The China Compass - The Beijing Axis

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AGENDA

Foreword

What’s New: China From Rebound to Recovery

China Economic Indicators

International Comparison

Conclusions

Implications

Appendix

About THE BEIJING AXIS

Disclaimer

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In the same manner that a compass highlights the cardinal points of north, south, east, and west, The China Compass is intended to serve as a navigational instrument for determining China’s position and direction in the context of the world’s economic landscape. As such, by closely examining China’s relevance, importance and progressive integration with the world economy, The China Compass is a knowledge tool by THE BEIJING AXIS China Strategy Group for executives with a China agenda.

The growth of China’s economy is without precedent and its rise has been a unique and complex experience – requiring the adoption of a customised and dedicated planning approach. Although many MNCs are already active in China, access to reliable information and channels of strategic knowledge are not always easy to come by and are, more often than not, the product of a long-term investment in research, analysis and strategic thinking. It is against this background that this publication aims to make a modest contribution as a desk reference.

In this March 2010 edition, we provide the latest macroeconomic data available for a wide range of indicators, for China as well as for other major world economies, and include a new section, ‘What’s New: China From Rebound to Recovery’. China has recovered from the financial crisis-induced slowdown in better shape than ever, with solid prospects for 2010. With the stimulus of government investment, China’s economy left the financial crisis behind, attaining 8.7% GDP growth in 2009. Now poised to become the world’s second-biggest economy, China is readying itself for the challenges of 2010 and the next stage of its relentless rise.

We trust that this edition of The China Compass will be useful for those that are in the midst of planning, and that it will shed light on the past development and future prospects of a uniquely Chinese story of human development.

As always, we welcome all feedback.

Kobus van der WathFounder & Group Managing Director, THE BEIJING AXISChief Executive, Bateman Beijing [email protected]

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A HIGH LEVEL OVERVIEW OF CHINA’S ECONOMIC FUNDAMENTALS AND CURRENT GLOBAL POSITION

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

World GDP2009

World GDP2009

DevelopingCountriesGDP 2009

China GDP 2009

China GDP 2009

China GDP 2009

China GDP 2009

China GDP2008

Note: World macroeconomic data for the world totals are IMF forecasts, while the data for China are actualised figures; the far right column is from 2008 for comparison purposes

Source: IMF World Economic Outlook - October 2009; China Statistical Yearbook; THE BEIJING AXIS Analysis

BrazilUK

SpainCanada

Others

FranceItaly

GermanyHenan

Zhejiang

HebeiLiaoning

HunanSichuanShanghai

Others

Developed Countries

China

Jiangsu

Western China

Tertiary Industry

Japan

US China

China

Shandong

Guangdong

Central China

EasternChina

Secondary Industry

PrimaryIndustry

USD 57.2 tn

USD 57.2 tn

USD 17.6tn

USD 4.9 tn

USD 4.9tn

USD 4.9 tn

USD 4.9 tn

Developing Asia

(excl. China)

Developing Countries

(excl. China)

China

Other Developing Countries

Northeast China

USD 4.4 tn

Government consumption/ expenditure

Net exports

Gross capital formation

Private consumption/ expenditure

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AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

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0

3

6

9

12

15

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

China Quarterly GDP Growth Rate (%, 2006-Q4 2009)

2006 2008 20092007

Source: National Bureau of Statistics of China; THE BEIJING AXIS Analysis

8% GDP growth target for 2009 established by Chinese

government

Government fiscal and monetary policy focused on slowing economic growth

Economic rebound

Global financial crisis unfolding

Fulleconomic recovery

CHINA’S ECONOMY HAS MOVED FROM REBOUND TO RECOVERY

In 2009, China’s economy grew 8.7% y-o-y; Q4 growth of 10.7% surpassed even optimistic expectations

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CHINA IS SET TO CONTINUE TO OUTPERFORM OTHER DEVELOPING AND DEVELOPED ECONOMIES

China has outpaced the rest of the world in its recovery from the economic crisis

World GDP growth (% y-o-y, 1990-2010F)

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-2

0

2

4

6

8

10

12

14

16

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

World Advanced economies Emerging and developing economies China

Source: IMF World Economic Outlook 2010; THE BEIJING AXIS Analysis

Tiananmen square events

Asian financial crisis

Global financial crisis

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Nominal GDP Japan and China (USD bn, 2000-2009)

CHINA IS NOW ON TRACK TO REPLACE JAPAN AS THE WORLD’S SECOND-LARGEST ECONOMY

While Japan is recovering from the worst recession since the end of the second world war, China is expanding rapidly

Quarterly and Annual GDP Growth: Japan and China (%, Q1-Q4 2009, 2009 year-end)

-10%

-5%

0%

5%

10%

15%

Q1 Q2 Q3 Q4

Japan China

0

1000

2000

3000

4000

5000

6000

89 91 93 95 97 99 '01 '03 '05 '07 '09

Japan China

20092009

year-end

In 2009, China’s economy grew by 8.7% y-o-y…

…while Japan’s shrunk -6.0% y-o-y

China’s nominal GDP reached USD 4,909 bn in 2009 while

Japan’s is within reach at USD 5,100 bn

Source: IMF; Japan SNA; World Bank; THE BEIJING AXIS Analysis Note: Japan’s GDP, officially reported in Yen, decreased throughout 2009 as shown in the chart on the right. However, conversion to nominal US Dollars shows an overall

increase for the time period due to the Yen’s appreciation relative to the US Dollar.

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38%

25%

10%

9%4%

5%

9%

Public InfrastructurePost Quake ReconstructionSocial WelfareRural DevelopmentTechnological AdvancementSustainable DevelopmentEducational and Cultural Projects

Breakdown of China’s Stimulus Package

COMPOSITION OF RMB 4 TRILLION FISCAL STIMULUS PACKAGE

SECTOR

AMOUNT ALLOCATED

RMB bn

Public Infrastructure 1,500

Post Quake Reconstruction 1,000

Social Welfare 400

Rural Development 370

Technology Advancement 370

Sustainable Development 210

Educational and Cultural Projects 150

TOTAL 4,000

Source: National Development and Reform Commission (NDRC); THE BEIJING AXIS Analysis

ONE OF THE MAJOR FACTORS FOR THIS ACHIEVEMENT IS CHINA’S SUCCESSFUL RMB 4 TRILLION STIMULUS PACKAGE

Over 50% of the stimulus package was aimed at infrastructure projects which supported employment and final demand through the crisis

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Monthly Totals of New RMB Loans (USD bn, 2007-2009)

(50)

0

50

100

150

200

250

300

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

2007: USD 474.9 bn 2008: USD 597.2 bn

2008 20092007

2009: USD 1,401.8 bn

Source: Ministry of Finance of The People's Republic of China; THE BEIJING AXIS Analysis

LOOSE MONETARY AND FISCAL POLICIES BOLSTERED CHINA’S ECONOMIC STANCE IN 2009

During 2009, China’s new loans reached USD 1.4 trillion, a 135% increase over 2008

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0

100

200

300

400

500

J-F M A M J J A S O N D J-F M A M J J A S O N D J-F M A M J J A S O N D

Monthly Urban Fixed Asset Investment (USD bn, 2007-2009)

Total FAI 2007: USD 1,804.8 bnTotal Urban: USD 1,544.1 bn

2008 20092007




FIXED ASSET INVESTMENT EXPERIENCED RAPID GROWTH AS A DIRECT RESULT OF THE STIMULUS PACKAGE

During 2009, total fixed asset investment increased by 30.1% over 2008 to USD 3,287 billion

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GOVERNMENT EXPENDITURE ALSO PICKED UP TO COINCIDE WITH THE STIMULUS PACKAGE

During Q1-Q3 2009, China’s government expenditure increased by 26% over the same period last year to reach a total of USD 661.6 billion

0

50

100

150

200

250

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N

2008 20092007

Monthly Government Expenditure (USD bn, 2007-Nov 2009)

Q1-Q3 2007: USD 379.3 bn

Q1-Q3 2008: USD 523.4 bn

Q1-Q3 2009: USD 661.6 bn

2007: USD 659.9 bn 2008: USD 903.6 bn

Source: Ministry of Finance of The People's Republic of China; China Monthly Economic Indicators; THE BEIJING AXIS Analysis

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0

40

80

120

160

200


Monthly Retail Sales of Consumer Goods (USD bn, 2007-2009)

2007: USD 1,174.5 bn 2008: USD 1,563.4 bn

2008 20092007

2009: USD 1,832.3 bn


THROUGH THE STIMULUS PACKAGE, THE GOVERNMENT MANAGED TO BOOST DOMESTIC CONSUMPTION

During 2009, China’s retail sales increased by 15.5% over 2008, reaching a total of USD 1,832 billion

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CHINA SURPASSED THE US AS THE WORLD’S LARGEST CAR MARKET IN 2009

Leading car manufacturers enjoyed record monthly sales on the back of government incentives to boost domestic consumption

0

500

1,000

1,500

J F M A M J J A S O N D J F M A M J J A S O N D

China US

Monthly Vehicle Sales (1,000 units, 2008-2009)

2008 2009

Source: Automotive News Data Center; China Auto Industry Association; THE BEIJING AXIS Analysis

US government incentives for the automobile industry end in

August

In January, China obtains the position of the largest

car market worldwide

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40

60

80

100

120

140

160

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%Exports Export Growth Rate (m-o-m)

Exports average growth rate: 1.7%

Monthly Exports (USD bn, 2007-2009)

2008 20092007

Source: MOFCOM; THE BEIJING AXIS Analysis

THE DECLINE IN TOTAL EXPORTS CONTINUED TO BE THE MAIN CONSTRAINT TO GROWTH DURING 2009

However, a small revival in exports occurred towards the end of 2009, elevating China’s total for the year to USD 1,201.7 billion, still 16% less than in 2008

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0

50

100

150

J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N

China Germany US

CHINA, DESPITE LOWER EXPORTS, HAS SURPASSED GERMANY AS THE WORLD LARGEST EXPORTER IN 2009

Chinese exports amounted to USD 1,201.7 bn from January to December of 2009, while Germany lagged behind with USD 1,121.9 bn for the same period

Goods Exports, Monthly (USD bn, 2005-Nov 2009)

2008 20092006 20072005

Source: Destatis; US Department of Commerce; China Statistics Bureau; THE BEIJING AXIS Analysis

China surpassed Germany as the world’s largest

exporter

Worldwide trade shock induced by

global financial crisis

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CHINA’S IMPORTS ALSO DECLINED IN 2009 During 2009, China’s total imports reached USD 1,005.6 billion,

11.2% lower than the previous year

40

50

60

70

80

90

100

110

120

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%Imports Import Growth Rate (m-o-m)

Imports’ average growth rate: 2.0%

Monthly Imports (USD bn, 2007-2009)

2008 20092007


Worldwide trade shock induced by


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CHINA NEVERTHELESS IMPORTED RECORD AMOUNTS OF CERTAIN COMMODITIES, DRIVING PRICES HIGHER IN 2009

These rising imports have been attributed to their stockpiling of key commodities in order to offset higher future contract prices

1130%

212%

112% 119%42% 14%

0%

200%

400%

600%

800%

1000%

1200%

Primary Aluminium Coal Refined Nickel Refined Copper Iron Ore Crude Oil

Imports Comparison, Selected Commodities (‘000 tons, 2008 and 2009)

y-o-y change

2009: 1,4962008: 122

2009: 125,8342008: 40,344 2009: 250

2008: 118 2009: 3,1902008: 1,458

2009: 204,0002008: 179,000

2009: 627,7802008: 443,347

Source: China Customs; World Aluminium Market; THE BEIJING AXIS Analysis

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0

5

10

15

20

J-F M A M J J A S O N D J-F M A M J J A S O N D J-F M A M J J A S O N D

Monthly Industrial Production (%, y-o-y, 2007-2009)

2008 20092007Note: National Bureau of Statistics does not publish industrial production information for the month of JanuarySource: National Bureau of Statistics of China; THE BEIJING AXIS Analysis

CHINA’S INDUSTRIAL PRODUCTION CONTINUED TO RECOVER DURING MID-2009, DRIVEN BY DOMESTIC DEMAND

China's industry value added rose 11% from January to December in 2009, but the year's growth rate was still 1.9% lower than 2008

China’s industrial production started climbing in April,

indicating a strengthening economic recovery

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CHINA’S INDUSTRIAL PRODUCTION RECOVERED BEFORE ADVANCED AND EMERGING ECONOMIES

After five months of decline from September 2008 to January 2009, growth resumed in February 2009 at 6.4% y-o-y

-50

-25

0

25

50

J F M A M J J A S O N D J F M A M J J

World Advanced economies Emerging economies Emerging Asia China

Industrial Production* (y-o-y %, 2008-July 2009)

2008 2009*Note: Annualised three-month percentage change in three-month moving averageSource: IMF; THE BEIJING AXIS Analysis

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THE RISE OF CHINA’S PMI ABOVE THE 50 MARK ALSO SUPPORTED CHINA’S ECONOMIC RECOVERY DURING 2009

In December 2009, China’s PMI reached 56.6, signaling an expansion in the manufacturing sector and in the overall economy

Purchasing Managers Index (2007-2009)

35

40

45

50

55

60



A PMI reading of above 50 signals expansion in the

manufacturing sector

PMI dropped to 38.8 which was the lowest point since 2005 when the China Federation of

Logistics & Purchasing initiated the survey

2008 20092007

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CPI Monthly (2008-2009)

90

95

100

105

110


CPI

2008 20092008 2009

Government worries about the possibility of deflation

PPI Monthly (2008-2009)

Government worries about the possibility of

deflation

HOWEVER, CHINA’S INFLATION FIGURES HAVE ALSO EXCEEDED CONSENSUS EXPECTATIONS

CPI and PPI increased at an annual pace of 1.9% and 1.7% in Q4 compared to the same period in 2008

Inflationary concerns Inflationary

concerns

90

95

100

105

110


PPI

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IN 2009, CHINA RECORDED IMPRESSIVE GROWTH LARGELY DUE TO STIMULUS-INDUCED DOMESTIC DEMAND AND TO A MODEST GLOBAL

ECONOMIC RECOVERY

Although 2009 was one of the most challenging years for China’s economic development in the 21st century, China has successfully completed the transition from rebound to recovery. China reached and surpassed its 8% growth target for 2009, expanding by 8.7%, denoting a V-shaped pattern of economic recovery

This impressive result will likely propel China to the position of the world’s second largest economy in early 2010, surpassing Japan. China’s GDP is expected to continue its steady growth during 2010, while developed and other developing economies will continue to recover at a much slower pace

The same major drivers that spurred growth during 2009 – the stimulus package and its accompanying proactive fiscal and monetary policies – continue to be critical components for growth in 2010. However, in order to have sustainable growth throughout the medium and long-term, the economy must be successfully rebalanced from government spending to domestic consumption

Total exports continue to be the major constraint to China’s economic growth, as global demand still remains weak. Nevertheless, China’s economy managed to accomplish solid growth through the year, mostly driven by domestic demand

Exports will resume its role as a driver of economic growth once global economic conditions become more favourable. Imports will continue to increase, as domestic demand increases and fuel and commodity prices continue their upward trends

Source: THE BEIJING AXIS Analysis

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HOWEVER, THE FUTURE OF CHINESE ECONOMIC GROWTH STILL FACES SOME CHALLENGES

China’s export growth continues to be challenged by international trade protectionism. During 2009, a number of countries enacted protectionist measures in order to defend the competitiveness of their domestic products

According to the Ministry of Commerce, 19 economies launched 103 cases, consisting of anti-dumping, anti- subsidy, and safeguarding actions, against Chinese products at the end of November 2009. The statistics coming from the Global Trade Alert Report give figures for the whole 2009 which say that 148 protectionist measures were taken against China, making it a major target of trade protectionism worldwide

Corresponding with its economic growth, China has also showed indications of overheating. The CPI jumped sharply at the end of 2009, signifying that the economy is running the risk of overheating. As a result of what some economists have called the biggest easing in monetary and financial conditions in history, China’s banks issued USD 1.4 trillion new loans, a 135% increase from 2008. This rapid loan growth has already raised the concern that asset price bubbles may have formed in the economy

If these remain unchecked, the very same drivers for growth could, in turn, have a negative impact on the overall Chinese economy and on the world

Source: THE BEIJING AXIS Analysis

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AGENDA

Foreword


China Economic IndicatorsSelected Macroeconomic IndicatorsTrade Indicators: Domestic and ForeignInvestment Indicators: Domestic and ForeignFinancial IndicatorsSocial Indicators


Conclusions

Implications

Appendix


Disclaimer

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0

1,000

2,000

3,000

4,000

5,000

6,000

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F

CAGR 10%

Note: GDP is calculated at current pricesCAGR: compound annual growth rate

Source: China Statistical Yearbook; China Monthly Economic Indicators; IMF; THE BEIJING AXIS Analysis

Nominal GDP (USD bn, 1978-2010F)

CHINA’S ECONOMY HAS GROWN TREMENDOUSLY AND IS POISED TO OVERTAKE JAPAN AS THE SECOND-LARGEST ECONOMY

In 2009, China’s GDP reached USD 4.9 trillion, which is more than four times its 1998 level (USD 1 trillion). From 1978, it grew at a CAGR of 10%

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0 200 400 600

GuangdongShandong

JiangsuZhejiang

HenanHebei

ShanghaiLiaoningSichuan

HubeiHunanFujian

BeijingAnhui

HeilongjiangInner

GuangxiShanxi

ShaanxiJiangxi

JilinTianjin

YunnanChongqing

XinjiangGuizhou

GansuHainan

NingxiaQinghai

Tibet

123456789

10111213141516171819202122232425262728293031

2

4

35

1

Henan

Zhejiang

Shandong

Top 5 provinces’GDP equate to 46%

of total GDP

Guangdong

Jiangsu

GDP by Province (USD bn, 2008)

CHINA HAS A LARGE GDP YET IT IS HIGHLY CONCENTRATED IN A FEW PROVINCES NEAR THE COAST

The top five provinces of Guangdong, Shandong, Jiangsu, Zhejiang, and Henan account for roughly 46% of GDP

31

30 29

28

27

Qinghai

Tibet

Gansu

Hainan

Ningxia

Note: GDP is calculated at current pricesSource: China Statistics Yearbook; THE BEIJING AXIS Analysis

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0

4

8

12

16

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F

7-10% GDP growth band

Past periods of

overheating

7-8% GDP growth band

Temporary slowdown due to the


Overheating concerns

Source: World Bank; China Statistical Abstract; OECD; IMF; THE BEIJING AXIS Analysis

China Nominal GDP Growth Rate (% y-o-y, 1978-2010F)

ACCORDING TO A WORLD BANK FORECAST, CHINA’S ANNUAL GDP GROWTH RATE WILL REACH 9% IN 2010

Other financial organisations such as UBS and Standard Chartered Bank have even bolder expectations, forecasting growth of more than 9.5%

