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How to Invest in China

Kevin Liu

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Key Judgment: The primary risks are political and civil unrest, caused by rising external challenges to the regime.

China Risks Overview

• Full-blown military conflict is unlikely unless Taiwan moves towards independence

• The threat of Uyghur separatism has declined due to effective counterterrorism measures

• Widening social and economic inequality is at the root of unrest, which is greatest in the central and coastal provinces

• The internal struggle for control of the Communist Party is unlikely to undermine its authority before 2012

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Key Judgment: The Fifth Generation of Chinese leaders will be even more pro-business than their predecessors.

Fifth Generation of Chinese Leadership

• The ‘Harmonious Society’ – China’s peaceful rise based on economic growth

• Promote growth in the western and north-eastern provinces

• Accelerate growth and competitiveness of Chinese multinationals

• Ideologically conservative – hard-line policy on Taiwan and Tibet

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Key Judgment: Chinese multinationals face problems of skills shortages and an unfavourable Western perception.

Chinese Overseas Investment

• Overseas expansion of consumer brands is a growth priority

• Chinese overseas investment is dominated by state-owned companies

• Short of skills in brand marketing and overseas management

• Persistent foreign perception of China as producer of cheap goods

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Key Judgment: Moderate resurgence of bad loans & bankruptcies in the 5-yr outlook is unlikely to cause a full-blown financial crisis.

China’s Financial Landscape

• Growing number of experienced professional managers in the financial sector

• Consolidation of small and regional commercial banks

• Asset management companies absorbing non-performing loans

• Strong state support for Big Five banks

BUT• Likely bankruptcies in industries serving the construction &

auto sectors; conflict between Beijing & local governments over fiscal policy likely to increase

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Key Judgment: China’s primary energy concerns are promoting energy efficiency and security of supply.

Power and Environmental Issues

• China will become a major market for the carbon emissions credits scheme

• Opportunities in clean energy development

• Tougher environmental laws will target foreign companies

• Security of supply: South Asia and South Pacific

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