CHINA IS THE WORLD'S THIRD-LARGEST - The Beijing Axis

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AGENDA

Foreword

History

Country Profile

China Economic Indicators

International Comparison

Conclusions

Implications

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 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.

The China Compass, in presentation format, outlines China’s past and present, combining basic country data with a detailed analysis of a wide range of macroeconomic and social information. It offers a concise, yet reasonably comprehensive, high-level picture of the ever-changing and evolving Chinese landscape.

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

As always, we welcome all feedback.

Kobus van der WathFounder & Group Managing DirectorTHE BEIJING AXISChina Business SolutionsStrategy I Sourcing I [email protected]

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0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

World GDP2008

World GDP2008

DevelopingCountriesGDP 2008

China GDP2008

China GDP2008

China GDP2008

China GDP2008

China GDP2008

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

Russia

UK

SpainBrazil

Others

France

Italy

GermanyHenan

Zhejiang

HebeiShanghai

HubeiSichuanLiaoning

Others

Developed Countries

China

Jiangsu

West China

Government Consumption Expenditure

Tertiary Industry

Japan

USChina

China

Shandong

Guangdong

Central China

EastChina

Secondary Industry

PrimaryIndustry

Net Exports

Gross Capital Formation

Private Consumption Expenditure

A HIGH LEVEL VIEW OF CHINA’S KEY ECONOMIC CHARACTERISTICS AND ITS CURRENT GLOBAL POSITION

USD60.7 tn

USD60.7 tn

USD18.6 tn

USD4.4 tn

USD4.4 tn

USD4.4 tn

USD4.4 tn

USD4.4 tn

Developing Asia

(excl. China)

Developing Countries

(excl. China)

China

Other Developing Countries

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AGENDA

Foreword

History

Country Profile



Conclusions

Implications


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 systemand 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)

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

Source: Various; THE BEIJING AXIS Analysis

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 civilization

• 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

History

Country Profile



Conclusions

Implications


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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China Facts and Figures 2008Population 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 807.7 mnGDP Nominal USD4,327 bnGDP Growth Rate 9%GDP Per Capita USD3,258Exports USD1,428.5 bnImports USD1,133.1 bnForex Reserves USD1,946 bnCurrency Renminbi (Chinese yuan) Time GMT + 8hrs

Source: CIA World Factbook; China Statistical Yearbook; China Monthly Economic Indicators; MOFCOM; THE BEIJING AXIS Analysis

> 5000 3000-50002000-3000< 2000

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

GDP Per Capita (USD, 2008)

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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

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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

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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 0649.7 Million mobile phones were in circulation in China in 2008

500 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 million5.7 Million students graduated from Chinese universities in 2007. 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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AGENDAForeword

History

Country Profile


Selected Macroeconomic IndicatorsTrade Indicators: Domestic & ForeignInvestment Indicators: Domestic & ForeignFinancial IndicatorsSocial Indicators


Conclusions

Implications


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 09F10F

CAGR 10%

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

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

Nominal GDP (USD bn, 1978-2010F)

CHINA’S ECONOMY HAS GROWN TREMENDOUSLY, BECOMING THE THIRD-LARGEST ECONOMY IN THE WORLD

In 2008, China’s GDP reached USD4.4 trillion, which is 4 times its 1998 level (USD1 trillion). From 1978, it grew at a CAGR of 10%

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0 200 400 600

GuangdongShangdong

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 equates to 46%

of total GDP

Guangdong

Jiangsu

GDP by Province (USD bn, 2008)

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

The top 5 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 Monthly Indicators; 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 09F10F

7-10% GDP growth ‘band’

Past periods of

overheating

7-8% GDP growth ‘band’

Temporary slowdown below 7-

8% 'government target GDP' in 2009

Overheating concerns

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

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

WE FORECAST GDP GROWTH RATES OF APPROXIMATELY 7% IN 2009 AND 7.5% IN 2010

The current cool-down period has been exacerbated by the global financial crisis;hence, GDP is projected to fall well below the average growth band in 2009

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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 illustrates 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 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 09F 10F

CAGR 9%

GDP Per Capita (USD, 1978-2010F)

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

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

In 2008, China’s GDP per capita reached USD3,258, which represents a CAGR of 9% over the last 30 years

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5

4

32

Shanghai1

Zhejiang

Jiangsu


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

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259274

302

369

489

210200191181178174 179

0

1,000

2,000

3,000

4,000

5,000

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

0%

10%

20%

30%

40%

CAGR 10%


Composition of GDP by Sector (USD bn, 1997-2008)

PRIMARY INDUSTRY CONSTITUTES ROUGHLY 11% OF GDPChina’s primary industry grew at a CAGR of 10%

from 1997, and contributed USD489 billion to total GDP in 2008

Primary Industry Secondary Industry

Tertiary Industry Growth Rate of Primary Industry

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0

400

800

1,200

1,600

9798990001020304050607

Industry Sector Construction Sector

Primary11%

Secondary49%

Tertiary40%

Breakdown of Secondary Industry and Trends (2007)

CAGR 13%

Value-Add of Secondary Industry (at current prices, USD bn, 1997-2007)

SECONDARY INDUSTRY IS THE LARGEST CONTRIBUTOR TO GDP, MAKING UP 49%

China’s secondary industry grew at a CAGR of 13% from 1997 to 2007, and contributed USD1.59 trillion to GDP in 2007, of which 88% came from

manufacturing

12%

88%

Note: CAGR is calculated for the last 10 years Source: China Statistical Yearbook; THE BEIJING AXIS Analysis

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0

500

1,000

1,500

07 06 05 04 03 02 01 00 99 98 97

Hotels and Catering Services Real Estate Financial Intermediation Transport, Storage, and PostWholesale and Retail TradesOthers

CAGR 16.4%

Primary11%

Secondary49%

Tertiary40%

39%

18%

15%

11%

12%

6%

Value-Add of Tertiary Industry (at current prices, USD bn, 1997-2007)

Breakdown of Tertiary Industry and Trends (2007)

TERTIARY INDUSTRY IS THE SECOND-LARGEST CONTRIBUTOR TO GDP, MAKING UP 40%

China’s tertiary industry grew at a CAGR of 16.4% from 1997 to 2007, and contributed USD1.31 trillion to GDP in 2007

Note: CAGR is calculated for the last 10 years Source: China Statistical Yearbook; THE BEIJING AXIS Analysis

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0%

20%

40%

60%

80%

100%

97 98 99 00 01 02 03 04 05 06 07

Net Exports of Goods and ServicesGross Capital FormationFinal Consumption Expenditure (household + gov)

0

2

4

6

8

97 98 99 00 01 02 03 04 05 06 07

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.

Source: China Statistical Yearbook; THE BEIJING AXIS Analysis

Contribution/Share of the three Components of GDP Growth (1997-2007)

Contribution to the Growth of GDP(Percentage Points, 1997-2007)

GROSS CAPITAL FORMATION AND FINAL CONSUMPTION EXPENDITURE ARE THE MAIN COMPONENTS OF CHINA’S GDP

In 2007, final consumption and gross capital formation each contributed 40% to GDP while net exports contributed 20%

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20%

40%

60%

80%

100%

0 50 100 150 200

Shandong

Jiangsu

Guangxi

Hunan Hubei

Inner Mongolia

Beijing Fujian

Sichuan

Shanghai

Liaoning

Hebei

Henan

Zhejiang

Jilin

Anhui

ShanxiShaanxi

Heilongjiang Guangxi

Tianjin

Jiangxi

Chongqing

Yunnan

Xinjiang

Guizhou

Gansu

Ningxia

Hainan

Qinghai

Tibet

Total Capital Formation, USD bn

CHINA’S GROSS CAPITAL FORMATION IS CONCENTRATEDIN THE MORE DEVELOPED REGIONS

In 2007, China’s top 5 provinces by annual gross capital formation accounted for 40% of the national total


China’s Gross Capital Formation (2007)

Size of the bubble represents % of

total

Coastal provinces are responsible for a significant amount of capital formation

Provinces in central and western China have higher capital formation

rates

% of Province GDP

-28-

20%

40%

60%

80%

0 50 100 150 200

Jiangsu

ShandongZhejiang

Qinghai

Shanghai

Hebei

Sichuan

Guangdong

Hunan

HenanJiangxi

YunnanGuangxi

Heilongjiang

Anhui

Fujian

Liaoning

Hubei

Beijing

Ningxia

Hainan

Gansu

Xinjiang

Tianjin

Shaanxi

Jilin

Inner Mongolia

Shanxi

Chongqing

GuizhouTibet

Note: Final Consumption = Private Household Consumption + Government ConsumptionSource: China Statistical Yearbook; THE BEIJING AXIS Analysis

China’s Final Consumption (2007)

Total Final Consumption, USD bn

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

In 2007, Shandong, Guangdong, Jiangsu and Zhejiang were responsible for 34% of China’s total annual final consumption

34% of China’s total final consumption is centered

around the coastal provinces

Size of the bubble represents % of

total

% of Province GDP

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190.311.312.020.821.528.0

44.1

44.4

79.4

98.2

109.5659.5

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20%

40%

60%

80%

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Government Expenditure Breakdown (USD bn, Jan-Nov 2008)

