Edgar Filing: Noah Holdings Ltd

Form 20-F

UNITED STATES

SECURITY 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

☒	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016.

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

☐	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: 001-34936

NOAH HOLDINGS LIMITED

(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)

No. 1687 Changyang Road, Changyang Valley, Building 2

Shanghai 200090, People’s Republic of China

(Address of principal executive offices)

Shang Yan Chuang, Chief Financial Officer

Noah Holdings Limited

No. 1687 Changyang Road, Changyang Valley, Building 2

Shanghai 200090, People’s Republic of China

Phone: (86) 21 8035 9221

Facsimile: (86) 21 8035 9641

(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		Name of exchange on which registered
American depositary shares, two of which represent one Class A ordinary share, par value US$0.0005 per share		New York Stock Exchange
Class A ordinary shares, par value US$0.0005 per share*

*	Not for trading, but only in connection with the listing on the New York Stock Exchange of the American depositary 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. 29,518,533 ordinary shares issued, with 28,231,328 ordinary shares outstanding and 1,287,205 shares in treasury stock, par value US$0.0005 per share, as of December 31, 2016.

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 and posted on its Web site, if any, 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 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 the definitions 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 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

by the International Accounting Standards Board ☐

Other ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ 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		1
FORWARD-LOOKING STATEMENTS		1
PART I		3
ITEM 1	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	3
ITEM 2	OFFER STATISTICS AND EXPECTED TIMETABLE	3
ITEM 3	KEY INFORMATION	3
ITEM 4	INFORMATION ON THE COMPANY	38
ITEM 4A	UNRESOLVED STAFF COMMENTS	70
ITEM 5	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	70
ITEM 6	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	95
ITEM 7	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	106
ITEM 8	FINANCIAL INFORMATION	109
ITEM 9	THE OFFER AND LISTING	109
ITEM 10	ADDITIONAL INFORMATION	110
ITEM 11	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	119
ITEM 12	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	120
PART II		122
ITEM 13	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	122
ITEM 14	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	122
ITEM 15	CONTROLS AND PROCEDURES	122
ITEM 16	RESERVED	124
ITEM 16A	AUDIT COMMITTEE FINANCIAL EXPERT	124
ITEM 16B	CODE OF ETHICS	124
ITEM 16C	PRINCIPAL ACCOUNTANT FEES AND SERVICES	124
ITEM 16D	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	124
ITEM 16E	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	124
ITEM 16F	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	125
ITEM 16G	CORPORATE GOVERNANCE	125
ITEM 16H	MINE SAFETY DISCLOSURE	125
PART III		125
ITEM 17	FINANCIAL STATEMENTS	125
ITEM 18	FINANCIAL STATEMENTS	125
ITEM 19	EXHIBITS	126

INTRODUCTION

Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:

•

“active clients” for a given period refers to registered clients who obtain wealth management products or services distributed or provided by us during that given period, excluding internet financial services clients;

•

“ADSs” refer to our American depositary shares, two of which represent one Class A ordinary share;

•

“assets under management” or “AUM” refers to the amount of capital commitments made by investors to the funds we manage without adjustment for any gain or loss from investment, for which we are entitled to receive fees, performance-based income or general partner capital, except for secondary market equity funds of funds. For secondary market equity funds of funds, the “assets under management” or “AUM” refers to the fair value of the investments we manage, for which we are entitled to receive fees and performance-based income;

•

“China” or the “PRC” refers to the People’s Republic of China, excluding, for the purpose of this annual report only, Hong Kong, Macau and Taiwan;

•

“Class A ordinary shares” refer to our Class A ordinary shares, par value US$0.0005 per share;

•

“Class B ordinary shares” refer to our Class B ordinary shares, par value US$0.0005 per share;

•

“fixed income products” refer to products that are distributed or managed by us with prospective fixed rates of return, which return is not guaranteed under PRC laws;

•

“mutual fund” means a securities investment fund as defined under the PRC Law on Securities Investment Fund, which raises capital through public offerings of fund shares within the territory of the PRC, are managed by fund managers and placed in the custody of fund custodians, and invest in securities portfolios for the holders of fund shares;

•

“NYSE” refers to the New York Stock Exchange;

•

“ordinary shares” refer to our ordinary shares, which include both Class A ordinary shares and Class B ordinary shares, par value US$0.0005 per share;

•

“wealth management products” refer to products we distribute, such as fixed income products, private equity funds, secondary market funds of funds, mutual funds and insurance products;

•

“registered clients” refer to clients that have registered or entered into cooperation agreements with us, excluding internet financial services clients;

•

“RMB” and “Renminbi” refer to the legal currency of China; and

•

“transaction value” refers to the value of wealth management products we distribute to our active clients during a given period.

Unless the context indicates otherwise, each of “we,” “us,” “our company,” “our,” and “Noah” refer to Noah Holdings Limited, its subsidiaries and variable interest entity and the variable interest entity’s subsidiaries. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.943 to US$1.00, the effective noon buying rate for December 31, 2016 as set forth in the H.10 statistical release of the Federal Reserve Board.

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. Known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify some of these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include:

•

our goals and strategies;

•

our future business development, financial condition and results of operations;

•

the expected growth of the wealth management, asset management and internet financial services industries in China and internationally;

•

our expectations regarding demand for and market acceptance of the products and services we distribute, manage or offer;

•

our expectations regarding keeping and strengthening our relationships with key clients;

•

relevant government policies and regulations relating to our industry;

•

our ability to attract and retain quality employees;

•

our ability to stay abreast of market trends and technological advances;

•

our plans to invest in research and development to enhance our product choices and service offerings;

•

competition in the wealth management, asset management and internet financial service industries in China and internationally;

•

general economic and business conditions in China and internationally;

•

our ability to obtain certain licenses and permits necessary to operate and expand our businesses; and

•

our ability to effectively protect our intellectual property rights and not infringe on the intellectual property rights of others.

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Other sections of this annual report include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should thoroughly read this annual report and the documents that we refer to herein with the understanding that our actual future results may be materially different from, or worse than, what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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

A.	Selected Financial Data

Selected Consolidated Financial Data

The following selected consolidated financial information for the periods and as of the dates indicated should be read in conjunction with our consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” in this annual report.

Our selected consolidated financial data presented below for the years ended December 31, 2014, 2015 and 2016 and our balance sheet data as of December 31, 2015 and 2016 have been derived from our audited consolidated financial statements included elsewhere in this annual report. Our audited consolidated financial statements are prepared in accordance with Generally Accepted Accounting Principles in the U.S., or GAAP. Our selected consolidated financial data presented below for the years ended December 31, 2012 and 2013 and our balance sheet data as of December 31, 2012, 2013 and 2014 have been derived from our audited financial statements not included in this annual report.

During the past few years, we have gradually transitioned from a consulting services provider focusing on wealth management to a comprehensive integrated financial services group with capabilities in wealth management, asset management and internet financial services. Prior to 2013, we derived our revenues primarily from our wealth management business. In 2013, our asset management business began contributing a significant portion of our revenues, and we derived our revenues primarily from our wealth management and asset management businesses. In the second quarter of 2014, we launched our internet financial service business. In order to better reflect our current business operations and corporate strategy, starting from the fourth quarter of 2014, we separately present breakdowns of our financial information into three business segments: wealth management, asset management and internet financial services, in addition to our consolidated financial information. Financial results for each segment in prior years are also presented accordingly, in order to allow for better comparison with the 2015 and 2016 breakdowns. See “Item 5. Operating and Financial Review and Prospects.”

Starting from the fourth quarter of 2015, we changed our reporting currency from the U.S. dollar (“US$”) to the Renminbi (“RMB”). Comparable data of prior periods have also been adjusted accordingly.


	Year Ended December 31,
	2012 RMB			2013 RMB			2014 RMB			2015 RMB			2016 RMB			2016 US$
Revenues
Total Revenues		578,899,671			1,064,620,352			1,617,158,262			2,232,696,106			2,561,636,069			368,952,334

Less: business taxes and related surcharges		(31,972,401	)		(58,643,752	)		(88,673,371	)		(112,768,265	)		(48,063,299	)		(6,922,555	)

Net Revenues		546,927,270			1,005,976,600			1,528,484,891			2,119,927,841			2,513,572,770			362,029,779

Operating cost and expenses:
Compensation and benefits		(267,326,477	)		(448,737,377	)		(737,460,338	)		(1,164,492,379	)		(1,300,403,960	)		(187,297,128	)
Selling expenses		(84,847,017	)		(102,198,334	)		(147,265,810	)		(263,815,409	)		(322,667,518	)		(46,473,789	)
General and administrative expenses		(56,154,930	)		(110,020,644	)		(151,626,278	)		(170,929,513	)		(234,488,066	)		(33,773,306	)
Other operating expenses		(2,648,489	)		(5,445,385	)		(29,961,830	)		(94,624,304	)		(151,087,419	)		(21,761,115	)
Government subsidies		27,095,620			32,644,120			90,931,462			132,709,712			162,364,268			23,385,319

Total operating cost and expenses		(383,881,293	)		(633,757,620	)		(975,382,794	)		(1,561,151,893	)		(1,846,282,695	)		(265,920,019	)

Income from operations:		163,045,977			372,218,980			553,102,097			558,775,948			667,290,075			96,109,760

Other income (expenses):
Interest expenses		—			—			—			(16,050,359	)		(19,288,813	)		(2,778,167	)
Interest income		15,466,990			20,272,408			38,901,980			39,698,790			39,537,775			5,694,624
Investment income		19,208,779			24,141,820			23,552,297			51,954,918			48,537,737			6,990,888
Foreign exchange gain (loss)		(1,140,948	)		1,892,383			706,881			(1,211,502	)		(2,002,633	)		(76,190	)
Other income (expense), net		698,299			14,723			(14,668,188	)		1,666,532			(528,988	)		(288,439	)
Total other income		34,233,120			46,321,334			48,492,970			76,058,379			66,255,078			9,542,716
Income before taxes and income from equity in affiliates		197,279,097			418,540,314			601,595,067			634,834,327			733,545,153			105,652,476
Income tax expense		(56,649,014	)		(100,081,866	)		(151,293,021	)		(129,885,747	)		(157,996,588	)		(22,756,242	)
Income from equity in affiliates		3,894,684			7,290,800			13,583,865			21,352,767			22,342,896			3,218,046

Net income		144,524,767			325,749,248			463,885,911			526,301,347			597,891,461			86,114,280
Less: net income (loss) attributable to non-controlling interests		521,797			9,821,510			17,333,060			(9,522,737	)		(40,601,294	)		(5,847,803	)
Less: Loss attributable to redeemable non-controlling interest of a subsidiary														(5,335,678	)		(768,498	)

Net income attributable to ordinary shareholders of Noah Holdings Limited		144,002,970			315,927,738			446,552,851			535,824,084			643,828,433			92,730,581

Net income per share
Basic		5.17			11.50			16.02			19.08			22.87			3.29
Diluted		5.11			11.28			15.82			18.31			22.08			3.18
Net income per ADS⁽¹⁾
Basic		2.59			5.75			8.01			9.54			11.44			1.65
Diluted		2.56			5.64			7.91			9.15			11.04			1.59
Weighted average number of shares used in computation:
Basic		27,751,335			27,480,150			27,873,501			28,085,521			28,150,139			28,150,139
Diluted		28,073,731			28,008,386			28,227,823			30,145,976			30,036,763			30,036,763
Dividends declared per share		1.74			—			—			—			—			—

Note:

(1)	Two ADSs represent one Class A ordinary share.


	Year Ended December 31,
	2012 RMB		2013 RMB		2014 RMB		2015 RMB		2016 RMB		2016 US$
Consolidated Balance Sheet Data
Cash and cash equivalents		744,877,933		1,187,211,176		1,750,204,915		2,132,923,674		2,982,509,565		429,570,728
Total assets		1,279,472,322		1,835,812,712		2,674,803,438		4,096,994,415		5,956,489,700		857,912,963
Total current liabilities		164,005,626		380,251,113		692,754,366		966,830,381		1,575,711,768		226,949,700
Total liabilities		186,053,482		412,013,025		734,931,625		1,562,997,866		2,234,553,961		321,842,714
Redeemable non-controlling interest of a subsidiary		—		—		—		—		330,664,322		47,625,568
Total equity		1,093,418,840		1,423,799,687		1,939,871,813		2,533,996,549		3,391,271,417		488,444,681

Discussion of Non-GAAP Financial Measures

Adjusted net income attributable to Noah shareholders is a non-GAAP financial measure that excludes the income statement effects of all forms of share-based compensation. A reconciliation of adjusted net income attributable to Noah shareholders to net income attributable to Noah shareholders, the most directly comparable GAAP measure, can be obtained by subtracting expenses for share-based compensation related to share options and restricted shares issued by us.

The non-GAAP financial measure disclosed by us should not be considered a substitute for financial measures prepared in accordance with GAAP. The financial results reported in accordance with GAAP and reconciliation of GAAP to non-GAAP results should be carefully evaluated. The non-GAAP financial measure used by us may be prepared differently from and, therefore, may not be comparable to, similarly titled measures used by other companies.

When evaluating our operating performance in the periods presented, management reviewed non-GAAP net income results reflecting an adjustment to exclude the impact of share-based compensation. As such, we believe that the presentation of the non-GAAP adjusted net income attributable to Noah shareholders provides important supplemental information to investors regarding financial and business trends relating to our results of operations in a manner consistent with that used by management. Pursuant to GAAP, we recognized significant amounts of expenses for all forms of share-based compensation. To make our financial results comparable period by period, we utilize non-GAAP adjusted net income to better understand our historical business operations.

Reconciliation of GAAP to Non-GAAP Results (unaudited)


	Year Ended December 31,
	2012 RMB		2013 RMB		2014 RMB		2015 RMB		2016 RMB		2016 US$
Net income attributable to Noah shareholders		144,002,970		315,927,738		446,552,851		535,824,084		643,828,433		92,730,581
Adjustment for share-based compensation related to:
Share options		9,066,726		1,265,555		9,043,829		33,912,040		39,008,208		5,618,351
Restricted shares		16,158,514		30,983,610		23,647,858		33,760,448		40,163,109		5,784,691

Adjusted net income attributable to Noah shareholders (non-GAAP)⁽¹⁾		169,228,210		348,176,903		479,244,538		603,496,572		722,999,750		104,133,623

Note:

(1)	The non-GAAP adjustments do not take into consideration the impact of taxes on such adjustments.

Exchange Rate Information

We have prepared our consolidated financial statements in RMB. Our business is primarily conducted in China in RMB. The conversion of RMB into U.S. dollars in this annual report is based on the certified exchange rate published by the Federal Reserve Board. For your convenience, this annual report contains translations of some RMB or U.S. dollar amounts for 2016 at US$1.00: RMB6.943, which was the certified exchange rate in effect as of December 31, 2016. The certified exchange rate on April 7, 2017 was US$1.00: RMB6.8978. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. The exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or any other information to be provided to you.


	Noon Buying Rate
Period	Period- End		Average (1)		Low		High
2012		6.2301		6.3086		6.2221		6.3879
2013		6.0537		6.1475		6.0537		6.2438
2014		6.2046		6.1612		6.0402		6.2591
2015		6.4778		6.2823		6.1870		6.4896
2016		6.9430		6.6413		6.4480		6.9580
October		6.7735		6.7252		6.6685		6.7819
November		6.8837		6.8412		6.7534		6.9195
December		6.9430		6.9219		6.8771		6.9580
2017
January		6.8768		6.8934		6.8360		6.9575
February		6.8665		6.8688		6.8517		6.8821
March		6.8832		6.8943		6.8687		6.9132
April (through April 7, 2017)		6.8978		6.8883		6.8832		6.8978

(1)	Annual averages are calculated using the average of month-end rates of the relevant year. Monthly averages are calculated using the average of the daily rates during the relevant period.

B.	Capitalization and Indebtedness

Not applicable.

C.	Reasons for the Offer and Use of Proceeds

Not applicable.

D.	Risk Factors

Risks Related to the Business

We may not be able to continue to grow at our historical rate of growth, and if we fail to manage our growth effectively, our business may be materially and adversely affected.

We commenced our business in 2005 and have experienced a period of growth in recent years. Our net revenues grew at a compound annual growth rate, or CAGR, of 46.4% from 2012 to 2016. We anticipate continuing growth in the foreseeable future. However, we cannot assure you that we will grow at our historical rate of growth. Our growth has placed, and will continue to place, a significant strain on our management, personnel, systems and resources. To accommodate our growth, we may need to establish additional branch offices, including in new cities and regions where we have no previous presence, recruit, train, manage and motivate relationship managers, experienced investment professionals and other employees and manage our relationships with an increasing number of registered clients. Moreover, as we introduce new products and services or enter into new markets, we may face unfamiliar market, technological and operational risks and challenges which we may fail to successfully address. We may be unable to manage our growth effectively, which could have a material adverse effect on our business.

Our operating history may not provide an adequate basis to judge our future prospects and results of operations.

We commenced our business in 2005 as a consulting services provider focusing on wealth management and have gradually transitioned to a comprehensive integrated financial services group with the introduction of asset management services in May 2010 and internet financial services through our online platform for mass affluent clients as well as transaction data processing and related services in June 2014. We seek to develop new wealth management products to distribute and asset management and internet financial services to provide to our clients, but it is difficult to predict whether our new products and services will be well-received by our clients. Although we recorded net income in prior years, we cannot assure you that our results of operations will not be adversely affected in any future period. We have limited operating history and as a result limited experience in delivering services, which makes the prediction of future results of operations difficult, and therefore, past results of operations achieved by us should not be taken as indicative of the rate of growth, if any, that can be expected in the future. As a result, you should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in a rapidly evolving and increasingly competitive market in China.

The wealth management products that we distribute or manage involve various risks and any failure to identify or fully appreciate such risks may negatively affect our reputation, client relationships, operations and prospects.

We distribute and manage a broad variety of wealth management products, including fixed income products, private equity funds, secondary market equity funds of funds, mutual funds and insurance products. These products often have complex structures and involve various risks, including default risks, interest risks, liquidity risks, market risks, counterparty risks, fraud risks and other risks. For example, in June 2014, Wanjia Win-Win Assets Management Co. Ltd, or Wanjia Win-Win, a joint venture in which our consolidated affiliated entity, Gopher Asset Management Co., Ltd., or Gopher Asset Management, holds a 35% equity interest, established asset management plans and joined Shenzhen Jingtai Investment Fund I Limited Liability Partnership, or Jingtai Fund I, as limited partner representing asset management plans. A third party, Shenzhen Jingtai Fund Management Co., Ltd., or Jingtai Management, serves as the general partner of Jingtai Fund I. Our subsidiary, Noble Equity Investment Fund (Shanghai) Management Co. Ltd, or Noble, was the investment advisor for the asset management plans. Shortly after the establishment of the plans and investment of the funds thereof to Jingtai Fund I, Wanjia Win-Win and Noble discovered that Jingtai Management had violated the terms and agreed investment strategy outlined in the Limited Partnership Agreement of Jingtai Fund I by using funds Wanjia Win-Win invested in Jingtai Fund I for other investment projects. Wanjia Win-Win and Noble immediately reported Jingtai Management’s fraudulent actions to the relevant local public security bureau and the local branch of CSRC. While a criminal judgment of this case has been rendered and the criminally liable parties have been convicted, the civil litigation is still in the trial phase and a final civil judgment has not yet been rendered. Although we do not currently expect this incident to have any material adverse effect on our business operations or financial results, incidents like this could adversely affect our reputation and subject us to administrative or legal proceedings which, even if without merit, could be distracting to our management, may affect our reputation and may expose us to potential risks and losses. See “—Our business is subject to risks related to lawsuits and other claims brought by our clients.”

Our success in distributing, managing and offering our products and services depends, in part, on our ability to successfully identify the risks associated with such products and services, and failure to identify or fully appreciate such risks may negatively affect our reputation, client relationships, operations and prospects. Not only must we be involved in the design and development of products and services, we must also accurately describe the products and services to, and evaluate them for, our clients. Although we enforce and implement strict risk management policies and procedures, such risk management policies and procedures may not be fully effective in mitigating the risk exposure of all of our clients in all market environments or against all types of risks. For example, under current PRC tax laws, the fund manager is not obligated to withhold individual taxes for investors in contract-based private funds. However, if new rules require such an obligation, it may discourage these investors from investing in contract-based private funds and therefore affect our business.

Poor performance of the funds we manage and products and services we distribute, manage or offer could also make it more difficult for us to raise new capital. If we fail to identify and fully appreciate the risks associated with the products and services we distribute, manage and offer, or fail to disclose such risks to our clients, and our clients suffer financial loss or other damages resulting from their purchase of the wealth management products we distribute or the asset management and internet financial services that we provide, our reputation, client relationships, business and prospects will be materially and adversely affected. In addition, the historical returns of our funds may not be indicative of the future results of our funds due to the change in market conditions and our accessibility to investment oppportunities. Also see “—If we breach our fiduciary duty as the general partner of the funds or the funds we manage perform poorly, our results of operations will be adversely impacted” and “—Our business is subject to risks related to lawsuits and other claims brought by our clients.”

Certain of our wealth management products we distribute and the asset management and internet financial services we provide have real estate or real estate-related businesses as underlying assets. These products and services are subject to the risks inherent in the construction, development, ownership and operation of real estate, as well as risks associated with regulatory and policy changes to the real estate industry, in China.

Certain of the wealth management products that we distribute and the asset management and internet financial services that we provide have real estate or real estate-related business in China as their underlying assets. In 2014, 2015 and 2016, the total value of wealth management products that we distributed with real estate or real estate-related businesses as the underlying assets accounted for 51.0%, 31.6% and 29.4% of the total value of all the products we distributed, respectively. The net revenues, including one-time commissions, recurring service fees and other services fees, that we generated from distributing wealth management products and providing asset management and internet financial services with real estate or real estate-related businesses as the underlying assets accounted for 64.4%, 36.7% and 19.2% of our total net revenues for the years ended December 31, 2014, 2015 and 2016, respectively.

Such products are subject to the risks inherent in the ownership and operation of real estate and real estate-related businesses and assets. These risks include those associated with the burdens of ownership of real property, general and local economic conditions, changes in supply of and demand for competing properties in an area, natural disasters, changes in government regulations, changes in real property tax rates, changes in interest rates, the reduced availability of mortgage funds, which may render the sale or refinancing of properties difficult or impracticable, and other factors that are beyond our control.

In particular, the PRC real estate industry is subject to extensive governmental regulation and is susceptible to policy changes. The PRC government exerts considerable direct and indirect influence on the development of the PRC real estate sector by imposing industry policies and other economic measures. Such measures may depress the real estate market, reduce transaction volume, cause a decline in selling prices, prevent developers from raising the capital they need and increase developers’ costs to start new projects.

Frequent changes in government policies may also create uncertainty that could discourage investment in real estate. In early 2013, the PRC central government adopted several rules to further strengthen its control over the real estate market, improve the local government’s ability to stabilize housing prices, curb speculative housing investment, increase the supply of land for low income housing, accelerate the planning and construction of low income housing and strengthen market supervision. In late 2014, the PRC central government adopted new rules and began relaxing control over the real estate market by loosening the credit limits applicable to loans for the purchase of second homes and introducing new policies on housing provident fund credits and other measures. In addition, except for big cities such as Beijing, Shanghai, Guangzhou and Shenzhen, other cities in China began gradually rescinded local sale suspension policies applicable to housing purchases. In November 2014, the State Council promulgated the Interim Regulations on Real Estate Registration, which became effective on March 1, 2015, and on January 1, 2016, the Ministry of Land and Resources promulgated the Implementation Regulations for the Interim Regulations on Real Estate Registration, or collectively, the Real Estate Registration Regulations. The Real Estate Registration Regulations provide that buildings and structures such as houses shall be registered together with the land or territorial waters to which they are attached, to ensure that the holder entity is consistent. The Real Estate Registration Regulations better protect the building owner’s property rights over the underlying real estate, but to some extent curb speculative housing investment especially in those cities who adopt the house-purchasing limitations. In 2015, relevant authorities adopted several rules that in favor of the real estate market, such as setting lower loan interest rates and reducing down-payments. However, due to the rapid increase of housing prices in certain cities such as Shanghai, housing policies were tightened in early 2016. As such, we cannot assure you that the PRC government will not adopt new measures in the future that may result in lower growth rates in the real estate industry.

Additionally, on February 13, 2017, the Asset Management Association of China, or AMAC, released the No. 4 Filing Rules on to regulate real estate investments by the securities and futures institutions. According to the No. 4 Filing Rules, private fund managers, such as ourselves, are required to follow relevant rules while investing into the real estate development enterprises or projects. See “Item 4. Information on the Company—B. Business Overview—Regulations.” These policies and regulations may affect the viability, cash flow, or prospect of real estate development projects that constitute the underlying assets of certain of the wealth management products we distribute or the asset management and internet financial services we provide in all respects, which could adversely affect our business.

If any of the risks associated with ownership and operation of real estate and real estate-related businesses in China are realized, they may result in decreased value and increased default rates of the wealth management products we distribute and the asset management and internet financial services we provide that are linked to real estate, and reduce the interest of our clients in purchasing such products, which account for a significant portion of our product choices. As a result, our commissions and recurring service fees from such products or services could be adversely affected. In addition, if clients who purchased the wealth management products we distribute or the asset management or internet financial services we provide experience financial loss, they may lose their trust and confidence in us and our reputation may be harmed, which may result in a material adverse effect on our business, results of operations and financial condition.

Our reputation and brand recognition is crucial to our business. Any harm to our reputation or failure to enhance our brand recognition may materially and adversely affect our business, financial condition and results of operations.

Our reputation and brand recognition, which depend on earning and maintaining the trust and confidence of individuals, enterprises or institutions that are current or potential clients, is critical to our business. Our reputation and brand recognition are vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Regulatory inquiries or investigations, lawsuits initiated by clients or other third parties, employee misconduct, misconduct or allegations of misconduct by the managers of third-party funds that we distribute, perceptions of conflicts of interest and rumors, among other things, could substantially damage our reputation, even if they are baseless or satisfactorily addressed. In addition, any perception that the quality of the wealth management products we distribute or the asset management or internet financial services we provide may not be the same as or better than that of other advisory firms, product distributors or internet financial service providers can also damage our reputation. Moreover, any misconduct or allegations of misconduct by managers of third-party funds that we distribute could result in negative media publicity that could affect our reputation and erode the confidence of our clients. Furthermore, any negative media publicity about the financial service industry in general or product or service quality problems of other firms in the industry, including our competitors, may also negatively impact our reputation and brand recognition. If we are unable to maintain a good reputation or further enhance our brand recognition, our ability to attract and retain clients, wealth management product providers and key employees could be harmed and, as a result, our business and revenues would be materially and adversely affected.

The determination of the investment portfolio under asset management and the amount to be invested in certain investments is subject to management’s evaluation and judgment. Poor investment portfolio performance may lead to a decrease in assets under management and reduce revenues from and the profitability of our asset management business.

The determination of the investment portfolio under asset management and the investment amount varies by investment type and is based upon our periodic evaluation and assessment of inherent and known risks associated with the respective asset class. As a portion of our revenues from our asset management business comes from performance-based fees, which are typically based on how much the returns on our managed accounts exceed a certain threshold return for each investor, we will not earn performance-based fees if our management’s judgment is incorrect and the investment portfolio does not generate cumulative performance that surpasses the relevant target thresholds or if a fund experiences losses. Poor investment portfolio performance, either as a result of downturns in the market or economic conditions, including but not limited to changes in interest rates, inflation, terrorism, political uncertainty, our investment style and the particular investments that we make, may result in a decline in our revenues and income by causing (i) the net asset value of the assets under our management to decrease, which would result in lower management fees to us, (ii) lower investment returns, resulting in a reduction of incentive fee income to us, and (iii) increase in investor redemptions, which would in turn lead to fewer assets under management and lower fees for us. To the extent our future investment performance is perceived to be poor in either relative or absolute terms, the revenues and profitability of our asset management business will likely be reduced and our ability to grow existing funds and raise new funds in the future will likely be impaired.

Because a significant portion of the one-time commissions and recurring service fees we earn on the distribution and management of wealth management products are based on commission and fee rates set by wealth management product providers or underlying corporate borrowers, any decrease in these commission and fee rates may have an adverse effect on our revenues, cash flow and results of operations.

While a portion of our revenues are derived from fees and commissions paid by our clients, we derive a significant portion of our revenues from recurring fees and commissions paid by wealth management product providers or underlying corporate borrowers. These recurring fees and commission rates are negotiated with such product providers, and vary from product to product. Recurring fees and commission rates can change based on the prevailing political, economic, regulatory, taxation and competitive factors that affect the product providers or underlying corporate borrowers. These factors, which are not within our control, include the capacity of product providers to place new business, profits of product providers, client demand and preference for wealth management products, the availability of comparable products from other product providers at a lower cost, the availability of alternative wealth management products to clients and the tax deductibility of commissions and fees. In addition, the historical volume of wealth management products that we distributed or managed may have a significant impact on our bargaining power with product providers or underlying corporate borrowers in relation to the commission and fee rates for future products. Because we do not determine, and cannot predict, the timing or extent of commission and fee rate changes with respect to the wealth management products, it is difficult for us to assess the effect of any of these changes on our operations. Any decrease in commission and fee rates would adversely affect our revenues, cash flow and results of operations.

The wealth management products we distribute are supplied by a limited number of wealth management product providers; and the renegotiation or termination of our relationships with such wealth management product providers could significantly impact our business.

The wealth management products we distribute are supplied by a small number of wealth management product providers, including mutual fund management companies, private equity firms, real estate fund managers, securities investment fund managers and insurance companies. In 2014, 2015 and 2016, our top three independent wealth management product providers accounted for approximately 12.7%, 16.7% and 17.3% of the aggregate value of all the products we distributed through our wealth management business, respectively. Our relationships with wealth management product providers are governed by contracts between us and such product providers. These contracts establish, among other things, the scope of our responsibility and our commission rates with respect to the distribution of particular products. These contracts typically are entered into on a product by product basis and expire at the expiration date of the relevant wealth management product. For any new wealth management products, new contracts need to be negotiated and entered into. Our management product providers may agree to enter into contracts with us for any new products only with lower commission rates or other terms less favorable to us, which could reduce our revenues. If wealth management product providers that in the aggregate account for a significant portion of our business decide not to enter into contracts with us for their wealth management products, or our relationships with them are otherwise impacted, our business and operating results could be materially and adversely affected.

Some of our asset management clients may redeem their investments from time to time, which could reduce our asset management fee revenues.

Certain of our asset management fund agreements may permit investors to redeem their investments with us at quarterly or annual intervals, after an initial “lockup” period during which redemptions are restricted or penalized. If the return on the assets under our management does not meet investors’ expectations, investors may elect to redeem their investments and invest their assets elsewhere, including with our competitors. Our recurring service fee revenues correlate directly to the amount of our AUM; therefore, redemptions may cause our recurring service fee revenues to decrease. Investors may decide to reallocate their capital away from us and to other asset managers for a number of reasons, including poor relative investment performance, changes in prevailing interest rates which make other investment options more attractive, changes in investor perception regarding our focus or alignment of interest, dissatisfaction with, changes in or a broadening of a fund’s investment strategy, changes in our reputation, and departures of, or changes in responsibilities of, key investment professionals. For these and other reasons, the pace of investor redemptions and the corresponding reduction in our assets under management could accelerate. In addition, redemptions could ultimately require us to liquidate assets under unfavorable circumstances, which would further harm our reputation and results of operations.

Our internet financial service business involves a relatively new business model and may not be successful.

Our internet financial service business currently includes our internet financial service platform, small short-term loans, transaction data processing and related services. Many elements of our internet financial service business are relatively unproven, and the internet financial service market in China is relatively new, rapidly developing and subject to significant challenges. Although we intend to devote significant resources to expanding our internet financial service business and develop and offer more innovative products and services to our clients, we have limited experience with this business model and cannot assure you of its future success. If we fail to address the needs of our internet financial service customers, adapt to rapidly evolving market trends or continue to offer innovative products and services, there may not be significant market demand for the internet financial services we provide. In addition, our internet financial service business will continue to encounter risks and difficulties that early stage businesses frequently experience, including the potential failure to cost-effectively expand the size of our customer base, maintain adequate management of risks and expenses, implement our customer development strategies and adapt and modify them as needed, develop and maintain our competitive advantages and anticipate and adapt to changing conditions in China’s internet financing industry resulting from mergers and acquisitions involving our competitors or other significant changes in economic conditions, competitive landscape and market dynamics. We have not yet proven the essential elements of profitable operations in our internet financial service business, and our business and revenues would be materially and adversely affected if we are not successful.

We face uncertainty from our entry into new business areas and the introduction of new wealth management products that we distribute and asset management and internet financial services that we provide.

We continue to expand our business and develop and offer more innovative products and services to our clients. At the end of 2013, we began offering small short-term loans to our registered clients and mass affluent individuals via our subsidiary Rong Yi Tong, which contributed revenues of RMB23.9 million (US$3.4 million), or approximately 1.0% of our net revenues, in 2016. See “Item 4. Information on the Company—B. Business Overview—Products and Services—Internet Financial Services”. Also in 2013, we started our Enoch Education business, which provides high-end investor education services teaching investors about market cycles, economic trends and portfolio investment philosophy. See “Item 4. Information on the Company—B. Business Overview—Products and Services—Wealth Management”. In 2016, we began offering new factoring products through our wealth management business. Our involvement in new businesses and our distribution of new products such as these exposes us to new risks. Additionally, since we have little track record in these businesses, any perceived shortcomings in our operations in this area in the future pose reputational risk to us. If we are unable to appropriately manage these risks in the future, our financial results may be adversely affected.

Our organizational documents do not limit our ability to enter into new lines of business, and we may enter into new businesses, make future strategic investments or acquisitions or enter into joint ventures, each of which may result in additional risks and uncertainties in our business.

Our organizational documents do not limit us to our current business lines. Accordingly, we may pursue growth through strategic investments, acquisitions or joint ventures, which may include entering into new lines of business. In addition, we expect opportunities will arise to acquire other companies with businesses that complement ours. To the extent we make strategic investments or acquisitions or enter into joint ventures or new lines of businesses, we expect to face numerous risks and uncertainties, including risks associated with:

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the required investment of capital and other resources;

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the possibility that we have insufficient expertise to engage in such businesses profitably or without incurring inappropriate amounts of risk; and

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combining or integrating operational and management systems and controls.

Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk. If a new business generates insufficient revenue or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected. In the case of joint ventures, we are subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or reputation damage relating to, systems, controls and personnel that are not under our control.

We face significant competition in our businesses. If we are unable to compete effectively with our existing and potential competitors, we could lose our market share and our results of operations and financial condition may be materially and adversely affected.

The wealth management, asset management and internet financial service industries in China are all undergoing rapid growth. We operate in an increasingly competitive environment and compete for clients on the basis of product choices, client services, reputation and brand names. Our ability to compete for clients in this environment is also affected by license requirements for the distribution of wealth management products and the provision of asset management and certain internet financial services imposed on businesses operating in such industries. Our future success in each of these areas of our business will depend in part on our ability to continue to obtain the relevant licenses and anticipate and meet market needs on a timely and cost-effective basis. In distributing wealth management products and insurance products, we face competition primarily from other wealth management companies, PRC commercial banks, insurance companies and foreign private banks with an in-house sales force and private banking functions in China. In our asset management business, we also face competition from other asset management service providers in the market, including managers of private equity funds, real estate funds or fixed income funds. In addition, our internet financial service business faces competition from other internet financial service platforms of banking institutions, insurance companies and other financial service companies in China.

Many of our competitors have greater financial and marketing resources or broader customer relationships than we do. For example, the PRC commercial banks we compete with tend to enjoy significant competitive advantages due to their nationwide distribution networks, longer operating histories, broader client bases and settlement capabilities. Moreover, many wealth management product providers with whom we currently have relationships, such as private equity investment firms, are also engaged in, or may in the future engage in, the distribution of wealth management products and may benefit from the integration of wealth management products with their other product offerings. Given our relatively recent entry into internet financial service business, we also face competition from internet financial service platforms that have longer operating histories than we do. If we are unable to compete effectively with our current competitors or new entrants into the businesses in which we operate, our business, financial position, results of operations and cash flows could be materially adversely affected.

Our failure to respond to rapid product innovation in the financial industry in a timely and cost-effective manner may have an adverse effect on our business and operating results.

The financial industry is increasingly influenced by frequent new product and service introductions and evolving industry standards. We believe that our future success will depend on our ability to continue to anticipate product and service innovations and to offer additional products and services that meet evolving standards on a timely and cost-effective basis. There is a risk that we may not successfully identify new product and service opportunities or develop and introduce these opportunities in a timely and cost-effective manner. In addition, products and services that our competitors develop or introduce may render our products and services less competitive. As a result, failure to respond to product and service innovation that may affect our industry in the future may have a material adverse effect on our business and results of operations.

Our revenues and operating results can fluctuate from period to period, which could cause the price of our ADSs to fluctuate.

