Full year results for the period ended 31 December

9 May 2018

Pacific Alliance China Land Limited

Full year results for the period ended 31 December 2017

Pacific Alliance China Land Limited ("PACL" or the "Company"), an AIM-traded, closed-end investment company has today announced its full year audited results to 31 December 2017.

Highlights

· Net asset value as at 31 December 2017 was US$165.28 million, representing US$2.8816 per share, a 0.43% increase from 31 December 2016 (US$2.8694 per share).

· The Company's shares closed at US$2.363 on 31 December 2017, a 13.7% increase from 31 December 2016 and an 18.0% discount to the audited NAV per share.

· PACL's NAV and share price have both outperformed major benchmark indices including the FTSE 350 Real Estate Index (F3REAES) and the FTSE AIM All-Share Index (AXX) on a consistent basis since inception.

Company Developments

· The Company repurchased US$12 million of PACL's ordinary shares in 2017 pursuant to the Share Purchase programs announced in August 2017.

Portfolio and Company Developments

· All of the Company's investments have been exited.

Patrick Boot, on behalf of, Pacific Alliance Real Estate Limited commented that:

"Looking forward to 2018, we will continue to focus all our efforts on the timely repatriation of RMB and distribution of repatriation proceeds to shareholders. On behalf of the Board of Directors, I would like to thank you for your continued commitment and support."

For further information please contact:

Notes to Editors:

About Pacific Alliance China Land Limited

Pacific Alliance China Land Limited ("PACL") (AIM: PACL) is a closed-end investment company admitted to trading on the AIM Market of the London Stock Exchange in November 2007. PACL is focused on investing in a portfolio of existing properties, new developments, distressed projects and real estate companies in Greater China.

For more information about PACL, please visit: www.pacl-fund.com

Pacific Alliance China Land Limited is managed by a member of PAG, the Asian alternative investment Company management group. Founded in 2002, PAG is now one of the region's largest Asia-focused alternative investment managers, with funds under management across Private Equity, Real Estate and Absolute Return strategies. PAG has a presence across Asia with over 300 staff working in the region.

For more information about PAG, please visit: www.pagasia.com

Chairperson's Statement

As of 31 December 2017, the net asset value (NAV) of Pacific Alliance China Land Limited (the "Company" or "PACL") was US$165.28 million, or US$2.8816 per share, representing a 0.43% increase from 31 December 2016.

China's 2017 full-year GDP growth came in at 6.9%, above the government's target of 6.5%. This higher figure was mainly attributed to an overall improvement in both the Chinese and global economies. Robust and steady growth in domestic consumption and the services sector contributed to stronger-than-expected economic performance, with the services industry growing by 7.9% for the year. Meanwhile China's foreign trade volume rose 14.2% year-on-year in 2017, with exports up 10.8% and imports up 18.7%. However, the Chinese economy still faces challenges and downward pressure from excess industrial capacity. The government is likely to continue its monetary policy support and fiscal expansion, allowing China to maintain a more moderate and sustainable level of growth.

Most tier-two and tier-three cities saw moderate growth in terms of both price and transaction volumes, given the Chinese government's stricter property tightening measures. Home sales volumes, in terms of transacted building floor areas, also increased 5.3% year-on-year in 2017. Investment in real estate development gained 7% over the last year.

The Manager expects that the central government will continue to adopt differentiated housing policies for different cities, tightening controls in tier-one and tier-two cities where housing inventories are low, and loosening controls in lower-tier cities in order to boost demand and help facilitate a reduction of inventories in those oversupplied markets.

As all of the Company's investments have been exited we will continue to focus all our efforts on the timely repatriation of RMB and distribution of repatriation proceeds to shareholders. On behalf of the Board of Directors, I would like to thank you for your continued commitment and support.

Margaret Brooke

Chairperson

Investment Managers' Report

On 31 December 2017, the Company's share price closed at US$2.363, representing a 13.7% increase from 31 December 2016 and an 18.0% discount to the NAV per share. The Company's NAV and share price have both outperformed major benchmark indices including the FTSE 350 Real Estate Index (F3REAES) and the FTSE AIM All-Share Index (AXX) on a consistent basis since inception.

Portfolio Summary

Note

(1) The gross investment value includes an amount attributable to the PACL II shareholders.

(2) Of the total cash of US$176.6 million, US$175.9million was held as RMB in PRC banks.

