30. FAIR VALUE MEASUREMENTS

A hierarchy is established for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. As such, fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. The hierarchy is broken down into three levels based on the reliability of inputs as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs other than the quoted price in active markets that are observable either directly or indirectly, or quoted prices in less active markets; and (Level 3) unobservable inputs with respect to which there is little or no market data, which require the Company to develop its own assumptions. Fair value of cash equivalents, restricted cash and restricted short-term investment are categorized as level 1 under the fair value hierarchy, as they based on quoted prices in active markets. Short-term borrowings and long-term borrowing are categorized as level 2 under the fair value hierarchy, as they based on quoted prices in less active markets.

Fair value change in forward contracts and call spread

The Company has entered into foreign exchange forward contracts with local banks to reduce the exposure of significant changes in exchange rates between Renminbi and foreign currencies. Authoritative guidance requires companies to recognize all of the derivative financial instruments as either assets or liabilities at fair value in the consolidated balance sheets based upon quoted market prices for comparable instruments. The Company's forward contracts have not met the criteria for hedge accounting within authoritative guidance. Therefore, the foreign currency forward contracts have been recorded at fair value, with the gain or loss on these transactions recorded in the consolidated statements of operations within "Change in fair value of forward contracts" in the period in which they occur. The Company does not use derivative financial instruments for trading or speculative purposes. The Company held foreign exchange forward contracts with a total notional value of EUR69 million, and JPY2,000 million as of December 31, 2015. These foreign exchange forward contracts mature within 12 months. The Company used a discounted cash-flow methodology to measure fair value, which requires inputs such as interest yield curves and foreign exchange rates. The significant inputs used in the aforementioned model can be corroborated with market observable data and therefore the fair value measurements are classified as level 2. Typically, any losses or gains on the forward exchange contracts are offset by re-measurement losses or gains on the underlying balances denominated in non-functional currencies. The Company's foreign currency exchange contract is an over-the-counter instrument.

The Group classified the cash flows related to realized gain or loss on settlement of foreign exchange forward contracts as operating activities, which are based on the nature of the cash flows the derivative is economically hedging.

The Company purchased foreign exchange call spread combined option contracts with a total notional value of US$70 million during the year ended December 31, 2015. These foreign exchange call spread mature within 12 months. The Company adopted the Black-Scholes Option Pricing (“B-S”) Model to value the Currency Option Contracts. The B-S Model is widely used and accepted as a common valuation practice in valuing such currency option. The significant inputs used in the aforementioned model are unobservable inputs which there are little or no market data and therefore the fair value measurements are classified as level 3. The Company's foreign currency call spread is an over-the-counter instrument.

The call spread option is asset derivatives which need to be fair valued on day one and marked to market subsequently at each reporting period end. The fair value gain or loss arising from the re-measurement is recognized in the consolidated statements of operations and comprehensive income. As of December 31, 2015, the fair value of the call spread option was RMB 7,277,406 which was recorded as derivative assets under Prepayments and Other Current Assets (Note 11). The fair value change was a loss of RMB 370,437 for the year ended December 31, 2015.

Convertible Senior Notes and Capped Call Options

The Company has adopted valuation models to assess the fair value for capped call options and the Notes, as the capped call options are not publicly traded and the trading of the Notes is considered inactive. Management is responsible for determining these fair values and assessing a number of factors. Both capped call options and the Notes are valued using the Binominal Tree option pricing model. The valuation involves complex and subjective judgments as well as the Company's best estimates on the valuation date. Inputs related to the Binomial models for convertible debt fair value are: spot price, conversion price, time to maturity, expected dividend yield, expected share volatility, risk free interest rate, yield-to-maturity and put option exercisable period, of which spot price and expected share volatility are most significant to valuation determination of convertible debt.

Available-for-sale investment

On a recurring basis, the Company measures available-for-sale investment at fair value. Since the available-for-sale investment does not have quoted price in active markets, the Company has adopted Binomial Tree option pricing model to assess their fair value. Management is responsible for determining the fair value and assessing a number of factors. The valuation involves complex and subjective judgements as well as the Company's best estimates on the valuation date.