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4

12

3

Tianjin

Inner Mongolia

Shanghai

Shaanxi

Jilin

5

GDP Growth Rate by Province (%, 2008)

ALTHOUGH GDP IS CONCENTRATED IN THE EAST, THE CENTRAL PROVINCES HAVE THE HIGHEST GDP GROWTH RATES

This underlines the central government’s plan to develop the central and western regions of the country

31

30

29 28

27 Hainan

Chongqing

Beijing

Sichuan

Shanxi

123456789

10111213141516171819202122232425262728293031

0 5 10 15 20

Inner MongoliaTianjin

JilinShaanxi

ChongqingHubei

LiaoningFujianHunan

GuangxiAnhui

QinghaiJiangxiJiangsuNingxia

ShandongHenan

HeilongjiangYunnan

XinjiangGuizhou

GuangdongZhejiang

HebeiGansu

TibetHainan

ShanghaiSichuanBeijingShanxi

Source: China Monthly Indicators; THE BEIJING AXIS Analysis

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0

1,000

2,000

3,000

4,000

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10F

CAGR 9%

Note: GDP is calculated at current pricesSource: China Statistical Yearbook; National Bureau of Statistics of China; IMF; THE BEIJING AXIS Analysis

GDP Per Capita (USD, 1978-2010F)

CHINA’S GDP PER CAPITA HAS GROWN CONSIDERABLY IN THE LAST 30 YEARS

In 2009, China’s GDP per capita reached USD 3,672, which represents a CAGR of 9% over the last 30 years

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5

4

32

Shanghai1

Zhejiang

Jiangsu

Source: Various; THE BEIJING AXIS Analysis

GDP Per Capita by Province (USD, 2008)

31

30

29

28

27

Beijing

Tianjin

Tibet

Gansu

YunnanGuizhou

Anhui

123456789

10111213141516171819202122232425262728293031

THE PROVINCES WITH THE HIGHEST GDP PER CAPITA ARE LOCATED IN EASTERN CHINA

The lowest GDP per capita is found in central and western China

0 2,000 4,000 6,000 8,000 10,000

ShanghaiBeijingTianjin

ZhejiangJiangsu

GuangdongShandong

InnerLiaoning

FujianJilin

HebeiHeilongjiang

ShanxiXinjiang

HubeiHenan

ShaanxiChongqing

NingxiaQinghai

HunanHainan

SichuanGuangxiJiangxi

AnhuiTibet

YunnanGansu

Guizhou

Inner Mongolia

-31-

259274

302

369

489

522

179174 178 181 191 200 210

0

1,000

2,000

3,000

4,000

5,000

6,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-10%

0%

10%

20%

30%

40%

CAGR 10%

Source: China Statistical Yearbook; China Monthly Economic Indicators; THE BEIJING AXIS Analysis

Composition of GDP by Sector (USD bn, 1997-2009)

PRIMARY INDUSTRY CONSTITUTES ROUGHLY 11% OF CHINA’S GDP

The primary industry grew at a CAGR of 10% from 1997, and contributed USD 522 billion to total GDP in 2009

Primary industry Secondary industry

Tertiary industry Growth rate of primary industry

-32-

0

400

800

1,200

1,600

2,000

2,400

989900010203040506070809

Primary10.6%

Secondary46.8%

Tertiary42.6%

Breakdown of Secondary Industry and Trends (2009)

CAGR 13%

Value-Added Totals of Secondary Industry (at current prices, USD bn, 1998-2009)

SECONDARY INDUSTRY IS THE LARGEST CONTRIBUTOR TO CHINA’S GDP, CONSTITUTING 47%

The secondary industry grew at a CAGR of 13% from 1997 to 2009, and contributed USD 2.3 trillion to GDP in 2009

Note: CAGR is calculated for the last ten yearsSource: China Statistical Yearbook; THE BEIJING AXIS Analysis

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0

500

1,000

1,500

2,000

09 08 07 06 05 04 03 02 01 00 99

Hotels and catering services Real estate Transport, storage, and postFinancial intermediation Wholesale and retail tradesOthers

CAGR 15.6%

Primary10.6%

Secondary46.8%

Tertiary42.6%

37%

19%

14%

14%

11%5%

Value-Added total of the Tertiary Industry (at current prices, USD bn, 1999-2009)

Breakdown of Tertiary Industry and Trends (2009)

TERTIARY INDUSTRY IS THE SECOND-LARGEST CONTRIBUTOR TO CHINA’S GDP, COMPRISING 43% OF TOTAL OUTPUT

Between 1999 and 2009 the tertiary industry grew at a CAGR of 16%, and contributed USD 2.1 trillion to GDP

Note: CAGR is calculated for the last ten years; The breakdown figures are not available for 2009Source: China Statistical Yearbook; THE BEIJING AXIS Analysis

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-30%

-10%

10%

30%

50%

70%

90%

98 99 00 01 02 03 04 05 06 07 08 09

Net exports of goods and servicesGross capital formationFinal consumption expenditure (household + gov)

-4

-2

0

2

4

6

8

98 99 00 01 02 03 04 05 06 07 08 09

Net exports of goods and servicesGross capital formationFinal consumption expenditure (household + gov)

Note: The three components of GDP by expenditure approach are final consumption expenditure (composed of household and government consumption), gross capital formation and net exports of goods and services. For 2009 the 92% gross capital formation, 52% final consumption expenditure and the -44% net exports of goods and services were reduced proportionately to form the bar representing 100%

Source: China Statistical Yearbook; THE BEIJING AXIS Analysis

Contribution/Share of the Three Components of GDP Growth (1998-2009)

GROSS CAPITAL FORMATION AND FINAL CONSUMPTION EXPENDITURE ARE THE MAIN COMPONENTS OF CHINA’S GDP In 2009, gross capital formation and final consumption respectively contributed

92.3% and 52.5% to GDP growth while net exports subtracted -44.8%Contribution to the Growth of GDP(Percentage Points, 1998-2009)

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20%

40%

60%

80%

100%

0 50 100 150 200 250

Shandong

Jiangsu

Inner Mongolia

Fujian

Shanghai

Liaoning

Zhejiang

Jilin

Chongqing

Total capital formation, USD bn


China’s Gross Capital Formation in 2008

Size of the bubble represents % of

total

Guangdong

HenanHebei

Sichuan

HubeiHunan

Shaanxi

Ningxia

Tibet

Qinghai

HainanGansu

Tianjin

Anhui

ShanxiGuangxi

BeijingHeilongjiangYunnan

XinjiangGuizhou

Capital formation takes place mostly in coastal provinces

Provinces in central and western China had higher capital formation

rates

CHINA’S GROSS CAPITAL FORMATION IS CONCENTRATED IN THE MORE DEVELOPED REGIONS

In 2008, China’s top five provinces by annual gross capital formation accounted for nearly 40% of the national total

% of Province GDP

Jiangxi

-36-

20%

40%

60%

80%

0 50 100 150 200 250 300


China’s Final Consumption (2008)

Total final consumption, USD bn

34% of China’s total final consumption is centered in

the coastal provinces

Size of the bubble represents % of

total

Shandong

Guangdong

Jiangsu

Zhejiang

Henan

Shanghai

ChongqingGuizhou

SichuanHunanBeijing

Hubei

HebeiLiaoning

Fujian

Anhui

Heilongjiang

GuangxiQinghai

Tibet

NingxiaHainan

Gansu

Yunnan

JiangxiXinjiang JilinShaanxi

Inner Mongolia

Shanxi

Tianjin

THE LARGEST SHARE OF CHINA’S FINAL CONSUMPTION TAKES PLACE IN THE COASTAL PROVINCES

In 2008, Shandong, Guangdong, Jiangsu and Zhejiang were responsible for 34% of China’s total annual final consumption

% of Province GDP

-37-Source: China Statistical Yearbook; THE BEIJING AXIS Analysis

Government Expenditure Breakdown (USD bn, 2008)

73.120.930.733.939.7

58.560.2

60.665.4

89.7

98.0

129.7

141.0901.2

0%

20%

40%

60%

80%

100%

Tota

l go

vern

men

tex

pend

iture

Gen

eral

pub

licse

rvic

es

Educ

atio

n

Soci

al s

ecur

ityan

dem

ploy

men

t

Indu

stry

,co

mm

erce

and

bank

ing

Agr

icul

ture

,fo

rest

ry a

ndirr

igat

ion

Urb

an &

rura

lco

mm

unity

affa

irs

Nat

iona

lde

fens

e

Publ

ic s

ecur

ity

Med

ical

and

heal

th c

are

Tran

spor

tatio

n

Scie

nce

and

tech

nolo

gy

Envi

ronm

enta

lpr

otec

tion

Oth

ers

GOVERNMENT EXPENDITURE IS LARGELY AIMED AT IMPROVING THE POPULATION’S QUALITY OF LIFE

In 2008, 48% of government expenditure was focused on public services, education, social security, employment and community affairs

-38-

0

2,000

4,000

6,000

8,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008-50%

-25%

0%

25%

50%Industrial production Growth rate

Source: CEIC Data; THE BEIJING AXIS Analysis

Gross Industrial Output (USD mn, 1998-2008)

CHINA’S INDUSTRIAL OUTPUT GROWTHACCELERATED AFTER ACCESSION TO THE WTO IN 2001

Since then, a large number of foreign companies have established manufacturing bases in China, driving gross industrial output up at a CAGR of 22% from 1998-

2008

CAGR 22%

WTO accession11 December 2001

-39-

0

10

20

30

40

50

Oil Nickel Copper Aluminium Zinc Lead Steel Coal Seaborneiron ore

Tin

2nd

1st 1st

1st 1st 2nd 1st1st

1st 1st

Note: The percentages for Zinc, Lead and Tin are for 2007Source: WBMS; Barlow Jonker; IEA; BP; Macquarie; THE BEIJING AXIS Analysis

China’s Share of the World’s Consumption of Selected Resources (%, World Ranking, 2008)

CHINA IS THE WORLD’S LEADING CONSUMER OF SEVERAL RESOURCES

Rapid modernisation, industrialisation and urbanisation are the key drivers of the trend and are unlikely to recede anytime soon

-40-

AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-41-

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09-20%

-10%

0%

10%

20%

30%

40%

50%

Retail sales (Urban) Retail sales (Suburban) Retail sales (Rural)Urban growth Suburban growth Rural growth

1. Figures converted from RMB to USD using the average exchange rate for the respective years. The growth rate, however, does not factor in exchange rate fluctuations


Annual Retail Sales and Growth Rate by Administrative Level (USD bn1, 1978-2009)

AS A REFLECTION OF CHINA’S RAPID DEVELOPMENT, PERSONAL CONSUMPTION HAS BEEN ON THE RISE (I)

While retail sales were quite volatile in the 1980s and 1990s, there has been substantial, stable growth in the last decade

-42-

0

50

100

150

200

Jan-

06

May

-06

Sep-

06

Jan-

07

May

-07

Sep-

07

Jan-

08

May

-08

Sep-

08

Jan-

09

May

-09

Sep-

09

0

400

800

1,200

1,600

2,000

79 82 85 88 91 94 97 00 03 06 09


Annual Retail Sales (USD bn, 1979-2009) Monthly Retail Sales (USD bn, 2006-2009)

AS A REFLECTION OF CHINA’S RAPID DEVELOPMENT, PERSONAL CONSUMPTION HAS BEEN ON THE RISE (II)

The sustained growth of retail sales reflects China’s rapid development and consequent increase in the purchasing power of the population

Dec

-09

-43-

3.58.9

86.9

Wholesale and retail trade Hotels and catering servicesOthers

28.41

1,550.19

264.68

1978 2009

84%

14%

2%

87%

4%9%


Annual Retail Sales of Consumer Goods by Sub-sector (USD bn, 1978 vs. 2009)

AS A REFLECTION OF CHINA’S RAPID DEVELOPMENT, PERSONAL CONSUMPTION HAS BEEN ON THE RISE (III)

Wholesale and retail trade continue to dominate retail sales; however, hotels and catering services have seen considerable growth in the past 30 years

-44-

0 50 100 150 200

GuangdongShandong

JiangsuZhejiang

HenanHubei

LiaoningHebei

SichuanBeijing

ShanghaiHunanFujianAnhui

HeilongjiangJilin

Inner MongoliaShanxi

GuangxiShaanxiJiangxi

ChongqingTianjin

YunnanXinjiangGuizhou

GansuHainan

NingxiaQinghai

Tibet

Guangdong

Jiangsu

Shandong

Zhejiang

1

5

4

3

2

123456789

10111213141516171819202122232425262728293031

27

28

293031

Gansu

Hainan

Ningxia

QinghaiTibet

1. The top five provinces in terms of population do not include Zhejiang, but do include the four other provinces2. The top five provinces in terms of income per capita do not include Henan, but do include the four other provincesSource: China Statistical Yearbook; THE BEIJING AXIS Analysis

Total Retail Sales of Consumer Goods by Province (USD bn, 2008)

Henan

THE LARGEST SHARE OF RETAIL SALES IS CONCENTRATED IN THE EASTERN COASTAL PROVINCES

Unsurprisingly, the top five provinces in terms of retail sales are also the leading provinces in terms of population1, employed persons and income per capita2

-45-

Russia

USA17.8%

Hong Kong 13.3%

South Korea5.2%

Japan8.1%

Germany4.1%

Top exported commodities• Electrical machinery, equipment and parts

• Nuclear reactors, boilers, machinery and mechanical appliances

• Articles of apparel and clothing

China’s Top Export Destinations (USD bn, 2008)

Total exports = USD 1,430.7 bn

48% OF CHINA’S EXPORTS ARE DESTINED FOR THE US,HONG KONG, JAPAN, SOUTH KOREA, AND GERMANY

The US and Hong Kong1 are China’s main export destinations

1. Hong Kong is admittedly used as a gateway to the rest of the worldSource: UN Comtrade; THE BEIJING AXIS Analysis

31.6

32.3

33.1

36.1

45.9

59.2

73.9

116.1

190.7

252.8

India

Singapore

Russia

UK

Netherlands

Germany

South Korea

Japan

Hong Kong

US

-46-

0

200

400

600

800

1,000

1,200

1,400

1,600

97 98 99 00 01 02 03 04 05 06 07 08 09-30%

-20%

-10%

0%

10%

20%

30%

40%Exports Exports' growth rate

0

20

40

60

80

100

120

140

160

Jan-

07

Mar

-07

May

-07

Jul -

07

Sep-

07N

ov-0

7Ja

n-08

Mar

-08

May

-08

Jul-0

8Se

p-08

Nov

-08

Jan-

09M

ar-0

9M

ay-0

9Ju

l-09

Sep-

09N

ov-0

9

-80%

-60%

-40%

-20%

0%

20%

40%

60%Exports Exports' monthly growth rate

China’s entry into the WTO

CHINA’S EXPORTS EXPERIENCED RAPID GROWTH FOLLOWING THE COUNTRY’S ACCESSION TO THE WTO

Although the onset of the global financial crisis has sharply affected exports, growth resumed in March 2009

Annual Exports (USD bn, 1997-2009) Monthly Exports (USD bn, 2007-2009)


Dec

-09

-47-

94.9 127.0 187.9268.3

352.3456.4

577.2

87.1101.2

126.1

156.4

194.2

238.0

296.9

43.853.0

69.0

100.7

129.1

174.8

219.9

673.3

335.9

263.3

0

300

600

900

1,200

1,500

2001 2002 2003 2004 2005 2006 2007 2008

OthersMineral itemsFoodstuffsChemicals and related productsProducts classified by material SundryMachinery equipment

COMMONLY REGARDED AS THE WORLD’S FACTORY FLOOR, CHINA IS KNOWN FOR ITS COMPETITIVE PRODUCTS

This is supported by the fact that the bulk of the country’s exports are manufactured goods

1. SITC Classification SystemSource: MOFCOM; THE BEIJING AXIS Analysis

Export Commodity Composition1 (USD bn, 2001-2008)

-48-

Top imported commodities• Electrical machinery, equipment and parts• Mineral fuels, mineral oils and products of their

distillation• Nuclear reactors, boilers, machinery and mechanical appliances

Russia

US7.2%

Taiwan9.1%

South Korea9.9%

Japan13.3%

Germany4.9%

Top Countries of Origin for China’s Imports (USD bn, 2008)

25.7

29.9

31.0

32.1

37.4

55.8

81.6

103.3

112.1

150.6

Thailand

Brazil

Saudi Arabia

Malaysia

Australia

Germany

US

Taiwan

South Korea

JapanTotal Imports = USD 1,132.6 bn

45% OF CHINA’S IMPORTS COME FROM JAPAN, SOUTH KOREA, TAIWAN, THE US AND GERMANY

In 2008, Japan and South Korea were the top suppliers, accounting for 23% of China’s total imports

Source: UN Comtrade; THE BEIJING AXIS Analysis

-49-

0

200

400

600

800

1,000

1,200

97 98 99 00 01 02 03 04 05 06 07 08 09-30%

-20%

-10%

0%

10%

20%

30%

40%Imports Imports' growth rate

40

50

60

70

80

90

100

110

120

Jan-

07M

ar-0

7M

ay-0

7Ju

l-07

Sep-

07N

ov-0

7Ja

n-08

Mar

-08

May

-08

Jul-0

8Se

p-08

Nov

-08

Jan-

09M

ar-0

9M

ay-0

9Ju

l-09

Sep-

09N

ov-0

9

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%Imports Imports' growth rate

China’s entry into the WTO


CHINA’S IMPORTS EXPERIENCED RAPID GROWTH AFTER THE COUNTRY’S ACCESSION TO THE WTO

Imports, battered by the crisis, stopped free-falling in February 2009, and kept growing up to the end of the year

Annual Imports (USD bn, 1997-2009) Monthly Imports (USD bn, 2007-2009)

Dec

-09

-50-

107.04 137.03 192.90 252.62 290.63 357.11 412.5141.94 48.49

63.9074.07

81.1686.96

102.87 107.17

32.1139.04

49.0065.74

77.7487.08

107.50119.19

441.77

0

200

400

600

800

1,000

1,200

2001 2002 2003 2004 2005 2006 2007 2008

OthersFoodstuffsSundryMineral itemsChemicals and related productsProducts classified by material Machinery equipment

AS AN ECONOMIC SUPERPOWER WITH AN AMBITIOUS DEVELOPMENT PLAN, CHINA NEEDS IMPORTED GOODS

The majority of these imports are machinery equipment, chemicals and related products, as well as, of course, minerals

Import Commodity Composition1 (USD bn, 2001-2008)

1. SITC Classification SystemSource: MOFCOM; THE BEIJING AXIS Analysis

-51-

Russia

US13.0%

Hong Kong 7.9%

South Korea7.3%

Japan10.4%

Taiwan5.0%

China’s Largest Trading Partners (USD bn, 2008)

China’s total trade with the world = USD 2,563.25 bnTotal exports = USD 1,430.69 bnTotal imports = USD 1,132.56 bn