Source: China Monthly Economic Indicators; THE BEIJING AXIS Analysis

GOVERNMENT EXPENDITURE IS MOSTLY AIMED AT IMPROVING THE QUALITY OF LIFE OF THE POPULATION

In 2008, 55% of government expenditure was focused onpublic services, education, social security, employment and community affairs

-30-

0

1,000

2,000

3,000

4,000

5,000

6,000

1998 1999 2000 2001 2002 2003 2004 2005 2006 20070%

10%

20%

30%

40%

50%Industrial Output Growth Rate

WTO Accession11 December 2001

Source: CEIC Data; THE BEIJING AXIS Analysis

Gross Industrial Output (USD mn, 1998-2007)

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

Since then, a large number of foreign companies have established a manufacturing base in China, driving gross industrial output up at a CAGR of 9% from 1998 - 2007

CAGR 9%

-31-

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, which is unlikely to recede anytime soon

-32-

AGENDAForeword

History

Country Profile




Conclusions

Implications


Disclaimer

-33-

0

200

400

600

800

1,000

1,200

1,400

1,600

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 08-20%

-10%

0%

10%

20%

30%

40%

50%

Retail Sales (Urban) Retail Sales (Sub-urban) Retail Sales (Rural)Urban Growth Sub-urban Growth Rural Growth

Annual Retail Sales and Growth Rate by Administrative Level (USD bn1, 1978-2008)

1. Figures converted from RMB to USD using the average exchange rate for the respective years; however, the growth rate does not factor in exchange rate fluctuationsSource: China Statistical Yearbook; China Monthly Economic Indicators; THE BEIJING AXIS Analysis

REFLECTING CHINA’S DEVELOPMENT, PERSONAL CONSUMPTION HAS BEEN ON THE RISE (I)

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

-34-

0

40

80

120

160

Jan-

06

Apr

-06

Jul-0

6

Oct

-06

Jan-

07

Apr

-07

Jul-0

7

Oct

-07

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

0

400

800

1,200

1,600

78 81 84 87 90 93 96 99 02 05 08


Annual Retail Sales (USD bn, 1978-2008) Monthly Retail Sales (USD bn, 2006-2008)

REFLECTING CHINA’S DEVELOPMENT, PERSONAL CONSUMPTION HAS BEEN ON THE RISE (II)

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

-35-

3.58.9

86.9

Wholesale and Retail Trade Hotels and Catering ServicesOther

27.1

1,312.6

221.7

1978

84%

14%

2%

87%

4%9%

2008


Annual Retail Sales of Consumer Goods by Sub-sector (USD bn, 1978 vs. 2008)

REFLECTING CHINA’S 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

-36-

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 5 provinces in terms of population does not include Zhejiang, but does 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 MAJORITY OF RETAIL SALES ARE CONCENTRATED IN THE EASTERN COASTAL PROVINCES

Unsurprisingly, the top 5 provinces in terms of retail sales are also the leading provinces in terms of population1, employed persons and income per capita

-37-

24.0

28.5

29.6

31.7

41.4

48.7

56.1

102.0

184.4

233.1

India

Russia

Singapore

UK

Netherlands

Germany

S. Korea

Japan

HK, SAR

USA

Russia

US19.1%

Hong Kong SAR15.1%

South Korea4.6%

Japan8.4%

Germany4.0%

Top Exports by UN Classification • Electrical machinery, equipment and parts

• Nuclear reactors, boilers, machinery and mechanical appliances

• Articles of apparel and clothing

51% 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

China’s Top Export Destinations (USD bn, 2007)

Total Exports = USD1,218 bn

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

-38-

0

20

40

60

80

100

120

140

160

Jan-

07

Mar

-07

May

-07

Jul -

07

Sep-

07

Nov

-07

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

-80%

-60%

-40%

-20%

0%

20%

40%

60%Exports Export Monthly Growth Rate

0

200

400

600

800

1,000

1,200

1,400

1,600

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

-20%

-10%

0%

10%

20%

30%

40%Exports Export Growth Rate

China’s entry to the WTO

Annual Exports (USD bn, 1997-2008)

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

The global financial crisis, however, has sharply affected China’s exports

Dec

-08


Monthly Exports (USD bn, 2007-2008)

-39-

94.9 127.0 187.9 268.3 352.3456.4

577.2

87.1 101.2126.1

156.4194.2

238.0

296.9

43.853.0

69.0

100.7

129.1

174.8

219.9

1,428.5

0

300

600

900

1,200

1,500

2001 2002 2003 2004 2005 2006 2007 2008

OthersMineral ItemsFoodstuffsChemicals and Related ProductsProducts Classified by Material Sundry (Manufactured Goods)Machinery Equipment

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

Export Commodity Composition1 (USD bn, 2001-2008)

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

-40-Source: UN Comtrade; THE BEIJING AXIS Analysis

Russia

US7.3%

Malaysia3.0%

South Korea10.8%

Japan14.0%

Germany4.8%

40% OF CHINA’S IMPORTS COME FROM JAPAN,SOUTH KOREA, THE US, GERMANY, AND MALAYSIA

In 2007, Japan and South Korea were the topsuppliers, accounting for 25% of China’s total imports

China’s Top Import Origins (USD bn, 2007)

18.3

19.7

22.7

23.1

25.8

28.7

45.4

69.5

103.8

133.9

Brazil

Russia

Thailand

Philippines

Australia

Malaysia

Germany

USA

S. Korea

JapanTotal Imports = USD956 bn

Top Imports by UN Classification• Electrical machinery, equipment and parts• Nuclear reactors, boilers, machinery and mechanical appliances

• Mineral fuels, mineral oils and products of their distillation

-41-

0

200

400

600

800

1,000

1,200

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

-20%

-10%

0%

10%

20%

30%

40%Imports Import Growth Rate

China’s accession to

the WTO

Annual Imports (USD bn, 1997-2008)

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

Imports registered a peak annual growth of 40% before stabilising at around 20%; the latter part of 2008 saw plunging imports due to the global crisis

Dec

-08


Monthly Imports (USD bn, 2007-2008)

40

50

60

70

80

90

100

110

120

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 -40%

-30%

-20%

-10%

0%

10%

20%

30%

40%Imports Import Growth Rate

-42-

107.0 137.0 192.9 252.6 290.6 357.1 412.541.9 48.5

63.974.1

81.287.0

102.9

32.139.0

49.065.7

77.787.1

107.5 1133.1

0

200

400

600

800

1,000

1,200

2001 2002 2003 2004 2005 2006 2007 2008

OthersFoodstuffsSundry (Manufactured Goods)Mineral ItemsChemicals and Related ProductsProducts Classified by Material Machinery Equipment

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

Import Commodity Composition1 (USD bn, 2001-2008)

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

-43-

Russia

US13.9%

Hong Kong SAR9.1%

South Korea7.4%

Japan10.9%

Germany4.3%

45% OF CHINA’S TOTAL TRADE IS WITH THE US, JAPAN,HONG KONG, SOUTH KOREA, AND GERMANY

The US accounted for USD302 bn in 2007

China’s Largest Trading Partners (USD bn, 2007)

China’s Total Trade with the World = USD2,174 bnTotal Exports = USD1,218 bnTotal Imports = USD956 bn

Source: UN Comtrade; THE BEIJING AXIS Analysis

43.8

46.3

46.4

47.1

48.2

94.1

159.9

197.2

236.0

302.6

Australia

Netherlands

Malaysia

Singapore

Russia

Germany

S. Korea

HK. SAR

Japan

USA

-44-

HK, SARUS

NetherlandsUK

UAEMalaysia

AngolaPhilippines

JapanS. Korea -47.7

-31.9

-15.6-11.7

-11.0

14.023.9

36.5163.6

171.6

Source: UN Comtrade; THE BEIJING AXIS Analysis

Russia

US

Hong Kong SAR

South Korea

Japan

UK

UAE

Angola

Netherlands

MalaysiaPhilippines

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

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

China’s Trade Balance with the 5 Largest Surplus and Deficit Countries (USD bn, 2007)

China’s Trade Surplus = USD262 bn

-45-

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

-30%

-10%

10%

30%

50%

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, 2005-2008)

DEC 08’s TRADE SURPLUS OF USD39 BN WAS THE SECOND-HIGHEST EVER AFTER NOV 08’s USD40.1 BN

This surprising figure, at the ‘height’ of the global crisis, was the result of plummeting imports that greatly exceeded the drop in exports

-46-

0%

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

0%

2%

4%

6%

8%

10%

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

1. Total Consumption = Private Household Consumption + Government ConsumptionSource: China Statistical Yearbook; China Monthly Economic Indicators; THE BEIJING AXIS Analysis

Net Exports / GDP Annual (1997-2008) Net Exports / GDP Quarterly (2006-2008)

AS AN ELEMENT OF GDP, CHINA’S TRADE SURPLUS PEAKED AT AROUND 8% IN 2007

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

-47-

Percentage of China Total Trade Value

Top 65 %Next 25 %Next 10 %

HunanShandong

ShaanxiHenan

Imports: USD1,133.1 bnExports: USD1,428.5 bn

Total Trade: USD2,561.6 bn

Hunan

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%

China Total Trade Value by Province (2008)