Inputs related to the Binomial Tree option pricing model for the valuation of the fair value of available-for-sale investment are: spot price, conversion price, time to maturity, expected dividend yield, expected share volatility, risk free interest rate, and yield-to-maturity, of which spot price is most significant to valuation determination. The following methods were adopted for each input:

Spot price: quoted closing price of listed shares of Kinexia SpA(KNX IM) as of each re-measurement date;

Conversion price: according to the indenture of the subject available-for-sale investment;

Time to maturity: time period from the respective re-measurement date to maturity date. Maturity date was referred from the indenture of the subject available-for-sale investment;

Expected dividend yield: based on indicative dividend yield of the underlying company (i.e. KNX.IM) as of each re-measurement date;

Expected share volatility: based on the implied volatility of the listed shares of Kinexia (i.e. KNX.IM) with a time period equal to the time to maturity as of each re-measurement date;

Risk free interest rate: based on the yield of Italy Treasury Bonds with a maturity equal to the time to maturity as of each re-measurement date; and

Yield-to-maturity: based on the average yield-to-maturity of comparable corporate bullet bonds with similar remaining maturity period and credit risk as of each re-measurement date; and

Warrants

The Company adopted Binominal Tree option pricing model to assess the warrants' fair value. Management is responsible for determining the fair value and assessing a number of factors. The valuation involves complex and subjective judgments as well as the Company's best estimates on the valuation date. Key inputs related to the Binomial Tree option pricing model for the valuation of the fair value of warrants are: probabilities assigned among IPO and non-IPO scenarios, time to maturity, volatility, dividend yield, as well as risk-free rate, of which probabilities assigned among IPO and non-IPO scenarios, volatility, and risk-free rate are most significant to valuation determination of the warrants.

Recurring change in fair value

As of December 31, 2013, 2014 and 2015, information about the hierarchy of the fair value measurements for the Company's assets and liabilities that are measured at fair value on a recurring basis subsequent to their initial recognition is as follows:

	Fair Value Measurements at Reporting Date Using
Description	Balance as of December 31, 2013		Quote prices in active market for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Assets:
Foreign exchange forward contracts		43,160,093		-		43,160,093		-
Capped call options		107,223,601		-		-		107,223,601
Available-for-sale investment		30,117,797		-		-		30,117,797

Liabilities:
Foreign exchange forward contracts		10,080,395		-		10,080,395		-
Convertible senior notes		770,485,897		-		-		770,485,897

	Fair Value Measurements at Reporting Date Using
Description	Balance as of December 31, 2014		Quote prices in active market for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Assets:
Foreign exchange forward contracts		47,712,744		-		47,712,744		-
Capped call options		21,098,263		-		-		21,098,263
Available-for-sale investment		20,875,725		-		-		20,875,725

Liabilities:
Foreign exchange forward contracts		30,901,012		-		30,901,012		-
Convertible senior notes		1,540,398,645		-		-		1,540,398,645

	Fair Value Measurements at Reporting Date Using
Description	Balance as of December 31, 2015		Quote prices in active market for identical assets (Level 1)	Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)

Assets:
Call spread option		7,277,406					7,277,406
Foreign exchange forward contracts		7,038,537			7,038,537
Capped call options		17,490,323					17,490,323
Available-for-sale investment		-					-

Liabilities:
Foreign exchange forward contracts		4,295,737			4,295,737
Convertible senior notes		1,506,981,361					1,506,981,361
Warrant Liability		68,377,608					68,377,608

Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3 valuation)

A summary of changes in Level 3 fair value of convertible senior notes for the year ended December 31, 2013, 2014 and 2015 were as follows:

	For the year ended December 31,
	2013			2014			2015
	RMB			RMB			RMB
Balance at January 1,		483,581,668			770,485,897			1,540,398,645
Issuance of convertible senior notes		-			914,850,000			-
Foreign exchange (gain)/loss		(18,298,249	)		5,853,455			96,678,461
Change in fair value of convertible senior notes		305,202,478			(150,790,707	)		8,400,918
Repurchase of convertible senior notes		-			-			(138,496,663	)
Balance at December 31,		770,485,897			1,540,398,645			1,506,981,361

A summary of changes in Level 3 fair value of capped call options for the year ended December 31,2013, 2014 and 2015 were as follows:

	For the year ended December 31,
	2013			2014			2015
	RMB			RMB			RMB
Balance at January 1,		16,131,208			107,223,601			21,098,263
Foreign exchange (gain)/loss		(1,203,512	)		563,725			2,562,342
Change in fair value of capped call options		92,295,905			(86,689,063	)		(6,170,282	)
Balance at December 31,		107,223,601			21,098,263			17,490,323

A summary of the assumptions used in the valuation of convertible senior notes and capped call options due 2016 was as follows:

