The China Compass August 2012 (1)

www.thebeijingaxis.com

The China Compass – August 2012

Figures, Forecast and Analysis

China-focused

International Advisory and Procurement

The Beijing Axis 1

Disclaimer

This document is issued by The Beijing Axis. While all reasonable care has been taken in the preparation of 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 contained here has been compiled from sources believed to be reliable. While every effort has been made to ensure that the information is correct and that the views are accurate, The Beijing Axis 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, and/or a connected company may have a position in any of the investments mentioned in this document. All concerned are advised to form their own

independent judgement with respect to any matter contained in this document.

The Beijing Axis 4 The Beijing Axis 4

Agenda

1. Foreword

2. What’s New: China Moves Towards Growth Moderation and Sustainability

3. China Economic Indicators

4. International Comparison

5. Conclusions and Implications

6. About The Beijing Axis

The Beijing Axis 5

Foreword

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. 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. 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.

At present, the developed world has been unable to escape from a self-induced sovereign debt crisis, which has fuelled speculation as to whether China’s economy is headed for a ‘soft’ or ‘hard’ landing. While China's GDP growth has subsequently slowed to 9.2% in 2011 and 7.8% y-o-y in H1 2012, fears of ‘hard’ landing seem overblown. Even growth of 7.6% in the second quarter fits with our core view that China’s annual growth rate for 2012 is still expected to be around 8%. As China attempts to rebalance its economy towards a more sustainable growth pattern that puts a greater emphasis on domestic consumption and shelter the economy from the global slowdown, we expect many cyclical and structural changes and volatility. However, we still do not foresee a hard landing.

In this August 2012 edition, we provide the latest macroeconomic data available for a wide range of indicators, for China as well as for other major world economies, and include a new section titled ‘What’s New: China Moves Towards Growth Moderation and Sustainability’. We trust that this edition will be useful for those that are in the midst of planning, and that it will shed light on past developments and future prospects of a uniquely Chinese story of human development.

As always, we welcome all feedback.

Kobus van der Wath

Founder & Group Managing Director, The Beijing Axis

[email protected]

The Beijing Axis 6

Snapshot of key economic indicators for the second quarter

Selected Q2 2012 Economic Indicators

*Note: CPI and PPI growth are based on H1 figures

Source: The Beijing Axis Analysis

Economic Indicator Y-o-Y Growth Q-o-Q Growth

GDP 7.6% 1.8%

Exports 10.5% 22.0%

Imports 6.4% 6.2%

Retail Sales 13.3% -0.8%

CPI* 3.3% N/A

PPI* -0.6% N/A

Monthly Loans 24.4% -2.6%

Urban Fixed Asset Investment 20.8% 114.9%

The Beijing Axis 7

With a GDP of USD 7.3 tn, China now accounts for more than one-tenth of the world economy

Source: IMF; UNCTAD Statistics; China Statistical Yearbook; The Beijing Axis Analysis

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

World GDP2011

World GDP2011

DevelopingCountries GDP

2011

China GDP2011

China GDP2011

China GDP2011

China GDP2011

China GDP2011

Brazil UK

Russia Canada

France

Others

Italy

Germany

Henan Zhejiang

Hebei Liaoning

Hunan

Sichuan Shanghai

Others

Developed

Countries

Japan

Southwest

China Tertiary

Industry

China

US China

China

South

China

Eastern

China

Secondary

Industry

Primary

Industry

USD 70 tn USD 70 tn USD 25 tn USD 7.3 tn USD 7.3 tn USD 7.3 tn USD 7.3 tn

Developing Asia

(excl. China)

Developing

Countries (excl.

China)

China

Northeast

China

USD 7.3 tn

North China

Northwest

China Other

Developing

Countries

Shandong

Jiangsu

Guangdong

Gross Capital

Formation

Final Consumption

Expenditure

(Household +

Government)

Net Exports

The Beijing Axis 8

20,337

19,634

25,807

4,280

4,486

2,259

0

5

10

0% 5% 10% 15% 20% 25% 30% 35% 40%

Asia-Pacific

North America

Europe

Emerging economies are outperforming the developed world in terms of economic growth. The Asia-Pacific region is expected to account for one-third of world GDP by 2015

Regional GDP Comparison (2015F)

South America Africa

Other Asia

A bubble this size represents

GDP = USD 1,000 bn

Developed economies

are expected to

continue to lose share

in world GDP in the

coming years

Asia-Pacific is expected to account

for the largest share of world GDP

(34%) by 2015F

2011 to 2015F

GDP Average Growth Rate (%, 2011-2015F)

Forecast

world average

GDP growth

until 2015F:

3.95%

% of World GDP (2015F)

Shaded bubbles represent 2011E

figures Rising real incomes and

high commodity prices will

continue to drive growth

BRICS 2015F GDP(USD bn) 2011 Growth Rate (%) 2011 GDP Per Capita (USD)

China 10,904 9.2% 5,414

India 2,359 7.4% 1,389

Russia 1,926 4.1% 12,993

Brazil 2,547 2.9% 12,789

South Africa 426 3.1% 8,066 2011 to 2015F

Note: Other Asia includes Bangladesh, Sri Lanka, Nepal, Pakistan, Bhutan, Burma, North Korea, Kazakhstan, Tajikistan, Turkmenistan and Uzbekistan.