Hainan


90% OF CHINA’S TOTAL INTERNATIONAL TRADE VALUE IS CONCENTRATED IN 9 PROVINCES

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

-48-

AGENDAForeword

History

Country Profile




Conclusions

Implications


Disclaimer

-49-

0

500

1,000

1,500

2,000

2,500

3,000

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

10%

20%

30%

40%Fixed Asset Investment Growth Rate


Fixed Asset Investment (USD bn, 1997-2008)

CHINA’S FIXED ASSET INVESTMENT HAS BEEN GROWING AT AN INCREASING PACE SINCE 1999

China has depended heavily on investment for its economic growth

-50-

231.5 271.7 286.7 316.8 362.5 428.8 553.5 713.2916.7

69.3 71.4 74.0 80.9 87.1 96.8117.9

138.3

167.0

208.6

261.2

347.2

1,171.21,544.8

2,132.5

0

500

1,000

1,500

2,000

2,500

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

Urban Areas Rural Areas


Total Investment in Urban and Rural Areas (USD bn, 1997-2008)

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

In 2008, China’s total fixed asset investment was USD2,479 bn; of which 86% was invested in urban areas

-51-

123456789

1011121314151617181920212223242526272829303132

1

4

3

25

Jiangsu

Henan

Zhejiang

Guangdong

Shandong


Fixed Asset Investment by Province (USD bn, 2007)

CHINA’S FIXED ASSET INVESTMENT IS PRIMARILY FOCUSED ON THE COASTAL PROVINCESChina’s coastal provinces have greater demand for

fixed asset investment in order to develop their economies

0 50 100 150 200

ShandongJiangsu

GuangdongZhejiang

HenanLiaoning

HebeiSichuan

AnhuiShanghai

Inner MongoliaHubeiFujianHunanBeijing

JilinShaanxiJiangxi

ChongqingGuangxi

ShanxiHeilongjiang

YunnanNot Classified

TianjinXinjiangGuizhou

GansuNingxiaHainan

QinghaiTibet

Top 5 provinces -36.8%

Remaining provinces -

61.4%

Not classified by region - 1.8%

-52-

177.5 236.6 324.4 427.6585.3

803.7158.8

201.5238.1

307.6

426.6

585.8

76.092.4

117.4

152.3

186.1

255.6

52.861.3

76.6

102.3

133.5

183.4

47.970.0

92.2

107.7

124.5

171.0

21.529.0

43.8

58.7

77.3

106.2

137.0160.7

191.2

223.7

272.6

374.2

0

500

1,000

1,500

2,000

2,500

2003 2004 2005 2006 2007 2008E

OthersMining Utilities Environmental Protection and Public FacilitiesTransport, Storage and PostReal EstateManufacturing


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

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

-53-

0

20

40

60

80

100

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

-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 BEENGROWING STEADILY FOR THE LAST DECADE

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

-54-Source: MOFCOM; THE BEIJING AXIS Analysis

China’s FDI Inflow by Source Region (USD bn, 2007)

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

In 2007, 78% of China’s FDI came from 10 countries, but the true countries of origin are hidden by the use of HK, BVI, Cayman Islands, Mauritius, etc.

27.7

16.6

3.7

3.6

3.2

2.6

2.6

2.2

1.8

1.3

HK, SARB. Virgin Is.South KoreaJapanSingaporeUSCayman Is.SamoaTaiwanMauritius

12

5

4

7

3

6

8

9

10

US 3.1%

HK 33.2%

Japan 4.3%South Korea4.4%

Taiwan 2.1%

Samoa 2.6%Mauritius 1.6%

British Virgin Islands19.8%

Cayman Islands3.1%

Singapore3.8%

China’s Total FDI Inflow = USD74.8 bn

-55-

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 ATTRACTEDSUBSTANTIALLY MORE FDI THAN INLAND PROVINCES

The larger market size, infrastructure and the more attractive nature of the business environment are key elements in attracting FDI to coastal provinces

-56-

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

-57-

0

20

40

60

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

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 OUTWARD FDI (OFDI) HAS SEEN SHARP GROWTH OVER RECENT YEARS

Over the past 5 years China has become more active in its OFDI activities, driven by its increasing need for new markets, technology and more resources

-58-Source: MOFCOM; THE BEIJING AXIS Analysis

China’s Outward FDI Stock by Region (2007)

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

68.8

16.8

6.6

1.9

1.4

1.4

1.4

1.3

1.2

1.1

HKCayman Is.B. Virgin Is.USAustraliaSingaporeRussiaCanadaSouth KoreaPakistan

USD bnHK 58.3%

12

Cayman Islands14.3%

3

British Virgin Islands5.6%

4US 1.6%

Australia 1.2%

5

6 Singapore 1.2%

Russia 1.2%7Canada 1.1%8

South Korea1.0%

910

Pakistan 0.9%

China’s total cumulative outward FDI stock for 2007 amounted to USD117.9 bn

-59-

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 account for

50%

The remaining of provinces’ OFDI account for 50%

Tibet has no reported OFDI

1

5

Gansu

Source: MOFCOM; THE BEIJING AXIS Analysis

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

-60-

0.8 2.3 1.1

6.60.7

4.94.5

5.6

0.8

0.61.4

4.1

1.8

1.7

8.5

4.1

0.8

2.3

0.9

2.1

0.6

0.5

4.7

4.0

0

5

10

15

20

25

30

2004 2005 2006 2007

OthersManufacturingMiningTransport, Storage and PostLeasing and Business ServicesWholesale and Retail Trades


China OFDI Flow by Sector (USD bn, 2004-2007)

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

A substantial portion of China’s outward investments are in natural resources, wholesale and retail trades, and manufacturing

-61-

AGENDAForeword

History

Country Profile




Conclusions

Implications


Disclaimer

-62-

92

96

100

104

108

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

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 (1997-2008)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

-63-

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 COSTS

In 2008, the provinces with the lowest PPI were the coastal provincesof Shanghai, Fujian, Guangdong, Beijing, and Tianjin

-64-

95

100

105

110

115

99 00 01 02 03 04 05 06 07 08

Selling Price Index of HousesLand Transaction Price IndexRenting Price Index of Houses

1

2

2

5 Urumqi105.1

4

5

Yinchuan110.7

4

1

Jinhua105.8

Sanya107.9

Chongqing95.9

Yantai105.1

Xiamen97.0

Guangzhou95.6

Shenzhen85.8

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

Bottom 5 CitiesTop 5 Cities

Property Price Index, Annual (1999-2008)1 Selling Price Index of Houses by Province (Q4, 2008)1

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

In 2007, China experienced the highest rise in residential property prices inthe world, with prices in major cities doubling from the previous year

Haikou106.5

3

3Nanjing97.3 5

-65-

Apr

-09

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

PMI 2 Month Moving Average (PMI)

FROM A TROUGH OF 38.8 IN NOV 08, CHINA’S PMI HAS BEEN RISING AND SURPASSED THE 50 BENCHMARK IN MARCH 09

A PMI index of over 50% signals expansion of the manufacturing industry

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


-66-

86.586.887.3

90.2

92.493.493.7

94.594.194.394.094.594.3

95.696.9

96.0

80

85

90

95

100

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

Source: CEIC Data; THE BEIJING AXIS Analysis

Consumer Confidence Index (%, Nov 2007-Feb 2009)

CONSUMER CONFIDENCE IN CHINA HAS SUFFERED AS A RESULT OF THE GLOBAL FINANCIAL CRISIS

The weaker trend is expected to continue well into 2009; however, the effects of the government’s stimulus plan should have a positive impact

Although Consumer Confidence decreased, it is still among the

highest in the world

-67-

EconomicSlowdown

Economy Overheating

Bank Deposit-Reserve Ratio (%, 1998-2008)

IN MID 2008, CHINA’S MONETARY POLICYCHANGED FROM TIGHT TO MODERATE

Since 2006, the bank reserve ratio has been gradually increased in order to curb excess liquidity and reduce inflationary pressures, but from Sep.

