Jiangsu
34
11,329
192
Fujian
31
3,303
59
Henan
29
9,991
58
Liaoning
22
7,199
68
Hubei
19
1,681
96
Inner Mongolia
18
5,923
21
Guangxi
16
11,027
85
Chongqing
16
1,235
22
Shaanxi
12
1,718
93
Yunan
11
968
26
Tianjin
10
1,412
22
Shanxi
8
983
35
Beijing
6
1,080
120
Jiangxi
6
270
75
Shanghai
6
39
66
Heilongjiang
2
557
21
Hainan
2
-
16
Jilin
2
-
16
Gansu
1
-
34
Guizhou
1
-
53
Ningxia
1
-
41
Qinghai
1
-
2
Tibet
1
-
-
Xinjiang
1
-
5
Total
736
124,682
2063
We
market and sell long-term personal lines of life and health insurance products and property and casualty insurance products to customers
mainly through both independent sales agents, most of whom are not our employees, and insurance advisors who are our employees. We also
market and sell certain critical illness, term life, accident, short-term health, travel and homeowner insurance products directly to
customers through our online platform Baowang (www.baoxian.com). We market and sell insurance claims adjusting services primarily to
insurance companies through our in-house professional claims adjustors.
Customers
We
sell life and health insurance products including critical illness, annuity insurance, whole life insurance and term life insurance and
endowment insurance primarily to individual customers as well as property and casualty insurance products including individual accident
insurance, homeowner insurance products, liability insurance and travel insurance. Customers for the life and health insurance products
we distribute are primarily individuals under 50 years of age. For the year ended December 31, 2022, no single individual customer who
has purchased insurance products through us accounted for more than 1% of our net revenues. Our customers for the claims adjusting
services are primarily insurance companies and online mutual-aid platforms.
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As
of December 31, 2022, we had accumulated approximately 12.0  million individual
customers, of which over
2.0
million have
purchased at least one regular long-term life and health insurance policy. By providing certain value-added services to these
customers at no additional charge, we seek to build a loyal customer base that generates referrals and cross-selling
opportunities.
Insurance Company
Partners and Others
As of March 31, 2023, we
had established business relationships with 139 insurance companies in the PRC. In the Chinese insurance market, local branches of insurance
companies generally have the authority to enter into contracts in their own names with insurance intermediaries. Since 2007, we have sought
to establish business relationships with insurance companies at the corporate headquarters level in order to leverage the combined sales
volumes of all our subsidiaries located in different parts of China. For the distribution of insurance products, we had outstanding contracts
with 43 life insurance companies, 9 health and pension insurance companies and 21 property and casualty insurance companies, most of which
were signed at the corporate headquarter level as of March 31, 2023. For the provision of claims adjusting services, we also had business
relationship with 104 insurance companies, and 286 other institutions including third party insurance intermediaries, logistics companies,
construction companies and marine and cargo companies as of March 31, 2023.
Competition
A
number of industry players are involved in the distribution of insurance products in the PRC. We compete for customers on the basis of
product offerings, customer services and reputation. Because we primarily distribute individual insurance products, our principal competitors
include:
●
Professional insurance intermediaries.
The professional insurance
    intermediary sector in China is highly fragmented. Several insurance intermediary companies have received private equity or venture
    capital funding in recent years and are actively pursuing expansion. We believe that we can compete effectively with these insurance
    intermediary companies with our long operating history, strong brand recognition, a strong and stable team of managers, nationwide
    network of sales professionals enabled by digital tools, leading online platforms and diversified product offerings. With increasing
    consolidation expected in the insurance intermediary sector in the coming years, we expect competition within this sector to intensify.
●
Insurance companies.
The distribution of individual life insurance
    products in China historically has been dominated by insurance companies, which usually use both in-house sales forces and exclusive
    sales agents to distribute their own products. In addition, in recent years several major insurance companies have increasingly used
    telemarketing and the Internet to distribute insurance. We believe that we can compete effectively with insurance companies because
    we focus only on distribution and offer our customers a broad range of choices of insurance products underwritten by multiple insurance
    companies.
●
Entities that offer insurance products online.
In recent years,
    domestic insurance companies, Internet companies and professional insurance intermediaries have begun to engage in the Internet insurance
    business. However, each of their insurance e-commerce operations has its own limitations. The insurance products offered on an insurance
    company's website are usually confined to those under its own brand. Most Internet companies have limited experience in insurance
    operation with limited or no offline sales and service support. Our better brand recognition, extensive offline sales and service
    network which enables us to offer online and offline integrated services to customers also differentiate us from internet-based professional
    insurance intermediaries. We believe that we can compete effectively with these business entities because we offer customers access
    to a broad range of insurance products underwritten by multiple insurance companies and good after-sale services that are backed
    by our nation-wide service network and better user experience.
●
Other business entities.
In recent years, business entities
    that distribute insurance products as an ancillary business, primarily commercial banks and postal offices, have been playing an
    increasingly important role in the distribution of insurance products, especially life insurance products. However, the insurance
    products distributed by these entities are mostly confined to those related to their main lines of business, such as investment-related
    life insurance products. We believe that we can compete effectively with these business entities because we offer our customers a
    broader variety of products.
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We
compete primarily with the other major claims adjusting firms in China. We believe that we can compete effectively with other major insurance
claims adjusting firms because we offer our customers a diversified range of claims adjusting services covering medical insurance, property
insurance, auto insurance, marine and cargo insurance, and personal injury and accident insurance and are able to leverage the business
relationships we have developed with insurance companies through the distribution of property and casualty insurance products.
Intellectual Property
Our
brand, trade names, trademarks, trade secrets and other intellectual property rights distinguish our business platform, services and
products from those of our competitors and contribute to our competitive advantage in the professional insurance intermediary sector.
To protect our intellectual property, we rely on a combination of trademark, copyright and trade secret laws as well as confidentiality
agreements with our employees, sales agents, contractors and others. As of March 31, 2023, we had 87 registered trademarks in China,
including our corporate logo. Our main website is
www.fanhuaholdings.com
.
Risk
Management
Proactive
risk management and a strong risk culture are essential to our long-term success. As a Nasdaq-listed company, we are subject to the requirements
of U.S. Sarbanes-Oxley Act (SOX) of 2002, specifically sections 302 and 404. Accordingly, we have established a comprehensive internal
control and risk management structure that enables us to identify and analyze risks early and take appropriate action.
Proactive
risk management and a strong risk culture are essential to our long-term success. As a Nasdaq-listed company, we are subject to the requirements
of U.S. Sarbanes-Oxley Act (SOX) of 2002, specifically sections 302 and 404. Accordingly, we have established a comprehensive internal
control and risk management structure that enables us to identify and analyze risks early and take appropriate action.
The
Board of Directors is the highest decision-making body for corporate risk management and is responsible for the effectiveness of overall
risk management efforts. The Audit Committee under the Board of Directors is established to fully assess the major risks faced by the
Company and supervise the effectiveness of the implementation of the Company's risk management system.
We
established a risk management and internal audit department which works independently from our operations and directly reports to the
Audit Committee. The department holds the primary responsibility of monitoring and supervising risk management of the Company's
business operation in compliance with the requirements of SOX.
●
Assisting
                                            the management in identifying, measuring and managing risks in daily business activities
                                            and periodically reporting to the full board of directors, the Audit Committee and executive
                                            suite potential risks facing the Company;
●
Supervising
                                            the establishment of standard operating processes by various functional departments and business
                                            units and conducting risk assessment and internal tests to carry out independent and un-biased
                                            checks and evaluation on the appropriateness, compliance and effectiveness of the Company's
                                            business operations and internal control; and
●
Monitoring
                                            the implementation of improvement plans on control weakness and providing recommendations
                                            on enhancing risk management capabilities in compliance with Sarbanes-Oxley requirements.
In
order to foster the awareness of compliance among all employees and establish a sustainable and effective compliance mechanism, Fanhua
Group Company issued a compliance accountability policy Fanhua Insurance Sales Group Compliance Accountability System which sets forth
the responsibilities for keeping in compliance with relevant laws and regulations by staff at various levels and the accountability for
non-compliance. It also puts forth the process of reporting potential risks when identified to take further actions.
The
Compliance Department of the Fanhua Group Comany lead the efforts to monitor and coordinate the implementation of the Compliance Accountability
Policy while our functional departments and subsidiaries holds the primary responsibility for risk control and compliance of our business
operations. When a risk event occurs, functional departments or subsidiaries shall immediately report it to the Compliance Department
to open a case for investigation and management. The functional departments or subsidiaries shall inspect the progress of risk events
and implementation of improvement plans each month, and report progress to the Compliance Department.
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Regulation
Regulations of the Insurance Industry
The insurance industry in
the PRC is highly regulated. Between 1998 and March 2018, CIRC was the regulatory authority responsible for the supervision of the Chinese
insurance industry. In March 2018, the CBIRC, was established as the result of the merger between CIRC and CBRC, replacing CIRC as the
regulatory authority for the supervision of the Chinese insurance industry. Insurance activities undertaken within the PRC are primarily
governed by the Insurance Law and the related rules and regulations.
Initial Development of
Regulatory Framework
The Chinese Insurance Law
was enacted in 1995. The original insurance law, which we refer to as the 1995 Insurance Law, provided the initial framework for regulating
the domestic insurance industry. Among the steps taken under the 1995 Insurance Law were the following:
●
Licensing of insurance companies and insurance intermediaries, such
    as agencies and brokerages. The 1995 Insurance Law established requirements for minimum registered capital levels, form of organization,
    qualification of senior management and adequacy of the information systems for insurance companies and insurance agencies and brokerages.
●
Separation of property and casualty insurance businesses and life insurance
    businesses. The 1995 Insurance Law classified insurance between property, casualty, liability and credit insurance businesses, on
    the one hand, and life, accident and health insurance businesses on the other, and prohibited insurance companies from engaging in
    both types of businesses.
●
Regulation of market conduct by participants. The 1995 Insurance Law
    prohibited fraudulent and other unlawful conduct by insurance companies, agencies and brokerages.
●
Substantive regulation of insurance products. The 1995 Insurance Law
    gave insurance regulators the authority to approve the basic policy terms and premium rates for major insurance products.
●
Financial condition and performance of insurance companies. The 1995
    Insurance Law established reserve and solvency standards for insurance companies, imposed restrictions on investment powers and established
    mandatory reinsurance requirements, and put in place a reporting regime to facilitate monitoring by insurance regulators.
●
Supervisory and enforcement powers of the principal regulatory authority.
    The principal regulatory authority, then the PBOC, was given broad powers under the 1995 Insurance Law to regulate the insurance
    industry.
Establishment of the
CIRC and 2002 Amendments to the Insurance Law
China's insurance
regulatory regime was further strengthened with the establishment of the CIRC in 1998. The CIRC was given the mandate to implement reform
in the insurance industry, minimize insolvency risk for Chinese insurers and promote the development of the insurance market.
The 1995 Insurance Law was
amended in 2002 and the amended insurance law, which we refer to as the 2002 Insurance Law, became effective on January 1, 2003. The
major amendments to the 1995 Insurance Law include:
●
Authorizing the CIRC to be the insurance supervisory and regulatory
    body nationwide. The 2002 Insurance Law expressly grants the CIRC the authority to supervise and administer the insurance industry
    nationwide.
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-
●
Expanding the permitted scope of business of property and casualty
    insurers. Under the 2002 Insurance Law, property and casualty insurance companies may engage in the short-term health insurance and
    accident insurance businesses upon the CIRC's approval.
●
Providing additional guidelines for the relationship between insurance
    companies and insurance agents. The 2002 Insurance Law requires an insurance company to enter into an agent agreement with each insurance
    agent that will act as an agent for that insurance company. The agent agreement sets forth the rights and obligations of the parties
    to the agreement as well as other matters pursuant to law. An insurance company is responsible for the acts of its agents when the
    acts are within the scope authorized by the insurance company.
●
Relaxing restrictions on the use of funds by insurance companies. Under
    the 2002 Insurance Law, an insurance company may use its funds to make equity investments in insurance-related enterprises, such
    as asset management companies.
●
Allowing greater freedom for insurance companies to develop insurance
    products. The 2002 Insurance Law allowed insurance companies to set their own policy terms and premium rates, subject to the approval
    of, or a filing with, the CIRC.
2009 Amendments to the
Insurance Law
The 2002 Insurance Law was
amended again in 2009 and the amended insurance law, which we refer to as the 2009 Insurance Law, became effective on October 1, 2009.
The major amendments to the 2009 Insurance Law include:
●
Strengthening protection of the insured's interests. The 2009
    Insurance Law added a variety of clauses such as incontestable clause, abstained and estoppels clause, common disaster clause and
    amending immunity clause, claims-settlement prescription clause, reasons for claims rejection and contract modification clause.
●
Strengthening supervision on the qualification of the shareholders
    of the insurance companies and setting forth specific qualification requirements for the major shareholders, directors, supervisors
    and senior managers of insurance companies.
●
Expanding the business scope of insurers and further relaxing restriction
    on the use of fund by insurers.
●
Strengthening supervision on solvency of insurers with stricter measures.
●
Tightening regulations governing the administration of insurance intermediary
    companies, especially those relating to behaviors of insurance agents.
According to the 2009 Insurance
Law, the minimum registered capital required to establish an insurance agency or insurance brokerage as a company must comply with the
PRC Company Law. The registered capital or the capital contribution of insurance agencies or insurance brokerages must be paid-up capital
in cash. The 2009 Insurance Law also sets forth some specific qualification requirements for insurance agency and brokerage practitioners.
The senior managers of insurance agencies or insurance brokerages must meet specific qualification requirements, and their appointments
are subject to approval of the CIRC. Personnel of an insurance agency or insurance brokerage engaging in the sales of insurance products
must meet the qualification requirements set by the CIRC and obtain a qualification certificate issued by the CIRC. Under the 2009 Insurance
Law, the parties to an insurance transaction may engage insurance adjusting firms or other independent appraisal firms that are established
in accordance with applicable laws, or persons who possess the requisite professional expertise, to conduct assessment and adjustment
of the insured subject matters. Additionally, the 2009 Insurance Law specifies additional legal obligations for insurance agencies and
brokerages.
2014 Amendments to the
Insurance Law
The 2002 Insurance Law was
amended again in 2014 and the amended insurance law, which we refer to as the 2014 Insurance Law, became effective on August 31, 2014.
The major amendments of the 2014 Insurance Law include:
●
Relaxing restrictions on actuaries. The 2014 Insurance Law no longer
    requires Insurance companies shall employ actuaries recognized by the insurance regulatory authority under the State Council. However,
    an insurance company shall also engage professionals, and establish an actuarial reporting system and a compliance reporting system
    as before.
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2015 Amendments to the
Insurance Law
The 2014 Insurance Law was
amended again in 2015 and the amended insurance law, which we refer to as the 2015 Insurance Law, became effective on April 24, 2015.
The major amendments of the 2015 Insurance Law include:
●
Eliminating the requirement for an insurance agent or broker to obtain
    a qualification certificate issued by the CIRC before providing any insurance agency or brokerage services.
●
Relaxing the requirement for the establishment or other significant
    corporate events of an insurance agency or brokerage firm. For example, an insurance agency or brokerage firm is allowed to apply
    for a business permit from the CIRC and a business license from the local AIC simultaneously under the 2015 Insurance Law, while
    an insurance agency or brokerage firm had to apply for and receive a business permit issued by the CIRC before it could apply for
    a business license from and register with the relevant local AIC under the 2014 Insurance Law. Prior approval by the CIRC is no longer
    required for the divesture or mergers of insurance agencies or brokerage firms, the change of their organizational form, or the establishment
    or winding-up of a branch by an insurance agency or brokerage firm.
The CIRC and the CBIRC
The CBIRC, which was formed
by the merger of China Banking Regulatory Commission ("CBRC") and CIRC in March, 2018, inherits the authority of CIRC, has
extensive authority to supervise insurance companies and insurance intermediaries operating in the PRC, including the power to:
●
promulgate regulations applicable to the Chinese insurance industry;
●
investigate insurance companies and insurance intermediaries;
●
establish investment regulations;
●
approve policy terms and premium rates for certain insurance products;
●
set the standards for measuring the financial soundness of insurance
    companies and insurance intermediaries;
●
require insurance companies and insurance intermediaries to submit
    reports concerning their business operations and condition of assets;
●
order the suspension of all or part of an insurance company or an insurance
    intermediary's business;
●
approve the establishment, change and dissolution of an insurance company,
    an insurance intermediary or their branches;
●
review and approve the appointment of senior managers of an insurance
    company, an insurance intermediary or their branches; and
●
punish insurance companies or intermediaries for improper behaviors
    or misconducts.
Regulation of Insurance
Agents
The principal regulation
governing insurance agents is the Provisions on the Supervision and Administration of Insurance Agents, or the PSAIA, issued by the CBIRC
on November 12, 2020 and effective on January 1, 2021, replacing the Provision on the Supervision and Administration of Professional
Insurance Agencies issued by the CIRC on September 25, 2009 and amended on April 7, 2013, the Measures on the Supervision and Administration
of Insurance Salespersons issued on January 6, 2013 and the Interim Measures on the Administration of Ancillary-Business Insurance Agency
issued on August 4, 2000.
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The term of "insurance
agent" refers to an entity or an individual entrusted by insurance companies to handle insurance business by and within the authorization
of, and which collects commissions from insurance companies, and includes a professional insurance agency, ancillary-business insurance
agency and individual insurance sales agent which refers to a captive insurance agent of an insurance company.
The practitioner of an insurance
agency refers to an individual engaged in the sales of insurance products or loss assessment and claims settlement services for a professional
insurance agency or ancillary-business insurance agency.
To engage in insurance agency
business, a professional insurance agency shall obtain an insurance agency business permit issued by the CBIRC, after obtaining a business
license, and satisfy the requirements prescribed by the PSAIA or other relevant regulations on shareholder and management qualification,
capital contribution, articles of association, corporate governance and internal control procedures with viable business model and sound
business and financial information system. An insurance agency may take any of the following forms: (i) a limited liability company;
or (ii) a joint stock limited company. The name of a professional insurance agency shall contain the words "insurance agency".
The minimum registered capital
for establishing a nationwide professional insurance agency is RMB50 million and that for a regional professional insurance agency is
RMB20 million. The registered capital of a professional insurance agency must be paid-in monetary capital. To operate outside of its
registration place, a nationwide professional insurance agency shall set up local provincial branches first before setting up additional
sub-branches and sales offices.
Professional insurance agencies
shall, within 5 days from the date of occurrence of any of the following circumstances, report to the CBIRC through the supervision information
system and make public disclosure: (i) change of name, domicile or business address; (ii) change of shareholders, registered capital
or the form of organization; (iii) change of name or capital contribution of a shareholder; (iv) amendments to the articles of association;
(v) equity investment in, or establishment of offshore insurance institutions or non-operating institutions; (vi) division, merger, dissolution,
or termination of insurance agency business activities of branches; (vii) change of the principal person-in-charge of a sub-branch; (viii)
administrative punishment, civil punishment or pending investigation of suspected illegal crime; or (ix) other reportable events prescribed
by the insurance regulatory body under the State Council.
A professional insurance
agency may engage in all or part of the following businesses: (i) selling insurance products on behalf of insurance companies; (ii) collecting
insurance premium on behalf of insurance companies; (iii) insurance-related loss survey and claims settlement on behalf of insurance
companies; or (iv) other relevant businesses stipulated by the insurance regulatory body under the State Council. Insurance agents shall
not engage in insurance agency business beyond the business scope and business area of the insurance companies for which they act as
agents.
A professional insurance
agency and its sales practitioners and individual insurance agents are not allowed to sell non-insurance financial products, except for
non-insurance financial products approved by relevant financial regulatory authorities provided that all necessary qualification requirements
are being met.
A professional insurance
agency shall, within 20 days upon obtaining business permits, procure professional liability insurance or make contributions to security
deposits. Minimum compensation for each accident under the one-year professional liability insurance policy shall be no less than RMB1
million, and accumulative compensation under the one-year insurance policy shall be no less than RMB10 million and the total core business
revenue of the professional insurance agency company in the previous year. If a professional agency intends to pay deposit, the deposit
shall be paid at 5% of its registered capital and when it increases its registered capital, the amount of the deposit shall be increased
proportionately.
The senior managers of a
professional insurance agency must meet specific qualification requirements in educational background and relevant industry working experience
set forth in the PSAIA.
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An insurance agent shall
perform sales practicing register with the CRIBC's Insurance Intermediaries Regulatory Information System for its individual insurance
agent or sales practitioner. Each individual insurance agent or sales practitioner of an insurance agency can only be allowed to register
with one institution.
Specific information disclosure
requirements are also provided in the PSAIA. For example, it is required that a professional insurance agency or its branches shall place
its business license and copies of permit in a prominent position in its domicile or business site. Insurance agents shall make full
disclosure of all relevant information of insurance products to policyholders and make a clear representation of the clauses in the insurance
contract including liability, liability reduction or exemption, cancellation and other expense deductions, cash value, cooling-off period
and etc.
Regulation of Insurance
Brokerages
The principal regulation
governing insurance brokerages is the Provisions on the Supervision and Administration of Insurance Brokers, or the POSAIB, promulgated
by the CIRC on February 1, 2018 and effective May 1, 2018, replacing the Provisions on the Supervision of Insurance Brokerages issued
on September 25, 2009, as amended on April 27, 2013, and the Measures on the Supervision and Administration of Insurance Brokers and
Insurance Claims Adjustors issued by the CIRC on January 6, 2013.
The term of "insurance
broker" refers to an entity which, representing the interests of insurance applicants, acts as an intermediary between insurance
applicants and insurance companies for entering into insurance contracts, and collects commissions for the provision of such brokering
services. The term of "insurance brokerage practitioner" refers to a person affiliated with an insurance broker who drafts
insurance application proposals or handles the insurance application formalities for insurance applicants or the insured or assists insurance
applicants or the insured in claiming compensation or who provides clients with disaster or loss prevention or risk assessment or management
consulting services or engages in reinsurance brokerage, among others.
To engage in insurance brokerage
business within the territory of the PRC, an insurance brokerage shall satisfy the requirements prescribed by the CIRC and obtain an
insurance brokerage business permit issued by the CIRC, after obtaining a business license. An insurance brokerage may take any of the
following forms: (i) a limited liability company; or (ii) a joint stock limited company.
The minimum registered capital
of an insurance brokerage company whose business area is not limited to the province in which it is registered is RMB50 million while
the minimum registered capital of an insurance brokerage company whose business area is limited to its place of registration is RMB10
million.
The name of an insurance
broker shall include the words "insurance brokerage." An insurance brokerage must register the information of its affiliated
insurance brokerage practitioners with the IISIS. One person can only be registered with the IISIS through one insurance brokerage.
An insurance brokerage may
conduct the following insurance brokering businesses:
●
making insurance proposals, selecting insurance companies and handling
    the insurance application procedures for the insurance applicants;
●
assisting the insured or the beneficiary to claim compensation;
●
reinsurance brokering business;
●
providing consulting services to clients with respect to disaster and
    damage prevention, risk assessment and risk management; and
●
other business activities approved by the CIRC.
An insurance brokerage shall
submit a written report to the CIRC through the IISIS and make public disclosure within five days from the date of occurrence of any
of the following matters: (i) change of name, domicile or business premises; (ii) change of shareholders, registered capital or form
of organization; (iii) change of names of shareholders or capital contributions; (iv) amendment to the articles of association; (v) equity
investment, establishment of offshore insurance-related entities or non-operational organizations; (vi) division, merger and dissolution
or termination of insurance brokering business activities of its branches; (vii) change of the primary person in charge of its branches
other than provincial branches; (viii) being a subject of administrative or criminal penalties, or under investigation for suspected
involvement in any violation of law or a crime; and (x) other reportable events prescribed by the CIRC.
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Insurance brokerage and
its practitioners are not allowed to sell non-insurance financial products, except for those products approved by relevant financial
regulatory institutions and the insurance brokerage and its practitioners shall obtain relevant qualifications in order to sell non-insurance
related financial products that meets regulatory requirements.
Personnel of an insurance
brokerage and its branches who engage in any of the insurance brokering businesses described above must comply with the qualification
requirements prescribed by the CIRC. The senior managers of an insurance brokerage must meet specific qualification requirements set
forth in the POSAIB.
Regulation of Insurance
Claims Adjusting Firms
The principal regulation
governing insurance adjusting firms is the Provisions on the Supervision and Administration of Insurance Claims Adjustors, or the POSAICA,
issued by the CIRC on February 1, 2018 and effective on May 1, 2018, replacing the Provisions on the Supervision of Insurance Claims
Adjusting Firms effective on October 1, 2009, as amended on September 29, 2013 and 2015, and the Regulation of Insurance Brokers and
Insurance Adjustors effective on July 1, 2013.
According to the POSAICA,
the term "insurance adjustment" refers to the assessment, survey, authentication, loss estimation and relevant risk assessment
of the insured subject matters or the insurance incidents conducted by an appraisal firm and its professional appraisers upon the entrustment
of the parties concerned. The term of "insurance adjusting firm" refers to an entity and any of its branches which engages
in the aforementioned businesses.
The term "insurance
adjustment practitioner" refers to a person retained by an insurance claims adjusting firm to conduct the following activities
on behalf of an entruster: i) inspecting, appraising the value of and assessing the risks of the subject matter before and after it is
insured; ii) surveying, inspecting, estimating the loss of, adjusting and disposing of the residual value of the insured subject matter
after a loss has been incurred; and iii) risk management consulting.
Insurance adjustment practitioners
include claims adjustors and assessment practitioners with claims adjustment knowledge and practical experience. A claims adjustor refers
to an individual who has passed the qualification examination for the insurance claims adjustors organized by the CIRC.
An insurance claims adjusting
firm must meet the requirements prescribed by the China Asset Appraisal Law and applicable regulations issued by the CIRC and must file
its business records with the CIRC and its local offices.
According to the regulation,
an insurance adjusting firm should take the form of a company or a partnership in accordance with applicable law and retains claims adjustment
practitioners to engage in insurance claims adjusting businesses. A claims adjusting firm in the form of a partnership must have at least
two claims adjustors and two-thirds of its partners should be claims adjustors who have at least three years' working experience
in claims adjustment and have no record of administrative penalties in relation to claims adjustment activities in the past three years.
A claims adjusting firm in the form of a company must have at least eight claims adjustors and two shareholders among which at least
two-thirds are claims adjustors who have at least three years' working experience in claims adjustment and have no record of administrative
penalties in relations to claims adjustment activities in the past three years.
The establishment of an
insurance claims adjusting firm only requires the application for a business license from and registration with the AIC, instead of both
applying for business license and obtaining approval by the CIRC as previously required.
A claims adjusting firm
may include a nationwide claims adjusting firm and regional claims adjusting firm. A nationwide claims adjusting firm can conduct business
within the territory of the PRC and can establish branches in provinces other than its place of registration while a regional one can
only conduct business and establish branches in the province where it is registered. A claims adjusting firm in the form of a company
must file its business record with the CIRC if it is a nationwide claims adjusting firm or file with the local offices of the CIRC in
the region where it is registered if it is a regional claims adjusting firm. A partnership firm must file its business record with the
CIRC.
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An insurance claims adjusting
firm must meet certain requirements in order to engage in claims adjustment business which include, among others, i) its shareholders
or its partners must meet the requirements mentioned above and its capital contribution must be self-owned, actual and lawful and must
not be non-self-owned capital in various forms such as bank loan; and ii) it must have adequate working capital to support its day-to-day
operation and risk undertaking in accordance with its business development plan. A nationwide entity must have at least RMB2 million
working capital while a regional one must have at least RMB1 million.
An insurance adjusting firm
may engage in the following businesses:
Upon approval of the CIRC,
an insurance adjusting firm may engage in the following businesses:
●
inspecting, appraising the value of and assessing the risks of the
    subject matter before and after it is insured;
●
surveying, inspecting, estimating the loss of, adjusting and disposing
    of the insured subject matter after loss has been incurred;
●
risk management consulting; and
●
other business activities approved by the CIRC.
The name of an insurance
adjusting firm must contain the words "insurance adjusting" and must avoid duplicating names of existing insurance claims
adjusting firms. In any of the following situations, an insurance adjusting firm shall submit a written report to the CIRC when it within
five days from the date the resolution for change has been passed: (i) change of name, domicile or business premises; (ii) change of
shareholders or partners; (iii) change of registered capital or form of organization; (iv) change of names of shareholders or partners
or capital contributions; (v) amendment to the articles of association or the partnership agreement; (vi) equity investment, establishment
of offshore insurance related entities or non-operational organization; (vii) division, merger and dissolution or termination of insurance
claims adjustment business of its branches; (viii) change of chairman of its board of directors, executive directors or senior management;
(ix) being a subject of administrative or criminal penalties, or under investigation for suspected involvement in a crime; and (x) other
reportable events specified by the CIRC.
Personnel of an insurance
adjusting firm or its branches engaged in any of the insurance adjusting businesses described above must comply with the qualification
requirements prescribed by the CIRC. The senior managers of an insurance adjusting firm must meet specific qualification requirements
set forth in the POSAICA.
An insurance claims adjustment
practitioner must join an insurance claims adjusting firm in order to conduct insurance claims adjustment activities. The insurance claims
adjusting firm to which he or she belongs must register his or her information with the CIRC's Insurance Intermediary Supervision
Information System or IISIS. One person can only conduct insurance adjustment activities for one insurance claims adjusting firm and
can only be registered with the IISIS through one insurance claims adjusting firm.
At least two insurance claims
adjustment practitioners must be appointed to undertake each case of insurance claims adjustment businesses and the claims adjustment
report shall be signed by at least two insurance claims adjustment practitioners engaged in the claims adjustment activities and chopped
by the claims adjusting firm to which he or she belongs.
Regulation of Insurance
Intermediary Service Group Companies
The principal regulation
governing insurance intermediary groups is the Provisional Measures for Supervision and Administration of the Insurance Intermediary
Service Group Companies (for Trial Implementation) issued by the CIRC on September 22, 2011 with immediate effect. According to the regulation,
the term "insurance intermediary service group company" refers to a professional insurance intermediary company that is established
in accordance with applicable laws and regulations and with the approval of the CIRC that exercises sole or shared control of, or is
able to exert major influence over, at least two subsidiaries that are professional insurance intermediary companies primarily engaged
in the insurance intermediary business.
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An insurance intermediary
service group company must have:
●
a registered capital of at least RMB100 million;
●
no record of material violation by investors of applicable laws and
    regulations in the previous three years;
●
at least five subsidiaries, among which at least two are professional
    insurance intermediary companies which contribute at least 50% of the total revenues of the group;
●
chairman (Executive director) and the senior management with qualifications
    stipulated by the CIRC;
●
perfect governance structure, sound organization, effective risk management
    and internal control management system;
●
business premises and office equipment which are suitable for the development
    of the businesses; and
●
other conditions stipulated by laws, administrative regulations and
    the CIRC.
The name of an insurance
intermediary service group must contain the words "Group" or "Holding." Its principal business must be equity
investment, management and provision of supporting services. An insurance intermediary service group company shall, submit a written
report to the CIRC and its local counterparts at the place of registration within five working days after the date of occurrence of the
following: (i) changing its registered name or address; (ii) changing its registered capital; (iii) changing its equity structure by
more than 5% or shareholders holding more than 5% of shares; (iv) changing its articles of association; (v) establishing, acquiring,
merging or closing its subsidiary; (vi) engaging in related party transactions between member companies; (vii) disincorporating; (viii)
significantly changing its business scope; or (ix) making a major strategic investment, suffering a significant investment loss or experiencing
other material events or emergencies that affect or may affect the business management, financial status or risk control of the group.
Senior managers of an insurance intermediary service group company must meet specific qualification requirements and appointment of the
senior managers of an insurance intermediary service group company is subject to review and approval by the CIRC.
Content Related to Insurance
Industry in the Legal Documents of China's Accession to the WTO
According to the Circular
of the CIRC on Distributing the Content Related to Insurance Industry in the Legal Documents of China's Accession to the World
Trade Organization, or WTO, for the life insurance sector, within three years of China's accession to the WTO on December 11, 2001,
geographical restrictions were to be lifted, equity joint venture companies allowed to provide health insurance, group insurance, and
pension/annuity services to Chinese citizens and foreign citizens, and for there to be no other restrictions except those on the proportion
of foreign investment (no more than 50%) and establishment conditions. For the non-life insurance sector, within three years of China's
accession, the geographical restrictions were to be lifted and no restrictions allowed other than establishment conditions. For the insurance
brokerage sector, within five years of China's accession, the establishment of wholly foreign-funded subsidiary companies was to
be allowed, and no restriction other than establishment conditions and restrictions on business scope.
Content Related to Insurance
Industry in the Closer Economic Partnership Arrangements
Under CEPA Supplement IV
signed in June and July 2007 and CEPA Supplement VIII signed in December 2011, local insurance agencies in Hong Kong and Macau are allowed
to set up wholly-owned insurance agency companies and conduct insurance intermediary businesses in Guangdong Province (including Shenzhen)
on a pilot basis if they fulfill the following criteria:
●
The applicant must have operated an insurance brokerage businesses
    in Hong Kong and Macau for over 10 years;
●
The applicant's average annual revenue of insurance brokerage
    business for the past three years before application must not be less than HKD500,000 and the total assets as at the end of the year
    before application must not be less than HKD500,000;
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●
Within three years before application, there has been no serious misconduct
    or record of disciplinary action; and
●
The applicant must have set up a representative office in mainland
    China for over one year
Regulations on Internet
Insurance
The principal regulation
governing the operation of internet insurance business is the Measures for the Supervision of the Internet Insurance Business, or the
Measures, promulgated on December 7, 2020 and effective on February 1, 2021, replacing the Interim Measures for the Supervision of the
Internet Insurance Business, or the Interim Measures, issued on July 22, 2015 and effective on October 1, 2015.
According to the Measures,
the term of "internet insurance business" refers to the business of concluding insurance contracts and providing insurance
services by insurance institutions with internet technologies. Insurance institutions refer to insurance companies and insurance intermediaries
which include insurance agents (except individual insurance agents), insurance brokerage firms and insurance claims adjusting firms.
Insurance agents (except individual insurance agents) refer to professional insurance agencies, bancassurance-related ancillary insurance
agencies and internet companies that have obtained licenses for engaging in insurance agency business in accordance with applicable laws
and regulations. Non-insurance institutions are not allowed to conduct internet insurance business, including but not limited to, providing
insurance product consultancy services, providing insurance product comparison, price quotation and price comparison services, designing
insurance plans for the insureds and handling insurance application formalities on behalf of the insureds and collecting premiums by
proxy.
A self-operated internet
platform refers to an internet platform established by insurance institutions for conducting insurance business, by which insurance institutions
can operate business independently and have full access to the data on the platform. The internet insurance business of an insurance
institution shall be operated and managed by its headquarter with standardized and centralized business platform, business procedures
and management system.
To carry out internet insurance
business, an insurance institution shall meet the following requirements, among others: (i) making ICP filing in the case of operating
a mobile application or website; (ii) maintaining independent information management system and core business system to support its internet
insurance business operation; (iii) equipped with a comprehensive working mechanism for network security monitoring, information alert,
emergency management, and cybersecurity protection measures for border protection, intrusion detection, data protection and disaster
recovery; (vi) equipped with certified Safety Level-III Computer Information System for a self-operated online platform that can facilitate
insurance sales and application and no lower than Safety level-II Computer Information System for self-operated online platforms without
insurance sales and application functions; (v) having designated department and personnel for managing the internet insurance business;
(vi) maintaining sound management system and operating procedures; (vii) having a sound Internet insurance business management system
and operating rules; (viii) when an insurance company carries out Internet insurance sales, it shall comply with the relevant regulations
of the CBIRC on solvency, supervision and evaluation of consumer rights and interests protection, etc.; (ix) professional insurance intermediaries
shall be national institutions, and their business areas shall not be limited to the provinces (autonomous regions, municipalities directly
under the Central Government, cities separately listed on the State plan) where the head office's business license is registered,
and comply with the relevant provisions of the CBIRC on the classified supervision of insurance professional intermediary institutions;
(x) other conditions prescribed by the Bancassurance Regulatory Commission.
Insurance institutions shall
carefully evaluate their own risk management and control capacity and customer service capacity, and rationally determine and choose
insurance products and the scope of sales activities suitable for internet operations.
Insurance institutions engaging
in internet insurance business shall establish official website and set up internet insurance column for information disclosure.
The Measures also specifies
requirements on disclosure of information such as information regarding insurance products sold on the internet, the qualification of
the insurance institutions operating the internet insurance business, contact methods for local support and compliant provides guidelines
for the operations of the insurance institutions that engage in internet insurance business.
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Regulation on Internet
Life Insurance
The Notice on Further Regulation
of Matters Relating to the Internet Life Insurance Business of Insurance Institutions, or the Notice, was issued on October 12, 2021,
effective immediately. According to the Notice, internet life insurance business refers to the business activities of insurance companies
to launch and sell internet life insurance products, conclude insurance contracts and provide insurance services by setting up self-operated
network platforms or entrusting insurance intermediaries on their self-operated network platforms.
Insurance companies that
meet relevant requirements of this Notice can conduct internet life insurance business without branches nationwide. If an insurance company
entrusts an insurance intermediary to carry out internet life insurance business, the insurance intermediary should be a national institution.
Where internet and offline distributions are both involved in a life insurance business, internet life insurance products shall not be
sold, and the business area shall not be extended to areas without branches.
In order to carry out internet
life insurance business, insurers (excluding internet insurance companies) shall meet the following conditions: (i) the comprehensive
solvency ratio shall reach 120% and the core solvency ratio shall be no less than 75% for four consecutive quarters; (ii) the comprehensive
risk rating shall be Class B or above for four consecutive quarters; (iii) the liability reserve adequacy ratio shall be higher than
100% for four consecutive quarters; (iv) the corporate governance level shall be C (qualified) or above; and (v) other conditions stipulated
by the CBIRC.
Internet life insurance
products are limited to accident insurance, health insurance (excluding long-term care insurance), term life insurance, life insurance
with a coverage period of more than 10 years (excluding term life insurance), annuity insurance with a coverage period of more than 10
years, and other life insurance products stipulated by the CBIRC. Internet life insurance products that do not meet the requirements
shall not be sold online, and their sales webpages shall not be publicly displayed on the internet or directly linked to from other webpages.
An insurance company applying
for approval or distributing a newly approved life insurance with a payment period of more than 10 years (excluding term life insurance)
and annuity insurance products with a coverage period of more than 10 years must meet the following conditions: (i) the comprehensive
solvency ratio shall exceed 150% and the core solvency ratio shall be no less than 100% for four consecutive quarters; (ii) the comprehensive
solvency margin shall exceed RMB3 billion for four consecutive quarters; (iii) the comprehensive risk rating shall be above Class A for
four consecutive quarters (or six quarters within two years); (iv) no major administrative penalty imposed on the internet insurance
business in the previous year; (v) the corporate governance level shall be B (good) or above; and (vi) other conditions stipulated by
the CBIRC.
Insurance intermediaries
selling life insurance with a payment period of more than 10 years (excluding term life insurance) and annuity insurance products with
a coverage period of more than 10 years shall meet the following conditions: (i) experience in internet life insurance business for more
than three years; (ii) complete sales management, policy management and customer service systems, as well as a safe, efficient and real-time
internet payment and settlement system and process; (iii) no major administrative penalty imposed on the internet insurance business
in the previous year; and (iv) other conditions stipulated by the CBIRC.
Regulations on Foreign Exchange
Foreign Currency Exchange
Foreign exchange regulation
in China is primarily governed by the following rules:
●
Foreign Currency Administration Rules (1996), as amended pursuant to
    the Decision on Revising the Foreign Currency Administration Rules promulgated by the State Council on January 14, 1997 and the Foreign
    Currency Administration Rules promulgated by the State Council on August 5, 2008; and
●
Administration Rules of the Settlement, Sale and Payment of Foreign
    Exchange.
Under the Foreign Currency
Administration Rules, the RMB is convertible for current account items, including the distribution of dividends, interest payments, trade
and service-related foreign exchange transactions. Conversion of RMB for capital account items, such as direct investment, loan, security
investment and repatriation of investment, however, is still subject to the approval of the SAFE.
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Under the Administration
Rules of the Settlement, Sale and Payment of Foreign Exchange, foreign-invested enterprises may only buy, sell or remit foreign currencies
at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital
account item transactions, obtaining approval from the SAFE. Capital investments by foreign-invested enterprises outside of China are
also subject to limitations, which include approvals by the Ministry of Commerce, the SAFE and the State Development and Reform Commission.
Foreign Exchange Registration
of Offshore Investment by PRC Residents
Pursuant to the SAFE Circular
37, issued on July 4, 2014, prior to making contribution to a SPC with legitimate holdings of domestic or overseas assets or interests,
a PRC resident (including PRC institutions and resident individuals) shall apply to the relevant Foreign Exchange Bureau for foreign
exchange registration of overseas investment. A PRC resident who makes contribution with legitimate holdings of domestic assets or interests
shall apply for registration to the Foreign Exchange Bureau at its place of registration or the Foreign Exchange Bureau at the locus
of the assets or interests of the relevant PRC enterprise. A PRC resident who makes contribution with legitimate holdings of overseas
assets or interests shall apply for registration to the Foreign Exchange Bureau at its place of registration or household register. Where
a registered overseas SPC experiences changes of its PRC resident individual shareholder, its name, operating period or other basic information,
or experiences changes of material matters, such as the increase or reduction of contribution by the PRC resident individual, the transfer
or replacement of equity, or merger or division, the PRC resident shall promptly change the foreign exchange registration of overseas
investment with the Foreign Exchange Bureau concerned. Under SAFE Circular 37, failure to comply with the registration procedures set
forth above may result in the penalties, including imposition of restrictions on a PRC subsidiary's foreign exchange activities
and its ability to distribute dividends to the SPV. See "Item 3. Key Information—D. Risk Factors—Risks Related to Doing
Business in China—PRC regulations relating to the establishment of offshore special purpose companies by PRC residents and employee
stock options granted by overseas-listed companies may increase our administrative burden, restrict our overseas and cross-border investment
activity, or otherwise adversely affect us. If our shareholders who are PRC residents, or our PRC employees who are granted or exercise
stock options, fail to make any required registrations or filings under such regulations, we may be unable to distribute profits and
may become subject to liability under PRC laws. We may also face regulatory uncertainties that could restrict our ability to adopt additional
equity compensation plans for our directors and employees and other parties under PRC law."
SAFE Regulations on Employee
Share Options
On December 25, 2006, the
PBOC promulgated the "Measures for the Administration of Individual Foreign Exchange," and on January 5, 2007, the SAFE further
promulgated the implementation rules on those measures. Both became effective on February 1, 2007. According to the implementation rules,
PRC citizens who are granted shares or share options by a company listed on an overseas stock market according to its employee share
option or share incentive plan are required, through the PRC subsidiary of such overseas listed company or any other qualified PRC agent,
to register with the SAFE and to complete certain other procedures related to the share option or other share incentive plan. Foreign
exchange income received from the sale of shares or dividends distributed by the overseas listed company may be remitted into a foreign
currency account of such PRC citizen or be exchanged into Renminbi. Our PRC citizen employees who have been granted share options are
subject to the Individual Foreign Exchange Rules.
On March 28, 2007, SAFE
promulgated the Operating Rules for Administration of Foreign Exchange in Domestic Individuals' Participation in Employee Stock
Ownership Plans and Stock Option plans of Companies Listed Abroad, or the Operating Rules. Stock Option Rule. On February 15, 2012, SAFE
promulgated the No. 7 Notice, which supersedes the Stock Option Rule in its entirety and immediately became effective upon circulation.
According to the No. 7 Notice, domestic individuals, which include any directors, supervisors, senior managerial personnel or other employees
of a domestic company who are Chinese citizens (including citizens of Hong Kong, Macau and Taiwan) or foreign individuals who consecutively
reside in the territory of PRC for one year, who participate in the same equity incentive plan of an overseas listed company shall, through
the domestic companies they serve, collectively entrust a domestic agency to handle issues such as foreign exchange registration, account
opening, funds transfer and remittance, and entrust an overseas institution to handle issues such as exercise of options, purchasing
and sale of related stocks or equity, and funds transfer. Where a domestic agency needs to remit funds out of China as required for individuals'
participation in an equity incentive plan, the domestic agency shall apply with the local office of the SAFE for a foreign exchange payment
quota on a yearly basis. A domestic agency shall open a domestic special foreign exchange account in the bank. After repatriation of
foreign currency income earned by individuals from participation in an equity incentive plan, the domestic agency shall request the bank
to transfer the funds from its special foreign currency account to respective personal foreign currency deposit accounts. In the case
of any significant change to the equity incentive plan of a company listed abroad (such as amendment to any major terms of the original
plan, addition of a new plan, or other changes to the original plan due to merger, acquisition or reorganization of the overseas listed
company or the domestic company or other major events), the domestic agency or the overseas trustee, the domestic agency shall, within
three months of the occurrence of such changes, go through procedures for change of foreign exchange registration with the local office
of the SAFE. The SAFE and its branches shall supervise, administer and inspect foreign exchange operations related to individuals'
participation in equity incentive plans of companies listed abroad, and may take regulatory measures and impose administrative sanctions
on individuals, domestic companies, domestic agencies and banks violating the provisions of the No. 7 Notice.