Our revenues and operating results have fluctuated in the past and may fluctuate from period to period in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors, as well as other factors described elsewhere in this annual report:

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a decline or slowdown of the growth in the transaction value of wealth management products we distribute;

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negative public perception and reputation of the wealth management, asset management or internet financial service industry;

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unanticipated delays of anticipated rollouts of our products or services;

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unanticipated changes to economic terms in contracts with our wealth management product providers, including renegotiations;

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changes in laws or regulatory policy that could impact our ability to distribute or manage wealth management products or provide asset management or internet financial services to our clients;

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failure to enter into contracts with new wealth management product providers;

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cancellations or non-renewal of existing contracts with wealth management product providers; and

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changes in the number of clients who decide to effectively terminate their relationship with us or who ask us to redeem their investment in our fund of funds products or real estate fund products.

As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indications of our future revenues or operating performance.

If we fail to maintain an effective system of internal controls, we may be unable to accurately report our results of operations or prevent fraud, and investor confidence and the market price of our ADSs may be materially and adversely affected.

As a public company in the United States, we are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, requires that we include a report from management on the effectiveness of its internal control over financial reporting in our annual report on Form 20-F. In addition, our independent registered public accounting firm must attest to and report on the effectiveness of our internal control over financial reporting.

Our management has concluded that our internal control over financial reporting is effective as of December 31, 2016. See “Item 15. Controls and Procedures.” Our independent registered public accounting firm has issued an attestation report on our management’s assessment of our internal control over financial report and has concluded that our internal control over financial reporting is effective in all material aspects.

However, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to maintain an effective internal control environment, our financial statements could contain material misstatements and we could fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our ADSs.

Our business is sensitive to global economic conditions. A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our business, financial condition and results of operations.

Any prolonged slowdown in the global or Chinese economy may have a negative impact on our business, results of operations and financial condition, and continued turbulence in the international markets may adversely affect our ability to access the capital markets to meet potential liquidity needs.

Economic conditions in China are sensitive to global economic conditions. Since we derive the majority of our revenues from our operations in China, our business and prospects may be affected by economic conditions or changes in the financial markets in China. Our revenues ultimately depend on the appetite of high net worth individuals to invest in the products we distribute or manage, which in turn depend on their level of disposable income, perceived future earnings and willingness to invest. As there are still substantial uncertainties in the current and future conditions in the global and PRC economies, our clients may reduce or delay their investment in the financial markets in general, and defer or forgo the purchase of products we distribute or manage. For example, in recent years, the stock markets in China have experienced substantial volatility, resulting in a loss of confidence in the markets by some investors and intervention by the PRC government. We may have difficulty expanding our client base fast enough, or at all, to offset the impact of decreased spending by our existing clients. Additionally, we earn recurring service fees on certain wealth management products over a period of time after the initial sale. Clients may redeem or terminate these products, ending these recurring revenues. Moreover, insolvencies associated with an economic downturn could adversely affect our business through the loss of wealth management product providers or clients or by hampering our ability to place business. Any prolonged slowdown in the global or China’s economy may lead to reduced investment in the products we distribute or manage, which could materially and adversely affect our financial condition and results of operations.

Moreover, a slowdown in the global or PRC economy or the recurrence of any financial disruptions may have a material and adverse impact on financings available to us. The weakness in the economy could erode investors’ confidence, which constitutes the basis of the equity markets. Any financial turmoil affecting the financial markets and banking system may significantly restrict our ability to obtain financing in the capital markets or from financial institutions on commercially reasonable terms, or at all. Although we are uncertain about the extent to which any global financial and economic crisis and slowdown of the PRC economy may impact our business, there is a risk that our business, results of operations and prospects may be materially and adversely affected by any global economic downturn and the slowdown of the PRC economy.

Our business is subject to the risks associated with international operations.

Although revenues from countries and regions outside China do not yet constitute a majority of our total revenues, international expansion is an important component of our growth strategy. We started conducting business in Hong Kong in 2012, established a subsidiary of our variable interest entity in Taiwan in 2014 and recently launched an office in the United States in 2016. Expanding our business internationally exposes us to a number of risks, including:

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fluctuations in currency exchange rates;

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our ability to select the appropriate geographical regions for international expansion;

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difficulty in identifying appropriate partners and establishing and maintaining good cooperative relationships with them;

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difficulty in recruiting and retaining qualified personnel;

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potentially adverse tax consequences;

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difficulty in understanding local markets and culture and complying with unfamiliar laws and regulations;

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unexpected legal or regulatory changes; and

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increased costs associated with doing business in foreign jurisdictions.

If we breach our fiduciary duty as the general partner or fund managers of the funds, our results of operations will be adversely impacted.

Neither the principal nor the return of the products we distribute and/or manage is guaranteed by us. As such, we do not bear any liabilities for any loss to the capital of the products, provided that (i) the distribution and management of the concerned products are conducted in the normal course of business; (ii) we have no fraud or gross negligence during the course of distribution and management, and have no intentional misconduct which will harm the interests of either the fund or the limited partners, and (iii) we have not conducted any other acts which are deemed to breach our fiduciary duty. However, our asset management business is subject to inherent risks if we are deemed to breach our fiduciary duty. Because we serve as the general partner or manager for the funds, we are required to manage the funds for the limited partners or the investors. If we are deemed to breach our fiduciary duty to the limited partners or the investors, such as by failing to establish and/or implement appropriate controls for the handling and processing of our clients’ cash investments, we may be exposed to risks and losses. We also could experience losses on our principal in an entity which act as the general partner of any fund in the form of limited liability partnership, as the general partner shall bear unlimited joint and several liability for the debts of any fund managed by it. Furthermore, as PRC laws and regulations are silent on the legal segregation of losses or liabilities incurred by contract-based private funds and assets of the fund manager, it is unclear whether our assets will be subject to third-party claims arising out of losses or liabilities incurred by contract-based private funds we manage and we cannot assure you that our assets will not be exposed to such claims. If the assets managed by our asset management business become exposed to such claims, our future growth will be materially and adversely affected.

Misconduct of our relationship managers or other employees, including potential misuse of client funds, could harm our reputation or lead to regulatory sanctions or litigation costs.

Misconduct of our relationship managers or other employees could result in violations of law by us, regulatory sanctions, litigation or serious reputational or financial harm, among other consequences. Misconduct could include:

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engaging in misrepresentation or fraudulent activities when distributing wealth management products or providing asset management or internet financial services to clients;

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improperly using or disclosing confidential information of our clients, wealth management product providers or other parties;

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concealing unauthorized or unsuccessful activities, resulting in unknown and unmanaged risks or losses;

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accessing and misusing client funds, especially those maintained in segregated accounts for our contract-based private funds; or

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otherwise not complying with laws and regulations or our internal policies or procedures.

Although we have established an internal compliance system to supervise service quality and regulatory compliance, we cannot always deter misconduct of our relationship managers or other employees, and the precautions we take to prevent and detect misconduct may not be effective in all cases. Any of the abovementioned misconduct could impair our ability to attract, serve and retain clients and may lead to significant legal liability, reputational harm and material adverse effects on our business, results of operations or financial condition.

We work with prime brokers, custodians, administrators and other agents in our asset management business, whose performance may have material effects on our results of operations.

Our asset management business and funds managed by us depend on the services of prime brokers, custodians, administrators and other agents to monitor, report and settle transactions. The performance of these third parties may impact our asset management business and, ultimately, our results of operations. For example, in the event of the insolvency of a prime broker or custodian, our funds associated with such prime broker or custodian might not be able to recover equivalent assets in whole or in part as they may rank among the prime broker’s and the custodian’s unsecured creditors in relation to assets which the prime broker or custodian borrows, lends or otherwise uses. In addition, cash held by our funds with such prime broker or custodian would in general not be segregated from the prime broker’s or custodian’s own cash, and there would be no guarantee that such cash can be recovered in the insolvency proceeding.

Our business is subject to risks related to lawsuits and other claims brought by our clients.

We are subject to lawsuits and other claims in the ordinary course of our business. In particular, we may face arbitration claims and lawsuits brought by our clients who have bought wealth management products we distribute or asset management or internet financial services that we provide which turned out to be unsuitable for any reason, such as misconduct by the managers of third-party funds that we have recommended or made available to our clients. In connection with our provision of small short-term loans, we may encounter complaints alleging breach of contract or potential usury claims in our ordinary course of business. We may also encounter complaints alleging misrepresentation on the part of our relationship managers or other employees or that we have failed to carry out a duty owed to them. These risks may be heightened during periods when credit, equity or other financial markets are deteriorating in value or are volatile, or when clients or investors are experiencing losses. Actions brought against us may result in settlements, awards, injunctions, fines, penalties or other results adverse to us, including harm to our reputation. The contracts between us and wealth management product providers do not provide for indemnification of our costs, damages or expenses resulting from such lawsuits. Even if we are successful in defending against these actions, we may incur significant expenses in the defense of such matters. Predicting the outcome of such matters is inherently difficult, particularly where claimants seek substantial or unspecified damages, or when arbitration or legal proceedings are at an early stage. A substantial judgment, award, settlement, fine, or penalty could be materially adverse to our operating results or cash flows for a particular future period, depending on our results for that period.

Any failure to ensure and protect the confidentiality of our clients’ personal data and the improper use or disclosure of such data could lead to legal liability, adversely affect our reputation and have a material adverse effect on our business, financial condition or results of operations.

Our services involve the exchange of information, including detailed personal and financial information regarding our clients, through a variety of electronic and non-electronic means. In particular, with the growth of our internet financial service business, our internet financial service platform generates and processes an increasingly larger quantity of transactions and data, especially our customers’ demographic data and financial data.

We face risks inherent in handling large volumes of data and in protecting the security of such data. In particular, we face a number of data-related challenges concerning transactions and other activities that take place on our platform, including but not limited to:

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protecting the data on our system, including against attacks on our system by outside parties or fraudulent behavior by our employees;

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addressing concerns related to privacy and data-sharing, safety, security and other factors; and

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complying with applicable laws, rules and regulations relating to the collection, use, disclosure or security of personal information, including any requests from regulatory and government authorities relating to such data.

Any systems failure or security breach or lapse that results in the leaking of user data could harm our reputation and brand and, consequently, our business, in addition to exposing us to potential legal liability. We rely on a complex network of process and software controls to protect the confidentiality of data provided to us or stored on our systems. If we do not maintain adequate internal controls or fail to implement new or improved controls as necessary, this data could be misappropriated or confidentiality could otherwise be breached. We could be subject to liability if we inappropriately disclose any client’s personal information, or if third parties are able to penetrate our network security or otherwise gain access to any client’s name, address, portfolio holdings, or other personal information stored by us. Any such event could subject us to claims for identity theft or other similar fraud claims or claims for other misuses of personal information, such as unauthorized marketing or unauthorized access to personal information. In addition, such events would cause our clients to lose their trust and confidence in us, which may result in a material adverse effect on our business, results of operations and financial condition.

In addition, since we are still in the process of applying for a payment business license, some transaction data processing for our products are settled through third-party payment related companies. We may have to share certain personal information about our clients with contracted third-party payment related service providers, such as our clients’ names, addresses, phone numbers and transaction records. We have limited control or influence over the security policies or measures adopted by such third-party providers. Any compromise or failure of the information security measures of our third-party payment related service providers could also have a material and adverse effect on our reputation, business, prospects, financial condition and results of operations.

The proper functioning of our technology platform is essential to our business. 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 amount of information relating to the wealth management products we distribute and the asset management and internet financial services we provide to our clients. The proper functioning of our financial control, accounting, product database, client database, client service and other data processing systems, together with the communication systems between our various branch offices and our headquarters in Shanghai, is critical to our business and to our ability to compete effectively. In particular, we rely on the online service platform provided through our website www.noahwm.com as well as our mobile application Wei Nuo Ya to provide our clients with updated information about their historical purchases, the status of the products they purchased and various other notifications. Maintaining and improving our technology infrastructure requires significant levels of investment. Any failure to maintain satisfactory performance, reliability, security and availability of our network infrastructure could result in the unavailability or slowdown of our website or reduced order fulfillment performance and cause significant harm to our reputation and our ability to attract and maintain users. We maintain our backup system hardware and operate our back-end infrastructure. Server interruptions, breakdowns or system failures in the cities where we maintain our servers and system hardware, including failures that may be attributable to sustained power shutdowns, or other events within or outside our control that could result in a sustained shutdown of all or a material portion of our services, could reduce the volume of products sold and the attractiveness of product offerings on our platform. Our network systems are also vulnerable to damage from computer viruses, fire, flood, earthquake, power loss, telecommunications failures, computer hacking and similar events. Although we have not experienced system failures, we cannot assure you that our business activities would not be materially disrupted in the event of a partial or complete failure of any of these 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. Any such future occurrences could reduce customer satisfaction, damage our reputation and our financial condition, results of operations and business prospects, as well as our reputation, could be materially and adversely affected.

Any deficiencies in China’s internet infrastructure could impair our ability to sell products over our website and mobile applications, which could cause us to lose customers and harm our operating results.

Our internet financial service business depends on the performance and reliability of the internet infrastructure in China. The majority of our computer hardware is currently located in China. The availability of our website depends on telecommunications carriers and other third-party providers for communications and storage capacity, including bandwidth and server storage, among other things. If we are unable to enter into or renew agreements with these providers on commercially acceptable terms, or if any of our existing agreements with such providers are terminated as a result of our breach or otherwise, our ability to provide our services to our customers could be adversely affected. Almost all access to the internet in China is maintained through state-owned telecommunication carriers under administrative control, and we obtain access to end-user networks operated by such telecommunications carriers and internet service providers to give customers access to our website. We have experienced service interruptions in the past, which were typically caused by service interruptions at the underlying external telecommunications service providers, such as the internet data centers and broadband carriers from which we lease services. Service interruptions prevent consumers from accessing our website and mobile applications and placing orders, and frequent interruptions could frustrate customers and discourage them from attempting to place orders, which could cause us to lose customers and harm our operating results.

If we fail to adopt new technologies or adapt our website, mobile applications and systems to changing customer requirements or emerging industry standards, our internet financial service business may be materially and adversely affected.

To remain competitive in the internet financial service business, we must continue to enhance and improve the responsiveness, functionality and features of our website and mobile applications. The internet financial service industry in China is characterized by rapid technological evolution, continual changes in customer requirements and preferences, frequent introductions of new products and services embodying new technologies and the emergence of new industry standards and practices, any of which could render our existing technologies and systems obsolete. The success of our internet financial service business will depend, in part, on our ability to identify, develop, acquire or license leading technologies useful in our business, and respond to technological advances and emerging industry standards and practices, such as mobile internet, in a cost-effective and timely way. The development of websites, mobile applications and other proprietary technology entails significant technical and business risks. We cannot assure you that we will be able to use new technologies effectively or adapt our website, mobile applications, proprietary technologies and systems to meet evolving customer requirements or emerging industry standards. If we are unable to adapt in a cost-effective and timely manner in response to changing market conditions or customer requirements, whether for technical, legal, financial or other reasons, the overall prospects, financial condition and results of operations of our internet financial service business may be materially and adversely affected.

We may not be able to prevent unauthorized use of our intellectual property, which could reduce demand for our products and services, adversely affect our revenues and harm our competitive position.

We rely primarily on a combination of copyright, trade secret, trademark and anti-unfair competition laws and contractual rights to establish and protect our intellectual property rights in our research reports, the wealth management products we distribute, the asset management and internet financial services we provide and other aspects of our business. We cannot assure you that the steps we have taken or will take in the future to protect our intellectual property or prevent piracy will prove to be sufficient. Implementation of intellectual property-related laws in China has historically been lacking, primarily due to ambiguity in the PRC laws and enforcement difficulties. Accordingly, intellectual property rights and confidentiality protection in China may not be as effective as those in the United States or other countries. Current or potential competitors may use our intellectual property without our authorization in the development of products and services that are substantially equivalent or superior to ours, which could reduce demand for our solutions and services, adversely affect our revenues and harm our competitive position. Even if we were to discover evidence of infringement or misappropriation, our recourse against such competitors may be limited or could require us to pursue litigation, which could involve substantial costs and diversion of management’s attention from the operation of our business.

We may face intellectual property infringement claims, which could be time-consuming and costly to defend and may result in the loss of significant rights by us.

Although we have not been subject to any litigation, pending or threatened, alleging infringement of third parties’ intellectual property rights, we cannot assure you that such infringement claims will not be asserted against us in the future.

Intellectual property litigation is expensive and time-consuming and could divert resources and management attention from the operation of our business. If there is a successful claim of infringement, we may be required to alter our services, cease certain activities, pay substantial royalties and damages to, and obtain one or more licenses from, third parties. We may not be able to obtain those licenses on commercially acceptable terms, or at all. Any of those consequences could cause us to lose revenues, impair our client relationships and harm our reputation.

Confidentiality agreements with employees, product providers and others may not adequately prevent disclosure of our trade secrets and other proprietary information.

We require our employees, product providers and others to enter into confidentiality agreements in order to protect our trade secrets, other proprietary information and, most importantly, our client information. These agreements might not effectively prevent disclosure of our trade secrets, know-how or other proprietary information and might not provide an adequate remedy in the event of unauthorized disclosure of such confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive position.

Our future success depends on our continuing efforts to retain our existing management team and other key employees as well as to attract, integrate and retain highly skilled and qualified personnel, and our business may be disrupted if our efforts are unsuccessful.

Our future success depends heavily on the continued services of our current executive officers and senior management team. We also rely on the skills, experience and efforts of other key employees, including management, marketing, support, research and development, technical and services personnel, across our wealth management, asset management and internet financial service businesses. Qualified employees are in high demand in the wealth management, asset management and internet financial service industries in China, and our future success depends on our ability to attract, train, motivate and retain highly skilled employees and the ability of our executive officers and other members of our senior management to work effectively as a team.

If one or more of our executive officers or other key employees are unable or unwilling to continue in their present positions, we may not be able to find replacements easily, which may disrupt our business operations. We do not have key personnel insurance in place. If any of our executive officers or other key employees joins a competitor or forms a competing company, we may lose clients, know-how, key professionals and staff members. Each of our executive officers has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. However, if any dispute arises between our executive officers and us, we cannot assure you of the extent to which any of these agreements could be enforced in China, where these executive officers reside, because of the uncertainties of China’s legal system. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”

If we fail to attract and retain qualified relationship managers, our business could suffer.

We rely heavily on our relationship managers to develop and maintain relationships with our clients for our wealth management business. Our relationship managers serve as our day-to-day contacts with our clients and carry out a substantial portion of the client services we deliver. Their professional competence and approachability are essential to establishing and maintaining our brand image. As we further grow our business and expand into new cities and regions, we have an increasing demand for high quality relationship managers. We have been actively recruiting and will continue to recruit qualified relationship managers to join our coverage network. However, there is no assurance that we can recruit and retain sufficient high quality relationship managers to support our further growth. In some of the regional centers where we have recently established or plan to establish branch offices, the talent pool from which we can recruit relationship managers is smaller than in national economic centers such as Shanghai and Beijing. Even if we could recruit sufficient relationship managers, we may have to incur disproportional training and administrative expenses in order to prepare our local recruits for their job. If we are unable to attract, train and retain highly productive relationship managers, our business could be materially and adversely affected. Competition for relationship managers may also force us to increase the compensation of our relationship managers, which would increase operating cost and reduce our profitability.

We have granted, and may continue to grant, stock options and other share-based compensation in the future, which may materially impact our future results of operations.

We adopted our 2008 share incentive plan, which we refer to as the 2008 plan, and our 2010 share incentive plan, which we refer to as the 2010 plan, which permit the grant of stock options, restricted shares and restricted share units to employees, directors and consultants of our company. As of April 13, 2017, options to purchase 762,569 Class A ordinary shares and 100,745 restricted shares have been granted and are outstanding, and 392,058 Class A ordinary shares have been reserved for future issuances under these plans. As a result of these grants and potential future grants under the plans, we have incurred, and will incur in future periods, significant share-based compensation expenses. We account for compensation costs for all stock options using a fair value-based method and recognize expenses in our consolidated statement of income in accordance with the relevant rules in accordance with GAAP, which may have a material adverse effect on our net income. Moreover, the additional expenses associated with share-based compensation may reduce the attractiveness of such incentive plans to us. However, if we limit the scope of our share incentive plans, we may not be able to attract or retain key personnel who expect to be compensated by equity incentives.

We have limited insurance coverage.

Insurance companies in China currently do not offer as extensive an array of insurance products as insurance companies in more developed economies. For example, while we are able to obtain professional indemnity insurance in Hong Kong for our operations located there, such insurance offerings are not available in China. Other than casualty insurance on some of our assets, we do not have commercial insurance coverage on our other assets and we do not have insurance to cover our business or interruption of our business, litigation or product liability. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured occurrence of loss or damage to property, litigation or business disruption may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our results of operations and financial condition.

Risks Related to Our Corporate Structure

We rely on contractual arrangements with our variable interest entity and its shareholders for a portion of our China operations, which may not be as effective as direct ownership in providing operational control.

We rely on contractual arrangements with our variable interest entity, Noah Investment, and its shareholders to operate a portion of our operations in China, including the insurance brokerage business, asset management business and certain other restricted services. Our variable interest entity and its subsidiaries generated RMB566.8 million, RMB972.2 million and RMB435.1 million (US$62.7 million) in net revenues in 2014, 2015 and 2016, respectively, which contributed 37.1%, 45.9% and 17.3% of our total net revenues in the respective years. Under the share pledge agreement dated September 3, 2007 between our PRC subsidiary, Noah Group, and the shareholders of Noah Investment, Noah Investment’s shareholders pledged their equity interests in Noah Investment to Noah Group to secure Noah Investment’s obligations under the exclusive support service agreement and the exclusive option agreement. For further detail on these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure.”

All of these contractual arrangements 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. These contractual arrangements may not be as effective as direct ownership in providing us with control over our variable interest entity. A minority shareholder of Noah Investment, who owns 4% of the total shares of Noah Investment, has been involved in a personal civil case and was restricted from transferring her shares. Although this civil case has no relationship to us, we cannot prevent the court from freezing the shares because we have no direct control over these shares. We are trying to resolve this issue and believe it has minimal impact on our interest in Noah Investment. Under the current contractual arrangements, as a legal matter, if our variable interest entity or their shareholders fail to perform their respective obligations under these contractual arrangements, we may have to incur substantial costs and expend additional resources to enforce such arrangements. We may also have to rely on legal remedies under PRC law, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. However, the legal environment in the PRC is not as developed as in 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, which may make it difficult to exert effective control over our variable interest entity, and our ability to conduct our business may be negatively affected.

If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

We are engaged in insurance brokerage activities as part of our business. Under current PRC laws and regulations, foreign-invested companies engaged in the onshore insurance brokerage business are subject to stringent requirements compared with Chinese domestic enterprises. Specifically, according to the guidance published on the official website of the China Insurance Regulatory Commission, or the CIRC, the foreign investors of foreign-invested insurance brokerage companies are required to have, among other things, at least US$200 million of total assets and at least a 30-year track record in the insurance business. As a result, neither our PRC subsidiaries nor any of their subsidiaries currently meet all such requirements and therefore none of them is permitted to engage in the onshore insurance brokerage business. We conduct our onshore insurance brokerage business in China principally through contractual arrangements among our PRC subsidiary, Shanghai Noah Investment (Group) Co., Ltd., or Noah Group, formerly known as Shanghai Noah Rongyao Investment Consulting Co., Ltd., and our PRC variable interest entity, Noah Investment, and Noah Investment’s shareholders. Shanghai Noah Rongyao Insurance Broker Co., Ltd., or Noah Insurance, a subsidiary of Noah Investment, holds the licenses and permits necessary to conduct insurance brokerage activities in China.

Current PRC regulations relating to foreign investments in the onshore insurance brokerage business in China do not contain detailed explanations and operational procedures, and are subject to interpretations by relevant governmental authorities in China. However, most of these regulations have not been interpreted by the relevant authorities in the context of a corporate structure similar to ours. Therefore, there are substantial uncertainties regarding the applicability of these regulations to our business. Moreover, new regulations may be adopted and interpretations of existing regulations may develop and change, which may materially and adversely affect our ability to conduct our onshore insurance brokerage business.

We had been engaged in the fund distribution business and distribution of asset management plans sponsored by mutual fund management companies as part of our business through contractual arrangements among our PRC subsidiary, Noah Group, our PRC variable interest entity, Noah Investment, and Noah Investment’s shareholders because it was difficult for foreign investor entities and subsidiaries of foreign investor entities to apply for a fund distribution license. Noah Upright, a subsidiary of Noah Investment before March 2016, holds the licenses and permits necessary to conduct fund distribution and distribution of asset management plans sponsored by mutual fund management companies in China. However, as the license and permit approval authorities relaxed their requirements for foreign investor entities to apply for fund distribution license, Noah Upright was restructured to be a subsidiary of Shanghai Noah Financial Services Corp., or Noah Financial Services, through equity transfer in March 2016. We also engage in the distribution of private fund managed by us through Gopher Asset Management and its subsidiaries, which have completed the private investment fund manager registration with AMAC.

Our contractual arrangements with Noah Investment and its shareholders enable us to (1) have power to direct the activities that most significantly affect the economic performance of Noah Investment; (2) receive substantially all of the economic benefits from Noah Investment in consideration for the services provided by Noah Group; and (3) have an exclusive option to purchase all or part of the equity interests in Noah Investment when and to the extent permitted by PRC law, or request any existing shareholder of Noah Investment to transfer any or part of the equity interest in Noah Investment to another PRC person or entity designated by us at any time at our discretion. Because of these contractual arrangements, we are the primary beneficiary of Noah Investment and hence treat it as our variable interest entity and consolidate its results of operations into ours.

We have been advised by Zhong Lun Law Firm, our PRC legal counsel, that the ownership structures of our variable interest entity, Noah Investment, our PRC subsidiary, Noah Group, and Noah Holdings Limited, as described above, as well as the contractual arrangements among Noah Group and Noah Investment and its shareholders are valid, binding and enforceable under existing PRC laws or regulations. However, we are advised by Zhong Lun Law Firm that there are substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations and there can be no assurance that the PRC government will ultimately take a view that is consistent with the opinion of our PRC counsel stated above. For example, substantial uncertainties exist as to how the draft PRC Foreign Investment Law or its implementation rules may impact the viability of our current corporate structure in the future. See “—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.” It is uncertain whether any other new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide.

If the ownership structure, contractual arrangements and business of our company, our PRC subsidiary or our variable interest entity are found to be in violation of any existing or future PRC laws or regulations, or we fail to obtain or maintain any of the required permits or approvals, the relevant governmental authorities would have broad discretion in dealing with such violation, including levying fines, confiscating our income or the income of our PRC subsidiary or variable interest entity, revoking the business licenses or operating licenses of our PRC subsidiary or variable interest entity, discontinuing or placing restrictions or onerous conditions on our operations, requiring us to undergo a costly and disruptive restructuring and taking other regulatory or enforcement actions that could be harmful to our business. Any of these actions could cause significant disruption to our business operations, and may materially and adversely affect our business, financial condition and results of operations. If any of these penalties results in our inability to direct the activities of Noah Investment that most significantly impact its economic performance or to receive the economic benefits from Noah Investment, we may not be able to consolidate Noah Investment in our consolidated financial statements in accordance with GAAP.

Contractual arrangements among our PRC subsidiary, Noah Group, our variable interest entity, Noah Investment, and Noah Investment’s shareholders may be subject to scrutiny by the PRC tax authorities, who may determine that we or our PRC variable interest entity and its subsidiaries owe additional taxes, which could substantially reduce our consolidated net income and the value of your investment.

Under applicable PRC laws and regulations, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. We are not able to determine whether the contractual arrangements we have entered into among our PRC subsidiary, Noah Group, our variable interest entity, Noah Investment, and Noah Investment’s shareholders will be regarded by the PRC tax authorities as arm’s length transactions. We could face material and adverse tax consequences if the PRC tax authorities determine that the contractual arrangements among our PRC subsidiary, Noah Group, our PRC variable interest entity, Noah Investment, and Noah Investment’s shareholders were not entered into on an arm’s length basis or resulted in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust Noah Investment’s income in the form of a transfer pricing adjustment. A transfer pricing adjustment could, among other things, result in a reduction, for PRC tax purposes, of expense deductions recorded by Noah Investment, which could in turn increase its respective tax liabilities. In addition, the PRC tax authorities may impose punitive interest on Noah Investment for the adjusted but unpaid taxes at the rate of 5% over the basic Renminbi lending rate published by the People’s Bank of China according to applicable regulations. Although Noah Group did not generate any revenues from providing services to Noah Investment in the past, if there are such revenues in the future and the PRC tax authorities decide to make transfer pricing adjustments on Noah Investment’s net income, our consolidated net income may be adversely affected.

Because certain shareholders of our variable interest entity are our directors and executive officers, their fiduciary duties to us may conflict with their respective roles in the variable interest entity. If any of the shareholders of our variable interest entity fails to act in the best interests of our company or our shareholders, our business and results of operations may be materially and adversely affected.

Certain shareholders of Noah Investment, our variable interest entity, are our directors and executive officers, including Ms. Jingbo Wang, our chairman and chief executive officer, Mr. Zhe Yin, our director and vice president, and Mr. Boquan He, our independent director. Conflicts of interest may arise between the dual roles of those individuals who are both our directors or executive officers and shareholders of our variable interest entity. The fiduciary duties owed by these directors and officers to our company under Cayman Islands law, including their duties to act honestly, in good faith and in our best interests, may conflict with their roles as shareholders of our variable interest entity, as what is in the best interest of our variable interest entity may not be in the best interests of our company. In addition, these individuals may breach or cause Noah Investment and its subsidiaries to breach or refuse to renew the existing contractual arrangements with us. We do not have existing arrangements to address such potential conflicts of interest, other than to replace the current directors of our variable interest entity, either by exercising our option under the exclusive option agreement with Noah Investment’s shareholders to cause them to transfer all of their equity ownership in Noah Investment to a PRC entity or individual designated by us, and this new shareholder of Noah Investment could then appoint new directors of Noah Investment to replace the current directors, or cause our PRC subsidiary, Noah Group, in the capacity of the attorney-in-fact of Noah Investment’s shareholders to directly appoint new directors of Noah Investment to replace these individuals.

We rely on Noah Investment’s shareholders to comply with PRC law, which protects contracts and provides that directors and executive officers owe a duty of loyalty to our company and require them to avoid conflicts of interest and not to take advantage of their positions for personal gains. Although our independent directors or disinterested officers may take measures to prevent the parties with dual roles from making decisions that may favor themselves as shareholders of the variable interest entity, we cannot assure you that these measures would be effective in all instances and that when conflicts arise, those individuals will act in the best interest of our company or that conflicts will be resolved in our favor. The legal frameworks of China and the Cayman Islands do not provide guidance on resolving conflicts in the event of a conflict with another corporate governance regime. If we cannot resolve any conflicts of interest or disputes between us and those individuals, we would have to rely on legal proceedings, which may materially disrupt our business. There is also substantial uncertainty as to the outcome of any such legal proceeding.

We may rely principally on dividends and other distributions on equity paid by our PRC subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business.

We are a holding company, and we may rely principally on dividends and other distributions on equity paid by our PRC subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders and service any debt we may incur. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. For example, one of our subsidiaries is restricted by the terms of its loan agreements from paying dividends in excess of agreed percentages of its net profit for the year. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements Noah Group currently has in place with our variable interest entity in a manner that would materially and adversely affect its ability to pay dividends and other distributions to us.

Under the relevant laws and regulations in the PRC applicable to foreign-investment corporations and the articles of association of our PRC subsidiaries and variable interest entity, our PRC subsidiaries and variable interest entity are required to set aside at least 10% of their accumulated after-tax profits each year, if any, to fund certain statutory reserve funds, until the aggregate amount of such fund reaches 50% of their registered capital. We allocated RMB40.0 million, RMB168.7 million and RMB208.8 million (US$30.1 million) to statutory reserves during the years ended December 31, 2014, 2015 and 2016, respectively. 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. At its discretion, each of our PRC subsidiaries and consolidated affiliated entities may allocate a portion of its after-tax profits based on PRC accounting standards to its discretionary reserve fund, or its staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

Any limitation on the ability of our PRC subsidiaries to pay dividends or make other distributions to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. See also “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The dividends we receive from our PRC subsidiaries may be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material adverse effect on our financial condition and results of operations. In addition, if we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”

Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.

The Ministry of Commerce, or MOC, published a discussion draft of the proposed Foreign Investment Law in January 2015 aiming to, upon its enactment, replace the trio of currently existing laws regulating foreign investment in China, namely, 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. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. Substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects.

Among other things, the draft Foreign Investment Law expands the definition of foreign investment and introduces the principle of “actual control” in determining whether the investment in China is made by a foreign investor or a PRC domestic investor. The draft Foreign Investment Law specifically provides that an entity established in China but “controlled” by foreign investors will be treated as a foreign investor, whereas an entity set up in a foreign jurisdiction would nonetheless be, upon market entry clearance by the MOC or its local branches, treated as a PRC domestic investor provided that the entity is ‘‘controlled’’ by PRC entities and/or citizens. In this connection, ‘‘control’’ is broadly defined in the draft law to cover, among others, having the power to exert decisive influence, via contractual or trust arrangements, over the subject entity’s operations, financial matters or other key aspects of business operations. If the foreign investment falls within a “negative list,” to be separately issued by the State Council in the future, market entry clearance by the MOC or its local branches would be required. Otherwise, all foreign investors may make investments on the same terms as Chinese investors without being subject to additional approval from the government authorities as mandated by the existing foreign investment legal regime. On December 7, 2016, the State Planning Commission and the MOC released a draft version of the new Foreign Investment Catalog for public discussion. The final version has not released. The draft version has divided the foreign investment industries into the permitted area and the “negative list” which includes the restricted area, the prohibited area and the permitted area in which only certain requirements may apply.

The “variable interest entity” structure, or VIE structure, has been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits in the industries that are currently subject to foreign investment restrictions in China. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Item 4. Information of the Company — C. Organizational Structure.” Under the draft Foreign Investment Law, if a variable interest entity is ultimately controlled by a foreign investor via contractual arrangement, it would be deemed as a foreign investment. Accordingly, for the companies with a VIE structure in an industry category that is on the “negative list”, the VIE structure may be deemed legitimate only if the ultimate controlling person(s) is/ are of PRC nationality (either PRC individual, or PRC government and its branches or agencies). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the variable interest entities will be treated as foreign-invested enterprises and any operation in the industry category on the “negative list” without market entry clearance may be considered to be illegal.

The draft Foreign Investment Law has not taken a position on what actions shall be taken with respect to the existing companies with a VIE structure, although a few possible options were proffered to solicit comments from the public. Under these options, a company with VIE structures and in the business on the ‘‘negative list’’ at the time of enactment of the new Foreign Investment Law has either the option or obligation to disclose its corporate structure to the authorities. The authorities, after reviewing the ultimate control structure of the company, may either permit the company to continue its business by maintaining the VIE structure (when the company is deemed ultimately controlled by PRC citizens), or require the company to dispose of its businesses and/or VIE structure based on circumstantial considerations. It is uncertain whether the industries in which our variable interest entity operates will be subject to the foreign investment restrictions or prohibitions set forth in the “negative list” to be issued. If the enacted version of the Foreign Investment Law and the final “negative list” mandate further actions, such as MOC market entry clearance, to be completed by companies with existing VIE structure like us, or we plan to apply for determination on the PRC investor during the clearance process, we face uncertainties as to whether such clearance or ratification can be timely obtained, or at all.

The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance practice and increase our compliance costs. For instance, the draft Foreign Investment Law imposes stringent ad hoc and periodic information reporting requirements on foreign investors and the applicable foreign-invested entities. Aside from investment implementation report and investment amendment report that are required at each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to be non-compliant with the information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities.

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of conversion of foreign currencies into Renminbi may delay or prevent us from using the proceeds of our overseas offering to make loans to our PRC subsidiaries and variable interest entity or to make 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 through our PRC subsidiaries and variable interest entity. We may make loans to our PRC subsidiaries and variable interest entity, or we may make additional capital contributions to our PRC subsidiaries.

Any loans to our PRC subsidiaries, which are treated as foreign-invested enterprises under PRC law, are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the local counterpart of the State Administration of Foreign Exchange, or SAFE. We may also decide to finance our PRC subsidiaries by means of capital contributions. These capital contributions must be recorded with the MOC or its local counterpart. Due to the restrictions imposed on loans in foreign currencies extended to any PRC domestic companies, we are not likely to make such loans to our variable interest entity, a PRC domestic company. Meanwhile, we are not likely to finance the activities of our variable interest entity by means of capital contributions because that would result in our variable interest entity being converted into a foreign-invested company, while foreign-invested companies engaged in insurance brokerage are subject to more stringent requirements than PRC domestic enterprises.