Distribution

The timeline below is the Manager's best estimate of amounts and timing regarding future distributions to shareholders. The repatriation process involves many steps and requires numerous approvals. As always, the Manager will work to speed up the process where possible.

Note

(1) Project Malls proceeds were successfully repatriated on 12 January 2018 and a further distribution was completed in February 2018.

(2) Currently there are two levels of special purpose vehicles (SPVs) owning realized Auspice proceeds, i.e. a Tianjin SPV 100% owned by a Tianjin Wholly Foreign Owned Enterprise (WFOE). A statutory tax and liquidation audit is required for the two SPVs. The liquidation process usually takes a minimum of six months for each SPV and the dividend repatriation for a WFOE can only be made after the statutory audit is completed, which explains the longer time frame for repatriation and distribution. The process is generally sequential but some steps will be taken in parallel where possible.

Conclusion

In 2018, we expect both China's economy and the property market to further stabilize. The Manager will continue to focus on the timely repatriation of RMB and distribution of repatriation proceeds to shareholders

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

AS AT 31 DECEMBER 2017

Approved by the Board of Directors

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED CONDENSED SCHEDULE OF INVESTMENTS

AS AT 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

FOR THE YEAR ENDED 31 DECEMBER 2017

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2017

Supplementary information to statement of cash flows

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

1 Organization

Pacific Alliance China Land Limited (the "Fund") was incorporated on 5 September 2007 in the Cayman Islands. It is a closed-end Cayman Islands registered, exempted Fund. The address of its registered office is PO Box 472, 2nd Floor, Harbour Place, Grand Cayman KY1-1106, Cayman Islands.

The Fund's ordinary shares are traded on the AIM market of the London Stock Exchange. The Fund can raise additional capital up to the authorized share capital as described in Note 7.

The principal investment objective of the Fund and its subsidiaries (collectively, the "Fund") is to provide shareholders with capital growth and a regular level of income from investments in existing properties, new developments, distressed projects and real estate companies in Greater China.

The Fund's investment activities are managed by Pacific Alliance Real Estate Limited ("PARE" or the "Investment Manager"). The Fund appointed Sanne Fiduciary Services Limited to act as the custodian of certain assets of the Fund, and as the administrator and registrar pursuant to the Administration Custodian and Registrar Agreement.

On 25 July 2014, the Fund's investment policy changed to restrict new investment solely to (a) supporting existing investments, (b) utilizing Renminbi cash assets subject to exchange control restrictions, for low risk short-term investments, and (c) to focus future investment management efforts on the realization of the portfolio and the return of net realization proceeds to shareholders.

As of 31 December 2017, all investments under management were realized and most of the sale proceeds had been received by underlying special purpose vehicles. For project Malls, the profit component was repatriated in July 2017 and the invested capital was repatriated in February 2018. For project Auspice, the profit and invested capital is expected to be repatriated by second quarter of 2018 and fourth quarter of 2018 respectively. For project Diplomat, the remaining sales proceeds were received in the second quarter of 2017. The Company will not be liquidated until the repatriation process is fully completed.

Therefore, the financial statements of the Fund for the year ended 31 December 2017 are considered to be prepared on a going concern basis. The Fund will not be liquidated until the repatriation process is fully completed.

The consolidated financial statements were approved by the Board of Directors on 30 April 2018.

2 Summary of significant accounting policies

The following significant accounting policies are in conformity with accounting principles generally accepted in the United States of America ("US GAAP"). The Fund applies the provisions of Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 946-10, Financial Services - Investment Companies (the "Guide"). The Fund is an investment Fund under the Guide. Such policies are consistently followed by the Fund in the preparation of its consolidated financial statements.

2 Summary of significant accounting policies (Continued)

(a) Principles of consolidation

These consolidated financial statements include the financial statements of the Fund. Subsidiaries are fully consolidated from the date on which control is transferred to the Fund and deconsolidated from the date that control ceases. Inter-Fund transactions between group companies are eliminated upon consolidation.

The Fund uses wholly and partially owned special purpose vehicles ("SPVs") to hold and transact in certain investments. The Fund's policy is to consolidate, as appropriate, those SPVs in which the Fund has control over significant operating, financial or investing decisions of the entity.

Except when an operating Fund provides services to the Fund, investment in an operating Fund is carried at fair value (refer to Note 2(c) below for fair value measurement).