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We and our employees who
have been granted applicable equity awards shall be subject to the No. 7 Notice. If we fail to comply with the No. 7 Notice, we and/or
our employees who are subject to the No. 7 Notice may face sanctions imposed by foreign exchange authority or any other PRC government
authorities.
Foreign Investment Security Review
Measures
On December 19, 2020,
the NDRC and MOFCOM promulgated the
Foreign Investment Security Review Measures
, which took effect on January 18, 2021. Under
the Foreign Investment Security Review Measures, investments in military, national defense-related areas or in locations in proximity
to military facilities, or investments that would result in acquiring the actual control of assets in certain key sectors, such as critical
agricultural products, energy and resources, equipment manufacturing, infrastructure, transport, cultural products and services, IT,
internet products and services, financial services and technology sectors, are required to be approved by designated governmental authorities
in advance. Although the term "investment through other means" is not clearly defined under the Foreign Investment Security
Review Measures, we cannot rule out the possibility that control through contractual arrangement may be regarded as a form of actual
control and therefore require approval from the competent governmental authority. As the Foreign Investment Security Review Measures
were recently promulgated, there are great uncertainties with respect to its interpretation and implementation. Accordingly, there are
substantial uncertainties as to whether our VIE structure may be deemed as a method of foreign investment in the future.
Regulation on Information
Security
The
Standing Committee of the National People's Congress promulgated the
Cybersecurity Law of the PRC,
or the Cybersecurity
Law, which became effective on June 1, 2017, to protect cyberspace security and order. Pursuant to the Cybersecurity Law, any individual
or organization using the network must comply with the constitution and the applicable laws, follow the public order and respect social
moralities, and must not endanger cybersecurity, or engage in activities by making use of the network that endanger the national security,
honor and interests; incite subversion of state power; overthrow the socialist system; incite secession, undermining national unity,
terrorism and extremism promotion, ethnic hatred and discrimination; spread violence and disseminate pornographic information, fabricating
and spreading false information that disturbs economic and social order; or infringe on the fame, privacy, intellectual property and
other legitimate rights and interests of others. The Cybersecurity Law sets forth various security protection obligations for network
operators, which are defined as "owners and administrators of networks and network service providers," including, among others,
complying with a series of requirements of tiered cyber protection systems; verifying users' real identity; localizing the personal
information and important data gathered and produced by key information infrastructure operators during operations within the PRC; and
providing assistance and support to government authorities where necessary for protecting national security and investigating crimes.
On
December 28, 2021, the Cyberspace Administration of China, or the CAC, the NDRC, the MIIT, and several other administrations jointly
promulgated the Cybersecurity Review Measures, which took effect on February 15, 2022. The Cybersecurity Review Measures replaces its
previous version promulgated on April 13, 2020. According to the Cybersecurity Review Measures, (i) when the purchase of network products
and services by a critical information infrastructures operator or the data processing activities conducted by a network platform operator
affect or may affect national security, a cybersecurity review shall be conducted pursuant to the Cybersecurity Review Measures. The
aforesaid operators shall file for a cybersecurity review with Cybersecurity Review Office under the CAC if their behavior affects or
may affect national security; (ii) an application for cybersecurity review shall be made by an issuer who is a network platform operator
holding personal information of more than one million users before such issuer applies to list its securities on a foreign stock exchange;
and (iii) the relevant PRC governmental authorities may initiate cybersecurity review if such governmental authorities determine that
the issuer's network products or services, or data processing activities affect or may affect national security. Cybersecurity
reviews focus on assessing the following national security risks factors associated with relevant objects or circumstances: (i) the risk
of illegal control, interference or destruction of critical information infrastructure, arising from the purchase and utilization of
network products and services; (ii) the harm on the business continuity of critical information infrastructure incurring from a disruption
of network products and services supply; (iii) the safety, openness, transparency, diversity of sources of network products and services;
the reliability of suppliers; and the risk of supply disruption due to political, diplomatic, trade and other reasons; (iv) the level
of compliance with the PRC laws, administrative regulations and ministry rules of the suppliers of network products and services; (v)
the risk of core data, important data or a large amount of personal information being stolen, leaked, destroyed, and illegally used or
illegally exited the country; (vi) the risk of critical information infrastructure, core data, important data or a large amount of personal
information being affected, controlled, or maliciously used by foreign governments and the network information security risk in relation
to listing abroad; and (vii) other factors that may harm critical information infrastructure, cyber security and/or data security.
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The
Administrative Provisions on the Account Information of Internet Users, which was promulgated by the CAC on June 27, 2022 and became
effective on August 1, 2022, sets out guidelines on the administration of the account information of internet users. Internet-based information
service providers shall perform their responsibilities as the administrative subjects of the account information of internet users, have
in place professionals and technical capacity appropriate to the scale of services, and establish, improve and strictly implement the
authentication of real identity information, verification of account information, security of information content, ecological governance,
emergency responses, protection of personal information and other management systems.
On
July 7, 2022, the CAC promulgated the Data Outbound Transfer Security Assessment Measures, or the Security Assessment Measures, which
became effective on September 1, 2022. The Security Assessment Measures provide that, among others, data processors shall apply to competent
authorities for security assessment when (i) the data processors transferring important data abroad; (ii) a CIIO and personal information
processor that has processed personal information of more than one million people, transferring personal information abroad; (iii) a
data processor who has provided personal information of one hundred thousand individuals or sensitive personal information of ten thousands
individuals to overseas recipients, in each case as calculated cumulatively, since January 1 of the previous year; and (iv) other circumstances
where the security assessment of data cross-border transfer is required as prescribed by the CAC.
To
comply with these laws and regulations, we have adopted security policies and measures to to strengthen our defense against security
threats and protect our cyber system and customer information, thereby ensuring security and continuity of our services. We also provide
regular training to ensure that our employees understand that information security is everyone's responsibility.
Regulation on Internet
Privacy
Pursuant
to the Administrative Provisions on Mobile Internet Applications Information Services, effective on August 1, 2016 and amended on June
14, 2022 and effective on August 1, 2022, owners or operators of mobile applications that provide information services shall obtain the
relevant qualifications prescribed by laws and regulations, strictly implement their information content administrator responsibilities
and carry out certain duties, including to authenticate the real identity information of users, establish and complete information content
inspection and management mechanisms, perform the data security protection obligations and regulate personal information processing activities.
On May 8, 2017, the Supreme People's Court and the Supreme People's Procuratorate released the Interpretations of the Supreme
People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Application of Law in the Handling
of Criminal Cases Involving Infringement of Citizens' Personal Information, which clarifies several concepts regarding the crime
of "infringement of citizens' personal information" stipulated by Article 253A of the
Criminal Law of the People's
Republic of China
, including "citizen's personal information," "provision" and "unlawful acquisition
of citizens' personal information." Also, it specifies the standards for determining the "serious circumstances"
and "particularly serious circumstances" of this crime.
On
June 10, 2021, the
Data Security Law
was promulgated by the Standing Committee of the National People's Congress
and became effective on September 1, 2021. The Data Security Law mainly sets forth specific provisions regarding establishing basic systems
for data security management, including a hierarchical data classification management system, risk assessment system, monitoring and
early warning system, and emergency disposal system. In addition, it clarifies the data security protection obligations of organizations
and individuals carrying out data activities and implementing data security protection responsibility.
On
August 20, 2021, the
Personal Information Protection Law
was promulgated by the Standing Committee of the National People's
Congress and became effective on November 1, 2021. The Personal Information Protection Law provides for various requirements on personal
information protection, including the legal basis for data collection and processing, requirements on data localization and cross-border
data transfer, requirements for consent of personal data collection and processing, and requirements on processing sensitive personal
information. The Personal Information Protection Law also provides that the customers shall be entitled to opt out of the information
recommendation or commercial marketing to individuals conducted by means of automated decision-making, or to be provided simultaneously
with options not specific to individuals' characteristics.
To
comply with these laws and regulations, we collect and use personal information and data from our customers with their prior consent,
and have established information security systems to protect customers' privacy. There are uncertainties with respect to the interpretation
and implementation of these data security laws and regulations, so our data-related measures may be subject to additional compliance
requirements and regulatory burdens, and we may be required to make further adjustments to our business practices to comply with the
interpretation and implementation of such laws.
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Regulations on Dividend Distribution
Before January 1, 2020,
the principal regulations governing dividend distributions of wholly foreign-owned companies include:
●
Wholly Foreign-Owned Enterprise Law (1986), as amended pursuant to
    the Decision of the Standing Committee of the National People's Congress on Revising the Wholly Foreign-Owned Enterprise Law
    promulgated on October 31, 2000 and The Decision of the Standing Committee of the National People's Congress on Revising the
    "Law of the People's Republic of China on Foreign-invested Enterprises" which promulgated on September 3,2016 and
    took effect on October 1, 2016; and
●
Wholly Foreign-Owned Enterprise Law Implementing Rules (1990), as amended
    pursuant to the Decision of the State Council on Amending the Rules for the Implementation of the Law on Foreign-Owned Enterprises
    promulgated by the State Council on April 12, 2001 and the Decision of the State Council on Amending the Rules for the Implementation
    of the Law of the People's Republic of China on Foreign-capital Enterprises which took effect as of the promulgation date of
    March 1, 2014.
Under these regulations,
wholly foreign-owned companies in the PRC may pay dividends only out of their accumulated profits as determined in accordance with PRC
accounting standards. In addition, these wholly foreign-owned companies are required to set aside at least 10% of their respective accumulated
profits each year, if any, to fund certain reserve funds, until the accumulative amount of such fund reaches 50% of its registered capital.
These reserve funds are not distributable as cash dividends.
With the Foreign Investment
Law becoming effective on January 1, 2020, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture
Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations are
no longer applicable. The Foreign Investment Law and its implementation rule, named as Implementing Regulations of the Foreign Investment
Law of the People's Republic of China, or the Implementing Regulations, does not specify the rules of dividend distribution of
wholly foreign-owned companies, however, article 31 of the Foreign Investment Law states that the organizational form, organizational
structure and their activities of a foreign-invested enterprise shall be governed by the provisions of the PRC Company Law, PRC Partnership
Enterprise Law and other relevant laws, article 46 of the Implementing Regulations states that after the organizational forms, organizational
structures, etc. of existing Foreign-invested Enterprises have been adjusted pursuant to the law, existing parties to Sino-foreign equity
or cooperative joint ventures may continue to handle relevant matters according to the method of equity or interest transfer, the method
of income distribution, the method of surplus assets distribution, etc. agreed in the relevant contracts. Therefore, relevant PRC laws
such as PRC Company Law may apply to the dividend distribution of Foreign-owned companies, and the methods of dividend distribution stated
in the current articles of association of the foreign-owned companies may still be applicable.
Regulation on Overseas Listing
On August 8, 2006, six PRC
regulatory agencies, namely, the PRC Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration
for Taxation, the State Administration for Industry and Commerce, the CSRC and the SAFE, jointly adopted the Provisions on Foreign Investors'
Merger with and Acquisition of Domestic Enterprises, or the Order No. 10 (2006) which became effective on September 8, 2006 and was amended
on June 22, 2009. The Order No. 10 (2006) purports, among other things, to require offshore SPVs, formed for overseas listing purposes
and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas
stock exchange. On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials required
to be submitted to it by SPVs seeking CSRC approval of their overseas listings.
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On February 17, 2023, the CSRC released the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic
Companies, or the Overseas Listing Trial Measures and five supporting guidelines, which came into effect on March 31, 2023. According
to the Overseas Listing Trial Measures, (1) domestic companies that seek to offer or list securities overseas, both directly and indirectly,
should fulfill the filing procedure and report relevant information to the CSRC; (2) if the issuer meets both of the following conditions,
the overseas offering and listing shall be determined as an indirect overseas offering and listing by a domestic company: (i) the total
assets, net assets, revenues or profits of the domestic operating entity of the issuer in the most recent accounting year account for
more than 50% of the corresponding figure in the issuer's audited consolidated financial statements for the same period; (ii) the
senior managers in charge of business operation and management of the issuer are mostly Chinese citizens or have domicile in China, and
its main places of business are located in China or main business activities are conducted in China; and (3) where a domestic company
seeks to indirectly offer and list securities in an overseas market, the issuer shall designate a major domestic operating entity, which
shall, as the filing entity, fulfil the due filing and reporting obligations with the CSRC, and where an issuer makes an application
for listing in an overseas market, the issuer shall submit filings with the CSRC within three business days after such application is
submitted.
Simultaneously,
the CSRC issued the Notice on the Administrative Arrangements for the Filing of Overseas Offering and Listing by Domestic Companies,
which, among others, clarifies that the domestic companies that have already been listed overseas on or before the effective date of
the Overseas Listing Trial Measures (i.e., March 31, 2023) shall be deemed as existing issuers, or the Existing Issuers. Existing Issuers
are not required to complete the filling procedures, and they shall be required to file with the CSRC when subsequent matters such as
refinancing are involved.
According
to the Overseas Listing Trial Measures, an overseas listed company shall file with the CSRC within three business days after the completion
of its subsequent securities offering on the same market, and an overseas listed company shall file with the CSRC within three business
days after its application of offering and listing on a different market. If an overseas listed company purchases PRC domestic assets
through a single or multiple acquisitions, share swaps, shares transfers or other means, and such purchase constitutes direct or indirect
listing of PRC domestic assets, a filing with the CSRC is also required. In addition, an overseas listed company is required to report
to the CSRC the occurrence of any of the following material events within three business days after the occurrence and announcement thereof:
(i) a change of control of the listed company; (ii) the investigation, sanction or other measures undertaken by any foreign securities
regulatory agencies or relevant competent authorities in respect of the listed company; (iii) a change of listing status or transfer
of listing segment; and (iv) the voluntary or mandatory delisting of the listed company. If an issuer's main business undergoes
material change and is therefore beyond the scope of business stated in the filing, such issuer shall submit to the CSRC an
ad hoc
report and relevant legal opinion issued by a domestic law firm within three business days after occurrence of the change.
Our
PRC legal counsel, Hai Run Law Firm, has advised us that, should we seek to (i) offer or list subsequent securities on U.S. stock exchanges,
(ii) offer or list securities on other overseas stock exchange, or (iii) purchase PRC domestic assets through a single or multiple acquisitions,
share swaps, shares transfers or other means, and such purchase constitutes direct or indirect listing of PRC domestic assets, we are
required to file with the CSRC. However, our PRC legal counsel has further advised us that there are substantial uncertainties as to
how the M&A Rules and Overseas Listing Trial Measures will be interpreted or implemented in the context of an overseas offering,
and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations
in any form relating to the M&A Rules and Overseas Listing Trial Measures.
On
February 24, 2023, the Provisions on Strengthening the Confidentiality and Archives Administration of Overseas Securities Issuance and
Listing by Domestic Enterprises was promulgated, or the Provision on Confidentiality, which became effective on March 31, 2023. Pursuant
to the Provision on Confidentiality, where a domestic enterprise publicly discloses or provides documents and materials involving state
secrets and working secrets of state organs, or Relevant Documents and Materials, to the relevant securities companies, securities service
institutions, overseas regulatory authorities and other entities and individuals, or provides or publicly discloses Relevant Documents
and Materials through its overseas listing subjects, it shall report to the competent department with the examination and approval authority
for approval in accordance with the law, and submit to the secrecy administration department of the same level for filing. Where a domestic
enterprises provides accounting archives or copies of such archives to entities and individuals such as securities companies, securities
service institutions and overseas regulatory authorities, it shall complete the corresponding procedures pursuant to relevant rules of
the State. The working materials formed within the territory of the PRC by the securities companies and securities service institutions
that provide corresponding services for the overseas issuance and listing of domestic enterprises shall be kept within the territory
of the PRC, and outbound transfers of such materials shall go through approval procedures in accordance with relevant rules of the State.
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At the time of our initial
public offering in October 2007, while the application of the M&A Rule remained unclear, our then PRC counsel at the time, Commerce
& Finance Law Offices, had advised us that, based on their understanding of the then PRC laws and regulations as well as the procedures
announced on September 21, 2006:
●
the CSRC had jurisdiction over our initial public offering;
●
the CSRC had not issued any definitive rule or interpretation concerning
    whether offerings like our initial public offering are subject to the M&A Rule; and
●
despite the above, given that we had completed our inbound investment
    before September 8, 2006, the effective date of the M&A Rule, an application was not required under the M&A Rule to be submitted
    to the CSRC for its approval of the listing and trading of our ADSs on the Nasdaq Global Market, unless we are clearly required to
    do so by subsequent rules of the CSRC.
Based on the advice of our
PRC counsel, we did not seek CSRC's approval for our initial public offering. Any requirement to obtain prior CSRC approval and
a failure to obtain this approval, if required, could have a material adverse effect on our business, operating results, reputation and
trading price of our ADSs.
Regulations on Tax
PRC Enterprise Income
Tax
The PRC EIT is calculated
based on the taxable income determined under the PRC accounting standards and regulations, as well as the EIT law. On March 16, 2007,
the National People's Congress of China enacted the EIT Law, a new EIT law which became effective on January 1, 2008, which was
subsequently amended on March 16, 2007, February 24, 2017 and December 29, 2018. On December 6, 2007, the State Council promulgated the
Implementation Rules which also became effective on January 1, 2008. On December 26, 2007, the State Council issued the Notice on
Implementation of Enterprise Income Tax Transition Preferential Policy under the EIT Law, or the Transition Preferential Policy Circular,
which became effective simultaneously with the EIT Law. The EIT Law imposes a uniform EIT rate of 25% on all domestic enterprises and
foreign-invested enterprises unless they qualify under certain exceptions. Under the EIT Law, as further clarified by the Implementation
Rules, the Transition Preferential Policy Circular and other related regulations, enterprises that were established and already enjoyed
preferential tax treatments before March 16, 2007 will continue to enjoy them in the following manners: (i) in the case of preferential
tax rates, for a five-year period starting from January 1, 2008, during which the tax rate will gradually increase to 25%; or (ii) in
the case of preferential tax exemption or reduction for a specified term, until the expiration of such term. However, if such an enterprise
has not enjoyed the preferential treatments yet because of its failure to make a profit, its term for preferential treatment will be
deemed to start from 2008. See "Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The
PRC Enterprise Income Tax Law may increase the enterprise income tax rate applicable to some of our PRC subsidiaries which could have
a material adverse effect on our result of operations."
Under the New Income Tax
law, enterprises are classified as either resident or non-resident. A resident enterprise refers to one that is incorporated under the
PRC law or under the law of a jurisdiction outside the PRC with its "de facto management organization" located within the
PRC. Non-resident enterprise refers to one that is incorporated under the law of a jurisdiction outside the PRC with its "de facto
management organization" located also outside the PRC, but which has either set up institutions or establishments in the PRC or
has income originating from the PRC without setting up any institution or establishment in the PRC. Under the New Enterprise Income Tax,
Implementation Regulation, or the New EIT Implementation Regulations, "de facto management organization" is defined as the
organization of an enterprise through which substantial and comprehensive management and control over the business, operations, personnel,
accounting and properties of the enterprise are exercised. Under the New Income Tax Law and the New EIT Implementation Regulation, a
resident enterprise's global net income will be subject to a 25% EIT rate. On April 22, 2009, the State Administration of Taxation,
or the SAT, issued SAT Circular 82, which provides certain specific criteria for determining whether the "de facto management body"
of a PRC-controlled enterprise that is incorporated offshore is located in China. In addition, the SAT issued a bulletin on July 27,
2011 providing more guidance on the implementation of Circular 82 and clarifying matters such as resident status determination. Due to
the present uncertainties resulting from the limited PRC tax guidance on this issue and because substantially all of our operations and
all of our senior management are located within China, we may be considered a PRC resident enterprise for EIT purposes, in which case:
(i) we would be subject to the PRC EIT at the rate of 25% on our worldwide income; and (ii) dividends income received by us from our
PRC subsidiaries, however, would be exempt from the PRC withholding tax since such income is exempted under the EIT Law for a PRC resident
enterprise recipient. See "Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our
global income or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material
adverse effect on our results of operations."
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PRC Business Tax and
VAT
Taxpayers providing taxable
services in China are required to pay a business tax at a normal tax rate of 5% of their revenues, unless otherwise provided. According
to the Announcement on the VAT Reform Pilot Program of the Transportation and Selected Modern Service Sectors issued by the State Tax
Bureau in July 2012, the transportation and some selected modern service sectors, including research and development and technical services,
information technology services, cultural creative services, logistics support services, tangible personal property leasing services,
and assurance and consulting service sectors, should pay value-added tax instead of business tax based on a predetermined timetable (hereinafter
referred to as the "VAT Reform"), effective September 1, 2012 for entities in Beijing and November 1, 2012 for entities in
Guangdong. The VAT Reform expanded nation-wide from August 1, 2013.
In March 2016, during the
fourth session of the 12th National People's Congress, it was announced that the VAT reform will be fully rolled out and extended
to all industries including construction, real estate, financial services and lifestyle services. Subsequently, the SAT and Ministry
of Finance jointly issued a Notice on Preparing for the Full Implementation of the VAT Reform (Cai Shui [2016] No. 36). Accordingly,
we started to pay value-added tax instead of business tax from May 1, 2016.
Dividend Withholding
Tax
Under the PRC tax laws effective
prior to January 1, 2008, dividends paid to foreign investors by foreign-invested enterprises are exempt from PRC withholding tax. Pursuant
to the EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and distributed to us by our PRC subsidiaries
through our BVI subsidiary are subject to a 10% withholding tax, provided that we are determined by the relevant PRC tax authorities
to be a "non-resident enterprise" under the EIT Law. Pursuant to the Avoidance of Double Taxation Arrangement, which became
effective on January 1, 2007, which was subsequently amended on January 30, 2008, May 27, 2010, April 1, 2015 and July 19, 2019, dividends
from our PRC subsidiaries paid to us through our Hong Kong wholly-owned subsidiary CNinsure Holdings Ltd. are subject to a withholding
tax at a rate of 5%. However, as described above, we may be considered a PRC resident enterprise for EIT purposes, in which case dividends
received by us from our PRC subsidiary would be exempt from the PRC withholding tax because such income is exempted under the EIT Law
for a PRC resident enterprise recipient. In July 2018, CNinsure Holdings Ltd. was determined by Hong Kong Taxation Bureau to be a Hong
Kong resident enterprise and completed the application and filing process for enjoying the tax treaty in PRC Taxation Bureau therefore
we have applied 5% withholding tax rate for the dividends paid by our PRC subsidiaries since then. As there remains uncertainty regarding
the interpretation and implementation of the EIT Law and the Implementation Rules, it is uncertain whether any dividends to be distributed
by us, if we are deemed a PRC resident enterprise, to our non-PRC shareholders and ADS holders would be subject to any PRC withholding
tax. See "Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our global income
or the dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse
effect on our results of operations."
C. Organizational Structure
Corporate Structure
As of March 31, 2023, we,
through Fanhua Group Company, have controlling equity ownership in one insurance sales services company with a national operating license,
one managing general agency with brokerage license, five regional insurance agencies, two insurance claims adjusting firms and one healthcare
management service company which also operates an online mutual aid platform. In addition, through contractual arrangements, we control
one insurance sales services company with a national operating license to operate online insurance distribution business, two regional
insurance agencies and one brokerage firm. We also own 4.5% equity interest of Puyi Inc..
Fanhua Group Company and
its direct and indirect subsidiaries and our consolidated VIEs hold the licenses and permits necessary to conduct our insurance intermediary
business and internet insurance distribution business in China.
Major Changes in our Corporate Structure
Historically, PRC laws and
regulations restricted foreign investment in and ownership of insurance intermediary companies and internet companies. Accordingly, from
December 2005 to May 2016, we conducted all or part of our business in China through contractual arrangements among our PRC subsidiaries,
then-existing VIEs and their shareholders. We relied on contractual arrangements to control and receive economic benefits from our then-existing
VIEs. In October 2011, we commenced a restructuring of our company. Through a series of equity transfers, we had obtained direct controlling
or significant equity ownership in all of our insurance intermediary companies and our online operations by May 2016. The contractual
arrangements were terminated between January 2015 and May 2016.
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In October 2015, we, through
our wholly-owned subsidiary Meidiya Investment entered into act-in-concert agreements with 5 equity interest holders of Fanhua Insurance
Surveyors & Loss Adjustors Company Limited, or FHISLA and controls 69.0% of voting interests in aggregate. The act-in-concert agreements
were effective from October 26, 2015 and will remain effective for as long as FHISLA is in operation, until and only when all contracting
parties agree to cease the agreement. Per the act-in-concert agreements, all the disagreements will ultimately be determined by Meidiya
Investment, the shareholder of the highest shareholding amongst the act-in-concert group in FHISLA. Accordingly, we control 69.0% of
voting rights in aggregate, which exceeds two-thirds of the voting requirement to pass all resolutions in shareholder meetings of FHISLA.
To remain compliant with
the regulatory requirements for conducting online insurance business through Baoxian.com, we commenced a restructuring of our online
operations in 2021. As a result of the restructuring, Fanhua Group Company's direct equity interests in Xinbao Investment, which
directly owns 100% of Fanhua RONS, the licensed operating entity of Baoxian.com, was reduced from 100% to 49% and the remaining 51% equity
interests were owned by an individual who is nominally holding the shares on behalf of Fanhua. Concurrently, Fanhua Group Company entered
into contractual arrangements with Xinbao Investment and its individual nominee shareholder to control and receive economic benefits
from the consolidated VIEs.
On June 24, 2022,
our wholly owned subsidiary Fanlian Investment transferred all of the equity interests in Fanhua RONS Technologies to Mr. Peng Ge, our
chief financial officer to hold the shares of Fanhua RONS Technologies nominally on behalf of the Company. Concurrently, Fanlian Investment
entered into contractual arrangements with Fanhua RONS Technologies and Mr. Ge. The contractual arrangements are substantially similar
to those among Fanhua Group Company, Xinbao Investment and its individual nominee shareholder.
As a result, we currently
conduct our insurance agency and claims adjusting business in China primarily through our wholly-owned subsidiary Fanhua Group Company,
and its subsidiaries and a small part of our business through our consolidated VIEs in China.
The following diagram illustrates
the corporate structure of us and the consolidated VIEs, including the names, places of incorporation and the proportion of ownership
interests in our and the consolidated VIEs' significant subsidiaries and their respective subsidiaries as of March 31, 2023:
The diagram above omits
the names of subsidiaries that are immaterial individually and in the aggregate. For a complete list of our subsidiaries as of March
31, 2023, see Exhibit 8.1 to this annual report.
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The following is a summary
of the key terms of our contractual arrangements with our consolidated VIEs Xinbao Investment, Fanhua RONS Technologies and their respective
subsidiaries, and with their respective individual nominee shareholders.
Agreements that Provide Us Effective Control
over Xinbao Investment and Fanhua RONS Technologies
Loan Agreement.
Xinbao Investment.
On December 6, 2021, Mr. Shuangping Jiang, the shareholder of Xinbao Investment, entered into a loan agreement with Fanhua Group
Company, or the Fanhua Group Company Loan. The principal loan amounts extended by Fanhua Group Company to Mr. Shuangping Jiang is RMB4.1
million, equal to his capital contributions to Xinbao Investment.
The term of the loan agreement
is for ten years, which cannot be automatically extended but may be extended upon written agreement of the parties. If the loan is not
extended, then upon its expiration and subject to then applicable PRC laws, the loan can be repaid only with the proceeds from a transfer
of the individual shareholder's equity interests in Xinbao Investment to Fanhua Group Company or another person or entity designated
by Fanhua Group Company. Fanhua Group Company may accelerate the loan repayment upon certain events, including if the individual shareholder
resigns or is dismissed from employment by us or if Fanhua Group Company exercises its option to purchase the shareholder's equity
interests in Xinbao Investment pursuant to the exclusive purchase option agreements described below.
The loan agreement contains
a number of covenants that restrict the actions the individual shareholder can take or cause Xinbao Investment to take, and also require
the individual shareholder to take or cause Xinbao Investment to take specific actions. For example, the individual shareholders must:
●
not transfer, pledge or otherwise dispose of or encumber his equity
    interests in Xinbao Investment, except for equity pledge for the benefit of Fanhua Group Company, without the prior written consent
    of Fanhua Group Company;
●
not take any action that will have a material impact on the assets,
    business and liabilities of Xinbao Investment without the prior written consent of Fanhua Group Company;
●
not vote for, or execute any resolution to approve, the sale, transfer,
    mortgage, or disposal of, or the creation of any encumbrance on, any legal or beneficial interests in the equity of Xinbao Investment,
    except to Fanhua Group Company or its designee, without the prior written consent of Fanhua Group Company;
●
not vote for, or execute any resolutions to approve, any merger or
    consolidation with any person, or any acquisition of or investment in any person by Xinbao Investment without the prior written consent
    of Fanhua Group Company;
●
vote to elect the director candidates nominated by Fanhua Group Company;
●
cause Xinbao Investment not to supplement, amend or modify its articles
    of association in any manner, increase or decrease its registered capital or change the capital structure in any way without the
    prior written consent of Fanhua Group Company; and
●
cause Xinbao Investment not to execute any contract with a value exceeding
    RMB100,000, except in the ordinary course of business, without the prior written consent of Fanhua Group Company.
Fanhua RONS Technologies.
The individual shareholder of Fanhua RONS Technologies, being Mr. Peng Ge, who is our chief financial officer, entered into a
loan agreement on July 1, 2022 with our subsidiary Fanlian Investment, or the Fanlian Loan, for a zero interest loan from Fanlian Investment.
The principal amount lent to Mr. Ge is RMB20.0 million (US$2.9 million). The terms of the Fanlian Loan are similar to those of the Fanhua
Group Company Loans described above.
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Equity Pledge Agreement.
Xinbao Investment.
Mr. Shuangping Jiang entered into an equity pledge agreement on December 6, 2021, pledging his equity interest in Xinbao Investment
to Fanhua Group Company to secure his obligations under the loan agreement. Mr. Jiang also agreed not to transfer or create any encumbrances
adverse to Fanhua Group Company on his equity interests in Xinbao Investment. During the term of the equity pledge agreement, Fanhua
Group Company is entitled to all the dividends declared on the pledged equity interests. The equity pledge agreement will expire when
the individual shareholder fully performs his obligations under the loan agreement. The equity pledge was recorded on the shareholder'
register of Xinbao Investment, and registered with the relevant local administration of industry and commerce.
Fanhua RONS Technologies
.
Mr. Peng Ge, entered into an equity pledge agreement on July 1, 2022, pledging his equity interests in Fanhua RONS Technologies to
Fanlian Investment to secure his obligations under the Fanlian Loan. Terms of the equity pledge agreement is substantially similar to
equity pledge agreements for Xinbao Investment.
Power of Attorney.
Xinbao Investment.
Mr. Jiang executed powers of attorney on December 6, 2021, each appointing a person designated by Fanhua Group Company as his
attorney-in-fact on all matters requiring shareholder approval. Further, if Fanhua Group Company designates the shareholder to attend
a shareholder's meeting of Xinbao Investment, the individual shareholder agrees to vote his shares as instructed by Fanhua Group
Company. The term of the power of attorney is for ten years.
Fanhua RONS Technologies
.
Mr. Peng Ge, the individual shareholders of Fanhua RONS Technologies, executed powers of attorney on July 1, 2022 appointing a person
designated by Fanlian Investment as his attorney-in-fact on all matters requiring shareholder approval. Further, if Fanlian Investment
designates the shareholder to attend a shareholder's meeting of Fanhua RONS Technologies, the individual shareholder agrees to
vote his shares as instructed by Fanlian Investment. The term of the power of attorney is for ten years.
Agreement that Provides Us the Option to Purchase
the Equity Interests in Xinbao Investment
Exclusive Purchase Option
Agreement.
Xinbao Investment.
Mr.
Jiang entered into an exclusive purchase option agreement on December 6, 2021 to irrevocably grant Fanhua Group Company an exclusive
option to purchase all of his equity interests in Xinbao Investment, when and to the extent permitted by PRC law. The purchase price
will be the minimum price permitted under applicable PRC law.
Fanhua RONS Technologies.
Mr. Ge entered into an exclusive purchase option agreement on July 1, 2022 to irrevocably grant Fanlian Investment an exclusive option
to purchase all of his equity interests in Fanhua RONS Technologies, when and to the extent permitted by PRC law. The purchase price
will be the minimum price permitted under applicable PRC law.
Agreements that Transfer Economic Benefits
to Us
Technology Consulting
and Service Agreement.
Pursuant to technology service agreements between (i) Fanhua Group Company, and (ii) Xinbao Investment and
each of its subsidiaries, Fanhua Group Company agreed to provide Xinbao and its subsidiaries with training services and consulting and
other services relating to IT platform and internal control compliance. In exchange, Xinbao and its subsidiaries agree to pay a quarterly
fee calculated primarily based on a percentage of their revenues, which is currently waved until further written notice by Fanhua Group
Company. Each of these agreements has a term of one year and will be automatically renewed for one-year term.
Consulting and Service
Agreement
. Pursuant to the consulting and service agreements entered into between (i) Fanlian Investment, and (ii) Fanhua RONS
Technologies and each of its subsidiaries, Fanlian Investment agreed to provide financial and tax consulting services to Fanhua RONS
Technologies and each of its subsidiaries in exchange for fees payable quarterly calculated as a percentage of revenues of Fanhua RONS
Technologies and each of its subsidiaries. Each of these agreements has an initial term of one year and will be automatically renewed
for one-year term. The fee is currently waved by Fanlian Investment until further written notice by Fanlian Investment.
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Because of our contractual
arrangements with Xinbao Investment, Fanhua RONS Technologies and their subsidiaries and their individual nominee shareholders, we are
the primary beneficiary of Xinbao Investment and Fanhua RONS Technologies and their subsidiaries and we consolidate them into our consolidated
financial statements. For the year ended December 31, 2022, aggregate revenues derived from these consolidated VIEs amounted to 5.1% of
our total consolidated net revenues, based on our corporate structure as of December 31, 2022. As of December 31, 2022, the assets of
our consolidated VIEs accounted for an aggregate of 3.3% of our consolidated total assets.
The cash flows that have
occurred between our subsidiaries and our consolidated VIEs are summarized as the following:
The cash flows occurred between
our subsidiaries and the consolidated VIEs included the following: (1) cash received by the VIEs from our subsidiaries as inter-company
advances amounted to RMB43.0 million for the year ended December 31, 2022; and (2) commissions received offset by technology services
paid by our subsidiaries to the VIEs amounted to RMB94.9 million for the year ended December 31, 2022.
Due to the restriction on
foreign investment in the internet industry, we expect to continue to rely on contractual arrangements to control and receive economic
benefits from our current consolidated VIEs.
In the opinion of Hai Run
Law Firm, our PRC legal counsel:
●
both the direct and indirect controlling equity ownership structures
    of our subsidiaries and our consolidated VIEs in China have complied with all existing PRC laws and regulations
●
the contractual arrangements among our PRC subsidiaries, Xinbao Investment,
    Fanhua RONS Technologies, their subsidiaries, and their individual shareholders governed by PRC law are valid, binding and enforceable,
    and will not result in any violation of PRC laws or regulations currently in effect; and
●
the business operations of our PRC subsidiaries and our consolidated
    VIEs comply in all material respects with existing PRC laws and regulations.
We have been advised by
our PRC legal counsel, however, that there are uncertainties regarding the interpretation and application of PRC laws and regulations,
such contractual arrangements may not be as effective as direct ownership in providing operational control. Accordingly, the PRC regulatory
authorities may in the future take a view that is contrary to the above opinion of our PRC legal counsel. We have been further advised
by our PRC counsel that if the PRC government finds that the agreements establishing the structure for operating our online operations
do not comply with PRC government restrictions on foreign investment in the internet industry, we could be subject to severe penalties
including being prohibited from continuing operations. See "Item 3. Key Information—D. Risk Factors—Risks Related to
Our Corporate Structure—Fanhua Inc. is a Cayman Islands holding company operating in China primarily through its subsidiaries and
a small part of its business through contractual arrangements with Xinbao Investment and Fanhua RONS Technologies. Investors in the ADSs
thus are not purchasing, and may never directly hold, all equity interests in the consolidated VIEs. There are substantial uncertainties
regarding the interpretation and application of current and future PRC laws, regulations, and rules relating to such agreements that
establish the VIE structure for our consolidated VIEs' operations in China, including potential future actions by the PRC government,
which could affect the enforceability of our contractual arrangements with Xinbao Investment and Fanhua RONS Technologies and, consequently,
adversely affect the financial condition and results of operations of Fanhua Inc. If the PRC government finds such agreements non-compliant
with relevant PRC laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the
future, we could be subject to severe penalties or be forced to relinquish part of our interests in Xinbao Investment and Fanhua RONS
Technologies or forfeit our rights under the contractual arrangements." To date we have not encountered any interference or encumbrance
from the PRC government on account of operating our business through these agreements.
D. Property, Plants and Equipment
Our headquarter is located
in Guangzhou, China, where we leased approximately 2,828.8 square meters of office space as of December 31, 2022. Office space leased
by our subsidiaries and consolidated VIEs, including certain space used and paid by sales teams, was approximately 162,087.9 square meters
as of December 31, 2022. In 2022, our total rental expenses were RMB98.8 million (US$14.3million).
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Item 4A. Unresolved Staff Comments
None.
Item 5. Operating and Financial Review and Prospects
The following discussion
and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements
and the related notes included in this annual report. This discussion and analysis contain forward-looking statements based upon current
expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under "Item 3. Key Information—D. Risk Factors"
or in other parts of this annual report. For discussion of 2020 items and year-over-year comparisons between 2021 and 2020 that are not
included in this annual report on Form 20-F, refer to "Item 5. Operating and Financial Review and Prospects" found in our
Form 20-F for the year ended December 31, 2021, that was filed with the Securities and Exchange Commission on April 29, 2022.
A. Operating Results
Factors Affecting Our Results of Operations
As an insurance intermediary
in China, our financial condition and results of operations are affected by a variety of factors, including:
●
business relationship with important insurance company partners;
●
total premium payments to Chinese insurance companies;
●
the extent to which insurance companies in the PRC outsource the distribution
    of their products and claims adjusting functions;
●
premium rate levels and commission and fee rates;
●
the size and productivity of our sales force;
●
commission rates for individual sales agents;
●
product and service mix;
●
share-based compensation expenses;
●
seasonality; and
●
Impact on our business and financial results due to the COVID-19 pandemic;
●
Successful implementation of our professionalization, digitalization
    and open platform strategy
Business Relationship with Important Insurance
Company Partners
We derive significant revenue
from our important insurance company partners. Among these top five of our insurance company partners, Sinatay accounted for 19.6% of
our total net revenues in 2022. As a result, any significant changes to our business relationship with the important insurance company
partners could have a material impact on our revenue and profit.
Total Premium Payments to Chinese Insurance
Companies
The Chinese insurance industry
has grown substantially in the past decade. Between 2012 and 2022, total insurance premiums increased from RMB1.5 trillion to RMB4.9
trillion, representing a compound annual growth rate, or CAGR, of 12.3%, according to the CBIRC. Although the growth has slowed down
significantly from 2020 to 2022 due to economic uncertainty, the impact of COVID-19, tightening regulation and industry transformation,
among others, we believe that certain macroeconomic and demographic factors, such as increasing per capita GDP, and an aging population
and people's increasing awareness of insurance protection, have contributed to and will continue to drive the growth of the Chinese
insurance industry in the long term.
We derive our revenue primarily
from commissions and fees paid by insurance companies, typically calculated as a percentage of premiums paid by our customers to the
insurance companies. Accordingly, industry-wide premium growth will have a positive impact on us. Any downturn in the Chinese insurance
industry, whether caused by a general slowdown of the PRC economy or otherwise, may adversely affect our financial condition and results
of operations.
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The Extent to Which Insurance Companies
in the PRC Outsource the Distribution of their Products and Claims Adjusting Functions
Historically, insurance
companies in the PRC have relied primarily on their exclusive individual sales agents and direct sales force to sell their products.
However, in recent years, as a result of increased competition, consumers' demand for more choices and regulatory focus on long
term protection-oriented life insurance products, more and more insurance companies gradually expanded their distribution channels to
include insurance intermediaries such as commercial banks, postal offices, professional insurance agencies and professional insurance
brokerages. In addition, because of the increasingly high cost of establishing and maintaining distribution networks of their own, more
and more medium-size insurance companies have chosen to rely primarily on insurance intermediaries to distribute their products while
they focus on other aspects of their business.
As insurance companies in
the PRC become more accustomed to outsourcing the distribution of their products to insurance intermediaries, they may allow insurance
intermediaries to distribute a wider variety of insurance products and may provide more monetary incentives to more productive and effective
insurance intermediaries. These and other similar measures designed to boost sales through insurance intermediaries can have a positive
impact on our financial condition and results of operations. Similarly, as competition intensifies and the insurance market becomes more
mature in China, we expect that more insurance companies will choose to outsource claims adjusting functions to professional service
providers such as our affiliated claims adjusting firms while they focus on the core aspects of their business, including product development
and asset and risk management.
Premium Rate Levels and Commission and
Fee Rates
Because the commissions
and fees we receive from insurance companies for the distribution of insurance products are generally calculated as a percentage of premiums
paid by our customers to the insurance companies, our revenue and results of operations are affected by premium rate levels and commission
and fee rates. Premium rate levels and commission and fee rates can change based on the prevailing economic conditions, competitive and
regulatory landscape, and other factors that affect insurance companies. These other factors include the ability of insurance companies
to place new business, underwriting and non-underwriting profits of insurance companies, consumer demand for insurance products, the
availability of comparable products from other insurance companies at a lower cost, and the tax deductibility of commissions and fees.
In general, we can negotiate for better rates as an incentive for generating a larger volume of business.
Since China's entry
into the WTO in December 2001, competition among insurance companies has intensified as a result of a significant increase in the number
of insurance companies and the existing insurance companies' expansion into new geographic markets. This competition has led to
a gradual increase in the commission and fee rates offered to insurance intermediaries, and such an increase has had a positive impact
on our results of operations.
The Size and Productivity of Our Sales
Force
As a distributor of insurance
products, we generate revenue primarily through our sales force who are individual sales agents in our distribution and service network.
Some entrepreneurial management staff or senior sales agents of major insurance companies in China have chosen to leave their employers
or principals and become independent agents. We refer to these independent agents as "entrepreneurial agents." An entrepreneurial
agent is usually able to assemble and lead a team of sales agents. We have been actively recruiting and will continue to recruit entrepreneurial
agents to join our distribution and service network as our sales agents. Entrepreneurial agents have been instrumental to the development
of our life insurance business. The size of our sales force, its productivity, as measured by the average number of insurance products
sold per performing sales agent that refers to a sales agent who has sold at least one insurance policy, the average premium per product
sold and the average premiums generated per performing sales agent during any specified period, directly affect our revenue and results
of operations. In recent years, as the result of our efforts to streamline our sales force with more focus on better performing sales
agents as well as the adverse impact of the COVID-19 on the sales activities of our sales agents, the size of our sales force has decreased
substantially which had adversely affected our financial results. However, we have embarked on a series of strategic initiatives to professionalize
our sales force and recruit more productive agents, which we expect to bring positive results on the number of our performing agents
and their productivity and as a result have positive impact on our financial performance within the next few years.
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Commission Rates for
Individual Sales Agents
A large component of our
operating costs is commissions paid to our individual sales agents. In order to retain sales agents, we must pay commissions at a level
comparable to the commissions paid by our competitors. Intensified competition for productive sales agents within the Chinese insurance
industry and rising salaries in China may lead to a significant increase in commission rates which could have a negative impact on our
results of operations.
Product and Service Mix
We began distributing auto
insurance products in 1999, expanded our product offerings to other property and casualty insurance products in 2002, and started distributing
long-term individual life and health insurance products in 2006, primarily to individual customers. We further broadened our service
offering to cover insurance claims adjusting services in 2008.
Insurance Agency Segment
Our largest segment by revenue,
the insurance agency segment, provides a broad range of life and health and property and casualty insurance products to individual customers.
Most individual life and
health insurance policies we distribute require periodic payment of premiums, typically annually, during a pre-determined payment period,
generally ranging from three to 25 years. For each of such policies that we distribute, insurance companies will pay us a first-year
commission and fee based on a percentage of the first-year premiums, and subsequent commissions and fees based on smaller percentages
of the renewal premiums paid by the insured throughout the renewal term of the policy. Therefore, once we distribute a life and health
insurance policy with a periodic payment schedule, it can bring us a steady flow of commission and fee revenue throughout the renewal
term as long as the insured fulfills his or her premium payment commitment and continuously renews the policy.