52.5

53.6

56.9

59.7

115.0

129.2

186.1

203.6

266.7

333.7

Singapore

Malaysia

Russia

Australia

Germany

Taiwan

South Korea

Hong Kong

Japan

US

44% OF CHINA’S TOTAL TRADE IS WITH THE US, JAPAN, HONG KONG, SOUTH KOREA, AND TAIWAN

The US accounted for USD 334 billion in 2008


-52-

Russia

US

Hong Kong

South Korea

Japan

UK

UAE

Angola

Netherlands

TaiwanSaudi Arabia

Hong KongUS

NetherlandsUK

UAEAngola

Saudi ArabiaJapan

South KoreaTaiwan -77.5

-38.2

-34.5-20.2

-19.4

19.026.5

40.6171.3

177.8

China’s Trade Balance with the Five Largest Surplus and Deficit Regions (USD bn, 2008)

China’s world trade surplus = USD 298.13 bn

CHINA HAS A LARGE TRADE SURPLUS WITH HONG KONG AND THE US, WHILE IT HAS A TRADE DEFICIT WITH TAIWAN AND S. KOREA

The larger share of China’s trade deficit is centered in Asia Pacific


-53-

0

10

20

30

40

50

Jan-

05

Mar

-05

May

-05

Jul-0

5

Sep-

05

Nov

-05

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-

06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

-60%

-40%

-20%

0%

20%

40%

60%Trade balance Exports, % change y-o-y Imports, % change y-o-y

Source: China Customs; THE BEIJING AXIS Analysis

China’s Monthly Trade Balance (USD bn, 2005-2009)

THE JANUARY 09 USD 39.1 BILLION TRADE SURPLUS WAS THE 2nd

HIGHEST EVER AFTER THE USD 40.1 BILLION OF NOVEMBER 08 This surprising figure, at the height of the global crisis, was the result of

plummeting imports that greatly exceeded the drop in exports

Dec

-09

-54-

0%

2%

4%

6%

8%

10%

97 98 99 00 01 02 03 04 05 06 07 08 090%

2%

4%

6%

8%

10%

06- I

06-II

06-III

06-IV

07- I

07-II

07-III

07-IV

08- I

08-II

08-III

08-IV

09- I

09-II

09-III

09-IV

1. Total consumption = private household consumption + government consumptionSource: China Statistical Yearbook; China Monthly Economic Indicators; THE BEIJING AXIS Analysis

Net Exports / Annual GDP (1997-2009) Net Exports / Quarterly GDP (2006-2009)

CHINA’S TRADE SURPLUS PEAKED AT AROUND 8% OF GDP IN 2007

However, the turbulent global environment caused China’s trade to plunge in late 2008, leaving fixed investment and total consumption1 as the primary drivers of GDP

-55-

Percentage of China’s total trade value

Top 65 %Next 25 %Next 10 %

HunanShandong

ShaanxiHenan

Imports: USD 1,133.1 bnExports: USD 1,428.5 bn

Total trade: USD 2,561.6 bn

Hunan

Hainan

FujianTaiwan

Guangdong26.4%

Guangxi

Guizhou

Yunnan

Heilongjiang

Jilin

Liaoning

Hebei

Jiangsu, 15.4%

Shanghai, 12.6%

Anhui

ZhejiangJiangxi

Tibet

Hubei

Inner Mongolia

Ningxia

Sichuan

Qinghai

Xinjiang

Gansu

ShanxiTianjin

Chongqing

Beijing10.8%

Source: China Monthly Economic Indicators; THE BEIJING AXIS Analysis

China Total Trade Value by Province (2008)

90% OF CHINA’S TOTAL INTERNATIONAL TRADE VALUE IS CONCENTRATED IN NINE PROVINCES

These coastal areas also have the highest GDP, GDP per capita, retail sales, fixed asset investment, FDI, and personal income

-56-

AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-57-

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090%

10%

20%

30%

40%Fixed asset investment Growth rate


Fixed Asset Investment (USD bn, 1997-2009)

CHINA HAS DEPENDED HEAVILY ON INVESTMENT FOR ITS ECONOMIC GROWTH

Fixed asset investment has been growing at an increasing pace since 1999, reaching 3,286 billion in 2009

-58-

231.5 271.7 286.7 316.8 362.5 428.8 553.5 713.2 916.7

2854.9

69.3 71.4 74.0 80.9 87.1 96.8117.9

138.3167.0

208.6

261.2

347.2

451.6

1,171.21,544.8

2,132.5

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Urban areas Rural areas


Total Investment in Urban and Rural Areas (USD bn, 1997-2009)

MORE THAN 80% OF CHINA’S FIXED ASSET INVESTMENT HAS OCCURRED IN URBAN AREAS

In 2008, China’s total fixed asset investment was USD 3,206.5 billion, of which 86% was invested in urban areas

-59-

1

4

3

2

5

JiangsuHenan

Guangdong

Shandong

Fixed Asset Investment by Province (USD bn, 2008)

123456789

1011121314151617181920212223242526272829303132

Liaoning

0 50 100 150 200 250

ShandongJiangsu

GuangdongHenan

LiaoningZhejiang

HebeiSichuan

AnhuiHubei

HunanInner

FujianJilin

ShanghaiJiangxi

ShaanxiChongqing

BeijingGuangxi

Not ClassifiedHeilongjiang

ShanxiYunnanTianjin

XinjiangGuizhou

GansuNingxiaHainan

QinghaiTibet

Not classified by region – 2.2%

Second-tier provinces –

64.1%

Top 5 provinces - 35.9%

CHINA’S FIXED ASSET INVESTMENT IS PRIMARILY FOCUSED ON THE COASTAL PROVINCES

China’s coastal provinces have greater demand for fixed asset investment due to the development of their economies


-60-

177.5 236.6 324.4 427.6585.3

816.4158.8

201.5238.1

307.6

426.6

582.3

76.092.4

117.4

152.3

186.1

245.1

52.861.3

76.6

102.3

133.5

194.9

47.970.0

92.2

107.7

124.5

158.3

21.529.0

43.8

58.7

77.3

111.0

137.0160.7

191.2

223.7

272.6

380.4

0

500

1,000

1,500

2,000

2,500

2003 2004 2005 2006 2007 2008

OthersMining Utilities Environmental protection and public facilitiesTransport, storage and postReal estateManufacturing

Fixed Asset Investment by Sector (USD bn, 2003-2008)

MANUFACTURING AND REAL ESTATE HAVE BEEN THE TOP TWO SECTORS FOR ATTRACTING FIXED ASSET INVESTMENT

China’s ongoing industrialisation has prompted an increasing amount of investment in some sectors, especially manufacturing


-61-

0

20

40

60

80

100

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-20%

-10%

0%

10%

20%

30%FDI inflow FDI growth

Note: FDI = foreign direct investmentSource: IMF; MOFCOM; THE BEIJING AXIS Analysis

FDI Inflow (USD bn, 1997-2008)

FDI FLOWS INTO CHINA HAVE BEEN GROWING STEADILY THROUGHOUT THE LAST DECADE

China’s low manufacturing costs, large market potential and attractive investment environment are key factors in attracting FDI

-62-

41.0

16.0

4.4

3.7

3.1

3.1

2.9

2.5

1.9

1.5

Hong KongVirgin Is.SingaporeJapanCayman Is.South KoreaUSSamoaTaiwanMauritius

12

3

4

5

6

7

8

9

10

USA 3.2%

HK 44.4%

Japan 4.0%South Korea3.4%

Taiwan 2.0%

Samoa 2.8%Mauritius 1.6%

British Virgin Islands17.3%

Cayman Islands3.4%

Singapore4.8%

USD bn

China’s total FDI inflow for 2008 amounted to USD 92.4 bn


OFFSHORE FINANCIAL CENTRES HAVE BEEN THE TOP ‘SOURCES’ OF FDI FOR CHINA

In 2008, 87% of China’s FDI came from ten countries, but the true countries of origin are hidden by the use of HK, BVI, Cayman Islands, Mauritius, etc.

China’s FDI Inflow by Source Region (USD bn, 2008)

-63-

0 5,000 10,000 15,000 20,000 25,000

JiangsuGuangdong

ShandongZhejiangLiaoning

ShanghaiTianjinBeijingFujianHunan

JiangxiHenanAnhuiHubei

ShanxiHebei

Inner MongoliaSichuanShaanxi

HainanChongqing

JilinGuangxi

HeilongjiangYunnanQinghaiGuizhouXinjiang

GansuNingxia

Tibet

123456789

10111213141516171819202122232425262728293031

3

4

2

1

5

Zhejiang

Liaoning

Jiangsu

Guangdong

Shandong

Top 5 provinces account for

56.8% of China’s total FDI


FDI Inflow by Province (USD mn, 2007)

CHINA’S COASTAL PROVINCES HAVE ATTRACTED SUBSTANTIALLY MORE FDI THAN INLAND PROVINCES

Larger market size, infrastructure and the more attractive nature of the business environment are key drivers for attracting FDI to coastal provinces

-64-

36.9 43.0 42.5 40.1 40.949.9

5.26.0 5.4 8.2

17.1

18.6

2.8 3.8 4.2

4.0

5.1

6.0

4.42.9

6.26.4 6.7

8.1

11.6

3.2

2.7

1.81.01.1

2.0

2.01.31.3

0.9

1.6

0

20

40

60

80

100

2003 2004 2005 2006 2007 2008

OthersTransport, storage and postWholesale and retail tradesLeasing and business servicesReal estateManufacturing


China’s FDI Inflow by Sector (USD bn, 2003-2008)

ALMOST HALF OF CHINA’S FDI HAS BEEN INVESTEDIN ITS MANUFACTURING SECTOR

This is rooted in the context of China’s industrialisation and the perceived status of the country as the world’s factory floor

-65-

0

20

40

60

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009F0%

50%

100%

150%OFDI flow OFDI growth rate (from 2003)

Source: IMF; MOFCOM; THE BEIJING AXIS Analysis

China Outward FDI Flow (USD bn, 1997-2008)

CHINA’S OUTBOUND FDI (OFDI) HAS SEEN SHARP GROWTH IN RECENT YEARS

Over the past five years China has become more active in its OFDI activities, driven by its increasing need for new markets, technology and resources

-66-

China’s Outward FDI Stock by Region (2008)

115.9

20.310.5

3.43.3

3.0

2.41.8

1.61.4

Hong KongCayman Is.Virgin Is.AustraliaSingaporeSouth AfricaUSRussiaMacauKazakhstan

USD bnHK 63%

12

Cayman Islands11.1%

3

British Virgin Islands5.7%

7USA 1.3%

Australia 1.8%

4

5 Singapore 1.8%

Russia 1%8

Macau 0.9%9

Kazakhstan0.8% 10

6 South Africa 1.7%

CHINA’S OFDI HAS EXTENDED TO ALL CONTINENTS Usually via international financial centres such as HK, Cayman Islands and BVI


China’s total cumulative outward FDI stock for 2008 amounted to USD 183.97 bn

-67-

0 500 1,000 1,500

GuangdongZhejiang

ShandongHunanGansu

LiaoningShanghai

FujianJiangsuYunnanHenan

BeijingXinjiang

TianjinShaanxi

HeilongjiangSichuan

ChongqingGuangxi

JilinAnhuiHebeiHubei

ShanxiNingxiaJiangxi

Inner MongoliaQinghaiHainan

GuizhouTibet

123456789

10111213141516171819202122232425262728293031

3

42

GuangdongHunan

Zhejiang

Shandong

Top 5 provinces’ OFDI accounts

for 50%

The remaining provinces’ OFDI

accounts for 50%

Tibet has no reported OFDI

1

5

Gansu


OFDI by Province (USD mn, 2008)

IN 2008, HALF OF CHINA’S NON-FINANCIAL OFDI CAME FROM FIVE PROVINCES

Unlike with FDI, Chinese sources of OFDI are not restricted to the coastal areas

-68-

0.74.9 4.5 5.6

21.73.5 1.7

14.0

0.8

2.31.1

6.6

6.5

1.8

1.7

8.54.1

5.8

0.8

0.6

1.4 4.1

2.7

0.8

2.3

0.92.1

1.8

0.6

0.5

1.2

2.3

3.38

0

10

20

30

40

50

60

2004 2005 2006 2007 2008

OthersManufacturingTransport, storage and postMiningWholesale and retail tradesFinanceLeasing and business services

China OFDI Flow by Sector (USD bn, 2004-2008)

CHINA’S OFDI COVERS MANY SECTORS BUT THERE IS A DISPROPORTIONATE FOCUS ON CERTAIN SECTORS

A substantial portion of China’s outward investments are in leasing and business services, mining, wholesale and retail trades, and in manufacturing

Note: Business services includes investment in holding companies, regional headquarters and SPVs often established in offshore financial centers from where investments are made in other countries and sectors; Finance includes investments in the banking industry such bank branch offices, bank affiliated institutions, bank rep. offices and insurance institutions; Wholesale and retailing as well as transportation, warehousing and postal services are closely linked with China export and import activities


-69-

AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-70-

92

96

100

104

108

97 98 99 00 01 02 03 04 05 06 07 08 09

Annual CPI

1

4

2

3

5Guangxi107.8

Xinjiang108.1

Qinghai110.1

Gansu108.2

Ningxia108.5

Jilin

105.14

5Sichuan105.1

3 Zhejiang105

2Liaoning104.6

1 Fujian104.6

1. Preceding year = 100Source: China Statistical Yearbook; China Monthly Economic Indicators; THE BEIJING AXIS Analysis

Consumer Price Index Annual (1997-2009)1 Consumer Price Index by Province (2008)1

Bottom 5 provincesTop 5 provinces

CHINA HAS SEEN PHASES OF INFLATION, DISINFLATION AND DEFLATION OVER THE PAST DECADE

In 2008, the provinces with the highest CPI were concentrated in western China while the provinces with the lowest CPI were concentrated along the coastline

Commodity and food price pressures

Overheating and overinvestment

Deflation and overcapacity

-71-

92

96

100

104

108

97 98 99 00 01 02 03 04 05 06 07 08

Annual PPI

1

32

2

Shaanxi122.4

Hebei116.7

3 Xinjiang108.1

5Heilongjiang114

4

Ningxia112.9

4 Tianjin104.1

Beijing103.3

5 Fujian104.6

Guangdong103.1

1 Shanghai102.2

1. Preceding year = 100Source: China Statistical Yearbook; Various; THE BEIJING AXIS Analysis

Producer Price Index, Annual (1997-2008)1 Producer Price Index by Province (2008)1

Bottom 5 provincesTop 5 provinces

CHINA’S PPI HAS SEEN SIMILAR FLUCTUATIONS IN THE PAST DUE TO THE RISE IN RAW MATERIAL, FUEL AND ENERGY COSTSIn 2008, the regions with the lowest PPI were the coastal provinces of Fujian and

Guangdong, and the directly controlled municipalities of Shanghai, Beijing, and Tianjin

-72-

95

100

105

110

115

99 00 01 02 03 04 05 06 07 08 09

Selling price index of housesLand transaction price indexRenting price index of houses

5

2

3Shaoguan100.1

3

1

Yinchuan108.4

4

1

Jinhua110.6

Xuzhou100.6

Taiyuan100.5

Hangzhou109.2 Wenzhou

111.9

Shenzhen116.4

1. Preceding year = 100 Source: China Statistical Yearbook; THE BEIJING AXIS Analysis

Bottom 5 CitiesTop 5 Cities

Property Price Index, Annual (1999-2009)1 Selling Price Index of Houses by Cities (Q4, 2009)

CHINA’S PROPERTY MARKET HAS SEEN DRAMATIC PRICE INCREASES OVER THE PAST DECADE

Although housing prices fell at the start of 2009, they soared by the end of the year, rising 7.8% in December1

4

2

Tangshan98.0

5

Jilin98.9

-73-

30

40

50

60

Jan-

06

Mar

-06

May

-06

Jul-0

6

Sep-

06

Nov

-06

Jan-

07

Mar

-07

May

-07

Jul-0

7

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

PMI 2 month moving average (PMI)

FROM A TROUGH OF 38.8% IN NOV 2008, CHINA’S PMI HAS RISEN PAST THE 50% BENCHMARK, REACHING 56% IN DEC 2009 A PMI index of over 50% signals expansion of the manufacturing industry

Purchasing Manager Index of the Manufacturing Industry (2006-2009)

Source: China Monthly Economic Indicators; THE BEIJING AXIS Analysis

Dec

-09

-74-

103.9103.3

103.4102.8

102.7

102.1

100.9

101.2

100.5

100.4

112

113.1

111.6

110

110.3

109.7

110

109.8

110.3

109.3

109

107.8105.3

101.9

101.3

100.9

80

85

90

95

100

105

110

115

120

Nov

-07

Dec

-07

Jan-

08

Feb-

08

Mar

-08

Apr

-08

May

-08

Jun-

08

Jul-0

8

Aug

-08

Sep-

08

Oct

-08

Nov

-08

Dec

-08

Jan-

09

Feb-

09

Mar

-09

Apr

-09

May

-09

Jun-

09

Jul-0

9

Aug

-09

Sep-

09

Oct

-09

Nov

-09

Dec

-09

Consumer Confidence Index (%, Nov 2007- 2009)

CONSUMER CONFIDENCE IN CHINA HAS BEEN IMPACTED BY THE GLOBAL FINANCIAL CRISIS

However, the effects of the government’s stimulus plan has hada positive impact in 2009

Although consumer confidence has decreased, it is still among

the highest in the world

Source: CEIC Data; THE BEIJING AXIS Analysis

When Consumer Confidence is over the 100 mark it shows that

consumers have become optimistic

-75-

0

5

10

15

20

21-M

ar-9

8

21-N

ov-9

9

21-S

ep-0

3

25-A

pr-0

4

5-Ju

l-06

15-A

ug-0

6

15-N

ov-0

6

15-J

an-0

7

25-F

eb-0

7

16-A

pr-0

7

15-M

ay-0

7

5-Ju

n-07

15-A

ug-0

7

25-S

ep-0

7

25-O

ct-0

7

26-N

ov-0

7

25-D

ec-0

7

25-J

an-0

8

25-M

ar-0

8

25-A

pr-0

8

20-M

ay-0

8

7-Ju

n-08

25-J

un-0

8

15-S

ep-0

8

15-O

ct-0

8

26-N

ov-0

8

13-J

an-1

0

Economicslowdown

Economy overheating

Note: The Bank Deposit-Reserve Ratio is a standard determined by a central bank. It governs the relationship between the amount of money that banks must keep on hand and the amount that they can lend. By raising and lowering the ratio, the central bank can decrease or increase money supply

Source: BNET Business Dictionary; THE BEIJING AXIS Analysis

Bank Deposit-Reserve Ratio (%, 1998-2010)

CONCERNS OVER INFLATIONARY PRESSURE ARE DRIVING A MORE TIGHTENING MONETARY POLICY IN 2010

China began to implement a loose monetary policy at the end of 2008 to fight the fallout of the financial crisis