(b) Use of estimates

The preparation of consolidated financial statements in conformity with US GAAP requires the Fund's management to make estimates and assumptions that affect the reported value of assets and liabilities and disclosures of contingent assets and liabilities as at 31 December 2017 and the reported amounts of income and expenses for the year then ended. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 2(j).

(c) Investments

The Fund may hold both listed securities and unlisted securities, which by nature have limited marketability. The Fund also engages in secured lending transactions.

(i) Recognition and derecognition

Regular purchase and sale of investments are accounted for on the trade date, the date the trade is executed. Costs used in determining realized gains and losses on the disposal of investments are based on the specific identification method for unlisted or unquoted investments. Cost includes legal and due diligence fees associated with the acquisition of investments.

Transfer of investments is accounted for as a sale when the Fund has relinquished control over the transferred assets. Any realized gains and losses from investments are recognized in the consolidated statement of operations.

(ii) Fair value measurement

The Fund is an investment Fund under the Guide. As a result, the Fund records and re-measures its investments on the consolidated statement of assets and liabilities at fair value, with unrealized gains and losses resulting from changes in fair value recognized in the consolidated statement of operations.

Fair value is the amount that would be received to dispose of the investments in an orderly transaction between market participants at the measurement date, i.e. the exit price. Fair value of investments is determined by the Valuation Committee of the Fund, which is established by the Investment Manager and the Board of Directors.

Investments in securities traded on a recognized exchange are value at the traded price on the exchange in which such security was traded on the last business day of the period.

2 Summary of significant accounting policies (Continued)

(c) Investments (Continued)

(ii) Fair value measurement

The fair values of unlisted or unquoted securities are based on the Fund's valuation models, including earnings multiples (based on the budgeted earnings or historical earnings of the issuer and earnings multiples of comparable listed companies) and discounted cash flows. The Valuation Committee also considers the relevant developments since acquisition of the investments, the original transaction price, recent transactions in the same or similar instruments, completed third-party transactions in comparable instruments, reliable indicative offers from potential buyers and rights in connection with realization. Judgment is used to adjust valuation as necessary for factors such as non-maintainable earnings, tax risk, growth stage, and cash traps. Cross-checks of primary techniques are made against other secondary valuation techniques.

The Fund's secured loan transactions are recorded at fair value, which is determined based on discounted cash flow analyses. Those analyses consider the position size, liquidity, current financial condition of the borrowers, the third-party financing environment, reinvestment rates, recovery lags, discount rates, and default forecasts.

In determining the fair value of certain unlisted securities, the Valuation Committee uses as reference valuations made by independent valuers which rely on the financial data of investees and on estimates made by the management of the investee companies as to the effect of future developments. The independent valuers also assist in the selection of valuation techniques and models. Loans receivable are recorded at fair value in accordance with the guidance set forth in Note 4, and the valuation techniques applied usually take into account the estimated future cash flows, liquidity, credit, market and interest rate factors. However, there are inherent limitations in any valuation technique due to the lack of observable inputs.

Currency options are valued by the Investment Manager using observable inputs, such as quotations received from the counterparty, dealers or brokers, whenever available and considered reliable.

Estimated fair value may differ significantly from the value that would have been used had a readily available market for such investments existed and these differences could be material to the financial statements. Additional information about the level of market observability associated with investments carried at fair value is disclosed in Note 4.

(d) Other receivables and payables

Other receivables and payables are initially measured at fair value and subsequently measured at amortized cost.

(e) Cash and cash equivalents

Cash represents cash at banks and does not include restricted cash such as fixed deposits pledged as security for bank loans. Cash equivalents are defined as short-term, highly liquid investments which mature within three months or less of the date of purchase.

2 Summary of significant accounting policies (Continued)

 (f) Share capital

Ordinary shares are classified as equity. Where the Fund purchases the Fund's equity share capital, the consideration paid is deducted from equity until the shares are cancelled or reissued. Where such ordinary shares are subsequently reissued, any consideration received is included in equity.

(g) Foreign currency translation

The books and records of the Fund are maintained in United States Dollars ("US$"), which is also the functional currency. Assets and liabilities, both monetary and non-monetary, denominated in foreign currencies are translated into US$ by using prevailing exchange rates as at financial reporting date, while income and expenses are translated at the exchange rates in effect during the year.