2008 policy has eased considerably

Note: 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

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

-68-

0

2

4

6

8

10

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

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

9-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

-69-

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 (Include 3 years) 6 Months to 1 Year (Include 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 6 YEARS IN SEPTEMBER 2008

Rates were lowered relatively rapidly since September 2008 as the economic slowdown in Q3 2008 and Q4 2008 unfolded

-70-

0

2,000

4,000

6,000

8,000

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

Loans Deposits

Deposits CAGR: 19.2%

Loans CAGR: 16.0%


Total Loans and Deposits (USD bn, 1997-2008)

DURING THE PAST 10 YEARS, CHINESE BANK DEPOSITS HAVE BEEN RISING FASTER THAN BANK LENDING

By the end of 2008, China’s total deposits amounted toUSD6.7 trillion whilst loans stood at USD4.4 trillion

-71-

6,710 3,136

2,269

53154145260

316

0%

20%

40%

60%

80%

100%

T o t alD ep osit s

Ho useho ldSaving s

D epo sit s

C o mp anyD ep o sit s

D ep o sit s o fGo vernment

D epart ment s &Org anisat io ns

F iscalD ep osit s

A g ricult uralD ep o 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 MAINDRIVER OF THE HIGH GROWTH IN DEPOSITS

In 2008, household banking deposits accounted for 47% of totaldeposits, whilst company deposits accounted for 34%

47%

34%

-72-

291

4,367 2,231

720

4453

254255

520

0%

20%

40%

60%

80%

100%

Total Loans Medium &Long-term

Loans

Other Short-term Loans

Short-termLoans to

IndustrialSector

Short-termLoans to

CommercialSector

Short-termLoans to

AgriculturalSector

Short-termLoans to

ConstructionSector

Trust Loans Other Loans

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%

-73-

646 715 780 837 834 842 860 864 864

514509 507

540 547 592 684 740 736

0

400

800

1,200

1,600

2001 2002 2003 2004 2005 2006 2007 2008 2009.5

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 2,069.9

1. As of May 2009Source: China Statistical Yearbook; China Monthly Economic Indicators; World Federation of Exchanges; THE BEIJING AXIS Analysis

Total Market Value,

USD bn

Number of Listed Companies

THE SHANGHAI AND SHENZHEN STOCK EXCHANGES HAVE THE 6th AND 20th LARGEST MARKET VALUES IN THE WORLD1

In 2007, China’s total market capitalisation reached USD4 trillion,with 1,544 listed companies and around 72.14 million investors

2007 stock market bubble

-74-

0

500

1,000

1,500

2,000

2,500

2001 2002 2003 2004 2005 2006 2007 2008 Jan-May2009

0

500

1,000

1,500

0

500

1,000

1,500

2,000

2,500

2001 2002 2003 2004 2005 2006 2007 2008 Jan-May2009

0

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 24.2

Total Turnover USD bn

274 205 252 320 235 725 4,017 2,597 1,691

Average P/E Ratio 39.8 37.0 36.2 24.6 16.4 32.7 69.7 16.7 32.1

Total Turnover USD bn

188 133 136 192 152 410 2,040 1,248 933

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

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

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

-75-

0

500

1,000

1,500

2,000

2,500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Jan-Mar2009

0%

20%

40%

60%

80%Foreign Exchange Reserves Growth Rate

Lowest level since 2000, caused by the slowing of

‘hot money’ inflows

Foreign Exchange Reserves & Annual Growth (USD bn, 1997- March 2009)


CHINA HAS THE LARGEST FOREIGN EXCHANGE RESERVES IN THE WORLD

In March 2009, China’s foreign reserves reached USD1.9 trillion – consisting mainly of US government and institutional bonds

-76-

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

USDZAR

KRW

JPY

RUB

-77-

AGENDAForeword

History

Country Profile




Conclusions

Implications


Disclaimer

-78-

0

200

400

600

800

1,000

1,200

1,400

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, 1978-2008)

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

With concerns about resource sustainability in mind, the central government’s One Child Policy has served to slow the population growth rate to 0.5%

-79-

0

7

14

21

28

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005-20%

-10%

0%

10%

20%New Births New Births Growth Rate

Children born during the boom of the mid-80’s will soon enter

childbearing age

2007

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

China’s Annual Births (mn, 1978-2007)

HOWEVER, EVEN WITH FAMILY PLANNING MEASURES, CHINA STILL HAS AROUND 16 MN BIRTHS PER YEAR

Introduced in 1979, the One Child Policy has been a controversial topic

-80-

6.7%

25.7%

67.6%

0-14 15-64 65 and over

8.2%

19.0%

72.8%

1998 (Total Population - 1.2 bn) 2008 (Total Population - 1.3 bn)

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

Population Breakdown by Age (mn, 1998-2008)

109.6

966.8

251.783.6

843.4

320.6

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

China has an aging population, and people 65 and older may potentially make up 25% of the population by 2040 with the continuation of the One Child Policy

-81-

0 20 40 60 80 100

Guangdong Shandong

Henan 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


2

4

3 5

1

Henan

Hainan

Shandong

Guangdong

JiangsuSichuan

31Tibet

30Qinghai 29

Ningxia

28

27 Tianjin

Population by Urban and Rural Residence and Province (mn, 2007)

Top 5Bottom 5

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

-82-

0

100

200

300

400

500

600

700

800

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

SINCE CHINA’S ACCESSION TO THE WTO, THE COUNTRY HAS SEEN A FASTER-GROWING EMPLOYED POPULATION

There is a clear movement away from state-owned enterprises into private companies in terms of job creation


Rural Areas

Urban Areas

Employee Breakdown in Urban and Rural Areas (mn, 1997 vs. 2007)

Number of Employed Persons at Year-end in Urban and Rural Areas (mn, 1997-2007)

0

100

200

300

400

500

600

700

800

1997 2007

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

-83-

123456789

10111213141516171819202122232425262728293031


3

451

2

HainanGuangdong

31Tibet

30Qinghai

29

Ningxia

28

27

ShandongJiangsu

Tianjin

SichuanHenan

Number of Employed Persons by Province (mn, 2007)

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

TibetQinghaiNingxiaHainanTianjin

XinjiangShanghai

InnerJilin

BeijingGansu

ShanxiHeilongjiang

ChongqingShaanxi

FujianLiaoning

JiangxiGuizhouYunnan

GuangxiHubeiHebeiAnhui

ZhejiangHunan

JiangsuSichuan

ShandongGuangdong

Henan

Urban Areas

Rural Areas

Inner Mongolia

Top 5Bottom 5

-84-

0

100

200

300

400

500

600

700

800

78 81 84 87 90 93 96 99 02 05

Primary Industry

Secondary Industry

Tertiary Industry

Primary Industry

41%

Tertiary Industry

32%

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


2007

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

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

07

Total Employed Persons By Sector (mn, 1978-2007)

-85-

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

Annual Disposable Income of Urban Households andNet 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 than their rural counterparts, but this disparity in growth rates has decreased in recent years

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

-86-

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

-87-

25

35

45

55

65

75

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

Urban Area Rural Area

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 in the 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


43.7

37.9

57.5

67.7

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

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

High food inflation caused temporary increase

-88-

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 (1997-2008)

ATHOUGH INCOME LEVELS HAVE BEEN INCREASING, THERE IS STILL 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

-89-

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

(>USD25,000)

Mass Affluent

(USD12,500-USD25,000)

Upper Middle Class

(USD5,100-USD12,500)

Lower Middle Class

(USD3,200-USD5,100)

Poor (≦USD3,200)

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 64 204 644 1,574 3,267

Segments by Annual Income

Urban Households (mn) Urban Disposable Income (USD)

1

1 11

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; THE BEIJING AXIS Analysis

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

A LARGE MIDDLE CLASS IS DEVELOPINGIN CHINA’S URBAN AREAS

In 2025, China will potentially have more than 350 million urbanhouseholds with a annual disposable income of more than USD3,200

-90-

0

10

20

30

40

50

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

Urbanisation Rate (%, 1978-2008)

CHINA’S URBANISATION RATE HAS INCREASED FROM 18% IN 1978 TO 44.9% IN 2008, WITH THE URBAN POPULATION

REACHING 595 MILLION However, China’s urbanization rate is currently still

lower than the world average (50%)


-91-

AGENDAForeword

History

Country Profile




Conclusions

Implications


Disclaimer

-92-

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

0

1,000

2,000

3,000

4,000

5,000

USA

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

her.

Turk

ey

Pola

nd

Indo

nesi

a

Bel

gium

Switz

er.

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

USD14.26 tn in 2008

Note: Nether. = Netherlands; Switzer. = Switzerland Source: IMF; THE BEIJING AXIS Analysis

IN 2008, CHINA WAS THE WORLD’S THIRD-LARGEST ECONOMY China’s GDP amounted to USD4.4 trillion, more than double the size

of other developing economies such as Russia, Brazil or India

World GDP in 2008 was

USD 60.7 tn

-93-Source: China Statistical Yearbook; IMF; THE BEIJING AXIS Analysis

China GDP by Province Compared with Similar World Economies (USD bn, 2007)

PolandAustriaGreeceFinland

UAEMalaysia

SingaporePhilippines

HungaryEgypt

Central AmericaKuwait

PeruKazakhstan

CaribbeanMorocco

Slovak RepublicBangladesh

QatarVietnam

LibyaAngolaCroatia

LuxembourgSudan

TunisiaGuatemala

JordanBotswana

NepalZimbabwe

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

For example, the size of the Guangdong economy is larger than that of Austria, Greece and Finland

409342339

247198

180160

145138

123122121121

9793

8078757272706662

5446

3636

1612105

75 74

107

128 144

119

105

422 371

314 246

187 191

161 138

112

93

75

71

5 10 12 16

34 35

46 50 51

61 70 73

500 400 300 200 100 0 100 200 300 400 500

Guangdong Shandong Jiangsu Zhejiang Henan Hebei Shanghai Liaoning Sichuan Beijing Fujian Hubei Hunan Anhui Heilongjiang Inner Guangxi Shanxi Jiangxi Shaanxi Jilin Tianjin Yunnan Chongqing Xinjiang Guizhou Gansu Hainan Ningxia Qinghai Tibet