-76-

0

2

4

6

8

10

25-M

ar-9

8

01-J

ul-9

8

7-D

ec-9

8

10-J

un-9

9

21-F

eb-0

2

29-O

ct-0

4

19-A

ug-0

6

19-A

ug-0

6

18-M

ar-0

7

19-M

ay-0

7

21-J

ul-0

7

22-A

ug-0

7

15-S

ep-0

7

21-D

ec-0

7

09-O

ct-0

8

30-O

ct-0

8

27-N

ov-0

8

23-D

ec-0

8

5 years 1 year 6 months 3 months


Deposit Interest Rate (% p.a., 1998-2008)

UNTIL THE FINANCIAL CRISIS, MONETARY POLICY WAS AIMED AT PREVENTING THE ECONOMY FROM OVERHEATING

But during 2008 deposit interest rates were lowered as the full extent of the economic slowdown became clear

-77-

0

3

6

9

12

23-O

ct-9

7

25-M

ar-9

8

1-Ju

l-98

7-D

ec-9

8

10-J

un-9

9

21-F

eb-0

2

29-O

ct-0

4

28-A

pr-0

6

19-A

ug-0

6

18-M

ar-0

7

19-M

ay-0

7

21-J

ul-0

7

22-A

ug-0

7

15-S

ep-0

7

21-D

ec-0

7

16-S

ep-0

8

9-O

ct-0

8

30-O

ct-0

8

27-N

ov-0

8

23-D

ec-0

8

Longer than 5 years 1 year to 3 years (including 3 years) 6 months to 1 year (including 1 year)

First decrease in loan interest rates

in six years


Loan Interest Rate (%, 1997-2008)

LENDING RATES STARTED TO SHIFT LOWER FOR THE FIRST TIME IN SIX YEARS DURING SEPTEMBER 2008Rates were lowered relatively rapidly since September 2008 as the economic

slowdown in Q3-Q4 2008 unfolded

-78-

-1,000

1,000

3,000

5,000

7,000

9,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Loans Deposits

Deposits CAGR: 18.5%

Loans CAGR: 16.0%


Total Loans and Deposits (USD bn, 1997-2009)

DURING THE PAST TEN YEARS, CHINESE BANK DEPOSITS HAVE BEEN RISING FASTER THAN BANK LENDING

By the end of 2009, China’s total deposits amounted to USD 9 trillion, while loans amounted to USD 6.3 trillion

-79-

6,710 3,136

2,269

53154145260

316

0%

20%

40%

60%

80%

100%

T o t ald ep osit s

Ho useho ldsavings

dep o sit s

C ompanyd ep osit s

D ep osit s o fg o vernment

d epart ment s &o rg anisat io ns

F iscald ep osit s

A g ricult urald epo sit s

T rustd ep osit s

Ot herd ep osit s

1,251.9 1,444.5 1,721.9 2,027.0 2,269.03,135.9875.8

1,023.01,173.7

1,420.51,823.7

2,268.7

0

2,000

4,000

6,000

8,000

10,000

2003 2004 2005 2006 2007 2008

Other depositsTrust depositsAgricultural depositsFiscal depositsDeposits of government departments & organisationsCompany depositsHousehold savings deposits

Source: China Statistical Yearbook; The People’s Bank of China; THE BEIJING AXIS Analysis

Sources of Deposits (USD bn, 2008) Sources of Deposits (USD bn, 2003-2008)

HOUSEHOLD SAVINGS HAVE BEEN THE MAIN DRIVER OF THE HIGH GROWTH IN DEPOSITS

In 2008, household banking deposits accounted for 47% of total deposits, while company deposits accounted for 34%

47%

34%

-80-

291

4,367 2,231

720

4453

254255

520

0%

20%

40%

60%

80%

100%

Tot a l l oa ns M e di um &l ong- t e r m

l oa ns

Ot he r S hor t -t e r m Loa ns

S hor t - t e r ml oa ns t o

i ndust r i a lse c t or


c omme r c i a lse c t or


a gr i c ul t ur a lse c t or


c onst r uc t i onse c t or

Tr ust l oa nsOt he r l oa ns

766.0 926.7 1,067.7 1,336.61,729.8

2,230.9380.5

401.7 414.7456.5

576.5

719.5

274.9288.7

274.9

359.4

442.2

520.2

0

1,000

2,000

3,000

4,000

5,000

2003 2004 2005 2006 2007 2008

Other loansTrust loansShort-term loans to construction sectorShort-term loans to agricultural sectorShort-term loans to commercial sectorShort-term loans to industrial sectorOther short-term loansMedium & long-term loans

Source: China Statistical Yearbook; The People’s Bank of China; THE BEIJING AXIS Analysis

Loan Duration (USD bn, 2008) Loan Duration (USD bn, 2003-2008)

MEDIUM AND LONG-TERM LOANS MAKE UP THE BULK OF TOTAL LOANS

In 2008, medium and long-term loans made up 51% of total loans, while short-term loans made up 41%

51%

-81-

646 715 780 837 834 842 860 864 864

514509 507

540 547 592690 740 830

0

400

800

1,200

1,600

2001 2002 2003 2004 2005 2006 2007 2008 2009

Number of companies listed on the Shenzhen Stock ExchangeNumber of companies listed on the Shanghai Stock Exchange

525.8 463.1 513.0 447.7 395.9 1,121.5 4,302.2 1,746.8 3,655.0

Source: China Statistical Yearbook; China Monthly Economic Indicators; World Federation of Exchanges; THE BEIJING AXIS Analysis

Number of Listed Companies

IN 2009, THE SHENZHEN AND SHANGHAI STOCK EXCHANGES HAD THE 3rd AND 7th LARGEST INDEX RISES IN THE WORLD

In 2009, China’s total market capitalisation reached USD 3,655 billion, with 1,694 listed companies

Total market

value, USD bn

2007 stock market bubble

-82-

0

500

1,000

1,500

2001 2002 2003 2004 2005 2006 2007 2008 20090

5,000

10,000

15,000

0

1,000

2,000

3,000

4,000

5,000

6,000

2001 2002 2003 2004 2005 2006 2007 2008 20090

2,000

4,000

6,000

8,000

Volume, bn shares Price

Average P/E ratio 37.7 34.4 36.5 24.2 16.3 33.3 59.2 14.9 28.73

Total turnover USD bn

274 205 252 320 235 725 4,017 2,597 6,469

Average P/E ratio 39.8 37.0 36.2 24.6 16.4 32.7 69.7 16.7 46.01

Total turnover USD bn

188 133 136 192 152 410 2,040 1,248 2,909

PriceVolume, bn shares

Source: China Statistical Yearbook; China Monthly Economic Indicators; Shanghai Stock Exchange; Shenzhen Stock Exchange; www.sina.com.cn; THE BEIJING AXIS Analysis

Shanghai Stock Exchange (2001- 2009) Shenzhen Stock Exchange (2001- 2009)

THE GLOBAL FINANCIAL CRISIS, ALONG WITH OTHER FACTORS, CAUSED LARGE DECLINES IN FINANCIAL MARKETS

In 2009, however, Chinese stock markets recovered at a faster pace compared to their global counterparts

-83-

0

500

1,000

1,500

2,000

2,500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090%

20%

40%

60%

80%Foreign exchange reserves Growth rate

Lowest level since 2000, caused by slowing of ‘hot

money’ inflows


Foreign Exchange Reserves (USD bn, 1997-2009)

CHINA HAS THE LARGEST FOREIGN EXCHANGE RESERVES IN THE WORLD

In 2009, China’s foreign reserves reached USD 2.4 trillion – consisting mainly of US government and institutional bonds

-84-

70

90

110

130

150

2001 2002 2003 2004 2005 2006 2007 2008 May 2009

EUR AUD ZAR USD RUB JPY KRW

Note: Index 2001 = 100 (EUR Index 2002=100)Source: PBOC; THE BEIJING AXIS Analysis

Annual RMB Exchange Rate (2001- May 2009)

THE CHINESE RENMINBI (RMB) HAS APPRECIATED BY 18% AGAINST THE USD SINCE CHINA AMENDED ITS EXCHANGE RATE

POLICY IN 2005

AUD

EUR

USD

ZAR

KRW

JPY

RUB

-85-

AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-86-

0

200

400

600

800

1,000

1,200

1,400

1,600

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 20080.0%

0.5%

1.0%

1.5%

2.0%Population Population growth rate

Source: IMF; National Bureau of Statistics of China; THE BEIJING AXIS Analysis

Population Indicators (mn, 1978-2009)

CHINA’S LARGE POPULATION IS A DEFINING FEATURE OF ITS SOCIETY

Amid concerns about resource sustainability, the central government’s One Child Policy has served to slow the population growth rate to 0.6%

-87-

0

10

20

30

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 20080%

10%

20%Birth rate Natural growth rate

Children born during the boom of the mid-1980’s will soon

enter childbearing age


China’s Annual Births (mn, 1980-2008)

HOWEVER, EVEN WITH FAMILY PLANNING MEASURES, CHINA STILL HAS AROUND 16 MILLION BIRTHS PER YEAR Introduced in 1979, the One Child Policy has been a controversial issue

-88-

6.7%

25.7%

67.6%

0-14 15-64 65 and over

8.1%

19.8%

72.1%

1998 (Total Population - 1.2 bn) 2009 (Total Population - 1.3 bn)


Population Breakdown by Age (mn, 1998-2009)

108.5

964.8

265.183.6

843.4

320.6

CURRENT DEMOGRAPHICS REVEAL A POPULOUS COUNTRY WITH A RELATIVELY SMALL YOUTH GROUP

China has an aging population, and with the continuation of the One Child Policy those aged 65 and older could make up 25% of the population by 2040

-89-

0 20 40 60 80 100

Guangdong Henan

Shandong Sichuan Jiangsu

Hebei Hunan Anhui Hubei

Zhejiang Guangxi Yunnan Jiangxi

Liaoning Heilongjiang

Guizhou Shaanxi

Fujian Shanxi

Chongqing Jilin

Gansu Inner Mongolia

Xinjiang Shanghai

Beijing Tianjin Hainan

Ningxia Qinghai

Tibet

Urban populationRural population

123456789

10111213141516171819202122232425262728293031


3

4

2 5

1

Henan

Hainan

Shandong

Guangdong

JiangsuSichuan

31Tibet

30Qinghai 29

Ningxia

28

27 Tianjin

Population by Urban and Rural Residence and Province (mn, 2008)

THE MAJORITY OF THE MOST POPULOUS PROVINCES ARE LOCATED IN MORE DEVELOPED AREAS IN EASTERN CHINA

Unsurprisingly, these areas also adjoin the coast or major waterways and have a solid agricultural or manufacturing base

Top 5Bottom 5

-90-

0

100

200

300

400

500

600

700

800

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


SINCE CHINA’S ACCESSION TO THE WTO, THE COUNTRY’S EMPLOYED POPULATION HAS GROWN MORE RAPIDLY

In terms of job creation, there is a clear movement away from state-owned enterprises into private companies

Rural areas

Urban areas

Number of Employed Persons at Year-end in Urban and Rural Areas (mn, 1997-2008)

Employee Breakdown in Urban and Rural Areas (mn, 1997 vs. 2008)

0

100

200

300

400

500

600

700

800

1997 2008

Others rural

Self-employed individuals inrural areas Private companies in ruralareas Township and villagecompanies Others, urban

Joint ownership units

Cooperative units

Units with funds from HK,Macau and Taiwan Collectively-owned units

Share holding corporations

Foreign funded units

Limited liability corporations

Self-employed individuals inurban areas Private companies in urbanareas State-owned units

Rural

Urban

-91-

123456789

10111213141516171819202122232425262728293031


3

451

2

HainanGuangdong

31Tibet

30Qinghai

29

Ningxia

28

27

ShandongJiangsu

Tianjin

SichuanHenan

Number of Employed Persons by Province (mn, 2008)

PREDICTABLY, THE MORE POPULATED PROVINCES HAVE THE HIGHEST NUMBER OF EMPLOYED PERSONS

The majority of the workforce can be found in townships, villages and private companies, underscoring the country’s agricultural and manufacturing roots

0 10 20 30 40 50 60

Tibet Qinghai Ningxia Hainan Tianjin

Xinjiang Shanghai

Inner Jilin

Beijing Gansu

Shanxi Heilongjiang

Chongqing Shaanxi

Fujian Liaoning

Jiangxi Guizhou Yunnan

Guangxi Hubei Anhui Hebei

Zhejiang Hunan

Jiangsu Sichuan

Shandong Guangdong

Henan

Urban Rural

Inner Mongolia

Top 5Bottom 5

-92-

0

100

200

300

400

500

600

700

800

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08

Primary industry

Secondary industry

Tertiary industryPrimary industry

40%

Tertiary industry

33%

Secondary industry

27%

Note: The sizeable gap between the 1989 and 1990 figures is due to the adjustment of urban and rural employed persons’ subtotals in accordance with the data obtained from the 5th National Population Census


Total Employed Persons By Sector (mn, 1978-2008)

2008

FOLLOWING THE TREND SET BY DEVELOPED COUNTRIES, CHINA IS STEADILY DEVELOPING ITS SERVICES SECTOR

However, a large proportion of the population is still employed in the primary and secondary sectors

-93-

622

931

655 707 759 829

1,0241,138

1,281

1,475

1,813

2,271

672545

450397355317299

286272267261252

0

500

1,000

1,500

2,000

2,500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080%

5%

10%

15%

20%

25%

30%Urban Rural Urban growth Rural growth

Note: Growth rates are calculated at current pricesSource: National Statistics Database; THE BEIJING AXIS Analysis

Annual Disposable Income of Urban Households and Net Income of Rural Households Per Capita (USD, 1997-2008)

INCOME LEVELS OF URBAN AND RURAL HOUSEHOLDS HAVE BEEN STEADILY INCREASING

Urban households initially saw a higher growth rate compared to their rural counterparts, but this disparity in growth rates has decreased in recent years

-94-

123456789

10111213141516171819202122232425262728293031

Source: National Statistics Database; THE BEIJING AXIS Analysis

Guangdong

Shanghai

Zhejiang

Tianjin

Beijing

1

5

4

3

231

30

29

28

27

Gansu

Guizhou

Qinghai

Xinjiang

Tibet

Disposable Income of Urban Households and Income of Rural Households Per Capita by Province (USD, 2008)

INCOME LEVELS ARE PARTICULARLY HIGH IN THE MORE DEVELOPED EASTERN COASTAL PROVINCES

As the political and commercial capitals of China, Beijing and Shanghai maintain their status as the two most attractive cities in terms of income levels

0 2,000 4,000 6,000

ShanghaiBeijing

ZhejiangTianjin

GuangdongJiangsu

FujianShandong

LiaoningChongqingInner Mong

HunanHebei

GuangxiHubei

JilinHenan

JiangxiShanxi

AnhuiHainan

SichuanNingxia

HeilongjianYunnan

ShaanxiTibet

XinjiangQinghaiGuizhou

Gansu

Urban

Rural

Inner Mongolia

Top 5Bottom 5

-95-

25

35

45

55

65

75

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Urban areas Rural areas

1. Engel's Law states that household expenditure on food, on aggregate, declines as income rises; in other words, the income elasticity of demand for food on aggregate is less than one and declines towards zero with income growth. A common application of this statistic is to regard it as a reflection of the living standards of a country. Engel’s coefficient has an inverse correlation with the standard of living of a country


Urban and Rural Engel’s Coefficients (%, 1978-2008)

43.7

37.9

57.5

67.7

PEOPLE IN CHINA ARE GRADUALLY SPENDING RELATIVELY LESS ON FOOD DUE TO INCREASING INCOME LEVELS The downward trend of Engel’s coefficient1 is expected to continue

as this reflects a progressively higher standard of living

High food inflation caused temporary increase

Temporary increases from high levels of food inflation

-96-

Note: The Gini Coefficient is a measure of statistical dispersion. It is most prominently used as a measure of inequality of income distribution or inequality of wealth distribution. It is defined as a ratio with values between 0 and 1. A low Gini Coefficient indicates more equal income or wealth distribution, while a high Gini Coefficient indicates more unequal distribution

Source: National Statistics Database; THE BEIJING AXIS Analysis

Gini Coefficient (1978-2008)

ALTHOUGH INCOME LEVELS HAVE BEEN INCREASING, THERE IS STILL A LARGE INEQUALITY IN THE DISTRIBUTION OF INCOME

The inequality of wealth distribution is particularly striking when the urban-rural divide is examined

0.30 0.31 0.310.29

0.27 0.26 0.26 0.26

0.32 0.32 0.33 0.34 0.330.35

0.370.39 0.40 0.39

0.37 0.37 0.38 0.390.41 0.40

0.43 0.44 0.44 0.45 0.46 0.46

0.51

0.00

0.10

0.20

0.30

0.40

0.50

0.60

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

-97-

95.2

78.4

50.5

10.22.6

13.6

15.4

9.9

24.2

27.6

51.1

16.7

17

38.6

1.81.2

5.1 2.40.8

1.3 19.46.97.42

1985 1995 2005 2015 2025

Global affluent

(>USD 25,000)

Mass affluent

(USD 12,500-USD 25,000)

Upper middle class

(USD 5,100-USD 12,500)

Lower middle class

(USD 3,200-USD 5,100)

Poor (<USD 3,200)

99.392.9

77.3

23.29.7

5.7

12.6

49.7

9.4

21.2

59.4

5.67.7

0.5

19.8

1.3 0.5 0.4 3.3

1985 1995 2005 2015 202566 109 191 280 373

Urban households (mn)64 204 644 1,574 3,267

Urban disposable income (USD)

Segments by annual income

1

1 1

1. Base forecast. Certain figures do not amount to 100% due to the effects of roundingSource: National Bureau of Statistics of China; McKinsey Global Institute Analysis

Share of Chinese Urban Households (%) Share of Total Urban Disposable Income (%)

1

A LARGE MIDDLE CLASS IS DEVELOPING IN CHINA’S URBAN AREAS

In 2025, China could have more than 350 million urban households with annual disposable incomes above USD 3,200

-98-

0

10

20

30

40

50

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010F


Urbanisation Rate (%, 1978-2010F)

CHINA’S URBANISATION RATE HAS INCREASED FROM 18% IN 1978 TO 46% IN 2009, WITH THE URBAN POPULATION

EXCEEDING 600 MILLION However, China’s urbanisation rate is currently lower than the world average (50%)

-99-

AGENDA

Foreword



International ComparisonSelected Macroeconomic IndicatorsTrade Indicators: Domestic and ForeignInvestment Indicators: Domestic and ForeignFinancial IndicatorsSocial Indicators

Conclusions

Implications

Appendix


Disclaimer

-100-

CHINA AND OTHER ASIAN ECONOMIES LED WORLD GDP GROWTH IN THE FOURTH QUARTER OF 2009

China registered the highest growth rate at 10.7% y-o-y while Russia suffered a severe contraction of -8.9% y-o-y

