CChhiinnaa IInndduussttrryy MMoonniittoorr (2011 Second Half Issue)

3rd October 2011

【OVERVIEW】Production and sales keep improving though slower growth expected China sustained fast economic growth with real GDP 9.5% YoY albeit growth somewhat slowed down. End of economic stimulus measures and growing inflation dented private consumption. With the tight monetary policy, equipment investments also showed decelerating growth.

Processing and assembling related was a mixed performance. Supported by strong domestic and export demand, productions of machine tool, computers (including tablets) and mobile phones were good. However, some sectors showed significant deceleration. Automobile production grew just 3% YoY in H1 2011, due to the end of policies preferable to automobile purchase; while monthly construction machinery production units declined over year-ago level.

Production of steel, nonferrous metals and ethylene as raw materials showed modest growth affected by decelerating demand from construction and automobile sectors.

Private consumption related such as retails and food continued to grow as income improved. However, the number of property transactions decreased due to home purchase restrictions and tight monetary policy of the government.

Looking forward, as tight monetary policy and home purchase restrictions executed to curb inflation are unlikely to loosen in the near term, domestic demand growth is expected to be modest. Significant growth in export demand is unlikely under gloomy global economic condition. Nevertheless, as the 12th 5-Year Plan became effective in 2011 and China is getting its new paramount leader next year, equipment investments in infrastructures and strategic industries are expected to brisk. In general, growth in production and sales in major industries could slow down; however, as the growth potential of domestic demand is relatively high, economic condition is expected to show continuous growth.

Table of Contents

Industry Indicator Latest Data Page

Automobile 1. Automobile Production Jul 2011

2. Machine Tool ： Metal Cutting Machines Production Jun 2011

2

Machinery 3. Construction Machinery： Hydraulic Excavator Shipment Jun 2011

Precision Machinery 4. Photocopying and offset printing equipments Jul 2011

3

5. PC Production Jun 2011 Electronics

6. Mobile Phone Production Jun 2011 4

7. Home Appliance: Washing Machine and Air Conditioner Production Jul 2011

Home Appliance 8. Color Television Production Jul 2011

5

Electricity 9. Power Generation Jul 2011

Oil 10. Crude Oil Production / Net Import Jul 2011 6

Petrochemistry 11. Ethylene Production Jul 2011

Steel 12. Steel Prodction Jul 2011 7

Nonferrous Metals 13. Copper / Alluminium Production / Net Import Jul 2011

Food 14. Food Manufacturing Sales, Beer Production, Soft Drink Sales Volumes Jun 2011

8

Apparel 15. Apparel Production and Export Jul 2011

Retail 16. Retail Sales Volumes of Consumer Goods Jul 2011 9

Construction 17. Fixed Asset Investment and Floor Space Started Jul 2011

18. Property Price（Beijing / Shanghai / Guangzhou / Shenzhen） Jul 2011

10

Real Estate 19. Office Rent（Beijing / Shanghai / Guangzhou / Shenzhen） Q2 2011 11

Appendix Macroeconomic Indicators 12

Note: The “FORECAST” period added in this edition is a short-term outlook (about 6 months to 1 year).

This bulletin is issued semi-annually.

1

1. Automobile Production Forecast: Remain high single-digit growth over

year-ago level

0

20

40

60

80

100

120

140

160

180

200

2006 2007 2008 2009 2010 2011-60%

-30%

0%

30%

60%

90%

120%

150%

180%

210%

240%

Commercial Car Production Units: 25.6 (Jul)Passenger Car Production Units: 105.0 (Jul)YoY Grow th (Commercial Car Production): ▲13.3(Jul)YoY Grow th (Passenger Car Production): 6.0 (Jul)

('0,000 units)

Source: China Association of Automobile Manufacturers

Automobile production grew 3% to 9.17 million units. Although domestic demand continued the upward trend, negative effect given by the end of preferential policies on automobile purchase and further tightening of monetary measurers implemented to cool down overheated investment and inflation, drove slower growth. On the other hand, exports grew 50% YoY to 360,000 units as economy of emerging markets, which are the main export destination, was good.

Outlook: Although it is unlikely to grow as much as it experienced in 2009 over 2010, the number of production units is likely to maintain high single-digit and modest growth due to widen customer range as income improves. Competition among automakers is expected to be extreme. Automakers should put efforts to diversify product category by developing vehicles such as low-price vehicles for China market and SUV, etc.; renew existing models; improve used car sales and sales financial. In addition, as there could be new regulations over fuel consumption, automakers may launch hybrid cars and electronic cars as new energy cars. Thus, auto part manufacturers may be required to make correspondent changes.