Because of the recurring
nature of commissions derived from long term life and health insurance business, and the higher gross margin of our life insurance business
than that of our property and casualty insurance business, we intend to continue our focus on distributing more long-term life and health
insurance products, which we believe will have a positive impact on our revenue and gross margin in the long term.
The property and casualty
insurance policies we distribute primarily consist of individual accident insurance, indemnity medical insurance, travel insurance, and
homeowner insurance that we distribute through Baoxian.com. Because the insurance products that we distribute through Baoxian.com are
mostly underwritten by property and casualty insurance companies, we classify them as property and casualty insurance products. These
property and casualty insurance policies we distribute are typically for a one-year term, with a single premium payable at the beginning
of the term. As a result, the insured has to purchase new policies through us every year. Accordingly, we receive a single commission
or fee for each property and casualty policy we distribute.
Claims Adjusting Segment
The fees we receive for
our claims adjusting services are calculated based on the types of insurance products involved. For services provided in connection with
property and casualty insurance (other than marine cargo insurance and automobile insurance), our fees are calculated as a percentage
of the recovered amount from insurance companies plus travel expenses. For services provided in connection with marine cargo insurance,
our fees are charged primarily on an hourly basis and, in some cases, as a percentage of the amount recovered from insurance companies.
For services provided in connection with auto insurance, individual accident insurance and health insurance, our fees are generally fixed
and the amounts collected are based on the types of services provided. In some cases, our fees are charged based on the number of claims
adjustors involved in providing the services. We pay our in-house claims adjustors a base salary plus a commission calculated based on
a small percentage of the service fees we receive from insurance companies or the insured. The claims adjusting business has become and
likely will continue to be a steady source of our net revenues. The operating margin of our claims adjusting segment are generally lower
than those of our insurance agency segment although its gross margin is relatively higher. We expect revenues from our claims adjusting
business as a percentage of our total net revenues to remain stable over the next few years.
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Share-based Compensation Expenses
Our historical results of
operations have been affected by the share-based compensation expenses incurred. See "Item 5. Operating and Financial Review and
Prospects—A. Operating Results—Factors Affecting Our Results of Operations——Share-based Compensation Expenses"
for a more detailed discussion of our historical share-based compensation expenses. In order to attract and retain the best personnel
for positions of substantial responsibility, provide additional incentives to employees, directors and consultants and promote the success
of our business, we adopted share incentive plans in 2007 and 2022. See "Item 6. Directors, Senior Management and Employees—B.
Compensation—Share Incentives—2007 Share Incentive Plan." All of the share-based compensation expenses related to the
options granted under the 2007 Share Incentive Plan have been amortized as of December 31, 2016. On June 14, 2018, we announced the 521
Plan, which enabled the Participants, consisting of certain key employees and independent sales agent team leaders, to invest in the
Company by purchasing a total of 280,000,000 ordinary shares of the Company, representing 14 million of the Company's ADSs at the
subscription price of US$27.38 per ADS. Accordingly, we recognized share-based compensation expenses in 2019. In 2020, RMB0.4 million
of cumulative cost recognized in prior periods related to the 521 Plan was reversed as the performance target was not probable to be
met. In December 2020, the 521 Plan was canceled without any replacement awards. In 2021, no share-based compensation expenses were incurred.
On August 12, 2022, our board of directors adopted a new share incentive plan under which we have reserved 161,143,768 ordinary shares
for issuance, which was approximately 15% of our outstanding ordinary shares as of June 30, 2022. Simultaneously, our board of directors
approved the grant of options to purchase an aggregate of 4,000,000 ordinary shares to independent directors pursuant to the 2022 Share
Incentive Plan (the "2022 Option 1"). Accordingly, we recognized share-based compensation expenses of RMB461,000 in 2022.
In February 2023, our board of directors approved the grant options to purchase an aggregate of 13,680,000 ordinary shares to certain
top agents. See "Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentives—2022 Share
Incentive Plan." We expect share-based compensation expenses to be a significant component of our operating expenses in the near
future.
Seasonality
Our quarterly results of
operations are affected by seasonal variations caused by business mix, insurance companies' business practices and consumer demand.
For life insurance business, much of the jumpstart sales activities of life insurance companies occur during the first quarter of a year,
while business activities slow down in the fourth quarter of a year as life insurance companies focus on the preparation for the jumpstart
sales season of the coming year by preparing to launch new products, making marketing plans and organizing training. During the jumpstart
sales season, life insurance companies will offer incentives that are more attractive to insurance intermediaries and sales agents to
boost sales. Accordingly, our commission and fee revenue derived from life insurance business is generally the highest in the first quarter
of a year and the lowest in the fourth quarter of a year. For property and casualty insurance products that we distribute on Baoxian.com,
there was no obvious seasonal fluctuation.
Impact on our business and financial results
due to the COVID-19 pandemic
In 2022, the PRC government
adopted a dynamic zero-case policy to contain the periodic resurgences of the COVID-19 pandemic which has largely been effective. However,
our business was negatively impacted, primarily because (i) consumers' consumption confidence for non-necessity products or services
was adversely affected due to increased uncertainty in China's economic outlook; and (ii) offline activities related to customer
engagement, agent recruitment and training were disrupted from time to time as a result of the social-distancing measures imposed in
regions where there were new coronavirus cases.
In addition, the business
operation of our non-consolidated affiliated investees has also been adversely impacted by the COVID-19 outbreak which had affected the
fair value of our investment in affiliates.
Successful implementation of our professionalization,
digitalization and open platform strategy
In late 2020, we launched
new strategic initiatives to upgrade our sales organization by developing high-caliber, productive and professional insurance advisor
teams in economically developed cities in China. We also intend to build an integrated digital platform utilizing artificial intelligence,
big data and cloud computing to optimize the use of data to provide the most appropriate products for existing and potential customers
and increase agent productivity. In addition, we intend to build an open platform to share our advantages in technology, system, contractual
relationship, and nationwide network with various industry participants to help them monetize their existing customer resources and to
strengthen our value proposition to the market. We expect these new strategic initiatives to be new engines to drive our long-term growth.
There is no assurance that we will be able to implement important strategic initiatives in accordance with our expectations, which may
result in an adverse impact on our business and financial results.
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Key Performance Indicators
As of December 31, 2021
and 2022, we operated two segments: (1) the insurance agency segment, which mainly consisted of providing agency services for distributing
life insurance products and P&C insurance products on behalf of insurance companies, and (2) the claims adjusting segment, which
consists of providing pre-underwriting survey services, claims adjusting services, disposal of residual value services, loading and unloading
supervision services, and consulting services.
Operating segments are defined
as components of an enterprise about which separate financial information is available and evaluated regularly by our chief operating
decision maker in deciding how to allocate resources and in assessing performance.
Net Revenues
Our revenues are net of
PRC tax surcharges and value-added tax incurred. In 2021 and 2022, we generated net revenues of RMB3,271.1 million (US$513.3 million)
and RMB2,781.6 million (US$403.3 million), respectively. We derive net revenues from the following sources:
●
Insurance agency segment
: commissions paid by insurance companies
    for the distribution of (i) life and health insurance products, and (ii) commoditized property and casualty products sold through
    Baoxian.com, which accounted for 86.0% and 85.4% of our net revenues for 2021 and 2022, respectively;
●
Claims adjusting segment
: commissions and fees primarily paid
    by the insurance companies for the provision of claims adjusting services, which accounted for 14.0% and 14.6% of our net revenues
    for 2021 and 2022, respectively;
The following table sets
forth our total net revenues earned from each of our reporting segments both in absolute amounts and as percentages of total net revenues,
for the periods indicated:
Year Ended December 31,
2021
2022
RMB
%
RMB
US$
%
(in thousands except percentages)
Agency
2,811,936
86.0
2,376,851
344,611
85.4
Life insurance business
2,679,720
81.9
2,237,312
324,380
80.4
P&C insurance business
132,216
4.1
139,539
20,231
5.0
Claims adjusting
459,178
14.0
404,763
58,685
14.6
Total net revenues
3,271,114
100.0
2,781,614
403,296
100.0
Insurance agency segment
primarily covers distribution of life and health insurance products and property and casualty insurance products to individuals. Net
revenues from the insurance agency segment decreased from 2021 to 2022 in both absolute amount and as a percentage of our total net revenues.
Net revenues generated from
distribution of long-term life and health insurance products have become our primary source of revenue. We began distributing individual
life and health insurance products in 2006. Net revenues generated from distribution of life and health insurance products decreased
from 2021 to 2022, both in absolute amounts and as a percentage of our net revenues primarily due to the impact of COVID-19. The decrease
was mainly due to (i) high base in the first quarter of 2021 as a result of the strong sales of critical illness products prior to the
transition to the new critical illness definition framework and (ii) the decrease in the weighted average renewal commission rate of
renewal premium collected, and to a lesser extent, due to the change in the product mix. We expect our life insurance business to grow
and bring in significant revenue that will continue to represent a high percentage of our total net revenues in the next several years.
We believe this growth will be driven by a number of factors including stronger demand for traditional life and health insurance products
as a result of the aging population and the Chinese consumers' increasing awareness of the benefits of insurance.
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80
-
Net revenues generated from
distribution of property and casualty insurance products increased from 2021 to 2022 in absolute amounts of our net revenues, primarily
due to the contribution from a newly acquired brokerage firm. We expect our net revenues to be derived from distribution of property
and casualty insurance products to remain stable in 2022.
We began providing claims
adjusting services in 2008. Net revenues from our claims adjusting segment decreased from 2021 to 2022, primarily due to the impact of
COVID-19. We expect that net revenues from claims adjusting services as a percentage of our total net revenues will be stable in the
next few years.
The commissions and fees
we receive from the distribution of insurance products are based on a percentage of the premiums paid by the insured. Commission and
fee rates generally depend on the type of insurance products, the particular insurance company and the region in which the insurance
products are sold. We typically receive payment of the commissions and fees from insurance companies for insurance products on a monthly
basis. Some of the fees are paid to us annually or semi-annually in the form of additional performance bonuses after we achieve specified
premium volume or policy renewal goals as agreed upon between the insurance companies and us.
We are compensated primarily
by insurance companies for our claims adjusting services. The fees we receive for our claims adjusting services depend on the types of
insurance products involved. For services provided in connection with marine cargo insurance, our fees are charged primarily on an hourly
basis and, in some cases, as a percentage of the amount recovered from insurance companies. For claims adjusting services related to
auto insurance, individual accident insurance and health insurance, our fees are generally fixed on a per claim basis, or in some cases,
on a per head basis. These fees are typically paid to us on a quarterly basis. For services provided in connection with other property
and casualty insurance, our fees are calculated as a percentage of the recovered amount from insurance companies plus travel expenses.
We typically receive payment for these fees on a semi-annual or annual basis.
Operating Costs and Expenses
Our operating costs and
expenses consist of costs incurred in connection with the distribution of insurance products and the provision of claims adjusting services,
selling expenses and general and administrative expenses. The following table sets forth the components of our operating costs and expenses,
both in absolute amounts and as percentages of our net revenues, for the periods indicated.
Year Ended December 31,
2021
2022
RMB
%
RMB
US$
%
(in thousands except percentages)
Total net revenues
3,271,114
100.0
2,781,614
403,296
100.0
Operating costs
(2,115,167
)
(64.7
)
(1,795,603
)
(260,338
)
(64.6
)
Selling expenses
(306,463
)
(9.4
)
(272,706
)
(39,539
)
(9.8
)
General and administrative expenses
(547,579
)
(16.7
)
(544,630
)
(78,964
)
(19.6
)
Total operating costs and expenses
(2,969,209
)
(90.8
)
(2,612,939
)
(378,841
)
(94.0
)
Operating Costs
We incur costs primarily
in connection with the distributions of insurance products and the provision of claims adjusting services. Our operating costs decreased
from 2021 to 2022, which was in line with the decrease in revenue during the same period. We rely mainly on individual sales agents and
to a much lesser degree, on Baoxian.com for the distributions of insurance products. For claims adjusting services, we rely mainly on
our in-house claims adjustors. Operating costs incurred as a percentage of net revenues decreased from 2021 to 2022, primarily due to
the slower growth of our renewal life insurance business and the decrease in volume-based commission from new life insurance business.
We anticipate that our operating costs as a percentage of our total net revenues to remain stable.
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81
-
Selling Expenses
Our selling expenses primarily
consist of:
●
salaries and employment benefits for employees who work in back office
    below the provincial management level;
●
office rental, telecommunications and office supply expenses incurred
    in connection with sales activities; and
●
advertising and marketing expenses.
Selling expenses in 2022
were RMB272.7 million (US$39.5 million) , representing a decrease of 11.0% from RMB306.5 million in 2021. The decrease was due to decreased
sales events and rental costs of our sales outlets, partially offset by increased headcount in our Yuntong branches. We expect that our
selling expenses will increase as we grow in size, and we also intend to spend more on marketing and advertising to enhance our brand
recognition and promote our online platforms.
General and Administrative
Expenses
Our general and administrative
expenses principally comprise:
●
salaries and benefits for our administrative staff;
●
share-based compensation expenses for managerial and administrative
    staff;
●
research and development expenses in relation to our mobile and online
    programs;
●
professional fees paid for valuation, market research, legal and auditing
    services;
●
bad debt expenses for doubtful receivables;
●
compliance-related expenses, including expenses for professional services;
●
depreciations and amortizations;
●
office rental expenses;
●
travel and telecommunications expenses;
●
entertainment expenses;
●
office supply expenses for our administrative staff; and
●
foreign exchange loss.
General and administrative
expenses were RMB544.6 million (US$79.0 million) for 2022, representing a decrease of 0.5% from RMB547.6 million in 2021. The decrease
was mainly due to cost savings from office expenses, partially offset by increased headcount in our IT center. We expect that our general
and administrative expenses will increase as we hire additional administrative personnel, pay higher labor costs and incur additional
costs in connection with the expansion of our business, and our efforts to invest in digital capabilities and develop our online insurance
platforms.
Share-based compensation
expenses
In 2021, no share-based compensation
expenses were incurred. On August 12, 2022, our board of directors adopted a new share incentive plan under which we have reserved 161,143,768
ordinary shares for issuance, which was approximately 15% of our outstanding ordinary shares as of June 30, 2022. Simultaneously, our
board of directors approved the grant of options to purchase an aggregate of 4,000,000 ordinary shares to independent directors pursuant
to the 2022 Share Incentive Plan (the "2022 Option 1"). Accordingly, we recognized share-based compensation expenses of RMB0.5
million in 2022. In February 2023, our board of directors approved the grant options to purchase an aggregate of 13,680,000 ordinary shares
to certain top agents. See "Item 6. Directors, Senior Management and Employees—B. Compensation—Share Incentives—2022
Share Incentive Plan." We expect share-based compensation expenses to be a significant component of our operating expenses in the
near future.
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-
Taxation
We and each of our subsidiaries
file separate income tax returns.
The Cayman Islands, the British Virgin
Islands and Hong Kong
Under the current laws of
the Cayman Islands and the British Virgin Islands, we and our subsidiaries incorporated in the British Virgin Islands are not subject
to income or capital gains taxes. In addition, dividend payments are not subject to withholding tax in those jurisdictions.
On March 21, 2018, the Hong
Kong Legislative Council passed The Inland Revenue (Amendment) (No. 7) Bill 2017 (the "Bill") which introduces the two-tiered
profits tax rates regime. The Bill was signed into law on March 28, 2018 and was gazetted on the following day. Under the two-tiered
profits tax rates regime, the first 2 million Hong Kong Dollar of profits of the qualifying group entity will be taxed at 8.25%, and
profits above HK$2 million will be taxed at 16.5%.
The provision for current
income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the current rate of taxation of 8.25% for the
years ended December 31, 2021 and 2022. Payment of dividends is not subject to withholding tax in Hong Kong.
PRC
EIT
According to the PRC Enterprise
Income Tax Law, which became effective on January 1, 2008 and was subsequently amended on March 16, 2007, February 24, 2017 and December
29, 2018, as further clarified by subsequent tax regulations implementing the EIT law, foreign invested enterprises and domestic enterprises
are subject to enterprise income tax, or EIT, at a uniform rate of 25%.
Pursuant to the relevant
laws and regulations in the PRC, Shenzhen Huazhong United Technology Co., Ltd., or Shenzhen Huazhong, our wholly-owned subsidiary, was
recognized as a software company and thus exempted from PRC Income Tax for two years starting from its first profit-making year, followed
by a 50% reduction for the next three years. For Shenzhen Huazhong, 2017 was the first profit-making year and accordingly it has made
a 12.5% tax provision for its profits for the years ended December 31, 2021. Its tax holiday expired in 2021.
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83
-
Pursuant to the Circular
on Issues Regarding Tax-related Preferential Policies for Further Implementation of Western Development Strategy jointly issued by the
State Ministry of Finance, General Administration of Customs, China and State Administration for Taxation, enterprises located in the
western China regions that fall into the encouraged industries are entitled to 15% EIT preferential tax treatment from January 1, 2011
to December 31, 2020. The preferential tax treatment is extended to December 31, 2030, pursuant to No. 23 Announcement Concerning the
Extension of the EIT Policies for Enterprises Located in Western China issued by the Ministry of Finance on April 23, 2020. In September
2018, our wholly-owned subsidiary, Fanhua Lianxing Insurance Sales Co., Ltd. ("Lianxing"), which is the holding vehicle of
our life insurance operations, was relocated to Tianfu New Area, Sichuan province, PRC. Subsequently, Lianxing will enjoy 15% EIT tax
rate instead of a unified 25% from September 1, 2018 to December 31, 2030. Tibet Zhuli Investment Co. Ltd. ("Tibet Zhuli"),
our wholly-owned subsidiary, was entitled to a preferential tax rate of 9% for the period from 2015 to 2020, and 15% for 2021 as it was
established with approval in Tibet, PRC, before January 1, 2018. Tibet Zhuli was not entitled to the tax holiday in 2022.
Pursuant to the Circular
on Inclusive Tax Relief Policies for Small Low-Profit Enterprises ("SLPEs"), or Circular [2019] No. 13, jointly issued by
the State Ministry of Finance and State Administration for Taxation in January 2019, an SLPE is entitled to a preferential tax rate of
20% with a 75% reduction on its annual taxable income for the portion not exceeding RMB1 million and a 50% reduction for the portion between
RMB1 million to RMB3 million. Further to the Circular [2019] No. 13, Announcement on Preferential Tax Policies for SLPEs and Individually-owned
Businesses ("IOBs") was jointly issued by the State Ministry of Finance and State Administration for Taxation in April 2021,
which provides SLPEs and IOBs an additional 50% reduction on annual taxable income for the portion not exceeding RMB1 million. Pursuant
to the Circular on Inclusive Tax Relief Policies for Small Low-Profit Enterprises ("SLPEs"), or Circular [2022] No. 13, jointly
issued by the State Ministry of Finance and State Administration for Taxation in March 2022, an SLPE is entitled to a preferential tax
rate of 20% with a 75% reduction on its annual taxable income for the portion between RMB1 million to RMB3 million. Accordingly, Shenzhen
Baowang E-commerce Co., Ltd., the wholly-owned subsidiary of one of the VIEs enjoyed a preferential tax rate of 20% with a 75% reduction
on their annual taxable income from January 1, 2019 to December 31, 2022. Shenzhen Fanhua Training Co., Ltd. a subsidiary of our claims
adjusting segment, enjoy a preferential tax rate of 20% with 75% on their annual taxable income from January 1, 2019 to December 31, 2020
and an 87.5% reduction on their annual taxable income from January 1, 2021 to December 31, 2022. Shanghai Fanhua Teamhead Insurance Surveyors
& Loss Adjustors Co., Ltd., enjoyed a preferential tax rate of 20% with a 87.5% reduction on its annual taxable income for the portion
not exceeding RMB1 million and a 50% reduction for the portion between RMB1 million to RMB3 million from January 1 2020 to December 31,
2021, and enjoyed a preferential tax rate of 20% with a 87.5% reduction on its annual taxable income for the portion not exceeding RMB1
million and a 75% reduction for the portion between RMB1 million to RMB3 million for the fiscal year of 2022. Suzhou Feibao Smart Service
Consulting Co., Ltd. (previously known as Suzhou Junzhou Healthcare Management Co., Ltd.) is currently entitled to a tax exemption as
it has not yet achieved profitability.
Business Tax and VAT
With respect to all of our
PRC entities for the period immediately prior to the implementation of the VAT reform program, revenues from our services are subject
to a 5% PRC business tax. Revenues from our online advertising services are subject to an additional 3% cultural business construction
fee.
In March 2016, during the
fourth session of the 12
th
National People's Congress, it was announced that the VAT reform will be fully rolled out
and extended to all industries including construction, real estate, financial services and lifestyle services. Subsequently, the State
Administration of Taxation and Ministry of Finance jointly issued a Notice on Preparing for the Full Implementation of the VAT Reform
(Cai Shui [2016] No. 36). Accordingly, revenues from our services are subject to value-added tax instead of business tax starting from
May 1, 2016.
PRC Urban Maintenance
and Construction Tax and Education Surcharge
Any entity, foreign-invested
or purely domestic, or individual that is subject to consumption tax, VAT and business tax is also required to pay PRC urban maintenance
and construction tax. The rates of urban maintenance and construction tax are 7%, 5% or 1% of the amount of consumption tax, VAT and
business tax actually paid depending on where the taxpayer is located. All entities and individuals who pay consumption tax, VAT and
business tax are also required to pay education surcharge at a rate of 3%, and local education surcharges at a rate of 2%, of the amount
of VAT, business tax and consumption tax actually paid.
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-
Results of Operations
The following table sets
forth our net revenues, operating costs and expenses and income from operations by reportable segments for the periods indicated.
We are currently operating
under two reporting operating segments: (1) insurance agency, and (2) claims adjusting
.
For the Year Ended December 31,
2021
2021 to 2022 Percentage Change
2022
RMB
%
RMB
US$
(in thousands except percentages)
Consolidated Statement of Income Data
Net revenues:
Agency
2,811,936
(15.5
)
2,376,851
344,611
Life insurance business
2,679,720
(16.5
)
2,237,312
324,380
P&C insurance business
132,216
5.5
139,539
20,231
Claims adjusting
459,178
(11.9
)
404,763
58,685
Total net revenues
3,271,114
(15.0
)
2,781,614
403,296
Operating costs and expenses:
Operating costs:
Agency
(1,835,825
)
(16.8
)
(1,527,572
)
(221,477
)
Life insurance business
(1,742,640
)
(17.6
)
(1,436,606
)
(208,288
)
P&C insurance business
(93,185
)
(2.4
)
(90,966
)
(13,189
)
Claims adjusting
(279,342
)
(4.0
)
(268,031
)
(38,861
)
Total operating costs
(2,115,167
)
(15.1
)
(1,795,603
)
(260,338
)
Selling expenses
(306,463
)
(11.0
)
(272,706
)
(39,539
)
General and administrative expenses
(547,579
)
(0.5
)
(544,630
)
(78,964
)
Total operating costs and expenses
(2,969,209
)
(12.0
)
(2,612,939
)
(378,841
)
Income from operations
Insurance agency
393,492
(21.5
)
308,657
44,751
Claims adjusting
16,829
N/A
(11,856
)
(1,720
)
Other
(108,416
)
18.6
(128,126
)
(18,576
)
Income from operations
301,905
(44.1
)
168,675
24,455
Other income, net:
Investment income
32,898
(45.9
)
17,809
2,582
Interest income
2,971
360.2
13,674
1,983
Others, net
33,314
N/A
(3,823
)
(554
)
Income from operations before income taxes and share of income and impairment of affiliates, net
371,088
(47.1
)
196,335
28,466
Income tax expense
(90,574
)
(54.7
)
(41,016
)
(5,947
)
Share of income and impairment of affiliates, net
(20,573
)
238.3
(69,596
)
(10,090
)
Net income
259,941
(67.0
)
85,723
12,429
Less: Net income attributable to the noncontrolling interests
8,952
N/A
(14,549
)
(2,109
)
Net income attributable to the Company's shareholders
250,989
(60.0
)
100,272
14,538
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85
-
Year ended December 31, 2022 Compared to Year Ended December 31,
2021
Net Revenues
Our total net revenues decreased
by 15.0% from RMB3, 271.1 million in 2021 to RMB2,781.6 million (US$403.3 million) in 2022.
●
Net
                                            revenues from our insurance agency segment decreased by 15.5% from RMB2,811.9 million in
                                            2021 to RMB2,376.8 million (US$344.6 million) in 2022. The decrease was primarily due to
                                            a decline in net revenues derived from life insurance business, from RMB2,679.7 million in
                                            2021 to RMB2,237.3 million (US$324.4 million) in 2022, while net revenues derived from the
                                            P&C insurance business were RMB139.5 million (US$20.2million) for 2022, which remained
                                            relatively stable compared with RMB132.2 million in 2021.
●
The decrease in net revenues generated from the life insurance agency
    business was partially offset by the revenue recognized related to variable consideration estimates amounting to RMB245.7 million.
    Excluding the estimated amount, the decrease in net revenues was mainly due to changes in product mix, despite an increase in total
    life insurance GWP. The decrease was mainly due to (i) high base in the first quarter of 2021 as a result of the strong sales of
    critical illness products prior to the transition to the new critical illness definition framework and (ii) the decrease in the weighted
    average renewal commission rate of renewal premium collected, and to a lesser extent, due to the change in the product mix. In 2022,
    total life insurance GWP increased by 10.2% year-over-year to RMB12,409.0 million, of which FYP increased by 2.0% year-over-year
    to RMB 2,556.9 million and renewal premiums increased by 12.6% year-over-year to RMB9,852.1 million.
Revenues for the P&C insurance
business were mainly derived from commissions generated for internet-based insurance products sold on Baowang, including medical insurance,
accident insurance, travel insurance and homeowner insurance products. Net revenues generated from the P&C insurance business accounted
for 5.0% of our total net revenues in 2022.
●
Net revenues from our claims adjusting segment decreased by
    11.8%  from RMB459.2 million in 2021 to RMB404.8 million (US$58.7 million) for 2022. The decrease was due to the
    disruption to our claims adjusting business as a result of the lockdowns in response to the COVID-19 outbreaks in multiple areas in
    China and contraction of our medical-insurance related claims adjusting business.  Revenues generated from the claims
    adjusting business accounted for 14.6% of our total net revenues in 2022.
Operating Costs and Expenses
Operating costs and expenses
decreased by 12.0% from RMB2,969.2 million in 2021 to RMB2,612.9 million (US$378.8 million)for 2022.
Operating Costs.
Our
operating costs decreased by 15.1% from RMB2,115.2 million in 2021 to RMB1,795.6 million (US$260.3 million) in 2022, primarily because
of the decrease in operating cost in life insurance business.
●
Operating costs for our insurance agency segment decreased by 16.8%
    from RMB1,835.8 million in 2021 to RMB1,527.6 million (US$221.5 million) in 2022, primarily due to a decrease of 17.6% in costs for
    the life insurance agency business from RMB1,742.6 million in 2021 to RMB1,436.6 million (US$208.3 million) in 2022, which was mainly
    due to decline in revenue generated from our life business, and a decrease of 2.4% in costs for the property and casualty insurance
    agency business from RMB93.2 million in 2021 to RMB91.0 million (US$13.2 million) in 2022, which is in line with the decrease in
    revenue generated from the property and casualty insurance agency business.
●
Operating costs for our claims adjusting segment decreased by 4.0%
    from RMB279.3 million in 2021 to RMB268.0 million (US$38.9 million)  in 2022, largely in line with the decrease in costs
    for the claims adjusting business.
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86
-
Selling
Expenses.
Our selling expenses decreased by 11.0% from RMB306.5 million in 2021 to RMB272.7 million (US$39.5 million) in 2022,
primarily attributable to decreased sales events and rental costs of our sales outlets, partially offset by increased headcount in
our Yuntong branches.
General and Administrative
Expenses.
Our general and administrative expenses decreased by 0.5% from RMB547.6 million in 2021 to RMB544.6 million (US$79.0 million)
in 2022, primarily due to the cost savings from office expenses, partially offset by increased headcount in our IT center
Income from Operations
As a result of the foregoing
factors, we recorded an operating income of RMB168.7 million (US$24.5 million) for 2022, decreased by 44.1% from RMB301.9 million in
2021.
●
Income from operations for our agency insurance segment decreased by
21.6% from RMB393.5 million  in 2021 to RMB308.7 million (US$44.8 million) in 2022, which was primarily due to the decrease
of life insurance business.
●
Operations loss for our claims adjusting segment was RMB11.9 million
    (US$1.7million) in 2022, as compared to operating income of RMB16.8 million in 2021.
●
Other loss from operations represented operating loss incurred by the
    headquarters, which was not allocated to each business segment. Operating loss incurred by the headquarters increased by 18.2% from
    RMB108.4million in 2021 to RMB128.1 million (US$18.6million) in 2022, mainly due to increased expenditures for the execution of the
    Professionalization, Digitalization and Open Platform strategy.
Other Income
Investment Income.
Investment
income represents income received from short-term investments in interbank deposits. Our investment income decreased by 45.9% from RMB32.9
million in 2021 to RMB17.8 million (US$2.6 million) in 2022. The decrease in yields from short-term investments in financial products
was mainly due to decrease in investable cash primarily due to dividend payments and share buyback.
Interest Income.
Our
interest income increased by from RMB3.0 million in 2021 to RMB13.7million (US$2.0 million) in 2022.
Income Tax Expens
e
Our income tax expense
decreased by 54.7% from RMB90.6 million in 2021 to RMB41.0 million (US$5.9 million) in 2022. The effective tax rate for 2022 was
20.9% compared with 24.4% in 2021.
Share of Income of Affiliates, net of Impairment
Our share of income of affiliates,
net of impairment was a loss of RMB69.6 million(US$10.1 million) for 2022, as compared to the share of income of affiliates, net of impairment
of a loss of RMB20.6 million in 2021.
The share of income and
impairment of affiliates included (i) an other-than-temporary impairment loss of RMB78.3 million (US$11.3 million) on investment in CNFinance,
reflecting a write-down to the fair value of the investment as measured by its closing market price on March 31, 2022, compared to the
impairment loss of RMB29.3 million in 2021, and (ii) share of income from CNFinance of RMB11.3million (US$1.6 million) for 2022, compared
to share of income from CNFinance of RMB12.0 million in 2021.
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87
-
Net Income Attributable to the Non-controlling Interests
The net loss attributable
to the non-controlling interests was RMB14.5 million (US$2.1 million) in 2022, as compared to the net income attributable to the non-controlling
interests of RMB9.0 million in 2021, primarily due to the decrease in profits from our subsidiaries operating claims adjusting business
in which we currently own 44.7% equity interests.
Net Income Attributable to the Company's
Shareholders
As a result of the foregoing
factors, our net income attributable to our shareholders decreased by 60.0% from RMB251.0 million in 2021 to RMB100.3 million (US$14.5
million) in 2022.
Foreign Currency
We have foreign currency
bank deposits which are primarily denominated in U.S. dollars. The exchange rate between U.S. dollar and RMB has declined from an average
of RMB8.2264 per U.S. dollar in July 2005 to RMB6.8972 per U.S. dollar in December 2022. The fluctuation of the exchange rate between
the RMB and U.S. dollar and HK dollar resulted in a foreign currency translation gain of RMB3.7 million (US$0.5 million) in 2022, when
we translated our financial assets from U.S. dollar and HK dollar into RMB. We have not hedged exposures to exchange fluctuations using
any hedging instruments. See "Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Fluctuation
in the value of the RMB may have a material adverse effect on your investment." and "Item 11. Quantitative and Qualitative
Disclosures about Market Risk—Foreign Exchange Risk."
B. Liquidity and Capital Resources
Cash Flows and Working Capital
Our principal sources of
liquidity have been cash generated from our operating activities. As of December 31, 2022, we had RMB567.5 million (US$82.3 million)
in cash and cash equivalents, and RMB347.8 million (US$50.4 million) in short-term investments. Our cash and cash equivalents consist
of cash on hand and bank deposits and our short term investments consisting of short-term, highly liquid investments that are readily
convertible to known amounts of cash, and have an insignificant risk of changes in value related to changes in interest rates. Our principal
uses of cash have been to fund dividend distribution, maintenance and development of online and digital platforms including Lan Zhanggui,
Baoxian.com, eHuzhu, Fanhua RONS DOP, Fanhua RONS Guanjia, Fanhua WeCom, investment to digitalize our mid-office and back-office functions,
establishment of new branches and sales outlets, working capital requirements, automobiles and office equipment purchases, office renovation
and rental deposits.
We expect to require cash
to fund our ongoing business needs, particularly acquisitions of quality insurance intermediary companies which we expect to fund in
stock payment and cash to a lesser degree, further expansion of our distribution and service network with the focus on developing a more
professional sales force in major cities and the development of digital capabilities.
We also intend to spend more on marketing and
advertising to enhance our brand recognition and promote our online platforms.
We believe that our current
cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including
our cash needs for working capital and capital expenditures, for at least the next 12 months. We may, however, require additional cash
due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.
If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow
from lending institutions. Financing may be unavailable in the amounts we need or on terms acceptable to us, if at all. The sale of additional
equity securities, including convertible debt securities, would dilute our earnings per share. The incurrence of debt would divert cash
for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict
our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as
required, our business operations and prospects may suffer.
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88
-
The following table sets
forth a summary of our cash flows for the periods indicated:
Year Ended December 31,
2021
2022
RMB
RMB
US$
(in thousands)
Net cash generated from operating activities
126,198
137,752
19,972
Net cash generated from (used in) investing
    activities
450,399
(127,562
)
(18,495
)
Net cash used in from financing activities
(260,298
)
(20,371
)
(2,954
)
Net increase (decrease) in cash and cash equivalents and
    restricted cash
316,299
(10,181
)
(1,477
)
Cash and cash equivalents and restricted cash at the beginning of the year
350,098
656,522
95,187
Cash and cash equivalents and restricted cash at the end of the year
656,522
648,211
93,981
Operating Activities
Net cash generated from operating
activities amounted to RMB137.8million (US$20.0 million) for the year ended December 31, 2022, primarily attributable to (i) a net income
of RMB85.7 million (US$12.4 million), (ii) adjustments of depreciation expense of RMB19.5 million (US$2.8 million), non-cash operating
lease expense of RMB90.4 million (US$13.1 million), provision for allowance for credit losses on financial assets of RMB30.7 million (US$4.5
million), share of income of affiliates, net of impairment of RMB69.6 million (US$10.1 million) and investment income of RMB10.9 million
(US$1.6 million), which were non-cash items and, (iii) increases of contract assets of RMB204.2 million (US$29.6 million), accrued commissions
of RMB127.6 million (US$18.5 million) and accounts payable of RMB22.1 million (US$3.2 million), offset by decrease of other current asset
of RMB8.6 million (US$1.3 million), other receivables of RMB37.3 million (US$5.4 million) insurance premium payables of RMB7.4 million
(US$1.1 million) related to property and casualty insurance business contributed by channel vendors of Baowang, other payables and accrued
expenses of RMB16.3million (US$2.4 million), accrued payroll of RMB15.8 million (US$2.3 million), other tax liability of RMB36.6 million
(US$5.3 million) and lease liability of RMB88.6 million (US$12.8 million).
Net cash generated from operating
activities amounted to RMB126.2 million for the year ended December 31, 2021, primarily attributable to (i) a net income of RMB259.9 million
(ii) adjustments of depreciation expense of RMB18.3 million, non-cash operating lease expense of RMB101.4 million, and investment income
of RMB3.2 million, which were non-cash items and, (iii) increases of accounts receivable of RMB5.5 million, contract assets of RMB257.2
million, other receivables of RMB31.1 million, accrued commissions of RMB139.7 million and accrued payroll of RMB6.3 million, offset by
(i) decrease of accounts payable of RMB37.1 million, (ii) decrease of insurance premium payables of RMB1.4 million related to property
and casualty insurance business contributed by channel vendors of Baowang, (iii) decrease of income tax payable of RMB15.9million, and
(iv) decrease of lease liability of RMB101.2 million.
Investing Activities
Net cash used in investing
activities for the year ended December 31, 2022 was RMB127.6 million (US$18.5 million), primarily attributable to cash used to purchase
short-term investment products of RMB2,550.3 million (US$369.8 million), prepayment for purchase of short-term investments of RMB540.0
million (US$78.3 million), cash lent to third parties of RMB205.8 million(US$29.8 million), purchase of property, plant and equipment
of RMB77.7 million (US$11.3 million) and payment for business acquisition of RMB21.6 million(US$3.1 million), offset by proceeds from
the disposal of short-term investments of RMB3,239.6 million (US$469.7 million) that matured and repayment of loan receivables from a
third party of RMB24.5 million(US$3.6 million).
Net cash generated from
investing activities for the year ended December 31, 2021 was RMB450.4 million, primarily attributable to proceeds from the disposal
of short-term investments of RMB8,646.5 million that matured offset by cash used to purchase short-term investment products of RMB8,184.4
million and purchase of property, plant and equipment of RMB30.8 million.
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Financing Activities
Net cash used in financing
activities was RMB20.4 million (US$3.0 million) for the year ended December 31, 2022, attributable to settlement of dividend payable payments
totaling RMB52.1 million (US$7.5 million), partially offset by proceeds from bank and other borrowings of RMB35.7million(US$5.2 million).
Net cash used in financing
activities was RMB260.3 million for the year ended December 31, 2021, attributable to dividend payments totaling RMB242.5 million.
Material cash requirements
Our material cash requirements
as of December 31, 2022 and any subsequent interim period primarily include our capital expenditures, operating lease obligations and
tax liabilities.
We incurred capital expenditures
of RMB15.3 million, RMB30.8 million and RMB77.7 million (US$11.3 million) for the years ended December 31, 2020, 2021 and 2022, respectively.
Our capital expenditures have been used primarily to construct our IT infrastructure and online platforms, and to purchase automobiles
and office equipment for newly-established sales outlets. We estimate that our cash commitments including our capital expenditures will
increase substantially in the following two or three years as we pursue selective acquisitions of quality insurance intermediaries companies
in combination of stock payments and cash to accelerate the expansion of our open platform and we increase investments to enhance the
professional skills of our existing sales force through training and digital empowerment, maintain and upgrade our IT infrastructure and
digital platforms and enhance digital operation capabilities. We anticipate funding our future capital expenditures primarily with net
cash flows from financing and operating activities.
Our operating lease obligations
consist of undiscounted minimum lease payment included in the measurement of operating lease liabilities under the lease agreements for
our office premises. Our leasing expense was RMB106.6 million, RMB114.6 million and RMB98.8 million (US$14.3 million) in 2020, 2021 and
2022, respectively. The majority of our operating lease commitments are related to our office lease agreements in China.
We had uncertain tax liabilities
of RMB36.6 million (US$5.3 million) for 2022. As we are unable to make reasonably reliable estimates of the period of cash settlement
with the respective taxing authority, such liabilities are excluded from the contractual obligations discussed above. Other than the
contractual obligations and commercial commitments discussed above, we did not have any other material long-term debt obligations, operating
lease obligations, purchase obligations or other material long-term liabilities as of December 31, 2022.
As of December 31, 2021
and 2022, total outstanding of balance short-term loans amounted to nil and RMB35,679, respectively, which consisted of RMB denominated
borrowings made by the Company's subsidiaries from financial institutions in mainland China and were repayable within one year.
Holding Company Structure
We are a holding company
with no material operations of our own. We conduct our operations through our subsidiaries and our consolidated VIEs, Xinbao Investment,
Fanhua RONS Technologies and their affiliates in China. As a result, our ability to pay dividends and to finance any debt we may incur
depends upon dividends paid by our subsidiaries and service fees paid by our consolidated VIEs. If our subsidiaries or consolidated VIEs
incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
Our wholly-owned subsidiaries are permitted to pay dividends to us only out of their retained earnings, if any, as determined in accordance
with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and consolidated VIEs in China is required to
set aside at least 10% of its after-tax profits as reported in the PRC statutory financial statements each year, if any, to fund a statutory
reserve until such reserve reach 50% of its registered capital, and before the Foreign Investment Law becomes effective on January 1,
2020, our wholly-owned subsidiaries had to set aside a portion of its after-tax profits to fund the employee welfare fund at the discretion
of its board. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future
losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in
the event of liquidation of the companies. Furthermore, the EIT Law that took effect on January 1, 2008 has eliminated the exemption
of EIT on dividends derived by foreign investors from foreign-invested enterprises and imposes on foreign-invested enterprises an obligation
to withhold tax on dividends distributed by such foreign-invested enterprises. As of December 31, 2022, our restricted net asset was
RMB1,461.2 million (US$211.9 million). This amount is composed of the registered equity of our PRC subsidiaries and the statutory reserves
described above. Our ability to pay dividends primarily depends upon dividends paid by our subsidiaries. As of December 31, 2022, we
had aggregate undistributed earnings of approximately RMB1,399.7 million (US$202.9 million) that were available for distribution. These
undistributed earnings are considered to be indefinitely reinvested, and will be subject to PRC dividend withholding taxes upon distribution.
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C. Research and Development, Patents and Licenses, etc.
See "Item 4. Information
on the Company—B. Business Overview—Intellectual Property."
D. Trend Information
Other than as disclosed
elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January
1, 2022 to December 31, 2022 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability,
liquidity or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating
results or financial conditions.
E. Critical Accounting Policies and Estimates
We prepare financial statements
in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect the reported amounts of our
assets and liabilities and the disclosure of our contingent assets and liabilities at the end of each fiscal period, as well as the reported
amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical
experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available
information and assumptions that we believe to be reasonable. This forms our basis for making judgments about matters that are not readily
apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results
could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
The selection of critical
accounting policies, the judgments and other uncertainties affecting the application of those policies and the sensitivity of reported
results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. The following
descriptions of critical accounting estimates should be read in conjunction with our consolidated financial statements and other disclosures
included in this annual report. For further information, see Note 2 to our consolidated financial statements in this annual report.
Revenue Recognition
Revenue is recognized when
control of promised goods or services is transferred to our customers in an amount of consideration to which an entity expects to be
entitled to in exchange for those goods or services.
We derive agency revenue
by serving as a sales agent to distribute various life insurance and P&C insurance products on behalf of the insurance companies
by which we are entitled to receive initial commission from the insurance companies based on the premium paid by the policyholders for
the related insurance policy sold. For life insurance agency, we are also entitled to subsequent renewal commission and compensation,
and renewal performance bonus (collectively referred to as "renewal commissions") which represent variable considerations
and are contingent on future renewals of initial policies or we achieve our performance target as such life insurance products are long-term
products.
When estimating the variable
consideration, we use the expected value method based on accumulated historical data and experiences. We also consider constraints when
determining the estimated variable consideration, which we refer to as "estimated constrained values".
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For years prior to 2021,
revenue related to the variable consideration is recorded when it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur, i.e., when a policyholder pays the renewal premium to the insurance company, and the policy is renewed
because we were not able to conclude a significant reversal to the estimated variable consideration is not probable, considering factors
such as a) we have limited history of selling our current life insurance products with our current customers, such that our past experience
in outdated products is of little predictive value in renewal(s) rate estimate; b) the occurrence of renewal is outside of our control
and the estimate of renewal premium rates is complex and requires significant assumptions; and c) the contingency lasts across a long
period of time.
We perform ongoing evaluation
of the appropriateness of the constraint applied, and consider the sufficiency of evidence that would suggest that the long-term expectation
underlying the assumptions has changed. Starting from January 1, 2021, we believe that we have already accumulated sufficient historical
data and experiences at a confidence level that through which we can utilize to make a reasonable estimate of variable considerations
of the portfolio of contracts. The estimated renewal commissions are contingent on future renewals of initial policies or achievement
of certain performance targets. Given the material uncertainty around the subsequent renewal of the insurance policies, the estimated
renewal commissions expected to be collected are recognized as revenue only to the extent that it is probable that a significant reversal
in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved. With the passage of time
and accumulation of historical experiences and data, the judgment and assumptions are to be continuously re-evaluated and adjusted as
needed when more information becomes available.
The following describes
how we apply the expected value method and our key considerations and judgments under the expected value method:
●
Determining portfolio of contracts:
We set up portfolios segregated
    by renewal term of the underlying policies which we refer to as a "batch" under the expected value method, by grouping
    long-term life insurance policies into batches of policies with various renewal terms.
●
Accumulating historical data and experiences:
We believe that
    accumulating sufficient renewal years' data for new products sold as the basis for the estimate is necessary for making a reasonable
    estimate that is representative and comparable to those policies sold in subsequent periods. On-going accumulation of historical
    renewal data and experiences represents the growth of our confidence for making a reasonable estimate without a significant subsequent
    reversal in revenue recognized.
●
Estimating variability for each variable renewal consideration:
For each of the variable renewal commissions, there is only one underlying variability (i.e., the renewal rates for each of the
    subsequent years of the policy period which is contingent on policyholders' renewal). Given the payment term for each of the
    renewal commissions is different, we thus separately estimate the future renewal rates of batches of policies based on accumulated
    historical renewal information.