9.26.9

6.76

5.85.4

4.54.2

42.6

2.11.8

0.40.1

-0.4-1.2

-2.1-3.2-3.3

-8.9

10.7ChinaTaiwan

VietnamIndonesia

South KoreaThailand

IndonesiaMalaysia

Sri LankaSingapore

Hong KongJordan

PhilippinesAustralia

USJapanBrazil

Euro AreaUK

TurkeyRussia

Q4 2009 GDP Growth for Asia and Major Economies (% y-o-y, 2009)

Note: Australia, Brazil, Indonesia, Jordan, Sri Lanka, Russia and Turkey are Q3 2009Source: Bangkok Bank; THE BEIJING AXIS Analysis

-101-

FOR THE WHOLE OF 2009, CHINA PERSEVERED ON ITS PATH OF RAPID EXPANSION

Although 2009 was a year of contraction for most, China quickly recovered from its slow output at the beginning of the year to achieve a robust 8.7% growth rate

Annual GDP Growth for Asia and Major Economies (% y-o-y, 2009)

5.34.5

0.90.2 0.1

-1.7 -1.9 -2 -2.3 -2.4 -2.7

-4-4.8 -5

8.7

China Vietnam Indon Philip SouthKorea

SouthAfrica

Malaysia Taiwan Singap Thailnd US HK EuroArea

UK Japan

Source: IMF; CEIC Database and the Economist; Bangkok Bank; THE BEIJING AXIS Analysis

-102-

MAJOR MACROECONOMIC INDICATORS SHOW THAT ASIAN ECONOMIES WERE THE HIGHLIGHT OF 2009 (I)

Note: The bold figures are newly updated; *Estimated figures; **Dec-09; ***Annual Rates; ****As of Feb 23, 2010.Source: IMF; CEIC Database and the Economist; Bangkok Bank

GDP Consumer Prices Industrial Production Unemploymenty-o-y% q-o-q% Latest 2009 y-o-y% Latest 2009 y-o-y% m-o-m% Latest Rate % Latest

ASEANBrunei (BN) 3.3 - Q4-08 0.2* 2.1 May-09 1.2* - - - 3.7 Dec-08Cambodia (KH) 6.7 - 2008 -2.7* 1.3 Nov-09 -0.6* - - - 1.7 Dec-08Indonesia (ID) 5.4 - Q4-09 4.5 3.7 Jan-10 4.8 5.5 0.4 Dec-09 7.9 Dec-09Laos (LA) 7.2 - 2008 4.6* 3.9 Dec-09 0.0 - - - - -Malaysia (MY) 4.5 - Q4-09 -1.7 1.3 Jan-10 0.6 8.9 4.7 Dec-09 3.6 Sep-09Myanmar (MM) 11.9 - 2007 4.3* 1.4 Nov-09 6.9* - - - - -Philippines (PH) 1.8 - Q4-09 0.9 4.3 Jan-10 3.3 6.5 0.6 Nov-09 7.1 Dec-09Singapore (SG) 4.0 -6.8*** Q4-09 -2.0 0.0 Dec-09 0.2 14.4 18.1 Dec-09 2.1 Dec-09Thailand (TH) 5.8 3.6 Q4-09 -2.3 4.1 Jan-10 -0.9 35.7 10.4 Dec-09 0.9 Dec-09Vietnam (VN) 6.9 - Q4-09 5.3 7.6 Jan-10 6.9 31.2 -4.6 Jan-10 4.7 Dec-08EAST ASIA China (CN) 10.7 - Q4-09 8.7 1.5 Jan-10 -0.7 19.2 - Nov-09 4.3 Dec-09Hong Kong (HK) 2.6 2.3 Q4-09 -2.7 1.0 Jan-10 0.5 -8.6 - Q3-09 4.9 Jan-10South Korea (KR) 6.0 0.2 Q4-09 0.2 3.1 Jan-10 2.8 33.9 2.9 Dec-09 5 Jan-10Taiwan (TW) 9.2 4.2 Q4-09 -1.9 0.3 Jan-10 -0.9 47.3 5.3 Dec-09 5.7 Jan-10SOUTH ASIABangladesh (BD) 5.9 - 2008 5.4* 7.2 Nov-09 5.3* 6.3 3.2 Aug-09 4.2 Dec-06India (IN) 6.7 - Q3-09 - 15.0 Dec-09 10.9 16.8 10.9 Dec-09 9.1 Dec-08Pakistan (PK) 3.7 - 2008 2.0* 13.7 Jan-10 13.6 0.3 -2.8 Nov-09 5.2 Dec-08Sri Lanka (LK) 4.2 - Q3-09 3.0* 6.5 Jan-10 3.4 11.2 -3.7 Dec-09 5.9 Sep-09

-103-Note: The bold figures are newly updated; *Estimated figures; **Dec-09; ***Annual Rates; ****As of Feb 23, 2010.Source: IMF; CEIC Database and the Economist; Bangkok Bank

Export y-o-y %

Import y-o-y %

Tade Balance Current Account FX**** Per USD

Interest Rates %USD bn Latest USD bn Latest Policy Rate 10Y GB Yield

ASEANBrunei (BN) -0.7 16.4 1.8 Q4-08 7.4 2008 1.40 5.50 -Cambodia (KH) -11.4 -13.9 -0.3 Sep-09 0.0 Q1-09 4,196.00 - -Indonesia (ID) 49.8 34.2 3.0 Dec-09 3.4 Q4-09 9,271.00 6.50 -Laos (LA) -26.0 -5.2 -0.2 Sep-09 -0.1 Q2-09 8,481.00 4.00 -Malaysia (MY) 23.5 28.3 3.5 Dec-09 7.2 Q3-09 3.40 2.00 4.27Myanmar (MM) -18.0 78.0 0.0 Sep-09 1.0 2007 985.00 12.00 -Philippines (PH) 23.5** 4.1 0.1 Nov-09 0.7 Sep-09 46.15 6.00 8.06Singapore (SG) 46.4 37.9 2.3 Jan-10 5.8 Q3-09 1.41 0.69 2.54Thailand (TH) 30.8 44.8 0.5 Jan-10 0.8 Dec-09 33.11 1.25 4.02Vietnam (VN) 31.7 86.2 -1.3 Jan-10 2.8 Q1-09 18,544.00 8.00 -EAST ASIA China (CN) 21.0 85.6 14.2 Jan-10 284.1 H2-09 6.83 5.31 3.63Hong Kong (HK) 9.2 18.7 -4.3 Dec-09 3.6 Q3-09 7.76 0.50 2.82South Korea (KR) 46.7 26.4 -0.5 Jan-10 -0.4 Jan-10 1,149.00 2.00 5.40 Taiwan (TW) 75.8 114.7 2.5 Jan-10 8.2 Q3-09 32.05 1.25 1.41SOUTH ASIABangladesh (BD) 0.7 0.4 -0.7 Nov-09 -0.1 Oct-09 69.34 4.50 8.75India (IN) 9.3 27.2 -10.1 Dec-09 -12.6 Q3-09 46.13 3.25 7.74Pakistan (PK) 26.3 31.3 -1.6 Jan-10 -0.5 Q3-09 85.12 12.50 12.21Sri Lanka (LK) 6.4 0.5 -0.3 Dec-09 0.2 Q3-09 115.08 7.50 13.1

MAJOR MACROECONOMIC INDICATORS SHOW THAT ASIAN ECONOMIES WERE THE HIGHLIGHT OF 2009 (II)


GDP Consumer Prices Industrial Production Unemployment

y-o-y% q-o-q% Latest 2009 y-o-y% Latest 2009 y-o-y% m-o-m% Latest Rate % Latest

MIDDLE EAST

Jordan (JD) 2.1 - Q3-09 3.0* 3.9 Jan-10 -0.7 4.3 10.9 Dec-09 12.2 Dec-09

Kuwait (KW) 4.4 - 2007 -1.5* 4.2 Jun-09 4.6* 0.2 -1.1 Nov-09 1.3 Dec-06

Oman (OM) 7.8 - 2008 4.1* 0.9 Dec-09 3.5 6.8 -1.8 Nov-09 - -

Qatar (QA) 16.4 - 2008 11.5* 1.3 Q1-09 0.0* 0.6 -0.7 Nov-09 0.3 Dec-09

Saudi Arabia (SA) 0.1 - 2009 0.1 4.1 Jan-10 5.1 -6.8 -2.7 Nov-09 5.4 Dec-09

Turkey (TR) -3.3 2.3 Q3-09 -6.5* 8.2 Jan-10 6.3 7.4 0.6 Dec-09 13.1 Nov-09

UAE (AE) 7.4 - 2008 -0.2 -0.4 Dec-09 1.8 -5.4 -8.3 Nov-09 4.0 Dec-08

MAJOR ECONOMIES

US 0.1 5.7*** Q4-09 -2.4 2.6 Jan-10 -0.4 1.0 0.9 Jan-10 9.7 Jan-10

Euro Area (EA) -2.1 0.1 Q4-09 -4.0 1.0 Jan-10 0.3 -5.0 -1.7 Dec-09 10.0 Dec-09

Japan (JP) -0.4 1.1 Q4-09 -5.0 -1.7 Dec-09 -1.4 5.1 1.1 Dec-09 5.1 Dec-09

UK -3.2 0.1 Q4-09 -4.8 3.4 Jan-10 2.2 -5.7 -6.5 Dec-09 7.8 Nov-09

Brazil (BR) -1.2 1.3 Q3-09 -0.7* 4.6 Jan-10 4.9 18.9 -8.0 Dec-09 6.8 Dec-09

Russia (RU) -8.9 - Q3-09 -7.5* 8.0 Jan-10 11.7 1.8 -20.4 Jan-10 9.2 Jan-10

Austrialia (AU) 0.4 0.2 Q3-09 0.8* 2.1 Q4-09 1.8 -3.9 - Q3-09 5.3 Jan-09

WHILE DEVELOPED ECONOMIES WERE STILL STRUGGLING FROM THE FINANCIAL CRISIS (I)


Export y-o-y %

Import y-o-y %

Tade Balance Current Account FX**** Per USD

Interest Rates %

USD bn Latest USD bn Latest Policy Rate 10Y GB Yield

MIDDLE EAST

Jordan (JD) -5.4 13.1 -0.7 Dec-09 -0.5 Q3-09 0.71 4.75 -

Kuwait (KW) -54.9 -29.2 7.7 Q2-09 64.7 2008 0.29 1.75 -

Oman (OM) -31.3 -12.7 0.8 Sep-09 5.5 2008 0.38 0.05 -

Qatar (QA) -37.7 -19.6 2.0 Sep-09 14.2 2008 3.64 5.50 -

Saudi Arabia (SA) -10.5 -39.4 -4.4 Nov-09 134 2008 3.75 2.00 -

Turkey (TR) 30.3 31.4 -4.9 Dec-09 -3.2 Dec-09 1.52 6.50 -

UAE (AE) -37.2 -23.4 -3.2 Sep-09 22.3 2008 3.69 1.00 -

MAJOR ECONOMIES

US 12.1 5.7 -46.4 Dec-09 -124.1 Q3-09 1.00 0.00-0.25 3.69

Euro Area (EA) 7.4 1.5 6.4 Dec-09 0.2 Nov-09 0.74 1.00 3.56

Japan (JP) 39.3 7.4 -0.9 Jan-10 10 Dec-09 91.00 0.10 1.34

UK 14.2 12.7 -9.2 Dec-09 -7.7 Q3-09 0.65 0.50 4.11

Brazil (BR) 15.6 11.3 -0.2 Jan-10 -3.8 Jan-10 1.82 8.65 6.16

Russia (RU) 20.6 -11.5 15.3 Dec-09 15.6 Q4-09 30.15 8.50 7.96

Austrialia (AU) 4.4 18.9 -1.5 Dec-09 -15.2 Q3-09 1.11 3.75 5.47

WHILE DEVELOPED ECONOMIES WERE STILL STRUGGLING FROM THE FINANCIAL CRISIS (II)

-106-

GDP of Top 30 Economies (USD bn, % of World GDP, 2008)

0

1,000

2,000

3,000

4,000

5,000

US

Japa

n

Chi

na

Ger

man

y

Fran

ce UK

Italy

Rus

sia

Spai

n

Bra

zil

Can

ada

Indi

a

Mex

ico

Aus

tral

ia

S. K

orea

Net

herla

nds

Turk

ey

Pola

nd

Indo

nesi

a

Bel

gium

Switz

erla

nd

Swed

en

Saud

i Ara

bia

Nor

way

Aus

tria

Taiw

an

Gre

ece

Iran

Den

mar

k

Arg

entin

a

23.5%

8.1%

7.3%

6.0%

4.7%4.4%

3.8%

2.8% 2.7%2.6% 2.5%2.0%1.8%1.7%1.6%1.4%1.2% 0.9%0.8% 0.8%0.8%0.8% 0.8%0.8%0.7% 0.6% 0.6%0.6% 0.6% 0.5%

The US economy is the world’s largest, reaching

USD 14.26 tn in 2008

Source: IMF; THE BEIJING AXIS Analysis

IN 2008, CHINA WAS THE WORLD’S THIRD-LARGEST ECONOMY, WITH GDP OF USD 4.4 TRILLION

In 2009, China came close to becoming the second largest, as its GDP reached USD 4.9 trillion

World GDP in 2008 was

USD 60.7 tn After growing 8.7% in

2009, China’s GDP reached USD 4.9 tn

-107-

513446

436309

264233

197193

180163160156151

128119

11210310098939291

8273

604846

211614

6

95

160

128

102 91 90

16

89 84

69 60 47

127

158

90

180

512 452

415 319

262 241

182 200

163

5 14 21

46

156

107

600 400 200 0 200 400 600

GuangdongShandongJiangsuZhejiangHenanHebeiShanghaiLiaoningSichuanHubeiHunanFujianBeijingAnhuiHeilongjiangInnerGuangxiShanxiShaanxiJiangxiJilinTianjinYunnanChongqingXinjiangGuizhouGansuHainanNingxiaQinghaiTibet

Inner Mongolia

Source: China Statistical Yearbook; IMF; THE BEIJING AXIS Analysis

China GDP by Province Compared with Similar World Economies (USD bn, 2008)

SOME CHINESE PROVINCES’ GDP ARE THE SAME SIZE AS NATIONAL ECONOMIES IN EUROPE, ASIA, AFRICA AND S. AMERICA

For example, the size of Guangdong’s economy is larger than that of Indonesia, Norway and Austria

IndonesiaNorwayAustria

VenezuelaUAE

ColombiaRomania

SingaporeUkraine

EgyptAlgeriaKuwait

HungaryNew Zealand

PeruCaribbean

QatarSlovak Republic

IraqLibya

VietnamMorocco

BangladeshCroatiaBelarus

LithuaniaAzerbaijan

TanzaniaParaguayHonduras

Niger

-108-

0

1,000

2,000

3,000

4,000

5,000

6,000

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10F

JapanGermanyChinaUKFranceItaly

CHINA’S ECONOMY HAS RECORDED DRAMATIC GROWTH IN THE PAST TEN YEARS

With a fourfold increase since 1998, China was the 3rd largest economy after the US and Japan in 2008, and is set to become the 2nd largest in 2009/10

CHINA’S ECONOMY HAS RECORDED DRAMATIC GROWTH IN THE PAST TEN YEARS

With a fourfold increase since 1998, China was the 3rd largest economy after the US and Japan in 2008, and is set to become the 2nd largest in 2009/10

Source: CEIC Data; IMF; THE BEIJING AXIS Analysis

Trend for the past 10 years

Top 6 Economies’ GDP, excl. US (USD bn, 1980-2010F)

Rank 7 8 8 8 8 8 8 8 8 9 10 10 9 7 9 8 7 7 7 7 6 6 6 6 6 5 4 3 3 3 2?

2000:Surpassed

Italy 2005:Surpassed

France

2006:Surpassed

UK

2007:Surpassed Germany

From 1980 to 1994, China’s economy grew

steadily, varying between the 7th and 10th largest in

the world

1995:Surpassed

Canada

1996:Surpassed

Brazil

1993:Surpassed

Spain

-109-

-4

0

4

8

12

16

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10F

World Average China y-o-y GDP growth US y-o-y GDP growth


China vs. US, Annual GDP Growth (% y-o-y, 1980-2010F)

SINCE 1980, CHINA HAS EXPERIENCED AN ANNUAL AVERAGE GDP GROWTH RATE OF 9.66%

Since the country’s economic reform, China’s growth rate has always been above the world average (3.4%) while the US has grown at 2.69% for the same period

-110-

Less than USD 2,500 or no data

Brazil

RussiaEurope

JapanUS

India

China

USD 25,000 or more USD 10,000-USD 25,000

USD 2,500-USD 10,000

Source: IMF; National Bureau of Statistics of China; THE BEIJING AXIS Analysis

Nominal GDP Per Capita (USD, 2008)

HOWEVER, CHINA’S GDP PER CAPITA IS STILL LOW COMPARED TO OTHER ECONOMIES OF SIMILAR SIZE

In 2008, China’s GDP per capita reached USD 3,258

-111-

-20%

0%

20%

40%

60%

80%

100%

US

Japa

n

Chi

na

Ger

man

y

Fran

ce UK

Italy

Rus

sia

Spai

n

Bra

zil

Can

ada

Indi

a

Mex

ico

Aus

tral

ia

S. K

orea

Net

herla

nds

Turk

ey

Pola

nd

Indo

nesi

a

Bel

gium

Switz

erla

nd

Swed

en

S. A

rabi

a

Nor

way

Aus

tria

Gre

ece

Iran

Den

mar

k

Arg

entin

a

Ven

ezue

la

S. A

fric

a

Net exports Final consumption expenditure Gross capital formation

Source: UNCTAD; THE BEIJING AXIS Analysis

Composition of GDP - Expenditure Approach (%, 2008)

GDP rank2008

IN CONTRAST TO OTHER MAJOR ECONOMIES, CHINA’S ENGINE OF GROWTH IS GROSS CAPITAL FORMATION

With gross capital formation at 49% of GDP in 2008, China’s investment/GDP ratio is the highest in the world

-112-

0%

50%

100%

US

Japa

n

Chi

na

Ger

man

y

Fran

ce UK

Italy

Spai

n

Rus

sia

Can

ada

Bra

zil

Indi

a

Mex

ico

Aus

tral

ia

S. K

orea

Net

herla

nds

Turk

ey

Indo

nesi

a

S. A

rabi

a

Switz

erla

nd

Pola

nd

Bel

gium

Swed

en

Nor

way

Aus

tria

Iran

Gre

ece

Arg

entin

a

Vene

zuel

a

Den

mar

k

S. A

fric

a

Agriculture Industry Services

Source: CIA World Factbook; UNCTAD; THE BEIJING AXIS Analysis

Share of GDP by Industry (%, 2008)

CHINA’S ECONOMY IS DOMINATED BY ITS SECONDARY INDUSTRY, UNLIKE THE ECONOMIES OF OTHER MAJOR NATIONS

THAT ARE DRIVEN BY THE SERVICES INDUSTRY

GDP rank2008

-113-

AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-114-

World’s Major Exporters (USD bn, 2008)2

Note: 1. Annual figures for 2009 were not available at the time of publication 2. To make international comparisons, this section utilises China’s export figures from the IMF instead of the one from MOFCOMSource: IMF; THE BEIJING AXIS Analysis

0

500

1,000

1,500

2,000

0 20 40 60 80 100 120 140

US

Germany

China

Exports

Exports/GDP

Belgium

UAE

Japan

Brazil

FranceItaly

Russia

MexicoAustria

Ireland

Canada

Netherlands

Thailand

Hungary

Ireland

Czech Republic

Size of bubble represents

nominal GDP

IN 2008, CHINA WAS THE WORLD’S SECOND-LARGEST EXPORTER, AFTER GERMANY; IN 2009 IT BECAME THE WORLD’S LARGEST1

In 2008, China exported a total of USD 1,430 billion, about 33% of its GDP, surpassing the US, with exports of USD 1,300 billion, the second-largest country total for 2008

Switzerland

SwedenNorway

Denmark Finland

Poland

South Africa Australia

Turkey

UK

-115-

0 100 200 300 400

ChinaHKUS

GermanyJapan

SingaporeMexico

NetherlandFrance

UKItaly

HungaryCzech Rep.