2. Machine Tool ： Metal Cutting Machines Production

Forecast: Continuous positive growth driven by domestic demand

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2006 2007 2008 2009 2010 2011-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

Production Units: 84,000 (Jun)NC Machine Production Units (Inclusive): 23,000 (Jun)YoY Production Growth: 33.3 (Jun)YoY NC Machine Production Growth: 27.8 (Jun)(units)

Source: CEIC Data Co., Ltd.

Production of metal cutting machines grew 24% YoY in H1 2011 to 404,000units, driven by those with numerical control, which grew rapidly by 40% YoY to 123,000units. This was because main customers, automobile and electronic manufacturers, continued to put investments to increase production capability due to the growing domestic demand. Especially demand for numerically controlled machines remain growing as sectors where high level processing precision is required to produce automobile parts, electronic products and electronic parts, etc., strengthens their production capability. Exports were good as exports in terms of value increased rapidly over year-ago level, despite growth in export units decreased.

Outlook: Production unit of metal cutting machines is expected to remain improving as domestic demand will continue its high-level growing trend. By customer sectors, although production of some assembled products of the electronic sector could be adjusted, demand from both domestic and foreign automobile manufacturers will remain strong. Overall domestic demand for metal cutting machines will likely remain healthy. Production units of machines with numerical control which are used at producing high precision product will most likely remain year-on-year double-digit growth.

2

3. Construction Machinery： Hydraulic Excavator Shipments Forecast: Overall positive got but at slower pace

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2006 2007 2008 2009 2010 2011-50%

0%

50%

100%

150%

200%

250%

300%

350%

400%

Shipments: 9,961(Jun)

YoY Grow th:▲14.6 (Jun)(units)

Note: Shipping units is calculated by domestic production units by members of the association (exports included) Source: China Construction Machinery Association

Hydraulic excavator shipment grew 29% YoY to 125,000units in H1 2011. Although monthly shipment hit the peak in March 2011, recording 43,000units, it declined over year-ago level since May 2011, affected by tight monetary policy and home purchase restrictions aimed to curb over-heated investments. By product type, monthly sales volumes of medium-sized excavators, which are used for infrastructure developments, declined deeply over year-ago level.

Outlook: H2 2011 will likely retain slowing growth; while overall positive growth of hydraulic excavator shipments is expected to be secured. As for high-speed railway sector, although construction projects will possibly be postponed to come up for reviews over safety after the train collision in July 2011, overall performance will be supported by infrastructural projects such as highway and water supply etc., which are included in the 12th 5-Year Plan and become effective in 2012. As leading domestic manufacturers become aggressive, how Japanese and other foreign manufacturers improve their business ground works such as widen sales network through building strong relationships with domestic distributors and employ lease sales etc., would be the key for them to retain or improve sales performance.

4. Photocopying and offset printing equipments Forecast: Growth expected to stay slow

0

100

200

300

400

500

600

700

800

900

1,000

2006 2007 2008 2009 2010 2011-75%

-50%

-25%

0%

25%

50%

75%

100%

125%

150%

175%

Production Units: 561 (Jul)

YoY Grow th: 8.1 (Jul)('000 units)

Note: Data before 2008/Dec- Copy Machines Note: Data since 2009/Jan- Photocopying and offset printing Note: equipments Source: CEIC Data Co., Ltd.

Production of photocopying and offset printing equipments grew 35% YoY to 3.62 million units, driven by growth in exports, which comprises 80~90% of the total, due to recovery of the global economy. Domestic demand also grew firmly as China economy improves. However, Q2 declined over year-ago level affected by machinery-part shortage due to the Great East Japan Earthquake. As multiple technologies for lens, tonner and mechanism elements are required to make photocopying and offset printing equipments, Japanese manufacturers continuously sustained high market share for their technology. However, as counterfeit products such as tonner are distributed over the market, it is not easy for manufacturers to gain profit by selling expendable supplies.

Outlook: Although we expect domestic demand will maintain upward trend as China’s economy continues to grow, as affected by increasing uncertainty over global economy, growth in exports is expected to decelerate. Thus, overall growth in the number of production units will most likely stay slow.