Gains and losses attributed to changes in the value of foreign currencies for investments, cash balances and other assets and liabilities are reported as foreign exchange gain and loss in the consolidated statement of operations.

(h) Taxation

The Fund may be subject to taxes imposed in jurisdictions in which it invests and operates. Such taxes are generally based on income and gains earned. Taxes are accrued on investment income, realized gains, and unrealized gains, as appropriate, when the income and gains are earned. The Fund accrues for liabilities relating to uncertain tax positions only when such liabilities are probable and can be reasonably estimated in accordance with the authoritative guidance contained in ASC 740 Income Taxes as described in Note 8.

The Fund files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. The Fund uses the asset and liability method to provide income taxes on all transactions recorded in the consolidated financial statements. This method requires that income taxes reflect the expected future tax consequences of temporary differences between carrying amounts of assets or liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined based on the tax rates that the Fund expects to be in effect when the underlying items of income and expense are realized.

(i) Recognition of income and expenses

Interest income on bank balances is accrued as earned using the effective interest method.

Dividend income is recognized on the ex-dividend date and is recorded net of withholding taxes where applicable.

Expenses are recorded on an accrual basis. Provision of deferred tax expenses is made based on the capital gain from realization of investments as at the year-end.

2 Summary of significant accounting policies (Continued)

(j) Critical accounting estimates and assumptions

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. There are no estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

3 Concentration of risks

(a) Market risk

Market risk represented the potential loss in value of financial instruments caused by movements in market variables, such as equity prices.

Investments were made with a focus on Greater China. Political or economic conditions and the possible imposition of adverse laws or currency exchange restrictions in that region could cause the Fund's investments and the respective markets to become less liquid and also the prices to become more volatile.

The Fund's investments had concentration in a particular industry or sector and performance of that particular industry or sector had a significant impact on the Fund. The Fund's concentration of investments in a particular industry or sector is presented on the consolidated condensed schedule of investments.

The Fund's investments were subject to the risk associated with investing in private equity securities. Investments in private equity securities were illiquid and subject to various restrictions on resale and there can be no assurance that the Fund will be able to realize the value of such investments in a timely manner.

(b) Interest rate risk

Interest rate risk arises from the fluctuations in the prevailing levels of market interest rates which affect the fair value of financial assets and liabilities and future cash flows. The Fund has bank deposits that expose the Fund to interest rate risk. The Fund has direct exposure to interest rate changes in respect of the valuation and cash flows of its interest bearing assets and liabilities.

3 Concentration of risks (Continued)

(c) Currency risk

The Fund has assets and liabilities denominated in currencies other than the US$, the functional currency. The Fund is therefore exposed to currency risk as the value of assets and liabilities denominated in other currencies may fluctuate due to changes in exchange rates. The net assets of the Fund before the impact of currency hedging are denominated in the following currencies:

The Investment Manager manages the Fund's currency exposure through use of currency options. Refer to Note 5.

(d) Credit risk

The Fund is exposed to credit risk, which is the risk that a counterparty to or an issuer of a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. As at 31 December 2017 the main concentrations of credit risk to which the Fund is exposed arise from derivative contracts, prepayments and other receivables, and cash and bank balances.

As at 31 December 2017, the Fund has cash and bank balances amounting to US$176,563,063 (2016: US$164,657,215) held in multiple different bank accounts with a number of different financial institutions. The Fund attempts to minimize its credit risk exposure on its cash and bank balances by monitoring the size of its credit exposure to any one counterpart and by only entering into banking relationships with reputable financial institutions.

(e) Liquidity risk

The Fund was exposed to liquidity risk as the majority of the investments of the Fund were illiquid while some of the Fund's liabilities were with short maturity as of 31 December 2017. Illiquid investments included any securities or instruments which were not actively traded on any major securities market or for which no established secondary market existed where the investments could be readily converted into cash. As at 31 December 2017, all investments were fully realized and currently assets are held in cash or disposal receivables as of 31 December 2017. Most of the disposal receivables are expected to be received by second quarter of 2017. Management considered that there was no such liquidity risk exposed by the Fund as of 31 December 2017.

China currently has foreign exchange restrictions, especially in relation to the repatriation of foreign funds. Any unexpected foreign exchange control in China may cause difficulties in the repatriation of funds. The Fund invests in China and is therefore exposed to the risk of repatriating funds out of China on a timely basis to meet its obligations. Please refer its Note 3(c) above for the Fund's exposure to Renminbi.