Inner Mongolia

-94-

0

1,000

2,000

3,000

4,000

5,000

6,000

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

JapanGermanyChinaUKFranceItaly

Trend for the Past 9 Years

Source: IMF; THE BEIJING AXIS Analysis

GDP Top 6 Economies excl. the US (USD bn, 1980-2008)

THE SIZE OF CHINA’S ECONOMY HAS SEEN ADRAMATIC INCREASE IN THE PAST 10 YEARS

With a fourfold increase since 1998, China is now the third-largest economy after the US and Japan (but it is likely to overtake Japan within 2 years)

China

China

-95-

-4

0

4

8

12

16

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

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


China vs. US, Annual GDP Growth (% y-o-y, 1980-2008)

SINCE 1980, CHINA HAS EXPERIENCED AN ANNUAL AVERAGE GDP GROWTH RATE OF 9.91%

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 2.85% for the same period

-96-

Less than USD2,500 or no data

Brazil

RussiaEurope

JapanUS

India

China

USD25,000 or more USD10,000-USD25,000

USD2,500-USD10,000

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 COMPAREDTO THAT OF OTHER ECONOMIES OF SIMILAR SIZE

In 2008, China’s GDP per capita reached USD3,258

-97-

-5% 2% 7% 9%-4% -2% 0% -7% 2% 2% 8%

-4% 1% -2%-2%8%

-7%3% 8% 4% -1%

9% 17%24%7%

-13%1% -3% 6% 4%

16%18%18%13%

22%24%20%18%19%20%17%

11%15%12%18%

25%

15%22%

26%

8% 17%11%

20%20%

18%17%

26%20%13%12%

18%24%18%

42%

19%22%21%31%23%18%

25%37%29%

21%29%

20%

22%

22%20%

25%23%22%

23%27%

21%

26%

24%21%

34%23%

71%57%57%

36%

63%56%59%57%56%61%49%

55%55%69%

55%47%

67%52%47%

63%61%58%41%

29%

54%

71%

49%62%

47%56%

USA

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

tral

ia

Net

her.

Turk

ey

Bel

gium

Swed

en

Indo

nesi

a

Pola

nd

Switz

er.

Nor

way

S. A

rabi

a

Aus

tria

Gre

ece

Den

mar

k

S. A

fric

a

Iran

Arg

entin

a

Net Export General Government Final Consumption ExpenditureGross Capital Formation Household Consumption Expenditure

GDP Rank2007

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

With gross capital formation at 43% of GDP, China’s investment/GDP ratio is the highest in the world

Note: Nether. = Netherlands; Switzer. = SwitzerlandSource: UN Millennium Indicators; THE BEIJING AXIS Analysis

Composition of GDP - Expenditure Approach (%, 2007)

-98-

1% 2% 1%12%

1% 2% 2% 4% 2%8% 5%

20%

3% 4% 4% 2%11%

1% 1%13%

5% 2% 2% 3% 2% 5% 1% 3%11% 10%

20%25% 29%

48%

26% 21%29% 29% 29%

38%37%

19%41%

26% 26% 24%

29%

24% 28%

46%

31% 34%41%

67%

30% 21% 25%30%

42%36%

79%73% 70%

40%

73% 77%69% 67% 69%

54% 58% 61% 56%71% 70% 74%

59%

75% 71%

41%

64% 65%56%

30%

68%74% 74%

67%

47%55%

0%

50%

100%

USA

Japa

n

Ger

man

y

Chin

a

UK

Fran

ce

Italy

Spai

n

Cana

da

Braz

il

Russ

ia

Indi

a

S. K

orea

Mex

ico

Aus

tral

ia

Net

her.

Turk

ey

Belg

ium

Sw

eden

Indo

nesi

a

Pola

nd

Sw

itzer

.

Nor

way

S. A

rabi

a

Aus

tria

Gre

ece

Denm

ark

S. A

fric

a

Iran

Arge

ntin

a

Primary Industry Secondary Industry Tertiary Industry

Note: Nether. = Netherlands; Switzer. = SwitzerlandSource: CIA World Factbook; World bank; THE BEIJING AXIS Analysis

Share of GDP by Industry (%, 2007)

GDP Rank2007

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

THAT ARE DRIVEN BY THE SERVICES INDUSTRY

-99-

AGENDAForeword

History

Country Profile




Conclusions

Implications


Disclaimer

-100-

World’s Major Exporters (USD bn, 2007)

Note: To make international comparisons, this section utilises China’s export figure from the IMF (USD1,342 bn) instead of the one from MOFCOM (USD1,218 bn), which is used in the China Economic Indicators section


0

500

1,000

1,500

2,000

0 20 40 60 80 100 120 140

USGermany

China

Exports

Exports/GDP

Belgium

Malaysia

Japan

BrazilAustralia Turkey

FranceUK

Italy

SpainRussia

Mexico

S. Korea

Norway

Sweden

Canada

Poland

S. Arabia

AustriaDenmark

Switzerland

Netherlands

Thailand

IrelandCzech Republic

Size of bubble represents

nominal GDP

IN 2007, CHINA WAS THE WORLD’S THIRD-LARGESTEXPORTER AFTER THE US AND GERMANY

In 2007, China exported a total of USD1,342 bn, about 40% of its GDP, leaving a large gap to the next top exporter, Japan, with exports of USD807 bn

-101-

Electrical machinery and equipment

Nuclear reactors, boilers, machinery and mechanical appliancesArticles of apparel and clothing accessories (knitted)Articles of apparel and clothing accessories (not knitted)Iron and steel

Optical, photographic, and cinematographic, measuring equipmentArticles of iron and steel

Furniture, incl. bedding, mattresses and mattress supportsVehicles, other than railway or tramway rolling stock, and partsToys, games and sporting equipment

85

84

61

62

72

90

73

94

87

95

Other 0 100 200 300

ChinaUSA

HK, SARJapan

GermanySingapore

S. KoreaNetherland

FranceUK

ItalyThailandHungarySweden

Czech Rep.Canada

BelgiumFinlandPolandAustria

19.6%9.7%9.5%8.8%8.7%7.1%6.4%3.4%3.1%2.4%2.1%1.7%1.6%1.3%1.3%1.2%1.2%1.2%1.1%1.1%

Total : USD 1,218bn

China’s Top 10 Export Commodities 2007 (HS Code)Top 20 World Exporters of Electrical Machinery (USD bn, 2007)

25%

19%

5%4%3%

2%

31%

3%3%3%3%

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

In 2007, China exported a total of USD300 bn or 19.6% of the world’s total electrical machinery and equipment

As a % of world total

Source: UN Comtrade Database; THE BEIJING AXIS Analysis

-102-

0 100 200 300

GermanyChina

USAJapan

ItalyNetherland

UKFrance

SingaporeHK, SARS. KoreaBelgiumCanadaAustria

ThailandSweden

SwitzerlandCzech Rep.

SpainIreland

14.7%13.9%12.1%

8.5%6.5%4.5%4.3%4.2%3.1%2.7%2.6%2.1%2.0%1.8%1.7%1.6%1.6%1.5%1.3%1.2%

85

84

61

62

72

90

73

94

87

95

Other

China’s Top 10 Export Commodities 2007 (HS Code)Top 20 World Exporters of Power Generation Equipment (USD bn, 2007)


25%

19%

5%4%3%

2%

31%

3%3%3%3%

Total : USD 1,218bn As a % of world total



Optical, photographic and cinematographic, measuring equipmentArticles of iron and steel


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

In 2007, China exported a total of USD228 bn or13.9% of the world’s power generation equipment

-103-

0 20 40 60 80

ChinaHK, SAR

ItalyTurkey

GermanyFrance

BelgiumUK

NetherlandsSpain

PortugalUSA

ThailandDenmark

SingaporeRomania

AustriaGuatemala

S. KoreaGreece

44.8%10.5%

6.0%5.9%4.5%3.0%2.8%1.9%1.8%1.8%1.7%1.5%1.5%1.2%0.9%0.8%0.8%0.7%0.7%0.7%

85

84

61

62

72

90

73

94

87

95

Other

Top 20 World Exporters of Knitted Articles of Apparel (USD bn, 2007)


25%

19%

5%4%3%

2%

31%

3%3%3%3%

Total : USD 1,218bn





China’s Top 10 Export Commodities 2007 (HS Code)

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

In 2007, China exported a total of USD61 bn or 44.8%of the world’s knitted apparel and clothing accessories


-104-

0 20 40 60

ChinaItaly

HK, SARGermany

FranceTurkey

BelgiumSpain

RomaniaUK

NetherlandsDenmark

PolandUSA

ThailandAustria

SwitzerlandPortugalBulgaria

Czech Rep.