3

5. PC Production (including tablets) Forecast: Continuous growth but deep deceleration

(mil units)2011

H1 H1

137 182 246 109 145

13% 33% 35% 51% 33%

28 34 60 20 37

25% 22% 76% 73% 87%

109 148 186 89 108

25% 36% 26% 46% 21%(YoY Growth)

PC Production

(YoY Growth)

Desktop PC

(YoY Growth)

Laptop PC

201020092008

Note: Tablets are included in production units of PC in China Source: Ministry of Industry and Information Technology of the Source: People’s Republic of China

PC production (including tables) grew 33% to 145 million units in H1 2011. Although production of standard devices such as laptop PC showed slow growth, increasing demand for tablets drove rapid growth over the world. While global production units actually marked a double-digit growth, as boosted by growth in demand for tablets, exports from China, accounts around 70% of the world’s total PC production, grew rapidly by 25% YoY. As economic condition in China was good, domestic shipment supported by sales to local cities and rural regions surpassed the US domestic market and ranked top in the world.

Outlook: As China’s economy will likely continue to grow, PC and tablets will be introduced to regions where rate of ownership is low and new customers will boost domestic demand. On export side, while demand for tablets is expected to grow, growth in demand for standard PC will remain low as demand shifted to tablets and global economy is uncertain. Thus, overall growth of exports may decelerate and PC production growth in terms of unit in 2011 is expected to decelerate to around 10% YoY.

6. Mobile Phone Production Forecast: Double-digit year-on-year growth sustained

(mil units)2011

H1 H1Production 560 619 998 370 505

2% 11% 61% 38% 36%

Exports 533 583 758 330 389

10% 9% 30% 44% 18%

(YoY Growth)

(YoY Growth)

201020092008

0

200

400

600

800

1,000

2006 2007 2008 2009 2010 20110

5

10

15

20

25Mobile Phone Subscribers(LHS): 921 (Jun)Subscriber increased from lastmonth (RHS): 10.4 (Jun)

(mil people) (mil people)

Source: Ministry of Industry and Information Technology of the Source: People’s Republic of China

Supported by rapid growth in domestic demand and increasing exports, mobile phone production grew 36% to 505 million units. Particularly that the number of mobile phone subscribers in China recorded 900 million, growth in domestic demand has contributed such rapid growth. Furthermore, as China accounts over 70% of the global production, increasing demand for smart phones also pushed up export volumes. However, as counterfeit goods, which comprised part of the total exports are further banned by the central governments and regulated at emerging markets as main customers, export units is lowerd to a relatively moderate level.

Outlook: As use of smart phones is to spread over the world, global demand for mobile phones is expected to grow around 10% YoY and upward trend of exports from China will most likely be maintained. Domestic demand will be supported by growing demand for new equipments as the number of new subscribers mainly from small-medium cities along the coast and inland cities remain increasing. Demand for replacement by smart phones will also contribute such growth. Thus, mobile phone production units are expected to maintain year-on-year double-digit growth.

4

7. Home Appliance: Washing Machine and Air Conditioner Production Forecast: Overall positive growth sustained

＜Washing Machine Production＞

0100200300400500600700

2006 2007 2008 2009 2010 2011-20%0%20%40%60%80%100%120%

Production Units: 474 (Jul)YoY Growth: 11.0 (Jul)

('0,000 units)

＜Air Conditioner Production＞

0

500

1,000

1,500

2,000

2006 2007 2008 2009 2010 2011-60%-30%0%30%60%90%120%150%180%

Production Units: 1,329 (Jul)YoY Growth: 28.4 (Jul)

('0,000 units)

Source: CEIC Data Co., Ltd.

Production of home appliances such as washing machine and air conditioner grew rapidly by 15% YoY to 31.34 million units and 40% YoY to 85.29 million units respectively. As for washing machines, apart from being supported by actual demand from residents of small and medium-sized cities, exports also showed a double-digit growth. This is the same case for air conditioners. Production growth recorded the highest level ever as domestic demand grew and export increased by 19% YoY due to the heat wave over the world and model replacement by inverter models.

Outlook: Although growth will likely decrease rapidly, production units of home appliance are expected to sustain upward trend. On export side, overall growth is expected to decelerate affected uncertainty over global economy. As for domestic demand, as the Chinese government maintains cooling stance on over-heated economy, we do not expect home appliance production to show significant growth with the number of new housing transactions. In addition, due to the “Home appliances going to the countryside” project as government funded projects will come to an end by 2012, domestic demand will unlikely grow meaningfully. Thus, production of home appliances will move upward along with continuously improving China economy, amid decelerating growth.