On March 30, 2015, SAFE issued the Circular of the State Administration of Foreign Exchange on Reforming the Administrative Approach Regarding the Settlement of the Foreign Exchange Capital of Foreign-invested Enterprises, or SAFE Circular 19, which took effect and replaced previous regulations effective June 1, 2015. Pursuant to SAFE Circular 19, up to 100% of foreign currency capital of a foreign-invested enterprise may be converted into RMB capital according to the actual operation, and within the business scope, of the enterprise at its will. Although SAFE Circular 19 allows for the use of RMB converted from the foreign currency-denominated capital for equity investments in the PRC, the restrictions continue to apply as to foreign-invested enterprises’ use of the converted RMB for purposes beyond the business scope, for entrusted loans or for inter-company RMB loans. If our variable interest entity requires financial support from us or our wholly owned subsidiary in the future and we find it necessary to use foreign currency-denominated capital to provide such financial support, our ability to fund our variable interest entity’s operations will be subject to statutory limits and restrictions, including those described above.

In light of the various requirements imposed by PRC regulations on loans to and direct investment in PRC entities by offshore holding companies, including SAFE Circular 19 and other relevant rules and regulations, 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 our variable interest entity 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 use the proceeds we received from our initial public offering and 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.

Risks Related to Doing Business in China

The laws and regulations governing the wealth management and asset management industries in China are developing and subject to further changes.

To date, the relevant regulatory authorities and AMAC have released many laws and regulations governing the wealth management and asset management industries in China, including regulations over private equity products, private securities investment funds, asset management plans managed by securities companies or mutual fund management companies, trust products and insurance products. However, these laws and regulations are subject to further changes and the PRC government has not yet adopted a unified regulatory framework yet.

As for our asset management business, as a result of a governmental reorganization in June 2013, the China Securities Regulatory Commission, or CSRC, is now in charge of the supervision and regulation of private funds, including, without limitation, private equity funds, venture capital funds, private securities investment funds and other forms of private funds. In February 2014, AMAC first promulgated the Measures for the Registration of Private Investment Fund Managers and Filling of Private Investment Funds (for Trial Implementation) which specify the procedure for registration of fund managers and record-filing of private funds. In August 2014, CSRC promulgated new regulations on private funds, which officially set up a qualified investor regime and a registration regime for fund managers before conducting fund management business as well as set up a system for the filing of records after the completion of fund raising. In April 2016, AMAC issued the Measures for the Administration of the Fund Raising Conducts of the Private Investment Funds, or Fund Raising Measures, which took effect on July 15, 2016. The Fund Raising Measures clearly stated that no institution or individual shall conduct fund raising activities except for (i) private fund managers registered with AMAC to raise fund for their own established or managed private fund, or (ii) the fund distributors which have obtained the fund distribution license and become members of the AMAC. On July 14, 2016, CSRC promulgated the Regulations on the Operation and Management of Private Asset Management Business by the Securities and Futures Institutions (for Trial Implementation), or Securities and Futures Institutions Operation and Management Regulations, and later AMAC correspondingly issued Rules on the Management of Private Asset Management Plan Filing by Securities and Futures Institutions No. 1–4, or No. 1-4 Filing Rules, covering the aspects of inspection and self-regulatory management, investment advice service provided by third parties, structured asset management plan and private asset management plans investing into real estate development enterprises or projects. Private securities investment fund managers shall follow Secures and Futures Institutions Operation and Management Regulations and No. 1-3 Filing Rules while No. 4 Filing Rules apply to all kinds of private fund managers. There is no definite answer on whether Securities and Futures Institutions Operation and Management Regulations and No. 1-3 Filing Rules will influence the regulator’s attitude towards the private equity investment fund or private venture capital investment fund and we cannot assure you that these regulations will not materially impact our business operations. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Private Funds.” In addition, CSRC and AMAC may adopt further detailed regulations and implementing policies that govern private funds and private fund managers. Since fund management business is a significant part of our asset management business, our asset management business is subject to such regulations on private funds and related implementation rules thereof.

As the regulators of the wealth management and asset management industries in China are tightening their supervision over the industry, applicable laws and regulations may be adopted to address new issues that arise from time to time or to require additional licenses and permits other than those we currently have obtained. For example, in February 2017, Chinese regulators released a draft version of the Guidance Opinions on Regulating the Asset Management Business of Financial Institutions, or the Asset Management Guidance Opinions. The draft Asset Management Guidance Opinions would require sellers of asset management investments to put aside rise reserve funds, restrict investments into non-standard assets, impose limits on leverage rates and place restrictions on channel-through products. Asset management investments covered by the draft Asset Management Guidance Opinions include wealth management products, trust plans, public funds, private funds and other asset management investments managed by securities companies, fund management companies or their subsidiaries, futures companies and insurance asset management companies. As a result, substantial uncertainties exist regarding the evolution of the regulatory regime and the interpretation and implementation of current and any future PRC laws and regulations applicable to the wealth management and asset management industry. To date, fifteen subsidiaries of our PRC variable interest entity, Shanghai Noah Investment Management Co., Ltd., or Noah Investment, and Noah Upright have successfully completed the registration with AMAC, while other subsidiaries of Noah Investment engaged in the fund management business are now in the process of registration with AMAC. As we develop our business, the products we manage or distribute might be subject to detailed regulations and implementing policies to be issued by CSRC in the future. Since asset management plans are part of our wealth management products, we cannot assure you that our asset management or wealth management business will not be materially and adversely affected if any supervisory authority enhances its regulation over asset management plans.

The laws and regulations governing the internet financial service industry in China are developing and subject to changes.

Due to the relatively short history of the internet financial service industry in China, the PRC government has not adopted a clear regulatory framework governing the industry. There are ad hoc laws and regulations applicable to elements of internet financial service-related businesses, such as laws and regulations governing payment related and value-added telecommunication services. For example, applicable laws and regulations in the PRC require a payment business license to conduct payment related businesses. We are cooperating with qualified third parties to provide such services. While our subsidiary Shanghai Noah Yijie Internet Technology Co. Ltd. has successfully obtained the required internet content provided license required for conducting its internet financial service business, there is no guarantee that we will be able to obtain the requisite licenses for all elements of our internet financial service business.

The internet financial service industry is becoming more regulated compared with the situation in the previous years. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Internet Finance.” As the internet financial service business in China is new and rapidly evolving, new laws and regulations may be adopted from time to time and we may be required to obtain additional licenses and permits beyond those we currently hold or are applying for. On July 18, 2015, the People’s Bank of China, together with nine other PRC regulatory agencies, jointly issued a series of policy measures applicable to the internet financial service industry titled the Guidelines on Promoting the Healthy Development of Internet Finance, or the Guidelines. The Guidelines formally introduced the regulatory framework and basic principles for the internet financial service industry in China, including but not limited to internet payment, online lending, equity crowd-funding, internet fund sales, internet insurance, internet trust and internet consumer finance. The General Office of PRC State Council issued the Implementation Plan for Special Rectification of Internet Financial Risks on April 12, 2016. Relevant regulatory authorities issued the Implementation Plan for Special Rectification of Peer-to-Peer Internet Lending Risks and Provisional Measures for Administration of Business Activities of Internet Lending Information Intermediaries. If new PRC internet financial service-related laws and regulations require us to comply with additional requirements in order to continue to conduct any aspect of our business operations, we may not be able to comply with such additional requirements in a timely fashion, or at all. In addition, we cannot guarantee that our current practices comply with all the regulations that may be or have been promulgated, and we may be fined or penalized by regulators, required to comply with additional requirements or ordered to cease operations due to any non-compliance in the future. If any of these situations occur, our business, financial condition and prospects would be materially and adversely affected.

We continually develop and offer new internet financial services to our clients. Our involvement in the small short-term loans business and internet financial service business subjects us to new laws and regulations with which we have limited previous experience. Pursuant to the laws and regulations relevant to the small short-term loans business, we must obtain approvals or licenses in order to provide small short-term loans, and the small short-term loans business must conducted within certain restricted territory under current regulations. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Small Short-Term Loan Business.” We have taken measures to comply with the applicable laws and regulations and obtain the licensing and permits that are applicable to our business operations. However, these laws, rules and regulations are issued by different central, provincial and local governments and enforced by different local authorities with broad discretion in implementing and enforcing the applicable laws, rules, regulations and governmental policies. As a result, there are uncertainties in the interpretation and implementation of such laws, rules, regulations and governmental policies, and occasionally, we have to depend on verbal clarifications from local government authorities. As such, we cannot assure you that our internet financial service business would not be deemed to violate any applicable PRC laws or regulations, that our internet financial services will comply with the applicable regulatory regime or that we will be able to maintain our existing licenses and permits, renew any of them when their current term expires or obtain additional licenses required for our future small short-term loan business expansion. If we fail to comply with any such laws or regulations, or if we otherwise become subject to enforcement actions under such laws or regulations, we may face significant monetary, reputational or other harm to our business, including fines, restrictions on our activities or revocation of our licenses.

If we fail to maintain or renew existing licenses or obtain additional licenses and permits necessary to conduct our operations in China, our business would be materially and adversely affected.

The current regulations under which we operate impose license or qualification requirements on non-financial institutions engaged in wealth management or asset management and the distribution of wealth management or asset management products. Additionally, certain licenses and qualifications are required in order to engage in insurance brokerage, the sale of mutual funds and asset management plans managed by mutual fund management companies or securities companies. Since 2014, we have been required to complete our registration with AMAC before conducting fund management activities, which is a significant part of our asset management business. Currently, Tianjin Gopher, Gopher Asset Management and their thirteen affiliated institutions, as well as Noah Upright, have completed the private investment fund manager registration with AMAC, and Noah Upright has received the fund distribution license. However, we cannot assure you that we will be able to fully comply with all the relevant regulatory requirements, and any failure to do so could have a material adverse effect on our business. In addition, no specific internet financial service licenses or permits are currently necessary to operate our internet financial service business in China, except that certain licenses are required to operate value-added telecom services and payment related services, such as an ICP license and payment business license. One subsidiary of Noah Investment has applied for and obtained an ICP License in March 2015.

New applicable laws and regulations and new interpretation of the existing laws and regulations may be adopted from time to time to address new issues that arise and additional licenses and permits may be required as the relevant government authorities implement additional regulations for the industry. For example, our subsidiary Enoch Education Training (Shanghai) Co., Ltd., or Enoch Education, who operates our high net worth client education business, may be required to get approval and permits from the competent education authority or the human resources and social security authority under the detailed implementation rules to be issued. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Private Schools.” We cannot assure you that we will be able to maintain our existing licenses and permits, renew any of them when their current term expires, or obtain additional licenses required for our future business expansion. If we are unable to maintain and renew one or more of our current licenses and permits, or obtain such renewals or additional licenses required for our future business expansion on commercially reasonable terms, our operations and prospects could be materially disrupted. We have engaged in frequent dialogues with relevant regulatory authorities in China in an effort to stay abreast of developments of the regulatory environment. However, if new PRC regulations promulgated in the future require that we obtain additional licenses or permits in order to continue to conduct our business operations, there is no guarantee that we would be able to obtain such licenses or permits in a timely fashion, or at all. If any of these situations occur, our business, financial condition and prospects would be materially and adversely affected.

Adverse changes in the political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.

The majority of our assets are located in China and the majority of our revenues are derived from our operations there. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the Chinese economy has experienced significant growth in the past 30 years, the growth has been uneven across different time periods, geographic regions and economic sectors. We cannot assure you that the Chinese economy will continue to grow, or that if there is growth, such growth will be steady and uniform, or that if there is a slowdown, such slowdown will not have a negative effect on our business.

The PRC government also exercises significant control over China’s economic growth through allocating resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. It is unclear whether PRC economic policies will be effective in stimulating growth, and the PRC government may not be effective in creating stable economic growth in the future. Any slowdown in the economic growth of China could lead to reduced demand for the products we distribute or manage, which could materially and adversely affect our business, as well as our financial condition and results of operations.

Uncertainties with respect to the PRC legal system could adversely affect us.

We conduct our business primarily through our PRC subsidiaries and variable interest entity in China. Our operations in China are governed by PRC laws and regulations. Our PRC subsidiaries are foreign-invested enterprises and are subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is a civil law system based on written statutes. Unlike a common law system, prior court decisions may be cited for reference but have limited precedential value. The PRC legal system is evolving rapidly, and the interpretation of many laws, regulations and rules may contain inconsistencies and enforcement of these laws, regulations and rules involves uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. However, since PRC judicial and administrative authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to predict the outcome of a judicial or administrative proceeding 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, but which may have retroactive effect. As a result, we may not always be aware of any potential violation of these policies and rules. Such unpredictability towards our contractual, property (including intellectual property) and procedural rights could adversely affect our business and impede our ability to continue our operations.

The audit reports included in this annual report are prepared by auditors who are not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

The independent registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S. Securities and Exchange Commission, as auditors of companies that are traded publicly in the United States and a firm registered with the U.S. Public Company Accounting Oversight Board, or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.

Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements, which may have a material adverse effect on our ADS price.

If additional remedial measures are imposed on the “big four” PRC-based accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging the firms’ failure to meet specific criteria set by the SEC, with respect to requests for the production of documents, we could be unable to timely file future financial statements in compliance with the requirements of the Securities Exchange Act of 1934.

Starting in 2011, the Chinese affiliates of the “big four” accounting firms, (including our independent registered public accounting firm) were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers and related documents. The firms were, however, advised and directed that under China law they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be channeled through CSRC.

In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules of Practice and also under the Sarbanes-Oxley Act of 2002 against the Chinese accounting firms, (including our independent registered public accounting firm). A first instance trial of the proceedings in July 2013 in the SEC’s internal administrative court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the firms including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the production of documents will normally be made to CSRC. The firms will receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to facilitate production via CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliance could include, as appropriate, an automatic six-month bar on a single firm’s performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases, the resumption of the current proceeding against all four firms.

In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the United States with major PRC operations such as us may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act, including possible delisting or deregistration. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding PRC-based, U.S.-listed companies and the market price of our ADSs may be adversely affected.

If our independent registered public accounting firm were denied, even temporarily, the ability to practice before the SEC and we were unable to timely find another registered public accounting firm to audit and issue an opinion on our financial statements, our financial statements could be determined not to be in compliance with the requirements of the Exchange Act of 1934, as amended. Such a determination could ultimately lead to the delisting of our ADSs from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our ADSs in the United States.

Fluctuations in exchange rates could have a material adverse effect the value of your investment.

The value of the Renminbi against the U.S. dollar and other currencies is affected by changes in China’s political and economic conditions and by China’s foreign exchange policies, among other things. In June 2010, the PRC government allowed the Renminbi to appreciate slowly against the U.S. dollar. However, starting from June 2015, the trend of appreciation changed and the Renminbi started to depreciate against the U.S. dollar gradually. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.

The majority of our sales contracts were denominated in Renminbi and marjority of our costs and expenses are denominated in Renminbi, while a portion of our financial assets, our convertible notes and our dividend payments are denominated in U.S. dollars. Very limited hedging options are available in China to reduce our exposure to exchange rate fluctuations, and we have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency. As a result, any significant revaluation of the Renminbi or the U.S. dollar may adversely affect our cash flows, earnings and financial position, and the value of, and any dividends payable on, our ADSs. For example, an appreciation of the Renminbi 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 Renminbi for such purposes. An appreciation of the Renminbi 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 Renminbi, our reporting currency. Conversely, if we decide to convert Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs, for payment of interest expenses or principal regarding the outstanding convertible notes, for strategic acquisitions or investments or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.

PRC foreign exchange control regulations restricting the conversion of Renminbi into foreign currencies may limit our ability to utilize our revenues effectively and affect the value of your investment.

The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive the majority of our revenues in Renminbi. Under our current corporate structure, we may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange control regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. Therefore, our PRC subsidiaries are currently able to pay dividends in foreign currencies to us without prior approval from SAFE by complying with certain procedural requirements. However, approval from or registration with appropriate government authorities is required where Renminbi 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. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to increase its registered capital or distribute profits to us, or may otherwise adversely affect us.

SAFE has promulgated several rules and regulations that require PRC residents and PRC corporate entities to register with and obtain approval from local branches of SAFE in connection with their direct or indirect offshore investment activities. According to the circular promulgated by SAFE which took effect on June 1, 2015, qualified banks possess the authority to register all PRC residents’ direct or indirect offshore investment activities in special purpose vehicles, except that those PRC residents who have failed to register or obtain approval will remain to fall into the jurisdiction of the local SAFE branch and must make their supplementary registration application with the local SAFE branch. These regulations apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

Under these foreign exchange rules and regulations, PRC residents are required to complete SAFE registration before contributing their legally owned onshore or offshore assets or equity interest into any special purpose vehicle, or SPV, directly established, or indirectly controlled, by them for the purpose of investment or financing. Such foreign exchange regulations and rules further require that when there is (a) any change to the basic information of the SPV, such as any change relating to its individual PRC resident shareholders, name or operation period or (b) any material change, such as increase or decrease in the share capital held by its individual PRC resident shareholders, a share transfer or exchange of the shares in the SPV, or a merger or split of the SPV, the PRC resident must register such changes on a timely basis.

However, as there is uncertainty concerning the reconciliation of these foreign exchange regulations with other approval requirements, it is unclear how these regulations, and any future regulation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to a more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the foreign exchange regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

We have requested PRC residents holding direct or indirect interests in our company to our knowledge to make the necessary applications, filings and amendments as required by these foreign exchange regulations. Such shareholders and beneficial owners have completed their initial registrations, in relation to their ownership in our company, and are in the process of completing the amendment registrations, in relation to their subsequent ownership changes in our Company and the establishment of certain subsidiaries of our Company after our initial public offering. We cannot assure you, however, that such amendment registration and filing will be duly completed with the local SAFE branch in a timely manner. In addition, we may not be informed of the identities of all the PRC residents holding direct or indirect interests in our company, and we cannot provide any assurances that all of our shareholders and beneficial owners who are PRC residents will make, obtain or update any applicable registrations or approvals required by these foreign exchange regulations. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth in these regulations may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiaries’ ability to distribute dividends to, or obtain foreign-exchange-dominated loans from, our company, or prevent us from being able to make distributions or pay dividends, as a result of which our business operations and our ability to distribute profits to you could be materially adversely affected.

Failure to comply with PRC regulations regarding the registration of share options held by our employees who are “domestic individuals” may subject such employee or us to fines and legal or administrative sanctions.

In January 2007, SAFE issued Implementing Rules for the Administrative Measures of Foreign Exchange Matters for Individuals, or the Individual Foreign Exchange Rule, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen’s participation in the employee stock ownership plans or stock option plans of an overseas publicly-listed company. On February 15, 2012, SAFE issued the Notices on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company, or the Stock Incentive Plan Rules, pursuant to which “domestic individuals” (both PRC residents and non-PRC residents who reside in the PRC for a continuous period of not less than one year, excluding foreign diplomatic personnel and representatives of international organizations) participating in any stock incentive plan of an overseas-listed company are required, through qualified PRC agents (which could be the PRC subsidiary of such overseas-listed company), to register with SAFE and complete certain other procedures related to the stock incentive plan.

We and our employees who are “domestic individuals” and have been granted share options, or the PRC optionees, became subject to the Stock Incentive Plan Rules when our company became an overseas-listed company upon the completion of our initial public offering. We and our PRC optionees have made registration as required under the Stock Incentive Plan Rules and intend to continue making such registration on an on-going basis and complete all the requisite procedures in accordance with the Stock Incentive Plan Rules. If we or our PRC optionees fail to comply with the Individual Foreign Exchange Rule and the Stock Incentive Plan Rules, we and/or our PRC optionees may be subject to fines and other legal sanctions. We may also face regulatory uncertainties that could restrict our ability to adopt additional option plans for our directors and employees under PRC law. In addition, the General Administration of Taxation has issued a few circulars concerning employee stock options. Under these circulars, our employees working in China who exercise stock options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those employees who exercise their stock options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or any other PRC government authorities. However, there are substantial uncertainties regarding the interpretation and implementation of the Individual Foreign Exchange Rule and the Stock Incentive Plan Rules. We cannot guarantee that our current practices will comply with future interpretations of the Individual Foreign Exchange Rule and the Stock Incentive Plan Rule, and any failure to comply could subject us to fines and other legal sanctions.

Any decrease in any of the government subsidies currently available to us in the PRC could adversely affect our financial condition and results of operations.

During the five years ended December 31, 2016, our PRC subsidiaries and variable interest entity and its subsidiaries were granted governmental financial subsidies, including RMB162.4 million for the year ended December 31, 2016. See Item 5. Operating and Financial Review and Prospects—A. Operating Results—Key Components of Results of Operations—Operating Costs and Expenses—Government Subsidies. We cannot assure you of the continued availability of the government incentives and subsidies currently enjoyed by some of our affiliated entities in China, including our variable interest entity, our PRC subsidiaries and their subsidiaries. Any decrease in these governmental incentives and subsidies could adversely affect our financial condition and results of operations.

The dividends we receive from our PRC subsidiaries may be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material adverse effect on our financial condition and results of operations. In addition, if we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.

Pursuant to the PRC Enterprise Income Tax Law, or the EIT Law, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. We are a Cayman Islands holding company and the majority of our income may come from dividends we receive, directly or indirectly, from our wholly foreign-owned PRC subsidiaries. Since there is currently no such tax treaty between China and the Cayman Islands, dividends we directly receive from our wholly foreign-owned PRC subsidiaries will generally be subject to a 10% withholding tax.

In addition, under the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, where a Hong Kong resident enterprise, which is considered a non-PRC tax resident enterprise, directly holds at least 25% of a PRC enterprise, the withholding tax rate in respect to the payment of dividends by such PRC enterprise to such Hong Kong resident enterprise is reduced to 5% from a standard rate of 10%, subject to approval of the PRC local tax authority. Accordingly, Noah Insurance (Hong Kong) Limited, or Noah HK, may be able to enjoy the 5% withholding tax rate for the dividends it receives from Shanghai Rongyao Information Technology Co., Ltd., or Noah Technology, and Kunshan Noah Xingguang Investment Management Co., Ltd., or Noah Xingguang, respectively, if they satisfy the conditions prescribed in relevant tax rules and regulations, and obtain the approvals as required. However, if the Hong Kong resident enterprise is not considered to be the beneficial owner of such dividends under applicable PRC tax regulations, such dividends may remain subject to withholding tax at a rate of 10%. If Noah HK is considered to be a non-beneficial owner for purposes of the tax arrangement, any dividends paid to it by our wholly foreign-owned PRC subsidiaries directly would not qualify for the preferential dividend withholding tax rate of 5%, but rather would be subject to a rate of 10%. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Tax—Dividend Withholding Tax.”

Furthermore, under the EIT Law and the Implementation Rules to the PRC Enterprise Income Tax Law, or Implementation Rules, an enterprise established outside of the PRC with its “de facto management body” within the PRC is considered a PRC resident enterprise and will be subject to PRC enterprise income tax on its global income at the rate of 25%. See “Item 4. Information on the Company—B. Business Overview—Regulations—Regulations on Tax—PRC Enterprise Income Tax.” We do not believe that Noah Holdings Limited or any of its subsidiaries outside of China is a PRC resident enterprise for the year ended December 31, 2016, because neither we nor they are controlled by a PRC enterprise or PRC enterprise group, and because our records and their records (including the resolutions of the respective boards of directors and the resolutions of shareholders) are maintained outside the PRC. However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body”. If the PRC tax authorities determine that Noah Holdings Limited or any of its subsidiaries outside of China is a PRC resident enterprise for PRC tax purposes, they would be subject to a 25% PRC enterprise income tax on their global income. In addition, if Noah Holdings Limited is considered a PRC resident enterprise for PRC tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-PRC resident enterprises, including the holders of our ADSs. Furthermore, non-PRC resident enterprise shareholders (including our ADS holders) may be subject to a 10% PRC tax on gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders (including our ADS holders) would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to such dividends or gains, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether our non-PRC shareholders would be able to claim the benefits of any tax treaty between their country of tax residence and the PRC in the event that we are considered as a PRC resident enterprise. If we are required to withhold such PRC income tax under the EIT Law, your investment in our Class A ordinary shares or ADSs may be materially and adversely affected.

We face uncertainties with respect to the application of the Circular on Strengthening the Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises.

The State Administration of Taxation, or SAT, has issued several rules and notices to tighten the scrutiny over acquisition transactions in recent years, including the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises issued in December 2009 with retroactive effect from January 1, 2008, or SAT Circular 698, the Notice on Several Issues Regarding the Income Tax of Non-PRC Resident Enterprises promulgated issued in March 28, 2011, or SAT Circular 24, and the Notice on Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-PRC Resident Enterprises issued in February 2015, or SAT Circular 7. Pursuant to these rules and notices, if a non-PRC resident enterprise indirectly transfers PRC taxable properties, referring to properties of an establishment or a place in the PRC, real estate properties in the PRC or equity investments in a PRC tax resident enterprise, by disposition of equity interest in an overseas non-public holding company, without a reasonable commercial purpose and resulting in the avoidance of PRC enterprise income tax, such indirect transfer should be deemed as a direct transfer of PRC taxable properties and gains derived from such indirect transfer may be subject to the PRC withholding tax at a rate of up to 10%. SAT Circular 7 has listed several factors to be taken into consideration by the tax authorities in determining whether an indirect transfer has a reasonable commercial purpose. However, in spite of these factors, an indirect transfer satisfying all the following criteria shall be deemed to lack reasonable commercial purpose and be taxable under the PRC laws: (i) 75% or more of the equity value of the overseas enterprise being transferred is derived directly or indirectly from the PRC taxable properties; (ii) at any time during the one-year period before the indirect transfer, 90% or more of the asset value of the overseas enterprise (excluding cash) is comprised directly or indirectly of investments in the PRC, or 90% or more of its income is derived directly or indirectly from the PRC; (iii) the functions performed and risks assumed by the overseas enterprise and any of its subsidiaries that directly or indirectly hold the PRC taxable properties are limited and are insufficient to prove their economic substance; and (iv) the foreign tax payable on the gain derived from the indirect transfer of the PRC taxable properties is lower than the potential PRC tax on the direct transfer of such assets. Nevertheless, an indirect transfer falling into the scope of certain safe harbors under SAT Circular 7 may not be subject to PRC tax. Such safe harbors include qualified group restructuring, public market trading and tax treaty exemptions.

Under SAT Circular 7, the entities or individuals obligated to pay the transfer price to the transferor shall be withholding agents and shall withhold the PRC tax from the transfer price. If a withholding agent fails to do so, the transferor shall report to and pay the PRC tax to the PRC tax authorities. In case neither a withholding agent nor the transferor complies with the obligations under SAT Circular 7, other than imposing penalties such as late payment interest on the transferors, the tax authority may also hold a withholding agent liable and impose a penalty of 50% to 300% of the unpaid tax on the withholding agent, provided that such penalty imposed on the withholding agent may be reduced or waived if the withholding agent has submitted the relevant materials in connection with the indirect transfer to the PRC tax authorities in accordance with SAT Circular 7.

However, as there is a lack of clear statutory interpretation on the implementation of these rules and notices, there is no assurance that the tax authorities will not apply SAT Circular 698, SAT Circular 24 and SAT Circular 7 to previous investments by non-PRC resident investors in our company or our pre-listing restructuring, if any of such transactions were determined by the tax authorities to lack reasonable commercial purpose. As a result, we and our existing non-PRC resident investors may be at risk of being taxed under these rules and notices and may be required to expend valuable resources to comply with or to establish that we should not be taxed under such rules and notices, which may have a material adverse effect on our financial condition and results of operations or such non-PRC resident investors’ investments in us. We have conducted and may conduct acquisitions involving corporate structures, and historically our shares were transferred by certain then shareholders to our current shareholders. We cannot assure you that the PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing obligations on us or require us to provide assistance for the investigation of PRC tax authorities with respect thereto. Any PRC tax imposed on a transfer of our shares or any adjustment of such gains would cause us to incur additional costs and may have a negative impact on the value of your investment in us.

The enforcement of the Labor Contract Law, Social Insurance Law and other labor-related regulations in the PRC may adversely affect our business and our results of operations.

In June 2007, the National People’s Congress of China enacted the Labor Contract Law, which became effective in January 2008 and was subsequently amended in July 2013. The Labor Contract Law establishes more restrictions on and increases costs for employers to dismiss employees, including specific provisions related to fixed-term employment contracts, temporary employment, probation, consultation with the labor union and employee assembly, employment without a contract, dismissal of employees, compensation upon termination and overtime work and collective bargaining. According to the Labor Contract Law, an employer is obliged to sign a labor contract with unlimited term with an employee if the employer continues to hire the employee after the expiration of two consecutive fixed-term labor contracts, subject to certain conditions, or after the employee has worked for the employer for ten consecutive years. The employer is also required to pay compensation to an employee if the employer terminates an unlimited-term labor contract. Such compensation is also required when the employer refuses to renew a labor contract that has expired, unless it is the employee who refuses to extend the expired contract. In addition, under the Regulations on Paid Annual Leave for Employees, which became effective in January 2008 and the Implementation Rules on Paid Annual Leave for Employees, which became effective in September 2008, employees who have served more than one year for an employer are entitled to a paid vacation ranging from 5 to 15 days, depending on their length of service. Employees who are deprived of such vacation time by employers shall be compensated with three times their regular salaries for each of such vacation days, unless it is the employees who waive such vacation days in writing. Since our success largely depends on our qualified employees, the implementation of the Labor Contract Law may significantly increase our operating expenses, in particular our personnel expenses. In the event that we decide to lay off a large number of employees or otherwise change our employment or labor practices, the Labor Contract Law may also limit our ability to effect these changes in a manner that we believe to be cost-effective or desirable, which could adversely affect our business and results of operations.

In addition, enterprises in China are required by PRC laws and regulations, including the Social Insurance Law, to participate in a housing provident fund for employees and in certain employee benefit plans, including social insurance funds like a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan. Employers are required to contribute to the funds or plans in amounts equal to certain percentages of employees’ salaries, including bonuses and allowances, as specified from time to time by the local governments in places where they operate their businesses or where they are located.

We cannot assure you that our employment practices do not or will not violate these labor-related laws and regulations. If we are deemed to have been non-compliant with any such laws and regulations or to have failed to make adequate contributions to any social insurance schemes, we may be subject to penalties and negative publicity, and our business, results of operations and prospects may be materially adversely affected.

Risks Related to our ADSs

The market price for our ADSs may continue to be volatile.

The trading prices of our ADSs have been, and are likely to continue to be, volatile and could fluctuate widely due to factors beyond our control. The trading prices of our ADSs ranged from US$20.38 to US$28.85 in 2016. This was partly because of broad market and industry factors, such as the performance and fluctuation in the market prices or the underperformance or declining financial results of other companies based in China that have listed their securities in the United States in recent years. 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, securities markets may from time to time experience significant price and volume fluctuations that may or may not relate to our operating performance, which may have a material and adverse effect on the market price of our ADSs. In particular, the recent volatility in the PRC stock markets has resulted in volatility in the trading prices of most PRC-based companies who shares trade in the United States. Any other 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. Furthermore, the market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:

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regulatory developments in our target markets affecting us, our clients or our competitors;

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announcements of studies and reports relating to the quality of our products and services or those of our competitors;

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changes in the performance or market valuations of other companies that provide wealth management services;

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actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;

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changes in financial estimates by securities research analysts;

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conditions in the wealth management services industry;

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announcements by us or our competitors of new services, acquisitions, strategic relationships, joint ventures or capital commitments;

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addition or departure of our senior management;

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fluctuations of exchange rates between the Renminbi and the U.S. dollar;

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release or expiry of transfer restrictions on our outstanding ordinary shares or ADSs; and

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sales or perceived potential sales of additional ordinary shares or ADSs.

Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.

Our co-founders, Ms. Jingbo Wang and Mr. Zhe Yin, have considerable influence over important corporate matters. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. Each Class A ordinary share is entitled to one vote and each Class B ordinary share is entitled to four votes on all matters that are subject to shareholder vote. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Due to the disparate voting powers associated with our two classes of ordinary shares, as of April 13, 2017, Ms. Jingbo Wang and Mr. Zhe Yin beneficially owned 30.4% of our share capital and controlled 63.3% of the aggregate voting power of our company. As a result, Ms. Jingbo Wang and Mr. Zhe Yin have considerable influence over matters such as electing directors and approving material mergers, acquisitions or other business combination transactions, and they may take actions that are not in the best interest of us or our other shareholders. This concentrated control will limit your ability to influence corporate matters and could also discourage others from pursuing any potential merger, takeover or other change of control transactions, which could have the effect of depriving the holders of our Class A ordinary shares and our ADSs of the opportunity to sell their shares at a premium over the prevailing market price and could result in a reduction in the price of our ADSs.

Our board of directors, which has complete discretion as whether to distribute dividends, does not currently plan to pay any dividends. Therefore, you should not rely on an investment in our ADSs as a source of future dividend income.

Our board of directors has complete discretion as to whether to distribute dividends, subject to our articles of association and Cayman Islands law. In addition, our shareholders by ordinary resolution may declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Under Cayman Islands law, a Cayman Islands company may pay a dividend on its shares out of either profit or share premium amount, provided that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future 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. Although we declared an annual cash dividend for 2012 and 2013, we may not declare any dividend in the future, and even if we do so, any future dividend may be less than those declared in 2012 and 2013. Therefore, you should not rely on an investment in our ADSs as a source of future dividend income. Accordingly, the return on your investment in our ADSs will likely depend entirely upon any future price appreciation of our ADSs. There is no guarantee that our ADSs will appreciate in value or even maintain their current price.

Substantial future sales or perceived potential sales of our ADSs in the public market could cause the price of our ADSs to decline.

Additional sales of our ADSs or Class A ordinary shares in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. As of April 13, 2017, we had 19,841,328 Class A ordinary shares outstanding, including 15,021,328 Class A ordinary shares represented by ADSs. Except for the restricted ADSs representing 3,800,001 Class A ordinary shares held by affiliates of Sequoia Capital China, the rest of our ADSs are freely transferable without restriction or additional registration under the U.S. Securities Act of 1933, as amended, or the Securities Act. The remaining Class A ordinary shares outstanding are available for sale, subject to volume and other restrictions as applicable under Rules 144 and 701 under the Securities Act.

Certain holders of our Class A ordinary shares have the right to cause us to register under the Securities Act the sale of their shares. Registration of these shares under the Securities Act would result in ADSs representing these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the form of ADSs in the public market could cause the price of our ADSs to decline.

Our memorandum and articles of association contain provisions that could discourage a third party from seeking to obtain control of our company, which could adversely affect the interests of holders of our Class A ordinary shares and ADSs by limiting their opportunities to sell them at a premium.

Our memorandum and articles of association contain certain provisions that could limit the ability of others to acquire control of our company, including provisions that create a class of super-voting stock in the form of Class B ordinary shares and grant to our board of directors the authority to establish and issue from time to time one or more series of preferred shares, and to designate the price, rights, preferences, privileges and restrictions of such preferred shares, without any further vote or action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series which may be greater than the rights of our Class A ordinary shares. The provisions could have the effect of depriving holders of our Class A ordinary shares or ADSs of the opportunity to sell their shares or ADSs at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transactions.

Provisions of our convertible notes could discourage an acquisition of us by a third party.

In February 2015, we completed an issuance of US$80 million in aggregate principal amount of convertible notes. The convertible notes bear interest at a rate of 3.5% per annum from the issuance date, mature in February 2020 and are convertible, at the holders’ option, at an initial conversion price of US$23.03 per ADS, subject to adjustments. Certain provisions of our convertible notes could make it more difficult or more expensive for a third party to acquire us. The indentures for these convertible notes define a “fundamental change” to include, among other things: (1) any person or group gaining control of our company; (2) any recapitalization, reclassification or change of our Class A ordinary shares or the ADSs as a result of which these securities would be converted into, or exchanged for, stock, other securities, other property or assets; (3) the adoption of any plan relating to the dissolution or liquidation of our company; or (4) our ADSs ceasing to be listed on a major U.S. national securities exchange. Upon the occurrence of a fundamental change, holders of these notes will have the right, at their option, to require us to repurchase all of their notes or any portion of the principal amount of such notes of at least US$15,000,000 or such lesser amount then held by the holders. In the event of a fundamental change, we may also be required to issue additional ADSs upon conversion of our convertible notes.

You may not have the same voting rights as the holders of our Class A ordinary shares and may not receive voting materials in time to be able to exercise your 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 represented by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. 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.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not receive cash dividends if it is impractical to make them available to you.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you 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 agreement, the depositary will not make rights available to you 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, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our Class A ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property to you.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary 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 agreement, or for any other reason.

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, we conduct the majority of our operations in China and all of our directors and officers reside outside the United States.

We are incorporated in the Cayman Islands, and conduct the majority of our operations in China through our PRC subsidiaries and variable interest entity. All of our directors and officers reside outside the United States and a substantial portion of their assets are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. We have been advised by Maples and Calder (Hong Kong) LLP, our counsel as to Cayman Islands law, that although there is no statutory recognition in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits, through an action on the foreign judgment commenced in Grand Court of the Cayman Islands, based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign money judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be (i) in respect of taxes or a fine or penalty or similar fiscal or revenue obligations, (ii) inconsistent with a Cayman Islands judgment in respect of the same matter, (iii) impeachable on the grounds of fraud or (iv) obtained in a manner, nor be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

Our corporate affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and by the Companies Law of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take legal action against us and our directors, actions by minority shareholders and the fiduciary duties of our directors 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 provides 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 than the United States and provides significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in U.S. federal courts.

