Core Viewpoint - Yantai Zhongchong Food Co., Ltd. has established an internal control system for financial derivatives trading to regulate trading behavior and mitigate associated risks, ensuring compliance with relevant laws and regulations [2][3][4]. Group 1: Regulatory Framework - The internal control system is based on the Company Law, Securities Law, and relevant regulations from the Shenzhen Stock Exchange, aiming to standardize financial derivatives trading within the company and its subsidiaries [2][3]. - Financial derivatives include products such as forwards, swaps, and options, which can be traded on-exchange or over-the-counter, and may involve various underlying assets [2][3]. Group 2: Trading Principles - The company and its subsidiaries are prohibited from engaging in purely profit-driven financial derivatives trading; all transactions must be grounded in normal business operations and aimed at hedging against currency and interest rate risks [3][4]. - Transactions must only be conducted with qualified financial institutions approved by regulatory authorities, ensuring compliance with national laws and internal regulations [4][5]. Group 3: Approval and Management - The Board of Directors or the Shareholders' Meeting is responsible for approving financial derivatives trading activities, with specific limits set based on the company's audited net assets [4][5]. - The financial department is tasked with proposing trading plans based on market analysis, while the audit department oversees compliance and the securities department handles necessary disclosures [6][7]. Group 4: Risk Management - The financial department must monitor market prices and assess risk exposure, ensuring timely delivery and managing counterparty credit risks [8][9]. - A risk analysis report is required monthly, detailing trading activities, risk assessments, and compliance with stop-loss limits [9]. Group 5: Information Disclosure - The company is obligated to disclose information regarding financial derivatives trading in accordance with regulatory requirements, particularly when losses exceed a certain threshold [9][10]. - Any significant risks or losses must be reported to the stock exchange within two trading days if they meet specified criteria [9][10].

Core Viewpoint - The company aims to utilize futures and derivatives trading to hedge against significant fluctuations in raw material prices, specifically soybeans, to ensure stable operations and development [1][2][3]. Group 1: Trading Purpose and Instruments - The primary purpose of the trading is to leverage the hedging functions of the futures market to mitigate adverse impacts from raw material price volatility on the company's operations [1][2]. - The trading instruments include futures, options, forwards, swaps, and combinations of these financial tools [1][4]. - The company plans to use its idle self-owned funds for the hedging activities, with a maximum investment of RMB 50 million [2][3]. Group 2: Trading Amount and Sources - The expected maximum balance for margin and premiums related to futures and derivatives trading is set at RMB 50 million, which can be used cyclically within the approval period [2][3]. - The funding for these trading activities will come from the company's own funds, without involving raised capital [3][4]. Group 3: Trading Procedures and Risk Management - The board of directors approved the adjustment of the hedging business on July 10, 2025, which does not require shareholder approval [2][4]. - The company will engage in trading at recognized domestic and foreign exchanges, including the Shanghai Futures Exchange and Dalian Commodity Exchange [3][4]. - A comprehensive risk management system is in place to address potential market, liquidity, operational, and credit risks associated with the trading activities [5][6]. Group 4: Impact on Company Operations - The trading activities are expected to enhance the company's ability to manage raw material price risks effectively, thereby supporting stable operational performance [5][6]. - The accounting treatment for the futures and derivatives trading will comply with relevant financial reporting standards [6].

Core Viewpoint - The company has established a comprehensive set of guidelines for its hedging activities to mitigate market price volatility risks, ensuring that these activities align with its operational needs and comply with relevant regulations [1][2]. Group 1: Hedging Business Overview - The hedging business includes financial derivatives and commodity futures hedging to mitigate risks associated with exchange rates, interest rates, and commodity prices [1][2]. - The company must conduct hedging activities in a legal, prudent, safe, and effective manner, ensuring that these activities do not interfere with normal operations or involve speculative trading [2]. Group 2: Organizational Structure - The company's board of directors and shareholders' meeting serve as the decision-making bodies for hedging activities [3]. - A dedicated working group is established to manage hedging activities, comprising key executives such as the chairman, general manager, and financial officers [3][4]. Group 3: Approval Authority - The company must prepare a feasibility analysis report for hedging activities, which requires approval from the board of directors [5]. - Certain transactions, particularly those involving significant financial commitments, must also be submitted for shareholders' approval [5]. Group 4: Risk Management - The company is required to conduct thorough assessments of financial institutions before engaging in hedging activities [27]. - Regular audits and checks are mandated to ensure compliance with risk management policies and to identify any operational risks [28][30]. Group 5: Emergency Procedures - In the event of significant market changes or natural disasters, the company must promptly report and take necessary actions to mitigate risks, including closing or locking positions [37][39]. - Contingency plans are in place for operational disruptions, ensuring that trading can continue through alternative means [40][41]. Group 6: Documentation and Record Keeping - All documentation related to hedging activities, including applications, approvals, and transaction records, must be archived for a minimum of ten years [41]. - The company is responsible for maintaining confidentiality regarding its hedging strategies and financial information [25].