ThailandSwedenPolandFinland

BelgiumAustriaCanada

Top 20 World Exporters of Electrical Machinery (USD bn, 2008)

Source: UN Comtrade Database; THE BEIJING AXIS Analysis

CHINA IS THE WORLD’S LARGEST EXPORTER OF ELECTRICAL MACHINERY AND EQUIPMENT In 2008, China exported a total of USD 342 billion or 21.3%

of the world’s total electrical machinery and equipment

% of world total

85

84

61

72

62

73

90

94

87

95

Other

24%

19%

4%4%4%

2%

31%

3%3%3%3%

Total: USD 1,430 bn

China’s Top 10 Export Commodities 2008 (HS Code)

Electrical machinery and equipment

Nuclear reactors, boilers, machinery and mechanical appliancesArticles of apparel and clothing accessories (knitted)Iron and steel

Articles of apparel and clothing accessories (not knitted)Articles of iron and steel

Optical, photographic and cinematographic, measuring equipmentFurniture, incl. bedding, mattresses and mattress supportsVehicles, other than railway or tramway rolling stock, and partsToys, games and sporting equipment

21.3%9.6%9.5%8.7%8.6%6.8%4.7%3.0%3.0%2.2%2.1%1.9%1.6%1.6%1.4%1.3%1.2%1.2%1.1%1.1%

-116-

0 100 200 300

ChinaGermany

USJapan

ItalyNetherland

FranceUK

SingaporeHK

BelgiumCanadaMexicoAustria

ThailandCzech Rep.Switzerland

SwedenHungary

Poland

Top 20 World Exporters of Power Generation Equipment (USD bn, 2008)


% of world total

CHINA IS THE WORLD’S LARGEST EXPORTER OF MACHINERY AND MECHANICAL APPLIANCES

In 2008, China exported a total of USD 269 billion or 15.1% of the world’s power generation equipment

85

84

61

72

62

73

90

94

87

95

Other

24%

19%

4%4%4%

2%

31%

3%3%3%3%

Total: USD 1,430 bn






15.1%14.8%11.9%

8.5%6.4%4.3%4.3%3.9%3.2%2.7%2.1%2.0%1.9%1.8%1.7%1.6%1.6%1.6%1.2%1.2%

-117-

0 20 40 60

ChinaHK

ItalyTurkey

GermanyBelgium

FranceNetherland

UKPortugalThailand

USPakistan

MexicoDenmarkSri Lanka

El SalvadorPeru

AustriaPoland

Top 20 World Exporters of Knitted Articles of Apparel (USD bn, 2008)


CHINA IS THE WORLD’S LARGEST EXPORTER OF KNITTED ARTICLES OF APPAREL AND CLOTHING ACCESSORIES

In 2008, China exported a total of USD 61 billion or 41.2% of the world’s knitted apparel and clothing accessories

% of world total

85

84

61

72

62

73

90

94

87

95

Other

24%

19%

4%4%4%

2%

31%

3%3%3%3%

Total: USD 1,430 bn






41.2%9.6%6.0%5.3%4.8%3.1%3.0%1.8%1.6%1.6%1.4%1.4%1.3%1.3%1.2%1.1%1.0%1.0%0.8%0.8%

-118-

0 20 40 60

ChinaGermany

JapanRussia

BelgiumUS

FranceItaly

NetherlandsTurkey

UKBrazil

SwedenAustria

S. AfricaCanadaPolandFinland

Czech Rep.Slovakia

Top 20 World Exporters of Iron and Steel(USD bn, 2008)


CHINA IS THE WORLD’S LARGEST EXPORTER OF IRON AND STEEL

In 2008, China exported a total of USD 53 billion or 12.7% of the world’s iron and steel

% of world total

85

84

61

72

62

73

90

94

87

95

Other

24%

19%

4%4%4%

2%

31%

3%3%3%3%

Total: USD 1,430 bn






12.7%9.3%9.3%6.8%6.6%5.6%5.3%4.5%3.6%3.5%3.2%3.0%2.4%2.3%2.1%2.0%1.5%1.5%1.4%1.2%

-119-

0 20 40 60

ChinaItalyHK

GermanyFranceTurkey

BelgiumNetherla

UKRomania

MexicoTunisia

DenmarkPoland

USSri

ThailandPakistan

AustriaSwitzerl

85

84

61

72

62

73

90

94

87

95

Other

Top 20 World Exporters of Non-knitted Articles of Apparel (USD bn, 2008)


24%

19%

4%4%4%

2%

31%

3%3%3%3%

Total: USD 1,430 bn


CHINA IS THE WORLD’S LARGEST EXPORTER OF NON-KNITTED ARTICLES OF APPAREL

In 2008, China exported a total of USD 52 billion or 35.5% of the world’s non-knitted articles of apparel

% of world total





35.5%9.8%8.3%6.7%4.3%3.6%3.2%2.1%2.1%2.0%2.0%1.9%1.5%1.4%1.1%1.1%0.9%0.9%0.9%0.8%

Netherlands

Sri Lanka

Switzerland

-120-

-300

-200

-100

0

100

200

300

US

Japa

n

Chi

na

Ger

man

y

Fran

ce UK

Italy

Rus

sia

Spai

n

Bra

zil

Can

ada

Indi

a

Mex

ico

Aus

tral

ia

S. K

orea

Net

herla

nds

Turk

ey

Pola

nd

Indo

nesi

a

Bel

gium

Switz

erla

nd

Swed

enSa

udi

Ara

bia

Nor

way

Aus

tria

Gre

ece

Iran

Den

mar

k

Arg

entin

a

Vene

zuel

a

Note: To make international comparisons, this section utilises the China trade surplus figure from the IMF instead of the one from MOFCOM Source: IMF; THE BEIJING AXIS Analysis

-865

Trade Surpluses of the World’s Major Economies (USD bn, 2008)

DESPITE NOT BEING THE WORLD’S LARGEST EXPORTER IN 2008, CHINA ALREADY HAD THE WORLD’S LARGEST TRADE SURPLUS

In 2008, China’s total trade surplus reached USD 298 billion, which is 14% higher than that of Germany, the world’s largest exporter at the time

11 -15 19 12 -219 14 -196 16 16 -209 12 28 7 0 -13 15 13 7 -9 -7 -227 0 32 35 -7 11 -236 9 -209 27

-6.1 0.4 6.8 7.1 -3.5 -6.6 -0.7 12.0 -8.0 1.6 3.2 -11.1 -1.6 -0.5 0.6 5.9 -9.6 -7.3 1.5 1.3 3.5 3.4 42.6 17.3 -0.7 -17.8 9.0 1.5 3.9 11.9

As % of GDP

CAGR %98-08

-121-

World’s Major Importers (USD bn, 2008)

0

700

1,400

2,100

2,800

0 20 40 60 80 100

US

Brazil

Japan

RussiaAustralia

Norway

Turkey

FranceUK

Italy

Mexico

China

Canada

Portugal

Sweden

Germany

PolandAustria

NetherlandsThailand

UAE

Czech Republic

Belgium

Hungary

Size of bubble represents

nominal GDP

Note: To make international comparisons, this section utilises China’s import figure from the IMF instead of the one from MOFCOM Source: IMF; THE BEIJING AXIS Analysis

Imports

Imports/GDP

IN 2008, CHINA WAS THE WORLD’S THIRD-LARGEST IMPORTER AFTER THE US AND GERMANY

In 2008, China imported a total of USD 1,133 billion, about 26% of its GDP

Switzerland FinlandDenmark

Greece

-122-

0 100 200 300

ChinaUSHK

GermanySingapore

JapanMexico

UKFrance

MalaysiaNetherlands

CanadaItaly

ThailandRussia

HungaryCzech Rep.

BelgiumIndia

Poland

Top 20 World Importers of Electrical Machinery (USD bn, 2008)


% of world total

CHINA IS THE WORLD’S LARGEST IMPORTER OF ELECTRICAL MACHINERY AND EQUIPMENT

In 2008, China imported a total of USD 267 billion or 14.3% of the world’s electrical machinery and equipment

85

27

84

26

90

39

29

87

74

72

Other

24%

15%

12%

8%

7%4%3%2%2%

20%

China’s Top 10 Import Commodities 2008 (HS Code)Total: USD 1,133 bn


Mineral fuels, mineral oils and products of their distillationNuclear reactors, boilers, machinery and mechanical appliancesOres, slag and ash

Optical, photographic and cinematographic, measuring equipmentPlastics and articles thereof

Organic chemicals

Vehicles other than railway or tramway rolling stock, and parts Copper and articles thereof

Iron and steel

2%

14.3%13.7%

8.4%6.3%4.4%4.2%3.5%3.2%3.0%2.6%2.5%2.2%2.1%1.5%1.5%1.4%1.2%1.2%1.2%1.2%

-123-

0 100 200 300 400 500

USJapanChina

GermanyFrance

IndiaNetherlands

SingaporeUK

ItalyBelgiumCanadaTurkey

ThailandBrazil

IndonesiaAustralia

MexicoSweden

Poland

Top 20 World Importers of Mineral Fuels (USD bn, 2008)

CHINA IS THE WORLD’S THIRD-LARGEST IMPORTER OF MINERAL FUELS

In 2008, China imported a total of USD 169 billion or 6.6% of the world’s mineral fuels


85

27

84

26

90

39

29

87

74

72

Other

24%

15%

12%

8%

7%4%3%2%2%

20%





Organic chemicals


Iron and steel

2%

19.6%10.4%

6.6%6.4%4.6%4.5%3.5%3.4%3.2%3.1%2.8%2.0%1.9%1.5%1.3%1.2%1.2%1.1%0.9%0.9%

% of world total

-124-

0 100 200 300

USGermany

ChinaFrance

UKNetherlan

CanadaJapan

ItalyHK

SingaporeRussiaMexico

BelgiumIndia

PolandAustralia

BrazilAustriaCzech

Top 20 World Importers of Power Generation Equipment (USD bn, 2008)

CHINA IS THE WORLD’S THIRD-LARGEST IMPORTER OF POWER GENERATION EQUIPMENT

In 2008, China imported a total of USD 139 billion or 7.8%of the world’s power generation equipment


85

27

84

26

90

39

29

87

74

72

Other

24%

15%

12%

8%

7%4%3%2%2%

20%





Organic chemicals


Iron and steel

2%

14.4%8.1%7.8%4.8%4.5%3.7%3.4%3.3%2.9%2.8%2.8%2.6%2.6%2.3%1.6%1.6%1.6%1.4%1.4%1.3%

% of world total

Netherlands

Czech Rep.

-125-

0 30 60 90

ChinaJapan

GermanyIndia

UKUS

BelgiumNetherla

ItalyFinlandCanadaFranceRussia

UkraineBrazil

AustriaBulgariaMexico

ChilePoland

Top 20 World Importers of Ores, Slag and Ash (USD bn, 2008)

CHINA IS THE WORLD’S LARGEST IMPORTER OF ORES, SLAG AND ASH

In 2008, China imported a total of USD 86 billion or 46.7% of the world’s ores, slag and ash


85

27

84

26

90

39

29

87

74

72

Other

24%

15%

12%

8%

7%4%3%2%2%

20%





Organic chemicals


Iron and steel

2%

46.7%15.4%

5.1%2.9%2.5%2.4%1.7%1.7%1.6%1.6%1.5%1.4%1.3%1.1%0.8%0.8%0.7%0.7%0.7%0.7%

% of world total

Netherlands

-126-

0 20 40 60 80

ChinaUS

GermanyJapan

FranceNetherland

UKHK

MexicoItaly

CanadaBelgium

RussiaSingapore

SwitzerlandAustralia

BrazilPoland

IndiaSweden

85

27

84

26

90

39

29

87

74

72

Other

Top 20 World Importers of Optical, Photographic (USD bn)

24%

15%

12%

8%

7%4%3%2%2%

20%


CHINA IS THE WORLD’S LARGEST IMPORTER OF OPTICAL AND PHOTOGRAPHIC EQUIPMENT

In 2008, China imported a total of USD 78 billion or 18.6% of the world’s optical and photographic equipment





Organic chemicals


Iron and steel

2%

18.6%13.9%

7.1%5.2%4.4%3.9%3.9%3.0%3.0%2.9%2.8%2.3%1.9%1.8%1.5%1.5%1.4%1.3%1.1%1.1%

% of world total

Netherlands

-127-

AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-128-

0 70 140 210 280 350

US France

Germany Japan

UK Switzerland

Canada Spain

BelgiumHK

NetherlandsRussiaChina

Italy Sweden Australia Denmark

Austria Norway

Brazil

0 50 100 150 200 250 300 350

US France

ChinaUK

Russia Spain

HK Belgium Australia

Brazil Canada Sweden

IndiaS. Arabia

Germany Japan

SingaporeMexicoTurkey

Switzerla

China ranked 3rd

China ranked 13th

Note: To make international comparisons, this section utilises China’s FDI figure and China’s OFDI figure from the WIR 2009 instead of the China MOFCOM figures Source: WIR 2009; THE BEIJING AXIS Analysis

Top 20 World FDI Inflows (USD bn, 2008) Top 20 World FDI Outflows (USD bn, 2008)

IN 2008, CHINA’S FDI INFLOW WAS SUBSTANTIALLY GREATER THAN ITS FDI OUTFLOW

China ranked third in the world in 2008 for FDI inflow with USD 108 billion, while it ranked only 13th for OFDI with USD 52 billion

Switzerland

-129-

0 500 1,000 1,500 2,000 2,500 3,000 3,500

USUK

FranceNetherla

HKSwitzerl

JapanSpain

BelgiumCanada

ItalySweden

RussiaAustraliaDenmark

TaiwanBrazil

AustriaChina

Finland

0 500 1,000 1,500 2,000 2,500

USFrance

UKHK

NetherlandsSpain

BelgiumCanada

ChinaSwitzerland

ItalyMexico

BrazilAustraliaSweden

RussiaJapan

PolandDenmark

Austria

Top 20 World FDI Inward Stock (USD bn, 2008) Top 20 World FDI Outward Stock (USD bn, 2008)

China ranked 9th

China ranked 19th

CHINA IS THE SECOND-LARGEST ASIAN RECIPIENT OF FDI STOCK

In 2008, China ranked 9th for FDI stock with USD 378 billion, while for OFDI it ranked 19th with USD 148 billion

Source: WIR 2009; THE BEIJING AXIS Analysis

Switzerland

Netherlands

-130-Note: GFCF = Gross fixed capital formationSource: WIR 2009; THE BEIJING AXIS Analysis

Top 20 GDP Countries FDI In/Out Flow as a Percentage of Gross Fixed Capital Formation (2008)

IN 2008, BOTH CHINA’S FDI INFLOWS AND OUTFLOWS, AS A PERCENTAGE OF GFCF, WERE RELATIVELY SMALL

From 2007 to 2008, China’s FDI outflows grew much faster than its FDI inflows

60

30

0

30

60

US

Japa

n

Chi

na

Ger

man

y

Fran

ce UK

Italy

Rus

sia

Spai

n

Bra

zil

Can

ada

Indi

a

Mex

ico

Aus

tral

ia

S. K

orea

Net

herla

nds

Turk

ey

Pola

nd

Indo

nesi

a

Bel

gium

Inward Outward

Growth 2007-2008

Growth 2007-2008

39% 0% 2% -57% -36% -51% -62% 1% 17% 1% -61% 66% -36% 82% 211% -103% -21% -23% -13% 24%

2% 57% 81% -18% -16% -53% -56% -14% -39% 119% 36% 17% -93% 29% -15% 58% 13% -14% -7% 16%

-131-

120

60

0

60

120

US

Japa

n

Chi

na

Ger

man

y

Fran

ce UK

Italy

Rus

sia

Spai

n

Bra

zil

Can

ada

Indi

a

Mex

ico

Aus

tral

ia

S. K

orea

Net

herla

nds

Turk

ey

Pola

nd

Indo

nesi

a

Bel

gium

Inward Outward


Top 20 GDP Countries FDI Stock as a percent of GDP (%, 2008)Growth

2007-2008

Growth 2007-2008

IN 2008, BOTH CHINA’S INWARD AND OUTWARD FDI STOCKS, AS A PERCENTAGE OF GDP, WERE RELATIVELY SMALL

Yet China’s small inward and outward FDI stocks, as a percentage of GDP, show substantial potential for growth

6% 37% -14% 1% -13% -24% -14% -49% 6% -27% -20% 48% -9% -20% -20% -16% -57% -9% -4% -38%

10% 12% 13% 7% -11% -8% -9% -39% -15% 4% -10% 92% -16% -36% 51% -13% 0% -13% 6% 14%

-132-

0 50 100 150 200 250

USUK

CanadaAustralia

SpainGermanySweden

EgyptNorway

SingaporeRussiaTurkey

IndiaJapan

HKBrazil

SwitzerlandDenmark

GreeceUkraine

0 20 40 60 80

USGermany

FranceJapan

NetherlandsUK

CanadaChina

BelgiumSwitzerland

ItalyAustralia

RussiaFinland

IndiaIsrael

MalaysiaLuxembour

SwedenSingapore

China ranks 23rd with figures of USD 5.1 billion

China ranks 8th

Note: Cross-border M&A sales and purchases are calculated on a net basis as follows: Net cross-border M&A sales in a host economy = Sales of companies in the host economy to foreign TNCs (-) Sales of foreign affiliates in the host economy; net cross-border M&A purchases by a home economy = Purchases of companies abroad by home-based TNCs (-) Sales of foreign affiliates of home-based TNCs