●
Considering constraints on estimates:
In estimating the variable
    consideration, we evaluated the following factors that could increase the likelihood or magnitude of a reversal:
-
we have limited history of selling
our current life insurance products and co-operating with our current customers, such that our confidence for making a reasonable estimate
of future renewal(s) of long-term life insurance policies is limited;
-
the occurrence of renewal is
outside our control and the estimate of renewal rates is complex and requires significant judgment;
-
the estimate of variable consideration
associated with policy renewals has a broad range of possible consideration amounts; and
-
the contingency is not expected
to be resolved for a long period of time
Along with the
accumulation of historical renewal data and experiences, we re-evaluate the appropriateness of the constraint applied on an on-going
basis and adjust the constraint accordingly when we observe more evidence that would suggest that the long-term expectation underlying
the assumptions has changed. Accordingly, the constraint applied to the total estimated renewal commissions we expect to receive for
all sold long-term life insurance products decreased from 86% as of December 31, 2021 to 69% as of December 31, 2022.
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●
Ongoing reassessment of the estimated constrained values
: We
    continue to reassess the estimated constrained values at the end of each reporting period on a quarterly basis, including continuing
    to review and evaluate the reasonableness of the applied assumptions by comparing the original estimated constrained values with
    the actual renewal commissions collected to monitor and determine whether any changes to the assumptions are needed.
Investment in Affiliates
We use the equity method
of accounting for investments in which we have the ability to exercise significant influence, but do not have a controlling interest.
We continually review our
investment in equity investees to determine whether a decline in fair value to an amount below the carrying value is other-than temporary.
The primary factors we consider in our determination are the duration and severity of the decline in fair value; the financial condition,
operating performance and the prospects of the equity investee; and other company specific information such as the stock price of the
investee and its corresponding volatility, if publicly traded, our intent and ability to hold the investment until recovery, and changes
in the macro-economic, competitive and operational environment of the investee. If the decline in fair value is deemed to be other-than-temporary,
the carrying value of the equity investee is written down to fair value.
The fair values of the investments
in equity investees are determined based on valuation techniques using the best information available, including but not limited to such
as quoted prices for the investments or similar investments in active markets, the investees' current and expected future performance,
industry trend and projected revenue growth rates and profit margin, forecasted cash flows based on discounted rates and terminal growth
rates, etc.
Recent Accounting Pronouncements
No recently issued accounting
pronouncements not yet adopted that may potentially impact our financial position and results of operations.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets
forth information regarding our directors and executive officers as of the date of this annual report.
Directors and Executive Officers
Age
Position/Title
Yinan Hu
57
Chief Executive Officer and Chairman of the Board of Directors
Peng Ge
51
Chief Financial Officer and Director
Lichong Liu
50
Chief Operating Officer and Vice President
Jun Li
49
Chief Digital Officer and Vice President
Yunxiang Tang
77
Independent Director
Stephen Markscheid
69
Independent Director
Allen Warren Lueth
54
Independent Director
Mengbo Yin
67
Independent Director
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Mr. Yinan Hu
is our
co-founder and has been our chairman of the board of directors and chief executive officer since December 2021 and has been our director
since our inception in 1998. He is currently a member of the board of directors of Puyi Inc., which is a public company listed in the
U.S. From 1998 to September 2017, he was the chairman of our board of directors. From 1998 to October 2011, Mr. Hu served as our chief
executive officer. From 1993 to 1998, Mr. Hu served as chairman of the board of directors of Guangdong Nanfeng Enterprises Co., Ltd.,
a company he co-founded that engaged in import and export, manufacturing of wooden doors and construction. From 1991 to 1995, Mr. Hu
was an instructor of money and banking at Guangdong Institute for Managers in Finance and Trade. Mr. Hu received a bachelor's degree
and a master's degree in economics from Southwestern University of Finance and Economics in China.
Mr. Peng Ge
has been
our chief financial officer since April 2008 and has been our director since December 2016. From 2005 to April 2008, he served as the
general manager of the finance and accounting department and vice president of our company. From August 2007 to September 2008, he was
also a director of our company. From 1999 to 2005, Mr. Ge headed our Beijing operations. From 1994 to 1999, Mr. Ge was a financial manager
at a subsidiary of China National Native Produce and Animal By-Products Import & Export Corporation. Mr. Ge received his bachelor's
degree in international accounting and his MBA degree from the University of International Business and Economics in China.
Mr. Lichong Liu
has
been our chief operating officer since March 2022 and has served as chairman of Fanhua Group Company since January 2022. Mr. Lichong
Liu joined Fanhua in 2006, and has previously served in various leadership positions including chief executive officer of Fanhua Group
Company, vice president of Fanhua's life insurance unit, and general manager of Fanhua Hebei and Shandong agency branches. Prior
to that, he had served as general manager of the sub-branches of Pingan Life Insurance Co., Ltd., Taikang Life Insurance Co., Ltd. and
New China Life Insurance Co., Ltd. and held managerial roles in the provincial branches of these companies. Mr. Liu holds a bachelor's
degree of Finance from Renmin University of China and a master's degree of Advanced Business Administration from the Business School
of The Hong Kong University of Science and Technology.
Mr. Jun Li
has been
our chief digital officer since March 2022 and has been the vice president of Fanhua Group Company since January 2022. Mr. Li joined
Fanhua in 2008, and has previously served as chief technology officer of Fanhua Insurance Sales Service Group Company Limited and Baowang,
the company's online insurance distribution platform, general manager of Fanhua's Information Technology Department and director
of Fanhua's Information Center. Prior to joining Fanhua, he had served as head of technology development in China Life Insurance
Co., Ltd. and Aviva-COFCO Life Insurance Co., Ltd. Mr. Li holds a master's degree of Computer Application from Wuhan University,
and certificates for Senior Engineer, System Analyst, and Certified Database Tuning Expert.
Mr. Yunxiang Tang
,
a senior economist, has been our independent director since May 2012. Mr. Tang served as general manager of the People's Insurance
Company (Group) of China Limited, or the PICC and chairman of the Board of Directors of PICC P&C, PICC Asset Management Company Limited,
PICC Life Insurance Company Limited and PICC Health Insurance Company Limited from 2000 to 2007. He was the president of Insurance Association
of China from 2001 to 2003 and vice chairman of the CIRC from 1998 to 2000. Prior to that, he served in different senior leadership roles
in the financial regulatory authorities, including head of the PBOC Guangdong Branch and chief of State Administration of Foreign Exchange,
Guangdong Branch and assistant governor of the PBOC.
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Mr. Stephen Markscheid
has been our independent director since August 2007. Mr. Markscheid is managing partner of Aerion Capital, a family office. He is
a member of the board of directors of Jinko Solar, Inc., UGE Inc., Monterey Capital Acquisition, and Four Leaf Acquisition, which are
public companies listed in U.S. and Kingwisoft Technology Group Limited, a public company listed in Hong Kong. He is also a trustee emeritus
of Princeton-in-Asia, a nonprofit social service organization affiliated with Princeton University. He was a member of the board of directors
of a number of other listed companies, including TKK Symphony Acquisition Corporation (currently named Glory Star New Media Group Holdings
Limited), Ener-Core, Inc., China Ming Yang Wind Power Group and ChinaCast Education Corporation. He acted as a director and interim chief
executive officer and chief financial officer of Fellazo Inc. in 2020. From 2014 to 2017, he was a partner of Wilton Partners, a Shanghai-based
boutique investment bank. From 2007 to 2011, he was the chief executive officer of Synergenz BioScience, Inc., a genomics company based
in Hong Kong. Prior to that, Mr. Markscheid was the chief executive officer of HuaMei Capital Company, Inc., a Sino-U.S. investment advisory
firm from 2006 to 2007. From 1998 to 2006, Mr. Markscheid worked for GE Capital. During his time with GE Capital, he led GE Capital's
business development activities in China and Asia Pacific, primarily acquisitions and direct investments. Prior to joining GE, Mr. Markscheid
worked with the Boston Consulting Group throughout Asia from 1994 to 1997. Prior to that, Mr. Markscheid had been a commercial banker
for ten years in London, Chicago, New York, Hong Kong and Beijing with Chase Manhattan Bank and First National Bank of Chicago. Prior
to that, he worked with the US-China Business Council in Washington D.C. and Beijing. Mr. Markscheid received his bachelor's degree
in East Asian studies from Princeton University, a master's degree in international affairs and economics from the School of Advanced
International Studies at Johns Hopkins University, and an MBA degree from Columbia University.
Mr. Allen Lueth
has
been our independent director since August 2007. Mr. Lueth is currently a member of the board of directors of Greatview Aseptic Packaging
Company Limited, a company listed in Hong Kong. Since February 2021, Mr. Lueth has served as CEO of Great Leap Brewery, a company engaged
in the brewing and selling of beer in the PRC through third-party sales and its restaurants. From September 2019 to February 2021 Mr.
Lueth served as the president and chief financial officer of International Institute of Education Group, a company mainly engaged in
language education in the PRC. From 2017 to 2019 and 2010 to 2017, Mr. Lueth served as a chief financial officer for Asia-Pacific region
and a vice president of finance for the PRC region for Cardinal Health, a Fortune 500 company engaged in the healthcare industry, respectively.
From 2005 to 2010, Mr. Lueth served as a vice president of finance and strategy for the PRC region for Zuellig Pharma China, which was
then acquired by Cardinal Health in 2010. Mr. Lueth worked for GE Capital from 1998 to 2004 in a variety of roles, including chief financial
officer and chief executive officer for the Taiwan operations, and the representative for China. Earlier, he served with Coopers &
Lybrand as an auditor. Mr. Lueth obtained his certificate as a certified public accountant in 1991 and a certified management accountant
in 1994. Mr. Lueth received his bachelor of science in accounting degree from the University of Minnesota and an MBA degree from the
J.L. Kellogg School of Management.
Dr. Mengbo Yin
has
been our independent director since September 2008. He is currently a PhD advisor at Southwestern University of Finance and Economics
in China, where he also serves as head of the university's postgraduate department. Previously, he was the dean of the university's
school of finance from 1996 to 2007. Professor Yin received his master's and PhD degrees in finance from Southwestern University
of Finance and Economics in China.
Employment Agreements
Each of our executive officers
has entered into an employment agreement with us. Under these agreements, each of our executive officers is employed for a specified
time period. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the employee,
including but not limited to a conviction or plea of guilty to a felony, negligence or dishonesty to our detriment, failure to perform
the agreed-to duties after a reasonable opportunity to cure the failure and failure to achieve the performance measures specified in
the employment agreement. An executive officer may terminate his employment at any time with one-month prior written notice if there
is a material reduction in his authority, duties and responsibilities or in his annual salary before the next annual salary review. Furthermore,
we may terminate an executive officer's employment at any time without cause upon two-month advance written notice. In the event
of a termination without cause by us, we will provide the executive officer a lump-sum severance payment in the amount of RMB0.5 million,
unless otherwise specifically required by applicable law.
Each executive officer has
agreed to hold, both during and after the employment agreement expires or is earlier terminated, in strict confidence and not to use,
except as required in the performance of his duties in connection with the employment, any confidential information, trade secrets and
know-how of our company or the confidential information of any third-party, including our consolidated VIE and our subsidiaries, received
by us. In addition, each executive officer has agreed to be bound by non-competition restrictions set forth in his employment agreement.
Specifically, each executive officer has agreed not to, while employed by us and for one year following the termination or expiration
of the employment agreement, (i) approach our clients, customers or contacts or other persons or entities introduced to the executive
officer for the purpose of doing business with such person or entities, and will not interfere with the business relationship between
us and such persons and/or entities; (ii) assume employment with or provide services as a director for any of our competitors, or engage,
whether as principal, partner or otherwise, in any business which is in direct or indirect competition with our business; or (iii) seek
directly or indirectly, to solicit the services of any of our employees who is employed by us at the date of the executive officer's
termination, or in the year preceding such termination.
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B. Compensation
In 2022, the aggregate cash
compensation, including reimbursement of expenses, to our executive officers which include executive directors was approximately RMB4.9
million (US$0.7 million), and the aggregate cash compensation to our non-executive directors was approximately RMB1.8 million (US$0.3
million). We did not set aside or accrue any amounts to provide pension, retirement or similar benefits for our executive officers and
directors except for statutory social security payment.
Share Incentives
2007 Share Incentive Plan
In order to attract and
retain the best available personnel for positions of substantial responsibility, provide additional incentive to employees, directors
and consultants and promote the success of our business, a share incentive plan was adopted by our board of directors and shareholders
in 2007, as amended and restated in December 2008. We have reserved 136,874,658 ordinary shares for issuance under our 2007 Share Incentive
Plan, which was approximately 15% of our outstanding ordinary shares at the time we authorized the number of ordinary shares reserved
for issuance. The 2007 Share Incentive Plan expired upon the tenth anniversary of the shareholder approval of the 2007 Share Incentive
Plan.
As of March 31, 2023, all
of the options under 2007 Share Incentive Plan had been exercised or forfeited, of which options to purchase 35,806,518 ordinary shares
were cash exercised and collectively held by two employee shareholding vehicles on behalf of employees who beneficially own the shares.
2022 Share Incentive Plan
On August 12, 2022, our
board of directors adopted a share incentive plan under which we have reserved 161,143,768 ordinary shares for issuance, which was approximately
15% of our outstanding ordinary shares as of June 30, 2022.
Simultaneously, our board
of directors approved the grant of options to purchase an aggregate of 4,000,000 ordinary shares to independent directors pursuant to
the 2022 Share Incentive Plan (the "2022 Option 1"). The exercise price of these options is US$0.2305 per ordinary share,
equal to the closing price of our ADS on the Nasdaq Global Select Market one day prior to the grant date (after adjusting for the 20
ordinary shares to 1 ADS ratio). The options are scheduled to vest over a four-year period starting from August 31, 2023, subject to
their continued service with us.
On February 6, 2023, our
board of directors approved the grant options to purchase an aggregate of 13,680,000 ordinary shares to certain top agents who have met
the requirements for Million Dollar Round Table Membership, pursuant to the 2022 Share Incentive Plan (the "2022 Option 2").
The exercise price of these options is US$0.05 per ordinary share. The options are scheduled to vest over a two-year period starting
from March 31, 2024, subject to the achievement of certain key performance indicators by the option holders and their continued service
with us.
The following paragraphs
describe the principal terms of 2022 Share Incentive Plan as currently in effect.
Types of Awards
.
The types of awards we may
grant under our 2022 Share Incentive Plan include the following:
●
options to purchase our ordinary shares;
●
restricted shares, which represent non-transferable ordinary shares,
    that may be subject to forfeiture, restrictions on transferability and other restrictions; and
●
restricted share units, which represent the right to receive our ordinary
    shares at a specified date in the future, which may be subject to forfeiture.
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Awards may be designated
in the form of ADSs instead of ordinary shares. If we designate an award in the form of ADSs, the number of shares issuable under the
2007 Share Incentive Plan will be adjusted to reflect the ratio of ADSs to ordinary shares.
Eligibility
. We may
grant awards to employees, directors and consultants of our company or any of our related entities, which include our subsidiaries or
any entities in which we hold a substantial ownership interest. However, we may grant options that are intended to qualify as incentive
share options, or ISOs, only to our employees and employees of our majority-owned subsidiaries.
Plan Administration
.
The compensation committee of our board of directors, or a committee designated by the compensation committee, will administer the 2022
Share Incentive Plan. However, awards made to our independent directors must be approved by the entire board of directors. The compensation
committee or the full board of directors, as appropriate, will determine the individuals who will receive grants, the types of awards
to be granted and terms and conditions of each award grant, including any vesting or forfeiture restrictions.
Award Agreement
.
Awards granted under our 2022 Share Incentive Plan will be evidenced by an award agreement that will set forth the terms, conditions
and limitations for each award. In addition, in the case of options, the award agreement may also specify whether the option constitutes
an ISO or a non-qualifying share option.
Acceleration of Awards
upon Corporate Transactions
. The outstanding awards will accelerate upon occurrence of a change-of-control corporate transaction
where the successor entity does not assume our outstanding awards under the 2007 Share Incentive Plan. In such event, each outstanding
award will become fully vested and immediately exercisable, and the transfer restrictions on the awards will be released and any forfeiture
provisions will terminate immediately before the date of the change-of-control transaction. If the successor entity assumes our outstanding
awards and later terminates the grantee's service without cause within 12 months of the change-of-control transaction, the outstanding
awards will automatically become fully vested and exercisable.
Exercise Price and Term
of Awards
. The exercise price per share subject to an option will be determined by the plan administrator and set forth in the award
agreement which may be a fixed or variable price related to the fair market value of our ordinary shares;
provided
,
however
,
that no options may be granted to an individual subject to taxation in the United States at less than the fair market value on the date
of grant. To the extent not prohibited by applicable laws or any exchange rule, a downward adjustment of the exercise prices of any outstanding
options may be made in the absolute discretion of the plan administrator and will be effective without the approval of our shareholders
or the approval of the affected participants. If we grant an ISO to an employee who, at the time of that grant, owns shares representing
more than 10% of the voting power of all classes of our share capital, the exercise price cannot be less than 110% of the fair market
value of our ordinary shares on the date of that grant. The term of each award will be stated in the award agreement. The term of an
award shall not exceed 10 years from the date of the grant, except that five years is maximum term of an ISO granted to an employee who
holds more than 10% of the voting power of our share capital.
Amendment and Termination
.
Our board of directors may at any time amend, suspend or terminate the 2022 Share Incentive Plan. Amendments to the 2022 Share Incentive
Plan are subject to shareholder approval to the extent required by law, or stock exchange rules or regulations. Additionally, shareholder
approval will be specifically required to increase the number of shares available for issuance under the 2022 Share Incentive Plan or
to extend the term of an option beyond ten years. Unless terminated earlier, the 2022 Share Incentive Plan will expire and no further
awards may be granted after the tenth anniversary of the shareholder approval of the 2007 Share Incentive Plan.
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As of March 31, 2023, options
to purchase 17,680,000 ordinary shares of the Company were outstanding. The following table summarizes, as of March 31, 2023, the outstanding
options that we granted to our directors and to other individuals as a group.
Name
Options Outstanding
Exercise Price
(Per Ordinary
Share)( US$)
Grant Date
Expiration Date
Yunxiang Tang
1,600,000
0.2305
August 12, 2022
August 12, 2032
Stephen Markscheid
800,000
0.2305
August 12, 2022
August 12, 2032
Allen Warren Lueth
800,000
0.2305
August 12, 2022
August 12, 2032
Mengbo Yin
800,000
0.2305
August 12, 2022
August 12, 2032
Other individuals as a group
13,680,000
0.05
February 6, 2023
February 6, 2033
C. Board Practices
Board of Directors
Our board of directors consists
of six directors. Under our currently effective amended and restated memorandum and articles of association, a director is not required
to hold any shares in our company by way of qualification. A director may vote with respect to any contract, proposed contract or arrangement
in which he is materially interested. The directors may exercise all the powers of our company to borrow money, mortgage its undertaking,
property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation
of our company or of any third-party. The directors may receive such remuneration as our board of directors may determine from time to
time. There is no age limit requirement for directors.
The Board conducts self-assessment
of its performance annually in compliance with corporate governance requirements, which encompasses the directors' involvement
in business operations, the effectiveness of board oversight, board composition, board culture, management of major issues, and processes
of board operation.
In compliance with Rule
5605 of the Nasdaq Listing Rules, a majority of our directors and all of the committee members of our board of directors are independent
directors. During 2022, our board of directors met in person or passed resolutions by unanimous written consent six times. In addition,
our independent directors held executive sessions without the presence of non-independent directors or members of management twice during
2022. We have no specific policy with respect to director attendance at our annual general meetings of shareholders.
We have a diverse board consisting
of members from a wide variety of backgrounds, expertise, skills, and experiences. The members of the board consisted of industry professionals
with insurance and financial backgrounds including one independent director who has worked in financial risk assessment.
The membership of our Board
currently does not include women. But we are in the process of actively seeking female directors to refresh the composition of our Board,
and adding new independent members to further strengthen the Board's expertise and skill set and to introduce fresh perspectives.
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Committees of the Board of Directors
We have established four
committees under the board of directors: the audit committee, the compensation committee, the corporate governance and nominating committee
and financial reporting and disclosure committee and have adopted a charter for each of the committees. Each committee's members
and functions are described below.
Audit Committee
.
Our audit committee consists of Allen Lueth (chairman), Stephen Markscheid and Mengbo Yin, all of whom satisfy the "independence"
requirements of Rule 5605 of the Nasdaq Listing Rules and Rule 10A-3 under the Securities Exchange Act of 1934. The audit committee oversees
our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible
for, among other things:
●
selecting the independent auditors and pre-approving all auditing and
    non-auditing services permitted to be performed by the independent auditors;
●
reviewing with the independent auditors any audit problems or difficulties
    and management's response;
●
reviewing and approving all proposed related-party transactions;
●
discussing the annual audited financial statements with management
    and the independent auditors;
●
reviewing major issues as to the adequacy of our internal controls
    and any special audit steps adopted in light of material control deficiencies;
●
annually reviewing and reassessing the adequacy of our audit committee
    charter;
●
meeting separately and periodically with management, the independent
    auditors and the internal auditor; and
●
reporting regularly to the full board of directors.
In 2022, our audit committee
held meetings or passed resolutions by unanimous written consent four times.
Compensation Committee
.
Our compensation committee consists of Stephen Markscheid (chairman), Allen Lueth and Yunxiang Tang, all of whom satisfy the "independence"
requirements of Rule 5605 of the Nasdaq Listing Rules. Our compensation committee assists the board of directors in reviewing and approving
the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors
and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated.
The compensation committee is responsible for, among other things:
●
reviewing and recommending to the board with respect to the total compensation
    package for our chief executive officer;
●
approving and overseeing the total compensation package for our executives
    other than the chief executive officer;
●
reviewing and making recommendations to the board with respect to the
    compensation of our directors; and
●
reviewing periodically and approving any long-term incentive compensation
    or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.
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-
In 2022, our compensation
committee held meetings or passed resolutions by unanimous written consent twice.
Corporate Governance
and Nominating Committee
.
Our corporate governance and nominating committee consists of Mengbo Yin (chairman), Allen Lueth and
Stephen Markscheid, all of whom satisfy the "independence" requirements of Rule 5605 of the Nasdaq Listing Rules. The corporate
governance and nominating committee assists our board of directors in identifying individuals qualified to become our directors and in
determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among
other things:
●
identifying and recommending to the board nominees for election or
    re-election to the board, or for appointment to fill any vacancy;
●
reviewing annually with the board the current composition of the board
    in light of the characteristics of independence, skills, experience and availability of service to us;
●
identifying and recommending to the board the names of directors to
    serve as members of the audit committee and the compensation committee, as well as the corporate governance and nominating committee
    itself;
●
advising the board periodically with respect to significant developments
    in the law and practice of corporate governance, as well as our compliance with applicable laws and regulations, and making recommendations
    to the board on all matters of corporate governance and on any corrective action to be taken; and
●
monitoring compliance with our code of business conduct and ethics,
    including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
In 2022, our corporate governance
and nominating committee held meetings or passed resolutions by unanimous written consent twice.
Financial Reporting
and Disclosure Committee.
Our financial reporting and disclosure committee consists of Peng Ge (chairman), Allen Lueth, and two
of our non-executive employees including our financial controller and our internal legal counsel. The financial reporting and disclosure
committee assist our CEO and CFO (collectively, the "Senior Officers") in fulfilling their responsibility to oversee the
accuracy, completeness and timeliness of our public reporting and disclosure. The financial reporting and disclosure committee is responsible
for, among other things:
●
reviewing and, as necessary, helping revise our controls and procedures
    that are designed to ensure that: (i) information required to be disclosed by us to the SEC and other information that our company
    publicly discloses is recorded, processed, summarized and reported accurately and on a timely basis; and (ii) information is accumulated
    and communicated to management, including the Senior Officers, as appropriate to allow timely decisions regarding such reporting
    and disclosure (collectively, the "Reporting and Disclosure Controls and Procedures");
●
assisting in documenting and monitoring the integrity and effectiveness
    of our Reporting and Disclosure Controls and Procedures; and
●
reviewing the Company's: (i) periodic and current reports, proxy
    statements, information statements, registration statements and any other information filed with or furnished to the SEC; (ii) press
    releases containing financial information, earnings guidance, information about material acquisitions or dispositions or other information
    material to the Company's securityholders; (iii) correspondence broadly disseminated to securityholders; (iv) other relevant
    communications or presentations (collectively, the "Reporting and Disclosure Statements"); and (v) unusual and complex
    transactions, new accounting standard adoption and disclosure, new SEC reporting requirements.
In 2022, our financial reporting
and disclosure committee held meetings by unanimous written consent twice.
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Duties of Directors
Under Cayman Islands law,
our directors owe fiduciary duties to our company, including a duty of loyalty, a duty to act honestly, and a duty to act in what they
consider in good faith to be in our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors
also owe a duty to our company to act with skill and care. It was previously considered that a director need not exhibit in the performance
of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience.
However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these
authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance
with our amended and restated memorandum and articles of association as amended and restated from time to time. Our company has the right
to seek damages if a duty owed by our directors is breached. In certain limited circumstances, it may be possible for our shareholders
to bring a derivative action on behalf of our company if a duty owed by our directors to our company is breached.
Terms of Directors and Executive Officers
All directors hold office
until their successors have been duly elected and qualified. Outside of certain specified circumstances, including resigning, becoming
bankrupt or being of unsound mind or being absent from board meetings without special leave of absence for six consecutive months and
the board of directors resolves that his office be vacated, a director may only be removed by a special resolution of the shareholders.
Officers are elected by and serve at the discretion of the board of directors. We do not have contracts in place with any of our directors
providing for benefits upon termination of employment. For the period during which the directors and executives have served in the office,
please see "Item 6. Directors, Senior Management and Employees—A. Directors and Senior Management."
Board Diversity
Board
    Diversity Matrix (As of March 31, 2023)
Country
    of Principal Executive Offices:
China
Foreign
    Private Issuer
Yes
Disclosure
    Prohibited Under Home Country Law
No
Total
    Number of Directors
6
Female
Male
Non-Binary
Did
    Not Disclose Gender
Part
    I: Gender Identity
Directors
0
6
-
-
Part
    II: Demographic Background
Underrepresented
    Individual in Home Country Jurisdiction
-
LGBTQ+
-
Did
    Not Disclose Demographic Background
-
D. Employees
Employees, Sales Agents and Training
We had 4,926, 5,785 and
5,328 employees as of December 31, 2020, 2021 and 2022, respectively. We consider our relations with our employees to be good. The following
table sets forth the number of our employees by function as of December 31, 2022:
Number
of
Employees
% of
Total
Management
583
11.1
Administrative staff
2,308
44.1
Financial and accounting staff
197
3.8
Professional claims adjustors
1,950
37.2
Information technology staff
200
3.8
Total
5,238
100.0
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-
The following table sets forth the number of
our employees by gender as of December 31, 2022:
Female
Male
Management
170
413
Other staff
1,911
2,744
Total
2,081
3,157
The following table sets forth the number of
our employees by age as of December 31, 2022:
Persons
% of Total
< 30 years old
1,765
33.7
30-40 years old
2,568
49.0
> 40 years old
905
17.3
Total
5,238
100.0
As of December 31, 2020,
2021 and 2022, we had 362,580, 284,053 and 141,088 registered sales agents respectively. A majority of these sales agents are independent
sales agents who are not our employees and are only compensated by commissions. We have contractual relationships with these sales agents.
Our insurance advisors are our employees and are compensated by both base salaries and commissions. We primarily distribute life insurance
policies with a periodic premium payment schedule. For the sale of each of such life insurance policy, we pay the sales agent who has
generated the sale periodic commissions based on a percentage of the commissions and fees we receive from the insurance companies for
the sale and renewal of that policy, generally up to the first five years of the premium payment period, and retain all commissions and
fees we continue to receive from insurance companies for the rest of the premium payment period. For the sale of each life insurance
policy with a single premium payment schedule or property and casualty insurance policy, we pay the sales agent who has generated the
sale a single commission based on a percentage of the commission and fee we receive from insurance companies for the sale of that policy.
For our traditional sales
force, our life insurance sales agents are typically organized into sales teams with a multilevel hierarchy, typically with five layers.
A life insurance sales agent not only receives a commission for the insurance policies that he or she sells, but also a commission for
insurance policies sold by agents under his or her management. As to our Yuntong branches, our insurance advisors are organized in two
layers consisting of one senior financial advisor leading several junior financial advisors.
Our sales agents, in-house
sales representatives and claims adjustors are valuable to us and are instrumental in helping us build and maintain long-term relationships
with our customers. Therefore, we place a strong emphasis on training our sales force. We provide training to both new sales agents and
existing sales agents, on a monthly or quarterly basis, both offline and online. For new sales agents, we offer orientation courses that
are designed to familiarize them with corporate culture, insurance products, and sales skills. For the existing sales agents, we offer
on-the-job training courses that aim to enhance their sales skills and knowledge of various insurance products and develop skills to
build and manage their own sales teams. Online training courses are also available on Lan Zhanggui and Fanhua RONS Livestreaming Platform,
which enable sales agents to attend the courses anytime anywhere. We have also established an open source lecturer platform which allows
insurance veterans to upload self-developed courses and viewable on fee basis. As part of our efforts to professionalize our sales force,
we will allocate more resources to enhance training. With the data insight gained through digital technologies, agents will be categorized
into different levels based on various criteria including their qualification, capabilities and productivity and targeted training courses
will be provided to help improve their professional skills and productivity.
We believe in our employees'
potential and provide training and development opportunities intended to maximize their performance and professional growth. To ensure
that new employees integrate into our culture and their daily work, we provide a robust new-hire experience, as well as extensive ongoing
training for existing employees to acquaint them with our business. We require all of our employees to complete courses in key regulatory
areas, such as insider trading and anti-money laundering compliance, and we offer professional development opportunities through training
sessions and cross-departmental workshops, resulting in over 140,000 completed courses and workshops and approximately 134,000 development
hours for our employees. In addition, we have mentorship programs that pair newer employees with more experienced professionals, giving
mentees access to experience, expertise, and guidance. Finally, to help employees determine the next steps in their careers, we have
a Career Growth Portal that provides employees with tools, resources, training courses and assessments as they chart their career paths.
We
need employees well-equipped with professional knowledge to support our frontline sales agents and provide our clients with best quality
of services. To maximize their performance and professional growth, we provide ample training opportunities through our well-established
training platform e-learning system and "Fanhua Academy" available through Lan Zhanggui. Various courses were delivered by
a large team of internal lecturers which include the Group's senior management, department heads and senior employees with deep
experience in various areas of our operations and external courses to acquaint them with our business and unlease their potential. To
maintain training standards, we evaluate our lecturers and present awards for outstanding performance on an annual basis.
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E. Share Ownership
We currently do not have
specific stock ownership requirements for our CEO and other members of our management. The following table sets forth information with
respect to the beneficial ownership of our shares, as of March 31, 2023, by:
●
each of our current directors and executive officers; and
●
each person known to us to own beneficially more than 5% of our shares.
As of March 31, 2023, there
were 1,157,463,924 ordinary shares outstanding. Beneficial ownership is determined in accordance with the rules and regulations of the
SEC.
Ordinary
Shares
Beneficially Owned(1)
Number
%
Directors and Executive Officers:
Yinan Hu(2)
210,400,770
18.2
%
Peng Ge(3)
53,562,260
4.6
%
Lichong Liu(4)
23,119,600
2.0
%
Jun Li
*
*
Stephen Markscheid
*
*
Allen Warren Lueth
*
*
Mengbo Yin
*
*
All Directors and Executive Officers as a Group
290,305,670
25.1
%
Principal Shareholders:
Sea Synergy Limited(5)
189,698,110
16.4
%
*
Less than 1% of our total outstanding ordinary shares.
†
Except for our independent directors, the business address of our directors
    and executive officers is c/o 60/F, Pearl River Tower, No. 15 West Zhujiang Road, Guangzhou, Guangdong 510623, People's Republic
    of China.
(1)
Percentage of beneficial ownership of each director and executive officer
    is based on 1,157,463,924 ordinary shares outstanding as of March 31, 2023.
(2)
Includes (i) 10,041,200 ordinary shares in the form of ADSs directly
held by Mr. Hu, (ii) 189,698,110 ordinary shares of our company directly held by Sea Synergy Limited, or Sea Synergy, and (iii) 10,661,460
ordinary shares of our company held through Kingsford Resources Ltd., or Kingsford Resources. Sea Synergy is 100% held by a family trust,
of which Mr. Hu is the settlor and co-beneficiary. Pursuant to Section 13(d) of the Exchange Act and the rules promulgated thereunder,
Mr. Hu may be deemed to beneficially own all of the Ordinary Shares of the Issuer held by Sea Synergy. Kingsford Resources is a shareholding
vehicle that we established to hold shares of the Company on behalf of certain executive officers. Mr. Hu directly holds 27.2% of the
equity interests of Kingsford Resources which directly holds 39,252,100 ordinary shares of the Issuer.
(3)
Includes (i) 48,562,260 ordinary share held by Green Ease, which is
    100% held by High Rank Investments Limited, or High Rank and (ii) 5,000,000 ordinary shares held through Kingsford Resources. High
    Rank was 100% held by a family trust, of which Mr. Ge is the settlor and co-beneficiary. Pursuant to Section 13(d) of the Exchange
    Act and the rules promulgated thereunder, High Rank Investments and Mr. Ge may be deemed to beneficially own all of the Ordinary
    Shares of the Issuer held by High Rank. Mr. Ge directly holds 12.7% of the equity interests of Kingsford Resources.
(4)
Includes (i) 22,787,600 ordinary share held through Kingsford Resources;
and (ii) 332,000 ordinary shares in the form of ADSs directly held by Mr. Liu. Mr. Liu directly holds 58.1% of the equity interests of
Kingsford Resources.
(5)
Includes 189,698,110 ordinary shares of the Company directly held by
    Sea Synergy. The registered address of Sea Synergy is P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin
    Islands.
None of our existing shareholders
have different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a
change of control of our company. As of March 31, 2023, J.P. Morgan Chase Bank, N.A., or J.P. Morgan, the depositary for our ADS program,
is our only record holder in the United States, holding approximately 57.3% of our total outstanding ordinary shares. The number of beneficial
owners of our ADSs in the United States is likely much larger than the number of record holders of our ordinary shares in the United
States.
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Item 7. Major Shareholders and Related Party Transactions
A.
Major Shareholders
Please refer to "Item
6. Directors, Senior Management and Employees—E. Share Ownership."
B.
Related Party Transactions
Proposed Going Private Transaction
On December 16, 2021, our
board of directors received a preliminary non-binding proposal letter from a consortium led by Mr. Yinan Hu, our founder, chairman and
CEO, proposing to acquire all of the outstanding ordinary shares of the Company not already owned by the consortium for $9.8 per ADS,
or $0.49 per ordinary share in a going private transaction. On December 19, 2022, Mr. Hu withdrew the preliminary non-binding going private
proposal, effective immediately.
Transactions with Puyi Inc.
On December 28, 2020, we
entered into a framework strategic partnership agreement, or the Agreement, with Puyi Enterprise Management Advisory Co., Ltd., or Puyi
Enterprise, an affiliate of Puyi Inc., pursuant to which, both parties, on the basis of full compliance with relevant regulatory and
legal requirements, will share customer and channel resources and explore collaboration opportunities on the provision of value-added
asset management services to Chinese households, by leveraging both parties' respective strength in insurance and financial services.
Pursuant to the framework
agreement, starting from January 2021, Puyi Enterprise has been providing referral and marketing services of our insurance products to
their clients when their clients have such needs while our agents will be responsible for handling the purchasing procedures and other
services. In 2022, we incurred a total of RMB13.5 million commission cost and RMB7.0 million training cost to Puyi Enterprise and the
balance of accounts payable as of December 31, 2022 was RMB5.0 million.
Employment Agreements
See "Item 6. Directors,
Senior Management and Employees—A. Directors and Senior Management—Employment Agreements" for a description of the
employment agreements we have entered into with our senior executive officers.
Share Options
Please refer to "Item
6. Directors, Senior Management and Employees—B. Compensation."
C.
Interests of Experts and Counsel
Not applicable.
Item 8. Financial Information
A.
Consolidated Statements and Other Financial Information
See "Item 18. Financial
Statements."
Legal and Regulatory Proceedings
We are currently not a party
to any material litigation or legal proceeding that may have a material adverse impact on our business or operations. However, we are
and may continue to be subject to various claims and legal actions arising in the ordinary course of business. In addition, the CBIRC
may make inquiries and conduct examinations concerning our compliance with PRC laws and regulations from time to time. These administrative
proceedings have resulted in administrative sanctions, including fines of RMB1.0 million in aggregate in 2022, which were not material
to us. While we cannot predict the outcome of any pending or future examination, we do not believe that any pending legal matter will
have a material adverse effect on our business, financial condition or results of operations. However, we cannot assure you that any
future regulatory proceeding will not have an adverse outcome, which could have a material adverse effect on our operating results or
cash flows.
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Dividend Policy
Our board of directors has
discretion as to whether to distribute dividends, subject to certain restrictions under Cayman Islands law, namely that our company may
only pay dividends out of profits or share premium account, and provided always that in no circumstances may a dividend be paid unless,
immediately following the date on which it is to be paid, our company will be able to pay its debts as they fall due in the ordinary
course of business. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount
recommended by our directors. The timing, amount and form of dividends, if any, will depend on, among other things, our future results
of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries,
our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.
On February 28, 2017, our
board of directors approved a cash dividend policy, which provided for an annual cash dividend to shareholders of no less than 30% of
our net income attributable to shareholders in the previous fiscal year. On April 20, 2017, our board of directors declared an annual
cash dividend of US$0.006 per ordinary share, or US$0.12 per ADS, payable on or around May 18, 2017 to shareholders of record on May
8, 2017.
On September 18, 2017, our
board of directors modified the dividend policy to adopt a quarterly payment schedule in lieu of an annual dividend, with the dividend
payout ratio of no less than 50% of net operating income attributable to the Company's shareholders instead of no less than 30%
under the annual dividend policy previously announced on April 20, 2017. The following table summarizes the quarterly dividend payments
since the announcement of the quarterly dividend policy.
Declaration Date
Quarterly Dividend
(Per
Ordinary
Share)
( US$)
Quarterly
Dividend
(Per ADS)
( US$)
Record Date
Payable Date
November 20, 2017
0.01
0.20
December 8, 2017
December 22, 2017
March 9, 2018
0.01
0.20
March 26, 2018
April 10, 2018
May 12, 2018
0.0125
0.25
June 4, 2018
June 11, 2018
August 18, 2018
0.0125
0.25
September 5, 2018
September 19, 2018
November 17, 2018
0.0125
0.25
December 5, 2018
December 20, 2018
March 18, 2019
0.0125
0.25
March 21, 2019
April 3, 2019
May 22, 2019
0.0150
0.30
June 6, 2019
June 20, 2019
August 20, 2019
0.0150
0.30
September 4, 2019
September 19, 2019
November 20, 2019
0.0150
0.30
December 5, 2019
December 19, 2019
March 18, 2020
0.0150
0.30
April 2, 2020
April 16, 2020
May 26, 2020
0.0125
0.25
June 10, 2020
June 24, 2020
August 24, 2020
0.0125
0.25
September 8, 2020
September 22, 2020
November 24, 2020
0.0125
0.25
December 9, 2020
December 23, 2020
March 22, 2021
0.0125
0.25
March 31, 2021
April 15, 2021
May 27, 2021
0.0075
0.15
June 11, 2021
June 25, 2021
August 23, 2021
0.0075
0.15
September 7, 2021
September 23, 2021
November 23, 2021
0.0075
0.15
December 8, 2021
December 22, 2021
March 28, 2022
0.0075
0.15
April 12, 2022
April 26, 2022
On May 26, 2022, in lieu
of cash dividend, our board of directors approved the distribution of 252,995,600 ordinary shares of CNFinance to the Company's
shareholders of record as of the close of business on June 9, 2022. The Company's shareholders of record received 4.71 ordinary
shares of CNFinance for each 20 issued and outstanding ordinary shares of the Company, or 0.2355 ADSs of CNFinance for each ADS of the
Company. The distribution was completed on June 28, 2022, after which our equity stake in CNFinance decreased from approximately 18.5%
to approximately 0.01%.
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-
When we pay dividends, we
pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the
fees and expenses payable thereunder. Any dividend we declare will be distributed by the depositary bank to the holders of our ADSs.
Cash dividends on our ordinary shares, will be paid in U.S. dollars. Currently, we have no plan to repatriate the remaining undistributed
earnings from our subsidiaries in China and we intend to retain all of our available funds held by subsidiaries in China and their future
earnings to operate and expand our business.
We are a holding company
incorporated in the Cayman Islands. We rely on dividends from our subsidiaries and service fees from our consolidated VIEs in China or
share premium to fund our payment of dividends, if any, to our shareholders. Current PRC regulations permit our subsidiaries to pay dividends
to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition,
each of our subsidiaries and consolidated VIEs in China is required to set aside a certain amount of its accumulated after-tax profits
each year, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends. Further, if our subsidiaries
and consolidated VIEs in China incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends
or make other payments to us. Furthermore, there are still uncertainties under the new PRC EIT law and the related regulations regarding
whether the dividends we receive from our PRC subsidiaries or dividends paid to our shareholders will be subject to PRC withholding tax.
See "Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Our global income or the
dividends we receive from our PRC subsidiaries may be subject to PRC tax under the EIT Law, which could have a material adverse effect
on our results of operations."
B.
Significant Changes
We have not experienced
any significant changes since the date of our audited consolidated financial statements included in this annual report.
Item 9. The Offer and Listing
A.
Offer and Listing Details
Not applicable
B.
Plan of Distribution
Not applicable.
C.
Markets
Our ADSs, each representing
20 ordinary shares, are listed on the Nasdaq Global Select Market under the symbol "FANH." From October 31, 2007 until December
6, 2016, our ticker symbol was "CISG." From October 31, 2007 until January 1, 2009, our ADSs were listed on the Nasdaq Global
Market.
D.
Selling Shareholders
Not applicable.
E.
Dilution
Not applicable.
F.
Expenses of the Issue
Not applicable.
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Item 10. Additional Information
A.
Share Capital
Not applicable.
B.
Memorandum and Articles of Association
The following are summaries
of material provisions of our amended and restated memorandum and articles of association, as adopted by our shareholders by special
resolution at the extraordinary general meeting held on December 6, 2016, as well as the Cayman Companies Act insofar as they relate
to the material terms of our ordinary shares.
Registered Office and Objects
The registered office of
our company is at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands,
or at such other place within the Cayman Islands as our board of directors may decide. The objects for which our company is established
are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Act or as the same may
be revised from time to time, or any other law of the Cayman Islands.
Board of Directors
See "Item 6. Directors,
Senior Management and Employees—C. Board Practices—Board of Directors."
Ordinary Shares
General
. Our
authorized share capital consists of 10,000,000,000 ordinary shares, with a par value of US$0.001 each. All of our issued and outstanding
ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders
who are nonresidents of the Cayman Islands may freely hold and vote their shares.
Dividend Rights
.
The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to the Companies
Act.
Voting Rights
.
On a show of hands, each shareholder present in person or by proxy (or, for a corporation or other non-natural person, present by its
duly authorized representative or proxy) at a general meeting shall have one vote and on a poll, shall have one vote for each share registered
in his name in the register of members of our company. Voting at any meeting of shareholders is by show of hands unless a poll is demanded.
A poll may be demanded by the chairman of the meeting or by any one or more shareholders together holding at least ten percent of our
paid-up voting share capital, present in person or by proxy.
A quorum required for a
meeting of shareholders consists of shareholders holding in aggregate not less than one-third of our issued voting share capital present
in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. We may, but are not obliged,
to hold an annual general meeting of shareholders. General meetings may be convened by our board of directors on its own initiative or
upon a request to the directors by shareholders holding in aggregate not less than one-third of our voting share capital. Advance notice
of at least 14 calendar days is required for the convening of our annual general meeting and other shareholders' meetings.
An ordinary resolution to
be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast in
a general meeting or may be approved in writing by all of the shareholders entitled to vote at a general meeting, while a special resolution
requires the affirmative vote of no less than two-thirds of the votes attaching to the ordinary shares cast in a general meeting or may
be passed as a unanimous written resolution. A special resolution is required for important matters such as a change of name. Holders
of the ordinary shares may effect certain changes by ordinary resolution, including consolidating and dividing all or any of our share
capital into shares of a larger amount than our existing shares, and canceling any shares which have not been taken or agreed to be taken.
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Transfer of Shares
.
Subject to the restrictions of our articles of association, as applicable, any of our shareholders may transfer all or any of his or
her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board.
Liquidation
.