8. Color Television Production Forecast: Stay single-digit growth over year-ago level

0

300

600

900

1,200

1,500

2006 2007 2008 2009 2010 2011-50%

0%

50%

100%

150%

200%

Production Units: 932 (Jul)YoY Grow th: 12.4 (Jul)('0,000 units)

Source: CEIC Data Co., Ltd.

Production of color television decreased 5% YoY to 50 million units in H1 2011. Exports, which account for over 50% of the total, declined 4% YoY affected by piled-up inventory in main exporting markets such as the US. As for domestic demand, there was double-digit growth over the year due to improved income and government measures persuading replacement of televisions. However, it took longer to decrease inventory level being piled up in late 2010. Thus, such growth in demand could not push up overall production.

Outlook: Production growth of color television will likely stay at single-digit level. Demand from emerging markets will continue to grow; while developed markets being affected by sluggish economy condition and still-high inventory level, demand will decelerate. Thus, we do not expect growth in exports. In addition, domestic demand is expected to grow around 10% YoY as government-funded projects such as “Home appliances going to the countryside” may come to an end. Although some domestic manufacturers tried to produce flat screens, which are the main components of flat-screen televisions, on their own, proportion of those sourced outside is still high. Thus, domestic manufacturers face difficulties to maintain profitability.

5

9. Power Generation Forecast : Tight power supply expected to remain

0

50

100

150

200

250

300

350

400

450

2006 2007 2008 2009 2010 2011-20

-10

0

10

20

30

40

50

60

70(%)

Nuclear Pow er: 7.8 (Jul)Thermal Pow er: 339.2 (Jul)Hydaulic Pow er: 69.8 (Jul)YoY Pow er Generation Grow th: 9.1 (Aug)(bil kWh)

Source: CEIC Data Co., Ltd.

Total power generation grew 13.5% YoY to 2.22trillion kWh. By methods, nuclear-generated power grew significantly by 24.2% YoY. Average power consumption over the nation grew 12.2% YoY and growth in power consumption over middle and western areas where energy-consuming industries such as construction material, metallic and chemical industries are concentrated was even significant. On the other hand, overall power-generation capacity grew just 10.5%, marking the slowest growth since 2006 and led to tight power supply. As for profitability of electric companies, despite thermal coal cost is increasing, price increment is restricted to the fewest by the government curb inflation. Thus, many thermal power companies recorded operation lost.

Outlook: Domestic demand is expected to have decelerating growth, reflecting slowing economic growth due to tight monetary measure. As power consumption will start its traditional decline over the second half of the year, power shortage is expected to ease slightly; while tight power supply condition is likely to remain. On the other hand, electric price of areas with serious power shortage is raised and thermal coal price growth is expected to slow, profitability of electric companies may improve.

10. Crude Oil Production / Net Import Forecast: Slower growth in demand but growth in import expected

0

5

10

15

20

25

30

35

40

45

2006 2007 2008 2009 2010 2011

(mil tons)

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

Net Import (3-months MA): 20.1 (Jul)Production (3-months MA): 17.3 (Jul)YoY Apparent Consumption Grow th: 2% (Jul)

Source: CEIC Data Co., Ltd.

Production of crude oil grew 3.7% YoY to 103 million tons in H1 2011. However, degree of dependence on imports of crude oil, which was already over 50%, further increased as demand also grew 5.4% YoY. Growth in demand for crude oil is mainly affected by growth in the number of cars owned. As the government stopped preferential policies on automobile purchase, growth of automobile sales volume decelerated and hence we saw decreasing growth in demand for crude oil. Crude oil price though has remained high due to politic uncertainty over North Africa and Middle-East, is somewhat dented by the gloomy global economy.

Outlook: Growth in demand for crude oil is expected to decelerate further. However, given negative effects that part of the crude oil productions is stopped due to the oil spill at the offshore oil field owned by CNOOC (China National Offshore Oil Corporation) and ConocoPhillips, domestic production will definitely fall. Thus, imports of crude oil are expected to accelerate. Nevertheless, as OPEC raised their production level, market supply will be eased and therefore we expect little price growth. As a result, profitability of petroleum refining companies, which rely much on importing crude oil, may gradually improve.

6

11. Ethylene Production Forecast: Production continues to improve amid

slower growth

0

500

1,000

1,500

2,000

2,500

2006 2007 2008 2009 2010 2011-15

0

15

30

45

60

Ethylene: 1,300 (Jul)Import of Plastics in Primary Forms: 1,810 (Jul)YoY Synthetic Resin Production Grow th:5.5 (Aug)

(tousand tons) (%)

Source: CEIC Data Co., Ltd.