Source: IMF; The Beijing Axis Analysis

The Beijing Axis 9 Note: The regional breakdown accords to UNCTAD. Regional breakdown numbers will not add to the total due to overlap


As Asia’s largest and fastest-growing economy, China plays a crucial role in the region’s ongoing transformation

GDP Comparison of Asia-Pacific Economies (USD bn, 2011)

1,488

7,298

243

1,676 846

1,116

279

162

213

260 467

346

123

0

5

10

15

0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000

Taiwan

India

Australia

S. Korea

New Zealand

China

Japan

Singapore

Indonesia

Thailand

Malaysia Hong Kong

GDP Per Capita (2011)

Though large, Japan is a

slow growing economy

World average

GDP growth for

2011: 3.9%

China is the largest and

fastest growing economy

in the region

SE economies are

collectively the third-

largest in the region

GDP Growth Rate (%, 2011)

Philippines

Vietnam

A bubble this size represents

GDP = USD 1,000 bn


Agenda

1. Foreword






The Beijing Axis 11

Backdrop


• With the on-set of the global financial crisis and a booming commodity market, developing regions in Asia, Africa and Latin America

continue to perform above the world average, while developed nations will remain a drag on global growth

• With regard to China, the country was able to remain buoyant during the global financial crisis in 2008-09 due to its large monetary

and fiscal stimulus

• But it came at a price – runaway bank lending, increased local government debt, an overheating property sector and mounting

bottlenecks and price pressures

• In late 2011, the Chinese government began taking measures to slow the domestic economy sufficiently, but not to over-tighten

policy and risk a destabilising hard landing. By early 2012, policy had tilted to become expansionary, especially in light of the weak

global backdrop

• With growth rates above 10% no longer an option, 2011 overall GDP growth stood at 9.2%. In Q1 2012, this had fallen to 8.1% and

to 7.6% in Q2 2012

• However, we anticipate a slight rebound in H2 2012 for a full year GDP growth rate of close to 8%

• Finally, China’s latest Five-Year Plan sets out a path in which the economy will be driven by domestic consumption, marking a large

shift from an export-driven model. This, along with a once-in-a-decade leadership transition set to begin in late-2012, means that

China is facing possibly its toughest policy challenge ‘ever’ in the next 5-10 years

The Beijing Axis 12

0%

5%

10%

15%

Q1 Q1 Q1 Q1

China’s Quarterly Y-o-Y GDP Growth Rate (%, 2009-2012F)

Source: CNBS; World Bank; IMF; The Beijing Axis Analysis

Contribution to China’s GDP (%, 1998-2012F)

China’s economy is heading for a soft landing, with the long-term trend leaning towards more moderate and more sustainable growth

-40

-20

0

20

40

60

80

100

120

140

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F

Net Exports of Goods and Services

Gross Capital Formation

Final Consumption Expenditure (Household + Government)

2009 2010 2011

3-year (2009-2011)

average: 9.4%

Government stimulus

package (USD 586 bn)

2011 y-o-y GDP:

9.2%

2012F

Falling net exports

contribution

2012F y-o-y GDP:

8.0%

Policy easing to

provide room for

growth moderation

Effect from stimulus

package

Gross capital formation remains

the largest contributor

The Beijing Axis 13

180

140

100

60

20

20

60

100

140

180

J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J

Exports Imports

China’s Monthly Exports & Imports (USD bn, 2010-June 2012)

-40

-30

-20

-10

0

10

20

30

40

J FMAM J J A SOND J FMAM J J A SOND J FMAM J

Source: China Monthly Economic Indicators; The Beijing Axis Analysis

China’s Monthly Trade Balance (USD bn, 2010-June 2012)

In 2011, China registered its smallest trade surplus since 2005 as import growth outpaced export growth. Weakened overseas demand is putting pressure on China to expedite its move away from an export-oriented growth model

2010 2011 2012 2010 2011 2012

The Beijing Axis 14

Chinese consumers have remained optimistic thus far in 2012, largely due to easing inflationary pressures as well as brighter income prospects

China’s Consumer Confidence Index (%, 2010-May 2012)

Note: In China, the consumer confidence index measures the level of optimism that consumers have about the performance of the economy.

Source: CEIC Data; Eastmoney; The Beijing Axis Analysis

104.7

104.2

107.9

106.6

108.0

108.9

107.8

107.3 104.4

103.8

102.9

100.4

99.9

99.6

107.6

106.6

105.8 108.1

105.6

105 103.4

100.5 97 100.5

103.9

105 100 103

104.2

80

85

90

95

100

105

110

115

120

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb

-12

Mar

-12

Apr

-12

May

-12

Although consumer confidence

decreased, it was still among the

highest in the world

When CCI is over the 100 mark, it

indicates that consumers are optimistic

The Beijing Axis 15

0

400

800

1,200

1,600

2,000

2,400

2,800

3,200

79 83 87 91 95 99 03 07 11

China’s Annual Retail Sales (USD bn, 1979-2012F)

279

0

50

100

150

200

250

300

Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12

Source: China Statistical Yearbook; China Monthly Economic Indicators; National Bureau Statistics of China; The Beijing Axis Analysis

China’s Monthly Retail Sales (USD bn, 2006-June 2012)

Increased domestic consumption remains in line with the 12th Five-Year Plan. The dramatic increase in retail sales over the past decade still falls short of China’s goal of making domestic consumption a key pillar of the economy

Seasonal peaks

due to Chinese

New Year holiday

Annual retail sales

reached USD 2,851

bn in 2011

The Beijing Axis 16

J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J

95

100

105

110

115

120 Beijing ShanghaiGuangzhou TianjinChongqing Shenzhen

Sales Price of Residential Buildings in Selected Cities (%Y-o-Y, 2010-June 2012)

95

97

99

101

103

105

J FMAM J J A SOND J FMAM J J A SOND J FMAM J

Beijing ShanghaiGuangzhou TianjinChongqing Shenzhen

Source: National Bureau of Statistics of China; The Beijing Axis Analysis

Sales Price of Residential Buildings in Selected Cities (%M-o-M, 2010-June 2012)

Housing prices in China’s major cities have steadily fallen since Q2 2010. The latest readings indicate China’s residential housing market is bottoming out as policymakers move to ease purchase restrictions

2010 2011 2012 2010 2011 2012

The Beijing Axis 17

CPI fell to a two-and-a-half year low of 2.2% in June 2012. Policymakers now have more room to bolster economic growth amidst a global economic slowdown

Consumer Price Index (2010-June 2012)