As a result, our public shareholders and holders of our ADSs may have more difficulty in protecting their interests through actions against us, our management, our directors or our major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.

We may be classified as a passive foreign investment company under U.S. tax law, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or Class A ordinary shares.

A non-U.S. corporation, such as our company, will be a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (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.

Although the application of these rules is unclear in many important respects, based on the price of our ADSs, the value of our assets, and the composition of our income and assets for the taxable year ended December 31, 2016, we believe that we were not a PFIC for that year. However, the U.S. Internal Revenue Service, or the IRS, does not issue rulings with respect to PFIC status, and there can be no assurance that the IRS, or a court, will agree with our determination. For example, because there are uncertainties in the application of the relevant rules, it is possible that the IRS may successfully challenge our classification of certain income and assets as non-passive, which may result in our company being treated as a PFIC. If we are treated as a PFIC with respect to a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—Certain Material U.S. Federal Income Tax Considerations”) for any year during which such U.S. Holder holds our ADSs or Class A ordinary shares, such U.S. Holder may be subject to certain adverse U.S. federal income tax consequences and related reporting requirements. For example, if we are treated as a PFIC with respect to a U.S. Holder, such U.S. Holder would generally be taxed at the higher ordinary income rates, rather than the lower capital gain rates, if such U.S. Holder disposes of ADSs or Class A ordinary shares at a gain in a later year, even if we are not a PFIC in that year. In addition, a portion of the tax imposed on such U.S. Holder’s gain would be increased by an interest charge. Also, if we are treated as a PFIC with respect to a U.S. Holder in any taxable year, such U.S. Holder would generally not be able to benefit from any preferential tax rate (if any) with respect to any dividend distribution that such U.S. Holder may receive from us in that year or in the following years. Certain elections may be available, however, that would mitigate these adverse tax consequences to varying degrees.

We must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year. Accordingly, we cannot assure you that we will not be a PFIC for our current taxable year ending December 31, 2017, or for any future taxable year. Under circumstances where we determine not to deploy significant amounts of cash for active purposes or where the market price of our ADSs or Class A ordinary shares declines, our risk of becoming a PFIC may substantially increase. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in any financing activities. In the event that we determine that we are not a PFIC in 2017 or in a future taxable year, there can be no assurance that the IRS or a court will agree with our determination.

Further, although the law in this regard is unclear, we treat our consolidated affiliated entities as being owned by us for U.S. federal income tax purposes, not only because we control their management decisions but also because we are entitled to substantially all of the economic benefits associated with them, and, as a result, we consolidate their operating results in our consolidated, GAAP financial statements. If it were determined, however, that we are not the owner of these entities for U.S. federal income tax purposes, then we would likely be treated as a PFIC.

If we are a PFIC for any year during which a U.S. Holder holds our ADSs or Class A ordinary shares, we generally (unless you make a valid mark-to-market election with respect to the ADSs as discussed under “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations and Rules”) will continue to be treated as a PFIC with respect to such U.S. Holder for all succeeding years during which such U.S. Holder holds our ADSs or Class A ordinary shares unless we cease to be a PFIC and the U.S. Holder makes a “deemed sale” election with respect to the ADSs or Class A ordinary shares, as applicable (in which case, special rules apply). You are urged to consult your tax advisor concerning the U.S. federal income tax consequences of acquiring, holding and disposing of our ADSs or Class A ordinary shares. For more information see “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Considerations and Rules.”

The U.S. Foreign Account Tax Compliance Act and the Common Reporting Standard could subject us to certain new information reporting and withholding requirements.

The United States has passed the Foreign Account Tax Compliance Act, or FATCA, that imposes a new reporting regime and, potentially, a 30% withholding tax on certain U.S.-source payments made to certain non-U.S. entities. In general, the 30% withholding tax applies to certain payments made to a non-U.S. financial institution unless such institution is treated as deemed compliant or enters into an agreement with the U.S. Treasury to report, on an annual basis, information with respect to certain interests in, and accounts maintained by, the institution to the extent such interests or accounts are held by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by certain U.S. persons and to withhold on certain payments. The 30% withholding tax also generally applies to certain payments made to a non-financial non-U.S. entity that does not qualify under certain exemptions unless such entity either (i) certifies that such entity does not have any “substantial United States owners” or (ii) provides certain information regarding the entity’s “substantial United States owners.” An intergovernmental agreement between the United States and another country may also modify these requirements. The Cayman Islands has entered into a Model 1 intergovernmental agreement with the United States, which gives effect to the automatic tax information exchange requirements of FATCA, and a similar intergovernmental agreement with the United Kingdom. We will be required to comply with the Cayman Islands Tax Information Authority Law (2014 Revision) (as amended) together with regulations and guidance notes made pursuant to such law that give effect to the intergovernmental agreements with the United States and the United Kingdom. We do not believe FATCA will have a material impact on our business or operations, but because FATCA is particularly complex and the intergovernmental agreement with the PRC, though agreed to in substance, has not been published, and PRC regulations or guidance notes have not been published, we cannot assure you that we will not be adversely affected by this legislation in the future.

Similarly, the Organisation for Economic Cooperation and Development has developed a Common Reporting Standard, or CRS, and model competent authority agreement to enable the multilateral and automatic exchange of financial account information, which were adopted by China and Hong Kong effective January 1, 2017. CRS and its implementing legislations in China and Hong Kong will require financial institutions to identify and report the tax residency and account details of non-resident customers to the relevant authorities in jurisdictions adhering to CRS. While CRS was modelled after FATCA, the scope, coverage and volume under CRS are significantly greater than that under FATCA. As such, even if FATCA does not have a material impact on our business or operations, we cannot assure you that we will not be adversely affected by the information reporting and withholding requirements imposed by CRS and its implementing legislations in China and Hong Kong in the future.

ITEM 4

INFORMATION ON THE COMPANY

A.	History and Development of the Company

We are an exempted company incorporated with limited liability under the laws of the Cayman Islands with subsidiaries and affiliated entities primarily in China. In August 2005, our founders started our business through the incorporation of Shanghai Noah Investment Management Co., Ltd., or Noah Investment, a domestic company in China. During the past few years, we have gradually transitioned from a consulting services provider focusing on wealth management to a comprehensive integrated financial services group with capabilities in wealth management, asset management and internet financial services.

We conduct our wealth management business in China primarily through our subsidiaries, Noah Xingguang and Noah Financial Services. Our asset management business and certain other restricted business in China are conducted through Noah Investment and its subsidiaries. We conduct our overseas wealth management and asset management business through Noah Holdings (Hong Kong) Limited, our subsidiary in Hong Kong. We conduct our small short-term loan business through Noah Financial Express (Wuhu) Microfinance Co., Ltd, our subsidiary in the PRC. We primarily conduct our internet financial service business through Shanghai Noah Yijie Finance Technology Co., Ltd. We conduct our commercial factoring business through Noah Commercial Factoring Co., Ltd., or Noah Factoring, and our high net worth client education business through Enoch Education, both majority-owned subsidiaries of Noah Group.

In August 2007 and January 2008, we issued an aggregate of 2,950,000 Series A preferred shares, par value US$0.001 per share, to Sequoia entities for US$3.9 million. Sequoia entities refer to Sequoia Capital China I, L.P., Sequoia Capital China Partners Fund I, L.P. and Sequoia Capital China Principals Fund I, L.P. Each Series A preferred share was automatically converted to two ordinary shares in connection with our initial public offering in November 2010. On November 10, 2010, our ADSs began trading on the New York Stock Exchange under the ticker symbol “NOAH.” We issued and sold a total of 9,660,000 ADSs, representing 4,830,000 ordinary shares, at an initial offering price of US$12.00 per ADS.

In February 2015, we completed an issuance of US$80.0 million in aggregate principal amount of convertible notes due 2020 through a private placement. The notes were offered to certain non-U.S. persons in compliance with Regulation S under the Securities Act. The notes will be convertible into our ADSs based at an initial conversion rate of 43.4216 of our ADSs per $1,000 principal amount of notes (which is equivalent to an initial conversion price of approximately US$23.03 per ADS). The conversion rate is subject to adjustment upon the occurrence of certain events. The notes will bear interest at a rate of 3.50% per annum, payable semiannually in arrears on February 3 and August 3 of each year, beginning on August 3, 2015. The notes will mature on February 3, 2020, unless previously repurchased or converted in accordance with their terms prior to such date.

In July 2015, Beijing Sequoia Mingde Equity Investment Center (Limited Partnership), or Sequoia Mingde, an affiliate of Sequoia Capital China, acquired 9.8% of the equity interests of Shanghai Noah Yijie Finance Technology Co., Ltd., the subsidiary through which we primarily conduct our internet financial service business, at a purchase price of RMB31.6 million. The ownership interest of Sequoia Mingde was diluted to 8.6% by the acquisition by Shanghai Qinjie Investment (Limited Partnership), a fund managed by Shanghai Gopher, which acquired 9.88% of the equity interests of Shanghai Noah Yijie Finance Technology Co., Ltd in December 2016.

On January 29, 2016, our shareholders voted in favor of a proposal to adopt a dual-class share structure, pursuant to which our authorized share capital was reclassified and re-designated into Class A ordinary shares and Class B ordinary shares, with each Class A ordinary share being entitled to one vote and each Class B ordinary share being entitled to four votes on all matters that are subject to shareholder vote.

In December 2016, Sequoia Mingde acquired 8% of the equity interests of Gopher International Limited (“New Gopher”), a newly established subsidiary of us, at a purchase price of RMB336 million, with a precondition that all unrestricted asset management business should be transferred from Gopher Asset Management (“Old Gopher”) to New Gopher (the “business restructuring”). In addition, Sequoia Mingde provided a RMB 12 million non-interest bearing loan to Gopher Asset Management, and has the right to convert the loan to no less than 8% of the equity interests of Old Gopher before finalization of the business restructuring. The total investment, including the loan, is redeemable by Sequoia Mingde at a price equal to the initial investment plus a compound annual interest rate of 8% if the business restructuring fails.

Our principal executive offices are located at No. 1687 Changyang Road, Changyang Valley, Building 2, Shanghai 200090, People’s Republic of China. Our telephone number at this address is (86) 21 8035-9221. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc. located at 400 Madison Avenue, 4^th Floor, New York, NY 10017.

B.	Business Overview

Overview

We are a leading wealth and asset management service provider in China with a focus on global investment and asset allocation services for high net worth individuals and enterprises. We also provide internet financial services through a proprietary internet financial service platform targeting mass affluent individuals in China. We believe our wealth management, asset management and internet financial services businesses complement one another and enable us to provide a broad range of customized financial solutions to our clients.

Our business has grown substantially since our inception in 2005. Our wealth management coverage network increased from six relationship managers in one city in 2005 to 1,169 relationship managers in 185 branch and sub-branch offices covering 71 cities as of December 31, 2016, encompassing China’s most economically developed regions where its high net worth population is concentrated, including the Yangtze River Delta, the Pearl River Delta, the Bohai Rim and other regions. Our total number of registered clients increased from 930 to 135,396 during the same period. Over the past five years, we achieved significant growth, which we believe reflects the quality of our product choices and services and the increasing wealth management needs of China’s high net worth population. Our asset management business also achieved solid performance, with our 2016 year-end AUM reaching RMB120.9 billion, a CAGR of 97.8% over the last 5 years. The table below sets forth information relating to certain of our performance indicators for each of the periods presented:


	Years Ended December 31,
	2014				2015				2016
	Statistics		Year- over-Year Change (%)		Statistics		Year- over-Year Change (%)		Statistics		Year- over-Year Change (%)
Total transaction value (RMB in millions)		63,371		42.4		98,994		56.2		101,385		2.4
AUM (RMB in millions)		49,700		58.8		86,652		74.3		120,929		39.6
Number of registered clients		70,557		31.9		99,019		40.3		135,396		36.7
Number of active clients		9,010		39.8		12,573		39.5		12,027		(4.3	)
Number of internet financial services clients		28,985		—		277,372		857.0		402,815		45.2

We believe that our product sophistication, along with knowledge of our clients’ needs, has enabled us to consistently develop innovative new products and services, including factoring products, high-end investor education services and offshore trust services, which cater to the needs of our client base, which primarily consists of China’s high net worth population.

Our wealth management business primarily offers wealth management products and services, including fixed income products, private equity products, secondary market products and insurance products, among others. Through our rigorous product selection and risk management processes, we are able to offer our clients a wide array of wealth management products and services. From our inception in 2005 to December 31, 2016, we distributed RMB380.8 billion (US$60.0 billion) worth of products through our wealth management business. We deliver to our high net worth clients a continuum of value-added services before, during and after we distribute and offer wealth management products to them. These services include financial planning, product analysis and recommendation, product and market updates and investor education.

In 2010, we have expanded our business scope to include asset management through our subsidiary, Gopher Asset Management. As a leading alternative asset manager in China, Gopher Asset Management develops and manages private equity, real estate, secondary market and other investments denominated in both Renminbi and foreign currencies, and its total assets under management (AUM) amounted to RMB120.9 billion (US$17.4 billion) as of December 31, 2016. In addition, in the second quarter of 2014, we launched a proprietary internet financial service platform targeting mass affluent individuals in China, which constitutes part of our internet financial service business that also includes small short-term loans and online payment related businesses. The aggregate value of financial products distributed by us through our internet financial service platform in 2016 was RMB20.1 billion (US$2.9 billion).

We generate revenues from our wealth management business primarily in the form of (1) one-time commissions paid by our product providers, underlying corporate borrowers or clients, (2) recurring service fees paid by our product providers, underlying corporate borrowers or clients, (3) and sharing of performance-based income earned by managers who manage the funds and products. We generate revenues from our asset management business primarily in the form of (1) recurring service fees mainly consisting of management fees, and (2) performance-based fees from some of the funds we serve as the fund manager. Such commissions and recurring service fees are calculated based on the value of the relevant wealth management products and services we distribute or offer to our active clients. Our one-time commissions accounted for 37.4%, 36.7% and 44.2% of our net revenues in 2014, 2015 and 2016, respectively, our recurring service fees accounted for 54.4%, 46.4% and 48.8% of our net revenues in 2014, 2015 and 2016, respectively, and our performance-based fees accounted for 6.2%, 11.1% and 2.3% of our net revenues in 2014, 2015 and 2016, respectively. We also generated revenues from other services, including (i) service income from our internet financial service business, which accounted for 0.4% of our net revenues in 2016, (ii) interest payments from small short-term loans, which accounted for 1.0% of our net revenues in 2016 and (iii) payment-related service income, which accounted for 0.6% of our net revenues. We are a holding company and we primarily operate our business through our PRC subsidiaries and our variable interest entity and its subsidiaries in China. While our PRC subsidiaries directly conduct our wealth management business, we currently conduct our onshore insurance brokerage business, asset management business and certain other restricted services in China exclusively through Noah Investment and its subsidiaries. We exercise effective control over the operations of Noah Investment pursuant to a series of contractual arrangements, under which we are entitled to receive substantially all of its economic benefits.

In 2014, 2015 and 2016, our variable interest entity and its subsidiaries contributed 37.1%, 45.9% and 17.3% of our net revenues, respectively. The increase in the percentage of revenue contribution by our variable interest entity and subsidiaries from 2013 to 2015 was primarily due to the rapid development of our asset management services since 2012, which were conducted by the subsidiaries of our variable interest entity. In 2016, the decrease in the percentage of net revenues contributed by our variable interest entity and its subsidiaries was largely attributable to the restructuring of Noah Upright, through which we distribute our fund products, to be a subsidiary of Noah Financial Services rather than a subsidiary of our variable interest entity.

Products and Services

We are a leading wealth and asset management service provider in China with a focus on global investment and asset allocation services for high net worth individuals and enterprises. Substantially all our RMB-denominated products are managed and distributed in China while our Hong Kong subsidiary, Noah Holdings (Hong Kong) Limited, serves as our offshore product and service center where substantially all USD-denominated and other foreign currency denominated products are managed and distributed. Our offices in Taiwan and US serve mainly as research and product sourcing centers complementing our asset management operations in China and Hong Kong. We also provide internet financial services through a proprietary internet financial service platform targeting mass affluent individuals in China.

Wealth Management

Our wealth management business offers wealth management products and provides comprehensive financial services to high net worth individuals and enterprise and institutional clients in China. Under both our onshore and offshore wealth management business, we primarily distribute fixed income products, private equity products, secondary market products and insurance products. Through our rigorous product selection and risk management processes, we screen products and services from a wide array of providers and vendors. To date, we have distributed products of over 357 product providers. From our inception in 2005 to December 31, 2016, we distributed RMB380.8 billion (US$60.0 billion) worth of wealth management products in aggregate.

We market and distribute the following categories of onshore and offshore wealth management products based on the underlying asset classes:

•

Fixed income products, mainly including (i) corporate credit products, (ii) real estate credit funds, (iii) alternative credit products, including factoring products and (iv) mezzanine financing products linked to corporate merger and acquisitions and buyouts, among others, all of which provide investors with prospective fixed rates of return, which is not guaranteed under PRC laws;

•

Private equity products, including investments in (i) various private equity funds sponsored by domestic and international asset/fund management firms, (ii) real estate equity funds, and (iii) private equity funds of funds;

•

Secondary market equity fund products, the underlying assets of which are portfolios of equity investments in listed enterprises; and

•

Other products, including wealth management products or services which we distribute or provide or manage but cannot be classified into any of the aforementioned product categories.

The table below summarizes certain information relating to the transaction value of the different types of wealth management products that we distributed during the periods indicated:


	Year Ended December 31,
	2014				2015				2016
	RMB in millions		%		RMB in millions		%		RMB in millions		US$ in millions		%
Product type
Fixed income products		40,212		63.5		36,621		37.0		64,494		9,289		63.6
Private equity fund products		11,971		18.9		31,917		32.2		27,545		3,967		27.2
Secondary market equity fund products		10,328		16.3		28,054		28.4		7,846		1,130		7.7
Other products		860		1.3		2,402		2.4		1,499		216		1.5

All products		63,371		100.0		98,994		100.0		101,385		14,602		100.0

In February 2012, Noah Upright received a license for distributing fund products from CSRC and expanded its scope of business to include mutual fund distribution, which further diversified our product choices. In addition to offering traditional financial products and services, we also provide clients with more value-added services. Established in 2013, our subsidiary Enoch Education has developed its high-end education business steadily through the years. In 2016, Enoch launched a series of trainings for over 5,740 clients. The “Enoch wealth management class”, which educates investors on market cycles, economic trends and portfolio investment philosophy, has been well received by our customers. Also in 2016, we introduced our offshore trust services in Jersey Island to our ultra-high net worth clients with estate planning needs via our subsidiary Ark Trust (Jersey) Limited.

Our Clients

We define our two primary categories of clients as follows: (i) registered individual clients and (ii) enterprises and institutional clients. Our primary business is distribution to high net worth individual clients, which contributed to approximately 77.9%, 77.5% and 82.4% of our total revenues in 2014, 2015 and 2016, respectively. Our distribution to enterprise and institutional clients accounted for 22.1%, 22.5% and 17.6% of our total revenues in 2014, 2015 and 2016, respectively.

The table below sets forth selected statistics of our two primary categories of clients for or at the end of the periods indicated:


	Number of Registered Clients as of December 31,							Number of Active Clients for Years Ended December 31,						Total Transaction Value for Years Ended December 31,
	2014			2015		2016		2014		2015		2016		2014		2015		2016
	RMB in million
Individual clients		67,724	⁽¹⁾		95,885		131,725		8,643		12,149		11,666		49,366		76,695		83,496
Enterprise and institutional clients		2,833	⁽²⁾		3,134		3,671		367		424		361		14,005		22,299		17,889

Total		70,557			99,019		135,396		9,010		12,573		12,027		63,371		98,994		101,385

(1)	Represents the aggregate number of our registered high net worth individual clients. This figure does not include internet financial services clients.

(2)	Represents the aggregate number of our registered enterprise and institutional clients.

Individual Clients

We accept high net worth individuals with investable assets (excluding primary residence) in excess of RMB3.0 million (US$0.5 million) interested in receiving our services as our registered individual clients, although our registered individual clients often have a higher level of wealth. In recent years, we focus our resources on serving ultra-high net worth clients with higher level of investable assets.

The number of our registered individual clients increased from 67,724 as of December 31, 2014 to 95,885 as of December 31, 2015 and to 131,725 as of December 31, 2016. The number of registered individual clients who have purchased products distributed by us increased from 15,494 as of December 31, 2014 to 24,348 as of December 31, 2015 and to 29,104 as of December 31, 2016. In 2016, registered individual clients purchased RMB83.5 billion (US$12.0 billion) worth of wealth management products through us, accounting for 82.4% of the aggregate value of wealth management products that we distributed during the same period.

Enterprise and Institutional Clients

We also extend the distribution of wealth management products to enterprises, primarily small and medium-sized companies, or SMEs, and financial institutions such as insurance companies, pension plans and endowment funds. We define SMEs as enterprises or institutions that generate annual revenues of no more than RMB300.0 million (US$50 million). The number of our registered enterprise and institutional clients was 3,671 as of December 31, 2016, up from 3,134 as of December 31, 2015. In 2016, registered enterprise and institutional clients purchased RMB17.9 billion (US$2.6 billion) worth of wealth management products through us, accounting for 17.6% of the aggregate value of wealth management products that we distributed during the same period.

Our Coverage Network

As of December 31, 2016, our extensive coverage network consisted of 1,169 relationship managers and 185 branch and sub-branch offices covering 71 cities, which receive operational support from our headquarters in Shanghai.

Branch Offices

Our 185 branch and sub-branch offices are strategically located in 71 cities in China, covering multiple economically developed regions in China where its high net worth population is concentrated, including the Yangtze River Delta, the Pearl River Delta, the Bohai Rim and other regions. Our strategy is to open branch offices at locations with concentrated high net worth population and active private sectors. The cities where we have opened branch offices cover all top tier cities and key provincial capitals in China. The table below sets forth selected statistics of our coverage network by regions in China as of December 31, 2016:


		Number of Cities In Our Network
Yangtze River Delta¹		34

Pearl River Delta²		8

Bohai Rim³		12

Other Regions⁴		17

Total		71

¹	Includes the Shanghai, Jiangsu and Zhejiang regions

²	Includes the Southern China and Shenzhen region

³	Includes the Northern China and Shandong region

⁴	Includes Central China, Western China, Northeastern China and the Fujian region

Relationship Managers

We have relied on, and expect to continue to rely on, organic growth in the expansion of our coverage network. We believe our corporate culture is one of our competitive strengths, and in order to preserve this, our relationship managers are recruited as our employees rather than external agents. Our relationship managers are an inherent part of our institutionalized client service structure and play critical roles in our building and maintaining long-term relationships with clients. Our relationship managers maintain relationships with clients through both in-person meetings and our official WeChat account and mobile applications, as well as various marketing initiatives we organize. Our relationship managers act as asset allocation financial advisors. We place a significant emphasis on recruiting, training and motivating our relationship managers. The number of our relationship managers has increased as a result of the growth of our business and expansion of our coverage network. As of December 31, 2016, we had 1,169 relationship managers nationwide, compared to 1,098 as of December 31, 2015 and 779 as of December 31, 2014.

Mobile Customer Service Channels

To better serve our expanding client base, we started to maintain an official WeChat account and launched a Noah mobile application Wei Nuo Ya in the third quarter of 2014. In 2015, we launched more mobile applications with different service lines. These mobile customer service channels allow us to continually update the online community of our high net worth clients and provide a convenient and efficient platform for these clients to communicate directly with our relationship managers and other members of our team. We also conduct product roadshow and provide product information to existing and potential clients through our mobile application platform.

Asset Management

Gopher Asset Management, our indirect subsidiary and Noah Investment’s direct subsidiary, is a leading alternative asset manager in China. Gopher Asset Management develops and manages private equity, real estate, secondary market and other investments denominated in both RMB and U.S. dollars.

Since 2014, we have been diversifying the real estate-related products we offered, gradually shifting away from residential real estate to commercial real estate products. Also, in response to overseas investment demands, we began cooperating with more overseas partners and increased the number of overseas funds of funds offered. More recently we have also focused on developing our co-investment and direct investment capabilities, and expect such investments to increase in the future. Our AUM increased from RMB86.7 billion as of December 31, 2015 to RMB120.9 billion (US$17.4 billion) as of December 31, 2016, a year over year change of 39.6%.

We successfully raised and managed approximately RMB35.0 billion, RMB66.9 billion and RMB85.1 billion (US$12.3 billion) for our asset management investments in 2014, 2015 and 2016, respectively, of which the real estate funds we raised and managed amounted to RMB23.4 billion, RMB24.2 billion and RMB28.4 billion (US$4.1 billion) in 2014, 2015 and 2016, respectively and the private equity investments we raised and managed amounted to RMB6.4 billion, RMB27.9 billion and RMB25.2 billion (US3.6 billion) in 2014, 2015 and 2016, respectively.

We develop and manage the following categories of investments across different types of asset classes:

•

Private equity investments, including investments in the top private equity funds in China and overseas and direct investments in companies and projects;

•

Real estate investments, including funds and fund of funds for residential as well as commercial real estate properties such as office buildings and shopping malls in China and overseas;

•

Secondary market investments, mainly including secondary market equity funds of funds managed by Gopher and sub-advised by outside fund managers; and

•

Other investments, including funds and funds of funds of alternative credit, multi-strategy funds, multi-family heritage funds, and other assets which Gopher manages but cannot be classified into any of the aforementioned categories.

The table below summarizes the roll-forward of our AUM and typical management fee rates chargeable by asset management segment for three years:


	Typical Management fee rates		As of December 31, 2015				Funds Inflow		Funds Outflow		As of December 31, 2016
	RMB in billions, except percentages
Product type
Real estate investments
Equity		0.5%-1%		6.2	7	%		1.1		3.2		4.1	3	%
Debt		0.2%-1.3%		25.6	29	%		27.3		33.8		19.1	16	%
Private equity investments		0.7%-1.8%		37.9	44	%		25.2		1.4		61.7	51	%
Secondary market investments		0.5%-1.7%		10.7	12	%		2.8		5.2		8.3	7	%
Other investments		0.2%-1.5%		6.3	7	%		28.7		7.2		27.8	23	%
All products				86.7	100.0	%		85.1		50.9		120.9	100.0	%
	Typical Management fee rates		As of December 31, 2014				Funds Inflow		Funds Outflow		As of December 31, 2015
	RMB in billions, except percentages
Product type
Real estate investments
Equity		0.1%-1.25%		6.4	13	%		2.7		2.9		6.2	7	%
Debt		0.4%-1.5%		24.6	50	%		21.5		20.5		25.6	29	%
Private equity investments		0.7%-1%		10.4	21	%		27.6		0.1		37.9	44	%
Secondary market investments		0.5%-1.5%		2.6	5	%		9.8		1.7		10.7	12	%
Other investments		0.1%-1%		5.7	11	%		5.2		4.6		6.3	7	%
All products				49.7	100.0	%		66.9		29.9		86.7	100.0	%



	Typical Management fee rates		As of December 31, 2013				Funds Inflow		Funds Outflow		As of December 31, 2014
	RMB in billions, except percentages
Product type
Real estate investments
Equity		0.5%-1%		5.0	16	%		3.0		1.6		6.4	13	%
Debt		0.4%-1.5%		18.9	60	%		20.4		14.7		24.6	50	%
Private equity investments		0.7%-1%		4.0	13	%		6.4		—		10.4	21	%
Secondary market investments		0.5%-1.5%		—	—			2.6		—		2.6	5	%
Other investments		0.8%-1.2%		3.4	11	%		2.6		0.3		5.7	11	%
All products				31.3	100.0	%		35.0		16.6		49.7	100.0	%

The opening balance, funds outflow and closing balance of the movements above corresponding with secondary market equity fund of funds include the effect of market appreciation or depreciation.

Performance-based Income

The following table summarizes AUM with performance-based income terms as of December 31, 2015 and 2016:


	As of December 31,
	2015		2016
	RMB in billions		RMB in billions		US$ in billions
Product type
Real estate investments
Equity		5.8		3.9		0.6
Debt		—		—		—
Private equity investments		33.9		47.4		6.8
Secondary market investments		10.5		7.8		1.1
Other investments		1.0		0.9		0.1

Total		51.1		60.1		8.7

We are entitled to receive performance-based income of real estate investments. We are generally entitled to share 10% to 20% of the investment gain when it exceeds certain performance-based thresholds, which generally correspond to annual returns of between 8% and 12%, depending on different projects and terms of investment. We do not accrue unrealized performance-based income for real estate investments based on net asset value. Performance-based income is only recognized when the amount has been determined and gains are realized.

We are entitled to receive performance-based income relating to our private equity investments. We are generally entitled to share 3%-5% of the investment gain when it exceeds certain performance-based thresholds, which generally correspond to annual returns of about 8%. We do not accrue unrealized performance-based income for private equity investments based on net asset value. Performance-based income is only recognized when the amount has been determined and gains are realized.

We are entitled to receive performance-based income of our secondary market investments as of the dates when investee funds are opened for redemption, dividend payment or when the funds mature. We are generally entitled to share 4% to 5% of the investment gain when it exceeds certain performance-based thresholds, which are usually 6% of principal or when the net asset value exceeds the previous highest net asset value. Performance-based income is recognized when performance-based income can be charged according to the relevant fund agreements, which is generally on a quarterly or semi-annual basis, based on the change of net asset value. Such performance-based income is not subject to clawback and as such there is no impact for any subsequent net asset value fluctuations.

Performance-based income of other investments is not significant, and we do not expect material inflow of performance-based income related to other investments in the foreseeable future.

The following tables summarize the AUM with performance-based income for each of our product types and their liquidation dates as of December 31, 2015 and 2016 (on a historical basis):


	AUM with performance- based income as of December 31, 2016		Expected liquidation date is
			during the year ended December 31,						after January 1, 2020
			2017		2018		2019		after January 1, 2020
	RMB in billions
Product type
Real estate investments
Equity		3.9		0.1		1.1		0.3		2.4
Debt		—		—		—		—		—
Private equity investments		47.4		1.4		1.3		4.7		40.0
Other investments		0.9		—		0.6		—		0.4

Total		52.3		1.6		3.0		5.0		42.8


	AUM with performance- based income as of December 31, 2015		Expected liquidation date is
			during the year ended December 31,						after January 1, 2019
			2016		2017		2018		after January 1, 2019
	RMB in billions
Product type
Real estate investments
Equity		5.8		1.0		1.9		1.1		1.8
Debt		—		—		—		—		—
Private equity investments		33.9		0.7		1.7		1.5		29.9
Other investments		1.0		0.2				0.5		0.3

Total		40.6		1.9		3.6		3.1		32.0

It is rare for us to liquidate a fund prior to maturity. We will generally only liquidate a fund prior to maturity if (1) the underlying projects or investments end prior to liquidation, or (2) the return from investments is much lower than our expectation, and it is in the best interest of the fund investors to liquidate such fund prior to maturity.

Our secondary market equity funds generating performance-based income are periodically available for redemption. The following table summarizes the different periods that our secondary market equity funds opened for redemptions on fair value basis:


	As of December 31,
	2015		2016
	RMB in billions		RMB in billions		US$ in billions
Monthly		2.4		2.3		0.3
Quarterly		4.4		2.3		0.3
Semi-annually		0.0		0.1		—
Annually		0.4		—		—
As of maturity		3.2		3.1		0.5

Total		10.5		7.8		1.1

Internet Financial Services

Our internet financial service business provides financial products and services targeting mass affluent individuals in China.

Our internet financial service segment, which we began reporting as a separate segment in 2014, utilizes our proprietary online platform and encompasses the following types of services:

•

“Cai Fu Pai” (online platform previously known as “Yuan Gong Bao”) – We introduced this service in the second quarter of 2014. The “Cai Fu Pai” brand is owned by Shanghai Noah Yijie Finance Technology Co., Ltd., offering internet wealth management products and related services targeting mass affluent individuals in China. The total number of clients through our internet financial service platform increased from 28,985 as of December 31, 2014 to 277,372 as of December 31, 2015 and to 402,815 as of December 31, 2016. The majority of the services and products transacted in 2014 were fixed income products. In 2015, we started to facilitate transactions of fixed income products, mutual fund products as well as insurance products on the platform. Since our proprietary online platform is relatively new, it continues to evolve and expand its product offering, and generally aims to include more standardized products going forward. We receive platform service fees from individual customers for each transaction facilitated by the online platform based on the amount transacted. In 2016, the aggregate transaction value of our internet financial service business amounted to approximately RMB20.1billion (US$2.9 billion), as compared to RMB12.0 billion in 2015.

•

“Rong Yi Tong” (Small short-term loans) – Starting in November 2013, we began providing small short-term loan services via Noah Financial Express (Wuhu) Microfinance Co., Ltd., for which we serve as the loan originator and assume credit risk. We include Rong Yi Tong in our internet financial service segment since it benefits from synergies with other services that we offer as part of this segment and will potentially operate online. This service also allows us to introduce new loan products to our clients and broaden and deepen our relationships with them. Interest on loan receivables is accrued monthly in accordance with their contractual terms and recorded as accrued interest receivable.

•

“Jintong Zhifu” (Transaction data processing and related services) – The Jintong Zhifu brand is owned by Shanghai Noah Jintong Data Services Co., Ltd. In delivering this service, we facilitate transaction data processing by transferring customer data to licensed third-party payment companies. Applicable laws and regulations in the PRC require a payment business license to operate payment related services. We are in the process of applying for such payment business license, and intend to engage in providing payment related services after we obtain such license.

•

“Fangzhou” (Online services for independent financial advisors) – We provide registered independent financial advisors with online tools for them to attract clients, maintain client relationships and facilitate the distribution of wealth management products.

Our Relationships with Product Providers and Corporate Borrowers

We have established extensive business relationships with reputable third-party product providers and corporate borrowers in China in connection with our distribution of wealth management products.

Product Providers

We define product providers as the issuers of wealth management products. The product providers we deal with encompass a variety of institutions and companies, mainly including mutual fund management companies, private equity firms, real estate fund managers, securities investment fund managers, trust companies and insurance companies. To date, we have distributed products provided by over 350 product providers. We also distributed our own funds, funds of funds and other investment products which are originated, developed and managed by us. Gopher Asset Management serves as the general partner or manager for these funds.

Corporate Borrowers

In distributing fixed income products, we often have relationships with the ultimate corporate borrowers, which receive proceeds from the relevant product providers. Although the product providers are the issuers of the fixed income products, the origination of these products is often driven by the fund raising plans of the ultimate corporate borrowers. In order to source tailor-made wealth management products to enhance our product choices, we often work directly with companies in need of debt financing and assist them in designing fixed income products, which are ultimately issued by product providers.

Distribution Arrangements

Our distribution of wealth management products are typically governed by service agreements entered into with the product providers or corporate borrowers, depending on the nature of the wealth management products being distributed and the specific situation.

We enter into service agreements with the product providers for the majority of the products we distribute. For a small portion of these products, we enter into service agreements with the ultimate corporate borrowers.

Our service agreements usually expire upon the expiration of the underlying wealth management products. Under these agreements, we typically undertake to provide the counterparty with services relating to our clients’ purchase of the relevant products. Such services typically include providing our clients with information on the relevant products, evaluating the financial condition and risk profiles of those clients who desire to purchase the relevant products, assessing their qualification for the purchase, educating them on the documentation involved in the purchase as well as furnishing other assistance to facilitate their transactions with the product providers.

Under our services agreements with respect to private equity fund products and certain secondary market equity fund products, we also undertake to assist the product providers to maintain investor relationships by providing our clients who have purchased the relevant products with various post-purchase services.

For all wealth management products we distribute, we are entitled to receive one-time commissions, calculated as a percentage of the total value of products purchased by our clients, either directly from clients or from the counterparties under the relevant service agreements.

We generally also receive recurring services fees in addition to one-time commissions for the products distributed by us where we are engaged by the product providers to provide recurring services to our clients who have purchased the relevant products. In the case of private equity fund products and real estate funds managed by us, we receive recurring service fees over their life cycle, calculated as a percentage of the total value of capital commitment or invested capital in the underlying funds distributed by us to our clients. For secondary market equity fund products and investment-linked insurance products, our recurring service fees are typically calculated as a percentage of the net asset value of the portfolio underlying the products purchased by our clients at the time of calculation, which is generally done on a daily basis.

IT Infrastructure

We have developed our integrated IT infrastructure that provides technology support to all aspects of our business, from product development, product management and sales and marketing process management to client management and client service. At the application level, the infrastructure consists of two key components: our client relationship management system, which allows us to collect and analyze our clients’ personal and transaction information, and our wealth management product database, which includes a proprietary database containing information on a broad range of wealth management products.