The Fund is closed-end and, thus, not exposed to redemptions of shares by its shareholders.

4 Investments

The Fund discloses the fair value of its investment in a hierarchy that prioritizes the inputs to valuation techniques used to measure the fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Three levels of the fair value hierarchy are as follows:

Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Fund has the ability to access at the measurement date.

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not considered to be active, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Fund's own assumptions used in determining the fair value of investments).

Inputs to measure fair values broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics and other factors. An asset or a liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes "observable" requires significant judgment. The Valuation Committee considers observable data to be such market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary and provided by multiple, independent sources that are actively involved in the relevant market. The categorization of an asset or a liability within the hierarchy is based upon the pricing transparency of the asset or liability and does not necessarily correspond to the Valuation Committee's perceived risk of that asset or liability.

4 Investments (Continued)

In determining an instrument's placement within the hierarchy, the Valuation Committee follows the following:

Level 1 Investments in listed stocks and derivatives that are valued using quoted prices in active markets and are therefore classified within Level 1 of the fair value hierarchy.

Level 2 Investments in illiquid listed stocks and derivatives are valued using the last traded prices of the listed stocks and derivatives after factoring in discounts for liquidity. Such investments are generally classified within Level 2 of the fair value hierarchy.

Level 3 Assets are classified within Level 3 of the fair value hierarchy if they are traded infrequently and therefore have little or no price transparency. Such assets include investments in unlisted stocks, bonds, derivatives and loans receivable. Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. When observable prices are not available for these securities, the Valuation Committee uses one or more valuation techniques (e.g., the market approach or the income approach) for which sufficient and reliable data is available. Within Level 3, the use of the market approach generally consists of using comparable market transactions, while the income approach generally consists of the net present value of estimated future cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors.

The inputs used by the Valuation Committee in estimating the value of Level 3 investments include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity or debt capital markets, and changes in financial ratios or cash flows. Valuation of Level 3 investments may also be adjusted to reflect illiquidity and/or non-transferability with the amount of such discount estimated by the Valuation Committee in the absence of market information.

The following table summarizes the fair value of all instruments within the fair value hierarchy:

All Level 3 investments held had been disposed as at 31 December 2016, therefore there was no valuation review of Level 3 investments as at 31 December 2017.

5 Derivative instruments

The Fund transacts in derivative instruments including options with each instrument's primary risk exposure being equity, credit or foreign exchange. The Fund enters into currency options to hedge itself against foreign currency exchange rate risk for its foreign currency denominated assets and liabilities due to adverse foreign currency fluctuations against the US dollar.

The fair value of these derivative instruments is included within the consolidated statement of assets and liabilities with changes in fair value reflected as net realized gains/(losses) from investments or net change in unrealized gains/(losses) from investments within the consolidated statement of operations. The Fund does not designate derivatives as hedging instruments under FASB ASC 815.

The Partnership held Level 2 derivative contracts as follows:

The following table indicates the gains and losses on derivatives, by contract type, as included in the consolidated statement of operations.

Average notional amounts is derived from the total outstanding contracts at each quarter end. The above realized and unrealized gains/losses on derivatives are included in realize and change in unrealized gains from investments, derivatives and foreign currency in the consolidated statement of operations.

As at 31 December 2017 and 2016, the Partnership does not have any derivative assets or cash collateral being used by counterparties to offset derivatives liabilities on its statements of assets, liabilities and partner's capital.

6 Prepayment and other receivables

7 Share capital, share premium, capital surplus and tendered shares

As at 31 December 2017, the total number of authorized ordinary shares was 10,000,000,000 (2016: 10,000,000,000) with par value of US$0.01 (2016: US$0.01) per share. As at 31 December 2017, the Company had 57,356,356 (2016: 61,596,638) ordinary shares in issue.

8 Taxation

The Fund adopted the authoritative guidance contained in FASB ASC 740 on accounting for and disclosure of uncertainty in tax positions, which require the directors to determine whether a tax position of the Fund is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant taxing authority.

The uncertain tax positions identified by the directors mainly include:

8 Taxation (Continued)

(a) Whether any of the Fund and its offshore SPVs would be deemed as a China Tax Resident Enterprise ("TRE") under the China Corporate Income Tax ("CIT") Law. If an offshore entity is deemed as a China TRE, its income would be subject to China CIT at 25% (rate could be reduced to a lower rate of 9% in certain jurisdiction in China).