92

96

100

104

108

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

General Rural Urban

2010 2011 2012

104 is the designated inflation target

set by the Chinese government

China’s CPI averaged

105.4 in 2011

Room for

policy easing

The Beijing Axis 18

However, with inflation forecast to continue falling, there are now real concerns that deflation will emerge as a new problem. Food prices, which constitute roughly a third of CPI, is the main driver of slowing inflation

CPI Breakdown (2011-June 2012)


95

100

105

110

115

120

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

Food Tobacco, Liquor and Articles

Clothing Household Facilities, Articles and Services

Health Cares & Personal Articles Transportation & Communication

Recreation, Education, Culture Articles and Services Residence

2011 2012

A reduction in food prices has

been the main driver behind

slowing inflation

The Beijing Axis 19

China’s rapidly falling PPI indicates producer prices are easing not just because of declining commodity and other input prices, but also due to weak demand for Chinese goods in the global downturn

Producer Price Index (2010-June 2012)


95

100

105

110


2010 2011 2012

PPI for 2011

was 106.0

Depressed overseas

market demand and

sluggish domestic

manufacturing activity

The Beijing Axis 20

Falling producer prices have led to renewed calls from top policymakers to take more aggressive action to support growth. However, there is great emphasis on the need to ‘fine-tune’ such policies in order to prevent an overcorrection

PPI Breakdown by Industries (2011-June 2012)


95

100

105

110

115

120

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

Mining & Quarrying Industry Raw Materials Industry Manufacturing Industry

Food Clothing Articles for Daily Use

Durable Consumer Goods

2011 2012

The Beijing Axis 21

After bottoming out in late 2011, China’s manufacturing industry has remained in expansionary territory. However, weak readings in recent months has renewed calls for a more expansionary stance and a more liberal credit policy

China’s Purchasing Managers’ Index of the Manufacturing Industry (2010-June 2012)


30

40

50

60

Jan-

10

Feb

-10

Mar

-10

Apr

-10

May

-10

Jun-

10

Jul-1

0

Aug

-10

Sep

-10

Oct

-10

Nov

-10

Dec

-10

Jan-

11

Feb

-11

Mar

-11

Apr

-11

May

-11

Jun-

11

Jul-1

1

Aug

-11

Sep

-11

Oct

-11

Nov

-11

Dec

-11

Jan-

12

Feb

-12

Mar

-12

Apr

-12

May

-12

Jun-

12

PMI 2 Month Moving Average (PMI)

A reading above 50 reflects expansion;

below 50 reflects contraction

The Beijing Axis 22

After bottoming out in January 2011, lending rates in China have steadily increased as the government moves to counter a slowing economy

Monthly Bank Loans (USD bn, 2010-June 2012)


-80

-60

-40

-20

0

20

40

60

80

100

0

50

100

150

200

250


Monthly Loan Size Y-o-Y Growth Rate (rhs)

2010 2011 2012

USD bn % Fall in lending as demand

for credit eased in a

slowing economy

The Beijing Axis 23

After nearly two years of raising interest rates, the PBOC cut the cost of borrowing in June 2012, signaling the government’s commitment towards spurring growth

Benchmark Lending Rates (%, 1997-2012)

Source: China Statistical Yearbook; The Beijing Axis Analysis

4

6

8

10

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

20-O

ct-1

0

26-D

ec-1

0

9-F

eb-1

1

6-A

pr-1

1

7-Ju

l-11

7-Ju

n-12

5-Ju

l-12

Longer than 5 years 3 years to 5 years (including 5 years)

1 year to 3 years (including 3 years) 6 months to 1 year (including 1 year)

First loan interest rate

decrease in six years First loan interest rate

decrease since global

financial crisis

The Beijing Axis 24

0

5

10

15

20

21-M

ar-9

821

-Nov

-99

21-S

ep-0

325

-Apr

-04

5-Ju

l-06

15-A

ug-0

615

-Nov

-06

15-J

an-0

725

-Feb

-07

16-A

pr-0

715

-May

-07

5-Ju

n-07

15-A

ug-0

725

-Sep

-07

25-O

ct-0

726

-Nov

-07

25-D

ec-0

725

-Jan

-08

25-M

ar-0

825

-Apr

-08

20-M

ay-0

87-

Jun-

0825

-Jun

-08

15-S

ep-0

815

-Oct

-08

26-N

ov-0

813

-Jan

-10

25-F

eb-1

02-

May

-10

10-N

ov-1

019

-Nov

-10

10-D

ec-1

014

-Jan

-11

18-F

eb-1

118

-Mar

-11

17-A

pr-1

112

-May

-11

14-J

un-1

130

-Nov

-11

18-F

eb-1

212

-May

-12

Bank Deposit-Reserve Ratio (%, 1998-July 2012)

Note: PBOC- People’s Bank of China is China’s central bank. The Bank Deposit-Reserve Ratio is a standard determined by a central bank. It governs the relationship between the amount of money that

banks must keep on hand and the amount that they can lend. By raising and lowering the ratio, the central bank can decrease or increase money supply

Source: BNET Business Dictionary; The Beijing Axis Analysis

The PBOC* has responded to a slowing economy by lowering the reserve requirement ratio. The cut in November 2011 signalled a policy shift from curbing inflation to boosting growth

Economic

overheating

Economic

slowdown

First cut in

two years Inflationary

pressures

The Beijing Axis 25

China's first deposit rate cut since the global financial crisis in June 2012 underpins the country’s economic growth concerns

Deposit Interest Rates (% p.a., 1998-July 2012)


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

20-O

ct-1

0

26-D

ec-1

0

9-F

eb-1

1

6-A

pr-1

1

7-Ju

l-11

7-Ju

n-12

5-Ju

l-12

5 years 1 year 6 months 3 months

First cut since

global financial

crisis

Recent adjustments in 2012 to widen the range at

which banks can set deposit rates mark an

important step towards interest rate liberalisation

The Beijing Axis 26

The PBOC has set an M2 growth target of 14% for 2012 in order to prevent contraction in an economy as market liquidity remains tight