Ethylene production grew 29.5% YoY to 7.8 million tons in H1 2011. However, imports of plastic in primary forms retreated 7.2% YoY to 11.1 million tons. Although overall demand for plastics is slowing, reflecting decelerating growth in downstream customer sectors such as home appliance and construction materials, domestic productions showed solid growth as import of plastics in primary forms decreased. Affected by decelerating demand, price of plastic raw material moved downward, despite rise in crude oil price.

Outlook: Ethylene production is expected to show solid growth. This is because demand will continuously be driven by food and beverage industry and will be supported by construction of subsidized housing. However, unlike 2009-2010, no large-scale equipments will be put into operation, production growth will decelerate. Import is expected to remain as the major source of plastic raw material supply. Rise in crude oil price is forecasted to be little. Product price will grow due to recovering demand. Thus, we expect profitability of manufacturers to improve slightly.

12.Steel Production Forecast: Production increases, but challenges remain

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2006 2007 2008 2009 2010 2011-40%

-20%

0%

20%

40%

60%

80%

100%

120%

Output of Steel Products: 7,572 (Jul)

YoY Output Export Grow th: 11.9 (Jul)Export of Steel Products: 444 (Jul)('0,000 tons)

Source: CEIC Data Co., Ltd.

Steel production grew 12.8% YoY to 440 million tons in H1 2011. Domestic demand, which comprised most of the total demand, grew at a slower pace as demand for automobiles gloomed after the economic stimulus measures are stopped. In addition, exports grew just 3.2% YoY due to sluggish recovery of the global economy. Thus, steel production growth decreased. On the other hand, as supply capacity remained to increase, steel manufacturers are unable to reflect rising raw-material and energy cost to their selling price. Thus, profitability remained poor.

Outlook: Steel production is expected to show positive but slower year-on-year growth. Although there are positive effects given by government projects such as subsidized housing and irrigation construction, existing negative effects given by slow growth at main customer sectors such as automobile, shipbuilding and machine tool, will weigh on growth pace of steel production. On supply side, even government-initiated retirement of decrepit facilities go on progress, supply capacity is unlikely to drop meaningfully as leading companies keep investing to enhance their competitiveness. With ongoing excessive supply and difficulties to reflect rise in production cost driven by rising raw-material and energy price to selling price, we see little possibility for profitability to recover.

7

13. Copper / Alluminium Production / Net Import Forecast: Continuously modest growth in demand

and production

＜Copper＞

0

200

400

600

800

2006 2007 2008 2009 2010 20110

20

40

60

80

Shanghai Future Exchange (3rd M) Settlement Price (RHS)

Production

Net Import

(thousand tons) (RMB thousand/ ton)

＜Aluminium＞

-500

0

500

1,000

1,500

2,000

2006 2007 2008 2009 2010 20110

5

10

15

20

25(RMB thousand/ ton)

Production

Net Import

Net Export

(thousand tons)

Source: CEIC Data Co., Ltd.

Production of 10 nonferrous metals grew 7.3% YoY to 16.6 million tons, dropping deeply from the average 13.8% growth experienced over the 11th 5-Year Plan.

<Copper> Being the top copper-consuming country, China relies on imports as domestic production fail to satisfy its demand (up accumulation-storage included). Refined-copper domestic production grew firmly in H1 2011(2.4 million tons, up 10.3% YoY) but imports dropped 33.6%, affected by slower growth in customer sectors such as home appliance, automobile and construction, etc. Production growth in H2 will likely remain high as demand will show modest growth supported by infrastructural investment growth, etc.

<Aluminium> China is the top aluminium production, consuming and export country. Electric-shortage shutdown in west area dented domestic production to just 3.3% YoY growth (8.6 million tons). Demand is growing firmly and industrial production is expanding moderately. Subsidized housing construction and infrastructure project will recover. Thus, demand is expected to increase, amid slower growing pace.

<Price> Uncertain global economy dented nonferrous metal price, which has remained at high level until August. As supported by firm demand in China, we do not expect overall demand to collapse. Restricted supply and high raw-material and energy price will limit price fall.

14. Food Manufacturing Sales / Beer Production / Soft Drink Sales Volumes Forecast: Solid growth remained

2008 2009 2010 2011/1H

Food Sales Vol. 746.4 886.5 1,011.9* 629.9

(RMB bil) YoY Growth 62% 19% 28% 21%*

Beer Production Vol. 40.9 43.3 45.1 23.4

(RMB bil) YoY Growth 5% 6% 4% 10%

Soft Drink Sales Vol. 63.1 79.8 97.9 57.0

('00,000 tons) YoY Growth 50% 26% 23% 31%

Note: Sales volumes of the food industry in 2010 are the cumulative figure from January to November and are compared with the same period of previous year. Sales volumes of food industry in H1 2011 are the cumulative total from January to June; while growth rate in H1 2011 is calculated by cumulative total from January to May in 2011 and the same period in 2010 as data of H1 2010 does not exist.