(b) Whether any of the Fund and its offshore SPVs that may derive income would be deemed as having an establishment or place in China. If an offshore entity has an establishment or place in China, income derived by the offshore entity that is derived from China by the establishment or place or income that is effectively connected to the establishment or place would be subject to China CIT at 25% (rate could be reduced to a lower rate of 9% in certain jurisdiction in China).

(c) Whether any of the Fund and its offshore SPVs is subject to Hong Kong profits tax. An entity would be subject to Hong Kong profits tax if (i) the entity carries on a trade, profession or business in Hong Kong; (ii) profits are derived from that trade, profession or business carried on in Hong Kong (excluding gains of a capital nature); and (iii) the profits arise in or are derived from Hong Kong, i.e. have a Hong Kong source.

The Investment Manager has assessed that the Fund and its offshore SPVs are not TREs in China and do not have any establishment or place of business in China. Gains from the disposal of investments in China by the Fund or its SPVs may be subject to China withholding tax at 10% without considering the potential relief that may be available under any tax treaty between the tax jurisdiction of the transferor and China. In addition, where Chinese equity investments are held via an offshore intermediate holding fund, exit of the Chinese equity investment disposal of shares in the offshore intermediate holding fund could be regarded as an indirect transfer of the Chinese equity investment. According to the General Anti Avoidance Rules under the China CIT Law, if an investment holding structure and investment exit via indirect transfer do not have a reasonable commercial purpose, the Chinese tax authority is empowered to disregard such arrangement and impose withholding tax on the gains from such an indirect transfer. The directors have reviewed the structure of the investment portfolio and assessed the potential withholding tax implications and considered adequate provision to China tax has been made on the Fund's financial statements.

As at 31 December 2017, the Investment Manager has analyzed the open tax years of all jurisdictions subject to tax examination and the provision for deferred tax and uncertain tax amounted to US$9,242,791 (2016: US$19,501,359) and US$743,333 (2016: US$743,333) respectively. The Investment Manager has reviewed the structure of the investment portfolio and assessed the potential withholding tax implications and considered adequate provision for China tax has been made on the Fund's consolidated financial statements.

The Investment Manager has reviewed the structure of the Fund's investment portfolio and considered the Fund's exposure to countries in which it invests to be properly reflected in the Fund's consolidated financial statements.

Under current Cayman Islands legislation applicable to an exempted Fund, there is no income tax, capital gains or withholding tax, estate duty, or inheritance tax payable by the Fund in the Cayman Islands.

9 Management fee and performance fees

Pursuant to the Investment Management Agreement dated 20 November 2007, the Investment Manager was appointed to manage the investments of the Fund. The Investment Manager will receive an aggregate management fee of 2% per annum of the quarterly Net Asset Value ("NAV"). The management fee is paid quarterly in advance based on the NAV at the first day of each fiscal quarter. For the year ended 31 December 2017, total management fee amounted to US$3,605,849 (31 December 2016: US$3,627,655); There was no management fee payable as at 31 December 2017 (2016: US$Nil).

The Investment Manager is also entitled to receive performance fees from the Fund in the event that the year-end NAV is greater than the higher of (a) the year-end NAV for the last year in which a performance fee was payable ("High Water Mark"); and (b) the NAV on Admission increased by a non-compound annual hurdle rate of 8% ("Hurdle").

The performance fees will be calculated as follows:

· 0% of the relevant increase in the year-end NAV if the year-end NAV is at or below the Hurdle;

· 100% of the relevant increase in the year-end NAV above the Hurdle up to a non-compound annual rate of 10% (the "Catch-up"); and

· 20% of the relevant increase in the year-end NAV above the Catch-up.

For the year ended 31 December 2017, total performance fees amounted to US$133,162 (2016: US$611,581). As at 31 December 2017, performance fees payable amounted to US$133,162 (2016: US$611,581).

Under the Investment Management Agreement, the performance fees earned by the Investment Manager shall be paid 75% in cash and 25% in the Fund's ordinary shares ("share portion"). The Fund may elect to meet its share obligation either by issuing new shares at NAV or purchasing the equivalent number of shares in the market.