On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for
distribution among the holders of ordinary shares may be distributed among the holders of the ordinary shares as determined by the liquidator,
subject to sanction of an ordinary resolution of our company.
Calls on Shares and
Forfeiture of Shares
. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their
shares in a notice served to such shareholders at least 14 days prior to the specified time of payment. The shares that have been called
upon and remain unpaid on the specified time are subject to forfeiture.
Redemption, Repurchase
and Surrender of Shares
. Subject to the provisions of the Companies Act and our articles of association, we may issue shares
on terms that they are subject to redemption, at our option or at the option of the holders, on such terms and in such manner as our
board of directors may determine before the issue of such shares. We also may purchase our own shares, provided that our shareholders
have approved the manner of purchase by ordinary resolution or the manner of purchase is in accordance with that specified in our articles
of association. The manner of purchase specified in our articles of association, which cover purchases of shares listed on an internationally
recognized stock exchange and shares not so listed, is in accordance with Section 37(2) of the Companies Act or any modification or reenactment
thereof for the time being in force. In addition, our company may accept the surrender of any fully paid share for no consideration.
Pursuant to the Companies Act, upon the repurchase, redemption or surrender of shares, the board of directors can determine whether or
not to cancel those shares or hold them as treasury shares pending cancellation, transfer or sale. The company must obtain authorization
to hold such shares as treasury shares either in accordance with the procedures set out in the company's articles of association
or (if there are none) by a board resolution before being repurchased, redeemed or surrendered in accordance with the usual rules and
articles.
Variations of Rights
of Shares
. If at any time the share capital is divided into different classes of shares, the rights attached to any class of
shares (unless otherwise provided by the terms of issue of the shares of that class) may, subject to our articles of association, be
varied or abrogated with the written consent of the holders of a majority of the issued shares of that class or with the sanction of
a special resolution passed at a general meeting of the holders of the shares of that class.
Inspection of Books
and Records
. Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our
register of members or our corporate records (other than our memorandum and articles of association, special resolutions, and our register
of mortgages and charges). However, we make our annual reports, which contain our audited financial statements, available to our shareholders.
See "Item 10. Additional Information—H. Documents on Display."
C.
Material Contracts
We have not entered into
any material contracts other than in the ordinary course of business and other than those described in "Item 4. Information on
the Company" or elsewhere in this annual report.
D.
Exchange Controls
See "Item 4. Information
on the Company—B. Business Overview—Regulation—Regulations on Foreign Exchange."
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E.
Taxation
The following summary of
the material Cayman Islands, PRC and United States federal income tax consequences of an investment in our ADSs or ordinary shares is
based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to prospective
and retroactive change and is included here for information purposes only. This summary is not intended to be, and should not be construed
as, legal or tax advice, does not consider any investor's particular circumstances, and does not deal with all possible tax consequences
relating to an investment in our ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws.
Cayman Islands Taxation
According to Maples and
Calder (Hong Kong) LLP, our Cayman Islands counsel, the Cayman Islands currently levies no taxes on individuals or corporations based
upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax, estate duty or gift tax. No Cayman
Islands stamp duty will be payable unless an instrument is executed in, or after execution brought within the jurisdiction of the Cayman
Islands, or produced before a court of the Cayman Islands. The Cayman Islands is a party to a double tax treaty with the United Kingdom
but otherwise is not a party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman
Islands.
PRC Taxation
Under the former PRC Income
Tax Law for Enterprises with Foreign Investment and Foreign Enterprises, any dividends payable by foreign-invested enterprises to non-PRC
investors were exempt from any PRC withholding tax. In addition, any interest or dividends payable, or distributions made, by us to holders
or beneficial owners of our ADSs or ordinary shares would not have been subject to any PRC tax, provided that such holders or beneficial
owners, including individuals and enterprises, were not deemed to be PRC residents under the PRC tax law and had not become subject to
PRC tax.
Under the EIT Law, which
took effect as of January 1, 2008, which was subsequently amended on March 16, 2007, February 24, 2017 and December 29, 2018, enterprises
established under the laws of non-PRC jurisdictions but whose "de facto management body" is located in China are considered
"resident enterprises" for PRC tax purposes. Under the implementation regulations issued by the State Council relating to
the new law, "de facto management bodies" are defined as the bodies that have material and overall management control over
the business, personnel, accounts and properties of an enterprise. On April 22, 2009, SAT, issued SAT Circular 82, which provides certain
specific criteria for determining whether the "de facto management body" of a PRC-controlled enterprise that is incorporated
offshore is located in China. In addition, the SAT issued a bulletin on July 27, 2011 providing more guidance on the implementation of
Circular 82 and clarifying matters such as resident status determination. Substantially all of our management are currently based in
China, and may remain in China in the future. If we were treated as a "resident enterprise" for PRC tax purposes, we would
be subject to PRC income tax on our worldwide income at a uniform tax rate of 25%, but dividends received by us from our PRC subsidiaries
may be exempt from the income tax.
Under the new law and its
implementation regulations, dividends paid to a non-PRC investor are generally subject to a 10% or 5% PRC withholding tax, if such dividends
are derived from sources within China and the non-PRC investor is considered to be a non-resident enterprise without any establishment
or place of business within China or if the dividends paid have no connection with the non-PRC investor's establishment or place
of business within China, unless such tax is eliminated or reduced under an applicable tax treaty. Similarly, any gain realized on the
transfer of ADSs or shares by such an investor is also subject to a 10% or 5% PRC withholding tax if such gain is regarded as income
derived from sources within China, unless such tax is eliminated or reduced under an applicable tax treaty.
If we were considered a
PRC "resident enterprise," it is possible that the dividends we pay with respect to our ADSs or ordinary shares, or the gain
you may realize from the transfer of our ADSs or ordinary shares, would be treated as income derived from sources within China and be
subject to the 10% or 5% PRC withholding tax.
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Income Tax and Withholding Tax
The EIT Law, applies a uniform
25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises. The EIT Law imposes a withholding tax of
10% on dividends distributed by a PRC foreign-invested enterprise to its immediate holding company outside of China, if such immediate
holding company is considered a "non-resident enterprise" without any establishment or place within China or if the received
dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding
company's jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. Holding
companies in Hong Kong, for example, are subject to a 5% withholding tax rate. The Cayman Islands, where we are incorporated, does not
have such a tax treaty with China. Thus, dividends paid to us by our subsidiaries in China may be subject to the 10% withholding tax
if we are considered a "non-resident enterprise" under the EIT Law.
Under the EIT Law and its
implementation rules, any interest or premium with respect to the notes and any gains realized on the transfer of the notes by holders
who are deemed under the EIT Law as non-resident enterprise may be subject to PRC enterprises income tax if such interest, premium or
gains are regarded as income derived from sources within the PRC. Under the EIT Law, a "non-resident enterprise" means an
enterprise established under the laws of a jurisdiction other than the PRC and whose actual administrative organization is not in the
PRC but has established offices or premises in the PRC, or which has not established any offices or premises in the PRC but has obtained
incomes derived from sources within the PRC.
The EIT Law provides that
enterprises established outside of China whose "de facto management bodies" are located in China are considered "resident
enterprises" and are therefore subject to PRC enterprise income tax at the rate of 25% with respect to their income sourced from
both within and outside of China. The Implementing Regulation defines the term "de facto management body" as a management
body that exercises substantial and overall control and management over the production and operations, personnel, accounting and properties
of an enterprise. Circular 82 provides certain specific criteria for determining whether the "de facto management body" of
a Chinese-controlled offshore-incorporated enterprise is located in China. The Resident Enterprise Administrative Measures provide clarification
for resident status determination and competent tax authorities. However, Circular 82 and the Resident Enterprise Administrative Measures
apply only to offshore enterprises controlled by PRC enterprises, not those invested in or controlled by PRC individuals, like our company.
Currently there are no further detailed rules or precedents applicable to us regarding the procedures and specific criteria for determining
"de facto management body" for a company of our type. It is still unclear if the PRC tax authorities would determine that
we should be classified as a PRC "resident enterprise."
Although we have not been
notified that we are treated as a PRC resident enterprise, we cannot assure you that we will not be treated as a "resident enterprise"
under the EIT Law, any aforesaid circulars or any amended regulations in the future. If we are treated as a PRC resident enterprise for
PRC enterprise income tax purposes, among other things, we would be subject to the PRC enterprise income tax at the rate of 25% on our
worldwide taxable income. Furthermore, if we are treated as a PRC resident enterprise, payments of dividends and/or other expenses of
similar nature by us may be regarded as derived from sources within the PRC and therefore we may be obligated to withhold PRC income
tax at 10% on payments of dividends on the ADSs or shares and/or interest or other expenses of similar nature on the notes to non-PRC
resident enterprise investors. In the case of non-PRC resident individual investors, the tax may be withheld at a rate of 20%.
In addition, if we are treated
as a PRC resident enterprise, any gain realized on the transfer of the ADSs and/or ordinary shares by non-PRC resident investors may
be regarded as derived from sources within the PRC and accordingly may be subject to a 10% PRC income tax in the case of non-PRC resident
enterprises or 20% in the case of non-PRC resident individuals. The PRC tax on interest or gains may be reduced or exempted under applicable
tax treaties between the PRC and the ADS holder's home country. For example, according to an arrangement between the PRC and Hong
Kong, for the avoidance of double taxation, ADS holders who are Hong Kong residents, including both enterprise holders and individual
holders, may be exempted from PRC income tax on capital gains derived from a sale or exchange of the notes.
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United States Federal Income Taxation
The following
discussion describes the material United States federal income tax considerations to a United States Holder (as defined below), of
an investment in our ADSs or ordinary shares. This discussion is based on the federal income tax laws of the United States as of the
date of this annual report on Form 20-F, including the United States Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations promulgated thereunder, judicial authority, published administrative
positions of the United States Internal Revenue Service ("IRS") and other applicable authorities, all as of the date of
this annual report on Form 20-F. All of the foregoing authorities are subject to differing interpretations or changes, which could
apply retroactively or significantly affect the tax considerations described below. We have not sought any ruling from the IRS with
respect to the statements made or the conclusions reached in the following discussion and there can be no assurance that the IRS or
a court will agree with our statements or conclusions. In addition, this summary of the United States federal income tax
considerations does not discuss the Medicare Tax on net investment income, any tax considerations arising under the United States
federal non-income tax laws (such as estate or gift tax), or the laws of any state, local, or non-United States taxing
jurisdiction.
This discussion applies
only to a United States Holder (as defined below) that holds ADSs or ordinary shares as "capital assets" for United States
federal income tax purposes (generally, property held for investment). The discussion neither addresses the tax considerations to any
particular investor nor describes all aspects of the tax considerations applicable to persons in special tax situations, such as:
●
banks and certain other financial institutions;
●
insurance companies;
●
regulated investment companies;
●
real estate investment trusts;
●
brokers or dealers in stocks and securities, or currencies;
●
persons who use or are required to use a mark-to-market method of accounting;
●
certain former citizens or residents of the United States subject to
    Section 877 of the Code;
●
entities subject to the United States anti-inversion rules;
●
tax-exempt organizations and entities;
●
persons subject to the alternative minimum tax provisions of the Code;
●
persons whose functional currency is other than the United States dollar;
●
persons holding ADSs or ordinary shares as part of a straddle, hedging,
    conversion or integrated transaction;
●
persons holding ADSs or ordinary shares through a bank, financial institution
    or other entity, or a branch thereof, located, organized or resident outside the United States;
●
persons that actually or constructively own ADSs or ordinary shares
    representing 10% or more of our voting power or value;
●
persons who acquired ADSs or ordinary shares pursuant to the exercise
    of an employee stock option or otherwise as compensation;
●
partnerships or other pass-through entities, or persons holding ADSs
    or ordinary shares through such entities;
●
persons required to accelerate the recognition of any item of gross
    income with respect to our ADSs or ordinary shares as a result of such income being recognized on an applicable financial statement;
    or
●
persons that hold, directly, indirectly or by attribution, ADSs, ordinary
    shares or other ownership interests in us prior to our initial public offering.
If a partnership (including
an entity or arrangement treated as a flow-through entity for United States federal income tax purposes) holds our ADSs or ordinary shares,
the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership.
A partnership or a partner in a partnership holding our ADSs or ordinary shares should consult its tax advisors regarding the tax consequences
of investing in and holding our ADSs or ordinary shares.
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The following discussion
is for informational purposes only and is not a substitute for careful tax planning and advice. Investors should consult their tax advisors
with respect to the application of the United States federal income tax laws to their particular situations, as well as any tax consequences
arising under the federal estate or gift tax laws or the laws of any state, local or non-Untied States taxing jurisdiction and under
any applicable tax treaty.
For purposes of the discussion
below, a "United States Holder" is a beneficial owner of our ADSs or ordinary shares that is, for United States federal income
tax purposes:
●
an individual who is a citizen or resident of the United States;
●
a corporation (or other entity treated as a corporation for United
    States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District
    of Columbia;
●
an estate, the income of which is subject to United States federal
    income taxation regardless of its source; or
●
a trust, if (i) a court within the United States is able to exercise
    primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial
    decisions or (ii) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election
    is in place under applicable Treasury Regulations to treat such trust as a domestic trust.
ADSs
If you own our ADSs, then
you should be treated as the owner of the underlying ordinary shares represented by those ADSs for United States federal income tax purposes.
The remainder of this discussion assumes that a United States Holder of our ADSs will be treated in this manner. Accordingly, deposits
or withdrawals of ordinary shares for ADSs should not be subject to United States federal income tax.
Passive Foreign Investment Company
Based on the market price
of our ADSs, the value of our assets and the composition of our income and assets, we believe we were a passive foreign investment company
("PFIC") for United States federal income tax purposes for our taxable year ending December 31, 2022, however there can be
no assurance to this regard. We believe we were also a PFIC for 2017 and prior years. In addition, we believe that it is likely that one
or more of our subsidiaries were also PFICs for such years.
A non-United States corporation
such as ourselves will be treated as a PFIC for United States federal income tax purposes for any taxable year if, applying applicable
look-through rules, either:
●
at least 75% of our gross income for such year is passive income; or
●
at least 50% of the value of our assets (generally determined based
    on a quarterly average) during such year is attributable to assets that produce or are held for the production of passive income.
For this purpose, passive
income generally includes dividends, interest, royalties and rents (other than certain royalties and rents derived in the active conduct
of a trade or business and not derived from a related person). We will be treated as owning a proportionate share of the assets and earning
a proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% by value of the stock.
Although the law in this regard is unclear, we treat the VIEs as being owned by us for United States federal income tax purposes, because
we exercise effective control over the operation of such entities and because we are entitled to substantially all of their economic
benefits, and, as a result, we consolidate their results of operations in our consolidated United States GAAP financial statements.
The composition of our income
and assets will be affected by the market price of our ADSs and how, and how quickly, we spend our liquid assets and the cash we generate
from our operations and raise in any offering. Unless the market price of our ADSs increases or we reduce the amount of cash, short term
investments and other passive assets we hold sufficiently from current levels, we believe that we are likely to remain a PFIC for future
taxable years. However, the determination of PFIC status is based on an annual determination that cannot be made until the close of a
taxable year, involves extensive factual investigation, including ascertaining the fair market value of all of our assets on a quarterly
basis and the character of each item of income that we earn, and is subject to uncertainty in several respects. Accordingly, we cannot
assure you that the IRS will not take a contrary position.
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Changes in the composition
of our income and assets may cause us to cease to be or become a PFIC. The determination of whether we will be a PFIC for any taxable
year may depend in part upon the value of our goodwill and other unbooked intangibles not reflected on our balance sheet (which may depend
upon the market price of our ADSs or ordinary shares from time to time, which may fluctuate significantly) and also may be affected by
how, and how quickly, we spend our liquid assets and the cash we generate from our operations and raise in any offering. Among other
matters, if our market capitalization increases, we may cease to be a PFIC because our liquid assets and cash (which are for this purpose
considered assets that produce passive income) may then represent a smaller percentage of our overall assets. Further, while we believe
our classification methodology and valuation approach is reasonable, it is possible that the IRS may challenge our classification or
valuation of our goodwill and other unbooked intangibles, which may result in our being or becoming a non-PFIC for the current or one
or more future taxable years.
If we are a PFIC for any taxable
year (as we believe we were for 2022, 2017 and prior years) during which you hold ADSs or ordinary shares, we will continue to be treated
as a PFIC with respect to you for all succeeding years during which you hold ADSs or ordinary shares, unless we cease to be a PFIC (as
we believe we did in 2018) and you make a "deemed sale" election with respect to the ADSs or ordinary shares, as applicable.
If such an election is made, you will be deemed to have sold the ADSs or ordinary shares you hold at their fair market value and any
gain from such deemed sale would be subject to the rules described in the following two paragraphs. After the deemed sale election, so
long as we do not become a PFIC in a subsequent taxable year, the ADSs or ordinary shares with respect to which such election was made
will not be treated as shares in a PFIC and, as a result, you will not be subject to the rules described below with respect to any "excess
distribution" you receive from us or any gain from an actual sale or other disposition of the ADSs or ordinary shares.
You are
strongly urged to consult your tax advisors as to the possibility and consequences of making a deemed sale election if we are and then
cease to be a PFIC and such an election becomes available to you.
If we are a PFIC for any taxable
year (as we believe we were for 2022, 2017 and prior years) during which you hold ADSs or ordinary shares, then, unless you make a "mark-to-market"
election (as discussed below), you generally will be subject to special and adverse tax rules with respect to any "excess distribution"
that you receive from us and any gain that you recognize from a sale or other disposition, including a pledge, of the ADSs or ordinary
shares. For this purpose, distributions that you receive in a taxable year that are greater than 125% of the average annual distributions
that you received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares will
be treated as an excess distribution. Under these rules:
●
the excess distribution or recognized gain will be allocated ratably
    over your holding period for the ADSs or ordinary shares;
●
the amount of the excess distribution or recognized gain allocated
    to the taxable year of distribution or gain, and to any taxable years in your holding period prior to the first taxable year in which
    we were treated as a PFIC, will be treated as ordinary income; and
●
the amount of the excess distribution or recognized gain allocated
    to each other taxable year will be subject to the highest tax rate in effect for individuals or corporations, as applicable, for
    each such year and the resulting tax will be subject to the interest charge generally applicable to underpayments of tax.
If we are a PFIC for any
taxable year (as we believe we were for 2022, 2017 and prior years) during which you hold our ADSs or ordinary shares and any of our
non-United States subsidiaries that are corporations (or other corporations in which we own equity interests) is also a PFIC, you would
be treated as owning a proportionate amount (by value) of the shares of each such non-United States entity classified as a PFIC (each
such entity, "a lower-tier PFIC") for purposes of the application of these rules. You should consult your tax advisors regarding
the application of the PFIC rules to any of our lower-tier PFICs.
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If we are a PFIC for any
taxable year (as we believe we were for 2022, 2017 and prior years) during which you hold ADSs or ordinary shares, then in lieu of being
subject to the tax and interest-charge rules discussed above, you may make an election to include gain on our ADSs or ordinary shares
as ordinary income under a mark-to-market method, provided that our ADSs or ordinary shares constitute "marketable stock"
(as defined below). If you make a mark-to-market election for our ADSs or ordinary shares, you will include in gross income for each
year that we are a PFIC an amount equal to the excess, if any, of the fair market value of the ADSs or ordinary shares you hold as of
the close of your taxable year over your adjusted basis in such ADSs or ordinary shares. You will be allowed a deduction for the excess,
if any, of the adjusted basis of the ADSs or ordinary shares over their fair market value as of the close of the taxable year. However,
deductions will be allowable only to the extent of any net mark-to-market gains on the ADSs or ordinary shares included in your income
for prior taxable years. Amounts included in your income under a mark-to-market election, as well as any gain from the actual sale or
other disposition of the ADSs or ordinary shares, will be treated as ordinary income. Ordinary loss treatment will apply to the deductible
portion of any mark-to-market loss on the ADSs or ordinary shares, as well as to any loss from the actual sale or other disposition of
the ADSs or ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included
for such ADSs or ordinary shares. Your basis in the ADSs or ordinary shares will be adjusted to reflect any such income or loss amounts.
If you make a valid mark-to-market election, any distributions we make would generally be subject to the tax rules discussed below under
"Item. 10 Additional Information—E. Taxation—United States Federal Income Taxation—Dividends and Other Distributions
on the ADSs or Ordinary Shares," except the lower capital gains rate applicable to qualified dividend income generally would not
apply.
The mark-to-market election
is available only for "marketable stock." Marketable stock is stock that is regularly traded on a qualified exchange or other
market, as defined in applicable Treasury Regulations. Our ADSs, but not our ordinary shares, are listed on the Nasdaq Global Select
Market, which is a qualified exchange or other market for these purposes. Consequently, if the ADSs remain listed on the Nasdaq Global
Select Market and are regularly traded, and you are a holder of ADSs, we expect that the mark-to-market election will be available to
you, but no assurances are given in this regard.
If you make a mark-to-market
election, it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs are
no longer regularly traded on a qualified exchange or other market, or the IRS consents to the revocation of the election. You are urged
to consult your tax advisors regarding the availability of mark-to-market election, and whether making the election would be advisable
in your particular circumstances.
Because a mark-to-market
election cannot be made for any lower tier PFICs that we may own, if we were a PFIC for any taxable year (as we believe we were for 2022,
2017 and prior years), a United States Holder that makes the mark-to-market election may continue to be subject to the tax and interest
charges under the general PFIC rules with respect to such United States Holder's indirect interest in any investments held by us
that are treated as an equity interest in a PFIC for United States federal income tax purposes.
In certain circumstances,
a United States shareholder in a PFIC may avoid the adverse tax and interest-charge regime described above by making a "qualified
electing fund" election to include in income its share of the corporation's income on a current basis. However, you may make
a qualified electing fund election with respect to your ADSs or ordinary shares only if we agree to furnish you annually with a PFIC
annual information statement as specified in the applicable Treasury Regulations. We do not intend to prepare or provide the information
that would enable you to make a qualified electing fund election.
A United States Holder that
holds our ADSs or ordinary shares in any year in which we are a PFIC (as we believe we were for 2022, 2017 and prior years) will be required
to file an annual report containing such information as the United States Treasury Department may require.
You are strongly urged
to consult your tax advisors regarding the impact of our being a PFIC in 2022 on your investment in our ADSs or ordinary shares, as well
as the application of the PFIC rules to your investment in our ADSs or ordinary shares and the availability, application and consequences
of the elections discussed above.
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Dividends and Other Distributions on the
ADSs or Ordinary Shares
Subject to the passive foreign
investment company rules discussed above, the gross amount of any distribution that we make to you with respect to our ADSs or ordinary
shares (including any amounts withheld to reflect PRC or other withholding taxes) will be taxable as a dividend, to the extent paid out
of our current or accumulated earnings and profits, as determined under United States federal income tax principles. Such income (including
any withheld taxes) will be includable in your gross income on the day actually or constructively received by you, if you own the ordinary
shares, or by the depositary, if you own ADSs. Because we do not intend to determine our earnings and profits on the basis of United
States federal income tax principles, any distribution paid will generally be reported as a "dividend" for United States
federal income tax purposes. Such dividends will not be eligible for the dividends-received deduction allowed to qualifying corporations
under the Code.
Dividends received by a
non-corporate United States Holder may qualify for the lower rates of tax applicable to "qualified dividend income," if the
dividends are paid by a "qualified foreign corporation" and other conditions discussed below are met. A non-United States
corporation is treated as a qualified foreign corporation (i) with respect to dividends paid by that corporation on shares (or American
depositary shares backed by such shares) that are readily tradable on an established securities market in the United States or (ii) if
such non-United States corporation is eligible for the benefits of a qualifying income tax treaty with the United States that includes
an exchange of information program. However, a non-United States corporation will not be treated as a qualified foreign corporation if
it is a passive foreign investment company in the taxable year in which the dividend is paid or the preceding taxable year.
Under a published IRS Notice,
common or ordinary shares, or American depositary shares representing such shares, are considered to be readily tradable on an established
securities market in the United States if they are listed on the Nasdaq Global Select Market, as are our ADSs (but not our ordinary shares).
Based on existing guidance, it is unclear whether the ordinary shares will be considered to be readily tradable on an established securities
market in the United States, because only the ADSs, and not the underlying ordinary shares, are listed on a securities market in the
United States. We believe, but we cannot assure you, that dividends we pay, if any, on the ordinary shares that are represented by ADSs,
but not on the ordinary shares that are not so represented, will, subject to applicable limitations, be eligible for the reduced rates
of taxation. In addition, if we are treated as a PRC resident enterprise under the PRC tax law (see "Item 10. Additional Information—E.
Taxation—PRC Taxation"), then we may be eligible for the benefits of the income tax treaty between the United States and
the PRC. If we are eligible for such benefits, then dividends that we pay on our ordinary shares, regardless of whether such shares are
represented by ADSs, would, subject to applicable limitations, be eligible for the reduced rates of taxation.
Even if dividends would
be treated as paid by a qualified foreign corporation, a non-corporate United States Holder will not be eligible for reduced rates of
taxation if it does not hold our ADSs or ordinary shares for more than 60 days during the 121-day period beginning 60 days before the
ex-dividend date or if the United States Holder elects to treat the dividend income as "investment income" pursuant to Section
163(d)(4) of the Code. In addition, the rate reduction will not apply to dividends of a qualified foreign corporation if the non-corporate
United States Holder receiving the dividend is obligated to make related payments with respect to positions in substantially similar
or related property.
You should consult your
tax advisors regarding the availability of the lower tax rates applicable to qualified dividend income for any dividends that we pay
with respect to the ADSs or ordinary shares, as well as the effect of any change in applicable law after the date of this annual report
on Form 20-F.
Any PRC or other non-United
States withholding taxes imposed on dividends paid to you with respect to the ADSs or ordinary shares generally will be treated as foreign
taxes eligible for credit against your United States federal income tax liability, subject to the various limitations and disallowance
rules that apply to foreign tax credits generally. For purposes of calculating the foreign tax credit, dividends paid to you with respect
to the ADSs or ordinary shares will be treated as income from sources outside the United States and generally will constitute passive
category income. The rules relating to the determination of the foreign tax credit are complex and recently issued Treasury Regulations
have introduced additional requirements and limitations to the foreign tax credit rules. You should consult your tax advisors regarding
the availability of a foreign tax credit in your particular circumstances.
Disposition of the ADSs or Ordinary Shares
You will recognize gain
or loss on a sale or exchange of the ADSs or ordinary shares in an amount equal to the difference between the amount realized on the
sale or exchange and your tax basis in the ADSs or ordinary shares. Subject to the discussion under "Item 10. Additional Information—E.
Taxation—United States Federal Income Taxation—Passive Foreign Investment Company," above, such gain or loss generally
will be capital gain or loss. Capital gains of a non-corporate United States Holder, including an individual that has held the ADSs or
ordinary shares for more than one year currently are eligible for reduced tax rates. The deductibility of capital losses is subject to
limitations.
Any gain or loss that you
recognize on a disposition of the ADSs or ordinary shares generally will be treated as United States-source income or loss for foreign
tax credit limitation purposes. However, if we are treated as a PRC resident enterprise for PRC tax purposes and PRC tax is imposed on
gain from the disposition of the ADSs or ordinary shares (see "Item 10. Additional Information—E. Taxation—PRC Taxation"),
then a United States Holder that is eligible for the benefits of the income tax treaty between the United States and the PRC may elect
to treat the gain as PRC-source income for foreign tax credit purposes. If such an election is made, the gain so treated will be treated
as a separate class or "basket" of income for foreign tax credit purposes. You should consult your tax advisors regarding
the proper treatment of gain or loss, as well as the availability of a foreign tax credit, in your particular circumstances.
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Information Reporting and Backup Withholding
Information reporting to
the IRS and backup withholding generally will apply to dividends in respect of our ADSs or ordinary shares, and the proceeds from the
sale or exchange of our ADSs or ordinary shares, that are paid to you within the United States (and in certain cases, outside the United
States), unless you furnish a correct taxpayer identification number and make any other required certification, generally on IRS Form
W-9 or you otherwise establish an exemption from information reporting and backup withholding. Backup withholding is not an additional
tax. Amounts withheld as backup withholding generally are allowed as a credit against your United States federal income tax liability,
and you may be entitled to obtain a refund of any excess amounts withheld under the backup withholding rules if you file an appropriate
claim for refund with the IRS and furnish any required information in a timely manner.
United States Holders who
are individuals (and certain entities closely held by individuals) generally will be required to report our name, address and such information
relating to an interest in the ADSs or ordinary shares as is necessary to identify the class or issue of which the ADSs or ordinary shares
are a part. These requirements are subject to exceptions, including an exception for ADSs or ordinary shares held in accounts maintained
by certain financial institutions and an exception applicable if the aggregate value of all "specified foreign financial assets"
(as defined in the Code) does not exceed US$50,000.
United States Holders should
consult their tax advisors regarding the application of the information reporting and backup withholding rules.
F.
Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H.
Documents on Display
We previously filed with
the SEC a registration statement on Form F-1 (File No. 333-146605) and a prospectus under the Securities Act with respect to the ordinary
shares represented by the ADSs. We also filed with the SEC a related registration statement on Form F-6 (File Number 333-146765) with
respect to the ADSs.
We are subject to periodic
reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required
to file reports, including annual reports on Form 20-F, and other information with the SEC. All documents filed by us with the SEC can
be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the public reference rooms. The SEC also maintains a website at
www.sec.gov
that contains
reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using
its EDGAR system.
As a foreign private issuer,
we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and
our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions
contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial
statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
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We intend to furnish J.P.
Morgan, the depositary of our ADSs, with all notices of shareholders' meetings and other reports and communications that are made
generally available to our shareholders. The depositary will make such notices, reports and communications available to holders of ADSs
and, upon our written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders'
meeting received by the depositary from us.
In accordance with Rule
5250(d) of the Nasdaq Listing Rules, we will post this annual report on Form 20-F on our website at http://ir.fanhuaholdings.com/sec.cfm.
In addition, we will provide hard copies of our annual report free of charge to shareholders and ADS holders upon request.
I.
Subsidiary Information
For a list of our subsidiaries
as of March 31, 2023, see Exhibit 8.1 to this annual report.
Item 11. Quantitative and Qualitative Disclosures about Market
Risk
Interest Rate Risk
Our exposure to interest
rate risk primarily relates to the interest income generated by bank deposits and short-term, highly liquid investments with original
maturities of 90 days or less, and interest expenses incurred by short-term borrowing. Interest-earning instruments carry a degree of
interest rate risk, and our future interest income may be lower than expected. We have not been exposed nor do we anticipate being exposed
to material risks due to changes in interest rates. We have not used any derivative financial instruments to manage our interest risk
exposure.
Foreign Exchange Risk
Substantially all of our
revenues and expenses are denominated in RMB. Our exposure to foreign exchange risk primarily relates to the cash and cash equivalent
denominated in U.S. dollars that we keep offshore for dividend payments. We have not hedged exposures denominated in foreign currencies
using any derivative financial instruments. Although in general, our exposure to foreign exchange risks should be limited, the value
of your investment in our ADSs will be affected by the foreign exchange rate between U.S. dollars and RMB because the value of our business
is effectively denominated in RMB, while the ADSs will be traded in U.S. dollars.
The value of the RMB against
the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China's political and economic
conditions. The conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC. On July 21,
2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under such policy, the RMB
is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Removal of the U.S. dollar
peg has resulted in an approximately more than 25.0% appreciation of the RMB against the U.S. dollar over the following eight years.
In April 2012, the trading band has been widened to 1%, and in March 2014 it was further widened to 2%, which allows the Renminbi to
fluctuate against the U.S. dollar by up to 2% above or below the central parity rate published by the PBOC. In August 2015, the PBOC
changed the way it calculates the mid-point price of Renminbi against U.S. dollar, requiring the market-makers who submit for the PBOC's
reference rates to consider the previous day's closing spot rate, foreign-exchange demand and supply as well as changes in major
currency rates. This change, and other changes such as widening the trading band that may be implemented, may increase volatility in
the value of the Renminbi against foreign currencies. The PRC government may from time to time make further adjustments to the exchange
rate system in the future. To the extent that we need to convert our U.S. dollar or other currencies-denominated assets into RMB for
our operations, appreciation of the RMB against the U.S. dollar or other currencies would have an adverse effect on the RMB amount we
receive from the conversion. We had U.S. dollar-denominated financial assets amounting to US$6.2 million and HK dollar-denominated financial
assets amounting to HK$5.3 million as of December 31, 2022. A 10% appreciation of the RMB against the U.S. dollar and HK dollar would
have resulted in a decrease of RMB4.7 million (US$0.7 million) in the value of our U.S. dollar-denominated and HK dollar-denominated
financial assets. Conversely, if we decide to convert our RMB denominated cash amounts into U.S. dollars amounts or other currencies
amounts for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation
of the U.S. dollar or other currencies against the RMB would have a negative effect on the U.S. dollar or other currencies amount available
to us.
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Item 12. Description of Securities Other than Equity Securities
A.
Debt Securities
Not applicable.
B.
Warrants and Rights
Not applicable.
C.
Other Securities
Not applicable.
D.
American Depositary Shares
Fees Payable by ADS Holders
We have appointed J.P. Morgan
as our depositary. A copy of our Form of Deposit Agreement with J.P. Morgan was filed with the SEC as an exhibit to our Form F-6 registration
statement initially filed on October 17, 2007 and amended on December 7, 2016 and November 28, 2017, or the Deposit Agreement. Pursuant
to the Deposit Agreement, holders of our ADSs may have to pay to J.P. Morgan, either directly or indirectly, fees or charges up to the
amounts set forth in the table below.
Category
Depositary
    Actions
Associated
    Fees
(a)
Depositing or substituting the underlying shares
Each person to whom American depositary receipts ("ADRs")
    are issued against deposits of shares, including deposits and issuances in respect of:
● Share distributions,
    stock split, rights, merger
● Exchange of securities
    or any other transaction or event or other distribution affecting the ADSs or the Deposited Securities
US$5.00 for each 100 ADSs (or portion thereof) evidenced by the new
    ADRs delivered
(b)
Receiving or distributing dividends
Distribution of dividends
US$0.02 or less per ADS
(c)
Selling or exercising rights
Distribution or sale of securities, the fee being in an amount equal
    to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities
US$5.00 for each 100 ADSs (or portion thereof)
(d)
Withdrawing an underlying security
Acceptance of ADRs surrendered for withdrawal of deposited securities
US$5.00 for each 100 ADSs (or portion thereof) evidenced by the ADRs
    surrendered
(e)
Transferring, splitting or grouping receipts
Transfers, combining or grouping of depositary
    receipts
US$1.50 per ADS
(f)
General depositary services, particularly those charged on an annual basis.
● Other services performed
    by the depositary in administering the ADRs
● Provide information about
    the depositary's right, if any, to collect fees and charges by offsetting them against dividends received and deposited securities
US$0.02 per ADS (or portion thereof) not more than once each calendar
    year and payable at the sole discretion of the depositary by billing Holders or by deducting such charge from one or more cash dividends
    or other cash distributions
(g)
Expenses of the depositary
Expenses incurred on behalf of Holders in connection with
● Compliance with foreign
    exchange control regulations or any law or regulation relating to foreign investment
● The depositary's
    or its custodian's compliance with applicable law, rule or regulation
● Stock transfer or other
    taxes and other governmental charges
● Cable, telex, facsimile
    transmission/delivery
● Expenses of the depositary
    in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency)
● Any other charge payable
    by depositary or its agents
Expenses payable at the sole discretion of the depositary by billing
    Holders or by deducting charges from one or more cash dividends or other cash distributions
Payment from the Depositary
Direct Payments
J.P. Morgan, as depositary,
has agreed to reimburse certain reasonable company expenses related to our ADR program and incurred by us in connection with the program.
For the years ended December 31, 2021 and 2022, the depositary reimbursed US$1.1 million and US$2.6 million, respectively. For the years
ended December 31, 2021 and 2022, 30% of the depositary reimbursement has been deducted as withholding income tax, respectively. The
amounts the depositary reimbursed are not perforce related to the fees collected by the depositary from ADR holders.
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PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders
and Use of Proceeds
A.–D.
Material Modifications to the
Rights of Security Holders
None.
E.
Use of Proceeds
None.
Item 15. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the
participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as
required by Rule 13a-15(b) under the Exchange Act.
Based upon this evaluation,
our management, with the participation of our chief executive officer and chief financial officer, has concluded that, as of December
31, 2022, our disclosure controls and procedures were effective in ensuring that the information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified
in by the SEC's rules and forms, and that information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
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Management's Annual Report on Internal
Control over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such item is defined in Rules 13a-15(f) under
the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted
accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of a company's assets, (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting
principles, and that a company's receipts and expenditures are being made only in accordance with authorizations of a company's
management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of a company's assets that could have a material effect on the consolidated financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
As required by Section 404
of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our management assessed the effectiveness of the internal control
over financial reporting as of December 31, 2022 using criteria established in "Internal Control — Integrated Framework (2013)"
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment,
management concluded that our internal control over financial reporting was effective as of December 31, 2022, based on the criteria
established in "Internal Control—Integrated Framework (2013)" issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
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Report of Independent Registered Public Accounting
Firm
To the Shareholders and the Board of Directors of Fanhua Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal
control over financial reporting of Fanhua Inc. and its subsidiaries (the "Company") as of December 31, 2022, based on criteria
established in
Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2022, based on criteria established
in Internal Control — Integrated Framework (2013)
issued
by COSO.
We have also audited, in
accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated
financial statements as of and for the year ended December 31, 2022, of the Company and our report dated April 25, 2023, expressed an
unqualified opinion on those financial statements and included explanatory paragraphs relating to the translation of Renminbi amounts
into United States dollars amounts on those financial statements and the financial statements.
Basis for Opinion
The Company's management
is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. 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 audit in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control
over Financial Reporting
A company's internal
control over financial reporting is a process designed 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. A company's
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Shenzhen, the People's Republic of China
April 25, 2023
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Changes in Internal Control over Financial
Reporting
Management has evaluated,
with the participation of our chief executive officer and chief financial officer, whether any changes in our internal control over financial
reporting that occurred during our last fiscal year have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
Based on the evaluation we
conducted, management has concluded that except for the changes implemented by management in controls over the process to estimate variable
renewal commissions in relation to long-term life insurance products and the change in control owner of certain control activities due
to change to management, there has been no such change during the period covered by this annual report on Form 20-F.
Item 16A. Audit Committee Financial Expert
Our board of directors has
determined that Allen Lueth, an independent director (under the standards set forth in Rule 5605 of the Nasdaq Listing Rules and Rule
10A-3 under the Exchange Act) and member of our audit committee, is an audit committee financial expert.
Item 16B. Code of Ethics
Our board of directors adopted
a code of business conduct and ethics that applies to our directors, officers and employees. We have posted a copy of our code of business
conduct and ethics on our investor relations website at http://ir.fanhuaholdings.com/governance.cfm.
Item 16C. Principal Accountant Fees and Services
On August 25, 2021, we engaged
Deloitte Touche Tohmatsu Certified Public Accountants LLP ("Deloitte") as our independent registered public accounting firm,
and dismissed Deloitte Touche Tohmatsu ("Deloitte Hong Kong"). See also "Item 16F. Change in Registrant's Certifying
Accountant." The following table sets forth the aggregate fees by categories specified below in connection with certain professional
services rendered by Deloitte Hong Kong and Deloitte (PCAOB No. 1113) for the periods indicated.
For the Year Ended
December 31,
2021
2022
(
US$ in thousands
)
Audit fees(1)
1,650.0
1,550.0
Audit-related fees(2)
—
—
Tax fees(3)
—
—
All other fees(4)
—
—
(1)
"Audit fees" meant the aggregate fees billed and expected to be billed in each of the fiscal years listed for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements and review of quarterly financial statements included in our reports on Form 6-K, services that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years.
(2)
"Audit-related fees" meant the aggregate fees billed in each of the fiscal years listed for assurance and related services by our independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported under "Audit fees."
(3)
"Tax fees" meant the aggregate fees billed in each of the fiscal years listed for professional services rendered by our independent registered public accounting firm for tax compliance, tax advice, and tax planning.
(4)
"All other fees" means the aggregate fees billed in each of the fiscal years listed for products and services provided by our principal accountant, other than the services reported in the other categories.
The policy of our audit committee
is to pre-approve all audit and non-audit services provided by our independent registered public accounting firm, including audit services,
audit-related services, tax services and other services as described above, which are approved by the Audit Committee prior to the completion
of the audit.
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Item 16D. Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
On December 20, 2022, our board
of directors announced a share repurchase program which authorized us to repurchase up to US$20 million of its American depositary shares
("ADS") from time to time. As of March 31, 2023 we had repurchased an aggregate of 72,465 ADSs (representing 1,449,300 ordinary
shares) of the Company, at an average price of approximately US$7.85 per ADS for a total amount of approximately US$0.6 million under
this share repurchase program.
The following table summarizes
the shares repurchase activity for the periods indicated.
Period
Total
Number of
ADSs
Purchased
Average Price
Paid
per ADSs
Total Number of ADSs
Purchased as Part of
Publicly Announced
Programs
Approximate Dollar
Value of ADSs that May
Yet Be Purchased under
the Program
December 20, 2022 to December 31, 2022
72,465
US$
7.8473
72,465
US$
19,431,348.2
Total
72,465
US$
7.8473
72,465
US$
19,431,348.2
There were no other purchases of any class of registered equity securities
of the Company by the Company or, to our knowledge, by any affiliated purchaser.
Item 16F. Change in Registrant's Certifying Accountant
On August 25, 2021, we engaged
Deloitte as our independent registered public accounting firm, and dismissed Deloitte Hong Kong. The change of our independent registered
public accounting firm had been approved by our board and the audit committee of our board, and the decision was not made due to any disagreements
between us and Deloitte Hong Kong.
The reports of Deloitte Hong
Kong on our consolidated financial statements for the fiscal years ended December 31, 2019 and 2020 did not contain an adverse opinion
or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.
During the fiscal years ended
December 31, 2019 and 2020 and the subsequent interim period through August 25, 2021, there have been no (i) disagreements between
us and Deloitte Hong Kong on any matter of accounting principles or practices, financial statement disclosure, or audit scope or procedure,
which disagreements if not resolved to the satisfaction of Deloitte Hong Kong would have caused them to make reference thereto in their
reports on the consolidated financial statements for such years, or (ii) reportable events as defined in Item 16F(a)(1)(v) of the
instructions to Form 20-F.
We have provided Deloitte
Hong Kong with a copy of the disclosures here under this Item 16F and required under Item 16F of Form 20-F and requested from
Deloitte Hong Kong a letter addressed to the SEC indicating whether it agrees with such disclosures. A copy of Deloitte Hong Kong's
letter dated April 29, 2022 was attached as Exhibit 15.5 in our annual report on Form 20-F filed with the Commission on April 29, 2022.
During the fiscal years ended
December 31, 2019 and 2020 and the subsequent interim period through August 25, 2021, neither we nor anyone on behalf of us has consulted
with Deloitte regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or
the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice
was provided to us that Deloitte concluded was an important factor considered by us in reaching a decision as to any accounting, audit,
or financial reporting issue, (ii) any matter that was the subject of a disagreement pursuant to Item 16F(a)(1)(iv) of the instructions
to Form 20-F, or (iii) any reportable event pursuant to Item 16F(a)(1)(v) of the instructions to Form 20-F.
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123
-
Item 16G. Corporate Governance
Nasdaq Stock Market Rule
5620(a) requires each issuer to hold an annual meeting of shareholders no later than one year after the end of the issuer's fiscal
year-end. However, Nasdaq Stock Market Rule 5615(a)(3) permits foreign private issuers like us to follow "home country practice"
in certain corporate governance matters. Maples and Calder (Hong Kong) LLP, our Cayman Islands counsel, has provided a letter to the Nasdaq
Stock Market certifying that under Cayman Islands law, we are not required to hold annual shareholder meetings every year. We followed
home country practice with respect to annual meetings and did not hold an annual meeting of shareholders from 2009 to 2015 and from 2017
to 2021. However, we held an extraordinary general meeting on December 6, 2016 and obtained requisite shareholders' approval to
change the Company name from "CNinsure Inc." to "Fanhua Inc.". We may hold annual or extraordinary shareholder
meetings in the future if there are significant issues that require shareholders' approvals.
We obtained approvals from
the board of directors on November 27, 2014 and December 12, 2014 to issue up to 150,000,000 ordinary shares of the Company (the "Shares")
to our employees, excluding directors and officers. The purchase prices for the Shares are based on the average closing prices for the
then 20 trading days prior to the board approvals.
On August 29, 2018, we obtained
approvals from the board of directors to resell 28,475,480 ordinary shares, in the form of 1,423,774 ADS of treasury stocks and newly
issue and sell 101,524,520 ordinary shares in the form of 5,076,226 ADSs to participants in our 521 plan consisting of our key employees
and entrepreneurial team leaders, at $25.52 per ADS, or the weighted average of the closing prices of the share repurchases under the
2018 Share Repurchase Program.
On August 12, 2022, our
board of directors adopted a share incentive plan under which we have reserved 161,143,768 ordinary shares for issuance, which was approximately
15% of our issued and outstanding ordinary shares as of June 30, 2022.