Source: CEIC Data Co., Ltd., National Bureau of Statistics China

Food manufacturing sales volumes (food processing industry of soft drinks and tobacco excluded) grew to RMB630 billion. (YoY growth from January over May is 21%) With continuous income improvement, in additional to concerns over health and taste diversity, growth in soft drink sector accelerated from 23% to 31% over previous year. Beer production, though beer demand was sluggish last year affected by cooler-summer, also recorded as much as 10%’s growth, producing 23.4 billion liters. Many food and beverage manufacturers raised product price to balance soaring raw-material price.

Outlook: Sales of food and beverages are expected to grow firmly as per capita consumption of soft drink is still low and individual disposable income increased due to income tax reform effective from September 2011, as well as increasing consumption diversity. Growth in sales volumes of juice is expected to continuously surpass that of carbonated drinks, reflecting increasing concerns over health. As beer may penetrate to local cities, in addition to strengthening production capability of manufacturers, we expect further growth in total beer productions. However, to avoid hurting sales volumes, manufacturers would find difficulties in reflecting rising barley cost to selling price. Consequently, profitability will likely be squeezed.

8

15. Apparel Production and Export Forecast: Positive growth to be sustained by

domestic demand

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

2006 2007 2008 2009 2010 2011

YoY Apparel Production Grow th: ▲9.9 (Jul)YoY Export Vol. Grow th: 25.8 (Jun)

Source: CEIC Data Co., Ltd., National Bureau of Statistics China

Apparel production showed little but negative growth, declined by 0.3% YoY in H1 2011 as raw-material price remained high; orders were hold by customers as future economy was uncertain; production of some companies are affected by electric shortage during summer; western companies began to shift orders to ASEAN countries, etc. Exports in value grew 24% YoY while exports in terms of unit decrease. Such growth in value was mainly brought by rise in export price due to rising raw-materials and other cost.

Outlook: Production for US and EU market is expected to decrease due to uncertainty over their economy. However, as domestic sales will continue to grow, overall production will be supported by domestic demand and is expected to sustain positive growth. Exports in value will grow as price will be raised along with rising cost. However, growth is expected to slow as orders from foreign companies will continuously be shifted to ASEAN. For apparel manufacturers whose business were supported by exports, will possibly step into production-base change. They may also be required to add values to their products by improving product quality, enhancing product branding image, etc.

16. Retail Sales Volumes of Consumer Goods Forecast: Descending growth in private Forecast: consumption

0

300

600

900

1,200

1,500

1,800

2006 2007 2008 2009 2010 20110%

5%

10%

15%

20%

25%

30%

Retail Sales Vol.: 1,441 (Jul)YoY Grow th: 17.2 (Jul)Adjusted YoY Grow th: 10.5 (Jul)(RMB bil)

Note: Adjusted year-on-year comparison: growth adjusted for price change Source: CEIC Data Co., Ltd., National Bureau of Statistics China

Driven by improving urban household income and rural cash income, retail sales volume of consumer goods grew 17.7% to RMB8.55 trillion. Growth slowed down as soaring inflation eroded consumer sentiments, with those low-mid income consumers mostly affected. Growth of automobile and property sales slowed down as government stopped preferential policies on automobiles purchase and continuously implemented cooling measures on real estate sector. Nevertheless, catering and jewelry sales still recorded robust growth.

Outlook: Although overall retail sales volume of consumer goods will improve, growth is expected to slow and show mixed performance among different product types. CPI reached 6.5% in July, recording the highest over past 3years, and whole year CPI growth is expected to be above 5% for 2011. Consequently, despite income tax reform will relieve tax burden of low-mid income population, such high inflation is still a key factor to dent consumer consumption enthusiasm. We expect sales in food and beverage as daily necessity and jewelry as inflation hedging asset to retain growth; while growth of durable consumer goods such as home appliances, furniture and automobiles to weaken.