Money Supply (USD tn, 2010-June 2012)

Source: China Monthly Economic Indicators; People’s Bank of China; The Beijing Axis Analysis

0

2

4

6

8

10

12

14

16


M2 M1 M0

2010 2011 2012

The Beijing Axis 27

The NDRC* has quickened the appraisal of major infrastructure projects in response to a slowing economy. Thus far, it has rejected calls for a massive investment stimulus package similar to the 2008 stimulus program

Fixed Asset Investment (USD bn, 1997-2012F)

*Note: National Development and Reform Commission - China’s top economic planning agency


-10%

0%

10%

20%

30%

40%

50%

0

1,000

2,000

3,000

4,000

5,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

Fixed Asset Investment Growth Rate

Global financial

crisis induced

stimulus

The Beijing Axis 28

Stressing quality and efficiency to keep local debt levels in check, the central government is promoting reasonable investment growth in urban infrastructure projects such as airports, railways and affordable housing

Monthly Urban Fixed Asset Investment (USD bn, 2010-June 2012)

Source: China Monthly Economic Indicators; National Bureau of Statistics of China; The Beijing Axis Analysis

0

100

200

300

400

500

600

700

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

Urban Fixed Asset Investment 2 Month Moving Average (PMI)

2010 2011 2012

Investments gaining strength

from favourable policies

The Beijing Axis 29

Looking ahead: short, medium and long term


• For 2012, we anticipate slower growth of around 8.0%. We view such a sub-9% slowdown as essential for the future

structural integrity and sustainability of China’s economic success

• For 2015, and beyond: As the picture for the global environment becomes clearer, China will continue to grapple

with the challenge of having to meet its pressing social and developmental objectives while growing at a rate of

GDP growth of ‘only’ around 8.0% through 2015, well below the 9.2%-14.2% GDP growth rate seen in the past five

years

• Despite these difficult challenges, China’s broad transformation is expected to continue and will present an

environment that is characterised by a long term and sustained shift towards a middle-income economy. This trend

appears firmly entrenched, representing a profoundly different new global landscape

• This will see a further increase in China’s share of global GDP, having risen from 6.5% of world output in 2006 to a

resource hungry 10.4% in 2011

• Looking ahead it looks inevitable that China will become a USD 10 tn economy, making up 15% of global output

within five years

The Beijing Axis 30

China faces a number of important risks on the domestic front. Similarly, the world faces a set of variables and risks as China’s rise unfolds


Low Risk High Risk

Long-term

Bubble size: Probability of occurrence Short-term External

Internal

• Local governments are

pushing for a rollback of

property market curbs to prop

up their economies

Domestic

government

finances (debt)

Property

bubble

Ageing population

and social safety

net Social

cohesion

Politics and power

transition

FX risk EU debt

crisis

Degrees of China

dependency

• Commodity producers are the

most exposed to a slowdown

in China

• Handover to the fifth

generation of leaders in

late 2012 is crucial as it

sets the tone for policy

and political reform during

the years ahead

• Social unrest - wealth gap

continues to widen,

potentially undermining

social stability

• RMB must be closely

watched as a more

volatile period could lie

ahead

• Shrinking labour pool unable

to shoulder social costs of

rapidly ageing population

• Worsening of euro zone debt

crisis threatening to further

dampen overseas demand for

Chinese goods

• Unclear whether banks or

local governments can

bear burden of NPLs if

economy were to slow

sharply


Agenda

1. Foreword



- Selected Macroeconomic Indicators

- Domestic Consumption and Foreign Trade

- Domestic and Foreign Investment

- Financial Indicators

- Social Indicators




The Beijing Axis 32

According to the latest forecasts from the IMF, China’s annual GDP growth rate will reach 8.0% in 2012, the lowest in a decade, due to ‘weak’ growth prospects for the global economy

China Nominal GDP Growth Rate (% y-o-y, 1978-2012F)

Source: World Bank; China Statistical Abstract; OECD; IMF; The Beijing Axis Analysis

7-10% GDP

growth band

Past periods of

overheating

Soft landing amid

global uncertainties

Overheating

concerns

7-8% GDP

growth band

0

4

8

12

16

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F

The Beijing Axis 33

0 250 500 750

GuangdongJiangsu

ShandongZhejiang

HenanHebei

LiaoningSichuan

HunanHubei

ShanghaiFujian

BeijingAnhui

Inner MongoliaHeilongjiang

ShaanxiGuangxi

JiangxiTianjinShanxi

JilinChongqing

YunnanXinjiangGuizhou

GansuHainanNingxiaQinghai

Tibet

GDP by Province (USD bn, 2011)

Note: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and Shanghai


Geographical Distribution of China’s GDP (2011)

China’s GDP is highly concentrated in five coastal provinces, which together account for 40% of the country’s total GDP. This figure however has dropped over the years as other provinces have increased output

1 2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 17

18 19 20 21 22 23 24 25 26 27 28 29 30 31

3

4

2

5

1

Henan

Zhejiang

Shandong

Guangdong

Jiangsu 31

30 29

28

27

Qinghai

Tibet

Gansu

Hainan

Ningxia

Top 5 provinces’

GDP equate to 40%

of total GDP

Top 5 Provinces by GDP

Bottom 5 Provinces by GDP Highlighted on map on right

The Beijing Axis 34 Note: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and Shanghai


With the exception of Tianjin, the coastal regions are no longer the fastest growing regions of China. The government has placed greater emphasis on developing the inner provinces including establishing special economic zones

0 10 20

TianjinChongqing

SichuanGuizhou

Inner MongoliaShaanxi

HubeiJilin

YunnanAnhui

QinghaiShanxiHunan

TibetJiangxiGansu

GuangxiHeilongjiang

FujianLiaoning

HainanNingxiaXinjiang

HenanHebei

JiangsuShandong

GuangdongZhejiang

ShanghaiBeijing

GDP Growth Rate by Province (USD bn, 2011) China’s Fastest and Slowest Growing Provinces (2011)