Value of Cross-Border M&A ‘Net Purchases’ for World’s Top 20 Countries (USD bn, 2008)

Value of Cross-Border M&A ‘Net Sales’ for World’s Top 20 Countries (USD bn, 2008)

IN TERMS OF VALUE, CHINA’S INTERNATIONAL M&A ‘NET SALES’ ARE RANKED MUCH LOWER THAN ITS M&A ‘NET PURCHASES’

China’s cross-border M&A ‘net purchases’ grew dramatically in 2008. This trend is expected to continue

Luxembourg

-133-

Russia

Europe

US

<USD 100 bn

>USD 500 bn

USD 300 bn – USD 500 bn

USD 100 bn – USD 300 bn

Top 30 Principal Sovereign Wealth Funds (2007)

China

THE ESTABLISHMENT OF THE CHINA INVESTMENT CORPORATION (CIC) IS IN LINE WITH INCREASING GLOBAL

INVESTMENT FLOWS BY SOVEREIGN WEALTH FUNDS

China1. State Administration of

Foreign Exchange (SAFE)2. China Investment

Corporation (CIC)3. Central Huijin Investment

Corporation4. Hong Kong Monetary

Authority (HKMA)-Exchange Fund

Note: We provide a breakdown in the next slideSource: WIR 2008; THE BEIJING AXIS Analysis

-134-Source: WIR 2008; THE BEIJING AXIS Analysis

Rank Economy Fund Assets under management($ billion)

1 United Arab Emirates Abu Dhabi Investment Authority (ADIA) 500–8752 Norway Government Pension Fund-Global (GPF-G) 3733 Singapore Government of Singapore Investment Corporation (GIC) 3304 Saudi Arabia Saudi Arabia Monetary Authority foreign holdings 3275 Netherlands Stichting Pensioenfonds ABP 3166 China State Administration of Foreign Exchange (SAFE) 3127 Kuwait Kuwait Investment Authority (KIA) 2508 United States California Public Employees’ Retirement System 2379 China China Investment Corporation (CIC) 20010 Hong Kong, China Hong Kong Monetary Authority (HKMA)-Exchange Fund 16311 Singapore Temasek Holdings 16012 Canada Caisse de dépôt et placement de Québec 15713 Russian Federation Oil and Gas Fund (OGF) 15714 China Central Huijin Investment Corporation 10015 United Arab Emirates Investment Corporation of Dubai 8216 Australia Queensland Investment Corporation (QIC) 6517 Australia Australian Government Future Fund (AGFF) 6118 Qatar Qatar Investment Authority (QIA) 6019 France Pension Reserve Fund 5120 Libyan Arab Jamahiriya Reserve Fund 5021 Algeria Revenue Regulation Fund 4722 United States Alaska Permanent Fund (APF) 3723 Australia Victorian Funds Management Corporation (VFMC) 3624 Brunei Darussalam Brunei Investment Agency (BIA) 3525 Ireland National Pensions Reserve Fund (NPRF) 3126 Korea, Republic of Korea Investment Corporation (KIC) 3027 Malaysia Khazanah Nasional Fund BHD (KNF) 2628 Saudi Arabia Kingdom Holding Company 2529 Kazakhstan Kazakhstan National Fund (NFRK) 2330 Venezuela, Bolivarian Rep. of National Development Fund (FONDEN) 28

Names and Locations of World‘s Top 30 Sovereign Wealth Funds (2007)

CHINESE SOVEREIGN WEALTH FUNDS, SAFE AND CIC, RANK IN THE WORLD’S TOP TEN

-135-

Saudi Arabia 139 bn

US -673 bn


Current Account Balance (USD bn, 2008)

Russia102 bn

Japan157 bn

China440 bn

IN 2008, CHINA HAD THE WORLD’S LARGEST CURRENT ACCOUNT BALANCE WITH USD 440 BILLION

Followed by Germany (USD 235 billion) and Japan (USD 157 billion)

Spain -154 bn

UK -45 bn

Greece -51 bn

Italy -73 bn

Germany 235 bn

Top 5 current account surplusesTop 5 current account deficits

-136-

AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-137-

0

400

800

1,200

1,600

2,000

Chi

na

Japa

n

Rus

sia

Taiw

an

Indi

a

S.K

orea

Hon

g K

ong

Bra

zil

Sing

apor

e

Ger

man

y

Alg

eria

Thai

land

Switz

erla

nd

Fran

ce

Italy US

Mex

ico

Mal

aysi

a

Pola

nd

Turk

ey

Indo

nesi

a

UK

Isra

el

Can

ada

Nor

way

Arg

entin

a

2,399

CHINA HAS THE WORLD’S LARGEST FOREIGN EXCHANGE RESERVES

China possesses more than double the foreign exchange reserves of the next largest holder, Japan.

Official Foreign Exchange Reserves of Select Countries/Regions (USD bn, 2010)

Asia

Note: China’s data as of December 2009Source: SAFE; IMF; Various; THE BEIJING AXIS Analysis

-138-

0

4,000

8,000

12,000

US

UK

Ger

man

y

Fran

ce

Italy

Net

herla

nds

Spai

n

Irela

nd

Japa

n

Luxe

mbo

urg

Bel

gium

Switz

erla

nd

Swed

en

Can

ada

Aus

tral

ia

Aus

tria

Hon

g K

ong

Den

mar

k

Gre

ece

Nor

way

Port

ugal

Rus

sia

S.K

orea

Chi

na

Finl

and

Bra

zil

Pola

nd

Turk

ey

Indi

a

Hun

gary

13,672

Source: IMF; Department of U.S. Treasuries; SAFE; THE BEIJING AXIS Analysis

CHINA’S EXTERNAL DEBT IS RELATIVELY SMALL COMPARED TO OTHER MAJOR ECONOMIES

In Q3 2009, China accounted for less than 1% of the world’s total external debt with USD 387 billion

World’s Top 30 Countries’ External Debt (USD bn, Q3 2009)

As of Q3 2009, the external debt of the US

was USD 13,672 bn

At the end of Q3 2009 , China’s external debt amounted to USD 387 bn

-139-

0

5

10

15

20

Bra

zil

Turk

ey

Arg

entin

a

Rus

sia

Sout

h A

fric

a

Indo

nesi

a

Indi

a

Mex

ico

Aus

tral

ia

Chi

na

Euro

Are

a

Sout

hK

orea

Can

ada

UK US

Japa

n

Saud

iA

rabi

a

2.79

High rate countries

1. The interest rate charged by a central bank on loans to its member banks. A change in the discount rate is usually followed by similar changes in the interest rates charged by banks and in money markets


CHINA HAS A RELATIVELY LOW CENTRAL BANK DISCOUNTRATE IN COMPARISON TO ITS GLOBAL PEERS

In December 2009, China’s discount rate stood at 2.79%, comparable to that of Australia and the Euro Area

Central Bank Discount Rate1 (%, Dec 2009)

Medium rate countries

Low rate countries

-140-

0

20

40

60

Zim

babw

e

Hai

ti

Mad

agas

car

Bra

zil

STP

Laos

Gam

bia

Mal

awi

Kyr

gyzs

tan

Para

guay

Gre

ece

Mex

ico

Chi

na

Qat

ar

Om

an

Fran

ce

Bos

nia.

Cze

ch R

ep.

Finl

and

UK

Bah

amas

Bru

nei

Pola

nd

Sing

apor

e

Swed

en

Switz

erla

nd

Japa

n

579

7.5

… …

1: Prime Lending Rate: A short-term interest rate quoted by a commercial bank as an indication of the rate being charged on loans to its best commercial customers. Even though banks frequently charge more and sometimes less than the quoted prime rate, it is a benchmark against which other rates are measured. For various reasons, a rising prime rate is generally considered detrimental to security pricesSTP: Sao Tome and Principe; Bosnia.: Bosnia and Herzegovina; Czech Rep.: Czech Republic

Source: CIA World Book 2008; THE BEIJING AXIS Analysis

CHINA ALSO HAS A MODERATE PRIME LENDING RATE COMPARED TO OTHER DEVELOPING ECONOMIES

In 2007, China’s prime lending rate was 7.5%, comparable to prime lending rates of either France or Greece

High rate countries

Commercial Bank Prime Lending Rate1 (%, 2007)

Medium rate countries

Low rate countries

-141-

AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-142-

20015010050050100150200

USJapanChina

GermanyFrance

UKItaly

BrazilSpain

CanadaRussia

IndiaAustralia

MexicoS. Korea

NetherlandsTurkey

IndonesiaSwitzerland

BelgiumPoland

SwedenS. Arabia

AustriaNorway

VenezuelaGreece

IranDenmark

Argentina

Male FemaleGDP rank 2009 Total

317 127

1,354 82 63 62 60

195 45 34

140 1,214

22 110 49 17 76

233 8

11 38 9

26 8 5

29 11 75 5

41

Male/100 female

9795

1089695969597979886

10799999898

10110095969399

1219599

10198

1039996

702 651

627 587

Population for Top 30 Countries by GDP (mn, 2010F)

Source: UN Statistics; CIA World Factbook; THE BEIJING AXIS Analysis

WITH 1.3 BILLION PEOPLE, CHINA HAS THE WORLD’S LARGEST POPULATION

Along with Saudi Arabia and India, China has one of the largest male to female ratios in the world

-143-Source: UN Population Division; THE BEIJING AXIS Analysis

Child and Elderly Population for Selected Countries (%, 2010F)

0

5

10

15

20

25

30

35

40

0 5 10 15 20 25 30 35

Iran

India

% Population under 15

% Population aged 60+

Saudi Arabia

IndonesiaTurkey

Venezuela

Mexico

China

Argentina

S. KoreaRussia

US

Canada

NetherlandsNorway

France

Belgium

SwitzerlandAustria Germany

ItalyJapan

Size of the bubble represents total

population

25% OF CHINA’S POPULATION IS OLDER THAN 60 YEARS The bulk of the population is currently at a working age

BrazilUK

Spain

Poland

Australia

Sweden

Greece

-144-

Annual rate of population change (%) 2005-2010

Source: CIA World Factbook; World Bank; THE BEIJING AXIS Analysis

Urban and Rural Population (%, 2008)

0

1.3 0.2 0.1 2.7 0.5 0.8 0.4 0.9 1 1.8 -0.5 2.4 0.9 1.5 0.7 0.9 1.9 0.3 0.5 3.3 -0.3 0.5 0.7 2.5 0.7 0.6 0.5 1.4 2.1 1.2

100

-0.7 -0.5 -0.4 -1 -0.4 -0.5 -0.3 0.2 0.4 -1.9 -0.4 1.1 -0.6 -0.2 -0.3 -2.7 -0.2 -0.9 0 -1.1 0 0.1 0.3 1.1 -0.3 -0.3 -1.8 -0.7 -0.3 -1.5UrbanRural

CHINA’S POPULATION HAS BEEN STEADILY MIGRATING TO THE CITIES, RAISING THE URBAN-RURAL POPULATION RATIO However, the proportion of China’s population in urban settings remains

much smaller than that of other similar sized economies

8266 74

43

9077 68 77 80 86

73

29

81 7767

8269

9785

5261

73 77 8267 61

87

61 68

92

1834 26

57

1023

3223 20 14

27

71

19 2333

1831

315

4839

27 23 1833 39

13

39 32

8

US

Japa

n

Ger

man

y

Chi

na UK

Fran

ce

Italy

Spai

n

Can

ada

Bra

zil

Rus

sia

Indi

a

S. K

orea

Mex

ico

Aus

tria

Net

herla

nds

Turk

ey

Bel

gium

Swed

en

Indo

nesi

a

Pola

nd

Switz

erla

nd

Nor

way

S. A

rabi

a

Aus

tria

Gre

ece

Den

mar

k

S. A

fric

a

Iran

Arg

entin

a

Urban Rural

-145-

10080604020020406080100

USJapanChina

GermanyFrance

UKItaly

BrazilSpain

CanadaRussia

IndiaAustralia

MexicoS. Korea

NetherlandTurkey


BelgiumPoland

SwedenS. Arabia

AustriaNorway

VenezuelaGreece

IranDenmark

Argentina

Male FemaleGDP rank 2009

Life Expectancy (years, 2010F)

Source: UN Statistics; CIA World Factbook; THE BEIJING AXIS Analysis

THE AVERAGE LIFE EXPECTANCY IN CHINA IS SLIGHTLY HIGHER THAN IN OTHER LARGE DEVELOPING ECONOMIES

-146-

10080604020020406080100

USJapanChina

GermanyFrance

UKItaly

BrazilSpain

CanadaRussia

IndiaAustralia

MexicoS. Korea

NetherlandTurkey


BelgiumPoland

SwedenS. Arabia

AustriaNorway

VenezuelaGreece

IranDenmark

Argentina

Male FemaleGDP Rank 2009 Total

Adult (15+) Economic Activity Rate (%, 2010F)

Source: UN Statistics; CIA World Factbook;THE BEIJING AXIS Analysis

CHINA’S ECONOMIC ACTIVITY RATE IS COMPARATIVELY LARGER THAN THE MAJOR DEVELOPED ECONOMIES

Of the top economies in the world, China has the largest female economic activity rate

665875585362486857676258635861645269665153625157687356606367

-147-

0

1

2

3

4

Mex

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ep.

Pola

nd

Gre

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Indi

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Afr

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Hun

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Bra

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UK

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Icel

and

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Japa

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en

2007 or latest available year 1998 or first available year

Source: OECD Factbook 2009; THE BEIJING AXIS Analysis

Gross Domestic Expenditure on R&D as a Percentage of GDP (%, 1998-2007)

1

DURING THE LAST TEN YEARS, CHINA AND SOUTH KOREA SHOWED THE LARGEST INCREASE IN R&D EXPENDITURE

This supports the surge of technological advancement and the rapid increase in Chinese living standards

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AGENDA

Foreword

What’s New: ‘China: From Rebound to Recovery’



Conclusions

Implications

Appendix


Disclaimer

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INDICATORS CONCLUSIONS

Selected Macroeconomic Data

After reaching a growth rate of 8.7% in 2009, the Chinese economy is poised to finally surpass Japan and become the world’s second-largest in 2010. Such impressive growth was made possible through a USD 586 billion economic stimulus package, as well as accompanying proactive fiscal and monetary policies. Since its economic reform from 1979, China has achieved an annual growth rate of 10%, which is substantially above the world’s 3.4% average for the same 30-year period. Furthermore, when compared to other major economies, China’s GDP per capita, consumption expenditure and service industry are still insignificant, implying yet further potential for sustained long term growth.

Trade As a result of the global financial crisis in 2009, China put a number of stimulus programmes in place. These were aimed at boosting domestic consumption and resulted in a substantial increase in retail sales. Although the crisis negatively impacted China’s exports, the country still managed to surpass Germany as the world’s leading exporter for 2009. China thus confirmed its undisputed leadership in world exports of electrical machinery, textiles and steel. China also continues to be one of the major drivers behind the world’s recovery from the crisis. The country is the third-largest importer globally and it leads the world in imports of electrical machinery and ores and ranks third in oil imports.

Investment China's urban fixed asset investment rose significantly in 2009, reflecting the impact of massive government spending in the construction of railways, roads and infrastructure. China has depended heavily on investment for its economic growth, with the bulk of such investment occurring in urban areas. In 2009, China continued to channel increasing amounts of FDI overseas due to the country’s increasing need for new markets, technology and resources. A particularly noteworthy trend in 2009 was Chinese resource firms pursuing overseas acquisitions at attractive prices.

Financial The financial sector in China, with its massive – and even excessive – liquidity, is contrary to the situation in the majority of the world’s markets. While central banks in many countries struggle to increase depressed liquidity after the crisis, the People’s Bank of China is trying to curb it to prevent possible economic overheating. The implementation of bank restructuring and more prudent loan management have created, so far, a stable financial sector. Furthermore, as at the end of 2009, the rise of China’s two stock markets have given the country the second-largest equity value in the world.

Social With 1.3 billion people and 16 million new births per year, China has the world’s largest population. Mass migration to the cities of eastern China, a growing middle class in urban areas and rising income levels in urban and rural households are characteristics that are currently shaping China’s social landscape. Compared to other economies of similar size, China still has an extremely low urbanisation rate, but maintains a relatively high percentage of the population active in the labour market. The large population offers many opportunities as well as challenges.

CONCLUSIONS

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AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

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INDICATORS IMPLICATIONS

Selected Macroeconomic Data

Although China seems to have weathered the global storm relatively well, concerns over a loose monetary policy and lending growth persist. With such inflationary pressures, it is expected that the Chinese government will act aggressively in tightening monetary and fiscal policies for 2010. China will doubtlessly continue to experience strong economic growth for 2010, but a more sustainable growth pattern and an improved economic structure is essential. Personal consumption is expected to play an even greater role as an engine for economic growth, and it is anticipated that the service industry will fulfill a greater role in the country’s economy, while the manufacturing sector becomes ever more sophisticated.

Trade China’s strong retail sales in 2009 clearly indicate the country’s consumption potential in terms of both domestic and international products. The revival in exports, which occurred towards the end of 2009 is expected to intensify this year as international economies recover from the financial crisis. This will also result in a further expansion of the country’s manufacturing base. As China’s industrialisation and urbanisation processes continue, it is also likely that imports of raw materials such as oil and a variety of ores and commodities, as well as many manufactured products will increase.

Investment Strong fixed asset investment in 2009 resulted in increasing property prices and growing concerns with regards a real estate bubble. As the world economy begins to recover, China is expected to leverage exports and domestic consumption in order to ensure adequate growth. While investment opportunities in manufacturing and real estate are substantial, China’s most impressive investment-based phenomenon resides in its trend toward outward investment, driven, specifically, by the country’s need to secure resources.

Financial Although China’s financial markets remain under-developed compared to other economies, effective reforms and a lesser degree of integration into the global financial system have given rise to stronger Chinese banks, which have, so far, weathered the global financial crisis and resulting slowdown well. The gap between the actual state of China’s financial markets and its potential suggests that many service sector opportunities await foreign businesses. Years of growing exports and FDI have enabled China to attain the position of the world’s largest holder of foreign exchange reserves – a key stability ‘buffer’ – which surpassed USD 2 trillion in 2009.

Social China’s emerging middle class and growing income levels, in both urban and rural areas, are not only indicative of China’s consumption potential, but are also signs of a growing pool of skilled professionals who will progressively compete on the domestic and international labour markets. Higher education levels and growing urbanisation in central provinces evince the potential to not only foster poverty reduction but to also expand industrialisation while keeping domestic talent in the country.