Marketing and Brand Promotion

Word-of-mouth is one of the most effective marketing tools for our business. We intend to continue to focus on referrals as the major avenue of new client development by further improving client satisfaction. We also enhance our brand recognition and attract potential high net worth clients through a variety of marketing methods. We organize frequent and targeted events, such as high-profile investor seminars and workshops, industry conferences and other investor education and social events, where we present our market outlook and product choices. These events are often organized in cooperation with chambers of commerce, distinguished alumni associations, luxury and fashion brands and high-profile entrepreneurs. In addition, we promote ourselves and our brand to financial institutions by providing assistance in staff training and risk management.

Competition

•

Commercial banks. Many commercial banks, such as China Merchants Bank, China Minsheng Bank and China Everbright Bank rely on their own wealth management arms and sales force to distribute their products. We believe that we can compete effectively with commercial banks due to a number of factors, including our undiluted focus on the high net worth market, our client-centric culture and comprehensive client services and our independence, all of which position us better to provide wealth management recommendations and services and to gain our clients’ trust.

•

Trust companies. Because a portion of products that we distribute are fixed income trust products, we compete with trust companies with in-house distribution functions. We believe that we can compete effectively with trust companies due to our broader product choices, wider coverage network, independent perspective, active product selection capability, and more comprehensive client services.

•

Independent wealth management service providers. A number of independent wealth management service providers have emerged in China in recent years. We believe that we can compete effectively with independent wealth management service providers because of our track record, reputation, product sourcing and established risk management systems. We are also significantly larger in terms of scale of operations and have a more extensive coverage network and professional services.

•

Insurance companies. Many insurance companies, such as PingAn Insurance, rely on their own wealth management teams and sales forces to distribute their products. We believe that we can effectively compete with insurance companies due to a number of factors, including our undiluted focus on the high net worth market, our client-centric culture and institutionalized services and our independence, all of which position us better to provide insurance products recommendations and services and to gain our clients’ trust.

•

Asset management service providers. A number of AMAC registered mutual fund management companies, securities companies and other fund managers have emerged in the asset management business in China in recent years. We believe that we can compete effectively with these companies because of our track record, reputation, product sourcing and established risk management systems.

•

Internet financial service companies. As the wealth management industry develops, we may face competition from new market entrants. For example, an increasing portion of wealth management products are distributed through online or mobile platform, and such trend is expected to continue.

Relevant PRC authorities may adopt new rules and regulations to allow more entities to conduct wealth management, asset management and internet financial service businesses. For example, in late 2012 and early 2013, relevant PRC supervisory authorities adopted a series of rules and regulations, which provided new ways for securities companies, mutual fund management companies and insurance asset management companies to engage in asset management business. In August 2014, CSRC promulgated the Interim Measures, which specify that the establishment of management institutions of private funds and the establishment of private funds are not subject to administrative examination and approval. Since the adoption of the Interim Measures, more and more fund managers have been engaged in asset management business. As a result, we may face competitions from securities companies, mutual fund management companies, insurance asset management companies and other fund managers established under the Interim Measures when they start raising funds for their clients and providing asset management services. In 2016, Measures for the Administration of Fund Raising Behaviors of Private Investment Funds released by AMAC limited the distribution of private investment funds to only licensed institutions and normalized both wealth management and asset management industries in China, which we consider is favorable for the long-term development of these industries as well as for established players like us.

Insurance

We maintain casualty insurance on some of our assets. We also participate in government sponsored social security programs including pension, unemployment insurance, childbirth insurance, work-related injury insurance, medical insurance and housing fund. In addition, we provide group life insurance for all our employees. We do not maintain business interruption insurance or key-man life insurance. We consider our insurance coverage to be in line with that of other wealth management companies of similar size in China.

Legal Proceedings

We are currently not a party to, and we are not aware of any threat of, any legal, arbitration or administrative proceedings that, in the opinion of our management, are likely to have a material and adverse effect on our business, financial condition or results of operations. We may from time to time become a party to various legal, arbitration or administrative proceedings arising in the ordinary course of our business.

Regulations

This section sets forth a summary of the significant rules and regulations that affect our business activities in China as well as a proposed law that may have material impact on our business.

Draft Foreign Investment Law

On January 19, 2015, the MOC published a draft of the proposed Foreign Investment Law, or the Draft FIL, on its official website for public comments, which mainly covers: (1) definition of foreign investors and foreign investments, (2) market entry clearance, (3) national security review, (4) information reporting, (5) investment promotion and protection as well as handling of complaints, (6) legal liabilities and (7) other general and miscellaneous provisions. The MOC also published an explanatory note to the Draft FIL on its official website. The Draft FIL, once enacted, will eventually replace the trio of the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law as well as their implementation rules and ancillary regulations, and will consolidate and simplify the various regulatory requirements on foreign investments.

The Draft FIL embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in alignment with international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments, and thus the Draft FIL will have a far-reaching and significant impact upon foreign investments by fundamentally reshaping the entire PRC foreign investment regulatory regime. The Draft FIL includes, among others, the following key points:

•

The Draft FIL expands the definition of foreign investment and introduces the principle of “actual control” in determining whether an investment is considered a foreign investment or domestic investment. An entity established in China but “controlled” by foreign entities and/or citizens will be treated as a foreign investor, whereas an entity set up in a foreign jurisdiction but “controlled” by PRC entities and/or citizens would nonetheless be treated as a PRC domestic investor, provided that the entity should obtain such determination upon market entry clearance by the competent foreign investment authority.

•

The existing comprehensive approval system of foreign investments will be replaced by an entry clearance system in relation to foreign investments in the industries within the catalog of special management measures, or the negative list, and an information reporting system. The negative list will only comprise of two categories: the prohibited industries and the restricted industries; foreign investments in industries not listed in the negative list will not be required to apply for entry clearance or make record filing and will only be required to submit information reports. In the future, the negative list to be issued by State Council may replace the current Guidance Catalog of Industries for Foreign Investments. The Information reporting system includes the investment implementation reporting, investment amendment reporting, annual reporting and quarterly reporting, and the scope of the information reporting is very extensive under the Draft FIL. In addition, any non-compliance with the information reporting obligations, concealing true information, or providing misleading or false information will be subject to monetary fines or criminal charges, depending on the seriousness of circumstances, and the persons directly responsible may also be criminally liable.

•

All differences in the corporate governance requirements that currently apply to foreign-invested and domestic enterprises will be removed, leaving only the requirements under the PRC Company Law, with which all foreign-invested and domestic enterprises must comply.

•

The national security review will be incorporated as a separate chapter and may replace the existing regulations and rules issued by the State Council or the MOC. Compared with the existing regulations and rules, the scope of national security review is expanded under the Draft FIL.

•

The “variable interest entity” structure, or VIE structure, will fall into the jurisdiction of the Draft FIL, and certain potential solutions was proposed to apply to the existing VIE structures. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China— Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of the draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations”.

The draft FIL has not taken a position on what actions will be taken with respect to existing companies with a VIE structure, whether or not these companies are controlled by PRC nationals. The MOC sought public comments on this and other matters in the draft FIL, which were due by February 17, 2015. There is no definitive timeline for this law to be officially promulgated by the PRC legislature and the current draft may need to undergo significant amendment before the law is finally passed. Substantial uncertainties exist with respect to the Draft FIL’s enactment timetable, final content, interpretation and implementation. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.”

Regulations on Private Funds

As a result of regulatory reform in June 2013, CSRC is now in charge of the supervision and regulation of private funds, including but not limited to private equity funds, private securities investment funds, venture capital funds and other forms of private funds instead of National Development and Reform Commission, or NDRC. On August 21, 2014, CSRC promulgated Interim Measures for the Supervision and Administration of Private Investment Funds, or the Interim Measures, which became effective on the same date. According to the Interim Measures, Private Funds shall refer to the investment funds established by way of raising capitals from investors in a non-public manner within the territory of the PRC. The Interim Measures shall apply to (i) the registration, record-filing, fund raising, investment and operation activities of a company or partnership that is established by way of non-public fund-raising for the purpose of engaging in investment activities, if its assets are managed by a fund manager or general partner; and (ii) the business of private funds of securities companies, fund management companies, futures companies and their subsidiaries, except as otherwise stipulated under other laws or relevant provisions of CSRC. Apart from the Interim Measures, other specific laws or regulations which may apply to private funds shall still apply. For example, the Companies Law of the PRC shall apply to fund manager or private fund taking the form of limited liability company or company limited by shares and the Partnership Law of the PRC may shall apply to fund manager or private fund taking the form of limited liability partnership or general partnership. Unlike general partnerships, limited partnerships allow investors to join as partners with their liability for the partnership’s debts limited by the amount of their capital commitment. A limited partnership must consist of no more than 49 limited partners and at least one general partner, who will be responsible for the operation of the partnership and who bears unlimited liability for the partnership’s debts. From late 2009 to early 2010, the PRC government promulgated regulations to permit foreign investors to invest in partnership enterprises in China. This established the legal basis for foreign private equity firms to establish Renminbi-denominated funds in China.

Before the regulatory reform, local governments in certain cities, such as Beijing, Shanghai and Tianjin, used to promulgate local administrative rules to encourage and regulate the development of private equity investment in their areas. These regulations typically provide preferential treatment to private equity companies registered in the relevant cities or districts that satisfy the specified requirements. Such local administrative rules may be subject to changes according to the regulations to be issued by CSRC.

The Interim Measures mainly cover the following five aspects: specifying the registration of fund manager and record-filing of private funds of all type, setting up a qualified investor system, specifying the fund raising regulations of private funds, presenting the investment operations and introducing industry self-regulation and supervision and administration measures for private funds.

According to the Interim Measures, the establishment of management institutions of Private Funds and the issuance of Private Funds are not subject to administrative examination and approval. All types of issuers are allowed to issue Private Funds to a cumulative number of investors not exceeding the number specified by laws on the basis of compliance with laws and regulations. Manager of all Private Funds of all type shall register with AMAC, and apply with AMAC for record filing after the fund raising of a Private Fund of any type is completed. Thus, AMAC formulated the Measures for the Registration of Private Investment Fund Managers and Filling of Private Investment Funds (for Trial Implementation), or the Measures, which became effective as of February 7, 2014, setting forth the procedures and requirements for the registration of private fund managers and record filing of private funds to perform self-regulatory administration of private funds.

As a self-regulatory organization, AMAC issued in early 2015 some relevant regulations which may exert influence on fund management, such as the Guidance of Outsourcing Service for Fund Business (for Trial Implementation), the Self Disciplinary Rules for Practices of Fund Practitioners. In late 2015, 2016 and early 2017, AMAC has also promulgated a series of detailed measures and guidance to enhance the supervision in the private fund industry, including Guidance on the Internal Control of the Private Investment Funds Managers, the Administration of Information Disclosure of Private Investment Funds, the Notice to Further Regulate Several Issues on the Registration of Private Funds Managers, Questions and Answers in relation to the registration of private fund manager and record-filing of private funds, Rules on the Management of Private Asset Management Plan Filing by Securities and Futures Institutions No. 1 – 4, Measures on the Management of Private Investment Fund Service Industry (for Trial Implementation). These regulations have the effect of (i) expanding the self-discipline rules regarding the private fund industry, (ii) intensifying the registration of private fund manager and record-filing of private funds, (iii) establishing the qualification censorship of fund manager by attorney and (iv) strengthening the practice qualifications of management.

AMAC issued the Measures for the Administration of the Fund Raising Conducts of the Private Investment Funds, or the Fund Raising Measures, on April 15, 2016, which brings significant influence to the fund raising procedures and sales institutions and will take effect on July 15, 2016. According to the Fund Raising Measures, only two kinds of institutions are qualified to conduct the fund raising of private investment funds: (a) private fund managers which have registered with AMAC (only applying when raising fund for the funds established and managed by themselves); and (b) the fund distributors which have obtained the fund distribution license and also become members of the AMAC. In addition, the Fund Raising Measures creates detailed procedures for conducting fund raising business and introduced new process such as “cooling-off period” and the “re-visit”.

Before the Interim Measures, private funds mainly established in the form of limited liability partnerships and since the issuance of the Interim Measures, contract-based funds have arisen in the market. In 2010, we started our fund management business by forming a fund of private equity funds, and in 2014, we further enhanced our fund management business by forming contract-based funds. Gopher Asset Management has registered with AMAC as a private equity fund manager since March 2014 and all the funds managed by Gopher have been registered and filed with AMAC.

AMAC released the No. 4 Filing Rules on February 13, 2017 to regulate the securities and futures institution’s investing into the real estate area. According to the No. 4 Filing Rules, private fund managers shall follow relevant rules while investing into the real estate development enterprises or projects. According to the No. 4 Filing Rules, AMAC will not accept the filing application of private asset management plans or private funds investing into ordinary residential properties in “popular cities”, including Beijing , Shanghai, Guangzhou, Shenzhen, Xiamen, Hefei, Nanjing, Suzhou, Wuxi, Hangzhou, Tianjin, Fuzhou, Wuhan, Zhengzhou, Jinan and Chengdu, by way of debt investment, the specific types of which are identified in the No. 4 Filing Rules. AMAC also makes other requirements in the No. 4 Filing Rules. Prior to the publication of the No. 4 Filing Rules, private funds investing into real estate development projects took up a considerable part of our asset management business. The No. 4 Filing Rules will influence our business in this regard and we are not able to tell how far the influence will be and whether the filing rule for private real estate investment fund will change in the future.

Regulations on Fund Distribution

According to the Administrative Measures on Securities Investment Fund Distribution, or the Fund Distribution Administrative Measures, fund distribution institutions shall refer to the fund managers and other institutions registered with the CSRC or its branches. Other institutons include commercial banks, securities companies, futures companies, insurance institutions, securities investment consulting insitutions and independent institutions. For these institutions to carry out fund distribution service, they are required to register with the local CSRC branch and obtain the relevant fund distribution license. Fund distribution services regulated under the Fund Distribution Administrative Measures regime shall refer to the marketing and promotion, sales and distribution, subscription and redemption services, of public fund units in particular.AMAC issued the Measures for the Administration of the Fund Raising Conducts of the Private Investment Funds, or the Fund Raising Measures, on April 15, 2016, which brings significant influence to the fund raising procedures and sales institutions and took effect on July 15, 2016. According to the Fund Raising Measures, only two kinds of institutions are qualified to conduct the fund raising of private investment funds: (a) private fund managers which have registered with AMAC (only applying when fund raising for the funds established and managed by themselves); and (b) the fund distributors which have obtained the fund distribution license and also become members of the AMAC. Fund raising shall include the promotion, sales, purchase, subscription and redemption of private funds.

Noah Upright (Shanghai) Fund Investment Consulting Co., Ltd., or Noah Upright, has obtained the fund distribution license from the CSRC Shanghai branch since February 2012. By holding the fund distribution license, Noah Upright is able to distribute the public funds managed by mutual fund management companies and private funds managed by private fund managers.

Noah Holdings (Hong Kong) Limited, or Noah HK, as our Hong Kong subsidiary, obtained the Type 1, 4 and 9 Licence in January 4, 2012 from Hong Kong Securities and Futures Commssion, or HKSFC, to carry out dealing in securities, advising on securities and asset management business. Noah HK is subject to the supervision and administration of HKSFC.

Regulations on Asset Management Plans

According to CSRC, qualified mutual fund management companies and securities companies may be entrusted by clients to engage in asset management business.

Asset Management Plans by Mutual Fund Management Companies. On September 26, 2012, CSRC promulgated Pilot Measures for Asset Management Services Provided by Mutual Fund Management Companies for Specific Clients, or the Pilot Measures, which came into effect on November 1, 2012. These Pilot Measures apply to activities whereby a mutual fund management company raises funds from specific clients or acts as the asset manager for specific clients upon their property entrustment, and engages a custodian institution to act as the asset custodian and make investments with the entrusted assets in the interest of the asset entrusting clients. According to the Pilot Measures, the assets under an asset management plan may be used for the following investments: (i) cash, bank deposits, stocks, bonds, securities investment funds, central bank bills, non-financial enterprises’ debt financing tools, asset-backed securities, commodity futures and other financial derivatives; (ii) shares, claims and other property rights not transferred through a stock exchange; and (iii) other assets approved by CSRC. A specific asset management plan investing in any assets specified in subparagraphs (ii) or (iii) above is called a special asset management plan. In addition, a mutual fund management company shall conduct special asset management plan business only through its subsidiary and not by itself. Where an asset manager provides the specific asset management services for multiple clients, the number of entrusting clients of a single asset management plan may not exceed 200. A single investor’s investment into an asset management plan shall be no less than RMB1 million; the number of investors whose investment is less than RMB3 million of one entrustment is limited to 200, while the number of investors whose investment is more than RMB3 million is not limited. The total assets entrusted by the clients initially shall not be less than RMB30 million and not more than RMB5 billion, unless otherwise provided by CSRC. An asset manager may sell its asset management plans on its own or through an agency qualified for the sale of mutual funds. In early 2014, CSRC and Shanghai Branch of CSRC respectively promulgated new circulars, pursuant to which subsidiaries of mutual fund management companies are prohibited from serving as the channel-through asset management plans for multiple specific clients or engaging in fund pool. CSRC further promulgated the Measures on the Management of Subsidiaries of Fund Management Companies and the Pilot Measures on the Management of Risk Control Index for Subsidiaries for Specific Client Asset Management of Fund Management Companies in late 2016. The subsidiaries of mutual fund companies are required to make rectifications according to the newly-published rules within the required time period.

Asset Management Plans by Securities Companies. On June 26, 2013, CSRC promulgated Administrative Measures for Client Asset Management Business of Securities Companies, or the Administrative Measures. Besides, there are two detailed Implementing Rules of the Administrative Measures, (together with the Administrative Measures, collectively referred to as Administrative Measures for Asset Management Business for Securities Companies). According to Administrative Measures for Asset Management Business for Securities Companies, qualified securities companies may engage in collective asset management business for multiple clients. Collective asset management plans may invest in stocks, bonds, securities investment funds, central bank bills, short-term financing bills, mid-term notes, stock index futures, other financial derivatives, wealth management plans of commercial banks that are either income-guaranteed or principal-protected with floating incomes and other investment products approved by CSRC. Securities companies may also engage in special asset management business after obtaining qualifications from CSRC. Every special asset management plan is subject to examination and approval by CSRC. A securities company may either promote collective asset management plans by itself or through other securities companies, commercial banks or other institutions recognized by CSRC. A collective asset management plan shall only be promoted to qualified investors not exceeding 200 in total. A qualified investor is defined as an entity or individual that is capable of appropriately identifying risks and bearing the risks of the collective asset management plan that it invests in, and that satisfies any of the following conditions: (i) the total personal or household financial assets shall be no less than RMB1 million, applicable if the qualified investor is a natural person or (ii) the net assets shall not be less than RMB10 million, applicable if the qualified investor is a company, enterprise or institution. A securities company shall put the assets under a collective asset plan under the custody of an asset custodian with fund custody business qualifications.

Transfer of units of Asset Management Plans by Mutual Fund Management Companies and Securities Companies. On August 19, 2013, the Shanghai Stock Exchange promulgated the Notice of the Shanghai Stock Exchange on Providing Transfer Services for Units of Asset Management Plans, which was replaced by the Guidance of Shanghai Stock Exchange on Transfer Services for Units of Asset Management Plans, promulgated by Shanghai stock Exchange on April 4, 2014. On August 20, 2013, the Shenzhen Stock Exchange promulgated the Guidance of Shenzhen Stock exchange on Transfer Services for Units of Asset Management Plans, which was replaced by the Operational Guidance of Shenzhen Stock Exchange on Transfer Services for Units of Asset Management Plans, promulgated by Shenzhen Stock Exchange on Dec 29, 2014. The above mentioned guidance are collectively referred to as Guidance on Transfer of Units. According to Guidance on Transfer of Units, mutual fund management companies and securities companies may apply to transfer the units of collective asset management plans of securities companies and units of the client-specific asset management plans of mutual fund management companies through the Shanghai Stock Exchange and Shenzhen Stock exchange.

Regulations on Trust Products

Pursuant to the PRC Trust Law, a trustee can, in its own name, manage and dispose of properties entrusted to it by a trustor for the benefit of beneficiaries nominated by the trustor. Trust companies are a type of financial institution specializing in the operation of a trust business under the PRC Trust Law. Trust companies are subject to the supervision and scrutiny of the China Banking Regulatory Commission, or CBRC, which is the regulatory authority for banking and financial institutions and businesses.

On January 23, 2007, the CBRC promulgated the Administrative Rules Regarding Trust Company-Sponsored Collective Fund Trust Plans, or the Trust Plan Rules, which became effective on March 1, 2007 and was subsequently amended on February 4, 2009. Pursuant to the Trust Plan Rules, a trust company may establish collective funds trust plans, or trust plans, under which the trust company, in its capacity as trustee of two or more trustors, may pool funds entrusted to it by such trustors and may manage, invest and dispose of the pooled funds for the benefit of the beneficiaries nominated by the trustors. A trust plan must comply with the specified requirements under the Trust Plan Rules, including the requirements that (i) each trustor participating in the trust plan be a qualified investor and the sole beneficiary of his or its investment in the trust plan; (ii) there be no more than 50 individuals participating in the plan, excluding individuals who entrust, on a single transaction basis, more than RMB3.0 million each, and qualified institutional investors; (iii) the trust plan have a term of not less than one year and have a specified use of proceeds and investment strategy that is in compliance with the industrial policies and relevant regulations of the PRC; (iv) the beneficial interest in the trust plan be divided into trust units of equal amounts; and (v) other than reasonable compensation provided for underwritten trust agreements, the trust company must not seek any profits directly or indirectly from the trust property under any name for itself or others.

A qualified investor under the Trust Plan Rules is defined as a person capable of identifying, judging and bearing the risks associated with the trust plan and who falls within any one of the following categories: (i) any individual, legal person or other organization who invests at least RMB1.0 million in the trust plan; (ii) any individual who, on a personal or household basis, owns financial assets of at least RMB1.0 million, with proof of such assets, at the time he or she subscribes to the trust plan; or (iii) any individual individually having an annual income of more than RMB0.2 million or, jointly with a spouse, having an annual income of more than RMB0.3 million, with proof of such income, for each of the last three years.

Pursuant to the Trust Plan Rules, when promoting the trust plan, a trust company must use appropriate materials with detailed disclosure and is prohibited from, among other things, (i) promising minimum returns on or guaranteeing protection of the entrusted funds; (ii) engaging in public marketing or promotion; or (iii) engaging a non-financial institution to promote the trust plan. Based on our understanding, “promotion” of trust plans under the Trust Plan Rules refers to promotion and marketing activities which involve signing trust contracts with participants of trust plans directly. As we do not sign trust contracts with the participants of trust plans and handle funds of participants of the trust plans in providing wealth management services with respect to trust products, we do not believe we are promoting trust plans in such circumstances. In April and May, 2014, the CBRC respectively issued new rules its implementation rules, which prohibit a trust company from directly or indirectly promoting trust plans by way of advice, consultation and brokerage through non-financial institutions. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—If the Chinese governmental authorities order trust companies in China to cease their promotion of collective fund trust plans, or trust plans, through non-financial institutions such as us, our business, results of operations and prospects would be materially and adversely affected.”

The CBRC further promulgated two guidelines governing two types of trust plans, respectively. One regulates trust plans investing in publicly traded securities, while the other regulates trust plans focusing on private equity investments. These guidelines set forth detailed rules that trust companies must comply with in issuing and operating the two types of trust plans.

Regulations on Small Short-Term Loan Business

The Guidance on the Pilot Establishment of Small short-term loan Companies, jointly promulgated by the China Banking Regulatory Commission and the People’s Bank of China in 2008, allows provincial governments to approve the establishment of small short-term loan companies on a trial basis. Based on this guidance, many provincial governments in China, including that of Anhui province, where Noah Financial Express (Wuhu) Microfinance Co., Ltd. (Rong Yi Tong) is located, promulgated local implementing rules on the administration of small short-term loan companies.

On October 10, 2008, People’s Government of Anhui Province promulgated the Pilot Administrative Measures (for Trial implementation) on Small short-term loan Company in Anhui, and on May 18, 2009, the Anhui Government promulgated the Interim Regulations on Small short-term loan Business of Anhui Province, and afterwards, the Finance Office of Anhui province issued Opinions on Promoting the Standardized Development of Small Short-Term Loan Companies across Anhui Province, or, collectively, the Regulations on Small Short-Term Loan Companies in Anhui. According to the Regulations on Small Short-Term Loan Companies in Anhui, the registered capital shall not be less than RMB100 million when setting up small short-term loan company in urban areas or in county territories outside the northern part or Dabie mountain area of Anhui Province. It is not allowed for a small short-term loan company to accept public deposits. The major sources of funds of a small short-term loan company shall be the capital paid in by shareholders, donated capital and the capital borrowed from a maximum of two banking financial institutions. The balance of the capital borrowed from banking financial institutions shall not exceed 50% of the net capital. When applying for the establishment of a small short-term loan company, the shares held by the main initiator shall not exceed 35% of the total registered capital of the company in principle, the shares jointly held by the main initiator and its affiliates shall not exceed 50% of the total registered capital of the company, and the shares jointly held by other affiliated shareholders among other initiators shall not exceed 30% of the total registered capital of the company. In addition, a small short-term loan company is not permitted to conduct any businesses outside the region where it is located.

Regulations on Internet Financial Services

On July 18, 2015 the People’s Bank of China together with nine other PRC regulatory agencies jointly issued a series of policy measures applicable to internet financial services titled the Guidelines on Promoting the Healthy Development of Internet Finance, or the Guidelines. On April 12, 2016 the General Office of PRC State Council issued the Implementation Plan for Special Rectification of Internet Financial Risks, or the Rectification Implementation Plan. The Guidelines introduced formally for the first time the regulatory framework and basic principles for internet financial services industry in China as “law-abiding regulation, appropriate regulation, classified regulation, collaborative regulation and innovative regulation”. The Guidelines further stated the definitions and basic principles for the following internet financial services:

Internet Payment: refers to the services whereby the Internet is relied upon to give payment instructions and transfer monetary funds via computers, mobile phones and other devices. Internet payment services shall always remain true to the purposes of serving e-commerce development and providing the public with fast and convenient payment services in small and micro amount. Third-party payment institutions that cooperate with other institutions shall clearly define the relationship of rights and obligations between and among different parties involved, and establish effective risk isolation mechanisms and client rights and interests protection mechanisms. They shall fully disclose service information to clients, clearly remind clients of business risks, and refrain from exaggerating the nature and functions of payment service intermediary. Internet payment services shall be regulated by the People’s Bank of China. The Rectification Implementation Plan requires that third-party payment institutions shall not connect with several bank systems in order to conduct the inter-bank clearing business which requires for the usage of the inter-bank clearing system of people’s bank or other qualified clearing institutions.

Online lending: includes peer-to-peer online lending (i.e. P2P online lending) and Internet small-amount lending. P2P online lending refers to direct lending between and among individuals through Internet platforms. Direct lending on P2P online lending platforms falls within the scope of lending between private citizens, and therefore is governed by the Contract Law, the General Principles of the Civil Law, other relevant laws and regulations, and relevant judicial interpretations of the Supreme People’s Court. P2P online lending shall stick to its functions of serving as a platform to provide investors and financiers with information exchange, matching, credit rating and other intermediary services. P2P online lending institutions shall specify their nature as information intermediaries, mainly provide information services for the direct lending between borrowers and lenders, and shall neither provide credit enhancement services nor engage in illegal fund-raising. On April 13, 2016, CBRC and other relevant regulators issued the Implementation Plan for Special Rectification of Peer-to-Peer Internet Lending Risks, which set the timetable for the rectification implementation plan for the P2P platforms. Internet small-amount lending means that an Internet enterprise, through a small-amount loan company under its control, makes use of the Internet to extend small-amount loans to clients. During Internet small-amount lending, it is required to comply with the prevailing regulatory provisions applicable to small-amount loan companies, display the advantages of online lending, and make efforts to lower the financing costs incurred by clients. Online lending business shall be regulated by CBRC. On August 17, 2016, CBRC, the Ministry of Industry and Information Technology and the Ministry of Public Security issued the Provisional Measures for Administration of Business Activities of Internet Lending Information Intermediaries, which requires the intermediaries to get the record-filing with competent authorities.

Equity crowd-funding: mainly refers to public equity financing in small amount through the Internet, and must be raised through equity crowd-funding intermediary platforms (Internet websites or other similar electronic media). The parties raising funds through equity crowd-funding shall be small and micro-sized enterprises. They shall truthfully disclose to investors key information, including but not limited to their business models, operations and management, financial positions, and fund use through equity crowd-funding intermediaries, and shall not mislead or defraud investors. On the other hand, investors shall fully understand the risks of equity crowd-funding activities, have appropriate risk tolerance, and make investment in small amount. Equity crowd-funding business shall be regulated by CSRC. According to the Rectification Implementation Plan, equity crowd-funding platforms shall not participate in asset management, equity or debt transfer and other financial business.

Internet fund sales: Fund sales agencies that cooperate with other agencies to sell funds and other wealth management products via the Internet shall effectively fulfill risk disclosure obligations, and shall not attract clients by promising investment returns in violation of relevant provisions. Fund managers shall take effective measures to prevent maturity mismatch and liquidity risks in asset allocation. If fund sales agencies and their partner agencies also provide investors with returns through other activities, they shall state and present the composition of such returns, the prerequisites for such returns and applicable circumstances in a comprehensive, truthful and accurate manner, and shall not mix such returns with the returns on fund products. Third-party payment institutions shall, during the course of payment services for Internet fund sales, abide by relevant regulatory requirements of the People’s Bank of China and the CSRC on client excess reserves and fund sales settlement funds. The client excess reserves held by third-party payment institutions may only be used for handling the payment services entrusted by clients, and shall not be used to advance capital for the redemption of funds and other wealth management products. Internet fund sales business shall be regulated by the CSRC.

The Guidelines also specified several basic rules for internet financial services industry administration, such as: (1) any organization or individual that intends to set up a website to provide Internet financial services shall, in addition to going through relevant financial regulatory procedures as required, also undergo website record-filing procedures with telecommunications authorities pursuant to the law; (2) unless otherwise specified, an Industry Player shall select qualified banking financial institutions as fund depository institutions to manage and oversee client funds, and achieve the management of client funds and its proprietary funds under separate accounts; and (3) basic rules of information disclosure, risk reminder and qualified investors, information security and anti-money laundering. The Rectification Implementation Plan further provides that: (1) the regulators will adopt the see-through way of supervision; and (2) the non-financial institutions, or the enterprises which do not carry out financial business, shall not use the wordings, such as “exchange”, “finance”, “asset management”, “wealth management”, “fund”, “fund management”, “investment management”, “equity investment fund”, “online lending”, “peer-to-peer”, “equity crowd-funding”, “internet insurance”, “payment” and the like, as their enterprise name or registered business. If the enterprise chooses to use the aforementioned word/words, the Administration of Industry and Commerce will inform the financial regulators.

Regulations on Insurance Brokerages

The primary regulation governing the insurance intermediaries is the PRC Insurance Law enacted in 1995 as further amended in 2002, 2009, 2014 and 2015. According to the PRC Insurance law, the CIRC is the regulatory authority responsible for the supervision and administration of the PRC insurance companies and the intermediaries in the insurance sector, including insurance agencies and brokers.

The principal regulation governing insurance brokerages is the Provisions on the Supervision and Administration of Insurance Brokerages, or the Insurance Brokerage Provisions, promulgated by the CIRC in September 2009 and amended in 2013 and 2015. According to this regulation, the establishment of an insurance brokerage is subject to the approval of the CIRC. The term “insurance brokerage” refers to an entity that receives commissions for providing intermediary services to policyholders and sponsors to facilitate their entering into insurance contracts based on the interests of the policyholders. An insurance brokerage established in the PRC must meet the qualification requirements specified by the CIRC and obtain a license to operate an onshore insurance brokerage business with the approval of the CIRC. Unless otherwise provided by the CIRC, 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 for an insurance brokerage shall be not less than RMB50.0 million and must be fully paid up in cash. An insurance brokerage may conduct the following insurance brokering businesses:

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making insurance proposals, selecting insurance companies and handling the insurance application procedures for insurance applicants;

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assisting the insured or the beneficiary to file insurance claims;

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reinsurance brokering business;

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providing consulting services to clients with respect to disaster and damage prevention, risk assessment and risk management; and

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other business activities specified by the CIRC.

The name of an insurance brokerage must contain the words “insurance brokerage.” The license of an insurance brokerage is valid for a period of three years. An insurance brokerage must report to the CIRC for approval when it (i) changes the name of itself or its branches; (ii) changes its domicile or the business address of its branches; (iii) changes the name of its sponsor or main shareholders; (iv) changes its main shareholders; (v) changes its registered capital; (vi) changes its equity structure significantly; (vii) amends its articles of association or (viii) revokes its branches.

The senior managers of an insurance brokerage must meet specific qualification requirements set forth in the Insurance Brokerage Provisions. Appointment of the senior managers of an insurance brokerage is subject to review and approval by the CIRC. Personnel of an insurance brokerage who engage in any of the insurance brokering businesses described above must meet the qualifications prescribed by the CIRC and obtain the qualification certificate stipulated by the CIRC.

In December 2009, the CIRC issued the Circular on the Implementation of the Provisions on the Supervision and Administration of the Professional Insurance Agencies, the Provisions on the Supervision and Administration of Insurance Brokerages and the Provision on the Supervision and Administration of Insurance Assessment Institutions, or the Implementation Circular. According to the Implementation Circular, any insurance brokerage that fails to satisfy the registered capital requirement under the Insurance Brokerage Provisions after October 1, 2012 shall no longer be permitted to renew its license issued by the CIRC.

Pursuant to the contractual arrangements among Noah Group, Noah Investment and its shareholders, we operate our onshore insurance brokerage business through Noah Insurance, a subsidiary wholly owned by Noah Investment. Noah Insurance obtained the requisite insurance brokerage license issued by the CIRC in July 2008, which has a term of eight years and will expire in July 2016.

Regulation on Non-Financial Institution Payment Services

According to the Administrative Measures for the Payment Services Provided by Non-Financial Institutions, or the Payment Services Measures, promulgated by the People’s Bank of China on June 14, 2010 and effective as of September 1, 2010, as well as the associated implementation rules issued on December 1, 2010, as a payment institution, a non-financial institution providing monetary transfer services as an intermediary between payees and payers, including online payment, issuance and acceptance of prepaid cards or bank cards, and other payment services specified by the People’s Bank of China, is required to obtain a payment business license. Any non-financial institution or individual engaged in the payment business without such license may be ordered to cease its payment services and be subject to administrative sanctions and even criminal liabilities. Applications for payment business licenses are examined by the local branches of the People’s Bank of China and then submitted to the People’s Bank of China for approval. The registered capital of an applicant that engages in a nationwide payment business must be at least RMB100 million, while that of an applicant engaging in a payment business within a province must be at least RMB30 million.

A payment institution is required to conduct its business within the scope of business indicated in its payment business license, and may not undertake any business beyond that scope or outsource its payment business. No payment institution may transfer, lease or lend its payment business license.

Shanghai Noah Jintong Data Services Co., Ltd. is still in the process of applying for payment business license from the People’s Bank of China. In the meantime, we are cooperating with qualified and duly licensed third parties to provide such services.

Regulations on the Operation of Value-Added Telecom Services

The Telecommunications Regulations promulgated by the State Council and its related implementation rules, including the Catalog of Classification of Telecommunications Business issued by the Ministry of Industry and Information Technology, or MIIT, categorize various types of telecommunications and telecommunications-related activities into basic or value-added telecommunications services, and internet information services, or ICP services, are classified as value-added telecommunications businesses. Under the Telecommunications Regulations, commercial operators of value-added telecommunications services must first obtain a value-added telecommunications business license, or VAT License, from the MIIT or its provincial level counterparts. In 2000, the State Council also issued the Administrative Measures on Internet Information Services, which was amended in 2011 and 2015. According to these measures, a commercial ICP service operator must obtain an ICP License, one class of VAT Licenses, from the relevant government authorities before engaging in any commercial ICP service in China. When the ICP service involves areas of news, publication, education, medical treatment, health, pharmaceuticals and medical equipment, and if required by law or relevant regulations, specific approval from the respective regulatory authorities must be obtained prior to applying for the ICP License from the MIIT or its provincial level counterpart. In 2009, the MIIT promulgated the Administrative Measures on Telecommunications Business Operating Licenses, which set forth more specific provisions regarding the types of licenses required to operate value-added telecommunications services, the qualifications and procedures for obtaining such licenses and the administration and supervision of such licenses.

One subsidiary of Noah Investment has applied for and obtained an ICP License in March 2015, which is required for our internet financial service business. See “Item 3.D. Key Information—Risk Factors—If we fail to maintain or renew existing licenses or obtain additional licenses and permits necessary to conduct our operations in China, our business would be materially and adversely affected.”