1 2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 17

18 19 20 21 22 23 24 25 26 27 28 29 30 31

3

4

5

1 Tianjin

Inner Mongolia

Guangdong

Sichuan

31

30

29

28

27 Shandong

Shanghai

Zhejiang

Beijing

Highlighted on map on right

2

Chongqing

Guizhou

Top 5 Provinces by GDP growth

Bottom 5 Provinces by GDP growth

The Beijing Axis 35

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000

TianjinShanghai

BeijingJiangsu

ZhejiangInner Mongolia

GuangdongLiaoning

FujianShandong

JilinTotal

ChongqingHubeiHebei

ShaanxiNingxia

HeilongjiangShanxi

XinjiangHunan

QinghaiHenanHainanJiangxi

SichuanGuangxi

AnhuiTibet

GansuYunnan

GDP Per Capita by Province (USD, 2011)

Note: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and Shanghai

Source: Various; The Beijing Axis Analysis

The provinces with the highest per capita income are all located on the eastern coast. Tianjin, Shanghai and Beijing, three of the centrally-administered municipalities, lead the way with a per capita greater than USD 12,000

1 2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

4

5

1 3

Shanghai 2

Zhejiang

Jiangsu

27

30

31

29 28

Beijing

Tianjin

Tibet

Gansu

Yunnan Guangxi

Anhui

Provinces With Highest and Lowest GDP Per Capita in China (2011)

Highlighted on

map on right

Top 5 Provinces by GDP per capita

Bottom 5 Provinces by GDP per capita

The Beijing Axis 36

-2

0

2

4

6

8

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

China’s secondary sector remains the largest contributor to the country’s GDP. However, the tertiary sector has grown steadily in recent years and its development remains a centerpiece of China’s 12th Five-Year Plan

Composition of GDP by Sector (1997-2012F)

Note: CAGR only includes the primary sector.


Primary Sector

Secondary Sector

Tertiary Sector

Growth Rate of Primary Sector (rhs) USD bn %

The Beijing Axis 37

China’s Industrial Structure (2011)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Industrial Sector Construction Sector


China’s secondary sector and larger economy is still sustained by industry, a remnant of past government policies focusing on industrialisation. The secondary sector now accounts for 47% of China’s output

Primary

10%

Secondary

47%

Tertiary

43%

Value-added Breakdown of Secondary Sector (USD bn, 1997-2011)

The Beijing Axis 38

China’s Industrial Structure (2011)

0

300

600

900

1,200

1,500

1,800

2,100

2,400

2,700

3,000

3,300

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11E

Transport, Storage and Post

Wholesale and Retail Trades

Hostels and Catering Services

Financial Intermediation

Real Estate

Others

Note: 2011 breakdown of tertiary industry will be available when the 2012 China Statistical Yearbook is released in September


Since China joined the WTO a decade ago, national economic restructuring has lead to rapid growth in the tertiary sector. However, the sector remains significantly smaller than other countries on a similar development scale

Primary

10%

Secondary

47%

Tertiary

43%

Value-added Breakdown of Tertiary Sector (USD bn, 1997-2011E)

The Beijing Axis 39

-4

-2

0

2

4

6

8

10

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11E

Net Exports of Goods and Services Gross Capital Formation

Final Consumption Expenditure (household + gov)

Contribution to the Growth of GDP¹ (%, 1997-2011E²)

Note: (1) The three components of GDP by expenditure approach are final consumption expenditure (composed of household and government consumption), gross capital formation and net exports of goods and

services. For 2009, the 92% gross capital formation, 52% final consumption expenditure and the -44% net exports of goods and services were reduced proportionately to form the bar representing 100%

(2) 2011 GDP growth contribution will be available when the 2012 China Statistical Yearbook is released in September


Gross capital formation and final consumption expenditures, which are both mainly driven by the government, substantially outpace net exports’ as the two key drivers of China’s GDP growth

The Beijing Axis 40

20

50

80

110

0 50 100 150 200 250 300 350 400

China’s gross capital formation remains concentrated in coastal provinces, while western provinces have far higher capital formation rates as a percent of GDP China’s Gross Capital Formation (2011E)

Note: Provincial breakdown of 2011 gross capital formation will be available when the 2012 China Statistical Yearbook is released in September


Ningxia

Total Capital Formation (USD bn)

% of Provincial GDP

Shandong

Jiangsu Guangdong

Henan

Zhejiang

Liaoning

Hebei

Sichuan Hunan

Fujian

Guangxi Jilin

Tianjin

Yunnan

Shaanxi Shanxi

Beijing

Anhui

Heilongjiang

Jiangxi

Chongqing Xinjiang

Guizhou

Gansu

Hainan

Qinghai

A bubble this size represents 1% of total

Capital formation takes place mostly

in coastal provinces

Provinces in central and western China have

higher capital formation rates

Hubei

Inner Mongolia

Shanghai

Northern & Northeastern

Eastern

Central & Southern

Western & Southwestern

Tibet

The Beijing Axis 41

20

30

40

50

60

70

80

0 50 100 150 200 250 300 350 400

China’s final consumption is slightly more concentrated, with 33% of China’s total final consumption centered in just four coastal provinces led by Guangdong province

China’s Final Consumption (2011E)

Note: Provincial breakdown of 2011 final consumption will be available when the 2012 China Statistical Yearbook is released in September


Total Final Consumption (USD bn)

33% of China’s total final

consumption is centered in just four

coastal provinces

% of Provincial GDP

Qinghai Guangdong

Jiangsu Shandong

Zhejiang

Henan

Shanghai

Hebei Liaoning

Sichuan

Beijing Hunan Hubei

Anhui

Fujian

Inner Mongolia

Tianjin

Shaanxi

Shanxi Jilin

Heilongjiang Guangxi

Yunnan

Jiangxi

Chongqing

Guizhou

Gansu

Tibet

Xinjiang

Hainan

Ningxia

A bubble this size represents 1% of total

Northern & Northeastern

Eastern

Central & Southern

Western & Southwestern

The Beijing Axis 42

China’s industrial value added growth has slowed since 2009 due to weak overseas demand. China’s manufacturing dominance has driven output by 18% from 2000 to 2011