9

17. Fixed Asset Investment and Floor Space Started Forecast: Solid growth in construction demand

-10%

0%

10%

20%

30%

40%

50%

60%

2006 2007 2008 2009 2010 2011

YoY FAI Grow th (3-months MA): 23% (Jul)YoY Construction FAI Grow th (3-months MA): 33% (Jul)YoY Real-Estate FAI Grow th (3-months MA): 34% (Jul)YoY Infrastructure FAI Grow th (3-months MA): 05 (Jul)

-40%

0%

40%

80%

120%

2006 2007 2008 2009 2010 2011

YoY Grow th of Commodity Bldg Floor Space Started (3-months MA): 25% (Jul)

Note: Infrastructure related figures are the total of utilities, transport and environment Source: CEIC Data Co., Ltd.

Growth of fixed asset investment on infrastructure decelerated after recording its highest level in June 2009 and flatted year-ago level in July 2011. This was because the RMB4 trillion stimulus measures started in 2008 nearly came to an end and tight monetary policy discouraged local governments from investing infrastructure construction. Nevertheless, real estate FAI maintained its fast growth recording 34%’s growth in July 2011. Growth of new floor space fell sharply in the second half of 2010 when the central government started to implement home purchase restrictions but rebounded in H1 2011 as developers still have a positive outlook on China’s property sector.

Outlook: Construction demand is expected to show solid growth, driven by the 12th 5-Year Plan for construction sector which is anticipated grow 15% annually over the next 5 years. Construction demand is mainly from water infrastructure construction, especially in western areas like Xinjiang and Tibet; public transportation construction including highways, railways and urban subways; subsidized housing projects targeting 36 million units. We expect construction demand to grow firmly as infrastructure demand will gradually recover and subsidized housing projects which government is putting great effort will continue to generate stable demand for construction.

18. Property Price (Beijing / Shanghai / Guangzhou / Shenzhen) Forecast: Property price to adjust further

50

75

100

125

150

2006 2007 2008 2009 2010 2011

Beijing: 134 (Jul 2011) Shanghai: 120 (Jul 2011)

Guangzhou:124 (Jul 2011) Shenzhen: 131 (Jul 2011)

(Dec 2007=100)

Source: CREIS

Property price remained high, despite several stringent policies being implemented on the residential sector. Price in Beijing, Shanghai, Guangzhou and Shenzhen grew 1.8%, 1.9%, 3.5% and 3.5% respectively in June 2011 compared to the end of 2010. Government maintained tightening stance on monetary policy to curb high inflation and soaring property price. Under such condition, home buyers remain their wait-and-see attitude while developers are unwilling to lower residential prices. As a result, transaction volume shrunk.

Outlook: Property price is expected to turn downward. This is because given prices are still high, rather than seeing policy relaxation in near term, we expect home purchase restrictions to be executed strictly in the first-tier cities, and more sub-urban cities to be included. Construction of subsidized housing units will to some extent ease the contradiction between supply and demand. As developers are facing increasing funding pressure due to shrinking transaction volumes, some will be more willing to offer discounts to obtain cash. Thus, prices, most likely in major cities, are expected to drop.

10

19. Office Rent (Beijing / Shanghai / Guangzhou / Shenzhen) Forecast: Remain positive but slower growth

80

90

100

110

120

130

140

150

160

2008 2009 2010 2011

Beijing: 152.5 (11/2Q)Shanghai: 101.1 (11/2Q)Guangzhou: 108.9 (11/2Q)Shenzhen: 123.7 (11/2Q)(Q4 2007=100)

Source: CBRE

Office rents showed rapid growth through H1 2011 in the 4 major cities. In specific, office rent in Beijing, Shanghai, Guangzhou and Shenzhen went up 29.7%, 11.5%, 11.5% and 12.5% respectively compared to H2 2010. Office rental growth is supported by healthy economic condition and demand from foreign companies who regard Asia, especially China, as emerging markets and were seeking for expansion, amid sluggish growth in the US and Europe. Above all, the noticeable growth in Beijing was mainly due to growing occupier demand and tight supply.

Outlook: Office rent will most likely remain upward trend. As China economy is growing healthily, employers are looking at further headcount growth, pointing to a potentially rising demand for office space. We expect office rents in Beijing to retain the fastest growth as supply is still tight over the next 1-2 years. In other cities, growth might slow down with more office space comes into the market in the rest of the year. Although we do not expect the uncertain global economy to immediately affect China’s condition, we remain cautious on China’s office market, which is mainly supported by foreign companies.