Regulations on the Sale of Mutual Funds

On December 28, 2012, the Standing Committee of the PRC National People’s Congress, or the SCNPC, promulgated the Law on Securities Investment Funds, or the New SIF Law, which became effective on June 1, 2013 and as amended in 2015, replaced the Securities Investment Funds Law effective since June 1, 2004. The New SIF Law not only imposes detailed regulations on mutual funds but also includes new rules on the fund services agencies for the first time. Agencies that engage in sales, other fund services related to mutual funds are subject to registration or record-filing requirement with the securities regulatory authority under the State Council. Correspondingly, on March 15, 2013, CSRC promulgated the revised Administrative Measures on the Sales of Mutual Funds, or 2013 Fund Sales Measures, which became effective on June 1, 2013 and replaced the rules issued by CSRC in 2011.

The 2013 Fund Sales Measures specifies that it only applies to the sales of mutual funds. Commercial banks, securities companies, futures companies, insurance companies, securities investment consultation agencies, independent fund sales agencies and other agencies permitted by CSRC may apply with the relevant local branches of CSRC for the license related to fund sales. In order to obtain such license, an independent fund sales agency shall meet certain requirements, including: (i) having a paid-in capital of no less than RMB20.0 million; (ii) the senior executives shall have obtained the fund practice qualification, be familiar with fund sales business, and have two or more years of working experience in fund practice or five or more years of working experience in other relevant financial institutions; (iii) having at least 10 qualified employees to engage in a securities business; and (iv) not being involved in any material changes that have impacted or are likely to impact the normal operation of organizations, or other material issues such as litigations and arbitrations.

Mutual fund managers shall specify the fee charging items, conditions and methods in fund contracts and prospectuses or announcements, and shall specify the standards and calculation methods for the fee charges in prospectuses or announcements. When dealing with fund sales business, fund sales agencies may collect subscription fee, purchase fee, redemption fee, switching fee, sales service fee, and other relevant fees from the investors according to fund contracts and prospectuses. When providing value-added services to fund investors, fund sales agencies may charge the fund investors value-added service fee. Fund sales agencies shall charge investors sales charges as agreed in fund contracts, prospectuses and fund sales service contracts, and make calculation and accounting thereof faithfully. They shall not charge investors extra fees unless otherwise agreed in fund contracts, prospectuses and fund sales service contracts. They shall not apply different rates to different investors without specifying the same in prospectuses and making corresponding announcements.

Compared to the prior rules regulating this field, the 2013 Fund Sales Measures (i) specify that they only apply to sales of mutual funds, (ii) provide that a registration system shall be implemented in relation to application for licenses related to fund sales and the local branches of CSRC shall serve as executors of registrations for the sales of mutual funds and continuously supervise fund sales agencies and related matters, (iii) expand the types of fund sales agencies and further the involvement of futures companies, insurance companies and other companies in the sales of mutual funds, and (iv) further raise the penalties for violations of laws and regulations of fund sales agencies, fund sales payment and settlement institution and related institutions in operation of business.

In July 2015, relevant authorities in PRC collectively issued the Guiding Opinions on the Promotion of the Healthy Development of Internet Finance, pursuant to which mutual funds are allowed to be distributed on the Internet, as an alternative to through traditional financial services. Other provisions include requiring mutual fund sales agencies to perform its risk disclosure obligations while cooperating with other institutions via online platforms and prohibiting marketing through guaranteeing profits.

Regulations on Factoring

On, June 27, 2012, the MOC issued the Notice of the Ministry of Commerce on the Pilot Launch of Commercial Factoring, or the Commercial Factoring Notice, to the Tianjin Commission of Commerce and Shanghai Municipal Commission of Commerce. The Commercial Factoring Notice provides that duly established commercial factoring companies are allowed to provide enterprises with trade financing, management of sales ledgers, investigation and assessment of client credit standings, management and collection of accounts receivable, credit risk guarantee and other services.

On November 11, 2013, the General Office of Tianjin People’s Government revised the Measures on the Administration of the Pilot Program of Commercial Factoring in Tianjin, or the revised Tianjin Commercial Factoring Measures. According to the revised Tianjin Commercial Factoring Measures, commercial factoring shall refer to the process when the distributor (creditor) transfers its accounts receivables resulting from the sale of goods or services with the buyer (obligor) to commercial factoring companies, and commercial factoring companies provide the creditor with comprehensive business and trade services, including trade financing, management and collection of account receivable. The Tianjin Commercial Factoring Measures lay out the process to establish commercial factoring companies and the business scope of such kind of companies. Since it is a pilot program in Tianjin, such companies are also entitled to incentive policies.

Noah Group’s subsidiary Noah Factoring, through which we operate our factoring business, is a duly established commercial factoring company with its registered office in Tianjin. Commercial factoring is a new business area for Noah, and such relevant entity has conducted relevant business in accordance with laws and regulations.

Regulations on Private Schools

According to the Law on the Promotion of Private Schools promulgated by the SCNPC on June 29, 2013, or the 2013 Private Schools Law, a duly established private school shall be entitled to the status of a legal person and is required to receive a school establishment permit from a competent authority to complete the required registration. While the 2013 Private Schools Law further provided that a private school registered with the Administrative Authority for Industry and Commerce, or AIC, should be regulated under separate regulations to be formulated by the State Council, there were no further regulations promulgated by the State Council and on November 7, 2016, the SCNPC approved the revision of the 2013 Private Schools Law, or the revised Private Schools Law, effective September 1, 2017. The revised Private Schools Law deleted the provision concerning the separate regulation governing the AIC-registered private schools and it is common understanding that the provisions in the revised Private Schools Law will apply to the AIC-registered schools.

On December 30, 2016, the Detailed Implementation Rules on the Classified Registration of Private Schools, or the Private School Classified Registration Rules, was issued and took effect on the same date. According to the Private School Classified Registration Rules, for-profit private schools are required to register with AIC after obtaining the school establishment permit. However, there is no clear rule or regulation requiring that those AIC-registered schools established before September 1, 2017 are required to obtain a permit from a competent authority. Enoch Education, which operates our high net worth client education platform, was established prior to the effective date of the revised Private Schools Law and the Private School Classified Registration Rules and has not obtained such permit. If so required, Enoch Education will apply for such school establishment permit.

Regulations Relating to Cyber Security

On November 7, 2016, the SCNPC promulgated the Cyber Security Law of the People’s Republic of China, or the Cyber Security Law, effective June 1, 2017, to protect cyberspace security and order. Pursuant to the Cyber Security Law, any individual or organization using the network must comply with the PRC constitution and the applicable laws, follow the public order, respect social moralities, and must not endanger cyber security, or engage in activities by making use of the network that endanger the national security, honor and interests, or infringe on the fame, privacy, intellectual property and other legitimate rights and interests of others. The Cyber Security 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 other obligations, complying with a series of requirements of tiered cyber protection systems, verifying users’ real identities, 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.

Regulations Relating to Internet Privacy

In recent years, PRC government authorities have enacted laws and regulations on internet use to protect personal information from any unauthorized disclosure. The Administrative Measures on Internet Information Services prohibit ICP service operators from insulting or slandering a third party or infringing upon the lawful rights and interests of a third party. Under the Several Provisions on Regulating the Market Order of Internet Information Services, issued by the MIIT in 2011, an ICP operator may not collect any user personal information or provide any such information to third parties without the consent of a user. An ICP service operator must expressly inform the users of the method, content and purpose of the collection and processing of such user personal information and may only collect such information necessary for the provision of its services. An ICP service operator is also required to properly keep the user personal information, and in the case of any leak or likely leak of the user personal information, the ICP service operator must take immediate remedial measures and, in severe circumstances, to make an immediate report to the telecommunications regulatory authority. In addition, pursuant to the Decision on Strengthening the Protection of Online Information issued by the SCNPC in December 2012 and the Order for the Protection of Telecommunication and Internet User Personal Information issued by the MIIT in July 2013, any collection and use of user personal information must be subject to the consent of the user, abide by the principles of legality, rationality and necessity and be within the specified purposes, methods and scopes. An ICP service operator must also keep such information strictly confidential, and is further prohibited from divulging, tampering or destroying of any such information, or selling or proving such information to other parties. Any violation of the above decision or order may subject the ICP service operator to warnings, fines, confiscation of illegal gains, revocation of licenses, cancellation of filings, closedown of websites or even criminal liabilities. Furthermore, in June 2016, the State Internet Information Office issued the Administrative Provisions on Mobile Internet Applications Information Services, which became effect on August 1, 2016, to further strengthen the regulation of the mobile application information services. Pursuant to these provisions, owners or operators of mobile internet applications that provide information services are required to be responsible for information security management, establish and improve the protective mechanism for user information, observe the principles of legality, rightfulness and necessity, and expressly state the purpose, method and scope of, and obtain user consent to, the collection and use of users’ personal information. In addition, the new Cyber Security Law also requires network operators to strictly keep users’ personal information that they have collected confidential and to establish and improve their user information protective mechanisms.

Regulations on Labor Protection

On June 29, 2007, the SCNPC promulgated the Labor Contract Law, as amended on December 28, 2012, which formalizes employees’ rights concerning employment contracts, overtime hours, layoffs and the role of trade unions and provides for specific standards and procedure for the termination of an employment contract. In addition, the Labor Contract Law requires the payment of a statutory severance pay upon the termination of an employment contract in most cases, including in cases of the expiration of a fixed-term employment contract. In addition, under the Regulations on Paid Annual Leave for Employees and its implementation rules, which became effective on January 1, 2008 and on September 18, 2008 respectively, employees are entitled to a paid vacation ranging from 5 to 15 days, depending on their length of service and to enjoy compensation of three times their regular salaries for each such vacation day in case such employees are deprived of such vacation time by employers, unless the employees waive such vacation days in writing. Although we are currently in compliance with the relevant legal requirements for terminating employment contracts with employees in our business operation, in the event that we decide to lay off a large number of employees or otherwise change our employment or labor practices, provisions of the Labor Contract Law may limit our ability to effect these changes in a manner that we believe to be cost-effective or desirable, which could adversely affect our business and results of operations.

Enterprises in China are required by PRC laws and regulations to participate in certain employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal to certain percentages of salaries, including bonuses and allowances, of the employees as specified by the local government from time to time at locations where they operate their businesses or where they are located. According to the Social Insurance Law, an employer that fails to make social insurance contributions may be ordered to pay the required contributions within a stipulated deadline and be subject to a late fee of 0.05% of the amount overdue per day from the original due date by the relevant authority. If the employer still fails to rectify the failure to make social insurance contributions within such stipulated deadline, it may be subject to a fine ranging from one to three times the amount overdue. According to Regulations on Management of Housing Fund, an enterprise that fails to make housing fund contributions may be ordered to rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise, an application may be made to a local court for compulsory enforcement.

Regulations on Foreign Investment

The State Planning Commission, the State Economic and Trade Commission and the Ministry of Foreign Trade and Economic Cooperation jointly promulgated the Foreign Investment Industrial Guidance Catalog, or the Foreign Investment Catalog, in 2005, which was subsequently revised. The Foreign Investment Catalog sets forth the industries in which foreign investment are encouraged, restricted, or forbidden. Industries that are not indicated as any of the above categories under the Foreign Investment Catalog are permitted areas for foreign investment. The current version of the Foreign Investment Catalog came into effect in March 2015.

Pursuant to the current Foreign Investment Catalog, the provision of consulting services, that we are engaged in, is a permitted area of foreign investment. Before March 2015, the onshore insurance brokerage business fell within the industries where foreign-invested companies are restricted. However, pursuant to the current version of the Foreign Investment Catalog, the onshore insurance brokerage business falls within the industries in which foreign investment is permitted.

On December 7, 2016, the State Planning Commission and the MOC released a draft version of the new Foreign Investment Catalog for public discussion. The draft version has divided the foreign investment industries into the permitted area and the “negative list” which includes the restricted area, the prohibited area as well as the permitted area in which certain requirements may apply to. While the final version has not released yet, the draft version provides that the onshore insurance brokerage business falls within the permitted area.

However, currently foreign-invested companies engaged in onshore insurance brokerage business are subject to more stringent requirements than Chinese domestic enterprises. Specifically, according to the guidance published on the official website of the CIRC, foreign investors of foreign-invested insurance brokerage companies are required to have, among other things, at least US$200 million of total assets and at least 30 years of track record in the insurance business.

In addition, pursuant to the current Foreign Investment Catalog and other relevant laws and regulations, value-added telecommunication services are restricted from foreign investment and foreign investors are not allowed to own more than 50% of the equity interests in a value-added telecommunication service provider (excluding e-commerce). Any such foreign investor must have experience in providing value-added telecommunications services overseas and maintain a good track record.

Neither our PRC subsidiaries, nor any of their subsidiaries, currently meet all such requirements and therefore none of them is permitted to engage in the onshore insurance brokerage business. We conduct such business in China principally through contractual arrangements among Noah Group, our PRC subsidiary, and Noah Investment, our variable interest entity in the PRC, and Noah Investment’s shareholders. Noah Insurance, a subsidiary of Noah Investment, holds the licenses and permits necessary to conduct insurance brokerage activities in China. In the opinion of Zhong Lun Law Firm, our PRC legal counsel:

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the ownership structures of our variable interest entity, our PRC subsidiary, Noah Group, and Noah Holdings Limited, as described in “Item 4. Information on the Company—History and Development of the Company,” both prior to our initial public offering and currently, comply with all existing PRC laws and regulations; and

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the contractual arrangements among our PRC subsidiary, Noah Group, our variable interest entity and its shareholders governed by PRC laws are valid, binding and enforceable, and will not result in a violation of PRC laws or regulations currently in effect.

We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC legal counsel. For example, substantial uncertainties exist as to how the draft PRC Foreign Investment Law or its implementation rules may impact the viability of our current corporate structure in the future. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.” It is uncertain whether any other new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating our onshore insurance brokerage business, mutual fund distribution and distribution of asset management plans sponsored by mutual fund management companies do not comply with PRC government restrictions on foreign investment in such business, we could be subject to severe penalties, including being prohibited from continuing our operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”

Regulations on Tax

PRC Enterprise Income Tax

The PRC enterprise income tax is calculated based on the taxable income determined under the PRC laws and accounting standards. On March 16, 2007, the National People’s Congress of China enacted the EIT Law, which became effective on January 1, 2008 and was revised on February 24, 2017. 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 PRC Enterprise Income Tax Law, or the Transition Preferential Policy Circular, which became effective simultaneously with the EIT Law. The EIT Law imposes a uniform enterprise income tax rate of 25% on all domestic enterprises, including foreign-invested enterprises unless they qualify for certain exceptions, and terminates most of the tax exemptions, reductions and preferential treatments available under previous tax laws and regulations.

Moreover, under the EIT Law, enterprises organized under the laws of jurisdictions outside China with their “de facto management bodies” located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income. The Implementation Rules define the term “de facto management body” as the management body that exercises full and substantial control and overall management over the business, productions, personnel, accounts and properties of an enterprise. In addition, the Circular Related to Relevant Issues on the Identification of a Chinese holding Company Incorporated Overseas as a Residential Enterprise under the Criterion of De Facto Management Bodies Recognizing issued by the State Administration of Taxation on April 22, 2009 provides that a foreign enterprise controlled by a PRC company or a PRC company group will be classified as a “resident enterprise” with its “de facto management bodies” located within China if the following requirements are satisfied: (i) the senior management and core management departments in charge of its daily operations function mainly in the PRC; (ii) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (iv) more than half of the enterprise’s directors or senior management with voting rights reside in the PRC. Although the circular only applies to offshore enterprises controlled by PRC enterprises and not those controlled by PRC individuals or foreigners, the determining criteria set forth in the circular may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises, individuals or foreigners.

We do not believe Noah Holdings Limited or any of its subsidiaries outside of China was a PRC resident enterprise for the year ended December 31, 2016, but we cannot predict whether such entities may be considered as a PRC resident enterprise for any subsequent taxable year. Although our company is not controlled by any PRC company or company group, substantial uncertainty exists as to whether we will be deemed a PRC resident enterprise for enterprise income tax purposes. In the event that we are considered a PRC resident enterprise, we would be subject to the PRC enterprise income tax at the rate of 25% on our worldwide income, but the dividends that we receive from our PRC subsidiaries would be exempt from the PRC withholding tax since such income is exempted under the PRC Enterprise Income Tax Law for a PRC resident enterprise recipient. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The dividends we receive from our PRC subsidiaries may be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material adverse effect on our financial condition and results of operations. In addition, if we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”

Value-added Tax

On March 23, 2016, the Ministry of Finance and the State Administration of Taxation jointly issued the Circular on the Pilot Program for Overall Implementation of the Collection of Value Added Tax Instead of Business Tax, or Circular 36, which took effect on May 1, 2016. Pursuant to Circular 36, all companies operating in construction industry, real estate industry, finance industry, modern service industry or other industries which were required to pay business tax are required to pay VAT, in lieu of business tax. Our applicable VAT tax rates are 3%, 6%, and 17%, according to Circular 36.

On December 21, 2016, the Notice on Clarification of Value-Added Tax Policies for Finance, Real Estate Development, Education Support Services, or Notice No. 140 was issued to explain the application of the Circular 36. According to Notice No. 140, for activities subject to value-added tax occurring in the course of asset management services, the manager of the asset management investment shall be the taxpayer. On December 30, the Tax Policy Division of the Ministry of Finance and the Goods and Services Tax Division of the State Administration of Taxation further explain several provisions in the Notice No. 140, stating that the asset management investments refer to the fund products, trust plans, wealth management products managed by asset management service provider.

Dividend Withholding Tax

Pursuant to the EIT Law and the Implementation Rules, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise in China to its foreign investors are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. We are a Cayman Islands holding company and the majority of our income may come from dividends we receive from our PRC subsidiaries directly or indirectly. Since there is no such tax treaty between China and the Cayman Islands, dividends we receive from our PRC subsidiaries will generally be subject to a 10% withholding tax. We have evaluated whether Noah Holdings Limited is a PRC resident enterprise and we believe that Noah Holdings Limited was not a PRC resident enterprise for the year ended December 31, 2016. However, as there remains uncertainty regarding the interpretation and implementation of the EIT Law and the Implementation Rules, it is uncertain whether, if Noah Holdings Limited will be deemed a PRC resident enterprise for the future years, any dividends distributed by Noah Holdings Limited 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—The dividends we receive from our PRC subsidiaries may be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material adverse effect on our financial condition and results of operations. In addition, if we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.”

Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Tax Arrangement, where a Hong Kong resident enterprise which is considered a non-PRC tax resident enterprise directly holds at least 25% of a PRC enterprise, the withholding tax rate in respect of the payment of dividends by such PRC enterprise to such Hong Kong resident enterprise is reduced to 5% from a standard rate of 10%, subject to approval of the PRC local tax authority. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or SAT Circular 81, a resident enterprise of the counter-party to such Tax Arrangement should meet the following conditions, among others, in order to enjoy the reduced withholding tax under the Tax Arrangement: (i) it must directly own the required percentage of equity interests and voting rights in such PRC resident enterprise; and (ii) it should directly own such percentage in the PRC resident enterprise anytime in the 12 months prior to receiving the dividends. There are also other conditions for enjoying such reduced withholding tax rate according to other relevant tax rules and regulations. Pursuant to the Administrative Measures for Non-Resident Taxpayer to Enjoy Treatments under Tax Treaties issued by the State Administration of Taxation on August 28, 2015, which became effective on November 1, 2015, any non-resident taxpayer may be entitled to such reduced withholding tax rate automatically if such non-resident taxpayer satisfies the conditions prescribed in the relevant tax rules and regulations, and obtains the approvals required under the administrative measures described in the preceding sentence. Accordingly, Noah HK may be able to enjoy the 5% withholding tax rate for the dividends it receives from Noah Technology and Noah Xingguang respectively, if they satisfy the conditions prescribed under SAT Circular 81 and other relevant tax rules and regulations, and obtain the approvals required under the administrative measures described above. However, according to SAT Circular 81, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.

U.S. Foreign Account Tax Compliance Act

The United States has passed FATCA, which imposes a new reporting regime and, potentially, a 30% withholding tax on certain U.S.-source payments made to certain non-U.S. entities. In general, the 30% withholding tax applies to certain payments made to a non-U.S. financial institution unless such institution is treated as deemed compliant or enters into an agreement with the U.S. Treasury to report, on an annual basis, information with respect to certain interests in, and accounts maintained by, the institution to the extent such interests or accounts are held by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by certain U.S. persons and to withhold on certain payments. The 30% withholding tax also generally applies to certain payments made to a non-financial non-U.S. entity that does not qualify under certain exemptions unless such entity either (i) certifies that such entity does not have any “substantial United States owners” or (ii) provides certain information regarding the entity’s “substantial United States owners.” An intergovernmental agreement between the United States and another country may also modify these requirements. The Cayman Islands has entered into a Model 1 intergovernmental agreement with the United States, which gives effect to the automatic tax information exchange requirements of FATCA, and a similar intergovernmental agreement with the United Kingdom. We will be required to comply with the Cayman Islands Tax Information Authority Law (2014 Revision) (as amended) together with regulations and guidance notes made pursuant to such law that give effect to the intergovernmental agreements with the United States and the United Kingdom. We do not believe FATCA will have a material impact on our business or operations, but because FATCA is particularly complex and the intergovernmental agreement with the PRC, though agreed to in substance, has not been published, and PRC regulations or guidance notes have not be published, we cannot assure you that we will not be adversely affected by this legislation in the future.

Common Reporting Standard

Regulations on Foreign Exchange

Foreign exchange regulations in China are primarily governed by the following rules:

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Foreign Exchange Administration Rules (1996), as amended, or the Exchange Rules; and

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Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

Under the Exchange Rules, the Renminbi is convertible for current account items, including the distribution of dividends, interest and royalty payments, trade and service-related foreign exchange transactions. Conversion of Renminbi for capital account items, such as direct investment, loan, securities investment and repatriation of investment, however, is still subject to the approval of SAFE.

Under the Administration Rules, foreign-invested enterprises may only buy, sell and/or remit foreign currencies at banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from SAFE. Capital investments by foreign-invested enterprises outside of China are also subject to limitations, including approval by the MOC, SAFE and the National Development and Reform Commission or their local counterparts.

On March 30, 2015, SAFE issued SAFE Circular 19, which took effect and replaced previous regulations from June 1, 2015. Pursuant to SAFE Circular 19, up to 100% of foreign currency capital of foreign-invested enterprise may be converted into RMB capital according to the actual operation, and within the business scope, of the enterprise at its will. Although SAFE Circular 19 allows for the use of RMB converted from the foreign currency-denominated capital for equity investments in the PRC, the restrictions continues to apply as to foreign- invested enterprises’ use of the converted RMB for purposes beyond the business scope, for entrusted loans or for inter-company RMB loans. If our variable interest entity requires financial support from us or our wholly owned subsidiary in the future and we find it necessary to use foreign currency-denominated capital to provide such financial support, our ability to fund our variable interest entity’s operations will be subject to statutory limits and restrictions, including those described above.

On May 10, 2013, SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment by Foreign Investors and the Supporting Documents, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in the PRC shall be conducted by way of registration. Institutions and individuals shall register with SAFE and/or its branches for their direct investment in the PRC. Banks shall process foreign exchange business relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.

On Feb 13, 2015, SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Foreign Exchange Administration Policies on Direct Investments, or SAFE Circular 13, which took effect on June 1, 2015. Circular 13 specifies that the administrative examination and approval procedures with SAFE or its local branches relating to the foreign exchange registration approval for domestic direct investments as well as overseas direct investments have been cancelled, and qualified banks are delegated the power to directly conduct such foreign exchange registrations under the supervision of SAFE or its local branches.

Regulations on Dividend Distribution

The principal regulations governing dividend distributions of wholly foreign-owned companies include:

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Wholly Foreign-Owned Enterprise Law, as amended on October 31, 2000; and

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Wholly Foreign-Owned Enterprise Law Implementing Rules, as amended on April 12, 2001.

Under these laws and 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 and regulations. 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. 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. At the discretion of these wholly foreign-owned companies, they may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

Regulations on Offshore Investment by PRC Residents

On July 4, 2014, SAFE issued the Circular on Several Issues Concerning Foreign Exchange Administration of Domestic Residents Engaging in Overseas Investment, Financing and Round-Trip Investment via Special Purpose Vehicles, or SAFE Circular 37, which terminated the SAFE’s Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents to Engage in Financing and Inbound Investment via Overseas Special Purpose Vehicles, or SAFE Circular 75, and became effective on the same date. SAFE Circular 37 and its detailed guidelines require PRC residents to register with the local branch of SAFE before contributing their legally owned onshore or offshore assets or equity interest into any special purpose vehicle, or SPV, directly established, or indirectly controlled, by them for the purpose of investment or financing; and when there is (a) any change to the basic information of the SPV, such as any change relating to its individual PRC resident shareholders, name or operation period or (b) any material change, such as increase or decrease in the share capital held by its individual PRC resident shareholders, a share transfer or exchange of the shares in the SPV, or a merger or split of the SPV, the PRC resident must register such changes with the local branch of SAFE on a timely basis. On February 13, 2015, SAFE issued the Circular on Further Simplifying and Improving the Policies Concerning Foreign Exchange Control on Direct Investment, or SAFE Circular 13, which took effect on June 1, 2015. SAFE Circular 13 has delegated to the qualified banks the authority to register all PRC residents’ investment in SPVs pursuant to SAFE Circular 37, except that those PRC residents who have failed to comply with SAFE Circular 37 will remain to fall into the jurisdiction of the local SAFE branch and must make their supplementary registration application with the local SAFE branch. According to the relevant SAFE rules, failure to comply with the registration procedures set forth in SAFE Circular 37 may result in restrictions being imposed on the foreign exchange activities of the relevant onshore companies of SPVs, including the payment of dividends and other distributions to its offshore parent or affiliate and the capital inflow from such offshore entity, and may also subject the relevant PRC residents and onshore companies to penalties under PRC foreign exchange administration regulations. Further, failure to comply with various SAFE registration requirements described above would result in liability for foreign exchange evasion under PRC laws.

Regulations on Stock Incentive Plans

In December 2006, the People’s Bank of China promulgated the Administrative Measures of Foreign Exchange Matters for Individuals, setting forth the respective requirements for foreign exchange transactions by individuals (both PRC or non-PRC citizens) under either the current account or the capital account. In January 2007, SAFE issued the Individual Foreign Exchange Rule, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen’s participation in the employee stock ownership plans or stock option plans of an overseas publicly-listed company. On February 15, 2012, SAFE issued the Stock Incentive Plan Rules, which terminated the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Ownership Plan or Stock Option Plan of Overseas Listed Company issued by SAFE on March 28, 2007. The purpose of the Stock Incentive Plan Rules is to regulate foreign exchange administration of PRC domestic individuals who participate in employee stock holding plans and stock option plans of overseas listed companies.

According to the Stock Incentive Plan Rules, if PRC “domestic individuals” (both PRC residents and non-PRC residents who reside in the PRC for a continuous period of not less than one year, excluding the foreign diplomatic personnel and representatives of international organizations) participate in any stock incentive plan of an overseas listed company, a PRC domestic qualified agent, which could be the PRC subsidiary of such overseas listed company, shall, among others things, file, on behalf of such individual, an application with SAFE to conduct the SAFE registration with respect to such stock incentive plan, and obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises. With the SAFE registration certificate for stock incentive plan, the PRC domestic qualified agent shall open a special foreign exchange account at a PRC domestic bank to hold the funds required in connection with the stock purchase or option exercise, any returned principal or profits upon sales of stock, any dividends issued upon the stock and any other income or expenditures approved by SAFE. Such PRC individuals’ foreign exchange income received from the sale of stock and dividends distributed by the overseas listed company and any other income shall be fully remitted into a special foreign currency account opened and managed by the PRC domestic qualified agent before distribution to such individuals.

Many issues regarding the Stock Incentive Plan Rules require further interpretation. We and our employees who have participated in an employee stock ownership plan or stock option plan as “domestic individuals”, or PRC optionees, were subject to the Stock Incentive Plan Rules when our company became an overseas listed company. However, we cannot assure you that each of the above optionees will fully comply with the Individual Foreign Exchange Rule and Stock Incentive Plan Rules. If we or our PRC employees fail to comply with the Stock Incentive Plan Rules, we and our PRC employees may be subject to fines and other legal sanctions. In addition, the General Administration of Taxation has issued a few circulars concerning employee stock options. Under these circulars, our employees working in China who exercise stock options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those employees who exercise their stock options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or any other PRC government authorities.

C.	Organizational Structure

We are an exempted company incorporated with limited liability under the laws of the Cayman Islands with subsidiaries and affiliated entities in China and Hong Kong. We currently mainly operate our business through the following significant subsidiaries and significant affiliated PRC entities and certain of their subsidiaries:


Name	Jurisdiction of Incorporation	Relationship with us
Shanghai Noah Investment (Group) Co., Ltd.⁽¹⁾	China	Wholly owned subsidiary
Noah Upright (Shanghai) Fund Investment Consulting Co., Ltd.	China	Wholly owned subsidiary
Shanghai Noah Financial Services Corp.⁽²⁾	China	Wholly owned subsidiary
Kunshan Noah Xingguang Investment Management Co., Ltd.	China	Wholly owned subsidiary
Noah Holdings (Hong Kong) Limited	Hong Kong	Wholly owned subsidiary
Shanghai Rongyao Information Technology Co., Ltd.	China	Wholly owned subsidiary
Zigong Noah Financial Service Co., Ltd.	China	Wholly owned subsidiary
Noah Financial Express (Wuhu) Microfinance Co., Ltd.	China	Wholly owned subsidiary
Shanghai Noah Chuangying Enterprise Management Co., Ltd.	China	Wholly owned subsidiary
Shanghai Noah Yijie Finance Technology Co., Ltd	China	Majority owned subsidiary
Noah Commercial Factoring Co., Ltd.	China	Majority owned subsidiary
Noah (Shanghai) Financial Leasing Co., Ltd	China	Wholly owned subsidiary
Noah Holdings International Limited	Hong Kong	Wholly owned subsidiary
Kunshan Noah Group Investment Management Co., Ltd.	China	Wholly owned subsidiary
Noah Insurance (Hong Kong) Limited	Hong Kong	Wholly owned subsidiary
Gopher Holdings (Hong Kong) Limited	Hong Kong	Wholly owned subsidiary
Gopher International Investment Management (Shanghai) Limited	China	Wholly owned subsidiary
Shanghai Noah Investment Management Co., Ltd.	China	Consolidated affiliated entity
Shanghai Noah Rongyao Insurance Broker Co., Ltd.	China	Consolidated affiliated entity
Gopher Asset Management Co., Ltd.⁽³⁾	China	Consolidated affiliated entity
Wuhu Gopher Asset Management Co., Ltd.	China	Consolidated affiliated entity
Gopher Nuobao (Shanghai) Asset Management Co., Ltd.	China	Consolidated affiliated entity

(1)	Formerly known as Shanghai Noah Rongyao Investment Consulting Co., Ltd.

(2)	Formerly known as Shanghai Noah Yuanzheng Investment Consulting Co., Ltd., and subsequently as Shanghai Noah Financial Services Co., Ltd.

(3)	Previously translated as “Tianjin Gefei Asset Management Co., Ltd.”

In August 2005, our founders started our business through the incorporation of Shanghai Noah Investment Management Co., Ltd., or Noah Investment, a domestic company in China. During the past few years, we have gradually transitioned from a consulting services provider focusing on wealth management to a comprehensive integrated financial services group with capabilities in wealth management, asset management and internet financial services. On April 12, 2017, Shanghai Noah Rongyao Investment Consulting Co., Ltd., our PRC subsidiary, was renamed into Shanghai Noah Investment (Group) Co., Ltd. to better represent our future business plan.

We conduct our wealth management business in China primarily through our subsidiary Noah Financial Services. Our asset management business and onshore insurance brokerage business are conducted through Noah Investment and its subsidiaries. We conduct our overseas wealth management and asset management business through Noah Holdings (Hong Kong) Limited, our subsidiary in Hong Kong.

In March 2012, Noah Investment acquired 100% equity interest of Tianjin Gopher Asset Management Co., Ltd., or Tianjin Gopher, and Gopher Asset Management from Noah Financial Services at cost in order to facilitate the development of fund of funds, a part of our asset management business. Tianjin Gopher, Gopher Asset Management and their thirteen affiliated institutions have completed the private investment fund manager registration with AMAC, which enable such affiliated institutions to launch self-developed products at lower costs. Tianjin Gopher, Shanghai Gopher and Gopher Asset Management mainly serve as general partners in fund of private equity funds, secondary market equity funds and real estate funds. Such funds have invested in and plan to continue to invest in equity funds with portfolio companies that may prefer to remain wholly PRC-owned. As of the date of this annual report, Gopher Asset Management has grown to be the core of our asset management business, having become a leading asset management company in China focused on funds of funds in private equity, real estate, secondary market equity funds, credit products and family office business, offering both investment opportunities in RMB and US$ in all of the these products. In March 2016, Noah Upright, previously a subsidiary of Noah Investment, was restructured to be a subsidiary of Noah Financial Services through equity transfer. On December 19 2016, Noah Holdings Limited, Noah Investment, Noah Group, Gopher Holdings (Hong Kong) Limited, Gopher Holdings Limited, Gopher Asset Management and Beijing Sequoia Equity Investment Center (Limited Partnership), or Sequoia Mingde, an affiliate of Sequoia Capital China entered into an Investment and Cooperation Agreement, pursuant to which Sequoia Mingde acquired 8% of equity interests in Gopher International Investment Management (Shanghai) Co., Ltd., a majority-owned subsidiary of Gopher (Hong Kong) Holdings Limited.

We primarily conduct our internet financial service business through Shanghai Noah Yijie Finance Technology Co., Ltd., our majority-owned subsidiary. In July 2015, Beijing Sequoia Mingde Equity Investment Center (Limited Partnership), an affiliate of Sequoia Capital China, acquired 9.8% of equity interests in Shanghai Noah Yijie Finance Technology Co., Ltd., at purchase price of RMB31.6 million. We hold a 54.93% interest of Shanghai Noah Yijie Finance Technology Co., Ltd. as of the date of this annual report.

As foreign-invested companies engaged in onshore insurance brokerage business are subject to stringent requirements compared with Chinese domestic enterprises under current PRC laws and regulations, our PRC subsidiaries and their subsidiaries, which are foreign-invested companies, do not meet all the requirements and therefore none of them is permitted to engage in the onshore insurance brokerage business. We conduct our onshore insurance brokerage business in China through Noah Investment and its subsidiaries, which are PRC domestic companies owned by our founders. Since we do not have equity interests in Noah Investment, in order to exercise effective control over its operations, in September 2007, Noah Group entered into certain contractual arrangements with Noah Investment and its shareholders.

Our contractual arrangements with Noah Investment and its shareholders enable us to (i) have power to direct the activities that most significantly affect the economic performance of Noah Investment; (ii) receive substantially all of the economic benefits from Noah Investment in consideration for the services provided by Noah Group; and (iii) have an exclusive option to purchase all or part of the equity interests in Noah Investment when and to the extent permitted by PRC law, or request any existing shareholder of Noah Investment to transfer any or part of the equity interest in Noah Investment to another PRC person or entity designated by us at any time at our discretion. We define “economic benefits” as the net income of and residual interests in Noah Investment and its subsidiaries. Through powers of attorney signed by all shareholders of Noah Investment, Noah Group has been granted the power of attorney to act on their behalf on all matters pertaining to Noah Investment and to exercise all of their rights as shareholders of Noah Investment. Through the exclusive support service agreement between Noah Investment and Noah Group, Noah Group has agreed to provide certain technical and operational consulting services and to license its intellectual property rights to Noah Investment in exchange for service fees. Pursuant to this agreement, the fees for the consulting services are determined by both parties based on actual services provided, after deducting costs and licensing fees. The licensing fees for the intellectual property are determined by both parties based on actual services provided on a quarterly basis. Through this agreement, we are entitled to fees that are equivalent to all of Noah Investment’s revenues for a given period. In addition, pursuant to the exclusive option agreement, Noah Investment’s shareholders are prohibited from transferring their equity interests to any third party, and Noah Investment is prohibited from declaring and paying any dividends without Noah Group’s prior consent. Through this arrangement, we can prevent leakage of any residual interests of Noah Investment. Through the share pledge agreement between Noah Investment’s shareholders and Noah Group, Noah Investment’s shareholders have pledged their shares to Noah Group to secure Noah Investment’s obligations under the exclusive support service agreement and the exclusive option agreement. If Noah Investment or its shareholders breach any of their obligations under the exclusive support service agreement or the exclusive option agreement, Noah Group, as the pledgee, will be entitled to foreclose on the pledged shares. As a result of these contractual arrangements, under GAAP, we are considered the primary beneficiary of Noah Investment and thus consolidate its results in our consolidated financial statements. Under PRC law, each of Noah Group and Noah Investment is an independent legal entity and neither of them is exposed to liabilities incurred by the other. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Contractual arrangements we have entered into among our PRC subsidiary, Noah Group, our variable interest entity and its shareholders may be subject to scrutiny by the PRC tax authorities and they may determine that we or our PRC variable interest entity and its subsidiaries owe additional taxes, which could substantially reduce our consolidated net income and the value of your investment.”