Industrial Value Added Output (USD bn, 2000-2012F)

Source: CEIC Data; The Beijing Axis Analysis

0

15

30

45

0

1,000

2,000

3,000

4,000

00 01 02 03 04 05 06 07 08 09 10 11 12F

Industrial Value Added Output Growth Rate (rhs)

WTO accession on

11 December 2001

USD bn %


Agenda

1. Foreword







- Social Indicators




The Beijing Axis 44

China’s booming retail sector mirrors consumers’ confidence in China’s economy. Urban areas still make up an overwhelmingly part of retail sales, despite a narrowing growth rate between urban and rural areas

China’s Annual Retail Sales and Growth Rate by Administrative Level (1978-2012F)

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

(2) Chinese Statistics Bureau has changed the structure of these figures since 2010. In the new category breakdown, urban includes both urban and suburban.

Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis

-10

0

10

20

30

40

0

500

1,000

1,500

2,000

2,500

3,000

3,500

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112F

Retail Sales (Urban) Retail Sales (Suburban) Retail Sales (Rural)Urban Growth (rhs) Suburban Growth (rhs) Rural Growth (rhs)

USD bn¹ %

The Beijing Axis 45

China’s Annual Retail Sales of Consumer Goods by Sub-sector (USD bn, 1978 vs. 2011)

87%

4% 9%

Wholesale and Retail Trade

Hotels and Catering Services

Others

2,532

320


While wholesale and retail trade continue to dominate retail sales, hotels and catering services have seen considerable growth, evidenced by the massive rise of five-star hotels in China’s first and second-tier cities

1978

Total: 120.3 bn

2011

Total: 2.9 tn

89%

11%

CAGR = 10%

The Beijing Axis 46

0 50 100 150 200 250 300 350

GuangdongShandong

JiangsuZhejiang

HenanHubei

LiaoningHebei

SichuanBeijing

ShanghaiHunanFujianAnhui

HeilongjiangJilin

Inner MongoliaShanxi

GuangxiShaanxiJiangxi

ChongqingTianjin

YunnanXinjiangGuizhou

GansuHainanNingxiaQinghai

Tibet

Total Retail Sales of Consumer Goods by Province (USD bn, 2011E)

Note: (1) Zhejiang is not among the top five provinces in terms of population

(2) Henan is not among the top five provinces in terms of income per capita


The provinces with the highest population1, employment and income per capita2 generally have the highest retail sales. Further integrating urban and rural markets, especially in terms of logistics and supply, remains a key policy goal

1 2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

Guangdong

Jiangsu

Shandong

Zhejiang

1

5

4

3

2 27

28

29

30

31

Gansu

Hainan

Ningxia

Qinghai

Tibet Henan

Highlighted on

map on right

Top 5 Provinces by Retail Sales

Bottom 5 Provinces by Retail Sales

Provinces With Highest and Lowest Retail Sales (2011)

The Beijing Axis 47

-80%

-50%

-20%

10%

40%

0

500

1,000

1,500

2,000

97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112F

Exports Exports' Growth Rate (rhs)

China’s Annual Exports (USD bn, 1997-2012F)

-20%

0%

20%

40%

0

50

100

150

200

J A J O J A J O J A

Exports Exports' Monthly Growth Rate (rhs)


China’s Monthly Exports (USD bn, 2010-June 2012)

Although export growth has trended downward in response to weakening external demand, May 2012 figures bounced back to an all-time monthly high

China’s entry into the WTO

2010 2011 2012

The Beijing Axis 48

Half of China’s total exports are destined for the US, Hong Kong, Japan, South Korea and Germany. However, growth of exports to the EU, US and especially Japan have been sluggish amidst weak external demand

China’s Top Export Destinations (USD bn, 2011)

Note: Hong Kong is admittedly used as a gateway to the rest of the world.

Source: UN Comtrade; The Beijing Axis Analysis

Total Exports = USD 1,898 bn

Top exported commodities

• Automatic data processing machines and parts

• Garments and clothing accessories

• Textile yarn, fabrics and make-up articles

India

2.7%

Hong Kong

14.1%

Japan

7.8%

Germany

4.0%

US

17.1%

South Korea

4.4%

Netherlands

3.1%

UK

2.3% Russia

2.1%

Singapore

1.9%

325

268

148

83

76

59

51

44

39

36

US

Hong Kong

Japan

South Korea

Germany

Netherlands

India

UK

Russia

Singapore

1

2

3

4 5

6 8

7

9

10

The Beijing Axis 49

Manufactured goods, which have enjoyed the highest CAGR (‘01-11) among all of China’s exported commodities, now make up almost half of China’s exports, up from 36% in 2001 Composition of China’s Exports (USD bn, 2001-2012F)

Note: Composition is according to the SITC Classification System.

