Annual Report 2021

China Merchants China Direct Investments Limited Annual Report 2021 21 INVESTMENT MANAGER’S DISCUSSION AND ANALYSIS (CONTINUED) REVIEW OF INVESTMENTS (CONTINUED) In 2021, due to the continuing impact of the coronavirus disease pandemic, the number of tourists visiting the scenic spots of Qinghai Lake has not yet recovered to the level before the pandemic. In order to improve operating conditions, Qinghai Lake Tourism is currently taking active measures to reduce expenses while also putting more effort into publicising its location in order to attract more tourists, so long as the pandemic remains under control. At present, the number of tourists is showing steady growth. Xi’an Jinpower Electrical Co., Ltd. (“Jinpower Electrical”) was established in Xi’an, Shaanxi in 2001 and is a high technology enterprise principally engaged in the research and development, and production, of intelligent online monitoring systems for transmission lines and substation equipment for the power grid. The stock of Jinpower Electrical was listed for trading on the New Third Board in January 2016. The Fund invested RMB20 million (equivalent to US$3.03 million) in January 2011 and held 2.89 million shares in Jinpower Electrical as of 31 December 2021, accounting for 4.825% of the issued share capital of Jinpower Electrical. As of the end of 2021, the carrying value of the Fund’s interest in Jinpower Electrical was US$0.92 million, representing an increase of 6.98% over US$0.86 million at the end of last year. On 20 August 2021, Jinpower Electrical announced that its unaudited net loss for the first half of 2021 was RMB6.50 million, representing an increase of loss of 82.04% over the same period last year. The increase in loss was due mainly to an increase in selling expenses as well as research and development expenses as compared to the same period last year. In the fourth quarter of 2021, there were repeated outbreaks of the coronavirus disease in the area where Jinpower Electrical is located. In December 2021, Xi’an implemented a lockdown of the entire city. The outbreak, along with the corresponding prevention and control measures, is expected to have a negative short-term impact on the operating results of Jinpower Electrical. In recent years, the profitability of the firm’s products has been declining due to increasingly intense competition in the market for online monitoring devices. Jinpower Electric possesses competitive technology and a defensible market share, but with a relatively long cycle of product development and substantial investment in research and development. However, Jinpower Electric continues to face competition from both existing firms and potential new entrants, in terms of product technology advancement, product quality, marketing networks and after-sales service. As a result, the firm’s market share may remain under pressure over time.