Pursuant to the Nasdaq Stock
Market Rule 5635(c), shareholder approval is required prior to the issuance of securities when a stock option or purchase plan is to
be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may
be acquired by officers, directors, employees, or consultants, except for a few situations stated thereunder. In relations to the 521
Plan Transaction and the 2022 Share Incentive Plan mentioned above, Maples and Calder (Hong Kong) LLP, our Cayman Island counsel, has
provided letters to the Nasdaq Stock Market certifying that under Cayman Islands law, we are not required to obtain shareholder approval
in respect of the issuance of securities in the circumstances set out in Nasdaq Stock Market Rule 5635(c). We follow home country practices
accordingly.
Other than the annual meeting
and share purchase plan to employees practices described above, there are no significant differences between our corporate governance
practices and those followed by U.S. domestic companies under Nasdaq Stock Market Rules.
Item 16H. Mine Safety Disclosure.
Not applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.
In May 2022, we were conclusively
listed by the SEC as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal
year ended December 31, 2021. Our auditor, a registered public accounting firm that the PCAOB was unable to inspect or investigate completely
in 2021, issued the audit report for us for the fiscal year ended December 31, 2021. On December 15, 2022, the PCAOB announced that it
has secured complete access to inspect and investigate completely PCAOB-registered public accounting firms headquartered in mainland China
and Hong Kong. The PCAOB also vacated its previous determinations issued in December 2021. For this reason, we do not expect to be identified
as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F.
As of the date of this
annual report, to our knowledge, no governmental entities in the Cayman Islands own any shares of Fanhua Inc. or the consolidated
VIEs in China.
As of the date this annual
report, Hongkong Chiho Limited, a company incorporated in Hong Kong, holds 0.3% of the total outstanding ordinary shares of Fanhua Inc.
China's state-owned legal persons indirectly own 100% of the equity interests in Hongkong Chiho Limited and in turn indirectly
holds approximately 0.3% of the total outstanding ordinary shares of Fanhua Inc. To our knowledge, no other governmental entities in
China own any shares of Fanhua Inc. or the consolidated VIEs as of the date of this annual report. The governmental entities in China
do not have a controlling financial interest in Fanhua Inc. or the consolidated VIEs as of the date of this annual report.
As of the date of this annual report, to our knowledge, (i) none of
the members of the board of directors of Fanhua Inc. or our operating entities, including the consolidated VIEs, is an official of the
Chinese Communist Party, and (ii) none of the currently effective memorandum and articles of association (or equivalent organizing document)
of Fanhua Inc. or the consolidated VIEs contains any charter of the Chinese Communist Party.
Item 16J. Insider Trading Policies.
Not applicable.
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124
-
PART III
Item 17. Financial Statements
We have elected to provide
financial statements pursuant to Item 18.
Item 18. Financial Statements
The consolidated financial
statements of Fanhua Inc. and its subsidiaries and VIEs are included at the end of this annual report.
Item 19. Exhibits
Exhibit Number
Description of Document
1.1
Amended
    and Restated Memorandum and Articles of Association of the Registrant (incorporated by reference to Exhibit 3.2 of our F-1 registration
    statement (File No. 333-146605), as adopted by special resolution dated December 6, 2016, initially filed with the Commission on
    October 10, 2007)
1.2
Amendments
    to the Articles of Association adopted by the shareholders of the Registrant on December 18, 2008 (incorporated by reference to Exhibit
    99.2 of our report on Form 6-K furnished to the Commission on December 22, 2008)
1.3
Amendments
    to the Articles of Association adopted by the shareholders of the Registrant on December 6, 2016 (incorporated by reference to Exhibit
    1.3 of our annual report on Form 20-F initially filed with the Commission on April 19, 2017)
2.1
Registrant's
    Specimen American Depositary Receipt (included in Exhibit 2.3)
2.2
Registrant's
    Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 of our F-1 registration statement (File No. 333-146605),
    as amended, initially filed with the Commission on October 10, 2007)
2.3
Form
    of Deposit Agreement among the Registrant, the depositary and holder of the American Depositary Receipts, as amended and restated
    (incorporated by reference to Exhibit 99.(a) of our F-6 registration statement (File No. 333-146765), filed with the Commission on
    November 28, 2017
2.4
Description of Securities (incorporated by reference to Exhibit 2.4 of our annual report on Form 20-F (File No. 001-33768), filed with the Securities and Exchange Commission on April 29, 2022)
4.1
2007
    Share Incentive Plan (as amended and restated effective December 18, 2008) (incorporated by reference to Exhibit 99.3 of our report
    on Form 6-K furnished to the Commission on December 22, 2008)
4.2
Form
    of Indemnification Agreement with the Registrant's directors and officers (incorporated by reference to Exhibit 10.3 of our
    F-1 registration statement (File No. 333-146605), as amended, initially filed with the Commission on October 10, 2007)
4.3
Form
    of Director Agreement with Independent Directors of the Registrant (incorporated by reference to Exhibit 10.4 of our F-1 registration
    statement (File No. 333-146605), as amended, initially filed with the Commission on October 10, 2007)
4.4
Form
    of Employment Agreement between the Registrant and an Executive Officer of the Registrant (incorporated by reference to Exhibit 4.4
    of our annual report on Form 20-F filed with the Commission on May 15, 2009)
4.5†
English translation of Loan Agreement dated December 6, 2021 between Fanhua Insurance Sales and Service Group Company Limited and Shuangping Jiang (incorporated by reference to Exhibit 4.6 of our annual report on Form 20-F filed with the Commission on April 29, 2022)
4.6†
English translation of Equity Pledge Contract dated December 6, 2021 among Fanhua Insurance Sales and Service Group Company Limited, Shuangping Jiang and Shenzhen Xinbao Investment Management Co., Ltd. (incorporated by reference to Exhibit 4.7 of our annual report on Form 20-F filed with the Commission on April 29, 2022)
4.7†
English translation of Exclusive Purchase Option Contract dated December 6, 2021 among Fanhua Insurance Sales and Service Group Company Limited, Shuangping Jiang and Shenzhen Xinbao Investment Management Co., Ltd. (incorporated by reference to Exhibit 4.8 of our annual report on Form 20-F filed with the Commission on April 29, 2022)
-
125
-
Exhibit Number
Description of Document
4.8†
English translation of Power of Attorney dated December 6, 2021 of Shuangping Jiang (incorporated by reference to Exhibit 4.9 of our annual report on Form 20-F filed with the Commission on April 29, 2022)
4.9†
English translation of Technology Consulting and Service Agreement dated March 1, 2022 between Fanhua Insurance Sales and Service Group Company Limited and Shenzhen Xinbao Investment Management Co., Ltd. (incorporated by reference to Exhibit 4.10 of our annual report on Form 20-F filed with the Commission on April 29, 2022)
4.10*
2022 Share Incentive Plan
4.11*†
English
    translation of Loan Agreement dated July 1, 2022 between Beijing Fanlian Investment Co., Ltd. and Peng
    Ge
4.12*†
English translation of Equity Pledge Contract dated July 1, 2022 among Beijing Fanlian Investment Co., Ltd., Peng Ge and Fanhua RONS (Beijing) Technologies Co., Ltd.
4.13*†
English translation of Exclusive Purchase Option Contract dated July 1, 2022 among Beijing Fanlian Investment Co., Ltd., Peng Ge and Fanhua RONS (Beijing) Technologies Co., Ltd.
4.14*†
English
    translation of Power of Attorney dated July 1, 2022 of Peng Ge
4.15*
English translation of Form of Consulting and Service Agreement among Fanlian Investment Co., Ltd. and Fanhua RONS Technologies Co., Ltd. and each of its subsidiaries
8.1*
Subsidiaries and Affiliated Entities of the Registrant
11.1
Code
    of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 of our F-1 registration statement (File
    No. 333-146605), as amended, initially filed with the Commission on October 10, 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 Maples and Calder (Hong Kong) LLP
15.2*
Consent of Hai Run Law Firm
15.3*
Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP
15.4*
Consent of Deloitte Touche Tohmatsu
15.5
Letter from Deloitte Touche Tohmatsu to the Securities and Exchange Commission, dated April 29, 2022 (incorporated by reference to Exhibit 15.5 of our annual report on Form 20-F filed with the Commission on April 29, 2022)
15.6*
Submission under Item 16I(a) of Form 20-F in relation to the Holding Foreign Companies Accountable Act
101*
Financial information from Registrant for the year ended December 31,
    2022 formatted in Inline eXtensible Business Reporting Language (iXBRL):
(i) Consolidated Balance
    Sheets as of December 31, 2021 and 2022;
(ii) Consolidated Statements of
    Income and Comprehensive Income for the Years Ended December 31, 2020, 2021 and 2022;
(iii) Consolidated Statements of Shareholder's
    Equity for the Years Ended December 31, 2020, 2021 and 2022;
(iv) Consolidated Statements of Cash
    Flows for the Years Ended December 31, 2020, 2021 and 2022;
(v) Notes to Consolidated Financial
    Statements; and Schedule 1 — Condensed Financial Information of Fanhua Inc.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
*
Filed with this Annual Report
on Form 20-F.
**
Furnished with this Annual Report
on Form 20-F.
†
Portions of this exhibit have been omitted in accordance with
Instruction 4 to Item 19 of Form 20-F
-
126
-
SIGNATURES
The registrant hereby certifies
that it meets all of the requirements for filing its annual report on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
FANHUA INC.
By:
/s/ Yinan Hu
Name:
Yinan Hu
Title:
Chief Executive Officer
Date: April 25, 2023
-
127
-
FANHUA INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm - Deloitte Touche Tohmatsu Certified Public Accountants LLP (PCAOB No.
1113
)
F-2
Report of Independent Registered Public Accounting Firm - Deloitte Touche Tohmatsu (PCAOB No. 1104)
F-4
Consolidated Balance Sheets as of December 31, 2021 and 2022
F-5
Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2020, 2021 and 2022
F-8
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2020, 2021 and 2022
F-10
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2021 and 2022
F-12
Notes to the Consolidated Financial Statements
F-15
Schedule I—Condensed Financial Information of Fanhua Inc.
F-56
F-
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and the Board of Directors of Fanhua Inc.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheets of Fanhua Inc. and its subsidiaries (the "Company") as of December 31, 2022 and 2021, the related
consolidated statements of income and comprehensive income, shareholders' equity, and cash flows, for each of the two years in the
period ended December 31, 2022, and the related notes and schedule I (collectively referred to as the "financial statements").
In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December
31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022,
in conformity with accounting principles generally accepted in the United States of America.
We did not audit the financial
statements of CNFinance Holdings Limited, or CNFinance, the Company's investment in which is accounted for by use of the equity
method. The accompanying financial statements of the Company include its equity investment in CNFinance of RMB329 million as of December
31, 2021, and its equity earnings in CNFinance of RMB11 million for the year ended December 31, 2021. Those statements were audited by
other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for CNFinance, is
based solely on the report of the other auditors.
We have also 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, 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 April 25, 2023, expressed
an unqualified opinion on the Company's internal control over financial reporting.
Convenience Translation
Our audits also comprehended
the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity
with the basis stated in Note 2(u) to the financial statements. Such United States dollar amounts are presented solely for the convenience
of readers outside of People's Republic of China.
Basis for Opinion
These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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 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 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
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 financial statements. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
F-
2
Critical Audit Matter
The critical audit matter
communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to
be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the 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 financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition: Estimate of variable
renewal commissions for long-term life insurance products and impact on revenue recognized — Refer to Note 2(q) to the financial
statements
Critical Audit Matter
Description
The Company recognized agency
revenues for the life insurance business of approximately RMB2,237.3 million in 2022 of which RMB245.7 million relates to estimated variable
renewal commissions for long-term life insurance products. As described in Note 2(q) to its financial statements, the Company uses the
expected value method and considers constraints as well to estimate variable renewal commissions, which are contingent on future renewals
of initial policies or achievement of certain performance targets. Given the material uncertainty around the future renewal of the insurance
policies, the estimated renewal commissions expected to be collected are recognized as revenue only to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved.
Auditing management's
determination of estimated variable renewal commissions was complex and highly judgmental due to the complexity of the models used and
the subjectivity required by the Company to estimate the amount for future renewals of policies, calculate the amount of commission revenue
that is probable of not being reversed, and determine the timing and amount of any revenue adjustment that results from changes in the
estimates of previously recorded estimated renewal commissions. The Company utilizes statistical methodologies to estimate renewal rate(s),
which is a key driver when estimating the amount of future renewals of policies. To determine the constraint to be applied to estimated
renewal commissions, the Company evaluates historical experiences and data and applies judgment. For the ongoing evaluation of assumptions,
the Company also analyzes whether circumstances have changed and considers any known or potential modifications to the inputs into estimated
renewal commissions model and the factors that can impact the amount of renewal commissions expected to be collected in future periods
such as commission rates, insurance products composition, renewal terms of insurance products and changes in relevant laws and regulations.
The judgment and assumptions are continuously re-evaluated and adjusted as needed along with the accumulation of historical experiences
and data when new information becomes available.
Given the significant judgment
required to determine the amount of estimated variable renewal commissions, performing audit procedures to evaluate the reasonableness
of management's assessment required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit
Matter Was Addressed in the Audit
Our audit procedures related
to the evaluation of the reasonableness of the Company's estimate of variable renewal commissions for long-term life insurance products
discussed above included the following, among others:
●
We obtained an understanding, evaluated the design, and tested the operating effectiveness of the controls over the Company's process to estimate variable renewal commissions for long-term life insurance products.
●
We engaged our internal actuarial specialists to assist in our evaluation of the appropriateness of the methodology, including the determination of portfolio of contracts, and assumptions used by management to estimate variable renewal commissions by benchmarking the methods and assumptions against general market practice within the insurance industry.
●
We tested the completeness and accuracy of the underlying data that served as the basis for our substantial analytical procedures.
●
We developed a range of independent estimates and comparing those to the renewal rate selected by management for evaluating the reasonableness of management's assumptions.
●
We performed substantive analytical procedures by developing an independent expectation for comparison to the Company's estimate applying our own methods as well as assumptions with the Company's data, and evaluation of significant unexpected differences, if any.
●
We performed retrospective review to compare the actual realized renewal commissions with the estimated value that has been recognized as revenues.
/s/
Deloitte Touche Tohmatsu
Certified Public Accountants LLP
Shenzhen, the People's Republic of China
April 25, 2023
We have served as the Company's auditor
since 2021.
F-
3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders and the Board of Directors
of Fanhua Inc.
Opinion on the Financial Statements
We have audited the
accompanying consolidated statement of income and comprehensive income, shareholders' equity, and cash flows of Fanhua Inc.
and its subsidiaries (the "Company")
for the year ended
December 31,
2020, and the related notes and schedule I (collectively referred to as the "financial statements"). In our opinion,
based on our audits and the report of the other auditor, the financial statements present fairly, in all material respects, and the
results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles
generally accepted in the United States of America.
We did not audit the financial statements of CNFinance
Holdings Limited, or CNFinance, the Company's investment in which is accounted for by use of the equity method. The accompanying
financial statements of the Company include its equity earnings in CNFinance of RMB18 million for the year ended December 31, 2020. This
statement was audited by other auditors whose report (which, as to 2020, included an explanatory paragraph concerning completion of a
reorganization) has been furnished to us, and our opinion, insofar as it relates to the amounts included for CNFinance, is based solely
on the report of the other auditors.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's 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 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 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 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 financial statements. We believe that our audits and the report of the other auditors provide a reasonable basis for
our opinion.
/s/ Deloitte Touche Tohmatsu
Certified Public Accountants
Hong Kong
April 25, 2023
We began serving as the Company's auditor
in 2007. In 2021 we became the predecessor auditor.
F-
4
FANHUA INC.
Consolidated Balance Sheets
(In thousands, except for shares and per share data)
As of December 31,
2021
2022
2022
RMB
RMB
US$
Note 2(u)
ASSETS:
Current assets:
Cash and cash equivalents
564,624
567,525
82,283
Restricted cash (including restricted cash of the consolidated VIEs and VIEs' subsidiaries that can only be used to settle obligations of the VIEs of RMB
24,082
and RMB
15,832
as of December 31, 2021 and 2022, respectively)
76,303
59,957
8,693
Short term investments (including investments measured at fair value of RMB
857,682
and RMB
331,228
as of December 31, 2021 and 2022, respectively)
870,682
347,754
50,420
Accounts receivable, net of allowances of RMB
27,934
and RMB
15,361
as of December 31, 2021 and 2022, respectively
390,332
393,600
57,066
Contract assets, net of allowances of RMB
53
and nil as of December 31, 2021 and 2022, respectively
263,425
273,954
39,720
Other receivables, net
60,755
231,049
33,499
Other current assets, net
39,947
419,735
60,856
Total current assets
2,266,068
2,293,574
332,537
Non-current assets:
Restricted bank deposit – non-current  (including restricted cash of the consolidated VIEs and VIEs' subsidiaries that can only be used to settle obligations of the VIEs of RMB
6,261
and RMB
11,283
as of December 31, 2021 and 2022, respectively)
15,595
20,729
3,005
Contract assets - non-current, net of allowances of RMB
38
and nil as of December 31, 2021 and 2022, respectively
192,114
385,834
55,941
Property, plant, and equipment, net
46,800
98,459
14,275
Goodwill, net
109,869
109,997
15,948
Deferred tax assets
18,728
20,402
2,958
Investments in affiliates
335,808
4,035
585
Other non-current assets
31,459
11,400
1,653
Right of use assets
225,677
145,086
21,036
Total non-current assets
976,050
795,942
115,401
Total assets
3,242,118
3,089,516
447,938
F-
5
FANHUA INC.
Consolidated Balance Sheets—(Continued)
(In thousands, except for shares and per share data)
As of December 31,
2021
2022
2022
RMB
RMB
US$
Note 2(u)
LIABILITIES AND EQUITY:
Current liabilities:
Short-term loan
—
35,679
5,173
Accounts payable (including accounts payable of the consolidated VIEs and VIEs' subsidiaries without recourse to the Company of RMB
4,929
and RMB
8,600
as of December 31, 2021 and 2022, respectively)
335,721
362,352
52,536
Accrued commissions
41,837
74,432
10,792
Insurance premium payables (including insurance premium payables of the consolidated VIEs and VIEs' subsidiaries without recourse to the Company of RMB
24,054
and RMB
16,571
as of December 31, 2021 and 2022, respectively)
24,054
16,580
2,404
Other payables and accrued expenses (including other payables and accrued expenses of the consolidated VIEs and VIEs' subsidiaries without recourse to the Company of RMB
1,601
and RMB
3,267
as of December 31, 2021 and 2022, respectively)
178,157
174,326
25,275
Accrued payroll (including accrued payroll of the consolidated VIEs and VIEs' subsidiaries without recourse to the Company of RMB
2,166
and RMB
10,941
as of December 31, 2021 and 2022, respectively)
111,672
96,279
13,959
Income taxes payable (including income taxes payable of the consolidated VIEs and VIEs' subsidiaries without recourse to the Company of RMB
6,617
and RMB
7,509
as of December 31, 2021 and 2022, respectively)
130,222
130,024
18,852
Current operating lease liability (including current operating lease liability of the consolidated VIEs and VIEs' subsidiaries without recourse to the Company of RMB
733
and RMB
3,569
as of December 31, 2021 and 2022, respectively)
87,012
62,304
9,033
Total current liabilities
908,675
951,976
138,024
F-
6
FANHUA INC.
Consolidated Balance Sheets—(Continued)
(In thousands, except for shares and per
share data)
As of December 31,
2021
2022
2022
RMB
RMB
US$
Note 2(u)
Non-current liabilities:
Accrued commissions – non-current
97,869
192,917
27,970
Other tax liabilities (including other tax liability of the consolidated VIEs and VIEs' subsidiaries without recourse to the Company of nil and RMB
26,147
as of December 31, 2021 and 2022, respectively)
73,213
36,647
5,313
Deferred tax liabilities
73,716
102,455
14,855
Non-current operating lease liability (including non-current operating lease liability of the consolidated VIEs and VIEs' subsidiaries without recourse to the Company of RMB
553
and RMB
1,386
as of December 31, 2021 and 2022, respectively)
128,283
74,190
10,756
Total non-current liabilities
373,081
406,209
58,894
Total liabilities
1,281,756
1,358,185
196,918
Commitments and contingencies
Equity:
Ordinary shares (Authorized shares:
10,000,000,000
at US$
0.001
each; issued
1,073,891,784
and
1,074,291,784
shares, of which
1,073,891,784
and
1,072,842,484
shares were outstanding as of December 31, 2021 and 2022, respectively)
8,089
8,091
1,173
Treasury stock
—
(
10
)
(
1
)
Additional paid-in capital
—
461
67
Statutory reserves
557,221
559,520
81,123
Retained earnings
1,311,715
1,087,984
157,743
Accumulated other comprehensive loss
(
39,140
)
(
32,643
)
(
4,733
)
Total shareholders' equity
1,837,885
1,623,403
235,372
Noncontrolling interests
122,477
107,928
15,648
Total equity
1,960,362
1,731,331
251,020
Total liabilities and shareholders' equity
3,242,118
3,089,516
447,938
The accompanying notes are an integral part of
the consolidated financial statements.
F-
7
FANHUA INC.
Consolidated Statements of Income and Comprehensive
Income
(In thousands, except for shares and per share data)
Year Ended December 31,
2020
2021
2022
2022
RMB
RMB
RMB
US$
Note 2(u)
Net revenues:
Agency
2,834,997
2,811,936
2,376,851
344,611
Life insurance business
2,703,584
2,679,720
2,237,312
324,380
P&C insurance business
131,413
132,216
139,539
20,231
Claims adjusting
433,148
459,178
404,763
58,685
Total net revenues
3,268,145
3,271,114
2,781,614
403,296
Operating costs and expenses:
Agency
(
1,953,744
)
(
1,835,825
)
(
1,527,572
)
(
221,477
)
Life insurance business
(
1,866,227
)
(
1,742,640
)
(
1,436,606
)
(
208,288
)
P&C insurance business
(
87,517
)
(
93,185
)
(
90,966
)
(
13,189
)
Claims adjusting
(
260,121
)
(
279,342
)
(
268,031
)
(
38,861
)
Total operating costs
(
2,213,865
)
(
2,115,167
)
(
1,795,603
)
(
260,338
)
Selling expenses
(
288,460
)
(
306,463
)
(
272,706
)
(
39,539
)
General and administrative expenses
(
463,634
)
(
547,579
)
(
544,630
)
(
78,964
)
Total operating costs and expenses
(
2,965,959
)
(
2,969,209
)
(
2,612,939
)
(
378,841
)
Income from operations
302,186
301,905
168,675
24,455
Other income, net:
Investment income related to the realized gain on available-for-sale investments
34,789
32,898
17,809
2,582
Interest income
13,420
2,971
13,674
1,983
Others, net
11,907
33,314
(
3,823
)
(
554
)
Income before income taxes, share of income and impairment of affiliates, net
362,302
371,088
196,335
28,466
Income tax expense
(
83,387
)
(
90,574
)
(
41,016
)
(
5,947
)
Share of income of affiliates, net of impairment
(
2,738
)
(
20,573
)
(
69,596
)
(
10,090
)
Net income
276,177
259,941
85,723
12,429
Less: net income attributable to the noncontrolling interests
7,923
8,952
(
14,549
)
(
2,109
)
Net income attributable to the Company's shareholders
268,254
250,989
100,272
14,538
F-
8
FANHUA INC.
Consolidated Statements of Income and Comprehensive
Income—Continued
(In thousands, except for shares and per share data)
Year Ended December 31,
2020
2021
2022
2022
RMB
RMB
RMB
US$
Note 2(u)
Net income per share:
Basic
0.25
0.23
0.09
0.01
Diluted:
0.25
0.23
0.09
0.01
Shares used in calculating net income per share:
Basic:
1,073,891,784
1,073,891,784
1,074,196,310
1,074,196,310
Diluted
1,074,291,360
1,074,291,194
1,074,457,821
1,074,457,821
Net income
276,177
259,941
85,723
12,429
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
9,639
(
9,116
)
3,728
541
Unrealized net gains (loss) on available-for-sale investments
23,811
6,252
(
1,919
)
(
278
)
Share of other comprehensive (loss) gain of affiliates
(
3,016
)
(
1,281
)
4,688
680
Total comprehensive income
306,611
255,796
92,220
13,372
Less: Comprehensive income (loss) attributable to the noncontrolling interests
7,923
8,952
(
14,549
)
(
2,109
)
Comprehensive income attributable to the Company's shareholders
298,688
246,844
106,769
15,481
The accompanying notes are an integral part of
the consolidated financial statements.
F-
9
FANHUA INC.
Consolidated Statements of Shareholders'
Equity
(In thousands, except for shares and per share data)
Share
    Capital
Additional
Treasury
    Stock
Accumulated
Other
Number
    of
Share
Amounts
Paid-in
Capital
Number
    of
Share
Amounts
Statutory
Reserves
Retained
Earnings
Comprehensive
Loss
Noncontrolling
Interests
Total
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Balance
    as of January 1, 2020
1,252,367,264
9,235
393
178,475,480
(
1,146
)
508,739
1,479,494
(
65,429
)
113,182
2,044,468
Cumulative-effect
    adjustment to beginning balance from adoption of ASU 2016-13
—
—
—
—
—
—
(
7,523
)
—
—
(
7,523
)
Net
    income
—
—
—
—
—
—
268,254
—
7,923
276,177
Foreign
    currency translation
—
—
—
—
—
—
—
9,639
—
9,639
Cancellation
    of treasury shares
(
178,475,480
)
(
1,146
)
—
(
178,475,480
)
1,146
—
—
—
—
—
Share-based
    compensation (Note 2(o))
—
—
(
393
)
—
—
—
—
—
—
(
393
)
Provision
    for statutory reserves
—
—
—
—
—
45,172
(
45,172
)
—
—
—
Distribution
    of dividend
—
—
—
—
—
—
(
388,499
)
—
—
(
388,499
)
Unrealized
    net gains on available-for-sale investments
—
—
—
—
—
—
—
23,811
—
23,811
Share
    of other comprehensive loss of affiliates
—
—
—
—
—
—
—
(
3,016
)
—
(
3,016
)
Balance
    as of December 31, 2020
1,073,891,784
8,089
—
—
—
553,911
1,306,554
(
34,995
)
121,105
1,954,664
Net
    income
—
—
—
—
—
—
250,989
—
8,952
259,941
Foreign
    currency translation
—
—
—
—
—
—
—
(
9,116
)
—
(
9,116
)
Provision
    for statutory reserves
—
—
—
—
—
3,310
(
3,310
)
—
—
—
Distribution
    of dividend
—
—
—
—
—
—
(
242,518
)
—
(
7,580
)
(
250,098
)
Unrealized
    net gains on available-for-sale investments
—
—
—
—
—
—
—
6,252
—
6,252
Share
    of other comprehensive loss of affiliates
—
—
—
—
—
—
—
(
1,281
)
—
(
1,281
)
Balance
    as of December 31, 2021
1,073,891,784
8,089
—
—
—
557,221
1,311,715
(
39,140
)
122,477
1,960,362
F-
10
FANHUA INC.
Consolidated Statements of Shareholders' Equity—(Continued)
(In thousands, except for shares and per share data)
Share
    Capital
Additional
Treasury
    Stock
Accumulated
Other
Number
    of
Share
Amounts
Paid-in
Capital
Number of
Share
Amounts
Statutory
Reserves
Retained
Earnings
Comprehensive
Loss
Noncontrolling
Interests
Total
RMB
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Net
    income (loss)
—
—
—
—
—
—
100,272
—
(
14,549
)
85,723
Foreign
    currency translation
—
—
—
—
—
—
—
3,728
—
3,728
Exercise
    of share options
400,000
2
—
—
—
—
—
—
—
2
Repurchase
    of ordinary shares from open market
—
—
—
1,449,300
(
10
)
—
(
3,974
)
—
—
(
3,984
)
Share-based
    compensation
—
—
461
—
—
—
—
—
—
461
Provision
    for statutory reserves
—
—
—
—
—
2,299
(
2,299
)
—
—
—
Cash
    dividend
—
—
—
—
—
—
(
52,069
)
—
—
(
52,069
)
Pro rata distribution of equity method investee's shares to shareholders
(Note 8)
—
—
—
—
—
—
(
265,661
)
—
—
(
265,661
)
Unrealized
    net loss on available-for-sale investments
—
—
—
—
—
—
—
(
1,919
)
—
(
1,919
)
Share
    of other comprehensive gain of affiliates
—
—
—
—
—
—
—
4,688
—
4,688
Balance
    as of December 31, 2022
1,074,291,784
8,091
461
1,449,300
(
10
)
559,520
1,087,984
(
32,643
)
107,928
1,731,331
Balance
    as of December 31, 2022 in US$ (Note 2(u))
1,074,291,784
1,173
67
1,449,300
(
1
)
81,123
157,743
(
4,733
)
15,648
251,020
The accompanying notes are an integral part of
the consolidated financial statements.
F-
11
FANHUA INC.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31,
2020
2021
2022
2022
RMB
RMB
RMB
US$
Note 2(u)
Cash flows from operating activities:
Net income
276,177
259,941
85,723
12,429
Adjustments to reconcile net income to net cash generated from operating activities:
Depreciation expense
17,658
18,342
19,473
2,823
Amortization of intangible assets
281
45
—
—
Non-cash operating lease expense
95,423
101,448
90,419
13,109
Provision for (reversal of) allowance for credit losses on financial assets
18,837
(
235
)
30,701
4,451
Compensation expenses associated with stock options
(
393
)
—
461
67
Loss on disposal of property, plant and equipment
1,295
1,394
2,825
410
Investment income
(
14,321
)
(
3,171
)
(
10,963
)
(
1,590
)
Gain on disposal of subsidiaries
—
(
2,051
)
—
—
Share of income of affiliates, net of impairment
2,738
20,573
69,596
10,090
Deferred taxes
15,778
23,905
27,845
4,037
Interest accrued for other receivables (loan receivables)
—
—
(
3,353
)
(
486
)
Changes in operating assets and liabilities:
Accounts receivable
157,844
(
5,528
)
(
1,491
)
(
216
)
Contract assets
(
67,294
)
(
257,182
)
(
204,249
)
(
29,613
)
Insurance premium receivables
5,067
—
—
—
Other receivables
4,452
(
31,066
)
37,262
5,402
Other current assets
13,839
1,201
8,623
1,250
Other non-current assets
2,245
2,284
(
51
)
(
7
)
Accounts payable
(
5,496
)
(
37,104
)
22,099
3,204
Accrued commissions
—
139,706
127,643
18,506
Insurance premium payables
17,520
(
1,367
)
(
7,375
)
(
1,068
)
Other payables and accrued expenses
(
32,159
)
(
131
)
(
16,264
)
(
2,358
)
Accrued payroll
4,075
6,265
(
15,771
)
(
2,286
)
Income taxes payable
(
9,269
)
(
15,880
)
(
262
)
(
38
)
Lease liability
(
98,866
)
(
101,186
)
(
88,573
)
(
12,842
)
Other tax liabilities
(
3,131
)
5,995
(
36,566
)
(
5,302
)
Net cash generated from operating activities
402,300
126,198
137,752
19,972
Cash flows from investing activities:
Purchase of short term investments
(
7,947,662
)
(
8,184,363
)
(
2,550,300
)
(
369,759
)
Proceeds from disposal of short term investments
8,287,924
8,646,532
3,239,556
469,691
Purchase of property, plant and equipment
(
15,250
)
(
30,785
)
(
77,746
)
(
11,272
)
Proceeds from disposal of property and equipment
324
1,025
3,799
551
Disposal of subsidiaries, net of cash disposed of
nil
, RMB
2,040
and
nil
in 2020, 2021 and 2022, respectively
—
960
—
—
Cash lent to third parties
(
90,000
)
—
(
205,800
)
(
29,838
)
F-
12
FANHUA INC.
Consolidated Statements of Cash Flows
—
(Continued)
(In thousands)
Year Ended December 31,
2020
2021
2022
2022
RMB
RMB
RMB
US$
Note 2(u)
Repayment of loan receivables from  third parties
90,000
6,830
24,500
3,552
Prepayment for purchase of short-term investments
—
—
(
540,000
)
(
78,293
)
Payment for business acquisition, net of cash acquired
—
—
(
21,571
)
(
3,127
)
Others
—
10,200
—
—
Net cash generated from (used in) investing activities
325,336
450,399
(
127,562
)
(
18,495
)
Cash flows from financing activities:
Proceeds from bank borrowings
—
—
35,679
5,173
Repayment of refundable share rights deposits to the 521 Plan participants
(
250,312
)
—
—
—
Dividends paid
(
388,499
)
(
242,518
)
(
52,069
)
(
7,549
)
Dividend distributed to noncontrolling interest
—
(
7,580
)
—
—
Repurchase of ordinary shares from open market
—
—
(
3,984
)
(
578
)
Others
—
(
10,200
)
3
—
Net cash used in financing activities
(
638,811
)
(
260,298
)
(
20,371
)
(
2,954
)
Net increase (decrease) in cash and cash equivalents, and restricted cash
88,825
316,299
(
10,181
)
(
1,477
)
Cash and cash equivalents and restricted cash at beginning of year
265,605
350,098
656,522
95,187
Effect of exchange rate changes on cash and cash equivalents
(
4,332
)
(
9,875
)
1,870
271
Cash and cash equivalents and restricted cash at the end of the year
350,098
656,522
648,211
93,981
Reconciliation in amounts on the consolidated balance sheets:
Cash and cash equivalents at the end of the year
245,428
564,624
567,525
82,283
Restricted cash at the end of the year
104,670
91,898
80,686
11,698
Total of cash and cash equivalents and restricted cash at the end of the year
350,098
656,522
648,211
93,981
Supplemental disclosure of cash flow information:
Income taxes paid
79,063
74,323
47,029
6,819
Supplemental disclosure of non-cash operating activity:
Effect on operating assets upon the adoption of ASU 2016-13 on January 1, 2020
7,523
—
—
—
F-
13
FANHUA INC.
Consolidated Statements of Cash Flows
—
(Continued)
(In thousands)
Year Ended December 31,
2020
2021
2022
2022
RMB
RMB
RMB
US$
Note 2(u)
Supplemental disclosure of non-cash investing activities:
Right-of-use assets obtained in exchange for lease obligations, net of decrease of right-of-use assets for early terminations
108,178
125,487
4,462
647
Supplemental disclosure of non-cash financing activities:
Dividend distribution in equity method investee's shares
—
—
265,661
38,517
The accompanying notes are an integral part of
the consolidated financial statements.
F-
14
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(1) Organization and Description of Business
Fanhua Inc. (the "Company")
(formally known as "CNinsure Inc.") was incorporated in the Cayman Islands on April 10, 2007 and listed on the Nasdaq on October
31, 2007. The Company, its subsidiaries and the consolidated variable interest entities (the "VIEs") are collectively referred
to as the "Group". The Group is principally engaged in the provision of agency services and insurance claims adjusting services
in the People's Republic of China (the "PRC").
(2) Summary of Significant Accounting Policies
(a)
Basis of Presentation
and Consolidation
The consolidated financial
statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America
("US GAAP"). The consolidated financial statements include the financial statements of the Company, all its subsidiaries and
those VIEs of which the Company is the primary beneficiary from the dates they were acquired or incorporated. All intercompany balances
and transactions have been eliminated in consolidation.
In order to comply with the
PRC laws and regulations which prohibit or restrict foreign control of companies involved in provision of internet content and other restricted
businesses, the Group operates certain of its businesses which are subject to restrictions in the PRC through PRC domestic companies,
whose equity interests are held by certain individuals ("Nominee Shareholders"). The Group obtained control over these PRC
domestic companies by entering into a series of contractual arrangements with these PRC domestic companies and their respective Nominee
Shareholders. Management concluded that these PRC domestic companies are consolidated VIEs of the Group, of which the Group is the primary
beneficiary. As such, the Group consolidated the financial results of these PRC domestic companies and their subsidiaries in the Group's
consolidated financial statements. See Note 10 for details.
(b)
Use of Estimates
The preparation of the consolidated
financial statements in conformity with US GAAP requires management of the Group to make a number of estimates and assumptions relating
to the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reported period. The Group evaluates estimates, including
those related to the amounts of variable considerations of revenue contracts with respect to long-term life insurance products, the allowance
for credit losses of accounts receivable, contract assets, other receivables, fair values of certain debt and equity investments, the
useful lives of property, plant and equipment, impairment of long-lived assets, goodwill, investments in affiliates and other long-term
equity investments, and deferred tax valuation allowance among others. The Group, based their estimates on historical experience and various
other factors, believed to be reasonable under the circumstances, that the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those
estimates.
F-
15
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(c)
Cash and Cash Equivalents
and Restricted Cash
Cash and cash equivalents
consist of cash on hand, bank deposits and short-term, highly liquid investments, which have original maturities of three months or less,
and that are readily convertible to known amounts of cash, and have insignificant risk of changes in value related to changes in interest
rates.
In its capacity as an insurance
agent, the Group collects premiums from the insureds and remits the premiums to the appropriate insurance companies. Accordingly, as reported
in the consolidated statements of balance sheets, "premiums" are receivables from the insureds of RMB
24,459
and RMB
15,847
as of December 31, 2021 and 2022, respectively. Unremitted net insurance premiums are held in a fiduciary capacity until disbursed by
the Group. The Group invests these unremitted funds only in cash accounts held for a short term, and reports such amounts as restricted
cash in the consolidated balance sheets. Also, restricted cash balance includes the entrustment deposit received from the members of eHuzhu,
an online mutual aid platform operated by the Group, which is to be used during the one-year operating cycle and is therefore classified
as a current asset. The balance for entrustment deposit was RMB
51,844
and RMB
44,110
as of December 31, 2021 and 2022, respectively. Further,
restricted cash balance includes guarantee deposit required by China Banking and Insurance Regulatory Commission ("CBIRC")
in order to protect insurance premium appropriation by insurance agency which is restricted as to withdrawal for other than current operations.
Thus, the Group classified the balance for guarantee deposit as a non-current asset. The balance for guarantee was RMB
15,595
and RMB
20,729
as of December 31, 2021 and 2022, respectively.
(d)
Short Term Investments
All highly liquid investments
with original maturities less than twelve months or investments that are expected to be realized in cash during the next twelve months
are classified as short-term investments. The Group accounts for short-term debt investments in accordance with ASC Topic 320,
Investments
– Debt Securities
("ASC 320"). The Company classifies the short-term investments in debt securities as held-to-maturity
or available-for-sale, whose classification determines the respective accounting methods stipulated by ASC 320. Dividend and interest
income for all categories of investments in securities are included in earnings. Any realized gains or losses on the sale of the short-term
investments are determined on a specific identification method, and such gains and losses are reflected in earnings during the period
in which gains or losses are realized.
Securities that the Group
has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and stated at amortized cost less
allowance for credit losses. The Group has no debt investments classified as trading. The Group's short term investments are mainly
available-for-sale debt securities that do not have a quoted market price in an active market. Available-for-sale investments are carried
at fair values and the unrealized gains or losses from the changes in fair values are included in accumulated other comprehensive income
or loss. The Group benchmarks the values of its other investments against fair values of comparable investments and reference to product
valuation reports as of the balance sheet date, and categorizes all fair value measures of short term investments as level 2 of the fair
value hierarchy.
F-
16
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(2) Summary of Significant Accounting Policies
(Continued)
(d)
Short Term Investments
(Continued)
The Group evaluates each
individual available-for-sale debt securities periodically for impairment. For investments where the Group does not intend to sell, the
Group evaluates whether a decline in fair value is due to deterioration in credit risk. Credit-related impairment losses, not to exceed
the amount that fair value is less than the amortized cost basis, are recognized through an allowance for credit losses on the consolidated
balance sheet with corresponding adjustment in the consolidated statements of income and comprehensive income. Subsequent increases in
fair value due to credit improvement are recognized through reversal of the credit loss and corresponding reduction in the allowance for
credit loss. Any decline in fair value that is non-credit related is recorded in accumulated other comprehensive income as a component
of shareholder's equity. As of December 31, 2022, there were no investments held by the Group that had been in continuous unrealized
loss position.
No impairment loss on short
term investments was identified for years ended December 31, 2020, 2021 and 2022, respectively.
(e)
Accounts Receivable and
Contract Assets
Accounts receivable are recorded
at the amount that the Group expects to collect and do not bear interest. Accounts receivables represent fees receivable on agency and
claims adjusting services primarily from insurance companies.
The Group evaluates the collectability
of its trade receivables and contract assets based on a combination of factors. The Group generally does not require collateral on trade
receivables and contract assets as the majority of the Group's customers are large, well-established insurance companies. The Group
estimates allowances for expected credit losses using relevant available information from internal and external sources, related to past
events, the age of the accounts receivable and contract assets balances, current conditions, and reasonable and supportable forecasts.
Credit loss expenses are assessed quarterly and included in general and administrative expense on the consolidated statements of income
and comprehensive income.
Accounts receivable and
Contract Assets, net is analyzed as follows:
As of December 31,
2021
2022
RMB
RMB
Accounts receivable
418,266
408,961
Contract Assets (See Note 2(q))
455,630
659,788
Allowance for doubtful accounts
(
28,025
)
(
15,361
)
Accounts receivable and Contract Assets, net
845,871
1,053,388
F-
17
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(e)
Accounts Receivable and
Contract Assets
(Continued)
The following table summarizes
the movement of the Group's allowance for expected credit losses of accounts receivable and contract assets:
2020
2021
2022
RMB
RMB
RMB
Balance at the beginning of the year
20,495
29,000
28,025
Cumulative-effect adjustment upon adoption of ASU 2016-13
7,436
—
—
Current period provision (reversal of) for expected
    credit losses
4,831
2,095
(
1,378
)
Write-offs
(
3,762
)
(
3,070
)
(
11,286
)
Balance at the end of the year
29,000
28,025
15,361
(f)
Property, Plant and Equipment
Property, plant and equipment
are stated at cost. Depreciation and amortization are calculated using the straight-line method over the following estimated useful lives,
taking into account residual value:
Estimated
useful life
(Years)
Estimated
residual
value
Building
20
-
36
0
%
Office equipment, furniture and fixtures
3
-
5
0
%-
3
%
Motor vehicles
5
-
10
0
%-
3
%
Leasehold improvements
5
0
%
The depreciation
methods and estimated useful lives are reviewed regularly. The following table summarizes the depreciation expense recognized in the
consolidated statements of income and comprehensive income:
2020
2021
2022
RMB
RMB
RMB
Operating costs
199
791
822
Selling expenses
7,350
5,778
5,106
General and administrative expenses
10,109
11,773
13,545
Depreciation expense
17,658
18,342
19,473
F-
18
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(g)
Business combinations
and non-controlling interests
In determining whether a
particular set of activities and assets is a business, the Group assesses whether the set of assets and activities acquired includes,
at a minimum, an input and substantive process and whether the acquired set has the ability to produce outputs. The Group has an option
to apply a 'concentration test' that permits a simplified assessment of whether an acquired set of activities and assets is
not a business. The optional concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated
in a single identifiable asset or group of similar identifiable assets.
Transactions in which the
acquired is considered a business are accounted for as a business combination as described below. Conversely, transactions not considered
as business acquisition are accounted for as acquisition of assets and liabilities. In such transactions, the cost of acquisition is allocated
proportionately to the acquired identifiable assets and liabilities, based on their proportionate fair value on the acquisition date.
In an assets acquisition, no goodwill is recognized, and no deferred taxes are recognized in respect of the temporary differences existing
on the acquisition date.
The Group accounts for its
business combinations using the acquisition method of accounting in accordance with ASC 805 "Business Combinations". The cost
of an acquisition is measured as the aggregate of the acquisition date fair value of the assets transferred, liabilities incurred by the
Group to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred.
Identifiable assets acquired and liabilities assumed are measured separately at their fair value as of the acquisition date, irrespective
of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests
and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net
assets of the acquiree, is recorded as goodwill.
For the Group's majority-owned
subsidiaries, VIEs and subsidiaries of VIEs, a non-controlling interest is recognized to reflect the portion of their equity which is
not attributable, directly or indirectly, to the Group. Consolidated net income on the consolidated statements of income and comprehensive
income includes the net income attributable to non-controlling interests. The cumulative results of operations attributable to non-controlling
interests, are recorded as non-controlling interests on the Group's consolidated balance sheets.
(h)
Goodwill and Other Intangible Assets
Goodwill and amortization
of intangible assets
Goodwill represents the excess
of costs over fair value of net assets of businesses acquired in a business combination. Goodwill is not amortized, but is tested for
impairment at the reporting unit level at least on an annual basis at the balance sheet date or more frequently if certain indicators
arise. The Group operated in two reporting units for the years ended December 31, 2021 and 2022.