Source: MOFCOM; The Beijing Axis Analysis

95 127 188 268 352 456

577 673 590 780

902 935

87 101 126

156 194

238

297 336

300

378

459 442

44 53 69

101

129

175

220

263

185

249

320 309

0

400

800

1,200

1,600

2,000

01 02 03 04 05 06 07 08 09 10 11 12F

Others

Mineral Items

Foodstuffs

Chemicals and Related Products

Products Classified by Material

Miscellaneous Manufactured Articles

Machinery and Equipment

CAGR

13.4%

14.4%

14.7%

24.0%

22.0%

18.1%

25.3%

21.7% Total

The Beijing Axis 50

-30%

0%

30%

60%

0

50

100

150

200

J A J O J A J O J A

Imports Imports' Monthly Growth Rate (rhs)

-40%

-20%

0%

20%

40%

0

500

1,000

1,500

2,000

97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112F

Imports Imports' Growth Rate (rhs)

China’s Annual Imports (USD bn, 1997-2012F)


China’s Monthly Imports (USD bn, 2010-June 2012)

Monthly imports regained their pre-crisis growth levels reaching an all-time high of USD 162 bn in May 2012. This figure is set to increase as China targets a 10% increase in imports in 2012

China’s entry into the WTO

2010 2011 2012

The Beijing Axis 51

In 2011, Japan, South Korea, Taiwan, the US and Germany were China’s top suppliers, accounting for 40% of China’s total imports

Top Countries of Origin for China’s Imports (USD bn, 2011)


Top imported commodities

• Electrical machinery, equipment and parts

• Mineral fuels, mineral oils and products of their distillation

• Nuclear reactors, boilers, machinery and mechanical appliances

Total Imports = USD 1,743 bn

195

163

125

123

93

83

62

52

49

40

Japan

South Korea

Taiwan

US

Germany

Australia

Malaysia

Brazil

Saudi Arabia

Russia

Taiwan

7.2%

Japan

11.2%

Germany

5.3% US

7.1%

South Korea

9.3%

Australia

4.7%

Malaysia

3.6%

Russia

2.3%

Saudi Arabia

2.8% Brazil

3.0%

1

2

3

4

5

6

7

8

9

10

The Beijing Axis 52

As a manufacturing powerhouse, China relies on a variety of imported products especially machinery, chemicals and increasingly minerals to power its economy Composition of China’s Imports (USD bn, 2001-2012F)

Note: SITC Classification System; Crude material: inedible, except fuels


107 137 193 253 290 357 413 442 408 550 630 601 48

64 89

105 169

124

211

285 274

55 70

83 118

167 141

189

276 336

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

Others

Foodstuffs

Miscellaneous Manufactured Articles

Products Classified by Material

Chemicals and Related Products

Mineral Items

Crude Materials

Machinery and Equipment

CAGR

36.6%

19.2%

23.8%

13.6%

18.9%

28.7%

32.2%

19.4%

21.8% Total

The Beijing Axis 53

41% of China’s total trade is with the US, Japan, Hong Kong, South Korea and Taiwan. The US, China’s largest trading partner, accounted for USD 448 bn in 2011 China’s Largest Trading Partners (USD bn, 2011)


China’s total trade with the world = USD 3,642 bn

Total exports = USD 1,898 bn

Total imports = USD 1,743 bn

Hong Kong

7.8%

Japan

9.4%

Germany

4.6% US

12.3%

South Korea

6.7%

448

343

284

246

169

160

117

90

84

79

US

Japan

Hong Kong

S. Korea

Germany

Taiwan

Australia

Malaysia

Brazil

Russia

Taiwan

4.4%

Australia

3.2%

Brazil

2.3%

Russia

2.2%

Malaysia

2.5%

1 2

3

4 5

6

7

8

9

10

The Beijing Axis 54

China has a large trade surplus with both Hong Kong and the US. Meanwhile, its trade deficit is largely centered in the Asia-Pacific economies of South Korea, Australia and Japan China’s Trade Balance with its Five Largest Surplus and Deficit Regions (USD bn, 2011)


US

Hong Kong

South Korea

Japan

UK

Australia

Netherlands

Saudi Arabia

Hong Kong

US

Netherlands

UK

India

Saudi Arabia

Japan

Australia

South Korea

Taiwan

252

202

51

30

27

-35

-46

-49

-80 -90

China’s world trade surplus = USD 155 bn India

Taiwan

The Beijing Axis 55

-60

-40

-20

0

20

40

60

80

-30

-20

-10

0

10

20

30

40

J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A

Trade balance Exports, % change y-o-y (rhs) Imports, % change y-o-y (rhs)

China’s foreign trade is becoming more balanced. Import growth has consistently outpaced export growth since H2 2009, narrowing China’s surplus with the rest of the world

China’s Monthly Trade Balance (2005-June 2012)

Source: China Customs; The Beijing Axis Analysis

2010 2011 2012 2007 2008 2009 2005 2006

% USD bn

The Beijing Axis 56

0%

2%

4%

6%

8%

10%

97 99 01 03 05 07 09 11

Source: China Statistical Yearbook; China Monthly Economic Indicators; National Bureau of Statistics of China; The Beijing Axis Analysis

Share of Net Exports in Quarterly GDP (%, 2007-Q2 2012)

Fixed asset investment and total consumption are now the primary drivers of GDP growth, evidenced by net exports’ declining share of GDP. Policymakers are now emphasising a need to increase imports as a means of boosting domestic consumption Share of Net Exports in Annual GDP (%, 1997-2012F)

-2%

0%

2%

4%

6%

8%

10%

Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12

The Beijing Axis 57

90% of China’s total international trade value is concentrated in ten provinces, largely a result of their access to world class port facilities along the coast

China’s Total Trade Value by Province (2011)


Percentage of China’s total trade value:

Top 70 %

Next 20 % Next 10 %

Imports: USD 1,743 bn

Exports: USD 1,898 bn

Total Trade: USD 3,642 bn

Shandong

Shaanxi Henan

Hunan

Fujian Taiwan

Guangdong 25.1%

Guangxi

Guizhou

Yunnan

Heilongjiang

Jilin

Liaoning

Hebei

Jiangsu 14.8%

Shanghai 12.0%

Anhui

Zhejiang 8.5% Jiangxi

Tibet

Hubei

Inner Mongolia

Ningxia

Sichuan

Qinghai

Xinjiang

Gansu

Shanxi

Tianjin

Chongqing

Beijing 10.7%

Hainan


Agenda

1. Foreword







- Social Indicators




The Beijing Axis 59

In 2011, China’s total fixed asset investment stood at USD 4.8 tn. Concern over further economic slowdown has led the government to accelerate new project approvals in the power, water and railways industries

Total Investment in Urban and Rural Areas (USD bn, 1997-2012F)