10 Investment agency fees

To facilitate the disposal of an investment, the Fund entered into a consulting agreement with an unrelated third party (the "Consultant"). Under the agreement, the Fund is obligated to pay an investment agency fee to the Consultant based on a percentage of the net realized gain of the investment earned by the Fund upon realization.

For the year ended 31 December 2017, investment agency fees of US$ Nil (2016: US$Nil) were reversed based on the reduction of the unrealized gain on the investment net of certain expenses and tax attributable to the investment.

11 Related party transactions

Apart from the related party transactions disclosed in Note 9, the Fund also had the following significant related-party transactions.

(a) Restructuring with PACL II Limited

On 2 March 2009, the Fund held an extraordinary general meeting to approve a tender offer that allowed shareholders to exchange all or part of their shares for shares in PACL II Limited ("PACL II"), a Cayman Islands private vehicle that would be used to realize and distribute cash from exited investments based on the investment and asset positions held by the Fund as at 31 December 2008 ("Tender Offer Portfolio"). PACL II is also managed by the Investment Manager. It was due to, without any further action on the part of its shareholders, automatically wind up and dissolve 3 years after its ordinary shares were first issued. On 5 January 2012, the duration of PACL II was extended by 1 year to 2 March 2013 upon the written election by the Investment Manager. On 28 February 2013, the duration of PACL II was further extended by 2 years to 4 March 2015 upon the written election by the Investment Manager and a major of the shareholders. On 30 January 2015, the Investment Manager made an election to extend the duration of PACL II by 1 year to 4 March 2016.

As part of this restructuring, the Fund repurchased 180,166,107 shares at a tender price of US$1.01 per share in exchange for holders of these shares receiving the same number of shares in PACL II.

Under the terms of the tender offer, PACL II is entitled to receive 50.33% of the proceeds from the Tender Offer Portfolio, which reflects a 5% discount of its proportionate share of the Tender Offer Portfolio. As of 31 December 2016, the amount due to PACL II is recorded as a payable by the Fund, adjusted at each period end based on the movement in the fair value of the underlying assets and the income and expense attributable to the Tender Offer Portfolio. The amount is unsecured, non-interest bearing. The following table summarizes the movements in amount due from/(to) to PACL II.

(b) Directors' remuneration

The Fund pays each of its directors an annual fee and the total fees incurred amounts to US$30,000 (2016: US$30,000). If a director is a member of the Valuation Committee or Audit Committee, the director also receives an additional annual fee of US$10,000, and the Chairman of either Committee receives an additional annual fee of US$5,000. During the year 2017, Jon-Paul Toppino agreed to waive his directors' fees and committee fees.

11 Related party transactions (Continued)

(c) Share capital held by funds managed by fellow subsidiaries of the Investment Manager

Pacific Alliance Asia Opportunity Master Fund ("PAX LP") is managed by a fellow subsidiary of the Investment Manager.

In August 2017, PAX LP sold 572,451 (2016: 5,709,379) ordinary shares of the Fund as part of the Fund's share repurchase transaction (see Note 7) which closed on the same date. PAX LP's interest in the Fund remains unchanged at 13.5%. As at 31 December 2017, PAX LP held 7,743,281 (2016: 8,315,732) shares of the Fund, representing 13.5% (2016:13.5%) of total outstanding shares of the Fund.

12 Financial highlights

Net asset value per share at the end of the year is as follows:

The following represents the ratios to average net assets and other supplemental information:

(1) Total return represents the change in NAV (before and after performance fees), adjusted for cash flows in relation to capital transactions for the year.

(2) Average net assets is derived from the beginning and ending NAV, adjusted for cash flows in relation to capital transactions for the year. For the year ended 31 December 2017, the average net assets amounted to US$170,595,207 (2016: US$182,216,962).

13 Commitment and contingency

In the normal course of business, the Fund may enter into arrangements that contain a variety of representations and warranties that provide general indemnification under certain circumstances. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund and which have not yet occurred. However, based on experience, the directors expect the risk of loss to be remote, and, therefore, no provision has been recorded.

For the years ended 31 December 2016 and 2017, there is no unfunded commitment in investments.

14 Subsequent events

Management has performed a subsequent events review from 1 January 2018 through to 30 April 2018 being the date that the financial statements were available to be issued.

On 8 February 2018, 6,597,220 of the Company's ordinary shares were repurchased and cancelled for a consideration of US$19,000,000. Following these cancellations, the Company has 50,759,136 ordinary shares issued and outstanding.