	As of December 31,
	2013			2014			2015

Fair value of ADS	US$	29.30		US$	19.71		US$	27.67
Strike price	US$	33.75		US$	33.75		US$	33.75
Risk free interest rate		0.53	%		0.44	%		0.52	%
Dividend yield		-			-			-
Standard volatility		70.6	%		64.31	%		46.14	%

A summary of the assumptions used in the valuation of convertible senior notes due 2019 was as follows:

	As of December 31,
	2013		2014			2015

Fair value of ADS		-	US$	19.71		US$	27.67
Strike price		-	US$	45.83		US$	45.83
Risk free interest rate		-		1.51	%		1.47	%
Dividend yield		-		-			-
Standard volatility		-		66.31	%		40.44	%

A summary of changes in Level 3 fair value of available-for-sale investment for the year ended December 31, 2014 and 2015 were as follows:

	For the year ended December 31,
	2013		2014			2015
	RMB		RMB			RMB
Balance at January 1,		-		30,117,797			20,875,725
Receipt of available-for-sale investment		23,730,486		-
Foreign exchange gain/(loss)		344,877		(3,446,112	)
Change in fair value of available-for-sale		6,042,434		(5,795,960	)		-
Transfer to receivable (Note 2 (g))		-		-			(20,875,725	)
Balance at December 31,		30,117,797		20,875,725			-

The fair value of call spread options during the year ended December 31, 2015 is estimated on the date of grant using Black-Scholes model with the following assumptions:

	2015

Expected volatility		4.389%-8.078	%
Expected terms		0.24-0.63	%
USD Risk-free interest rate		0.16%-0.53	%
RMB Risk-free interest rate		2.24%-2.28	%

A summary of changes in Level 3 fair value of call spread options for the year ended December 31, 2015 was as follows:

	For the year ended December 31, 2015
	RMB
Balance at January 1,		-
Purchase of call spread		7,647,843
Change in fair value of call spread		(370,437	)
Balance at December 31,		7,277,406

The fair value of warrant liability as of December 31, 2015 is with the following assumptions:

	As of December 31, 2015
	IPO Senario			Non-IPO Senario

Expected volatility		62.06	%		N/A
Expected terms		1.03			1.03
Dividend yield		-			N/A
Risk-free interest rate		0.72	%		N/A
Fair value of warrants at December 31,2015 (USD)					10.53 million

A summary of changes in Level 3 fair value of warrant liability for the year ended December 31 2015 were as follows:

	For the year ended December 31, 2015
	RMB
Balance at January 1,		-
Issuance of warrant liability		62,331,211
Foreign exchange loss on warrant liability		3,950,373
Change in fair value of warrant liability		2,096,024
Balance at December 31,		68,377,608

Change in fair value of derivatives

The Change in fair value of derivatives recognized in earnings was as follows:

	For the year ended December 31,
	2013			2014			2015
	RMB			RMB			RMB
Foreign exchange forward contracts-realized		22,750,277			15,553,224			71,000,875
Foreign exchange forward contracts-unrealized		25,640,169			(16,267,966	)		(14,068,932	)
Call spread options		-			-			(370,437	)
Convertible senior notes		(305,202,478	)		150,790,707			(8,400,918	)
Capped call options		92,295,905			(86,689,063	)		(6,170,282	)
Warrant liability		-			-			(2,096,024	)
Total		(164,516,127	)		63,386,902			39,894,282

Non-recurring change in fair value

As of December 31, 2013

Fair Value Measurements at Reporting Date Using

Description

Balance as of
December 31,
2013

Quote Prices
in active
market for
identical
assets (Level 1)

Significant
other
observable
input (Level 2)

Significant
unobservable
input (Leval 3)

Total
(losses)

RMB

Property, plant and equipment, net

3,186,997,950

3,573,248

As of December 31, 2014

Fair Value Measurements at Reporting Date Using

Description

Balance as of
December 31,
2014

Quote Prices
in active
market for
identical
assets (Level 1)

Significant
other
observable
input (Level 2)

Significant
unobservable
input (Leval 3)

Total
(losses)

RMB

Property, plant and equipment, net

3,101,795,172

6,217,151

No non-recurring change in fair value occurred in the year ended December 31, 2015.

In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of ASC 360-10, long-lived assets held and used with a carrying amount of RMB6,217,151 and nil as of December 31, 2014 and 2015 were written down to their fair value of zero, resulting in an impairment charge of and RMB6,217,151 and nil for the year ended December 31, 2014 and 2015, respectively, which was calculated based on Level 3 Inputs and included in earnings for the respective years.