We conducted our commercial factoring business through Noah Factoring and our high net worth client education business through Enoch Education, both of which are majority-owned subsidiaries of Noah Group.

Contractual Arrangements

Exclusive Option Agreement. The shareholders of Noah Investment have entered into an exclusive option agreement with Noah Group in September 2007, under which the shareholders granted Noah Group or its third-party designee an irrevocable and exclusive option to purchase their equity interests in Noah Investment when and to the extent permitted by PRC law. The purchase price shall be the higher of the minimum amount required by PRC law and an amount determined by Noah Group. Noah Group may exercise such option at any time and from time to time until it has acquired all equity interests of Noah Investment. The term of this exclusive option agreement is ten years and will automatically extend for another ten years upon expiry if no party objects. During the term of this agreement, the shareholders of Noah Investment are prohibited from transferring their equity interests to any third party, and Noah Investment is prohibited from declaring and paying any dividend without Noah Group’s prior consent.

Exclusive Support Service Agreement. Under the exclusive support service agreement entered into between Noah Investment and Noah Group in September 2007, Noah Investment engages Noah Group as its exclusive technical and operational consultant and under which Noah Group agrees to assist in arranging financing necessary to conduct Noah Investment’s operational activities. Noah Group will provide certain support services to Noah Investment, including client management, technical and operational support and other services, for which Noah Investment shall pay to Noah Group service fees determined based on actual services provided. Noah Group is also obligated to grant Noah Investment licenses to use certain intellectual property rights, for which Noah Investment shall pay license fees at the rates set by Noah Group. As of the date of this filing, Noah Group has not received any service fees from Noah Investment because Noah Group has not provided any service to Noah Investment yet. This agreement has a term of ten years, which will automatically extend for another ten years upon expiry if neither party objects.

Share Pledge Agreement. All shareholders of Noah Investment have entered into a share pledge agreement with Noah Group in September 2007, under which the shareholders pledged all of their equity interests in Noah Investment to Noah Group as collateral to secure their obligations under the exclusive option agreement and Noah Investment’s obligations under the exclusive support service agreement. If Noah Investment or its shareholders violates any of their respective obligations under the exclusive support service agreement or the exclusive option agreement, Noah Group, as the pledgee, will be entitled to certain rights, including the right to sell the pledged share interests. The term of the share pledge is same as that of the exclusive option agreement

Powers of Attorney. Each shareholder of Noah Investment has executed a power of attorney to grant Noah Group or its designee the power of attorney to act on his or her behalf on all matters pertaining to Noah Investment and to exercise all of his or her rights as a shareholder of Noah Investment, including the right to attend shareholders meeting, appoint board members and senior management members, other voting rights and the right to transfer all or a part of his or her equity interest in Noah Investment.

In the opinion of Zhong Lun Law Firm, our PRC legal counsel:

•

We have been advised by our PRC legal counsel, however, that there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Accordingly, the PRC regulatory authorities may in the future take a view that is contrary to the above opinion of our PRC legal counsel. For example, substantial uncertainties exist as to how the draft PRC Foreign Investment Law or its implementation rules may impact the viability of our current corporate structure in the future. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.” It is uncertain whether any other new PRC laws or regulations relating to variable interest entity structures will be adopted or if adopted, what they would provide. We have been further advised by our PRC legal counsel that if the PRC government finds that the agreements that establish the structure for operating our onshore insurance brokerage business and other business do not comply with PRC government restrictions on foreign investment in the onshore insurance brokerage business or other businesses, we could be subject to severe penalties, including being prohibited from continuing our operations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Corporate Structure—If the PRC government finds that the agreements that establish the structure for operating our businesses in China do not comply with PRC regulatory restrictions on foreign investment in the relevant industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations” and “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”

D.	Property, Plants and Equipment

Our Changyang and Qinghuangdao office sites in Shanghai, including wealth management, asset management and internet financial service businesses, consist of approximately 23,263 square meters of leased space. Our 185 branch offices lease approximately 42,055 square meters of office space in aggregate. Our overseas business is mainly conducted by our Hong Kong office, with 1,235 square meters of leased office space.

ITEM 4A

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may 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 on Form 20-F

A.	Operating Results

Overview

We derive revenues from three business segments: wealth management, asset management and internet financial services. We generate revenues primarily from (i) one-time commissions derived from wealth management products, paid by our product providers, underlying corporate borrowers or clients, based on the value of the wealth management products purchased by our clients; (ii) recurring service fees paid by our clients providers of certain types of wealth management products or underlying corporate borrowers, based on the value of such products purchased by our clients or the net asset value of the portfolio underlying the products purchased by our clients; (iii) performance based income from some funds, including real estate funds, private equity funds and secondary market equity funds, distributed, raised and managed by us as part of our wealth management and asset management business; and (iv) other service fees, primarily including (a) revenues from small short-term loan; (b) revenues generated by our internet financial service business.

We have experienced significant growth in recent years. Our net revenues increased from RMB1,528.5 million in 2014 to RMB2,119.9 million in 2015 and to RMB2,513.6 million (US$362.0 million) in 2016, representing a CAGR of 28.2%. We recorded net income attributable to our shareholders of RMB446.6 million in 2014, RMB535.8 million in 2015 and RMB643.8 million (US$92.7 million) in 2016. The net income amounts include the impact of non-cash charges relating to share-based compensation in an aggregate amount of RMB32.7 million in 2014, RMB67.7 million in 2015 and RMB79.2 million (US$11.4 million) in 2016.

Factors Affecting Our Results of Operations

We have benefited from the overall economic growth, the growing high net worth and mass affluent populations and the increasing demand for sophisticated and personalized wealth management solutions through different platforms in China, all of which we anticipate will continue to increase as the overall economy and the high net worth population and mass affluent population continue to grow in China. However, any adverse changes in the economic conditions or regulatory environment in China may have a material adverse effect on China’s wealth management services and asset management industry, which in turn may harm our business and results of operations.

Our financial condition and results of operations are more directly affected by factors specific to our company, primarily including the following:

•

number of clients;

•

average transaction value per client;

•

accumulated aggregate value of finance products with recurring service fees previously distributed by us;

•

product mix;

•

AUM;

•

operating cost and expenses.

Number of Clients

Our revenue growth has been driven primarily by the increasing number of clients we serve. We primarily serve two types of clients: (i) registered individual clients, consisting of (a) high net worth individuals and (b) mass affluent individuals, which we serve through our internet financial service business, and (ii) enterprise and institutional clients affiliated with high net worth individuals. Our current core business is the distribution of wealth management products to high net worth individuals, which contributed 77.9%, 77.5% and 75.2% of our total revenues in 2014, 2015 and 2016, respectively. The number of our clients, particularly the number of our high net worth individual clients, is a key factor affecting our results of operations. An increasing number of high net worth individual clients may also result in a growing number of enterprise and institutional clients, as many high net worth individuals in China own or control small and medium-sized enterprises. In addition, our internet financial service business targets mass affluent individuals as part of its primary client base, although it also serves high net worth individuals. As our internet financial service business expands, we expect to serve an increasing number of mass affluent individuals, who form a significant portion of the expanding middle class in China.

The cumulative number of our registered clients increased from 70,557 as of December 31, 2017 to 99,019 as of December 31, 2015 and to 135,396 as of December 31, 2016, while the number of our active clients increased from 9,010 in 2014 to 12,573 in 2015 and to 12,027 in 2016. The total number of clients through our internet financial service platform increased from 28,985 as of December 31, 2014 to 277,372 as of December 31, 2015 and to 402,815 as of December 31, 2016. Although we generate no revenue from those registered clients who currently do not purchase products or services we distribute, with an increasing number of registered clients, we have the opportunity to introduce and recommend wealth management products that we distribute and asset management and internet financial services that we provide to a greater number of high net worth individuals and enterprise and institutional clients and accordingly may convert more registered clients into active clients. An increase in the number of active clients has contributed significantly to the growth of the total value of the products we distribute and the services we provide. We expect that the number of active clients will continue to be a key factor affecting our revenue growth. The number of new clients we may develop is affected by the breadth of our coverage network. As we expand our coverage network, we expect to increase our capacity and capability to cultivate and serve new clients, which may result in an increase in the number of new registered and active clients.

Average Transaction Value per Client

Average transaction value per client directly affects the total value of products we distribute and services we provide through our wealth management business, which in turn affects the amount of our revenue, primarily one-time commissions and recurring service fees. Average transaction value per client refers to the average value of wealth management products we distribute that are purchased by our active clients during a given period. The average transaction value per client for the wealth management business increased 11.9% from RMB7.0 million in 2014 to RMB7.9 million in 2015, and increased by 7.1% to RMB8.4 million (US$1.2 million) in 2016, primarily reflecting a change in product mix.

In recent years, we have been raising the required level of investable assets when we target high net worth individuals in order to focus our resources on serving the high-end segment of China’s high net worth population. Currently, we expect our registered individual clients to have investable assets (excluding primary residence) with an aggregate value exceeding RMB3.0 million (US$0.4 million).

Product Mix

Our product mix affects our revenues and operating profit. For our wealth management business, we distribute to our clients five types of products that are originated in China and Hong Kong: (i) fixed income products which provide investors with prospective fixed rates of return; (ii) private equity funds, including investments in various private equity funds sponsored by domestic and international asset/fund management firms, real estate funds and fund of funds; (iii) secondary market equity funds; (iv) mutual funds; and (v) insurance products. For our asset management business, we offer four types of asset management investments: (i) private equity; (ii) real estate; (iii) secondary market; and (iv) other fixed income investments as well as family office services and multiple-strategy asset management services. Beginning in 2014, we also offer internet financial services, which include online financial services platform for mass affluent individuals, small short-term loans and transaction data processing and online services for independent financial advisors.

The composition and level of revenues that we derive from the products are affected by product type. The product type determines whether we can receive one-time commissions, recurring service fees and/or performance-based income. For our wealth management business, we receive one-time commissions paid by our clients or by product providers or underlying corporate borrowers, calculated as a percentage of the value of the products that our clients purchase. In addition, we also receive recurring service fees or management fees where we are engaged by the product providers to provide recurring services to our clients who have purchased their products. We may also receive performance based income from some funds distributed by us, including real estate funds, private equity funds and secondary market equity funds. For our asset management business, we mainly receive management fees for all products we manage and performance-based income for some funds, especially those in the private equity, real estates and secondary market asset classes. We also generate revenues from other sources, primarily including (a) upfront subscription fees, management fees and redemption fees, paid by fund companies for distributing mutual fund products, (b) insurance brokerage commissions and (c) service fees paid by clients for the internet financial services we provide.

Wealth Management

The table below sets forth the total value of different types of wealth management products that we distributed, both in absolute amount and as a percentage of the total value of all products distributed, during the periods indicated:


	Years Ended December 31,
	2014				2015				2016
	RMB in millions		%		RMB in millions		%		RMB in millions		US$ in millions		%
Product type
Fixed income products		40,212		63.5		36,621		37.0		64,494		9,289		63.6
Private equity fund products		11,971		18.9		31,917		32.2		27,545		3,967		27.2
Secondary market equity fund products		10,328		16.3		28,054		28.4		7,846		1,130		7.7
Other products		860		1.3		2,402		2.4		1,499		216		1.5

All products		63,371		100.0		98,994		100.0		101,385		14,602		100.0

In the fourth quarter of 2013, we increased the distribution of insurance products in order to better serve our customers. In 2014, our most popular insurance policies are high-coverage accident injury insurance and global medical insurance products, and we launched new high-end medical insurance, general accident insurance, aviation accident insurance, serious and terminal illness insurance and life insurance. Our domestic insurance brokerage business currently represents an insignificant percentage of our revenues, while our oversea insurance brokerage business grew rapidly in 2015 and 2016.

On February 22, 2012, CSRC granted Noah Upright, one of Noah Investment’s subsidiaries, a fund distribution license, and we started our fund distribution business thereafter. In 2013, we increased distribution of these products in response to an increase in the demand for liquidity management. Fees generated from insurance products and mutual fund products have been insignificant to our financial results in 2014, 2015 and 2016. Therefore, we combine the total value of these products in the table above.

Asset Management

We are growing our asset management business under Noah Investment. In May 2010, we started distributing our own fund of funds products under our management. These fund products’ lives typically range from 5 to 7 years. In 2012, we began distributing real estate funds under our management. Such real estate funds are either fixed income products or private equity fund products, depending on the underlying assets, and their lives range from 0.5 to 5 years. As we receive recurring service fees over the life cycle of these funds, our distribution of these products represent a source of steady flow of recurring revenues. Our net revenues generated from asset management services increased from RMB366.1 million in 2014 to RMB465.0 million in 2015 and to RMB531.8 million (US$76.6 million) in 2016. Revenues generated from asset management services now represent 21.2% of our overall total revenues. We also provide family office and discretionary portfolio management services business focused on ultra-high net worth and family office clients. In 2016, we continued our growth in this area by building deeper, long term client relationships and providing services for our family office clients.

The table below summarizes our AUM as of December 31, 2015 and 2016.


	As of December 31,
	2015				2016
	RMB in billions		%		RMB in billions		US$ in billions		%
Product type
Real estate investments		31.8		36.7		23.2		3.3		19.2
Private equity investments		37.9		43.7		61.7		8.9		51.0
Secondary market investments		10.7		12.3		8.3		1.2		6.9
Other investments		6.3		7.3		27.8		4.0		23.0

All products		86.7		100.0		120.9		17.4		100.0

Internet Financial Services

Starting from the second quarter of 2014, we began offering a range of internet financial services. We launched Cai Fu Pai, an internet financial service platform that provides financial products and services to mass affluent individuals in China. Through our Jintong Zhifu platform, we facilitate transaction data processing services by transferring customer data to licensed third-party payment related companies. Our internet financial service business generates service fees collected from clients for the services we provide and interest for small short-term loans collateralized by our financial products or real estate properties, through our Rong Yi Tong platform.

Operating Cost and Expenses

Our financial condition and operating results are directly affected by our operating cost and expenses, primarily consisting of (i) compensation and benefits, including salary and commissions for our relationship managers, share-based compensation expenses, bonus related performance-based income, and other employee salary and bonuses, (ii) selling expenses, (iii) general and administrative expenses and (iv) other operating expenses, deducting government subsidies. Our operating costs and expenses are primarily affected by several factors, including the number of our employees, rental expenses and certain non-cash charges.

The number of our employees was 1,860, 2,688 and 2,823 as of December 31, 2014, 2015 and 2016, respectively. The increase was primarily a result from the expansion of our relationship managers, product design team and new business entities. We plan to continue to expand our coverage network, and anticipate that our operating expenses related to compensation and benefits will increase as a result of hiring new employees. However, as we continue to grow our business, we are focused on reducing other operating costs and expenses through leveraging economies of scale.

The number of our branch and sub-branch offices was 94, 135 and 185 as of December 31, 2014, 2015 and 2016, respectively. Our operating costs and expenses include share-based compensation charge related to the share options or restricted shares granted to employees. We expect to incur additional share-based compensation expenses related to share options or restricted shares in the future as we plan to continue to grant share options or restricted shares to our employees.

Key Components of Results of Operations

Net Revenues

Our net revenues are total revenues, net of business taxes and related surcharges, which ranged from 5.35% to 5.65% of gross revenue in 2014 and 2015. With the rollout of the Value-added Tax (“VAT”) reform on May 1, 2016, business tax is no longer applicable to us, and the applicable VAT rate is 3%, 6%, and 17%. As VAT liability is excluded when calculating net revenues, our net revenues are total revenues, net of only VAT related surcharges, which range from 7.0% to 13.0% of VAT liabilities. We recorded net revenues of RMB1,528.5 million, RMB2,119.9 million and RMB2,513.6 million (US$362.0 million), respectively. Our net revenues come from three business segments: wealth management, asset management and internet financial services.

We derive revenues primarily from the following sources and business segments:

One-time commissions

•

for wealth management: we generally receive the one-time commission from our product providers, underlying corporate borrowers or clients upon the establishment of a wealth management product;

•

for asset management: we generally do not receive one-time commission for our directly managed funds.

Recurring service fees

•

for wealth management: (i) recurring service fees over the life cycle of the private fund products previously distributed by us to our clients, which are paid on a periodic basis and typically calculated as a percentage of the total value of investments in the underlying funds, at the establishment date of the wealth management product; (ii) recurring service fees for investments in funds focusing on mutual funds and insurance products, which are paid on a periodic basis and calculated daily as a percentage of the net asset value of the portfolio underlying the products purchased by our clients;

•

for asset management: includes recurring service fees over the life cycle of the funds managed by us, which are paid on a periodic basis and typically calculated as a percentage of the total value of investments in the underlying funds previously distributed by us to our clients;

Performance based income are revenues generated from some funds, distributed, raised and/or managed by us;

Other service fees are derived from small short-term loans, our internet financial service business and other businesses.

•

for internet financial services: service fees paid by clients for the online platform, small, short-term loan services or transaction data processing and related service we provide.

•

for wealth management: revenues generated from our Enoch education business, and other services;

The table below sets forth the amounts of total one-time commissions, recurring service fees, performance based income and other service fees, respectively, for our wealth management business, asset management business and internet financial service business, respectively, for the periods indicated:


	Years Ended December 31,
	2014			2015			2016
	RMB			RMB			RMB			US$
Wealth Management Business
Revenues:
One-time commissions		423,218,934			390,668,384			809,461,138			116,586,654
Recurring service fees		243,619,600			334,983,117			413,085,113			59,496,632
Performance based income		7,952,243			141,773,493			11,143,779			1,605,038
Other service fees		13,246,685			69,447,545			67,435,787			9,712,774
Third-party net revenues		688,037,462			936,872,539			1,301,125,817			187,401,097
One-time commissions		180,943,785			424,354,473			318,554,406			45,881,378
Recurring service fees		342,603,359			324,182,643			347,818,641			50,096,304
Performance based income		2,444,365			—			706,390			101,741
Other service fees		75,050			393,683			722,009			103,991
Related party net revenues		526,066,559			748,930,799			667,801,446			96,183,414

Total revenues		1,214,104,021			1,685,803,338			1,968,927,263			283,584,511
Less: business taxes and related surcharges		(68,598,144	)		(88,285,200	)		(37,274,715	)		(5,368,676	)

Net revenues		1,145,505,877			1,597,518,138			1,931,652,548			278,215,836


	Years Ended December 31,
	2014			2015			2016
	RMB			RMB			RMB			US$
Asset Management Business
Revenues:
One-time commissions		—			520,001			1,184,221			170,563
Recurring service fees		76,313,477			66,309,348			61,915,165			8,917,639
Performance based income		16,680,481			52,165,537			8,596,434			1,238,144
Other service fees		—			512,475			—			—
Third-party net revenues		92,993,958			119,507,361			71,695,820			10,326,346
One-time commissions		—			4,333,018			2,887,327			415,862
Recurring service fees		217,438,078			310,730,732			427,907,685			61,631,526
Performance based income		73,897,688			53,825,293			38,793,992			5,587,497
Other service fees		1,105,055			—			—			—
Related party net revenues		292,440,821			368,889,043			469,589,004			67,634,885

Total revenues		385,434,779			488,396,404			541,284,824			77,961,231
Less: business taxes and related surcharges		(19,319,443	)		(23,408,513	)		(9,474,316	)		(1,364,585	)

Net revenues		366,115,336			464,987,891			531,810,508			76,596,645


	Years Ended December 31,
	2014			2015			2016
	RMB			RMB			RMB			US$
Internet Financial Service Business
Revenues:
Other service fees		16,732,441			58,330,241			50,358,068			7,253,070
Third-party net revenues		16,732,441			58,330,241			50,358,068			7,253,070
Recurring service fees		30,326			—			—			—
Other service fees		856,695			166,123			1,065,914			153,524
Related party net revenues		887,021			166,123			1,065,914			153,524

Total revenues		17,619,462			58,496,364			51,423,982			7,406,594
Less: business taxes and related surcharges		(755,784	)		(1,074,552	)		(1,314,268	)		(189,294	)

Net revenues		16,863,678			57,421,812			50,109,714			7,217,300

In the past, our one-time commissions from our wealth management business accounted for more than half of our net revenues. Starting in 2013, our recurring service fees constituted more than half of our net revenues, primarily due to an increase in assets under our management.

We also receive performance-based revenues from some funds previously distributed by us and funds for which we serve as the general partners. For more details about performance-based income, please refer to “Item 4. Information On The Company—B. Business Overview—Our Products and Services—Asset Management Investments.”

Operating Cost and Expenses

Our operating cost and expenses currently consist of compensation and benefits, selling expenses, general and administrative expenses and other operating expenses, offset by certain government subsidies that we receive. The following table sets forth the components of our operating cost and expenses, both in absolute amount and as a percentage of net revenues for the periods indicated:


	Years Ended December 31,
	2014						2015						2016
	RMB			%			RMB			%			RMB			US$			%
Operating cost and expenses:
Compensation and benefits		(737,460,338	)		48.2			(1,164,492,379	)		54.9			(1,300,403,960	)		(187,297,128	)		51.7
Selling expenses		(147,265,810	)		9.6			(263,815,409	)		12.4			(322,667,518	)		(46,473,789	)		12.8
General and administrative expenses		(151,626,278	)		9.9			(170,929,513	)		8.1			(234,488,066	)		(33,773,306	)		9.3
Other operating expenses		(29,961,830	)		2.0			(94,624,304	)		4.5			(151,087,419	)		(21,761,115	)		6.0
Government subsidies		90,931,462			(5.9	)		132,709,712			(6.3	)		162,364,268			23,385,319			(6.5	)

Total operating cost and expenses		(975,382,794	)		63.8			(1,561,151,893	)		73.6			(1,846,282,695	)		(265,920,019	)		73.5

Compensation and Benefits

Compensation and benefits mainly include salaries and commissions for our relationship managers and investment professionals, share-based compensation expenses, bonus related to performance-based income, and salaries and bonuses for our middle-office and back-office employees. In 2014, 2015 and 2016, we incurred commission expenses to our relationship managers of RMB213.7 million, RMB370.2 million and RMB371.4 million (US$53.5 million), respectively, representing 14.0%, 17.5% and 14.8% of our net revenues in the same period, respectively. We anticipate that our compensation and benefits will continue to increase as we hire more relationship managers for our existing and new branch offices and distribute more wealth management products. In addition, there is an increase in commission rates to relationship managers driven by the change in product mix to more products with recurring service fees and longer durations, which is in line with the market trend.

Share-Based Compensation Expenses

Our operating cost and expenses include share-based compensation expenses due to grants of stock options to our employees and directors and the vesting of restricted shares. Share-based compensation was included in compensation and benefits for the years ended December 31, 2014, 2015 and 2016, respectively. The following table sets forth our share-based compensation expenses both in absolute amounts and as a percentage of net revenues for the periods indicated:


	Years Ended December 31,
	2014				2015				2016
	RMB		%		RMB		%		RMB		%
Share options		9,043,829		0.6		33,912,040		1.6		39,008,208		1.5
Restricted shares		23,647,858		1.5		33,760,448		1.6		40,163,109		1.6

Total share-based compensation		32,691,687		2.1		67,672,488		3.2		79,171,317		3.1

We adopted a share incentive plan in 2008 and another share incentive plan in 2010.

Selling Expenses

Our selling expenses primarily include expenses associated with the operations of branch offices, such as rental expenses, and expenses attributable to marketing activities.

General and Administrative Expenses

Our general and administrative expenses primarily include rental and related expenses of our leased office spaces and professional service fees.

Other Operating Expenses

Our other operating expenses mainly included costs incurred directly in relation to our revenues.

Government Subsidies

Government subsidies are cash subsidies received in the PRC from local governments as incentives for investing in certain local districts. Such subsidies are used by us for general corporate purposes and are reflected as an offset to our operating cost and expenses.

Share Options

On April 15, 2014, we granted options to purchase a total of 398,500 ordinary shares to our newly appointed independent directors at an exercise price of US$27.82. The options have a four-year vesting schedule with 25% of each option vesting on the first anniversary of the applicable grant date and the remainder vesting ratably over the next 36 months.

On May 7, 2014, we granted options to purchase a total of 2,500 ordinary shares to one of our independent directors at an exercise price of US$26.86. The options have a 5-month vesting schedule with 25% of the options vesting on the vesting commencement date and the remaining vesting about 5 months after the vesting commencement date.

We modified the exercise price for certain outstanding options that have been granted but not exercised under the 2008 and 2010 share incentive plans as of January 16, 2012 in order to provide appropriate incentives to the relevant employees, officers and directors. The exercise prices of the eligible options were modified to be US$12.12 per ordinary share, or US$6.06 per ADS, which represents the average closing price of the our ADSs traded on the New York Stock Exchange during the preceding week, with other conditions remaining unchanged. We compared the fair value of the modified options against the original awards as of the modification date and concluded that there is US$1.0 million incremental compensation cost related to options not yet vested to be recognized over the remaining vesting period. The weighted average exercise price before and after the modification are US$19.81 and US$12.12 per ordinary share, respectively.

We converted the granted but unvested options as of May 21, 2012 into restricted shares. The conversion reduced the number of options and made the exercise prices to be zero, but other conditions remaining unchanged. We compared the fair value of the modified options against the original awards as of the modification date and concluded that there is US$2.0 million incremental compensation cost related to restricted shares not yet vested to be recognized over the remaining vesting period. The weighted average exercise price before and after the modification are US$9.52 and nil per ordinary share, respectively.

On August 6, 2014, we granted 19,375 restricted shares to certain independent directors to replace options previously granted to them and modified the purchase price of the unvested restricted shares from an average of US$37.07 per share to zero, but other conditions remained unchanged. We compared the fair value of the modified options against the original awards as of the modification date and concluded that there remains a US$0.3 million incremental compensation cost related to restricted shares not yet vested to be recognized over the remaining vesting period.

On May 5, 2015, we granted options to purchase a total of 362,700 ordinary shares to our newly appointed independent directors at an exercise price of US$34.74, US$41.54, or US$58.70. The options have a four-year vesting schedule with 25% of each option vesting on the first anniversary of the applicable grant date and the remainder vesting ratably over the next 36 months.

On July 1, 2016, we granted options to purchase a total of 372,850 ordinary shares to our newly appointed independent directors at an exercise price of US$38.72. The options have a four-year vesting schedule with 25% of each option vesting on the first anniversary of the applicable grant date and the remainder vesting ratably over the next 36 months.

We recorded RMB9.0 million, RMB33.9 million and RMB39.0 million (US$5.6 million) for share-based compensation expenses related to share options expenses in 2014, 2015 and 2016, respectively. 128,457, 49,887 and 62,430 share options were exercised during 2014, 2015 and 2016, respectively. As of December 31, 2016, there was RMB117.7 million unrecognized compensation expenses related to unvested share options granted under our share incentive plan, which is expected to be recognized over a weighted-average period of 2.66 years.

Restricted Shares

On April 15, 2014, we issued 75,000 restricted shares in accordance with the provisions of the 2010 share incentive plan to certain employees. The restrictions on these restricted shares have a four-year vesting schedule with restrictions on 25% of the restricted shares to be removed on the first anniversary of the issue date and the remainder to be removed ratably over the next 36 months.

On August 6, 2014, we granted 19,375 restricted shares to certain independent directors to replace options previously granted and modify the purchase price of the unvested restricted shares from an average of $37.03 per share to zero, but other conditions remain unchanged. We compared the fair value of the modified awards against the original awards as of the modification date and concluded that there remains a US$0.3 million incremental compensation cost related to restricted shares not yet vested to be recognized over the remaining vesting period.

On December 19, 2014, we issued 8,000 restricted shares in accordance with the provisions of the 2010 share incentive plan to a newly appointed independent director. The restrictions on these restricted shares have a two-year vesting schedule, with 25% of the options vesting on the vesting commencement date, 25% vesting on the first anniversary date and the remaining 50% vesting on the second anniversary date.

On February 8, 2015, we issued 8,000 restricted shares and on May 1, 2015, we issued 8,000 restricted shares, in accordance with the provisions of the 2010 share incentive plan to two independent directors. The restrictions on these restricted shares have a two-year vesting schedule, with 25% of the options vesting on the vesting commencement date, 25% vesting on the first anniversary date and the remaining 50% vesting on the second anniversary date.

On May 5, 2015, we issued 137,393 restricted shares in accordance with the provisions of the 2010 share incentive plan to certain employees. The restrictions on these restricted shares have a four-year vesting schedule, with restrictions on 25% of the restricted shares to be removed on the first anniversary of the issue date and the remainder to be removed ratably over the next 36 months.

On July 1, 2016, we issued 106,719 restricted shares in accordance with the provisions of the 2010 share incentive plan to certain employees. The restrictions on these restricted shares have a four-year vesting schedule, with restrictions on 25% of the restricted shares to be removed on the first anniversary of the issue date and the remainder to be removed ratably over the next 36 months.

On November 1, 2016, we issued 8,000 restricted shares in accordance with the provisions of the 2010 share incentive plan to an independent director. The restrictions on these restricted shares have a two-year vesting schedule, with 25% of the options vesting on the vesting commencement date, 25% vesting on the first anniversary date and the remaining 50% vesting on the second anniversary date.

On December 19, 2016, we issued 8,000 restricted shares in accordance with the provisions of the 2010 share incentive plan to an independent director. The restrictions on these restricted shares have a two-year vesting schedule, with 25% of the options vesting on the vesting commencement date, 25% vesting on the first anniversary date and the remaining 50% vesting on the second anniversary date.

As of December 31, 2016, there was RMB59.3 million in total unrecognized compensation expense related to such non-vested restricted shares, which is expected to be recognized over a weighted-average period of 2.38 years.

Taxation

The Cayman Islands

We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, payments of capital or dividends in respect of our shares are not subject to taxation in the Cayman Islands and are not subject to withholding tax in the Cayman Islands. Gains derived from the disposal of our shares are not subject to Cayman Islands income or corporation tax. The Cayman Islands currently have no income, corporation or capital gains tax and no estate duty, inheritance tax or gift tax.

Hong Kong

Under the current Hong Kong Inland Revenue Ordinance, our subsidiaries established in Hong Kong are subject to 16.5% income tax on their taxable income generated from operations in Hong Kong. Under the Hong Kong tax laws, it is exempted from the Hong Kong income tax on its foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiaries to us are not subject to any Hong Kong withholding tax.

PRC

Our PRC subsidiaries and our PRC variable interest entity and their respective subsidiaries were established in the PRC and as such are subject to value-added tax, education surtax and urban maintenance and construction tax on the services provided in the PRC. Business tax and related surcharges are primarily levied based on revenues concurrent with a specific revenue- producing transaction at combined rates ranging from 5.35% to 5.65%. They can be presented either on a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) at our accounting policy decision under GAAP. We have elected to report such business tax and related surcharges on a net basis as a reduction of revenues. Business tax and related surcharges of RMB88.7 million, RMB112.8 million and RMB48.1 million (US$6.9 million) are deducted from our total revenues for the years ended December 31, 2014, 2015 and 2016, respectively. With the rollout of the Value-added Tax (“VAT”) reform on May 1, 2016, business tax is no longer applicable to us, and the applicable VAT rate is 3%, 6%, and 17%. As VAT liability is excluded when calculating net revenues, our net revenues are total revenues, net of only VAT related surcharges, which range from 7.0% to 13.0% of VAT liabilities. We recorded net revenues of RMB1,528.5 million, RMB2,119.9 million and RMB2,513.6 million (US$362.0 million), respectively.

On March 23, 2016, the Ministry of Finance and the State Administration of Taxation jointly issued the Circular on the Pilot Program for Overall Implementation of the Collection of Value Added Tax Instead of Business Tax, or Circular 36, which will take effect on May 1, 2016. Pursuant to Circular 36, all companies operating in construction industry, real estate industry, finance industry, modern service industry or other industries which were required to pay business tax are required to pay value-added tax, in lieu of business tax. According to Circular 36, the applicable value-added tax rate for our PRC subsidiaries, our PRC variable interest entity and its subsidiaries is 6%.

In addition, our PRC subsidiaries, our PRC variable interest entity and its subsidiaries are subject to PRC enterprise income tax on their taxable income in accordance with the relevant PRC income tax laws. On January 1, 2008, the EIT Law in China took effect. It applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies.

Under the EIT Law, dividends from our PRC subsidiaries out of earnings generated after the new law came into effect on January 1, 2008 are subject to a withholding tax. Distributions of earnings generated before January 1, 2008 are exempt from PRC withholding tax.

Under the EIT Law, enterprises that are established under the laws of foreign countries or regions and whose “de facto management bodies” are located within the PRC territory are considered PRC resident enterprises, and will be subject to the PRC enterprise income tax at the rate of 25% on their worldwide income. Under the Implementation Rules of the EIT Law, “de facto management bodies” are defined as the bodies that have material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—The dividends we receive from our PRC subsidiaries may be subject to PRC tax under the PRC Enterprise Income Tax Law, which would have a material adverse effect on our financial condition and results of operations.” In addition, if we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could result in unfavorable tax consequences to us and our non-PRC shareholders or ADS holders.

For more information on PRC tax regulations, see “Item 4. Information on the Business—B. Business Overview—Regulations—Regulations on Tax.”

Critical Accounting Policies

We prepare financial statements in accordance with 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 and 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, which together form 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 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. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

Consolidation of Variable Interest Entities

As foreign-invested companies engaged in the onshore insurance brokerage business are subject to stringent requirements compared with Chinese domestic enterprises under the current PRC laws and regulations, our PRC subsidiary, Noah Group, and its subsidiaries, as foreign-invested companies, do not meet all such requirements and therefore none of them is permitted to engage in the onshore insurance brokerage business in China. Therefore, our founders decided to conduct the onshore insurance brokerage business in China through Noah Investment, our variable interest entity, and its subsidiaries, which are PRC domestic companies beneficially owned by our founders. In addition, we currently conduct our asset management business and certain other restricted services in China through Noah Investment and its subsidiaries.

Since we do not have any equity interests in Noah Investment, in order to exercise effective control over its operations, through Noah Group, we entered into a series of contractual arrangements with Noah Investment and its shareholders, pursuant to which we are entitled to receive effectively all economic benefits generated from Noah Investment. The exclusive option agreement and power of attorney provide us effective control over Noah Investment and its subsidiaries, while the equity pledge agreements secure the equity owners’ obligations under the relevant agreements. Because we have both the power to direct the activities of Noah Investment that most significantly affect its economic performance and the right to receive substantially all of the benefits from Noah Investment, we are deemed the primary beneficiary of Noah Investment. Accordingly, we have consolidated the financial statements of Noah Investment since its inception. The aforementioned contractual agreements are effective agreements between a parent and a consolidated subsidiary, neither of which is accounted for in the consolidated financial statements (i.e., a call option on subsidiary shares under the exclusive option agreement or a guarantee of subsidiary performance under the share pledge Agreement) or are ultimately eliminated upon consolidation (i.e., service fees under the exclusive support service agreement or loans payable/receivable under the loan agreement).

We believe that our contractual arrangements with Noah Investment are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. The interests of the shareholders of Noah Investment may diverge from that of our company, which may potentially increase the risk that they would seek to act contrary to the contractual terms.

We also make equity investments in entities that are considered VIEs and perform evaluation on an ongoing basis to determine whether we are the primary beneficiary of any of these investments. See accounting policy for “investments in affiliates” below.

Investments in Affiliates

We serve as the general partner for our proprietary fund of funds and real estate funds. For all the funds we serve as general partner, we are required by the limited partnership agreements to also hold equity interest in those funds. From time to time, we may also invest in those funds to the extent the risk and return profile is deemed acceptable by our established investment policy. Our equity interest in each individual fund is normally less than 3%. Such investments are accounted for using equity method of accounting and reported in Investment in Affiliates on consolidated balance sheets.

Affiliated companies are entities over which we have significant influence, but do not have control. We generally consider an ownership interest of 20% or higher to represent significant influence. Investments in limited partnerships of more than 3% to 5% have generally been viewed as more than minor so that may imply significant influence. We also consider that we have significant influence over the funds that we serve as general partner or fund manager of, and our ownership interest in these funds as limited partner is generally lower than 3%. We do not consolidate the funds of which we serve as general partner or fund manager of, mainly because substantive kick-out rights exist and are exercisable by non-related limited partners of these funds, and/or we are not the primary beneficiary of these funds. We have early adopted ASU 2015-02 as of December 31, 2015 and ASU 2016-17 and concluded that none of the existing funds require consolidation under the new guidance. Investments in affiliates are accounted for by the equity method of accounting. Under this method, our share of the post-acquisition profits or losses of affiliated companies is recognized in the statements of operation and our shares of post-acquisition movements in other comprehensive income are recognized in other comprehensive income. Unrealized gains on transactions between us and affiliated companies are eliminated to the extent of our interest in the affiliated companies; unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When our share of losses in an affiliated company equals or exceeds its interest in the affiliated company, we do not recognize further losses, unless we have incurred obligations or made payments on behalf of the affiliated company. An impairment loss is recorded when there has been a loss in value of the investment that is other than temporary. We have not recorded any impairment losses in any of the periods reported.

