We give priority to suppliers with excellent sustainable development performance in order to prevent or minimize potential environmental and social risks in the Group's supply chain. In addition to complying with the requirements of corresponding laws and regulations, the Group's suppliers are required to comply with the Group's Code of Conduct for corporate social responsibilities ("CSR") and convey our concept of sustainable development to upstream suppliers. To identify the environmental and social risks along the supply chain, the Group’s subsidiaries have established a complete organizational framework of supply chain management, responsible for resource development, supplier performance appraisal, supplier sustainable development ability evaluation, supplier qualification approval and other related work. In combination with QC 080000 system standard and relevant requirements of customers, we have formulated a number of supplier management policies such as the Procedures for Management Control of Suppliers (《供应商管理控制程序》) , the Code of Managing Suppliers (《供应商管理规范》) and the Control Procedures on Development and Appraisal of Suppliers (《供应商开发和评价控制程序》), etc., so as to establish comprehensive management regulations and operation processes such as supplier introduction, routine management, audit and evaluation, and removal.
 

To identify environmental and social risks along the supply chain, each subsidiary of the Group conducts a hierarchical management on suppliers according to the importance or the risk level of materials. Sunny Automotive Optech has formulated the supplier supervision plan according to the Rules for Annual Audit of Suppliers (《供应商年度审核规划》), and conducts annual audit on the suppliers providing direct components of the products. The audit covers the quality management system, RoHS management standards and other relevant contents, requiring suppliers that failed to meet the provisions to complete the improvement work within three months according to the Supplier's Deficiency Improvement Schedule (《供应商缺失改进计划表》). The Group has also developed a supplier removal mechanism. Suppliers will be removed from the list if they have serious quality problems or the materials used failing to meet the latest environmental protection requirements with no effective improvement measures.

The procedures for the management of suppliers of the Group are as follows:
1. Supplier development: conduct appraisal on the credit, quality, environment risks, management systems of primary suppliers under the condition of meeting the requirements of relevant laws and regulations.
2. Supplier access: reviewed by relevant responsible person, include the supplier in the list of qualified suppliers or initiate one-year access inspections, and suppliers shall sign the Basic Procurement Agreement (《基本采购协议》), Quality Assurance Agreement (《质量保证协议》) and other documents.
3. Supplier appraisal: conduct monthly, quarterly or annually appraisal on suppliers in terms of the quality, cost, delivery, service and technology (the "QCDST") based on the commercial performance results of suppliers, and suppliers should make continuous improvements and enhancement based on the appraisal results.