85

84

61

62

72

90

73

94

87

95

Other

35.7%10.2%

9.7%6.7%4.5%4.1%3.1%2.7%2.4%2.3%2.1%1.5%1.3%1.2%1.0%0.9%0.9%0.9%0.9%0.7%

Top 20 World Exporters of Un-knitted Articles of Apparel (USD bn, 2007)


25%

19%

5%4%3%

2%

31%

3%3%3%3%

Total : USD 1,218bn






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

In 2007, China exported a total of USD47 bn or 35.7% ofthe world’s non-knitted apparel and clothing accessories


-105-

0 20 40 60

ChinaGermany

JapanBelgium

RussiaFrance

USAItaly

S. KoreaNetherland

UKSweden

SpainTurkeyAustria

S. AfricaFinlandCanada

Czech Rep.Poland

85

84

61

62

72

90

73

94

87

95

Other

11.1%10.0%

8.4%7.2%5.9%5.7%4.8%4.7%4.6%4.1%3.4%2.7%2.7%2.3%2.2%2.1%1.8%1.7%1.3%1.3%

Top 20 World Exporters of Iron and Steel(USD bn, 2007)


25%

19%

5%4%3%

2%

31%

3%3%3%3%

Total : USD 1,218bn






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

In 2007, China exported a total of USD40 bn or 11.1% of the world’s iron and steel


-106-

-400

-200

0

200

400

USA

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

tral

ia

Net

her.

Turk

ey

Bel

gium

Swed

en

Indo

nesi

a

Pola

nd

Switz

er.

Nor

way

S. A

rabi

a

Aus

tria

Gre

ece

Den

mar

k

S. A

fric

a

Iran

Arg

entin

a

Note: To make international comparisons, this section utilises the China trade surplus figure from the IMF (USD307 bn) instead of the one from MOFCOM (USD352 bn), which is used in the rest of this document


As % of GDP -5.1 1.9 7.2 9.4 -3.7 -1.5 -0.2 -6.5 1.8 2.0 8.6 0.0 0.9 -1.6 -1.8 6.9 -5.0 1.8 7.4 4.8 -2.6 10.7 15.7 33.7 5.0 -11 2.1 -3.2 0 5.0

18 5 23 20 -238 -199 -182 -234 7 -205 26 -100 -203 31 -221 7 21 n/a 7 43 5 11 15 16 -217 11 2 -216 -100 -206CAGR %97-07

-700

Trade Surpluses of the World’s Major Economies (USD bn, 2007)

DESPITE NOT BEING THE WORLD’S LARGEST EXPORTER,CHINA HAS THE WORLD’S LARGEST TRADE SURPLUS

In 2007, China’s total trade surplus reached USD307 bn, which is 28% higher than that of Germany, the world’s largest exporter

-107-

World’s Major Importers (USD bn, 2007)

0

700

1,400

2,100

2,800

0 20 40 60 80 100

US

Brazil

Japan

RussiaAustralia

Turkey

FranceUK

China

Italy

Saudi ArabiaNorway

Mexico

CanadaSpain

Germany

PolandSweden

S. Korea

Denmark

SwitzerlandAustria

NetherlandsThailand

Ireland

Czech Republic

BelgiumMalaysia

Size of bubble represents

nominal GDP

Note: To make international comparisons, this section utilises China’s import figure from the IMF (USD1,035 bn) instead of the one from MOFCOM (USD956 bn), which is used in the China Economic Indicators section


Imports

Imports/GDP

IN 2007, CHINA WAS THE WORLD’S THIRD-LARGESTIMPORTER AFTER THE US AND GERMANY

In 2007, China imported a total of USD1,035 bn, about 32% of its GDP

-108-

0 100 200 300

ChinaUSA

HK, SARGermany

SingaporeJapan

UKS. Korea

FranceNetherlan

CanadaItaly

SpainThailandHungary

RussiaBelgium

CzechPoland

Sweden

15.9%15.7%

9.3%7.0%5.1%4.6%3.9%3.6%3.3%3.0%2.4%2.3%2.2%1.7%1.4%1.4%1.3%1.2%1.1%1.1%

85

84

27

90

26

39

29

74

72

87

Other


Nuclear reactors, boilers, machinery and mechanical appliancesMineral fuels, mineral oils and products of their distillationOptical, photographic and cinematographic, measuring equipmentOres, slag and ash

Plastics and articles thereof

Organic chemicals

Copper and articles thereof

Iron and steel

Vehicles other than railway or tramway rolling stock, and parts

27%

13%

11%

7%6%5%4%3%2%2%

20%

Total : USD 956bn

China’s Top 10 Import Commodities 2007 (HS Code)Top 20 World Importers of Electrical Machinery (USD bn, 2007)


CHINA IS THE WORLD’S LARGEST IMPORTER OF ELECTRICAL MACHINERY AND EQUIPMENT In 2007, China imported a total of USD257 bn or 15.9%

of the world’s electrical machinery and equipment


-109-

0 100 200 300

USAGermany

ChinaUK

FranceNetherlands

CanadaJapan

ItalyHK, SAR

SpainSingapore

S. KoreaBelgium

RussiaAustralia

AustriaTurkeyPoland

Sweden

16.9%8.8%8.2%5.5%5.2%3.9%3.9%3.7%3.3%3.0%2.9%2.8%2.6%2.4%2.1%1.6%1.5%1.5%1.5%1.4%

85

84

27

90

26

39

29

74

72

87

Other

Top 20 World Importers of Power Generation Equipment (USD bn, 2007)

27%

13%

11%

7%6%5%4%3%2%2%

20%


China’s Top 10 Import Commodities 2007 (HS Code)




Organic chemicals


Iron and steel


Total : USD 956bn

CHINA IS THE WORLD’S THIRD-LARGEST IMPORTER OF MACHINERY AND MECHANICAL APPLIANCES

In 2007, China imported a total of USD124 bn or 8.2% of the world’s power generation equipment


-110-

0 100 200 300 400

USAJapan

GermanyChina

S. KoreaFrance

NetherlandsItalyUK

SpainSingapore

BelgiumCanadaTurkey

ThailandAustraliaSwedenPolandAustria

S. Africa

22.6%10.5%

6.8%6.4%5.9%5.0%4.1%3.7%3.6%3.5%3.2%2.9%2.1%2.1%1.6%1.2%1.0%1.0%0.9%0.9%

85

84

27

90

26

39

29

74

72

87

Other

Top 20 World Importers of Mineral Fuel and Oil Products (USD bn, 2007)

27%

13%

11%

7%6%5%4%3%2%2%

20%






Organic chemicals


Iron and steel


Total : USD 956bn

CHINA IS THE WORLD’S FOURTH-LARGEST IMPORTER OF MINERAL FUELS, OILS AND PRODUCTS OF THEIR DISTILLATION

In 2007, China imported a total of USD105 bn or 6.4% of the world’s mineral fuel and oil products


-111-

0 20 40 60 80

ChinaUSA

GermanyJapan

FranceUK

NetherlandsS. KoreaHK, SAR

ItalyCanada

BelgiumSingapore

SpainRussia

SwitzerlandAustraliaSwedenPolandAustria

85

84

27

90

26

39

29

74

72

87

Other

19.6%15.5%

7.6%5.9%4.6%4.5%4.0%3.4%3.3%3.1%2.9%2.3%2.1%2.0%1.7%1.5%1.5%1.2%1.1%1.0%

Top 20 World Importers of Optical, Photographic and Cinematographic Equipment (USD bn, 2007)

27%

13%

11%

7%6%5%4%3%2%2%

20%






Organic chemicals


Iron and steel


Total : USD 956bn

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

In 2007, China imported a total of USD70 bn or 19.6% of the world’s optical, photographic, cinematographic, and measuring equipment


-112-

0 20 40 60

ChinaJapan

S. KoreaGermany

SpainUK

BelgiumUSA

FinlandCanada

NetherlandsItaly

FranceBulgaria

AustriaRussia

SwedenChile

PolandTurkey

85

84

27

90

26

39

29

74

72

87

Other

38.2%17.9%

6.6%5.9%3.4%2.8%2.6%2.4%2.2%2.1%1.8%1.8%1.4%1.1%1.0%0.9%0.9%0.8%0.7%0.5%

Top 20 World Importers of Ores, Slag and Ash (USD bn, 2007)

27%

13%

11%

7%6%5%4%3%2%2%

20%




Organic chemicals


Iron and steel


Total : USD 956bn As a % of world total


CHINA IS THE WORLD’S LARGEST IMPORTER OF ORESIn 2007, China imported a total of USD54 bn

or 38.2% of the world’s ore, slag and ash


-113-

AGENDAForeword

History

Country Profile




Conclusions

Implications


Disclaimer

-114-

0 70 140 210 280 350

USAUK

FranceGermany

SpainItaly

JapanCanada

HK, SARLuxembourSwitzerland

BelgiumRussia

SwedenAustria

NetherlandAustralia

B. Virgin Is.China

Ireland

0 50 100 150 200 250

USAUK

FranceCanada

NetherlandsChina

HK, SARSpain

RussiaGermanyBelgium

SwitzerlandItaly

BrazilAustriaIrelandMexico

SaudiSingapore

India

China ranks 6th

China ranks 19th

Top 20 World FDI Outflows (USD bn, 2007)

Note: To make international comparisons, this section utilises China’s FDI figure (USD83.4 bn) and China’s OFDI figure (USD22.4 bn) from the WIR 2008 instead of the MOFCOM figures (USD74.7 bn and USD26.5 bn, respectively) that is used in the China Economic Indicators section

Source: WIR 2008; THE BEIJING AXIS Analysis

Top 20 World FDI Inflows (USD bn, 2007)

IN 2007, CHINA’S FDI INFLOW WAS SUBSTANTIALLY GREATER THAN ITS FDI OUTFLOW

China ranked 6th in the world in 2007 for FDI inflow with USD83 bn,while it ranked only 19th for OFDI with USD22 bn

-115-

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

USAUK

FranceGermanyHK, SAR

NetherlandSpain

SwitzerlanJapan

CanadaItaly

SwedenAustralia

RussiaDenmark

TaiwanB. Virgin Is.Singapore

IrelandNorway

China

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

USAUK

HK, SARFrance

NetherlandsGermany

SpainCanada

ItalyBrazilChina

RussiaAustralia

SwitzerlandMexico

SwedenSingapore

IrelandDenmark

Turkey

Top 20 World FDI Inward Stock (USD bn, 2007) Top 20 World FDI Outward Stock (USD bn, 2007)

China ranks 11th

China ranks 25th… …

CHINA IS THE SECOND-LARGEST ASIAN RECIPIENT OF FDI STOCK

In 2007, China ranked 11th for FDI stock with USD327 bn, while for OFDI it ranked 25th with USD95 bn


-116-

60

40

20

0

20

40

60

80

USA

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

tral

ia

Net

her.