The impairment test
is performed as of year-end or if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting
unit below its carrying amount by comparing the fair value of a reporting unit with its carrying value. If the fair value of the reporting
unit exceeds its carrying amount, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit
is less than the carrying value, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting
unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
The impairment review is
highly judgmental and involves the use of significant estimates and assumptions. These estimates and assumptions have a significant impact
on the amount of any impairment charge recorded. Estimates of fair value are primarily determined by using discounted cash flows. Discounted
cash flows method is dependent upon assumptions of future sales trends, market conditions and cash flows of each reporting unit over several
years. Actual cash flows in the future may differ significantly from those previously forecasted. Other significant assumptions include
growth rates and the discount rate applicable to future cash flows.
F-
19
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(h)
Goodwill and Other Intangible
Assets
(Continued)
Goodwill and amortization
of intangible assets
(Continued)
In 2021 and 2022, management
compared the carrying value of each reporting unit, inclusive of assigned goodwill, to its respective fair value. The fair value of all
reporting units was estimated by using the income approach. Based on this quantitative test, it was determined that the fair value of
each reporting unit tested exceeded its carrying amount and, therefore, the management concluded that goodwill was not impaired as of
December 31, 2021and 2022, respectively.
Identifiable intangibles
assets are required to be determined separately from goodwill based on their fair values. In particular, an intangible asset acquired
in a business combination should be recognized as an asset separate from goodwill if it satisfies either the "contractual-legal"
or "separability" criterion. Intangible assets with a finite economic life are carried at cost less accumulated amortization.
Amortization for identifiable intangible assets categorized as customer relationships is computed using the accelerated method, while
amortization for other identifiable intangible assets is computed using the straight-line method over the intangible assets' economic
lives. Intangible assets with indefinite economic lives are not amortized but carried at cost less any subsequent accumulated impairment
losses. If an intangible asset that is not being amortized is subsequently determined to have a finite economic life, it will be tested
for impairment and then amortized prospectively over its estimated remaining economic life and accounted for in the same manner as other
intangible assets that are subject to amortization. Intangible assets with indefinite economic lives are tested for impairment annually
or more frequently if events or changes in circumstances indicate that they might be impaired.
The intangible assets, net
consisted of trade names with a cost of RMB
8,898
as of December 31, 2021 and 2022, respectively. The trade names have an estimated useful
life of
9.4
to
10
years and accumulated amortization of RMB
8,898
as of December 31, 2021and 2022, respectively. The residual balance is
nil
as of December 31, 2021 and 2022, respectively. Aggregate amortization expenses for intangible assets were RMB
281
, RMB
44
and
nil
for
the years ended December 31, 2020, 2021 and 2022, respectively.
Impairment of intangible
assets with definite lives
The Group evaluates the recoverability
of identifiable intangible assets with determinable useful lives whenever events or changes in circumstances indicate that these assets'
carrying amounts may not be recoverable. The Group measures the carrying amount of identifiable intangible assets with determinable useful
lives against the estimated undiscounted future cash flows associated with each asset. Impairment exists when the sum of the expected
future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which
the carrying value of the asset exceeds its fair value. Fair value is estimated based on various valuation techniques, including the discounted
value of estimated future cash flows. The evaluation of asset impairment requires the Group to make assumptions about future cash flows
over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed
and estimated amounts. The Group recognized no impairment losses on identifiable intangible assets with determinable useful lives in the
years ended December 31, 2020, 2021 and 2022.
Impairment of indefinite-lived
intangible assets
An intangible asset that
is not subject to amortization is tested for impairment at least annually or more frequently if events or changes in circumstances indicate
that the asset might be impaired. Such impairment test is to compare the fair values of assets with their carrying amounts and an impairment
loss is recognized if and when the carrying amounts exceed the fair values. The estimates of fair values of intangible assets not subject
to amortization are determined using various discounted cash flow valuation methodologies. Significant assumptions are inherent in this
process, including estimates of discount rates or market price. Discount rate assumptions are based on an assessment of the risk inherent
in the respective intangible assets. Market prices are based on a potential purchase quote from a third party, if any. The Group recognized
no impairment losses on its indefinite-lived intangible assets in the years ended December 31, 2020, 2021 and 2022.
F-
20
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(i)
Investment in Affiliates
The Group uses the equity
method of accounting for investments in which the Group has the ability to exercise significant influence, but does not have a controlling
interest.
The Group continually reviews
its investment in equity investees to determine whether a decline in fair value to an amount below the carrying value is other-than-temporary.
The primary factors the Group considers in its determination are the duration and severity of the decline in fair value; the financial
condition, operating performance and the prospects of the equity investee; and other company specific information such as the stock price
of the investee and its corresponding volatility, if publicly traded, the Group's intent and ability to hold the investment until
recovery, and changes in the macro-economic, competitive and operational environment of the investee. If the decline in fair value is
deemed to be other-than-temporary, the carrying value of the equity investee is written down to fair value.
(j)
Long-term
Equity Investments
Other non-current assets
mainly represent long-term equity investments accounted for under the measurement alternative method.
Equity securities without
readily determinable fair value
The Group has long-term investments
in equity security of certain privately held companies which the Group exerts no significant influence or a controlling interest. As a
result of adoption of "
Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial
Liabilities
" ("ASU 2016-01") in January 1, 2019, equity securities without readily determinable fair values that
do not qualify for the practical expedient in ASC 820, Fair Value Measurements and Disclosure to estimate fair value using the net asset
value per share (or its equivalent) of the investment, are measured and recorded using a measurement alternative that measures the securities
at cost less impairment, if any, plus or minus changes resulting from qualifying observable price changes. Significant judgments are required
to determine whether observable price changes are orderly transactions and identical or similar to an investment held by the Group.
During each reporting period,
the Group makes a qualitative assessment considering impairment indicators to separately evaluate whether each of its equity securities
without readily determinable fair value is impaired. Impairment indicators that the Group considers include, but are not limited to a
significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, factors such
as negative cash flows from operations and working capital deficiencies that raise significant concerns about the investee's ability
to continue as a going concern, current economic and market conditions and other specific information. If a qualitative assessment indicates
that the investment is impaired, the entity has to estimate the investment's fair value in accordance with the principles of ASC
820. If the fair value is less than the investment's carrying value, the Group recognizes an impairment loss in earnings equal to
the difference between the carrying value and fair value.
The Group recorded an impairment
of RMB
10,929
,
nil
and RMB
20,110
during the years ended December 31, 2020, 2021 and 2022, respectively, in the consolidated statements
of income and comprehensive income.
F-
21
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(k)
Impairment of Long-Lived
Assets
Property, plant, and equipment
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized for the amount by which the carrying value of the asset exceeds the fair value of the asset.
(l)
Insurance Premium Payables
Insurance premium payables
are insurance premiums collected on behalf of insurance companies but not yet remitted as of the balance sheet dates.
(m)
Treasury Shares
Treasury shares represent
ordinary shares repurchased by the Group that are no longer outstanding and are held by the Group. The repurchased ordinary shares are
recorded whereby the total par value of shares acquired is recorded as treasury stock and the difference between the par value and the
amount of cash paid is recorded in additional paid-in capital. If additional paid-in capital is not available or is not sufficient, the
remaining amount is to reduce retained earnings.
(n)
Income Taxes
Income taxes are accounted
for under the asset and liability method. Deferred income taxes are recognized for temporary differences between the tax basis of assets
and liabilities and their reported amounts in the consolidated financial statements, net operating loss carryforwards and credits by applying
enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Group records uncertain
tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) it determines whether it is more likely than
not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that
meet the more-likely-than-not recognition threshold, the Group recognizes the largest amount of tax benefit that is more than 50 percent
likely to be realized upon ultimate settlement with the related tax authority. The Group recognizes interest and penalties related to
unrecognized tax benefits, if any, on the income tax expense line in the accompanying consolidated statement of income and comprehensive
income. Accrued interest or penalties are included on the other tax liabilities line in the consolidated balance sheets.
(o)
Share-based Compensation
All forms of share-based
payments to employees and nonemployees, including stock options and stock purchase plans, are treated the same as any other form of compensation
by recognizing the related cost in the consolidated statements of income and comprehensive income. The Group recognizes compensation cost
for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period
for the entire award, provided that the amount of compensation cost recognized at any date must at least equal to the portion of the grant-date
value of the award that is vested at that date. For awards with both service and performance conditions, if each tranche has an independent
performance condition for a specified period of service, the Group recognizes the compensation cost of each tranche as a separate award
on a straight-line basis; if each tranche has performance conditions that are dependent of activities that occur in the prior service
periods, the Group recognizes the compensation cost on a straight-line basis over the requisite service period for each separately vesting
portion of the award as if the award was, in-substance, multiple awards. The Group has made an accounting policy election to account for
forfeitures when they occur for an award with only service conditions. For an award with a performance condition, the Group continues
to assess at each reporting period whether it is probable that the performance condition will be achieved. No compensation cost is recognized
for instruments that employees and nonemployees forfeit because a service condition or a performance condition is not satisfied.
F-
22
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(o)
Share-based Compensation
(Continued)
Employee share-based
compensation
Compensation cost related
to employee stock options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized
over the service period, which is usually the vesting period. If an award requires satisfaction of one or more performance or service
conditions (or any combination thereof), compensation cost is recognized if the requisite service is rendered, while no compensation cost
is recognized if the requisite service is not rendered.
Nonemployee
share-based compensation
Consistent with the accounting
requirement for employee share-based compensation, nonemployee share-based compensation within the scope of Topic 718 are measured at
grant-date fair value of the equity instruments, which the Group is obligated to issue when the service has been rendered and any other
conditions necessary to earn the right to benefit from the instruments have been satisfied.
Classification of award
Options or similar instruments
on shares shall be classified as liabilities instead of equity if either of the following conditions is met:
●
The underlying shares are classified
as liabilities;
●
The Group can be required under
any circumstances to settle the option or similar instrument by transferring cash or other assets.
The Group measures a liability
award under a share-based payment arrangement based on the award's fair value remeasured at each reporting date until the date of
settlement. The corresponding credit is recorded as a share-based liability. Compensation cost for each period until settlement shall
be based on the change (or a portion of the change, depending on the percentage of the requisite service that has been rendered at the
reporting date) in the fair value of the instrument for each reporting date.
The Group measures an equity
award based on the awards' fair value on grant date and recognizes the compensation cost over the vesting periods, with the corresponding
credit recorded as additional paid-in capital.
F-
23
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(o)
Share-based Compensation
(Continued)
Modification of an Award
A change in any of the terms
or conditions of the awards is accounted for as a modification of the award. Incremental compensation cost is measured as the
excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are modified,
measured based on the fair value of the awards and other pertinent factors at the modification date. For vested awards, the
Group recognizes incremental compensation cost in the period the modification occurs. For unvested awards, the Group recognizes
over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation
cost for the original award on the modification date. If the fair value of the modified award is lower than the fair value of
the original award immediately before modification, the minimum compensation cost the Group recognizes is the cost of the original award.
Cancellation of an Award
A cancellation of an award
that is not accompanied by the concurrent grant of (or offer to grant) a replacement award or other valuable consideration shall be accounted
for as a repurchase for no consideration. Accordingly, any previously unrecognized compensation cost shall be recognized immediately at
the cancellation date.
Share-based compensation
expenses of RMB(
393
),
nil
and RMB
461
for the years ended December 31, 2020, 2021 and 2022, respectively, were included in the selling,
general and administrative expenses. During fiscal year ended December 31, 2020, the Group reversed cumulative cost recognized in prior
periods as the stock option were not probable to be vested because the performance target was not probable to be met.
(p)
Employee Benefit Plans
As stipulated by the regulations
of the PRC, the Group's subsidiaries in the PRC participate in various defined contribution plans organized by municipal and provincial
governments for its employees. The Group is required to make contributions to these plans at a percentage of the salaries, bonuses and
certain allowances of the employees. Under these plans, certain pension, medical and other welfare benefits are provided to employees.
The Group has no other material obligation for the payment of employee benefits associated with these plans other than the annual contributions
described above. The contributions are charged to the consolidated statements of income and comprehensive income as they become payable
in accordance with the rules of the above mentioned defined contribution plans.
(q)
Revenue Recognition
The Group's revenue
from contracts with insurance companies is derived principally from the provision of agency and claims adjusting services, and insurance
companies are defined as the Group's customers under ASC 606 "Revenue from Contracts with Customers" ("ASC 606").
The Group disaggregates its revenue from different types of service contracts with customers by principal service categories, as the Group
believes it best depicts the nature, amount, timing and uncertainty of its revenue and cash flows. See Note 22 for detailed disaggregated
revenue information that is disclosed for each reportable segment.
F-
24
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(q)
Revenue Recognition
(Continued)
The following is a description
of the accounting policy for the principal revenue streams of the Group.
Insurance agency
services revenue
The Group derives agency
revenue serving as a sales agent to distribute various life insurance and property and casualty ("P&C") insurance products
on behalf of insurance companies by which the Group is entitled to receive an initial commission from the insurance companies based on
the premium paid by the policyholders for the related insurance policy sold. For life insurance agency, the Group is also entitled to
renewal commissions when the policyholder renews the policy within the renewal term of the original policy as such life insurance products
are typically long-term products.
The Group has identified
its promise to sell insurance products on behalf of an insurance company as the performance obligation in its contracts with the insurance
companies. The Group's performance obligation to the insurance company is satisfied and revenue is recognized at a point in time
when an insurance policy becomes effective. Specifically for life insurance agency business, certain contracts include the promise to
provide certain post-sales administrative services to policyholders on behalf of the insurance company, such as responding to the policyholder
inquiries, facilitating the renewal process and/or gathering information from the policyholder to assist the insurance companies to update
the contact information of the policy holder, the Group has concluded such services are administrative in nature and immaterial, and none
of these activities on their own results in a transfer of a good or services to the insurance company in the context of the contract.
Accordingly, no performance obligation exists after a policy becomes effective.
Initial placement of an
insurance policy
The Group recognizes agency
revenue related P&C insurance products (which is short term in nature and related premiums are collected upfront) when an insurance
policy becomes effective. The commission to be earned is required to be partially refunded contingently on policy cancellations. Based
on its past experience, subsequent commission adjustments in connection with P&C insurance policy cancellations have been de minims
to date, and are recognized upon notification from the insurance carriers. Actual commission and fee adjustments in connection with the
cancellation of P&C insurance policies were
0.2
%,
0.1
% and
0.1
% of the total commission and fee revenues during years ended December
31, 2020, 2021 and 2022, respectively.
For life insurance products,
there is generally a 10 to 15 days hesitation period after an initial placement of a life insurance policy, during which the policyholder
has a legal right to unconditionally cancel the effective policy regardless of the reasons. According to relevant terms of the insurance
agency contracts with customers, the Group reconciles information of policies sold which also includes policies that have been cancelled
by policyholders within the hesitation period, with the insurance companies on a monthly basis. Therefore, the Group estimates cancellation
of policies that have become effective but are still within the hesitation period based on subsequent actual data at each reporting date.
The cancellation of an effective life insurance policy by the policyholder after the hesitation period does not require the Group to refund
initial commission to insurance companies, but rather impacts the Group's estimate on future commission related to renewal(s) of
the policy.
F-
25
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(q)
Revenue Recognition
(Continued)
Insurance agency services
revenue
(Continued)
Initial placement of
an insurance policy
(Continued)
In addition, for life insurance
agency, the Group may receive a performance bonus from insurance companies as agreed and per contract provisions. Once the Group achieves
a certain sales volume based on respective agency agreements, the bonus will become due. Performance bonus represents a form of variable
consideration associated with certain sales volume, for which the Group earns commissions. The Group estimates the amount of consideration
with a constraint applied that will be received in the coming year such that a significant reversal of revenue is not probable, and includes
performance bonus as part of the transaction price. For the years ended December 31, 2020, 2021 and 2022, the Group recognized contingent
performance bonus of RMB
17,265
, RMB
3,887
and RMB
11,387
, respectively.
Renewals of a life insurance
policy
For the long-term life insurance
products, in addition to the initial commission earned, the Group is also entitled to subsequent renewal commission and compensation,
and renewal performance bonus which represents variable considerations and are contingent on future renewals of initial policies or the
Group achieves its performance target.
When making estimates of
the amount of variable consideration to which the Group expects to be entitled, the Group uses the expected value method and evaluates
many factors, including but not limited to, insurance companies mix, product mix, renewal term of various products, renewal premium rates
and commission rates, to determine the method(s) of measurement, relevant inputs and the underlying assumptions. The Group considers constraints
as well when determining the amount which should be included in the transaction price.
For years prior to 2021,
revenue related to the variable consideration is recorded when it is probable that a significant reversal in the amount of cumulative
revenue recognized will not occur, i.e., when a policyholder pays the renewal premium to the insurance company, and the policy is renewed
because the Group was not able to conclude a significant reversal to the estimated variable consideration is not probable, considering
factors such as a) the Group has limited history of selling its current life insurance products with its current customers, such that
the Group's past experience in outdated products is of little predictive value in renewal(s) rate estimate; b) the occurrence of
a renewal is outside the Group's control and the estimate of renewal premium rates is complex and requires significant assumptions;
and c) the contingency lasts across a long period of time.
The Group performs ongoing
evaluation of the appropriateness of the constraint applied, and will consider the sufficiency of evidence that would suggest that the
long-term expectation underlying the assumptions has changed. Starting from January 1, 2021, the Group believes that it has already accumulated
adequate scale of historical data and experiences at a confidence level that through which the Group can utilize to make a reasonable
estimate of variable considerations over its portfolio of contracts. The estimated renewal commissions are contingent on future renewals
of initial policies or achievement of certain performance targets. Given the material uncertainty around the future renewal of the insurance
policies, the estimated renewal commissions expected to be collected are recognized as revenue only to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is subsequently resolved.
The judgment and assumptions are continuously re-evaluated and adjusted as needed along with the accumulation of historical experiences
and data when new information becomes available. Actual renewal commissions in the future may differ significantly from those previously
estimated.
F-
26
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(q)
Revenue Recognition
(Continued)
Insurance
agency services revenue
(Continued)
Renewals of a life insurance
policy
(Continued)
For the year ended December
31, 2020, 2021 and 2022, the Group recognized revenues related to estimated variable renewal commissions with respect to long-term life
insurance products amounting to
nil
, RMB
258,715
and RMB
245,717
, respectively.
Insurance claims
adjusting services revenue
For insurance claims adjusting
services, performance obligations are considered met and revenue is recognized when the services are rendered and completed, at the time
loss adjusting reports are confirmed being received by insurance companies. The Group does not accrue any service fee before the receipt
of an insurance company's acknowledgement of receiving the adjusting reports. Any subsequent adjustments in connection with discounts
which have been de minims to date are recognized in revenue upon notification from the insurance companies.
Contract balances
The Group's contract
balances include accounts receivable and contract asset. The balances of accounts receivable as of December 31, 2021 and 2022 are all
derived from contracts with customers.
Started in 2021, the Group
recognized revenues and correspondent contract assets derived from estimated renewal commissions. Accordingly, the Group presented separately,
in the consolidated balance sheets as of December 31, 2021 and 2022, respectively.
The Group has no advance
from customers in advance of revenue recognition, or contract liability and, therefore, none of the revenue recognized in the current
period was previously recognized as a contract liability.
Practical expedients and
exemptions
The Group generally expenses
sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales
and marketing expenses in the consolidated statements of income and comprehensive income, as the amortization period is less than one
year and the Group has elected the practical expedient included in ASC 606.
The Group has applied the
optional exemption provided by ASC 606 to not disclose the value of remaining performance obligations not yet satisfied as of period end
for contracts with original expected duration of one year or less.
Value-added tax and surcharges
The Group presents revenue
net of tax surcharges and value-added taxes incurred. The tax surcharges amounted to RMB
20,610
, RMB
19,235
and RMB
14,681
for the years
ended December 31, 2020, 2021 and 2022, respectively.
Total value-added taxes
paid by the Group during the years ended December 31, 2020, 2021 and 2022 amounted to RMB
179,663
, RMB
179,183
and RMB
130,743
respectively.
F-
27
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(r)
Fair Value of Financial Instruments
Fair value is considered
to be the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to
be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions
that market participants would use when pricing the asset or liability. The established fair value hierarchy requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization
within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels
of inputs may be used to measure fair value include:
Level 1
Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The carrying values of the
Group's financial instruments, including cash and cash equivalents, restricted cash, accounts receivable, insurance premium payables,
other receivables, accounts payable and other payables, approximate their fair values due to the short-term nature of these instruments.
Measured at fair value
on a recurring basis
As of December 31, 2021 and
2022, information about inputs into the fair value measurements of the Group's assets and liabilities that are measured at fair
value on a recurring basis in periods subsequent to their initial recognition is as follows.
Fair Value Measurements
at Reporting Date Using
Description
As
of
December 31,
2021
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
RMB
RMB
RMB
RMB
Short-term investments - debt security
857,682
—
857,682
—
F-
28
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(r)
Fair Value of Financial
Instruments
(Continued)
Measured
at fair value on a recurring basis
(Continued)
Fair Value Measurements
at Reporting Date Using
Description
As
of
December 31,
2022
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
RMB
RMB
RMB
RMB
Short-term investments - debt security
331,228
—
331,228
—
The majority of debt security
consists of investments in bank financial products, trust products and asset management plans that normally pay a prospective fixed rate
of return. These investments are recorded at fair values on a recurring basis. The Group measured these investments at fair values and
the unrealized gains or losses from the changes in fair values are included in accumulated other comprehensive income or loss, at the
balance sheet date. It is classified as Level 2 of the fair value hierarchy since fair value measurement at the reporting date is benchmarked
against fair value of comparable investments.
Measured at
fair value on a non-recurring basis
The Group measures certain
assets, including equity securities without readily determinable fair values, equity method investments and intangible assets, at fair
value on a nonrecurring basis when they are deemed to be impaired. The fair values of these investments and intangible assets are determined
based on valuation techniques using the best information available, and may include management judgments, future performance projections,
etc. An impairment charge to these investments is recorded when the cost of the investment exceeds its fair value and this condition is
determined to be other-than-temporary. Impairment charge to the intangible assets is recorded when their carrying amounts may not be recoverable.
Goodwill (Note 7) and intangible
assets (Note 2(h)) with indefinite lives are measured at fair value on a nonrecurring basis, and they are recorded at fair value only
when impairment is recognized by applying unobservable inputs such as forecasted financial performance of the acquired business, discount
rate, etc. to the discounted cash flow valuation methodology that are significant to the measurement of the fair value of these assets
(Level 3).
Investments in affiliates
(Note 8) are measured at fair value on a nonrecurring basis, and they are recorded at fair value only when there is other-than-temporary-impairment.
The fair value of investment in an affiliate that is publicly listed is determined based on the market value of its share (Level 1) on
the date such impairment is recorded.
F-
29
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(s)
Foreign Currencies
The functional currency of
the Company is the United States dollar ("USD"). Assets and liabilities are translated at the exchange rates at the balance
sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using
the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate
component of other comprehensive income or loss in the consolidated statements of income and comprehensive income. The Group has chosen
the Renminbi ("RMB") as their reporting currency.
The functional currency of
most of the Company's subsidiaries is RMB. Transactions in other currencies are recorded in RMB at the rates of exchange prevailing
when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into RMB at rates of exchange
in effect at the balance sheet dates. Exchange gains and losses are recorded in the consolidated statements of income and comprehensive
income.
(t)
Foreign Currency Risk
The RMB is not a freely convertible
currency. The State Administration for Foreign Exchange, under the authority of the People's Bank of China, controls the conversion
of RMB into foreign currencies. The value of RMB is subject to changes in central government policies and international economic and political
developments that affect supply and demand in the China Foreign Exchange Trading System market of cash and cash equivalents and restricted
cash. The Group had aggregate amounts of RMB
595,428
and RMB
600,901
of cash and cash equivalents and restricted cash denominated in RMB
as of December 31, 2021 and 2022, respectively.
(u)
Translation into USD
The consolidated financial
statements of the Group are stated in RMB. Translations of amounts from RMB into USD are solely for the convenience of the readers outside
of China and were calculated at the rate of US$
1.00
= RMB
6.8972
, representing the noon buying rate in the City of New York for cable transfers
of RMB on December 30, 2022, the last business day in fiscal year 2022, as set forth in H.10 statistical release of the Federal Reserve
Bank of New York. The translation is not intended to imply that the RMB amounts could have been, or could be, converted, realized or settled
into USD at such rate.
(v)
Segment Reporting
As of December 31, 2021 and
2022, the Group operated two segments: (1) the insurance agency segment, which mainly consists of providing agency services for P&C
insurance products and life insurance products to individual clients, and (2) the claims adjusting segment, which consists of providing
pre-underwriting survey services, claim adjusting services, disposal of residual value services, loading and unloading supervision services,
and consulting services. Operating segments are defined as components of an enterprise for which separate financial information is available
and evaluated regularly by the Group's chief operating decision maker in deciding how to allocate resources and in assessing performance.
Substantially all revenues
of the Group are derived in the PRC and all long-lived assets are located in the PRC.
(w)
Earnings per Share ("EPS") or ADS
Basic EPS is calculated by
dividing the net income available to common shareholders by the weighted average number of ordinary shares /ADS outstanding during the
year. Diluted EPS is calculated by using the weighted average number of ordinary shares /ADS outstanding adjusted to include the potentially
dilutive effect of outstanding share-based awards, unless their inclusion in the calculation is anti-dilutive.
The contingently issuable
shares /ADS related to the 521 Plan (see Note 21(b) for details), are subject to fulfillment of the performance conditions as stipulated
under the 521 Plan. Therefore, these shares are excluded from basic earnings per share until the shares are fully vested upon the achievement
of performance conditions under the 521 Plan by the Participants. In December 2020, the Group cancelled the 521 Plan and no impact in
2021 and 2022.
F-
30
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(2) Summary of Significant Accounting Policies
(Continued)
(x)
Advertising Costs
Advertising costs are expensed
as incurred. Advertising costs amounted to RMB
37,389
, RMB
35,300
and RMB
18,822
for the years ended December 31, 2020, 2021 and 2022, respectively.
(y)
Leases
The Group leases office space,
vehicles and certain equipment under operating leases for terms ranging from short term (under 12 months) to
7
years. The Group does not
have options to extend or terminate leases, as the renewal or termination of relevant lease is on negotiation basis. As a lessee, the
Group does not have any financing leases and none of the leases contain material residual value guarantees or material restrictive covenants.
The Group's office space leases typically have initial lease terms of
2
to
7
years, and vehicles and equipment leases typically
have an initial term of 12 months or less. The Group's office space leases include fixed rental payments. The lease payments for
the Group's office space leases do not consist of variable lease payments that depend on an index or a rate.
The Group determines whether
a contract contains a lease at contract inception. A contract contains a lease if there is an identified asset and the Group has the right
to control the use of the identified asset. At the commencement of each lease, management determines its classification as an operating
or finance lease. For leases that qualify as operating leases, the Group recognizes a right-of-use ("ROU") asset and a lease
liability based on the present value of the lease payments over the lease term in the consolidated statements of balance sheets at commencement
date. As all of the leases do not have implicit rates available, the Group uses incremental borrowing rates based on the information available
at lease commencement date in determining the present value of future payments. The incremental borrowing rates are estimated to approximate
the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased assets are
located.
The ROU asset is measured
at the amount of the lease liabilities with adjustments, if applicable, for lease prepayments made prior to or at lease commencement,
initial direct costs incurred and lease incentives. For office space leases, the Group identifies the lease and non-lease components (e.g.,
common-area maintenance costs) and accounts for non-lease components separately from lease component. The Group's office space lease
contracts have only one separate lease component and have no non-components (e.g., property tax or insurance). Most of the office space
lease contracts have no non-lease components. For the office space lease contracts include non-lease components, the fixed lease payment
is typically itemized in the office space lease contract for separate lease component and non-lease components. Therefore, the Group does
not allocate the consideration in the contract to the separate lease component and the non-lease components.
Lease expense for minimum
lease payments is recognized on a straight-line basis over the lease term. The Group has made an accounting policy election to exempt
leases with an initial term of 12 months or less without a purchase option that is likely to be exercised from being recognized on the
balance sheet. Payments related to those leases continue to be recognized in the consolidated statement of income and comprehensive income
on a straight-line basis over the lease term.
In addition, the Group does
not have any related-party leases or sublease transactions.
F-
31
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(2) Summary of Significant Accounting Policies
(Continued)
(z)
Accumulated Other Comprehensive
Income
The Group presents comprehensive
income in the consolidated statements of income and comprehensive income with net income in a continuous statement.
Accumulated other comprehensive
income mainly represents foreign currency translation adjustments, changes in fair value of short term investments and share of other
comprehensive income of the affiliates for the period.
(aa) Government grants
Government grants primarily
consist of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and compliance
with specific policies promoted by the local governments. The Group records such government subsidies as other income or reduction of
expenses or cost of revenues when it has fulfilled all of its obligation related to the subsidy. The Group recognized RMB
27,352
, RMB
17,448
and RMB
10,396
in the year ended December 31, 2020, 2021 and 2022.
(ab) Recently
Adopted Accounting Pronouncements
Government Assistance
(Topic 832) –
In November 2021, the FASB issued ASU 2021-10,
Government Assistance (Topic 832)
—
Disclosures
by Business Entities about Government Assistance ("ASU 2021-10")
. It requires issuers to make annual disclosures about
government assistance, including the nature of the transaction, the related accounting policy, the financial statement line items affected
and the amounts applicable to each financial statement line item, as well as any significant terms and conditions, including commitments
and contingencies. The amendments in this Update are effective for all entities within their scope for financial statements issued for
annual periods beginning after December 15, 2021. The Company adopted this guidance on January 1, 2022 with no material impact on its
audited consolidated financial statements.
Business Combinations
(Topic 805) –
In October 2021, the FASB issued ASU 2021-08,
Business Combinations (Topic 805) — Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08")
, which provides guidance on the acquirer's
accounting for acquired revenue contracts with customers in a business combination. The amendments require an acquirer to recognize and
measure contract assets and contract liabilities acquired in a business combination at the acquisition date in accordance with ASC 606
as if it had originated the contracts. This guidance also provides certain practical expedients for acquirers when recognizing and measuring
acquired contract assets and contract liabilities from revenue contracts in a business combination. The new guidance should be applied
prospectively to business combinations occurring on or after the date of adoption. This guidance is effective for fiscal years beginning
after December 15, 2022, including interim periods therein. Early adoption is permitted. The Group early adopted the new standard beginning
January 1, 2022 with no material impact on the consolidated financial statements.
F-
32
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(3) Acquisitions and disposals
Acquisition of an agency
intermediate company in 2022
In August of 2022, to support
the Group's new strategy on "Open Platform", the Group acquired
100
% equity interest in an agency intermediate for cash
consideration of RMB
31,390
. The Group accounted for this acquisition as business combination.
The consideration, fair value
of assets acquired and liabilities assumed, as well as goodwill resulted from the acquisition are as follows:
RMB
Consideration:
Cash
31,390
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents
9,819
Short term investments
5,360
Accounts receivables
401
Other receivable and current assets
33,192
Property and equipment
11
Right of use assets
521
Total assets acquired
49,304
Accounts payables
(
4,532
)
Accrued expenses and other current liabilities
(
13,045
)
Lease liability
(
465
)
Total liabilities assumed
(
18,042
)
Net assets acquired
31,262
Goodwill
128
Goodwill arising from the
acquisition of this agency intermediate was attributable to the benefit of expected synergies as of the date of acquisition and recorded
in insurance agency segment. The resulted goodwill is not expected to be tax deductible for tax purposes.
The result of operation of
aforementioned acquisition has been consolidated by the Group from August 2022, and the results of operations for the aforementioned acquisition
is not material to the Group's consolidated financial statements as a whole.
Pro forma financial information
is not presented for the aforementioned business acquisition in the fiscal year 2022 as it is immaterial to the reported results.
Disposal of subsidiaries
in 2021
In 2021, the Group disposed
of two subsidiaries for a total consideration of RMB
3,600
and recognized a gain of RMB
2,051
in aggregate. As of December 31, 2021, RMB
600
of the consideration remained outstanding as a payable which was subsequently settled in 2022.
F-
33
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(4) Other Receivables, net
Other receivables, net consist
of the following:
As of December 31,
2021
2022
RMB
RMB
Advances to staff (i)
16,437
11,397
Advances to entrepreneurial agents (i)
907
81
Advances to a third party channel vendor (ii)
17,898
22,818
Rental deposits
21,864
19,535
Amount due from third parties (iii)
—
183,353
Other
4,451
4,841
Less: Allowance for current expected credit losses
(
802
)
(
10,976
)
Other receivables, net
60,755
231,049
(i)
Amounts represented advances to
staffs or entrepreneurial agents of the Group for daily business operations, which are unsecured, interest-free and repayable on demand.
(ii)
Amount represented advances to Shenzhen Chetong Technology Co., Ltd. ("Chetong") who provides platform services to the Group. The advances were unsecured, interest-free and repayable on demand. With the cease of cooperation with Chetong in 2022, the Group requested repayment of the advances. The Group estimated the net amount expected to be collected was RMB
14,736
and accordingly recorded an allowance for credit losses of RMB
8,082
in others, net of the consolidated statement of income and comprehensive income.
(iii)
Amount represented 1) term-loan (matures in June 2023) to Sichuan Tianyi Real Estate Development Co., Ltd. ("Sichuan Tianyi") of RMB
80,000
and corresponding interest receivable RMB
3,353
as of December 31, 2022. The loan is guaranteed by the ultimate controlling owner of Sichuan Tianyi, whom is jointly liable, with interest rate
7.2
% per annum. 2) term-loan (matures in June 2023) to Shenzhen Yingxin Asset Management Co., Ltd. of RMB
100,000
as of December 31, 2022, with the interest rate
7.3
% per annum. The interest accrued until December 31, 2022 has been paid. These loan receivables are expected to be settled within one year.
(5) Property, Plant and Equipment, net
Property, plant and equipment,
net, is comprised of the following:
As of December 31,
2021
2022
RMB
RMB
Building
12,317
12,317
Office equipment, furniture and fixtures
141,313
162,573
Motor vehicles
19,694
18,641
Leasehold improvements
36,791
39,993
Total
210,115
233,524
Less: Accumulated depreciation
(
163,315
)
(
191,945
)
Construction in progress
—
56,880
46,800
98,459
No impairment for property,
plant and equipment was recorded for the years ended December 31, 2020, 2021 and 2022.
(6) Other current assets, net
Other current assets consist
of the following:
As of December 31,
2021
2022
RMB
RMB
Prepayment for acquisition of short-term investments
—
390,000
Prepaid operating costs
15,206
12,594
Prepaid miscellaneous daily expenses
22,744
16,146
Other
1,997
2,790
Less: Allowance for current expected credit losses
—
(
1,795
)
39,947
419,735
F-
34
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(7) Goodwill, net
The gross amount of goodwill
and accumulated impairment losses by reporting unit as of December 31, 2021 and 2022 are as follows:
Agency
segment
Claims
Adjusting
segment
Total
RMB
RMB
RMB
Gross as of December 31, 2021
131,977
21,137
153,114
Addition in 2022
128
—
128
Accumulated impairment loss as of December 31, 2021 and 2022
(
22,108
)
(
21,137
)
(
43,245
)
Net as of December 31, 2021
109,869
—
109,869
Net as of December 31, 2022
109,997
—
109,997
The Group performed annual
impairment analysis as of the balance sheet date. No impairment loss was recognized in goodwill for the years ended December 31, 2020,
2021 and 2022.
(8) Investments in Affiliates
As of December 31, 2021 and
2022, the Group's investments accounted for under the equity method were as follows:
As of December 31,
2021
2022
RMB
RMB
CNFinance
329,158
—
Others
6,650
4,035
Total
335,808
4,035
Investment in CNFinance
Holdings Limited ("CNFinance")
The Group invested
18.5
%
equity interest of CNFinance after CNFinance's listing in New York Stock Exchange "NYSE" (symbol: CNF) on November 7,
2018. CNFinance is a leading home equity loan service provider incorporated in the Cayman Islands and based in Guangzhou, PRC. Investment
in CNFinance is accounted for using the equity method as the Group has significant influence by the right to nominate one board member
out of seven.
On May 27, 2022 (the "Declare
Date"), the board of directors authorized and approved the Group's distribution of
252,995,600
ordinary shares of CNFinance
to its shareholders on a pro rata basis. The distribution was completed on June 28, 2022, after which the Group's equity stake in CNFinance
decreased from approximately
18.5
% to approximately
0.01
%. Upon the completion of the distribution, the Company ceased to account for
the remaining equity investment in CNFinance using equity method as the Company no longer has significant influence over this investee.
For the year ended December 31, 2022, due to the continued decline in the share price of CNFinance, the Group recognized an other-than-temporary
impairment of RMB
78,277
(for the year ended December 31, 2021 RMB
29,316
) to reduce the carrying value of the investment to reflect the
market value of the shares held by the Group up to the date of disposal.
The summarized financial
information of equity method investees is illustrated as below:
As of December 31,
2021
RMB
Statements of Balance Sheet
Total assets
14,883,038
Total liabilities
10,783,449
Year Ended December 31,
2020
2021
Results of Operation
RMB
RMB
Income from operations
115,656
1,462
Net profit (loss)
89,820
(
7,089
)
Upon the completion of the disposal of CNFinance,
the remaining two investees did not meet the significance test in accordance with SEC Regulation S-X, Rule 1-02(w) (i.e., the asset, investment,
or income test). In accordance with SEC Regulation S-X, Rules 4-08(g), the Group did not disclose the investee's summarized financial
information for the year ended December 31, 2022.
F-
35
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except
for shares and per share data)
(9) Leases
The Group's lease for office
space include only fixed rental payments with no variable lease payment terms. As of December 31, 2021 and 2022, there were no leases
that have not yet commenced.
The following represents
the aggregate ROU assets and related lease liabilities as of December 31, 2021 and 2022:
As of December 31,
2021
2022
RMB
RMB
Operating lease ROU assets
225,677
145,086
Current operating lease liability
87,012
62,304
Non-current operating lease liability
128,283
74,190
Total operating leased liabilities
215,295
136,494
The weighted average lease
term and discount rate as of December 31, 2021 and 2022 were as follows:
As of December 31,
2021
2022
Weighted average lease term:
Operating leases
3.37
2.83
Weighted average discount rate:
Operating leases
4.41
%
4.28
%
The components of lease expenses
for the years ended December 31, 2021 and 2022 were as follows:
As of December 31,
2021
2022
RMB
RMB
Operating lease expense
111,197
97,576
Short term lease expense
3,373
1,227
Total
114,570
98,803
Supplemental cash flow information
related to leases for the years ended December 31, 2021 and 2022 were as follows:
As of December 31,
2021
2022
RMB
RMB
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
99,150
90,438
Supplemental noncash information:
Right-of-use assets obtained in exchange for lease obligations net of decrease in right-of-use assets for early determinations
125,487
4,462
F-
36
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(9) Leases (Continued)
Maturities of lease liabilities
at December 31, 2022:
Minimum Lease
Payment
RMB
Year ending December 31:
2023
66,924
2024
37,435
2025
22,498
2026
13,516
2027
3,135
Thereafter
2,162
Total remaining undiscounted lease payments
145,670
Less: Interest
9,176
Total present value of lease liabilities
136,494
Less: Current operating lease liability
62,304
Non-current operating lease liability
74,190
(10) Variable Interest Entities ("VIEs")
VIE related to Xinbao
Investment and Fanhua RONS Technologies
The Measures on the Supervision
of Internet Insurance Business implemented in February 2021 requires an insurance institution conducts online insurance business through
its own online platform who owns the domain name.
Fanhua RONS Insurance Sales
& Services Co., Ltd., ("Fanhua RONS"), a wholly-owned subsidiary of Shenzhen Xinbao Investment Co., Ltd. ("Xinbao
Investment"), used to conduct its online P&C insurance business through an online platform (www.baoxian.com) owned and operated
by another subsidiary within the Group. To comply with the newly implemented rules, the Group transferred the domain name and ICP license
to Fanhua RONS. As the applicant for an ICP license may be subject to foreign investment restriction, the Group commenced a restructuring
to re-establish the VIE structure.
Xinbao Investment was a wholly
owned subsidiary of the Group who in December 2021 became
49
% owned by the Group where the remaining
51
% equity interests were transferred
to Mr. Shuangping Jiang at nominal value who holds the interest on behalf of the Group, because Xinbao Investment is, under the new rule,
prohibited to own more than
50
% of the equity interests in a value-added telecommunications service provider, i.e., Fanhau RONS.
Through the contractual arrangements
entered in December 2021, with Xinbao Investment and its nominee shareholder, the Group has the power to direct the activities that most
significantly impact to and entitles to receive economic benefits from Xinbao Investment, the consolidated VIE.
In preparation for the application
of an ICP license for Fanhua RONs (Beijing) Technology Co., Ltd. ("Fanhua RONS Technologies"), in July 2022, Beijing Fanlian
Investment Co., Ltd. ("Fanlian Investment"), a wholly owned subsidiary, transferred its entire equity interests holding in
Fanhua RONS Technologies to Mr. Peng Ge, the chief financial officer of the Group, who holds the equity interests on behalf of Fanlian
Investment. Concurrently, Fanlian Investment entered into contractual arrangements with Fanhua RONS Technologies and Mr. Ge which are
substantially similar to those among Fanhua Group Company, Xinbao Investment and its individual nominee shareholder.
F-
37
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(10) Variable Interest Entities ("VIEs")
(Continued)
VIE related to Xinbao
Investment and Fanhua RONS Technologies
(Continued)
As a result, the Group currently
conducts its insurance agency and claims adjusting business in China primarily through its wholly-owned subsidiaries Fanhua Group Company
and Fanlian Investment (collectively the "relevant PRC entities"), and its subsidiaries and the VIEs for part of its online
insurance business in China. The following is a summary of the contractual agreements that the Group entered into with Xinbao Investment,
Fanhua RONS Technologies and their individual nominee shareholders:
Agreements that Provide
the Group Effective Control over Xinbao Investment
and Fanhua RONS Technologies
●
Loan Agreement
Mr. Jiang and Mr. Ge (collectively
the "nominee shareholders") entered into a loan agreement, with the Group's wholly-owned subsidiaries. The principal loan
amounts equal to the capital contributions to VIEs.
The term of the loan agreement
is for
ten years
, which may be extended only upon written agreement of the parties. If the loan is not extended, then upon its expiration
and subject to then applicable PRC laws, the loan can be repaid only with the proceeds from a transfer of the individual shareholder's
equity interests in VIEs to relevant PRC entities or another person or entity designated by them. Relevant PRC entities may accelerate
the loan repayment upon certain events, including but not limited to if the individual shareholder resigns or is dismissed from employment
by us or if relevant PRC entities exercise its option to purchase the shareholder's equity interests in VIEs pursuant to the exclusive
purchase option agreements described below.
●
Equity Pledge Agreement
Relevant nominee shareholders
entered into an equity pledge agreement, pledging their respective equity interests in VIEs to relevant PRC entities to secure their obligations
under the loan agreement. Relevant nominee shareholders also agreed not to transfer or create any encumbrances adverse to relevant PRC
entities on their equity interests in VIEs. During the term of the equity pledge agreement, relevant PRC entities are entitled to all
the dividends declared on the pledged equity interests. The equity pledge agreements will expire when the individual shareholders fully
performs their respective obligations under the loan agreement. The equity pledge was recorded on the shareholder' register of VIEs,
and registered with the relevant local administration of industry and commerce.
●
Power of Attorney
Relevant nominee shareholders
executed powers of attorney, each appointing a person designated by relevant PRC entities as his attorney-in-fact on all matters requiring
shareholder approval. Further, if relevant PRC entities designate the shareholder to attend a shareholder's meeting of VIEs, the
individual shareholder agrees to vote his shares as instructed by relevant PRC entities. The term of the power of attorney is for
ten
years
.
Agreements that Transfer
Economic Benefits to the Group
●
Exclusive Purchase Option
Agreement
Relevant nominee shareholders
entered into an exclusive purchase option agreement to irrevocably grant relevant PRC entities an exclusive option to purchase part or
all of their equity interests in VIEs, when and to the extent permitted by PRC law. The purchase price will be the minimum price permitted
under applicable PRC law.
F-
38
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(10) Variable Interest Entities ("VIEs")
(Continued)
VIE related to Xinbao
Investment and Fanhua RONS Technologies
(Continued)
Agreements that Transfer
Economic Benefits to the Group (Continued)
●
Technology Consulting
and Service Agreement
Pursuant to technology service
agreements between (i) relevant PRC entities, and (ii) VIEs, relevant PRC entities agreed to provide VIEs with training services and consulting
and other services relating to IT platform and internal control compliance. In exchange, VIEs agree to pay a quarterly fee calculated
primarily based on a percentage of its revenues. The agreement has a term of
one year
and can be renewed each year upon mutual agreement.