Under ASU 2015-02, the service fees we earn, including carried interest earned in the capacity of general partner or fund manager, are commensurate with the level of effort required to provide such services and are at arm’s length and therefore are not deemed as variable interests.

In evaluating whether the limited partnership investment funds which we managed as general partner are VIEs or not, we firstly assessed whether a simple majority or lower threshold of limited partnership interests, excluding interests held by the general partner, parties under common control of the general partner, or parties acting on behalf of the general partner, have substantive kick-out rights or participating rights. If such rights exist, the limited partnership is not deemed a VIE and no further analysis will be performed. If the limited partnership is assessed to be a VIE, we further assesses whether any interest it has constitutes a variable interest. Before 2015, all limited partnerships we managed as general partner had substantive kick-out rights exercisable by a simple majority of non-related limited partners and therefore were not deemed VIEs. Since 2015, some of the newly formed limited partnerships we manage as general partner do not have substantive kick-out rights exercisable by a simple majority of non-related limited partners and therefore constitute VIEs. As a result, such limited partnerships are deemed VIEs not consolidated by us due to the fact that the general partner interest to absorb losses or receive benefits is not potentially significant to the VIEs.

We started to manage the contractual funds which we manage as fund manager and earns management fee and/or carried interest from second half of 2014. The contractual funds are VIEs as the fund investors do not have substantive kick-out rights or participating rights. We sometimes invested in the contractual funds we manage for investment income. Such investments constitute variable interests to the contractual funds which are believed to be VIEs. We performed a qualitative analysis to determine if its interest could absorb losses or receive benefits that could potentially be significant to the VIEs and concluded we are not the primary beneficiary.

We account for these investments using the equity method of accounting due to the fact that we have significant influence on these investees. We recorded investments in affiliates of RMB326.2 million and RMB 539.2 million (US$77.7 million) as of December 31, 2015 and 2016, respectively and income from equity in affiliates of RMB13.6 million, RMB21.4 million and RMB 22.3 million (US$3.2 million) for the years ended December 31, 2014, 2015 and 2016, respectively.

Revenue Recognition

We derive revenue from distributing wealth management products and providing recurring services to our clients over the duration of the wealth management product, which is typically several years. Prior to a client’s purchase of a wealth management product, we provide the client with a wide spectrum of consultation services, including product selection, review, risk profile assessment and evaluation and recommendation for the client.

We recognize revenues when there is persuasive evidence of an arrangement, service has been rendered, the sales price is fixed or determinable and collectability is reasonably assured. Revenues are recorded, net of sales related taxes and surcharges.

One-time commissions. Upon establishment of a wealth management product, we earn a one-time commission paid by our clients, product providers or the underlying corporate borrowers calculated as a percentage of the wealth management products purchased by our clients. We enter into one-time commission agreements with product providers or underlying corporate borrowers, which specifies the key terms and conditions of the arrangement. Such agreements do not include rights of return, credits or discounts, rebates, price protection or other similar privileges.

We define the “establishment of a wealth management product” for its revenue recognition purpose as the time when both of the following two criteria are met: (1) the client has entered into a purchase or subscription contract with the relevant product provider and, if required, the client has transferred a deposit to an escrow account designated by the product provider and (2) the product provider has issued a formal notice to confirm the establishment of a wealth management product.

Revenues are recorded upon the establishment of the wealth management product, when the provision of service concludes and the fee becomes fixed and determinable, assuming all other revenue recognition criteria have been met, and there are no future obligations or contingencies. Certain contracts require that a portion of the payment be deferred until the end of the wealth management product’s life or other specified contingency. In such instances, we defer the contingent amount until the contingency has been resolved. A small portion of our one-time commission arrangements require the provision of certain after sales activities, which primarily relate to disseminating information to clients related to investment performance. We accrue the estimated cost of providing these services, which are inconsequential, when the one-time commission is earned as the services to be provided are substantially complete, we have historically completed the after sales services in a timely manner and can reliably estimate the remaining costs.

Recurring Service Fees. Recurring service fees depend on the types of wealth management products we distribute and/or manage and are calculated as either (1) a percentage of the total capital commitments of investments made by the investors or (2) as a percentage of the fair value of the total investment in the wealth management product, calculated daily. As we provide these services throughout the contract term for either method of calculation, revenues are recognized on a daily basis over the contract term, assuming all other revenue recognition criteria have been met. Recurring service agreements do not include rights of return, credits or discounts, rebates, price protection or other similar privileges. Prepayments for recurring service fees are deferred and recognized as revenue on a daily basis over the contract term, assuming all other revenue recognition criteria have been met.

Multiple Element Arrangements. We enter into multiple element arrangements when a product provider or underlying corporate borrowers engages us to provide both wealth management product distribution and recurring services. We also provide both wealth management product distribution and recurring services to funds that we serve as general partner or fund manager.

We allocate arrangement consideration in multiple-deliverable revenue arrangements at the inception of an arrangement to all deliverables based on the relative selling price in accordance with the selling price hierarchy, which includes: (i) vendor-specific objective evidence, or VSOE if available; (ii) third-party evidence, or TPE if VSOE is not available; and (iii) best estimate of selling price, or BESP if neither VSOE nor TPE is available.

VSOE. We determine VSOE based on our historical pricing and discounting practices for the specific service when sold separately. In determining VSOE, we require that a substantial majority of the selling prices for these services fall within a reasonably narrow pricing range. We historically had provided wealth management product distribution services on a stand-alone basis but the volume of such services has been significantly decreased in recent years. Therefore, VSOE is no longer available for our wealth management product distribution services. We have not sold our recurring services on a stand-alone basis, so no VSOE exists for recurring services.

TPE. When VSOE cannot be established for deliverables in multiple element arrangements, we apply judgment with respect to whether we can establish a selling price based on TPE. TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our products and services contain certain level of differentiation such that the comparable pricing of services with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor services’ selling prices are on a stand-alone basis. As a result, we have not been able to establish selling price based on TPE.

BESP. When it is unable to establish selling price using VSOE or TPE, the Group uses BESP in its allocation of arrangement consideration. The objective of BESP is to determine the price at which the Group would transact a sale if the service were sold on a stand-alone basis. The Group determines BESP for deliverables by considering multiple factors including, but not limited to, prices it charged for similar offerings, market conditions, specification of the services rendered, product lifecycles, and pricing strategies and practices. The Group has used BESP to allocate the selling price of wealth management product distribution service and recurring services under these multiple element arrangements.

Revenue for the respective units of accounting is also recognized in the same manner as described above.

Performance-based Income. In a typical arrangement in which we serve as fund manager, and in some cases in which we serve as distributor, except for secondary market funds of funds, we are entitled to a performance-based fee based on the extent by which the fund’s investment performance exceeds a certain threshold. Such performance-based fees are typically calculated and distributed when the cumulative return of the fund can be determined (ie. investment gains are realized), and is not subject to clawback provisions. We do not accrue any performance-based income when the investment gains are not realized.

Beginning in 2015, for certain secondary market fund products for which we provide recurring services, including both the funds for which we serve as distribution channel and the funds of funds for which we act as the fund manager, the performance-based income may also include a variable performance fee contingent upon the performance of the underlying investment in the measurement period, typically calculated at the end of the measurement period and settled subsequently. Such performance-based fee is not subject to clawback provisions and is recognized when the contingent criteria are met at the end of the measurement period.

Other Service Fees. We also derived revenues from small short-term loan, internet financial service business and payment-related service, which were recorded as other service fees and represented 1.0%, 0.4%, and 0.6% of our total net revenue for the year ended December 31, 2016.

From November 2013, we started offering small short-term loan services. Revenue is recognized when there are probable economic benefits to us and when the revenue can be measured reliably. Interest on loan receivables is accrued monthly in accordance with their contractual terms and recorded as accrued interest receivable. We do not charge prepayment penalties to customers.

In 2014, we started internet financial service business to provide financial services to mass affluent individuals in China through our proprietary internet financial platforms. Revenues derived from internet financial service business is recorded in other service fees.

Our transaction data processing entity provides information processing services by transferring payment information to licensed third-party payment related companies and charges the customers fixed transaction fees based on the number of transactions it facilitates. We recognize the transaction fees as revenue.

Results of Operations

The following table sets forth a summary of our consolidated results of operations for the periods indicated. The information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report. The operating results in any period are not necessarily indicative of results that may be expected for any future period.


	Years Ended December 31,
	2014			2015			2016
	RMB			RMB			RMB			US$
Revenues
Third-party revenues:
One-time commissions		423,218,934			391,188,385			810,645,359			116,757,217
Recurring service fees		319,933,077			401,292,465			475,000,278			68,414,270
Performance-based income		24,632,724			193,939,030			19,740,213			2,843,182
Other service fees		29,979,126			128,290,261			117,793,855			16,965,844

Third-party revenues		797,763,861			1,114,710,141			1,423,179,705			204,980,513
Related party revenues:
One-time commissions		180,943,785			428,687,491			321,441,733			46,297,239
Recurring service fees		560,071,763			634,913,375			775,726,326			111,727,830
Performance-based income		76,342,053			53,825,293			39,500,382			5,689,238
Other service fees		2,036,800			559,806			1,787,923			257,514

Related-party revenues		819,394,401			1,117,985,965			1,138,456,364			163,971,821
Total Revenues		1,617,158,262			2,232,696,106			2,561,636,069			368,952,334
Less: business taxes and related surcharges		(88,673,371	)		(112,768,265	)		(48,063,299	)		(6,922,555	)

Net Revenues		1,528,484,891			2,119,927,841			2,513,572,770			362,029,779

Operating cost and expenses:
Compensation and benefits		(737,460,338	)		(1,164,492,379	)		(1,300,403,960	)		(187,297,128	)
Selling expenses		(147,265,810	)		(263,815,409	)		(322,667,518	)		(46,473,789	)
General and administrative expenses		(151,626,278	)		(170,929,513	)		(234,488,066	)		(33,773,306	)
Other operating expenses		(29,961,830	)		(94,624,304	)		(151,087,419	)		(21,761,115	)
Government subsidies		90,931,462			132,709,712			162,364,268			23,385,319

Total operating cost and expenses		(975,382,794	)		(1,561,151,893	)		(1,846,282,695	)		(265,920,019	)

Income from operations:		553,102,097			558,775,948			667,290,075			96,109,760

Other income (expenses):
Interest income		38,901,980			39,698,790			39,537,775			5,694,624
Interest expenses		—			(16,050,359			(19,288,813	)		(2,778,167	)
Investment income		23,552,297			51,954,918			48,537,737			6,990,888
Other income (expense), net		(13,961,307	)		455,030			(2,531,621	)		(364,629	)
Total other income		48,492,970			76,058,379			66,255,078			9,542,716

Income before taxes and income from equity in affiliates		601,595,067			634,834,327			733,545,153			105,652,476
Income tax expense		(151,293,021	)		(129,885,747	)		(157,996,588	)		(22,756,242	)
Income from equity in affiliates		13,583,865			21,352,767			22,342,896			3,218,046

Net income		463,885,911			526,301,347			597,891,461			86,114,280
Less: net income (loss) attributable to non-controlling interests		17,333,060			(9,522,737	)		(40,601,294	)		(5,847,803	)
Less: Loss attributable to redeemable non-controlling interest of a subsidiary		—			—			(5,335,678	)		(768,498	)

Net income attributable to Noah Holdings Limited shareholders		446,552,851			535,824,084			643,828,433			92,730,581

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015

Net Revenues. Our net revenues increased by 18.6% from RMB2,119.9 million for the year ended December 31, 2015 to RMB2,513.6 million (US$362.0 million) for the year ended December 31, 2016. The increase was attributable to increases in one-time commission revenues and recurring service fees.

•

For the wealth management business, our net revenues from one-time commissions increased by 39.5% from RMB772.3 million for the year ended December 31, 2015 to RMB1,106.7 million (US$159.4 million) for the year ended December 31, 2016, primarily due to the aggregate value of the wealth management products distributed by us. Our net revenues from recurring service fees increased by 19.5% from RMB624.6 million for the year ended December 31, 2015 to RMB746.5 million (US$107.5 million) for the year ended December 31, 2016, mainly due to the cumulative effect of wealth management products with recurring service fees previously distributed by us. Our net revenues from performance-based income for the full year 2016 were RMB11.6 million (US$1.7 million), a 91.3% decrease from 2015, primarily due to a decrease in performance-based income from secondary market products distributed by us. Our net revenues from other service fees for the full year 2016 were RMB66.9 million (US$9.6 million), representing a 48.2% increase from 2015.

•

For the asset management business, our net revenues from one-time commissions were RMB4.0 million (US$0.6 million) for the year ended December 31, 2016 as compared to RMB4.6 million for the year ended December 31, 2015. Our net revenues from recurring service fees increased by 34.1% from RMB359.0 million for the year ended December 31, 2015 to RMB481.2 million (US$69.3 million) for the year ended December 31, 2016, mainly due to the increase in assets under management by us, which was partially offset by the impact of lower management fee rates due to a change in composition of asset types under management. Our net revenues from performance-based income for the full year 2016 were RMB46.6 million (US$6.7 million), a 53.9% decrease from the full year 2015, primarily due to a year-over-year decrease in performance-based income received for positive performance of secondary market investments by us.

•

For the internet financial service business, our net revenues were RMB50.1 million (US$7.2 million), a 12.7% decrease from RMB57.4 million for the full year 2015, mainly due to the modification of the business model starting from the second half of 2015.

Operating cost and expenses. Operating cost and expenses increased by 18.3% from RMB1,561.2 million in the year ended December 31, 2015 to RMB1,846.3 million (US$265.9 million) in the year ended December 31, 2016. The increase in operating costs and expenses was primary driven by increased expenses related to marketing and client engagement events, and increased rental expenses due to office expansion and relocation.

For the wealth management business, our operating cost and expenses increased by 24.2% from RMB1,131.5 million in the year ended December 31, 2015 to RMB1,405.6 million (US$202.5 million) in the year ended December 31, 2016.

•

Compensation and benefits includes compensation for relationship managers and back-office employees. Compensation and benefits for the full year 2016 were RMB1,000.3 million (US$144.1 million), a 16.9% increase from 2015. In 2016, relationship manager compensation increased by 9.7% from 2015. Other compensation for the full year 2016 increased by 27.3% from 2015, primarily due to increases in both the number of back-office employees and share-based compensation.

•

Selling expenses increased by 28.1% from RMB219.3 million in the year ended December 31, 2015 to RMB281.0 million (US$40.5 million) in the year ended December 31, 2016, primarily due to an increase in marketing initiatives and rental fees.

•

General and administrative expenses for the full year 2016 were RMB120.8 million (US$17.4 million), a 53.2% increase from 2015, primarily due to increased rental and related expenses and depreciation.

•

Other operating expenses, which include other costs incurred directly in relation to our revenues, for the full year 2016 were RMB82.1 million (US$11.8 million), an increase of 53.7% from 2015. The increase was primarily due to the growth of other businesses within the wealth management segment.

•

Government subsidies increased from RMB76.0 million in the year ended December 31, 2015 to RMB78.4 million (US$11.3 million) in the year ended December 31, 2016.

For the asset management business, our operating cost and expenses decreased by 3.2% from RMB217.4 million in the year ended December 31, 2015 to RMB210.5 million (US$30.3 million) in the year ended December 31, 2016.

•

Compensation and benefits include compensation of managers of institutional client relationships, fund managers and back-office employees. Compensation and benefits for the full year 2016 were RMB165.2 million (US$23.8 million), a 10.0% decrease from the full year 2015. The decrease was primarily due to less performance-based compensation to fund managers as lower performance based income was recognized in the full year 2016 compared with the corresponding period in 2015.

•

Selling expenses for the full year 2016 were RMB16.2 million (US$2.3 million), a 6.4% decrease from 2015, primarily due to an increase in expenses related to brand promotion.

•

General and administrative expenses for the full year 2016 were RMB77.2 million (US$11.1 million), a 44.2% increase from 2015, primarily due to increased consulting fee.

•

Government subsidies represent cash subsidies received from local governments for general corporate purposes. The Company received RMB83.9 million (US$12.1 million) in government subsidies in the full year 2016, compared to RMB56.3 million in 2015.

For the internet financial service business, our operating costs and expenses for the full year 2016 were RMB230.1 million (US$33.1 million), an increase of 8.4% from 2015, and represent our expenses in human resources, marketing and internet infrastructure, as well as expenses incurred in promoting our internet financial service business. Operating costs and expenses primarily consisted of compensation and benefits of RMB135.0 million (US$19.4 million), selling expenses of RMB25.5 million (US$3.7 million), general and administrative expenses of RMB36.5 million (US$5.3 million) and other operating expenses of RMB33.1 million (US$4.8 million).

Interest Income. Interest income decreased to RMB39.5 million (US$5.7 million) for the year ended December 31, 2016 from RMB39.7 million for the year ended December 31, 2015.

Interest Expenses. Interest expenses were RMB19.3 million (US$2.8 million) for the year ended December 31, 2016, as compared to RMB 16.1 million for the year ended December 31, 2015, primarily due to the issuance of our convertible note in 2015.

Investment Income. Investment income was RMB48.5 million (US$7.0 million) for the year ended December 31, 2016, as compared to RMB52.0 million for the year ended December 31, 2015, primarily due to a decrease in financial investments.

Income Tax Expense. Income tax expense increased by 21.6% to RMB158.0 million (US$22.8 million) for the year ended December 31, 2016 from RMB129.9 million for the year ended December 31, 2015, primarily due to an increase in taxable income.

Net Income Attributable to Noah Holdings Limited Shareholders. Net income attributable to Noah Holdings Limited increased by 20.2% from RMB535.8 million for the year ended December 31, 2015 to RMB643.8 million (US$92.7 million) for the year ended December 31, 2016.

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014

Net Revenues. Our net revenues increased by 38.7% from RMB1,528.5 million for the year ended December 31, 2014 to RMB2,119.9 million (US$327.3 million) for the year ended December 31, 2015. The increase was attributable to increases in one-time commission revenues, recurring service fees and performance-based income.

For the wealth management business, our net revenues from one-time commissions increased by 35.5% from RMB570.0 million for the year ended December 31, 2014 to RMB772.3 million (US$119.2 million) for the year ended December 31, 2014, primarily due to the aggregate value of the wealth management products distributed by the Company. Our net revenues from recurring service fees increased by 12.9% from RMB553.1 million for the year ended December 31, 2014 to RMB624.6 million (US$96.4 million) for the year ended December 31, 2015, mainly due to the cumulative effect of finance products with recurring service fees previously distributed by the Company, which was partially offset by the impact of lower recurring service fee rates due to a change in product mix. Our net revenues from performance-based income for the full year 2015 were RMB134.3 million (US$20.7 million), a 1,269.6% increase from 2014, primarily consisting of performance-based income received for the positive performance of the secondary equity market fund products distributed by the Company. Our net revenues from other service fees for the full year 2015 were RMB66.2 million (US$10.2 million), representing a 426.6% increase from 2014.

For the asset management business, our net revenues from one-time commissions were RMB4.6 million (US$0.7 million) for the year ended December 31, 2015 as compared to nil for the year ended December 31, 2014. Our net revenues from recurring service fees increased by 28.6% from RMB279.0 million for the year ended December 31, 2014 to RMB359.0 million (US$55.4 million) for the year ended December 31, 2015, mainly due to the increase in assets under management by the Company, which was partially offset by the impact of lower management fee rates due to a change in composition of asset types under management. Our net revenues from performance-based income for the full year 2015 were RMB100.9 million (US$15.6 million), a 17.3% increase from the full year 2014, primarily consisting of performance-based income received for the positive performance of secondary equity market funds of funds managed by the Company.

For the internet financial service business, our net revenues were RMB57.4 million (US$8.9 million), a 241.1% increase from RMB16.8 million for the full year 2014, primarily because this is a fast growing business segment for the Company.

Operating cost and expenses. Operating cost and expenses increased by 60.1% from RMB975.4 million in the year ended December 31, 2014 to RMB1,561.2 million (US$241.0 million) in the year ended December 31, 2015. The increase in compensation expenses was partially driven by a change in product mix to more products with recurring service fees and longer durations.

For the wealth management business, our operating cost and expenses increased by 61.5% from RMB700.7 million in the year ended December 31, 2014 to RMB1,131.5 million (US$174.7 million) in the year ended December 31, 2015.

•

Compensation and benefits includes compensation for relationship managers and back-office employees. Compensation and benefits for the full year 2015 were RMB855.9 million (US$132.1 million), a 60.2% increase from 2014. In 2015, relationship manager compensation increased by 58.8% from 2014, reflecting an increase in the aggregate value of financial products distributed and an increase in commission rates to relationship managers driven by the change in product mix to more products with recurring service fees and longer durations. Other compensation for the full year 2015 increased by 62.2% from 2014, primarily due to increases in both the number of back-office employees and share-based compensation.

•

Selling expenses increased by 62.1% from RMB135.3 million in the year ended December 31, 2014 to RMB219.3 million (US$33.9 million) in the year ended December 31, 2015, primarily due to an increase in marketing initiatives and rental fees.

•

General and administrative expenses for the full year 2015 were RMB78.9 million (US$12.2 million), a 5.6% increase from 2014.

•

Other operating expenses, which include other costs incurred directly in relation to the Company’s revenues, for the full year 2015 were RMB53.4 million (US$8.2 million), an increase of 125.8% from 2014. The increase was primarily due to the growth of other businesses within the wealth management segment.

•

Government subsidies increased from RMB67.3 million in the year ended December 31, 2014 to RMB76.0 million (US$11.7 million) in the year ended December 31, 2015.

For the asset management business, our operating cost and expenses increased by 11.4% from RMB195.2 million in the year ended December 31, 2014 to RMB217.4 million (US$33.6 million) in the year ended December 31, 2015.

•

Compensation and benefits include compensation of managers of institutional client relationships, fund managers and back-office employees. Compensation and benefits for the full year 2015 were RMB183.5 million (US$28.3 million), a 24.6% increase from the full year 2014. The increase was primarily due to an increase in the number of back-office employees.

•

Selling expenses for the full year 2015 were RMB17.3 million (US$2.7 million), a 77.1% increase from 2014, primarily due to an increase in client services.

•

General and administrative expenses for the full year 2015 were RMB53.6 million (US$8.3 million), a 10.9% decrease from 2014, primarily due to decreased legal fees.

•

Government subsidies represent cash subsidies received from local governments for general corporate purposes. The Company received RMB56.3 million (US$8.7 million) in government subsidies in the full year 2015, a 138.6% increase from 2014.

For the internet financial service business, our operating costs and expenses for the full year 2015 were RMB212.3 million (US$32.8 million), an increase of 166.9% from 2014, and represent the Company’s expenses in human resources, marketing and internet infrastructure, as well as expenses incurred in promoting the Company’s internet financial service business. Operating costs and expenses primarily consisted of compensation and benefits of RMB125.1 million (US$19.3 million), selling expenses of RMB27.3 million (US$4.2 million), general and administrative expenses of RMB38.5 million (US$5.9 million) and other operating expenses of RMB21.8 million (US$3.4 million).

Interest Income. Interest income increased from RMB38.9 million for the year ended December 31, 2014 to RMB39.7 million (US$6.1 million) for the year ended December 31, 2015.

Interest Expenses. Interest expenses were RMB16.1 million (US$2.5 million) for the year ended December 31, 2015, as compared to nil for the year ended December 31, 2014, primarily due to the issuance of our convertible note in 2015.

Investment Income. Investment income was RMB52.0 million (US$8.0 million) for the year ended December 31, 2015, as compared to RMB23.6 million for the year ended December 31, 2014, primarily due to an increase in financial investments.

Income Tax Expense. Income tax expense decreased by 14.1% from RMB151.3 million for the year ended December 31, 2014 to RMB129.9 million (US$20.1 million) for the year ended December 31, 2015, primarily due to lower effective tax rate.

Net Income Attributable to Noah Holdings Limited Shareholders. Net income attributable to Noah Holdings Limited increased by 20.0% from RMB446.6 million for the year ended December 31, 2014 to RMB535.8 million (US$82.7 million) for the year ended December 31, 2015.

Inflation

Since our inception, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, the year-over-year percent changes in the consumer price index for January 2014, 2015 and 2016 were increases of 2.5%, 0.8% and 1.8%, respectively. Although we have not been materially affected by inflation in the past, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China. For example, certain operating cost and expenses, such as personnel expenses, real estate leasing expenses, travel expenses and office operating expenses may increase as a result of higher inflation. Additionally, because a substantial portion of our assets consists of cash and cash equivalents, high inflation could significantly reduce the value and purchasing power of these assets. We are not able to hedge our exposure to higher inflation in China.

Foreign Currency

The exchange rate between U.S. dollar and RMB has increased from RMB6.4778 per U.S. dollar as of December 31, 2015 to RMB6.943 per U.S. dollar as of December 31, 2016. We have not hedged exposures to exchange fluctuations using any hedging instruments. See also “Item 3. Key Information—D. Risk Factors – Fluctuations in exchange rates could have a material adverse effect on our results of operations and the value of your investment.” and “Item 11. Quantitative and Qualitative Disclosures about Market Risk – Foreign Exchange Risk.”

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued, ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting guidance also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 can be adopted using one of two retrospective application methods. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date”, which defers the effective date of ASU 2014-09 by one year, to fiscal years beginning after December 15, 2017, and interim periods therein. We currently expect to adopt ASU 2014-09 and related topics in the first quarter of 2018, and are evaluating which transition approach to use.

Additionally, the FASB issued the following various updates affecting the guidance in ASU 2014-09. The effective dates and transition requirements are the same as those in ASC Topic 606 above. In March 2016, FASB issued an amendment to the standard, ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” Under the amendment, an entity is required to determine whether the nature of its promise is to provide the specified good or service itself (that is, the entity is a principal) or to arrange for that good or service to be provided by the other party (as an agent). In April 2016, FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, to clarify identifying performance obligations and the licensing implementation guidance, which retaining the related principles for those areas. In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”. This update addresses narrow-scope improvements to the guidance on collectability, noncash consideration and completed contracts at transition. The update provides a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. Then, in December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”. The updates in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which requires deferred income tax liabilities and assets to be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. The guidance is effective for public entities for annual periods beginning after December 15, 2016, and interim periods within those annual periods with early adoption being permitted. The ASU will only have impact on our consolidated balance sheets classification upon adoption.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which requires that equity investments, except for those accounted for under the equity method or those that result in consolidation of the investee, be measured at fair value, with subsequent changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. ASU 2016-01 also impacts the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted only for certain provisions. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize most leases on the balance sheet. This ASU requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. In addition, the ASU expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes a number of practical expedients. The provisions of this guidance are effective for annual periods beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-06, “Contingent Put and Call Options in Debt Instruments” clarifying the assessment of whether contingent call or put options that can accelerate the payment of principal on debt instruments are clearly and closely related to the economic characteristics and risks of their debt hosts, a criteria in assessing whether to bifurcate an embedded derivative. The new pronouncement clarifies the exercise contingency and the event triggering the contingency does not need to be evaluated in the clearly and closely analysis relative to interest rates or credit risks. Rather, the call or put would be evaluated as a derivative regardless of the exercise contingency. Further, if an entity is no longer required to bifurcate a put or call option per the new guidance, the entity has a one-time option to irrevocably elect to measure that debt instrument in its entirety at fair value with changes in fair value recognized in earnings. ASU No. 2016-06 is effective for annual periods beginning after December 15, 2016 and early adoption is permitted. The ASU should be applied using the modified retrospective basis to existing instruments as of the beginning of the annual period of adoption. We early adopted ASU No. 2016-06 as of December 31, 2016. The adoption of this pronouncement did not have a material impact on our consolidated financial statements of the prior reporting period.

In March 2016, the FASB issued ASU 2016-07, which eliminates eliminate the requirement to retroactively adopt the equity method of accounting. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. The ASU will not impact our consolidated balance sheets classification upon adoption.

In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. For public entities, the ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual reporting periods. Early adoption will be permitted in any interim or annual period for which financial statements have not yet been issued or have not been made available for issuance. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The update is intended to improve financial reporting in regards to how certain transactions are classified in the statement of cash flows. This update requires that debt extinguishment costs be classified as cash outflows for financing activities and provides additional classification guidance for the statement of cash flows. The update also requires that the classification of cash receipts and payments that have aspects of more than one class of cash flows to be determined by applying specific guidance under generally accepted accounting principles. The update also requires that each separately identifiable source or use within the cash receipts and payments be classified on the basis of their nature in financing, investing or operating activities. The update is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.

In October 2016, FASB issued ASU 2016-16, Income Taxes (Topic 740). Current GAAP prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. Under the new standard, an entity is to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The new standard does not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. The new standard is effective for annual periods beginning after December 15, 2017, including interim reporting periods within those annual periods. The ASU will not impact our consolidated balance sheets upon adoption.

In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held through Related Parties under Common Control (“ASU 2016-17”). This guidance in ASU 2016-17 states that reporting entities deciding whether they are primary beneficiaries no longer have to consider indirect interests held through related parties that are under common control to be the equivalent of direct interests in their entirety. Reporting entities would include those indirect interests on a proportionate basis. The Group has adopted this new guidance and has applied the guidance retrospectively beginning with the annual period in which the amendments in ASU 2015-02 were adopted in 2015.

In October 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash. The update applies to all entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows. The update addresses diversity in practice that exists in the classification and presentation of changes in restricted cash on the statement of cash flows, and requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The update is effective for public companies for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The updates should be applied using a retrospective transition method to each period presented. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The update affects all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The update is intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The update provides a more robust framework to use in determining when a set of assets and activities is a business, and also provides more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable. For public companies, the update is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The update also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The update should be applied on a prospective basis. The nature of and reason for the change in accounting principle should be disclosed upon transition. For public companies, the update is effective for any annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We are in the process of evaluating the impact of adoption of this guidance on our consolidated financial statements.

B.	Liquidity and Capital Resources

To date, we have financed our operations primarily through cash generated from our operating activities, the proceeds from the private placement of our Series A preferred shares, the net proceeds from our initial public offering and the net proceeds from the issuance of our convertible note through private placement in early 2015. Our principal uses of cash for the years ended December 31 2014 were for operating activities, primarily employee compensations and rental expenses. Starting from the year ended December 31, 2015, in addition to operating activities, we started to invest heavily in information systems. In 2013, we used RMB47.6 million to pay an annual dividend and RMB19.6 million to repurchase ADSs. In 2014, we did not pay any dividend or repurchase any shares. In 2015, we used RMB44.6 million (US$6.9 million) to repurchase ADSs. No dividend was paid for the year ended December 31, 2015. In 2016, we used RMB12.6 million (US$1.9 million) to repurchase ADSs. As of December 31, 2016, we had RMB2,982.5 million (US$429.6 million) in cash and cash equivalents, consisting of cash on hand and demand deposits which are unrestricted as to withdrawal and use and which have original maturities of three months or less from their respective dates of purchase. We believe that our current cash and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs, including our cash needs for at least the next 12 months.

In March 2014, Noah Financial Services, our wholly owned subsidiary, entered into a RMB50 million revolving credit facility agreement with PingAn Bank Co., Ltd., which expired in March 2015.

In February 2015, we issued an aggregate principal amount of US$80 million of convertible notes through private placement to Greenwoods Asset Management, Hillhouse Capital Management and Keywise Capital Management. The convertible notes bear interest at a rate of 3.5% per annum from the issuance date and mature in February 2020. The holders will have the right, at the holders’ option, to require us to repurchase for cash on February 3, 2018 or on the maturity date, or upon a fundamental change or default, all of the Notes at a repurchase price that is equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the repurchase date.

Our PRC 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 PRC subsidiaries and our variable interest entity is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. 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. As a result of these PRC laws and regulations, our PRC subsidiaries are restricted in their ability to transfer a portion of their net assets, including general reserve and registered capital, either in the form of dividends, loans or advances. Such restricted portion amounted to RMB753.6 million, RMB1,234.0 million and RMB1,325.4 million (US$190.9 million) as of December 31, 2014, 2015 and 2016, respectively. The increase in the restricted portion from 2014 to 2015 was mainly due to an increase in the number of our PRC subsidiaries and increase of statutory reserves. The restricted assets of our variable interest entity amounted to RMB294.9 million, RMB438.9 million and RMB344.4 million (US$49.6 million) as of December 31, 2014, 2015 and 2016, respectively.

Furthermore, cash transfers from our PRC subsidiaries to our subsidiaries outside of China are subject to PRC government control of currency conversion. Restrictions on the availability of foreign currency may affect the ability of our PRC subsidiaries and variable interest entity to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. See “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China—Governmental control of conversion of Renminbi into foreign currencies may limit our ability to utilize our revenues effectively and affect the value of your investment.”

The following table sets forth a summary of our cash flows for the periods indicated:


	Years Ended December 31,
	2014			2015			2016
	RMB			RMB			RMB			US$
Net cash provided by operating activities		589,637,901			675,132,348			686,247,631			98,840,218
Net cash used in investing activities		(93,518,339	)		(759,462,206	)		(883,794,899	)		(127,292,943	)
Net cash provided by (used in) financing activities		60,448,133			462,771,650			994,635,081			143,257,249
Effect of exchange rate changes		6,426,044			4,276,967			52,498,078			7,561,296
Net increases in cash and cash equivalents		562,993,739			382,718,759			849,585,891			122,365,820
Cash and cash equivalents at the beginning of the period		1,187,211,176			1,750,204,915			2,132,923,674			307,204,908
Cash and cash equivalents at the end of the period		1,750,204,915			2,132,923,674			2,982,509,565			429,570,728

Operating Activities

Net cash provided by operating activities in 2016 was RMB686.2 million (US$98.8 million), primarily as a result of net income of RMB597.9 million (US$86.1 million), adjusted by non-cash charges from operating activities of RMB122.7 million (US$17.7 million), which primarily included share-based compensation expenses of RMB79.2 million (US$11.4 million) and depreciation and amortization of RMB61.3 million (US$8.8 million), partially offset by gain from equity in affiliates of RMB22.3 million (US$3.2 million). Net cash provided by proceeds of products purchased through our internet financial services business in 2016 was RMB125.0 million (US$18.0 million).

Net cash provided by operating activities in 2015 was RMB675.1 million, primarily as a result of net income of RMB526.3 million, adjusted by non-cash charges from operating activities of RMB81.1 million, which primarily included share-based compensation expenses of RMB67.7 million, changes in operating assets and liabilities arising from (i) an increase in payroll accrual and welfare expenses of RMB174.2 million, and (ii) an increase in other current liabilities of RMB167.6 million, offset principally by purchases of available-for-sale investments through internet financial service business RMB118.4 million and changes in operating assets and liabilities arising from (x) an decrease in deferred revenue of RMB29.3 million (y) an increase in amounts due from related parties of RMB86.4 million, (z) an increase in accounts receivable of RMB54.3 million. The significant increases of amounts due from related parties and accounts receivable are due to the increase of revenues.

Net cash provided by operating activities in 2014 was RMB589.6 million, primarily as a result of net income of RMB463.9 million, changes in operating assets and liabilities arising from (i) an increase in payroll accrual and welfare expenses of RMB141.9 million, (ii) an increase in other current liabilities of RMB79.2 million and (iii) an increase in income taxes payable of RMB40.0 million, offset principally by changes in operating assets and liabilities arising from (x) an increase in amounts due from related parties of RMB93.8 million, (y) an increase in other current assets of RMB30.1 million and (z) an increase in deferred tax assets and liabilities of RMB22.1 million. The increase in deferred revenue was primarily attributable to the increase in certain wealth management products, primarily private equity fund products and products with real estate or real estate related businesses as underlying assets. Prepayments for recurring service fees are deferred and recognized as revenue on a daily basis over the contract term, assuming all other revenue recognition criteria have been met. The total number of wealth management products with prepayments from product providers increased from 33 as of December 31, 2013 to 57 as of December 31, 2014.

We typically received most of one-time commissions and recurring service fees after they accrued and we have no bad debt. Our accounts receivable and amounts due from related parties amounted to RMB260.9 million, RMB360.6 million and RMB643.0 million (US$92.6 million) as of December 31, 2014, 2015 and 2016, respectively. The increase in accounts receivable was primarily due to higher revenues as a result of an increase in aggregate value of wealth management products distributed by us.

Investing Activities

Net cash used in investing activities in 2016 was RMB883.8 million (US$127.3 million), primarily attributable to RMB192.4 million (US$27.7 million) of investment in affiliates, RMB511.2 million (US$73.6 million) used by pledged factoring receivables net of purchases and collections, RMB106.5 million (US$15.3 million) in loans to related parties, RMB91.2 million (US$13.1 million) for purchase of long-term investment, RMB101.4 million (US$14.6 million) of purchases of property and equipment, and RMB119.3 million (US$17.2 million) net cash outflow for held-to-maturity securities while partially offset by RMB229.8 million (US$33.1 million) net cash inflow for available-for-sale investment and a net RMB8.4 million (US$1.2 million) in originated loans disbursement to third parties.

Net cash used in investing activities in 2015 was RMB759.5 million (US$117.2 mill