Hongbaoli’s 2022 Annual Board of Directors Operation Review

1. The industry situation of the company during the reporting period

The company is mainly engaged in propylene oxide derivatives, including polyurethane rigid foam polyether, isopropanolamine series products, and the research and development of propylene oxide, dicumyl peroxide, polyurethane insulation board, Production and sales belong to the manufacturing industry of chemical raw materials and products, and the products are applied to industries such as energy conservation and environmental protection.

Policy level: Since the Chinese government promised to "achieve carbon peak in 2030 and achieve carbon neutrality in 2060", the competent government departments have guided various industries to launch effective measures to achieve the "double carbon" goal. Jiangsu The province's "Carbon Peak Implementation Plan" was issued, which pointed out that during the "14th Five-Year Plan" period, a mechanism for the transformation from dual control of energy consumption to "dual control" of total carbon emissions and intensity was initially established. The key tasks include promoting the carbon peaking action in key industries. In the petrochemical industry, strictly control the new primary processing projects such as nitrogen fertilizer, phosphate fertilizer, calcium carbide, chlor-alkali, soda ash, and yellow phosphorus, and promote the construction of the national petrochemical industry base in a safe and orderly manner, aiming at high-end New chemical materials accelerate product structure adjustment, actively develop new technologies such as comprehensive efficiency improvement and carbon reduction in rectification systems, carbon capture and utilization, and vigorously develop circular economy. By 2025, the energy consumption per unit of regional GDP will be reduced by 14% compared with 2020. %, carbon dioxide emissions per unit of regional GDP to complete the target task assigned by the state. As a business enterprise and industry leader in polyurethane rigid foam polyether and isopropanolamine, Hongbaoli closely deploys the "double carbon" strategic action, continuously strengthens green technology research and development, actively develops "carbon reduction" products, and promotes green energy saving and High-quality development.

In 2022, the world economy will fall into recession, and the business situation at home and abroad will be severe. The complex international situation and intensified geopolitical conflicts have led to continuous rises in energy and food prices, leading to rising commodity prices. The United States has continued to raise interest rates, the US dollar has appreciated strongly, and export inflation; China’s economic growth has increased uncertainty, economic growth has slowed down, and consumption Demand weakens. Under the strong leadership of the Party Central Committee, the government has introduced a series of policies to promote the economy and protect the people's livelihood. The Chinese economy has continued to break new ground while climbing through the hurdles. This year, the market demand for downstream refrigerators (cabinets) has weakened and exports have decreased, resulting in a decline in the sales volume of rigid foam polyether products; the demand for propylene oxide has weakened, and the annual tax-included price has fluctuated between 8,000-12,200 yuan/ton, and the average price Significant year-on-year decline. The production and parking technical transformation of Taixing Propylene Oxide Production Base have affected the company's overall operating performance.

(1) The development status and overall supply and demand trend of the company's industry

1. Propylene oxide industry and accessories:

(1) Propylene oxide industry

Propylene oxide is an important basic chemical raw material, mainly used in the production of polyether polyol, propylene glycol/dimethyl carbonate, propylene glycol ether, isopropanolamine and various nonionic surfactants It is widely used in industries such as chemical industry, automobile, construction, food, tobacco, medicine, textile and cosmetics. The consumption of polyether polyols this year accounts for about 80% of the total. In the long run, the global propylene oxide industry is in a good development situation, but the advanced production technology is still in the hands of enterprises in developed countries such as the United States and Germany. China is one of the main production and sales places of propylene oxide in the world. The production process of propylene oxide is mainly divided into direct oxidation method, co-oxidation method and chlorohydrin method, and the chlorohydrin method is the main one. Due to the expected elimination of chlorohydrin process equipment and the consideration of industrial chain support, there are many production capacity plans for propylene oxide projects under construction and proposed in China. In 2022, under the background of global inflation, economic downturn and the successive release of production capacity of new propylene oxide plants, the annual output will increase, and the supply and demand pattern will gradually change from tight to loose. There will be some changes in supply and demand, but the performance of the demand side will not be as good as expected , the price range of propylene oxide dropped significantly compared with the previous year, and the market��Patented technology, including the research and development, process and production technology of polyurethane rigid foam combined polyether, the synthesis technology of isopropanolamine, and the production technology of high flame-retardant polyether polyol and high flame-retardant insulation board, and the production process of propylene oxide , DCP production process, etc. From the perspective of protecting core technologies, the company keeps technology and processes secret, and applies for patents in a timely manner for technologies suitable for disclosure. However, there are still a large number of production process technologies and product formulas that are not suitable for patent applications, so they are not subject to the " patent law protection. If the company's technical staff violates relevant regulations and leaks the company's process technology or product formula, the company will face the risk of core technology confidentiality.

The company's senior management personnel, core technical personnel and sales personnel have rich industry experience and technical experience in product development, production, sales and company management, etc., some senior management personnel and core technology The personnel also master some of the core technologies and processes of the products. These core talents are an important human resource foundation for the company's sustainable development, and also a valuable resource for the company to maintain its dominant position in the industry competition. The company continuously enhances the cohesion of employees, attracts and stabilizes core personnel through measures such as establishing and improving the employment mechanism and strengthening the construction of corporate culture. Nevertheless, if some of the company's senior management personnel, core technical personnel or key sales personnel resign, it will affect the company's market competitiveness and thus have an adverse impact on the company's long-term stable development. From the perspective of protecting core technology, the company divides technology and process into secrecy, and applies for patents (including invention patents) in a timely manner for technologies that can be disclosed. However, there are also a large number of production process technologies and product formulas that are not suitable for patent applications, so they are not subject to patent law. It is protected that the competition for talents in the current market is increasingly fierce, and it cannot be ruled out that the relevant personnel violated the company's regulations and leaked the company's product technology, resulting in the possibility of being stolen by other parties, thereby bringing the risk of core technology confidentiality.

The research and development of high technology and products largely depends on professional talents, especially core technical personnel. With the intensification of competition for talents in the same industry, if the company's core technical personnel leave, it may affect the company's continuous research and development capabilities, and enhance the talent advantages of competitors, which will adversely affect the company's participation in market competition and stable development.

Countermeasures and measures taken:

(1) Strengthen management and improve the company's comprehensive management level. The first is to promote the construction of corporate culture, increase the promotion of corporate culture, improve employees' recognition of corporate culture, enhance the sense of belonging of corporate employees, improve cohesion, carry forward the spirit of hard work and entrepreneurship, and further improve the professional quality and management level of company managers; Further improve the company's salary and welfare mechanism, fully mobilize the enthusiasm, initiative and creativity of employees, consciously safeguard the interests of the company, and avoid technology loss; third, in terms of system construction, increase investment in environment, safety, occupational health, and fire safety, and strictly implement the system To carry out the whole process management of enterprise operation to ensure the safety of production and operation.

(2) Integrate resources and create value. The first is to do a good job in the expansion of the propylene oxide project, and strive to complete and put into production as soon as possible, to provide guarantee for the production of polyether and isopropanolamine, and to form business performance to support the company's industrial development; the second is to optimize the management system and promote information construction. Ensure the safety of material procurement and supply and maximize benefits; the third is to strengthen the management of international trade operations, as well as the training of foreign exchange and financial professionals, and comprehensively use financial tools to reduce the impact of exchange rate fluctuations on operations.