Because of contractual arrangements
with VIEs and their nominee shareholders, the Group is the primary beneficiary of VIEs and their subsidiaries and consolidated them into
consolidated financial statements.
VIEs related to the
521 Plan
On June 14, 2018, the Group
announced that its board of directors approved a 521 Share Incentive Plan (the "521 plan"). The 521 Plan is designed to incentivize
the Group's employees and independent sales agents (collectively the "Participants"). The 521 Plan provides Participants
an opportunity to benefit from appreciation of the Company's ordinary shares by purchasing the Company's ordinary shares at
a stated subscription price in exchange for employee and non-employee services, if service and performance conditions are achieved.
10
%
of the subscription price is paid by the Participant on or around the grant date, while the remaining
90
% of the subscription prices is
financed through interest-bearing loans from the Group. The vesting of the awards is contingent on performance conditions being met during
the requisite service periods.
Pursuant to the 521 Plan,
the Group set up three companies which are Fanhua Employees Holdings Limited, Step Tall Limited and Treasure Chariot Limited (collectively
the "521 Plan Employee Companies") to hold the Group's ordinary shares on behalf of the Participants of the 521 Plan.
Each of the 521 Plan Employee Companies is a legal entity formed in the British Virgin Islands with a sole shareholder appointed by the
Group. Each shareholder is either an employee, or a founder who is also a shareholder and director of the Group.
The following is a summary
of the contractual agreements that the Group entered into relating to the 521 Plan:
The nature and structure
of the 521 Plan Employee Companies is that they are investment vehicle companies holding the Company's shares on behalf of the Participants
for the purpose of the 521 Plan. Loan agreements and entrusted share purchase agreements were signed among the Group's wholly-owned
subsidiary CISG Holdings Ltd., the 521 Plan Employee Companies and each of the Participants. To effect the 521 Plan, Participants agreed
to pay
10
% of the subscription price and executed a loan agreement with the Group for a loan representing
90
% of the subscription price
of the ordinary shares under the 521 Plan. Participants executed an entrusted share purchase agreement with one of the 521 Employee Companies
whereby the 521 Plan Employee Company will legally hold the ordinary shares on behalf of the Participants. As of December 31, 2018 and
2019, the loan agreements provide a total of US$
184,815
and US$
344,988
, respectively, in loans to the VIEs and Participants of the 521
Plan with the sole purpose of providing funds necessary for the purchase of the Group's ordinary shares under the 521 Plan. All
the ordinary shares are pledged as collateral to the Group for the loans and are not yet vested, the Participants cannot direct the sale
of the ordinary shares without the consent of the Group until the ordinary shares are fully vested in accordance with the 521 Plan's
agreed target performance. The loan agreement and the entrusted share purchase agreement shall terminate after five years or upon termination
of agency relationship and employment relationship or the settlement of the loan, whichever comes first.
F-
39
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(10) Variable Interest Entities ("VIEs")
(Continued)
VIE related to Xinbao
Investment and Fanhua RONS Technologies
(Continued)
Agreements that Transfer
Economic Benefits to the Group (Continued)
VIEs related to the
521 Plan
(Continued)
The sole director and sole
shareholder of each of the 521 Plan Employee Companies is either a significant shareholder and director, or an employee of the Group,
who has executed powers of attorney on behalf of the Group. Under the power of attorney, they will follow, without any conditions, the
Group's instructions to manage all the activities of each of the 521 Plan Employee Companies. In addition, the Group can replace
the sole director and shareholder of each of the 521 Plan Employee Companies to another designated party at its discretion.
The ordinary shares are the
only significant assets held by the 521 Plan Employee Companies. Through the loan agreements, entrusted share purchase agreements and
letters of undertaking described above, the Group controls the decision-making rights of the 521 Plan Employee Companies with respect
to the shares held by the 521 Plan Employee Companies as collateral to the loans issued to the Participants during the vesting period.
Given the only substantial recourse to the loans issued by the Group are the ordinary shares, the Group has potential exposure to the
economics of the 521 Plan Employee Companies resulting from the fluctuation in value of the ADS (principally decreases), which is more
than insignificant. Further, the Group will also participate in the variability and absorb the economic benefits of the 521 Plan Employee
Companies, through an increase in value of the shares held by the 521 Plan Employee Companies, if the performance conditions are not met
or partially met based on the profit distribution arrangements. Based on above, the Group is the primary beneficiary of the 521 Plan Employee
Companies and consolidates them because it has the power to direct the activities that most significantly impact the 521 Plan Employee
Companies' economic performance, and the obligation to absorb losses of the 521 Plan Employee Companies that could potentially be
significant to them and the right to receive benefits from the 521 Plan Employee Companies that could potentially be significant to the
521 Plan Employee Companies. Therefore, the Group has variable interests in the 521 Plan Employee Companies during the vesting period.
As disclosed in Note 21(b),
the Group entered into supplemental agreements with all remaining Participants in December 2020 to cancel the 521 Plan upon which the
521 Plan Employee Companies returned all subscribed
280,000,000
ordinary shares to the Group, and as a condition, the Group refunded all
share rights deposits back to the Participants, and terminated the Participants' obligation to repay the Group the non-recourse
loan principal and interest, and all the relevant original contractual agreements including the loan agreements, entrusted share purchase
agreements and letters of undertaking described above were agreed to be terminated and lapsed. As a result, the Group no longer has power
to direct the significant activities of the 521 Plan Employee Companies, and no longer bears potentially significant economic exposure
through its indirect interests to the 521 Plan Employee Companies, and stopped consolidating the 521 Plan Employee Companies upon the
cancellation of the 521 Plan.
In December 2020, upon the
cancellation of the 521 Plan, the Group refunded all share rights deposits amounted to RMB
266,901
back to the Participants which was presented
as cash outflows from financing activities.
Risks in relation to the
VIE Arrangement (Continued)
In the opinion of the Company's
legal counsel, (i) the ownership structure relating to the consolidated VIEs of the Company is in compliance with PRC laws and regulations;
(ii) the contractual arrangements with the consolidated VIEs and the individual shareholders are legal, valid and binding obligation of
such party, and enforceable against such party in accordance with their respective terms; and (iii) the execution, delivery and performance
of the consolidated VIEs and its shareholders do not result in any violation of the provisions of the articles of association and business
licenses of the VIEs, and any violation of any current PRC laws and regulations.
F-
40
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(10) Variable Interest Entities ("VIEs")
(Continued)
Risks in relation to the
VIE Arrangement (Continued)
Uncertainties in the PRC
legal system could cause the Company's current corporate structure to be found in violation of any existing and/or future PRC laws
or regulations and could limit the Company's ability, through the Primary Beneficiary, to enforce its rights under these contractual
arrangements. Furthermore, the shareholders of the VIEs may have interests that are different from those of the Company, which could potentially
increase the risk that the shareholders would seek to breach the existing terms of the aforementioned agreements.
In addition, if the current
structure or any of the contractual arrangements were found to be in violation of any existing or future PRC laws, the Company may be
subject to penalties, which may include but not be limited to, the cancellation or revocation of the Company's business and operating
licenses, being required to restructure the Company's operations or discontinue the Company's operating activities. The imposition
of any of these or other penalties may result in a material and adverse effect on the Company's ability to conduct its operations.
In such case, the Company may not be able to operate or control VIEs, which may result in deconsolidation of VIEs.
Summarized below is the information
related to VIEs, including total assets, total current liabilities, total liabilities, net revenues, total operating costs and expenses,
net income (loss) and cash flows after intercompany elimination are as follows:
As of December 31,
2021
2022
RMB
RMB
Total assets
69,792
102,965
Total current liabilities
(
40,100
)
(
50,457
)
Total liabilities
(
40,653
)
(
77,990
)
Year Ended December 31,
2020
2021
2022
RMB
RMB
RMB
Net revenues
—
16,267
141,086
Operating costs and expenses
—
1,814
67,788
Net income (loss)
—
14,431
(
4,136
)
Net cash generated from operating activities
—
48,923
98,715
Net cash used in financing activities
(
266,901
)
—
—
As
of December 31, 2022 there were no consolidated VIE assets that are collateral for the VIE's obligations or are restricted solely
to settle the VIEs' obligations, other than aforementioned in the restricted cash as described in Note 2(c)
.
In
the year ended December 31, 2022, aggregate revenues derived from these VIEs contributed 5.1% of the total consolidated net revenues,
based on the corporate structure as of the end of 2022. As of December 31, 2022, the VIEs accounted for an aggregate of 3.3% of the consolidated
total assets.
The creditors of the VIEs' third-party liabilities did not have recourse to the general credit of the Company in normal
course of business. The Company has not provided any financial support that it was not previously contractually required to provide to
the VIEs.
F-
41
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(11) Other Payables and Accrued Expenses
Components of other payables
and accrued expenses are as follows:
As of December 31,
2021
2022
RMB
RMB
Business and other tax payables
65,228
77,502
Refundable deposits from employees and agents
21,284
19,789
Professional fees
8,998
3,586
Accrued expenses to third parties
23,719
29,861
Contributions from members of eHuzhu mutual aid program (Note 2(c))
51,144
43,140
Others
7,784
448
Total
178,157
174,326
(12) Short-term loan
Short-term loans and total
outstanding balance as of December 31, 2021 and 2022 amounted to
nil
and RMB
35,679
, respectively, which is RMB-denominated borrowing made
by the Company's subsidiaries from financial institutions in mainland China. In 2022, insurance agency segment borrowed RMB
35,679
one-year loan for its general working capital purposes.
As of December 31, 2021 and
2022, the weighted average interest rates for the outstanding borrowings were approximately
nil
and
4.50
%, respectively, and the aggregate
amounts of unused lines of credit for short-term loans were
nil
and RMB
164,321
, respectively.
(13) Employee Benefit Plans
Employees of the Group located
in the PRC are covered by the retirement schemes defined by local practice and regulations, which are essentially defined contribution
plans.
In addition, the Group is
required by law to contribute a certain percentage of applicable salaries for medical insurance benefits, unemployment and other statutory
benefits. The contribution percentages may be different from district to district which is subject to the specific requirement of local
regime government. The PRC government is directly responsible for the payments of the benefits to these employees.
For the years ended December
31, 2020, 2021 and 2022, the Group contributed and accrued RMB
52,942
, RMB
118,837
and RMB
131,385
, respectively.
F-
42
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(14) Income Taxes
The Company is a tax exempted
company incorporated in the Cayman Islands. Under the current laws of the Cayman Islands, the Company is not subject to tax on its income
or capital gains. In addition, upon any payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax is
imposed.
Subsidiaries in Hong Kong
are subject to Hong Kong Profits Tax rate at
16.5
%, and foreign-derived income is exempted from income tax. Under the two-tiered
profits tax rates regime, the provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by
applying the current rate of taxation of
8.25
% for the years ended December 31, 2020, 2021 and 2022.
The Group's subsidiaries
and VIEs incorporated in the PRC are subject to the PRC Enterprise Income Tax and a unified
25
% enterprise income tax rate,
except for certain entities that are entitled to preferential tax treatments.
Preferential EIT rates at
15
% is available for qualified enterprises located in the western China regions in an industry sector encouraged by the PRC government.
Fanhua Lianxing Insurance Sales Co., Ltd., the Group's wholly-owned subsidiary, which is the holding entity of the Group's
life insurance operations, was entitled to a preferential tax rate of
15
% for the years ended December 31, 2020, 2021 and 2022, respectively. Tibet
Zhuli Investment Co. Ltd. ("Tibet Zhuli"), the Group's wholly-owned subsidiary, was entitled to a preferential tax rate
of
15
% for the year ended December 31, 2020. Tibet Zhuli  no longer enjoys such a preferential rate from 2021 to 2022.
Pursuant to the relevant
laws and regulations in the PRC, Shenzhen Huazhong United Technology Co., Ltd. ("Shenzhen Huazhong"), a subsidiary of the
Group, was regarded as a software company and thus exempted from PRC Income Tax for two years starting from its first profit-making year,
followed by a
50
% reduction for the next three years. For Shenzhen Huazhong, year 2017 was the first profit-making year and accordingly
it has made a
12.5
% tax provision for its profits for the years ended December 31, 2020 and 2021, Shenzhen Huazhong no longer enjoys such
a preferential rate from 2022.
The Group's subsidiaries
that are the PRC tax resident are required to withhold the PRC withholding tax of
10
% on dividend payment to their non-PRC resident immediate
holding company, unless such dividend payment is qualified for the
5
% reduced tax rate under the Arrangement between Mainland China and
Hong Kong for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the "PRC-HK
DTA").
One of the Group's
wholly-owned subsidiaries, CNinsure Holdings Limited, was determined by Hong Kong Taxation Bureau to be a Hong Kong resident enterprise
since July 2018. The Hong Kong resident certificate was issued by the Hong Kong Inland Revenue Department valid till the year ending December
31, 2022. Accordingly, CNinsure Holdings Limited qualified as a Hong Kong resident and was entitled to enjoy a reduced tax rate of
5
%
for the dividends paid by PRC subsidiaries for the years ended December 31, 2020, 2021 and 2022 under Bulletin [2018] No. 9 (e.g. beneficial
ownership, shareholding percentage and holding period).
The Group accounts for uncertain
income tax positions by prescribing a minimum recognition threshold in the financial statements. The Group's liabilities for unrecognized
tax benefits were included in other tax liabilities. As of December 31, 2021 and 2022, the balance of unrecognized tax benefits is comprised
of amounts mainly arising from gain on disposal of subsidiaries and certain transfer pricing arrangements.
F-
43
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(14) Income Taxes (Continued)
The movements of unrecognized
tax benefits are as follows:
RMB
Balance as of January 1, 2020
70,350
Change in unrecognized tax benefits
—
Decrease in tax positions
(
3,131
)
Balance as of December 31, 2020
67,219
Change in unrecognized tax benefits
—
Increase in tax positions
5,994
Balance as of December 31, 2021
73,213
Change in unrecognized tax benefits
—
Decrease in tax positions
(
36,566
)
Balance as of December 31, 2022
36,647
The uncertain tax positions are related to tax
years that remain subject to examination by the relevant tax authorities. Based on the outcome of any future examinations, or as a result
of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits
for tax positions taken regarding previously filed tax returns, might materially change from those recorded as liabilities for uncertain
tax positions in the Group's consolidated financial statements. In addition, the outcome of these examinations may impact the valuation
of certain deferred tax assets (such as net operating losses) in future periods. The Group's policy is to recognize interest and
penalties accrued on any unrecognized tax benefits, if any, as a component of income tax expense. The Group does not anticipate any significant
increases or decreases to its liability for unrecognized tax benefits within the next twelve months.
According to the PRC Tax
Administration and Collection Law, the statute of limitations is three years if the underpayment of income taxes is due to computational
errors made by the taxpayer. The statute of limitations will be extended to five years under special circumstances, which are not clearly
defined, but an underpayment of income tax liability exceeding RMB100 is specifically listed as a special circumstance. In the case of
a transfer pricing related adjustment, the statute of limitations is ten years. There is no statute of limitations in the case of tax
evasion. During the current year, the Group reversed transfer pricing related uncertain tax position amounting to RMB36,566 when its statute
of limitation expired in 2022.
Income tax expenses are comprised
of the following:
Year Ended December 31,
2020
2021
2022
RMB
RMB
RMB
Current tax expense
67,609
66,665
13,169
Deferred tax expense
15,778
23,909
27,847
Income tax expense
83,387
90,574
41,016
F-
44
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(14) Income Taxes (Continued)
The principal components
of the deferred income tax assets and liabilities are as follows:
As of December 31,
2021
2022
RMB
RMB
Deferred tax assets:
Operating loss carryforward
53,179
96,173
Intangible assets, net
3,675
2,856
Less: valuation allowances
(
38,126
)
(
78,627
)
Total
18,728
20,402
Deferred tax liabilities:
Fair value adjustments in relation to short-term investments
14,734
13,954
Estimated profit arising from future renewal commissions
29,752
59,271
PRC dividend withholding taxes
29,230
29,230
Total
73,716
102,455
The Group considers positive
and negative evidence to determine whether some portion or all of the deferred tax assets will more likely than not be realized. This
assessment considers, among other matters, the nature, frequency and severity of recent losses, forecasts of future profitability, the
duration of statutory carry forward periods, the Group's experience with tax attributes expiring unused and tax planning alternatives.
Valuation allowances have been established for deferred tax assets based on a more-likely-than-not threshold. The Group's ability
to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry forward periods provided
for in the tax law. The Group has provided RMB
38,126
and RMB
78,627
valuation allowance for the years ended December 31, 2021 and 2022,
respectively.
The Group had total operating
loss carry-forwards of RMB
213,184
and RMB
385,155
as of December 31, 2021 and 2022, respectively. As of December 31, 2022, all of the operating
loss carry-forwards will expire in the years from 2023 to 2027. During the years ended December 31, 2020, 2021 and 2022, RMB
5,321
, RMB
8,314
and RMB
18,349
, respectively, of tax loss carried forward has been expired and canceled.
F-
45
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(14) Income Taxes (Continued)
Reconciliation between the
provision for income taxes computed by applying the PRC enterprise income rate of
25
% to net income before income taxes and income of
affiliates, and the actual provision for income taxes is as follows:
Year Ended December 31,
2020
2021
2022
RMB
RMB
RMB
Income from continuing operations before income taxes, share of income of affiliates, net
362,302
371,088
196,335
PRC statutory tax rate
25
%
25
%
25
%
Income tax at statutory tax rate
90,576
92,772
49,084
Expenses not deductible for tax purposes:
—Entertainment
2,428
2,950
2,099
—Other
202
81
479
Effect of tax holidays on concessionary rates granted to PRC entities
(
18,114
)
(
13,523
)
(
12,671
)
Effect of different tax rates of subsidiaries operating in other jurisdictions
2,732
2,070
2,342
Change in valuation allowance
(
3,355
)
2,999
40,501
Deferred income tax for dividend distribution
18,483
10,349
—
Effect of non-taxable income*
(
13,648
)
(
13,777
)
(
4,620
)
Unrecognized tax benefits arising from certain transfer pricing arrangements
—
5,994
(
36,566
)
Other
4,083
659
368
Income tax expense
83,387
90,574
41,016
*
The effect of non-taxable
income represents an income tax exemption according to the Notice (Cai Shui [2002] No. 128) promulgated by the State Administration of
Taxation and Ministry of Finance in China on dividend income derived from a purchased open-end securities investment fund product that
the Group recorded as short term investment.
Additional PRC income taxes
that would have been payable without the tax exemption amounted to approximately RMB
18,114
, RMB
13,523
and RMB
12,671
for the years ended
December 31, 2020, 2021 and 2022, respectively. Without such exemption, the Group's basic net profit per share for the years ended
December 31, 2020, 2021 and 2022 would have been decreased by RMB
0.02
, RMB
0
.01and RMB
0.01
, and diluted net profit per share for the years
ended December 31, 2020, 2021 and 2022 would have been decreased by RMB
0.02
, RMB
0
.01and RMB
0.01
, respectively.
If the entities were to be
non-resident for PRC tax purposes, dividends paid to it out of profits earned after January 1, 2008 would be subject to a withholding
tax. In the case of dividends paid by PRC subsidiaries, the withholding tax would be 10%, whereas in the case of dividends paid by PRC
subsidiaries which are 25% or more directly owned by tax residents in the Hong Kong Special Administrative Region, the withholding tax
would be 5%. The Group's subsidiary, CNinsure Holdings Limited qualified as Hong Kong resident and was entitled to enjoy a 5% reduced
tax rate under Bulletin [2018] No. 9 for the years ended December 31, 2020 and 2021, respectively.
Aggregate undistributed earnings
of the Group's subsidiaries and VIEs in the PRC that are available for distribution to the Group of approximately RMB
1,283,166
and
RMB
1,399,701
as of December 31, 2021 and 2022 respectively, are considered to be indefinitely reinvested. If those earnings were to be
distributed or they were determined to be no longer permanently reinvested, the Group would have to record a deferred tax liability in
respect of those undistributed earnings of approximately RMB
64,158
and RMB
69,985
, respectively.
F-
46
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(14) Income Taxes (Continued)
During the years ended December
31, 2020
，
2021 and 2022, the Group provided RMB
18,483
, RMB
10,349
and
nil
, respectively, deferred income tax for the declared dividend distribution based on a
5
% withholding tax rate.
Under applicable accounting
principles, a deferred tax liability should be recorded for taxable temporary differences attributable to the excess of financial reporting
over tax basis, including those differences attributable to a more-than-50-percent-owned domestic subsidiary. However, recognition is
not required in situations where the tax law provides a means by which the reported amount of that investment can be recovered tax-free
and the enterprise expects that it will ultimately use that means.
(15) Capital Structure
During 2022,
the Company
repurchased an aggregate of 72,465 ADSs from the open market, representing 0.1% of the total shares outstanding as of December 31, 2022,
at an average price of US$7.85 per ADS for a total amount of approximately RMB3,984, under its share buyback program to repurchase up
to US$20 million ADSs, as previously announced by its board of directors in December 2022. The Group accounts for repurchased ordinary
shares under the par value method and includes such treasury stock as a component of the shareholders' equity.
(16) Net Income per Share
The computation of basic
and diluted net income per ordinary share is as follows:
Year Ended December 31,
2020
2021
2022
RMB
RMB
RMB
Basic:
Net income
276,177
259,941
85,723
Less: Net income (loss) attributable to the noncontrolling interests
7,923
8,952
(
14,549
)
Net income attributable to the Company's shareholders
268,254
250,989
100,272
Weighted average number of ordinary shares outstanding
1,073,891,784
1,073,891,784
1,074,196,310
Basic net income per ordinary share
0.25
0.23
0.09
Basic net income per ADS
5.00
4.67
1.87
F-
47
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(16) Net Income per Share (Continued)
Year Ended December 31,
2020
2021
2022
RMB
RMB
RMB
Diluted:
Net income
276,177
259,941
85,723
Less: Net income (loss) attributable to the noncontrolling interests
7,923
8,952
(
14,549
)
Net income attributable to the Company's shareholders
268,254
250,989
100,272
Weighted average number of ordinary shares outstanding
1,073,891,784
1,073,891,784
1,074,196,310
Weighted average number of dilutive potential ordinary shares from share options
399,576
399,410
261,511
Total
1,074,291,360
1,074,291,194
1,074,457,821
Diluted net income per ordinary share
0.25
0.23
0.09
Diluted net income per ADS
4.99
4.67
1.87
(17) Distribution of Profits
As stipulated by the relevant
PRC laws and regulations applicable to China's foreign investment enterprise, the Group's subsidiaries and VIEs in the PRC
are required to maintain non-distributable reserves which include a statutory surplus reserve as of December 31, 2021 and 2022. Appropriations
to the statutory surplus reserve are required to be made at not less than
10
% of individual company's net profit as reported in
the PRC statutory financial statements of the Company's subsidiaries and VIEs. The appropriations to statutory surplus reserve are
required until the balance reaches
50
% of the registered capital of respective subsidiaries and VIEs.
The statutory surplus reserve
is used to offset future losses. These reserves represent appropriations of retained earnings determined according to PRC law and may
not be distributed. The accumulated amounts contributed to the statutory reserves were RMB
557,221
and RMB
559,520
as of December 31, 2021
and 2022, respectively.
Under PRC laws and regulations,
there are restrictions on the Company's PRC subsidiaries and VIEs with respect to transferring certain of their net assets to the
Company either in the form of dividends, loans, or advances. Amounts of restricted net assets include paid in capital and statutory surplus
reserve of the Company's PRC subsidiaries and the net assets of the VIEs in which the Company has no legal ownership, totaling RMB
1,458,915
and RMB
1,461,214
as of December 31, 2021 and 2022, respectively, which were not eligible to be distributed.
F-
48
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(18) Related-party Balances and Transactions
The principal related-party
balances as of December 31, 2021 and 2022, and transactions for the years ended December 31, 2020, 2021 and 2022 are as follows:
(i)
On December 28, 2020, the Group entered into a framework
strategic partnership agreement, or, the "Agreement", with Puyi Enterprise Management Consulting Co., Ltd ("Puyi Consulting"),
which was controlled by Puyi, the Group's affiliate. Pursuant to the Agreement, both parties, on the basis of full compliance with
relevant regulatory and legal requirements will share customer and channel resources and explore collaboration opportunities on the provision
of value-added asset management services to Chinese households, by leveraging both parties' respective strength in insurance and
financial services. For the year ended December 31, 2021, the Group incurred RMB
5,386
commission cost to Puyi Consulting and the balance
of accounts payable as of December 31, 2021 was RMB
2,894
. For the year ended December 31, 2022, the Group incurred RMB
13,548
commission
cost to Puyi Consulting and the balance of account payable as of December 31, 2022 was RMB
4,987
. In order to diversify the Group's
services and product offerings, the Group provided referral services of publicly-raised and privately-raised fund products provided by
Puyi's clients, the Group referred Puyi's financial advisors to their clients and Puyi's financial advisors will be
responsible for providing product information and handling purchasing procedures. For the year ended December 31, 2022, the Group incurred
RMB
1,166
referral service fee from Puyi and the balance of account receivable as of December 31, 2022 was RMB
1
.
(ii)
On March 7, 2022, the Group entered into an agreement with
Puyi Consulting. Pursuant to this agreement, Puyi Consulting provided training services and customer salon support services to the Group.
For the year ended December 31, 2022, the Group incurred RMB
7,017
services expense to Puyi Consulting and the balance of other payable
as of December 31, 2022 was RMB
4,177
.
(19) Commitments and Contingencies
(i)
See Note 9 for the Group's commitments for future minimum
lease payments under operating leases.
(ii)
As of December 31, 2022, there was no pending legal proceeding
to which the Group is a party that will have a material effect on the Group's business, results of operations or cash flows.
(20) Concentrations of Credit Risk
Concentration risks
Customers accounting for
10
% or more of total net revenues excluding estimated renewal commissions are as follows:
Year ended December 31,
2020
%
of sales
2021
% of sales
2022
% of sales
RMB
RMB
RMB
Sinatay Life Insurance Co., Ltd. ("Sinatay")
504,489
15.4
%
451,840
15.0
%
497,143
19.6
%
Aeon Life Insurance Co., Ltd. ("Aeon").
560,341
17.1
%
437,132
14.5
%
*
*
Huaxia Life Insurance Company Limited ("Huaxia")
606,581
18.6
%
323,800
10.7
%
*
*
Evergrande Life Insurance Co., Ltd. ("Evergrande")
339,567
10.4
%
*
*
*
*
Subtotal
2,010,978
61.5
%
1,212,772
40.2
%
497,143
19.6
%
*
represented
less than 10% of total net revenues for the year.
F-
49
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per
share data)
(20) Concentrations of Credit Risk (Continued)
Concentration risks
(Continued)
Customers which accounted
for
10
% or more of gross accounts receivable excluding estimated renewal commissions are as follows:
As of December 31,
2021
%
2022
%
RMB
RMB
Sinatay
186,289
31.1
%
124,847
23.4
%
Greatwall Life Insurance Co., Ltd
*
*
85,616
16.0
%
Subtotal
186,289
31.1
%
210,463
39.4
%
*
represented less than 10% of
accounts receivable as of the year end.
The Group performs ongoing
credit evaluations of its customers and generally does not require collateral on accounts receivable.
The Group places its cash
and cash equivalents and short-term investments with financial institutions with low credit risk.
(21) Share-based Compensation
(a) 2012 Option G
On March 12, 2012, the Company
granted options ("2012 Options G") to its directors and employees to purchase up to
92,845,000
ordinary shares of the Company.
Pursuant to the option agreements entered into between the Company and the option grantees, the options shall vest over a five-year service
period from 2012 to 2016. The expiration date of the 2012 Options is March 12, 2022.
The 2012 Options G had an exercise price of US$
0.30
(RMB
1.90
) and an intrinsic value of US$
0.04
(RMB
0.26
) per ordinary share, except for the
3,200,000
options granted to the two independent
directors which had an exercise price of US$
0.31
(RMB
1.98
) and an intrinsic value of US$
0.03
(RMB
0.17
) per ordinary share. The exercise
price for Option G was later modified to US$
0.001
(RMB
0.006
) and the number of shares are reduced by half with no incremental cost as
a result of such option modification in November 2014. The fair value of the options was determined by using the Black-Scholes option
pricing model.
For the years ended December
31, 2021 and 2022, share-based compensation expenses of
nil
were recognized in connection with the 2012 Options G, respectively.
F-
50
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(21) Share-based Compensation (Continued)
(a) 2012 Option G (Continued)
For the year ended December
31, 2022, changes in the status of total outstanding options, were as follows:
Number of
options
Weighted
average
remaining
contractual life
(years)
Weighted
average
exercise
price in
RMB
Aggregate
Intrinsic Value
RMB
Outstanding as of January 1, 2022
400,000
0.25
0.01
924
Exercised
(
400,000
)
—
—
—
Forfeited
—
—
—
—
Outstanding as of December 31, 2022
—
—
—
—
Exercisable as of December 31, 2022
—
—
—
—
As of December 31, 2022,
all of the above options were fully vested and exercised.
(b) The 521 Plan
The 521 Plan was designed
to incentivize the Participants and was originally accounted for as grant of share options.
The Participants' rights
to ownership benefits of the shares are subject to the Participants' achievement of service and performance vesting conditions.
Each award agreement contains a condition for service from January 1, 2019 through December 31, 2023 (which coincides with loan maturity
date) as well as individually determined performance conditions based on cumulative sales over the service period.
Upon a modification
of the settlement terms of the 521 Plan from cash settlement to net share settlement of vested ADS options in November 2019, the
Group will settle the vested ADS option with shares of the Group at a value equal to the excess of the settlement date fair value of the
ADS over the loan principal plus interest.
The modification resulted in a change of awards' classification from liability to equity. At
the modification date, the Group reclassified the amounts previously recorded as a share-based compensation liability as a component of
equity in the form of a credit to additional paid-in capital.
In December 2020, the Group
entered into supplemental agreements with all remaining Participants to cancel the 521 Plan. In accordance with the supplemental agreements,
all the relevant original contractual agreements were terminated and lapsed and upon which, the 521 Plan Employee Companies returned a
total of
280,000,000
subscribed ordinary shares to the Group, and as a condition, the Group refunded all share rights deposits amounting
RMB
250,312
back to the Participants, and terminated the Participants' obligation to repay the Group the non-recourse loan principal
and accumulated interest. By the end of 2020, the transaction was completed and the returned shares were all cancelled.
For the year ended December
31, 2019, the Group recognized RMB
393
share-based compensation expense related to the 521 plan, while for the year ended December 31,
2020, the Group reversed RMB
393
as the stock options related to the 521 Plan were estimated to be improbable to vest. As of December 31,
2021 and 2022, there was no unrecognized share-based compensation expense related to the 521 Plan.
F-
51
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(21) Share-based Compensation (Continued)
(c) 2022 Options
On August 12, 2022, the Company
granted share options ("2022 Options") to its independent directors to purchase up to
4,000,000
ordinary shares of the Company.
Pursuant to the option agreements entered into between the Company and the option grantees, the options vest over a four-year service
period starting from the date of grant, with
30
% ("Option D1"),
30
% ("Option D2"),
20
% ("Option D3")
and the remaining
20
% ("Option D4") of the options being vested on August 31 of each of the years starting from 2023 to 2026,
respectively, subject to the continuous service of the option grantees. The 2022 Options expire no later than August 1, 2032, subject
to earlier termination upon an optionee's cessation of service. The 2022 Options had an exercise price of US$
0.2305
(RMB
1.59
) and
an intrinsic value of US$
0.0020
(RMB
0.01
) per ordinary share on the date of grant.
The Group used the Black-Scholes
option pricing model in determining the fair value of the options granted, which requires the input of highly subjective assumptions,
including the expected life of the stock option, stock price volatility, dividend rate and risk-free interest rate. The assumptions used
in determining the fair value of the 2022 Options on the grant date were as follows:
Assumptions
August 12, 2022
Expected dividend yield (Note i)
3.69
%
Risk-free interest rates (Note ii)
2.92
% ~
2.96
%
Expected volatility (Note iii)
119.9
% ~
131.9
%
Expected life in years (Note iv)
5.54
~
7.04
Fair value of options on grant date
US$
0.1590
~ US$
0.1646
(i)
Expected dividend yield:
The expected dividend yield
was estimated by the Group based on its historical and future dividend policy.
(ii)
Risk-free interest rate:
Risk-free interest rate was
estimated based on the US Government Bond yield and pro-rated according to the tenor of the options as of the valuation date.
(iii)
Expected volatility:
The volatility of the underlying
ordinary shares was estimated based on the annualized standard deviation of the continuously compounded rate of return on the daily average
adjusted share price of the Group as of the Valuation Date.
(iv)
Expected life:
The expected life was estimated
based on the midpoint between the end of the vesting period and the contractual term of the award of the 2022 Options.
As of December 31, 2022, the Group had reserved
161,143,768
ordinary
shares available to be granted as options under the 2022 Options. No actual forfeitures occurred for the independent directors for the
year ended December 31, 2022.
F-
52
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(21) Share-based Compensation (Continued)
(c) 2022 Options (Continued)
A summary of share options
outstanding as of December 31, 2022, and activity during the year then ended, is presented below:
Number of
options
Weighted
average
exercise price
in USD
Weighted
average
remaining
contractual life
(In years)
Aggregate
Intrinsic Value
USD
Outstanding as of January 1, 2022
-
-
-
Granted
4,000,000
0.2305
6.19
Exercised
-
-
-
Forfeited
-
-
-
Outstanding as of December 31, 2022
4,000,000
0.2305
6.19
558
For the year ended December
31, 2022, share-based compensation expenses of RMB
461
were recognized in connection with the 2022 Options. As of December 31, 2022, unrecognized
share-based compensation expense related to unvested share options granted to the independent directors totaled US$
572
(RMB
3,942
), which
is expected to be recognized over a weighted-average period of
3.6
years. The aggregate intrinsic value of the share options as of December
31, 2022 was US$
558
(RMB
3,849
).
(22) Segment Reporting
As of December 31, 2021 and
2022, the Group operated
two
segments: (1) the insurance agency segment, which mainly consists of providing agency services for distributing
life and P&C insurance products on behalf of insurance companies, and (2) the claims adjusting segment, which consists of providing
pre-underwriting survey services, claim adjusting services, disposal of residual value services, loading and unloading supervision services,
and consulting services. Operating segments are defined as components of an enterprise about which separate financial information is available
and evaluated regularly by the Group's chief operating decision maker ("CODM") in deciding how to allocate resources and
in assessing performance. The Group's CODM is the Chief Executive Officer.
F-
53
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(22) Segment Reporting (Continued)
The following table shows the Group's operations
by business segment for the years ended December 31, 2020, 2021 and 2022. Other represents revenue and expenses that are not allocated
to reportable segments and corporate related items.
Year ended December 31,
2020
2021
2022
2022
RMB
RMB
RMB
US$
Net revenues
Agency
2,834,997
2,811,936
2,376,851
344,611
Claims Adjusting
433,148
459,178
404,763
58,685
Total net revenues
3,268,145
3,271,114
2,781,614
403,296
Operating costs and expenses
Agency
(
2,481,219
)
(
2,418,444
)
(
2,068,194
)
(
299,860
)
Claims Adjusting
(
416,241
)
(
442,349
)
(
416,619
)
(
60,405
)
Other
(
68,499
)
(
108,416
)
(
128,126
)
(
18,576
)
Total operating costs and expenses
(
2,965,959
)
(
2,969,209
)
(
2,612,939
)
(
378,841
)
Income (loss) from operations
Agency
353,778
393,492
308,657
44,751
Claims Adjusting
16,907
16,829
(
11,856
)
(
1,720
)
Other
(
68,499
)
(
108,416
)
(
128,126
)
(
18,576
)
Income from operations
302,186
301,905
168,675
24,455
As of December 31,
2021
2022
2022
RMB
RMB
US$
Segment assets
Agency
1,259,973
1,513,449
219,429
Claims Adjusting
302,592
252,130
36,555
Other
1,679,553
1,323,937
191,954
Total assets
3,242,118
3,089,516
447,938
Substantially all of the
Group's revenues for the three years ended December 31, 2020, 2021 and 2022 were generated from the PRC. A substantial portion of
the identifiable assets of the Group is located in the PRC. Accordingly, no geographical segments are presented.
F-
54
FANHUA INC.
Notes to the Consolidated Financial Statements
(In thousands, except for shares and per share data)
(23) Subsequent events
Acquisitions of quality
insurance intermediaries companies
On January 3, 2023, the
Group entered into definitive agreements with the existing shareholders of Zhongrong Smart Finance Information Technology Co., Ltd.
("Zhongrong"), to acquire
57.73
% of the equity interests of Zhongrong. As of March 31, 2023, the Group has acquired
53.44
% of the equity interests of Zhongrong with a capital contribution of RMB
122.7
million to Zhongrong. Zhongrong is currently in
the process of repurchasing its shares from certain of its existing shareholders which will result in its shareholding in
Zhongrong ultimately increasing to
57.73
%. In connection with the acquisition,
61,853,580
ordinary shares of the Company have been
issued to the existing shareholders of Zhongrong as of March 31, 2023. The consideration, adjustable based on the achievement of
certain performance targets in the next three years by Zhongrong, is subject to a lock-up period of three years and will be released
from lock-up in two batches after 2025.
On February 6, 2023, the
Group entered into a definitive agreement with the existing shareholders of Jilin Zhongji Shi'An Insurance Agency Co., Ltd ("Zhongji"),
to acquire
51
% of the equity interests of Zhongji. In connection with the acquisition,
13,660,720
ordinary shares of the Company have
been issued to the existing shareholders of Zhongji as of March 31, 2023. The consideration, adjustable based on the achievement of certain
performance targets in the next three years by Zhongji, is subject to a lock-up period of three years and will be released from lock-up
in two batches after 2025.
On February 8, 2023, the
Group entered into an another definitive agreement with the existing shareholders of Wuhan Taiping Online Insurance Agency Co., Ltd. ("Taiping"),
to acquire
51
% of the equity interests of Taiping. In connection with the acquisition,
9,107,140
ordinary shares of the Company have been
issued to the existing shareholders of Taiping as of March 31, 2023. The consideration, adjustable based on the achievement of certain
performance targets in the next three years by Taiping, is subject to a lock-up period of three years and will be released from lock-up
in two batches after 2025.
The Group is in the process
of assessing the accounting treatment of the above mentioned acquisitions.
Share incentive plan
On February 6, 2023, the
board of directors (the "board") has approved the grant options to purchase an aggregate of
13,680,000
ordinary shares to
certain top agents who have met the requirements for Million Dollar Round Table (the "MDRT") Membership. Pursuant to the MDRT
share incentive program, the exercise price of these options is US$
0.05
per ordinary share. The options are scheduled to vest over a two-year
period starting from March 31, 2024, subject to the achievement of certain key performance indicators by the option holders and their
continued service with the Group. The Group is in the process of assessing the accounting treatment of the above mentioned share incentive
program.
F-
55
FANHUA INC.
SCHEDULE I—CONDENSED FINANCIAL INFORMATION
OF THE COMPANY
Balance Sheets
(
In thousands, except for shares and per
share data
)
As of December 31,
2021
2022
2022
RMB
RMB
US$
ASSETS:
Note2(u)
Current assets:
Cash and cash equivalents
14,507
38,512
5,584
Short term investments
34,705
27,619
4,004
Other receivables and amounts due from subsidiaries and affiliates
635,953
417,613
60,549
Total current assets
685,165
483,744
70,137
Non-current assets:
Investment in subsidiaries
3,328,864
2,520,667
365,463
Investment in an affiliate
6,378
4,035
585
Total assets
4,020,407
3,008,446
436,185
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Other payables and accrued expenses and amounts due to subsidiaries
2,182,522
1,385,043
200,813
Total liabilities
2,182,522
1,385,043
200,813
Ordinary shares (Authorized shares:
10,000,000,000
at US$
0.001
each; issued
1,073,891,784
and
1,074,291,784
shares, of which
1,073,891,784
and
1,072,842,484
shares were outstanding as of December 31, 2021 and 2022, respectively)
8,089
8,091
1,173
Treasury Stock
—
(
10
)
(
1
)
Additional paid-in capital
—
461
67
Retained earnings
1,868,936
1,647,504
238,866
Accumulated other comprehensive loss
(
39,140
)
(
32,643
)
(
4,733
)
Total equity
1,837,885
1,623,403
235,372
Total liabilities and shareholders' equity
4,020,407
3,008,446
436,185
F-
56
FANHUA INC.
SCHEDULE I—CONDENSED FINANCIAL INFORMATION
OF THE COMPANY—(Continued)
Statements of Income and Comprehensive Income
(In thousands)
Year Ended December 31,
2020
2021
2022
2022
RMB
RMB
RMB
US$
General and administrative expenses
(
4,204
)
(
331
)
(
11,318
)
(
1,641
)
Selling expenses
281
—
—
—
Interest income
1,044
2
5
1
Others, net
—
—
17,495
2,536
Equity in earnings of subsidiaries and an affiliate
271,133
251,318
94,090
13,642
Net Income attributable to the Company's shareholders
268,254
250,989
100,272
14,538
Other comprehensive income (loss):
Foreign currency translation adjustments
9,639
(
9,116
)
3,728
541
Unrealized net gains on available-for-sale investments
23,811
6,252
(
1,919
)
(
278
)
Share of other comprehensive (loss) gain of affiliates
(
3,016
)
(
1,281
)
4,688
680
Comprehensive income attributable to the Company's shareholders
298,688
246,844
106,769
15,481
F-
57
FANHUA INC.
SCHEDULE I—CONDENSED FINANCIAL INFORMATION
OF THE COMPANY—(Continued)
Statements of Cash
Flows
(
In thousands
)
Year Ended December 31,
2020
2021
2022
2022
RMB
RMB
RMB
US$
Cash flow from operating activities:
Net income
268,254
250,989
100,272
14,538
Adjustments to reconcile net income to net cash used in operating activities:
Equity in earnings of subsidiaries and an affiliate
(
271,133
)
(
251,318
)
(
94,090
)
(
13,642
)
Compensation expenses associated with stock options
(
393
)
—
461
67
Changes in operating assets and liabilities:
Other receivables
26
392
—
—
Other payables
(
7,707
)
(
847
)
696
102
Net cash (used in) from operating activities
(
10,953
)
(
784
)
7,339
1,065
Cash flows (used in) generated from investing activities
Purchase of short-term investments
(
71,382
)
—
Changes in investment in subsidiaries and an affiliate
26,195
43,757
907,006
131,504
Advances to subsidiaries and affiliates
660,004
157,582
(
689,780
)
(
100,009
)
Proceeds from disposal of short-term investments
73,310
—
10,095
1,464
Net cash generated from investing activities
688,127
201,339
227,321
32,959
Cash flows generated from (used in) financing activities:
Proceeds on exercise of stock options
—
—
2
—
Dividends paid
(
388,499
)
(
242,518
)
(
317,730
)
(
46,067
)
Repurchase of ordinary shares from open market
—
—
(
3,984
)
(
578
)
Repayment of subscription from the 521 Plan participants
(
250,312
)
—
—
—
Net cash generated used in financing activities
(
638,811
)
(
242,518
)
(
321,712
)
(
46,645
)
Net increase (decrease) in cash and cash equivalents
38,363
(
41,963
)
(
87,052
)
(
12,621
)
Cash and cash equivalents and restricted cash at beginning of year
32,314
66,345
14,507
2,103
Effect of exchange rate changes on cash and cash equivalents
(
4,332
)
(
9,875
)
111,057
16,102
Cash and cash equivalents and restricted cash at end of the year
66,345
14,507
38,512
5,584
F-
58
FANHUA INC.
Note to Schedule I
(
In thousands, except for shares
)
Schedule I has been provided
pursuant to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, which require condensed financial information
as to the financial position, cash flows and results of operations of a parent company as of the same dates and for the same periods for
which audited consolidated financial statements have been presented when the restricted net assets of the consolidated and unconsolidated
subsidiaries (including variable interest entities) together exceed
25
percent of consolidated net assets as of the end of the most recently
completed fiscal year.
As of December 31, 2022,
RMB
1,461,214
of the restricted capital and reserves are not available for distribution, and as such, the condensed financial information
of the Company has been presented for the years ended December 31, 2020, 2021 and 2022.
As of December 31, 2022,
there were no material contingencies, significant provisions of long-term obligations, and mandatory dividend or redemption requirements
of redeemable shares or guarantees of the Company except for those which have been separately disclosed in the consolidated financial
statements, if any.
Basis of preparation
The condensed financial information
of the Company has been prepared using the same accounting policies as set out in the accompanying consolidated financial statements except
that the equity method has been used to account for investments in its subsidiaries.
Certain information and footnote
disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The footnote
disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in
conjunction with the notes to the consolidated financial statements of the Group as of December 31, 2021 and 2022 and the years ended
2020, 2021 and 2022.
F-59