Turk

ey

Bel

gium

Swed

en

Indo

nesi

a

Inward Outward

Note: GFCF = Gross Fixed Capital Formation; Nether. = NetherlandsSource: WIR 2008; THE BEIJING AXIS Analysis

172% 19% 24% 7% 37% 16% 22% 28% 11% 20% 21% 43% 43% 5% 182% -44% 14% 6% 2% 0%

28% 94% -1% -8% -1% 14% 19% 16% 45% 12% 27% 25% -33% 3% 179% 18% 16% -2% 15% -20%

CAGR 2005-2007

Top 20 GDP Countries FDI In/Out Flow as a % of Gross Fixed Capital Formation (%, 2007)CAGR

2005-2007

IN 2007, BOTH CHINA’S FDI INFLOWS AND OUTFLOWS, AS A PERCENTAGE OF GFCF, WERE RELATIVELY SMALL

In 2005-2007, China’s FDI outflows grew faster than its FDI inflows

-117-

160

80

0

80

160

USA

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

tral

ia

Net

her.

Turk

ey

Bel

gium

Swed

en

Indo

nesi

a

Inward Outward

5% 9% 3% 3% 0% 6% 5% 5% 1% 3% 12% 26% 3% 17% 4% 4% 4% n/a 4% 2%

2% 13% 4% -6% 6% 9% 6% 4% 3% 3% 9% 8% 7% 7% 2% 4% 15% n/a 5% -1%

CAGR 2000-2007

CAGR 2000-2007

Note: Nether. = NetherlandsSource: WIR 2008; THE BEIJING AXIS Analysis

Top 20 GDP Countries FDI Stock as a % of GDP (%, 2007)

IN 2007, BOTH CHINA’S INWARD AND OUTWARD FDI STOCKS, AS A PERCENTAGE OF GDP, WERE RELATIVELY SMALL

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

-118-

0 100 200 300 400

USAUK

NetherlandsCanada

GermanySpain

FranceAustraliaBermuda

SwitzerlandItaly

Hong KongRussiaJapan

LuxembourgChina

TurkeySwedenFinland

Denmark

0 100 200 300 400

USAUK

GermanyFranceCanada

ItalyAustralia

SpainSweden

JapanNetherlands

IndiaSwitzerland

SingaporeLuxembourg

MexicoUAE

RussiaSaudi Arabia

Brazil

China

China ranks 16th

China ranks 31st

Value of Cross-Border M&A ‘Purchases’ for World’s Top 20 Countries (USD bn, 2007)

Value of Cross-Border M&A ‘Sales’ for World’s Top 20 Countries (USD bn, 2007)

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

China saw its cross-border M&A ‘purchases’ grow dramatically in 2008. This trend is expected to continue

… …


-119-

Russia

Europe

US

<USD100 bn

>USD500 bn

USD300 bn – USD500 bn

USD100 bn – USD300 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

-120-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) 200

10 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 10

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AGENDAForeword

History

Country Profile




Conclusions

Implications


Disclaimer

-122-

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 USD440 BN

Followed by Germany (USD235 bn) and Japan (USD157 bn)

Spain -154 bn

UK -45 bn

Greece --51 bn

Italy -73 bn

Germany 235 bn

Top 5 Current Account SurplusTop 5 Current Account Deficits

-123-

0

400

800

1,200

1,600

Chi

na

Japa

n

Rus

sia

Indi

a

Taiw

an

S.K

orea

Bra

zil

Sing

apor

e

Hon

g K

ong

Ger

man

y

Fran

ce

Alg

eria

Mal

aysi

a

Italy

Thai

land

Mex

ico

Liby

a

UA

E

Turk

ey

Switz

erla

nd

USA Ira

n

Pola

nd

Nor

way UK

Indo

nesi

a

Nig

eria

Arg

entin

a

Can

ada

Rom

ania

As % of World

1,534

Source: CIA World Book 2008; THE BEIJING AXIS Analysis

Forex and Gold Reserves of World’s Top 30 Countries/Regions (USD bn, 2008)

CHINA HAS THE WORLD’S LARGEST FOREIGN EXCHANGE RESERVES

In 2008, China had 22% of the world’s total forex reserves with USD1,534 bn, which was 61% higher than the second-largest forex reserve holder, Japan

22.9 13.5 7.2 4.3 4.2 3.7 2.7 2.4 2.2 1.7 1.6 1.5 1.5 1.3 1.1 1.1 1.1 1.1 1.1 1.1 1.0 1.0 0.9 0.9 0.8 0.8 0.7 0.7 0.6 0.5

Asia

-124-

0

4,000

8,000

12,000

USA UK

Ger

man

y

Fran

ce

Net

her.

Irela

nd

Japa

n

Switz

er.

Bel

gium

Spai

n

Italy

Aus

tral

ia

Can

ada

Aus

tria

Swed

en HK

Den

mar

k

Nor

way

Port

ugal

Chi

na

Rus

sia

Finl

and

Turk

ey

Bra

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S. K

orea

Mex

ico

Pola

nd

Indi

a

Indo

nesi

a

Arg

entin

a

24.0 20.5 8.8 8.6 4.5 3.6 2.9 2.6 2.6 2.1 2.0 1.6 1.5 1.5 1.2 1.2 1.0 0.9 0.9 0.7 0.7 0.5 0.5 0.4 0.4 0.4 0.3 0.3 0.3 0.3

12,250

Note: Nether. = Netherlands; Switzer. = SwitzerlandSource: CIA World Book 2008; Department of U.S. Treasuries; SAFE; THE BEIJING AXIS Analysis

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

In 2008, China only accounted for 1% of the world’s total external debt with USD375 bn

World’s Top 30 Countries’ External Debt (USD bn, 2007)As % of World

In 2008, the external debt of the US increased to

USD13,642 bn

In 2008, China’s

external debt amounted to USD375 bn

-125-

0

10

20

30

40

Zim

babw

e

Vene

zuel

a

STP

Turk

ey

Gui

nea

Iraq

Para

guay

Ang

ola

Bra

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Cos

ta R

ica

Jord

an

Viet

nam

Sain

t V.

Mac

edon

ia

Guy

ana

Den

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Thai

land

Cze

ch R

ep.

Swed

en

Chi

na

S. K

orea

Mor

occo

Switz

er.

Om

an

Japa

n

… …3.3

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 marketsSTP: Sao Tome and Principe; Antig.: Antigua and Barbuda; Saint V.: Saint Vincent and the Grenadines; Saint K.: Saint Kitts and Nevis; Czech Rep.: Czech Republic; Switzer.: Switzerland


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

In 2007, China’s discount rate stood at 3.33%, comparable to that of Switzerland, Demark and Sweden

Central Bank Discount Rate1 (%, 2007)

Medium rate countries

Low rate countries

-126-

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

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Pola

nd

Sing

apor

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Swed

en

Switz

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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


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

-127-

AGENDAForeword

History

Country Profile




Conclusions

Implications


Disclaimer

-128-

20015010050050100150200

USAJapanChina

GermanyFrance

UKItaly

RussiaSpainBrazil

CanadaIndia

MexicoAustria

S. KoreaNetherlands

TurkeyPoland

BelgiumS. ArabiaSweden

IndonesiaSwitzerland

NorwayAustria

IranGreece

DenmarkArgentina

Venezuela

Male FemaleGDP Rank 2008E Total

309 128

1,336 83 62 61 59

142 45

194 33

1,186 108

8 48 16 76 38 10 25 9

234 8 5 8

72 11 5

40 28

9795

1079695969586979798

1079596

10098

1019396

12299

100959996

103989896

101

690 647

614 573

Population for Top 30 Countries by GDP (mn, 2008)

Male/100 Female

Source: UN Statistics; IMF; 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

-129-Source: IMF; THE BEIJING AXIS Analysis

Child and Elderly Population for Selected Countries (%, 2008)

0

10

20

30

40

50

0 10 20 30 40 50 60 70 80

Iran

India

% Population under 15

% Population aged 60+

Saudi Arabia

IndonesiaTurkey

VenezuelaMexico

Brazil

China

Argentina

S. Korea

Russia

US

Poland

Canada

NetherlandsNorway

Switzerland

UK

DenmarkFrance

AustriaSpain

Belgium

Greece

Sweden

GermanyItaly

Japan

Size of the bubble represents total

population

25% OF CHINA’S POPULATION IS OLDER THAN 60 YEARS

The bulk of the Chinese population is currently at a working age

-130-

Annual Rate of Population Change (%) 2005-2010Urban and Rural Population (%, 2007)

0

Note: Nether. = Netherlands; Switzer. = SwitzerlandSource: CIA World Factbook; World Bank; THE BEIJING AXIS Analysis

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 share of the Chinese urban population remains much smaller than that of other economies of similar size

8266

74

43

9077

6877 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

USA

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

her.

