HUNTER, CONSTANCE June 1310

ALADDIN CAPITAL MANAGEMENT LLC6 Landmark Square, Stamford, CT 06901 / Phone: (203) 487-6700 /

Fax: (203) 487-6720

China in 2010Constance L. Hunter

Chief [email protected]

June 2010

mailto:[email protected]

• China’s economic weight is growing and along with it the linkages to the global economy are increasing

• China is still a centrally directed economy

• China’s trade with the rest of the world is becoming two-way

• Can China’s policies impact the rest of the world?

2ALADDIN CAPITAL MANAGEMENT LLC

Overview

• Slower GDP is still above 9% per year

• Compared to 2000 at 7% , China is now 13% of global GDP

• China’s stimulus helped the global economy in 2009

• Recent wage increases (30% at Foxconn) bode well for domestic demand

• Will China export inflation or deflation to the global economy?

• If China has economic problems will they spread to the world?


China’s Recent Economic History


China: Key Economic Measures(1)

2006 2007 2008 2009 2010*

GDP (SA Real) 11.7% 13.0% 9.0% 9.4% 10.8%

CPI (SAS) 1.8% 4.8% 6.0% -0.7% 2.5%

Industrial Production 14.7% 17.4% 5.7% 18.5% 22.0%

*Estimates(1) Source: Bloomberg, IMF Data - GDP Based on PPP Valuation of GDP Current Dollar.





China GDP (Real, constant, chained GDP)

China Required Reserve RatioChina CPI y/y%

1009080706050403020100

Sources: CNBSH, PBC/CM /Haver

14

12

10

8

6

75

50

25

0

-25


7

China’s economic weight is growing and along with it the linkages to the global economy are increasing

ALADDIN CAPITAL MANAGEMENT LLC

China in the World(1)

2000 2007 2008 2009 2010* 2015*

China (% of World GDP) 7% 11% 11% 13% 13% 17%

CE Europe (% of World GDP) 3% 4% 4% 4% 3% 3%

Euro Area (% of World GDP) 18% 16% 16% 15% 15% 13%

United States (% of World GDP) 24% 21% 21% 20% 20% 18%

*Estimates(1) Source: Bloomberg, IMF Data - GDP Based on PPP Valuation of GDP Current Dollar.

8

Command Economics VS Market Economics


China is still a centrally directed economy


China: Investment in Fixed Assets {cumulative}NSA, 100 Mil.Yuan

0908070605040302010099Source: China National Bureau of Statistics /Haver Analytics

200000

160000

120000

80000

40000

0

200000

160000

120000

80000

40000

0

China is still a centrally directed economy

Export Composition (Past 12 Months) Import Composition (Past 12 Months)

Source: UBS, June 7, 2010

Chemicals & Related Products,

5%

Machinery & Transport

Equipment, 50%Misc. Mfg. Articles,

24%

Manufactured Goods, 15%

Others, 3%

Food and Live Animals, 3%

Crude Material, Inedible, Except

Fuel, 15%

Mineral Fuels, Lubricants & Material, 13%

Chemicals & Related Products, 11%

Manufactured Goods, 10%

Machinery and Transport

Equipment, 40%

Misc. Manufactured Articles, 8%

Others, 3%


China’s trade with the rest of the world is becoming two-way

11

China’s Imports fell in 08 but have more than recovered


CN: Imports: EU

USD Mn

0908070605040302010099Source: China General Administration of Customs/SAFE /Haver Analytics

15000

12500

10000

7500

5000

2500

0

15000

12500

10000

7500

5000

2500

0



CN: Exports: EU

USD Mn


30000

25000

20000

15000

10000

5000

0

30000

25000

20000

15000

10000

5000

0

While China’s exports to Europe have recovered only somewhat


13

Mineral Product exports to Europe are still at 2005 levels


CN: Exports hs: EU: Mineral Products {MP}

USD Mn


500

400

300

200

100

0

500

400

300

200

100

0


14

While China’s imports from Europe are


CN: Imports hs: EU: Mineral Products {MP}

USD Mn


240

200

160

120

80

40

0

240

200

160

120

80

40

0


• China is the only country left with fire power

• China’s weight in global economy will continue to increase

• Policy mistakes are quite possible

• Will the China model prove most successful? For controlling growthrates it is possible, but for total quality of life and quality of productswe think not

• Watch the reserve requirements, Industrial Production, Sales fromGOME, Parkson and other retailers


Conclusion

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HUNTER, CONSTANCE June 1310