IMPLICATIONS

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AGENDA

Foreword




Conclusions

Implications

AppendixHistoryCountry Profile


Disclaimer

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Xia Dynasty

2070BC-1600BC

• First dynasty described in ancient historical records

• Establishment of Chinese dynastic system

• Bronze age

Shang Dynasty

1600BC-1046BC

• Rudimentary writing system using oracle bones; origins of Chinese writing system

• Innovation of charioteering and large-scale taming of horses

Zhou Dynasty

1046BC-256BC

• Production of a corpus of influential literature, i.e. Classic of Changes (I- ching) and the oldest known history of China

• Warring States period (453-221) : Consolidation of feudal system; proliferation of iron works; spread of philosophies of Confucianism and Taoism; publication of Sun Tzu’s Art of War

Qin Dynasty

221BC-206BC

• First unification of China; centralised feudal system and legalistic mode of government

• Unified language, currency, metric and legal systems established

• Commencement of Great Wall construction

Han Dynasty

206BC-220AD

• Commencement of Silk Road trade route; interaction with Roman Empire

• Official adoption of Confucianism

• 105 BC: Invention of paper-making technology

• Buddhism first introduced to China

• Life of China’s famous historian Sima Qian (145-87 BC)

Three Kingdoms

220AD-280AD

• Short, violent period yet greatly romanticized in Chinese literature, most notably with the fictional Romance of the Three Kingdoms

Jin Dynasty

265AD-420AD

South and North Dynasties

420AD-589AD

• Period of civil war and disunity, yet great advances made in medicine, astronomy, mathematics and cartography, as well as a flourishing of poetry, calligraphy, painting and music

Sui Dynasty

581AD-618AD

• Reunification of China, launching of Three Departments and Six Ministries system

• Large-scale construction work on Grand Canal

• 605 AD: First civil service exam, based on the Confucian classics

2 43 51 6 7 8 9


CHINA IS ONE OF THE WORLD’S OLDEST CIVILISATIONS, WITH RECORDS DATING BACK MORE THAN 4,000 YEARS

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Tang Dynasty

618-907

• Regarded as high point in history of Chinese civilisation

• Golden age of Chinese literature and art; renowned for leisure activities like archery, hunting, polo, football, cockfighting, etc.

• Strong Chinese maritime presence in places like Persian Gulf, Red Sea, Arabia, Egypt and East Africa

• Briefly interrupted by the Second Zhou dynasty (690-705) ruled by China’s only female emperor, Wu Zetian

Five Dynasties and Ten Kingdoms

907-960

• Period of upheaval: Successive brief dynasties and states

• Shift of China’s political power centre from the northwest (Shaanxi) eastward to the Yellow River plain in Henan

• First complete printed edition of 11 Confucian classics produced

Song Dynasty

960-1279 • First government issue of paper money and establishment of permanent standing navy, making use of gunpowder

• c. 960: Invention of the compass

• 1040: Invention of movable type printing

• Substantial exploitation of gold, silver, copper, iron, and other mineral deposits

• Emergence of the earliest manufacturing and processing plants

• 1078: China's steel output reaches 1.25 million tons, levels only attained in the West by 1788

Yuan Dynasty

1271-1368

• China under Mongol rule; society of rich cultural diversity and extensive interchange with West Asian and European societies

• First recorded European travels to China, notably by Marco Polo

• World's largest foreign trade port at Quanzhou

Ming Dynasty

1368-1644

• Return to ethnic Han (Chinese) rule

• 1406-1420: Forbidden City constructed in Beijing

• 1405-1433: Admiral Zheng He undertakes 7 voyages, reaching Africa and more than 30 countries

• Commercial interaction with Portuguese and Dutch traders from 16th century; appearance of Western missionaries in China

Qing Dynasty

1636-1911

• Extended period of stable dynastic rule in the 17th/18th centuries

• Serious threat of Christian Taiping rebellion in 19th century

• Increasing presence of foreign powers in China; rapid growth of Chinese population; Dynasty weakened by Opium Wars, Boxer Rebellion (1899-1901)

Republic of China

1912-1949

• 1912: Republic declared under Sun Yat-sen

• 1919: May Fourth Movement of students protesting foreign violations of Chinese sovereignty

• 1921: Establishment of Communist Party of China

• 1934-1936: The Long March

• 1937-1945: War with Japan

People’s Republic of China (PRC)

Since 1949


10 11 12 13 14 15 16AD

PRE-MODERN CHINA’S SOCIAL, LEGAL AND ECONOMIC SYSTEMS EVOLVED OVER CENTURIES

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1949 1954

1953: First Five Year Plan released

1959 1964

1958-1960: The Great Leap Forward

1969 1974

1969: First atomic bomb successfully detonated

1979

1970: First satellite launched

1978: Reform and opening up initiated by Deng Xiaoping

1984 1989 1994 1999 2004 2009 2014

1993: Daya Bay Nuclear Power Station commences operations

1997: Hong Kong transfer of sovereignty to China

1999: Macau transfer of sovereignty to China

2001: China joins the WTO

2008: Beijing Olympic Games

2010: Shanghai World Expo

MODERN CHINA


1950-1952: Land Reform

CHINA’S RECENT HISTORY ILLUSTRATES A BROAD-BASED TRANSFORMATION THAT PAVED THE WAY FOR THE

RISE OF CHINA AS AN ECONOMIC SUPERPOWER

1966-1976: Cultural Revolution

2008: China overtakes Germany as world’s third-largest economy

2009: China set to overtake Japan as world’s second-largest economy

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AGENDA

Foreword




Conclusions

Implications

AppendixHistoryCountry Profile


Disclaimer

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Plains, deltas, and hills in the east; mountains, high plateaus and deserts in the west

Terrain

Tropical in the south to sub-arctic in the north

Climate

Capital: Beijing Other major cities: Shanghai, Tianjin, Shenyang, Wuhan, Guangzhou, Chongqing, Harbin and Chengdu

Cities

35º00’ N, 105º00’ EEastern Asia, bordering the East China Sea, Korea Bay, Yellow Sea, and South China SeaShares 22,117 kilometres of land boundaries with 14 other countries

Location and Boundaries

9,596,960 sq. km. Area

People’s Republic of China

Source: CIA World Factbook; THE BEIJING AXIS Analysis

N

E

S

O Beijing

CHINA IS THE WORLD’S THIRD-LARGEST COUNTRY BY LAND MASS

The country’s size and location afford it a strategic advantage in trade, natural resources and international relations

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GDP Per Capita (USD, 2008)

3,000-5,000

China Facts and Figures 2009Population 1.33 bnNationality ChineseEthnic Groups Han Chinese (91.5%), Zhuang,

Manchu, Hui, Miao, Uygur, Yi, Mongolian, Tibetan, Buyi, Korean, and other (8.5%)

Religions Officially atheist, Buddhism, Taoism, Islam, Christianity, and Catholicism

Language Mandarin (Putonghua), many local dialects

Labour Force 744.4 mn (2010F)GDP Nominal USD 4,909 bnGDP Growth Rate 8.7%GDP Per Capita USD 3,679Exports USD 1,201.7 bnImports USD 1,005.6 bnForex Reserves USD 2,399 bnCurrency Renminbi (Chinese yuan) Time GMT + 8 hrs

1: China’s GDP per capita in 2009 was USD 3,679, however, the data listed here by province are from the most current data as of publication – 2008.Source: CIA World Factbook; China Statistical Yearbook; China Monthly Economic Indicators; MOFCOM; UN Statistics; THE BEIJING AXIS Analysis

> 5,000

2,000-3,000< 2,000

Shanghai

Hainan

FujianTaiwan

GuangdongGuangxi

GuizhouHunan

YunnanJiangxi

Chongqing Zhejiang

JiangsuTibet

HubeiSichuan

Shaanxi Henan

HebeiShandong

NingxiaQinghai Shanxi Tianjin

Jilin

LiaoningBeijingInner

MongoliaXinjiang

Gansu

Heilongjiang

CHINA HAS 56 ETHNIC GROUPS, OF WHICH THE HAN ETHNIC GROUP ACCOUNTS FOR 91% OF THE TOTAL POPULATION

Anhui

China’s per capita GDP in 2009 was USD 3,6791

-159-

Type of Government Socialist republic (or ‘people's democratic dictatorship’ as defined by PRC constitution)

Branches of Government

Executive - President, Premier, Vice President, State CouncilLegislative - Unicameral National People's CongressJudicial - Supreme People's Court, Local People's Courts, Special People's Courts

Administrative Divisions 23 provinces; 5 autonomous regions; 4 municipalities directly under the State Council

Political Parties Chinese Communist Party, 70.8 million members; 8 minor parties under Communist Party supervision

Constitution 4 December 1982

Independence 221 BC (unification under the Qin or Ch'in Dynasty); 1 January 1912 (Qing or Ch'ing Dynasty replaced by the Republic of China); 1 October 1949 (People's Republic of China established)

National Holiday Anniversary of the founding of the People's Republic of China, 1 October (1949)

Source: CIA World Factbook; US Dept. of State Background Notes; THE BEIJING AXIS Analysis

THE COMMUNIST PARTY OF CHINA (CPC) REMAINS THE DOMINANT FORCE IN GOVERNMENT

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Legal SystemBased on civil law system; derived from Soviet and continental civil code legal principles. Legislature retains power to interpret statutes; constitution ambiguous on judicial review of legislation and has not accepted compulsory International Court of Justice jurisdiction

Flag Red with a large yellow five-pointed star and four smaller yellow five-pointed stars (arranged in a vertical arc toward the middle of the flag) in the upper hoist-side corner

International Organisation Participation

ADB, AfDB (nonregional members), APEC, APT, Arctic Council (observer), ARF, ASEAN (dialogue partner), BIS, CDB, EAS, FAO, G-20, G-24 (observer), G-77, IAEA, IBRD, ICAO, ICC, ICRM, IDA, IFAD, IFC, IFRCS, IHO, ILO, IMF, IMO, IMSO, Interpol, IOC, IOM (observer), IPU, ISO, ITSO, ITU, LAIA (observer), MIGA, MINURSO, MONUC, NAM (observer), NSG, OAS (observer), OPCW, PCA, PIF (partner), SAARC (observer), SCO, UN, UN Security Council, UNAMID, UNCTAD, UNESCO, UNHCR, UNIDO, UNIFIL, UNITAR, UNMIL, UNMIS, UNMIT, UNOCI, UNTSO, UNWTO, UPU, WCO, WFTU, WHO, WIPO, WMO, WTO, ZC

Source: CIA World Factbook; THE BEIJING AXIS Analysis

THE FOUNDING OF THE PRC IN 1949 ESTABLISHED A LEGAL SYSTEM INFLUENCED BY SOVIET PRINCIPLES

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Other key institutions

High-Level View of China’s Political System

People’s Republic of China

President

Central Committee of theCommunist Party of China

(CCCPC)

General SecretaryPolitburo Standing Committee PolitburoSecretariat

PremierVice Premiers (4)State Councilors (5)Ministers (25)Central Bank GovernorAuditor-General

ChairmanVice ChairmanSpecial Committees of the NPC

State CouncilNational People’s

Congress(NPC)

Central MilitaryCommission

Supreme People’sCourt

Supreme People’sProcuratorate


POLITICAL POWER IN CHINA HAS BECOME LESS PERSONAL AND MORE INSTITUTIONAL

The primary organs of state power - the NPC, the President and the State Council - are largely made up of party members

-162-

Order Name Party Positions State Positions1 Hu Jintao General Secretary of the Central Committee,

Chairman of the CPC Central Military CommissionPresident of the People’s Republic of China, and Chairman of the PRC Central Military Commission

2 Wu Bangguo - Chairman of the Standing Committee of the National People’s Congress

3 Wen Jiabao - Premier of the State Council4 Jia Qinglin - Chairman of the People’s Political

Consultative Conference5 Li Changchun - -

6 Xi Jinping Principal of the Central Party School. Top-ranked member of the Secretariat of the Communist Party of China Central Committee

Vice President of the People’s Republic of China

7 Li Keqiang - First Vice-Premier of the State Council8 He Guoqiang Secretary of the Central Commission for Discipline

Inspection-

9 Zhou Yongkang

Secretary of the Political and Legislative Affairs Committee

-


Politburo Standing Committee of the Communist Party of China (2009)

THE POLITBURO STANDING COMMITTEE IS THE HIGHEST AND MOST POWERFUL DECISION-MAKING BODY IN CHINA

-163-

700,000 Engineers graduate annually from schools in China53,000 RMB is the average cost of a license plate in Shanghai40,000 Cabs drive around Shanghai daily30,000 Chinese MBA students were expected to graduate in 2008. The number in 1998 was 0

747 Million mobile phones were in circulation in China in 2009500 Coal-fired power plants to be built in China by the next decade160 Cities in China with populations that exceed 1 million. There are 9 in the US and just 2 in the UK97 New airports to be built in the next 12 years, bringing the total number to 244 by 202080 Percent of the world’s zippers are produced in the factories of Qiaotou city in Zhejiang Province80 Percent of the world’s toys are made in China, in more than 10,000 toy factories70 Percent of the world’s pirated goods come from China50 Percent of the world’s pork is eaten in China34 Children are born every minute in China30 Percent of Chinese adults live with their parents30 Nuclear power plants currently being built in China

6.3 Million passenger cars are registered in China. The number in 2004 was 2.4 million6.31 Million students graduated from Chinese universities in 2010. The number in 1977 was 270,000

5 Million Chinese are estimated to visit ski resorts this year. Ten years ago, only 500 people in China could ski1.8 Is the average number of credit cards owned by a person in Shanghai


VARIOUS FACTORS IDENTIFY CHINA AS ONE OF THE WORLD’S MOST SIGNIFICANT COUNTRIES

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AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-165-

THE BEIJING AXIS is a cross-border business bridge to/from China in three principal areas: Strategy, Sourcing and Investment.

Since our establishment in 2002, we have successfully worked with many large international and Chinese MNC clients across various sectors and industries, with a core focus on the Chinese mining & resources sector; and on the burgeoning industrial, engineering & manufacturing sector. Our work is always cross-border - supporting international firms as they act in unfamiliar territory in China, or supporting Chinese firms as they venture out and ‘go global.’ We are committed to safety and sustainability, and our solutions emphasise ‘actions and transactions.’ Our principal office is in Beijing, with additional offices in Hong Kong and international offices in Singapore, Perth, Moscow, London and Johannesburg.

THE BEIJING AXIS (TBA) is organised along three synergistic cross-border China businesses: TBA China Strategy Group, TBA China Sourcing Unit, and TBA China Capital Advisors:

TBA China Strategy Group assists CEOs, boards and senior management with their cross-border China strategy formulation and implementation. For international MNCs we are a trusted China strategy advisor and implementation partner; for Chinese MNCs we do strategic business planning and implementation as they develop global businesses.

TBA China Sourcing Unit supports clients to build and manage supply chains between China and the world – for projects, equipment, components, finished products, raw materials and commodities. We identify and select qualified suppliers, organise tenders, and request and analyse quotations. We also assist clients in negotiating favourable commercial terms, overseeing contract execution (including QA/QC and expediting) and coordinating communications and logistics across the supply chain. We support bulk commodity producers with their international marketing efforts, and assist bulk commodity users with their procurement efforts. We provide these services through Bateman Beijing Axis, a JV between TBA China Sourcing Unit and Bateman Engineering N.V., Bateman Beijing Axis is a China-focused Global Procurement House.

TBA China Capital Advisors provides specialised financial advisory services to Chinese firms that are undertaking outbound cross-border investment, or that are attracting international investment. Similarly, we advise international firms that are undertaking investments in China or that are looking to attract strategic capital from China. We focus on both transaction origination and execution. In 2009, TBA China Capital Advisors entered into a joint venture agreement with Cadiz Corporate Solutions, the corporate finance division of Cadiz, a public listed financial services group. The joint venture is the perfect corporate advisor for companies in search of capital investment from China, and for Chinese companies in search of investment opportunities on the African continent.

-166-

BATEMAN BEIJING AXIS IS A CHINA-FOCUSED GLOBAL PROCUREMENT HOUSE

A JV between Bateman Engineering N.V. and THE BEIJING AXIS Ltd.

www.batemanbeijingaxis.com

-167-

IN 2009, THE BEIJING AXIS CHINA CAPITAL ADVISORS ENTERED INTO A JV AGREEMENT WITH CADIZ CORPORATE SOLUTIONS

The JV is a corporate advisor for companies in search of capital investment from China, and for Chinese companies in search of investment opportunities

in the African continent

-168-

THE CHINA ANALYST IS A KNOWLEDGE TOOL BY THE BEIJING AXIS FOR EXECUTIVES WITH A CHINA AGENDA

May 2009 February 2009

To view or download a copy of current or previous editions of The China Analyst, visit our website at www.thebeijingaxis.com.

September 2009January 2010

-169-

BeijingCheryl TangDirector GM: China, Bateman Beijing Axis [email protected]+86 (0)10 6440 2106

JohannesburgNitesh DullabhDirectorGM: Africa, Bateman Beijing [email protected]+27 (0)11 201 2453

Perth; Singapore; BeijingKobus van der WathFounder & Group Managing DirectorChief ExecutiveBateman Beijing [email protected]+86 138 0111 2112

MoscowLilian Luca DirectorCOO: Bateman Beijing Axis [email protected]+86 186 0102 4757

For further information, please visit our English, Chinese websites at www.thebeijingaxis.com, or contact an appropriate office:

LondonMatt PieterseDirectorChief Executive, TBA China Strategy Group, TBA China Capital [email protected]+44 7769 972 037

Latin America Desk (in Beijing)Javier CuñatManager: Sourcing Strategy & Research/KM (& International Strategic Development)Bateman Beijing [email protected]+86 (0) 10 6440 2106

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AGENDA

Foreword




Conclusions

Implications

Appendix


Disclaimer

-171-

This document is issued by THE BEIJING AXIS Ltd. While all reasonable care has been taken in preparing this document, no responsibility or liability is accepted for errors or omissions of fact or for any opinions expressed herein. Opinions, projections and estimates are subject to change without notice. This document is for information purposes only, and solely for private circulation. The information presented here has been compiled from sources believed to be reliable. While every effort has been made ensure that the information is correct and that the views are accurate, THE BEIJING AXIS Ltd. cannot be held responsible for any loss, irrespective of how it may arise. In addition, this document does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or to adopt any investment strategy, nor does it constitute any prediction of likely future movements or events in any form. Some investments discussed here may not be suitable for all investors. Past performance is not necessarily indicative of future performance; the value, price or income from investments may fall as well as rise. THE BEIJING AXIS Ltd., and/or a connected company may have a position in any of the investments mentioned in this document. All readers are advised to make their own independent judgement with respect to any matter contained in this document. .

Copyright Notice: Copyright of all materials, text, articles and information contained herein resides in and may only be reproduced with permission of an authorised signatory of THE BEIJING AXIS Ltd. Copyright in materials created by third parties and the rights under copyright of such parties is hereby acknowledged. Copyright in all other materials not belonging to third parties and copyright in these materials as a compilation vests in and shall remain copyright of THE BEIJING AXIS and should not be reproduced or used except for business purposes on behalf of THE BEIJING AXIS Ltd. or save with the express prior written consent of an authorised signatory of THE BEIJING AXIS Ltd. All rights reserved. © THE BEIJING AXIS Ltd. 2010.

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