Turk

ey

Bel

gium

Swed

en

Indo

nesi

a

Pola

nd

Switz

er.

Nor

way

S. A

rabi

a

Aus

tria

Gre

ece

Den

mar

k

S. A

fric

a

Iran

Arg

entin

a

Urban Rural

-131-

10080604020020406080100

USAJapanChina

GermanyFrance

UKItaly

RussiaSpainBrazil

CanadaIndia

MexicoAustraliaS. Korea

NetherlandTurkeyPoland

BelgiumS. ArabiaSweden

IndonesiaSwitzerland

NorwayAustria

IranGreece

DenmarkArgentina

Venezuela

Male FemaleGDP Rank 2008E

Life Expectancy (years, 2008)

Source: UN Statistics; IMF; THE BEIJING AXIS Analysis

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

COUNTRY ECONOMIES

-132-

10080604020020406080100

USAJapan

GermanyChina

UKFrance

ItalySpain

CanadaBrazil

RussiaIndia

S. KoreaMexico

AustraliaNetherla

TurkeyBelgiumSweden

IndonesiPoland

SwitzerlNorway

S. ArabiaAustriaGreece

DenmarkS. Africa

IranArgentin

Male FemaleGDP Rank 2007 Total

594851715650394763605734415857572461465060476219524361324753

Adult (15+) Economic Activity Rate (%, 2007)

Source: UN Statistics; THE BEIJING AXIS Analysis

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

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

-133-

0

1

2

3

4

Mex

ico

Slov

ak R

ep.

Pola

nd

Gre

ece

Turk

ey

Indi

a

S. A

fric

aH

unga

ry

Bra

zil

Rus

sia

Italy

N. Z

eala

ndPo

rtug

al

Spai

n

Irela

ndC

hina

Cze

ch R

ep.

Nor

way

Luxe

mbo

urg

Net

herla

nds

UK

Bel

gium

Can

ada

Aus

tral

ia

Fran

ce

Ger

man

yD

enm

ark

Aus

tria

USA

Icel

and

Switz

erla

nds

S. K

orea

Japa

n

Finl

and

Swed

en

2007 or Latest Available Year 1998 or First Available Year

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

1

Source: OECD Factbook 2009; THE BEIJING AXIS Analysis

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

-134-

AGENDAForeword

History

Country Profile



Conclusions

Implications


Disclaimer

-135-

INDICATORS CONCLUSIONS

Selected Macroeconomic Data

China became the world’s 3rd-largest economy in 2008, and has experienced a dramatic fourfold increase in the past 10 years. Since its economic reform, China has been growing at 10%, substantially above the world average of 3.4% for the same 30-year period. China’s vast GDP is largely concentrated in a few coastal provinces and has been boosted by its secondary industry and industrialisation. Compared to other major economies, China’s GDP per capita, consumption expenditure and service industry are still insignificant, providing scope for long term sustained growth

Trade Mirroring the country’s economic growth, China’s consumption and retail sales have been on the rise and are mainly concentrated in the eastern provinces. As the world’s factory floor, China is the world’s third-largest exporter and an undisputed leader in exports of electrical machinery, textiles and steel. Ranked as the world’s third-largest importer, China leads the world in imports of electrical machinery & ores and ranks fourth in oil imports. China has, in addition, the world’s largest trade surplus. With the global financial crisis unfolding in 2008, China’s trade has been significantly affected, causing some concerns. However, it also highlighted the ability of China to fuel its own growth

Investment China has depended heavily on investment for its economic growth, with the bulk of such investment occurring in urban areas, coastal provinces and in the manufacturing and real estate sectors. Although China is widely known as a leading destination for FDI, it is currently experiencing a fast-paced increase in its OFDI, driven by its increasing need for new markets, technology and resources. Many of China’s outward investments are in the natural resources, wholesale, retail, and manufacturing sectors, and are increasingly spanning the globe.

Financial The Chinese government has been putting monetary and fiscal measures in place in order to assure an adequate response to inflationary cycles over the past 10 years. Bank restructuring and more prudent loan management have created a stable financial sector and the country’s two stock markets have become the second largest in the world.Exchange rate reform and management have ensured a consistently stable RMB exchange rate pattern despite ongoing international criticism that the currency is undervalued.

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 growing income levels in urban and rural households are particularities that are currently shaping China’s social landscape. Compared to other economies of similar size, China still has an extremely low urbanisation rate but a relatively high percentage of the population is active in the labour market. The large population offers many opportunities but also endless challenges

CONCLUSIONS

-136-

AGENDAForeword

History

Country Profile



Conclusions

Implications


Disclaimer

-137-

INDICATORS IMPLICATIONS

Selected Macroeconomic Data

Economic forecasts predict China to become the world’s largest economy in the next two decades, surpassing both the US and Japan. Japan will be overtaken in the next 2 years. Following a trend of GDP growth well above the world average, China will replicate the economic development of its coastal provinces in the north, centre and western provinces in the central and western regions. This will result in ongoing trade and investment opportunities. China’s consumption is expected to play an even greater role as an engine for economic growth, and the service industry is expected to fulfill a larger role in China’s economy, while the manufacturing sector is becoming more sophisticated

Trade China’s evolving retail sales trends and data clearly indicate the large potential of its consumption market for domestic as well as international products. As a low cost country, China is expected to further expand its manufacturing base, increase its exports and strengthen the ongoing structural change of its export mix; from low value added (textiles) to high value added products (equipment). As its industrialisation and urbanisation processes continue, it is also likely that China will increase imports of raw materials such as oil and a variety of ores, as well as many manufactured products

Investment As living standards and production costs increase in China’s coastal provinces, more investment opportunities are arising in China’s central provinces - in the manufacturing, real estate and other sectors. While there is still substantial scope to attract FDI in such sectors, China’s most impressive phenomenon in the investment arena is its outward investment trend. Driven by the need to secure resources to feed its fast growing economy and the expansion of its domestic companies, China will continue to increase its outward investments very significantly, creating many implications

Financial Although reform over the past decade has been substantial, China’s financial markets are still under-developed compared to other economies, offering many service sector opportunities to foreign businesses. Expect a more discerning financial services sector consumer and many opportunities. Years of growing exports and FDI have enabled China to attain the position of having the world’s largest foreign exchange reserves, a key stability ‘buffer’

Social China’s emerging middle class and growing income levels, in both urban and rural areas, are not only signs of the potential of the Chinese consumption market but also of a growing pool of suitably qualified professionals who will progressively compete in 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

-138-

AGENDAForeword

History

Country Profile



Conclusions

Implications


Disclaimer

-139-

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 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 and Johannesburg.

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

The CHINA STRATEGY GROUP (CSG) 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 perform strategic business planning and implementation as they develop global businesses.

The CHINA SOURCING UNIT (CSU) supports international firms as they exploit China’s status as a leading global supply base, while at the same time supporting Chinese firms that are looking at global sourcing. The CSU provides a comprehensive range of procurement services across the sphere of supply chain management with a focus on cost savings, quality control and on-time delivery. We emphasise total cost of ownership and holistic project, risk and relationship management.

CHINA CAPITAL ADVISORS (CCA) provides specialised financial advisory services to Chinese firms that are undertaking outbound cross-border investment, or that are vying for international investment. Similarly, we advise international firms that are undertaking investments in China or that are looking to attract strategic capital from China. The focus is on origination activities, but we provide selected execution services across the transaction chain.

-140-

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

Beijing, ChinaCheryl Tang China Strategy Group China Sourcing Unit China Capital AdvisorsDirector & GM: China Javier Cuñat Diana Wang Edward Wang [email protected] Manager Manager Director & GM(T)+86 (0)10 6440 2106 [email protected] [email protected] [email protected] (F)+86 (0)10 6440 2672

Johannesburg, South Africa Moscow, Russia/CIS Perth, Australia Latin America Desk (Beijing)Michele (Mitch) Cosani Lilian Luca, Director: Russia/CIS Jim Hu Javier Cuñat Manager:Johannesburg Office & Group Corporate Office Senior Consultant [email protected] [email protected] [email protected] [email protected](T)+27 (0)11 201 2453

or Jackie LiManager:Business [email protected](T)+27 (0)11 201 2550

-141-

AGENDAForeword

History

Country Profile



Conclusions

Implications


Disclaimer

-142-

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. 2009.

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CHINA IS THE WORLD'S THIRD-LARGEST - The Beijing Axis