11

Appendix: Macroeconomic Indicators

07 08 09 10 10/3Q 10/4Q 11/1Q 11/2Q

9.6 9.8 9.7 9.5

10.6 10.3 9.7 9.6

18.5 12.9 11.0 15.7 16.3 15.7 14.4 14.3

24.8 25.5 30.1 23.8 24.0 23.8

(Urban Area)(％)4.8 5.9 ▲0.7 3.3 3.5 4.7 5.1 5.7

2,643 2,981 1,957 1,827 649 617 ▲17 466

Export Growth (％) 26.0 17.2 ▲16.0 31.3 32.2 24.9 26.4 22.1

Import Growth (％) 20.8 18.5 ▲11.2 38.7 27.3 29.8 32.8 23.1

(No. of Contract)Growth (％) ▲8.7 ▲27.3 ▲14.9 16.9 17.5 16.9 8.8 7.8

835 1,083 941 1,057 743 1,057 303 609

Growth (％) 14.9 29.7 ▲13.2 12.4 16.6 12.4 29.2 18.4

(No. of Contract)Growth (％) ▲23.8 ▲27.2 ▲11.3 38.2 36.6 38.2 29.1 20.8

36 37 41 41 18 41 18 35

Growth (％) ▲21.9 1.8 12.4 ▲0.5 ▲44.7 ▲0.5 77.9 71.1

15,282 19,460 23,992 28,473 26,483 28,473 30,447 31,975

5,521.5 1,911.8 3,437.4 2,940.2 2,782.0 2,940.2 3,065.9 2,893.5

7.607 6.950 6.832 6.768 6.769 6.712 6.582 6.499

15.48 14.88 13.70 12.96 12.67 12.40 12.49 12.55

1,235 1,762 452 9061,974 1,438 1,275 1,762

19,209 27,406 5,937 13,46237,888 27,537 23,442 27,406

24.5 24.5 24.5 24.525.8 25.8 25.8 25.8

discontinued

Exchange Rate (RMB/USD)

Exchange Rage(JPY/RMB)

FDI from Japan (USD'00 mil)

Foreign Reserve (USD'00 mil)

FDI from Japan

Stock Market (SSE A)

Trade Balance (USD'00 mil)

Foreign Direct Investment

Foreign Direct Investment (USD'00 mil)

Real GDP (％)

Industrial Production (％)

Fixed Assets Inv. (Overall) (％)

Consumer Price Index (％)

(Upper:Figure of each quater,Lower:Year-to-date Figure)

Fixed Assets Inv.

10.314.2 9.6 9.2

Note: % means a year-on-year growth rate. The number of direct investments is counted on contract base while direct investments are counted by utilized amount. The quarterly figures of tined area are cumulative total of the year while the others are figures of the quarter. Foreign exchange reserves and stock value are figures at term-end. Exchange rate is the average rate of the given period. Source: CEIC Data Co., Ltd., National Bureau of Statistics of China, General Administration of Customs of the PRC, MOFTEC,

Bloomberg.

12

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This report is intended only for information purposes and is not intended to constitute an offer or solicitation to buy or sell securities or any other products. Contents of the report are information as at 1st Oct 2011 and are subject to change without notice. This report has not been prepared to provide legal, taxational, financial, market-judgmental, or any other advises on propriety of any transactions. In taking any action, each reader is requested to act on the basis of his or her own judgment upon consulting certified lawyers, accountants or other professionals regarding the accuracy, validity and reliability of information appeared in this report. Bank of Tokyo-Mitsubishi UFJ is regulated by the Financial Services Authority. Copyright © The Bank of Tokyo-Mitsubishi UFJ, Limited 2011 No part of this publication may be reproduced, stored in a retrieval system or transmitted without the prior written permission of The Bank of Tokyo-Mitsubishi UFJ Limited. Publisher: The Bank of Tokyo-Mitsubishi UFJ, Ltd. Corporate Research Division (Hong Kong)

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Tomoo Nishina（仁科 知夫） （852）2249 -3030 Tomoo_Nishina@hk.mufg.jp Bee Yen Ooi（黄 美艶） 3028 Bee_Yen_Ooi@hk.mufg.jp Yusuke Yamauchi（山内 佑介） 3033 Yuusuke_Yamauchi@hk.mufg.jp Tomoko Matsuura（松浦 知子） 3031 Tomoko_Matsuura@hk.mufg.jpWith the cooperation of Bank of Tokyo-Mitsubishi UFJ(China),Ltd. Corporate Planning Division, Corporate Research Team Tsunenobu Yoshida（吉田 常誠） （86）21-6888 -1666 （Ext. 5050） Guo Qingqing（郭 擎晴） 1666 （Ext. 5363）

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