1. Report Industry Investment Rating - Not provided in the content 2. Core Viewpoints of the Report - China's foreign exchange reform has gradually established a dynamic equilibrium exchange rate system that emphasizes both market - led pricing and macro - prudential management through a series of reforms from 2015 to 2022 [14] - The RMB exchange rate is affected by international payments, interest rate parity, and relative economic strength. When these three factors are in the same direction, it is more likely to form a trend of appreciation [194] - The offshore RMB market's liquidity is supported by cross - border trade settlement for long - term growth and central bank support and market financing for short - term stability [87] 3. Summary by Relevant Catalogs 3.1 Foreign Exchange Reform - China's foreign exchange reform includes the improvement of the mid - price mechanism in 2015, the introduction of the counter - cyclical factor in 2017, the dynamic adjustment of cross - border financing macro - prudential parameters in 2019, and the strengthening of the foreign exchange risk reserve system in 2022 [14] - The mid - price mechanism combines the previous day's closing price and the change of a basket of currencies, which makes the mid - price close to the market and takes into account external stability [21] - The counter - cyclical factor guides market rational expectations, weakens the self - reinforcement mechanism of pro - cyclical behavior, and enhances the resilience and stability of the exchange rate mechanism [24] - Since the launch of the LPR reform in August 2019, the loan quotation mechanism has become more market - oriented, breaking the "implicit lower limit" of loan interest rates [27] - The adjustment of cross - border financing macro - prudential parameters aims to increase cross - border financing quotas, relieve RMB depreciation pressure, and optimize the asset - liability structure of domestic entities [32] 3.2 Domestic RMB Foreign Exchange Market - The RMB foreign exchange market is divided into the bank - to - customer market and the inter - bank market. The inter - bank market has high liquidity and large trading volume [41] - The inter - bank foreign exchange derivatives market has developed since 2005, with swap transactions being the most important trading method [62] - In the spot market, the willingness of enterprises to settle foreign exchange has weakened, and the demand for purchasing foreign exchange has increased. In the forward market, enterprises tend to lock in the cost of purchasing foreign exchange in advance [66] - Short - term foreign exchange derivatives dominate the market, mainly meeting the short - term foreign exchange capital allocation and risk management needs of banks and enterprises [81] 3.3 Offshore RMB Market - The long - term liquidity of the offshore RMB market is mainly supplied by cross - border trade settlement, and the short - term liquidity is obtained through market financing and official support [87] - The offshore RMB market has various products, including CNH spot, RMB offshore non - deliverable forward, RMB offshore deliverable forward, RMB futures, and RMB futures options [94] - The participants in the offshore RMB market are diversified, and the proportion of non - financial institutional investors has increased, narrowing the gap between the offshore and onshore exchange rates [101] 3.4 QFII, RQFII, and QDII - QFII and RQFII systems have been gradually liberalized, allowing foreign institutional investors to invest in the Chinese domestic capital market. The two systems have been unified [106] - The QDII system allows domestic institutional investors to invest overseas, and its investment scope and scale have been gradually expanded [108] 3.5 RMB Internationalization - RMB internationalization has gone through three stages: using trade settlement as a breakthrough, accelerating investment and financial opening, and enhancing global influence [112] - To promote RMB internationalization, China has promoted RMB pricing in commodities, expanded the opening of the domestic financial market, and strengthened RMB settlement in neighboring and "Belt and Road" countries [122] 3.6 SWIFT and CIPS - SWIFT is the most important cross - border payment system globally, but the increasing use of financial sanctions by the US has made the international community aware of the risks of the US - dollar - dominated system. CIPS is playing an increasingly important role in RMB cross - border settlement [127] - In 2024, CIPS handled a large number of RMB cross - border payment transactions, and the RMB's share in global payments has increased, ranking fourth [132] 3.7 RMB Exchange Rate Analysis - Short - term RMB exchange rate trends are determined by capital supply and demand, market expectations, and policy and external environments [140] - The issuance of offshore central bank bills affects the supply and demand of offshore RMB, and the swap point reflects market expectations for the RMB [169] - The RMB exchange rate is affected by international payments, interest rate parity, and relative economic strength. When these factors are in the same direction, it is beneficial for the RMB exchange rate [194] - The international balance of payments affects the RMB exchange rate. Trade surpluses lead to RMB appreciation, and capital outflows lead to RMB depreciation [195] - Interest rate parity affects capital flow. When the RMB interest rate is higher than the US dollar interest rate, it supports the RMB; otherwise, the RMB is under pressure [195] - Relative economic strength affects market expectations. When China's economic prospects are better than the US, the RMB has the potential to appreciate [197]