232 272 287 317 362 429 553 713 917 1,171

1,545

2,133

2,855

3,572

4,681 4,782

69 71 74 81 87 97 118

138 167

209

261

347

452

543

141 144

0

1,000

2,000

3,000

4,000

5,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

Rural Areas Urban Areas

The Beijing Axis 60

0 100 200 300 400 500

ShandongJiangsuHenan

LiaoningGuangdong

HebeiSichuanZhejiang

AnhuiHubei

HunanInner Mongolia

JiangxiFujian

ShaanxiJilin

GuangxiHeilongjiang

ChongqingTianjinShanxi

YunnanBeijing

ShanghaiXinjiang

GansuGuizhouNingxiaHainan

QinghaiTibet

Fixed Asset Investment by Province (USD bn, 2011E)

Note: 2011 provincial breakdown of fixed asset investment will be available when the 2012 China Statistical Yearbook is released in September


China’s fixed asset investment (FAI) continues to be primarily focused on the more developed coastal provinces. The top five provinces account for 35% of the total FAI

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

Top five provinces

account for 35% of

total FAI

1

3

4

2

5

Jiangsu Henan

Shandong Liaoning

Guangdong

Top 5 Provinces by Investment in Fixed Assets (2011E)

Highlighted on map on right

The Beijing Axis 61

China’s manufacturing and real estate sectors attract the most fixed asset investment due to the country’s ongoing industrialisation and urbanisation

Fixed Asset Investment by Sector (USD bn, 2003-2011E)

Note: 2011 sector breakdown of fixed asset investment will be available when the 2012 China Statistical Yearbook is released in September


178 237 324 428 585 816 1,035 1,311 1,491

159 202 238 308

427 582

724

960 1,091

245

366

445

506

195

291

367

418

158

212

232

264

111

135

163

185

380

530

637

724

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2003 2004 2005 2006 2007 2008 2009 2010 2011E

Others

Mining

Utilities

Environmental Protection and Public Facilities


Real Estate

Manufacturing

CAGR

24.5%

33.5%

25.3%

31.9%

28.7%

29.3%

33.1%

29.6% Total

The Beijing Axis 62

China’s low manufacturing costs and large potential market have been key in attracting FDI inflows. China is now opening up more sectors of the economy to foreign investment, which is expected to offset slowing FDI inflows

FDI Inflow (USD bn, 1997-2012F)

Note: FDI = foreign direct investment

Source: IMF; MOFCOM; The Beijing Axis Analysis

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

0

20

40

60

80

100

120

140

160

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

FDI Inflow FDI Growth (rhs)

The Beijing Axis 63

In 2011, 88% of China’s FDI came from just six regions led by Hong Kong. Hong Kong remains a crucial gateway for other countries’ FDI into China as well as FDI from Chinese firms headquartered in the SAR¹

China’s FDI Inflow by Source Region² (USD bn, 2011)

Note: (1) SAR stands for Special Administrative Region

(2) 2011 data on China’s FDI Inflow includes these countries’ investing through Virgin Is., Cayman Is., Samoa, Mauritius and Barbados.


77

7

6

6

3

3

2

1

1

1

Hong Kong

Taiwan

Japan

Singapore

US

South Korea

UK

Germany

France

Netherlands

1

7

4

3

8

6

5 9

2

10

US 2.6%

Hong Kong 66.4%

Japan 5.5%

South Korea

2.2% Taiwan 5.8%

France 0.7% Netherlands 0.7%

UK 1.4%

Germany 1%

Singapore

5.5%

USD bn

China’s total FDI inflow for 2011 amounted to USD 116 bn

The Beijing Axis 64

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

JiangsuGuangdong

ShanghaiZhejiangLiaoning

FujianShandong

BeijingTianjin

SichuanJiangxiHubeiHebei

HenanChongqing

HunanAnhui

GuangxiHainan

Inner MongoliaShanxi

JilinHeilongjiang

ShaanxiYunnanGansu

XinjiangGuizhouNingxiaQinghai

Tibet

FDI Inflow by Province (USD mn, 2011E)

Note: 2011 provincial breakdown of FDI inflows will be available when the 2012 China Statistical Yearbook is released in September


Although China’s coastal provinces attract the majority of FDI inflows, China’s new FDI guidelines are encouraging foreign companies to invest in less-developed central and western regions

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

4

3

2

1

5

Shanghai

Liaoning

Jiangsu

Guangdong

Zhejiang

Top 5 provinces

account for 62% of

total FDI inflows

Highlighted on

map on right

Top 5 Provinces by FDI Inflow (2011E)

The Beijing Axis 65

China’s manufacturing sector receives the bulk of China’s FDI inflow. New FDI guidelines encourage foreign companies to invest in China’s high-end manufacturing, high-tech and service sectors

China’s FDI Inflow by Sector (USD bn, 2003-2011E)

Note: 2011 sector breakdown of FDI inflows will be available when the 2012 China Statistical Yearbook is released in September


37 43 42 40 41

50 47 50 54

5 6 5 8

17

19 17

24 26

3 3 4 4

4

5 6

7 8

1

6 1 2

3

4 5

7

7

1

1 1 2

2

3 3

2

2

6

2 6 7

8

12 13

16

18

0

20

40

60

80

100

120

2003 2004 2005 2006 2007 2008 2009 2010 2011E

Others



Leasing and Business Services

Real Estate

Manufacturing

CAGR

14.7%

14.2%

28.8%

12.3%

24.3%

4.3%

10.2% Total

The Beijing Axis 66

China’s OFDI flow is expecting to steadily grow, driven by Chinese companies’ increasing need to access new markets, technology and resources. In 2011, China’s OFDI hit USD 65 bn

China’s OFDI Flow (USD bn, 1997-2011E)

Note: Official 2011 OFDI data will be available when MOFCOM releases the 2011 Statistical Bulletin of China’s OFDI in September; SAFE stands for the State Administration of Foreign Exchange

Source: IMF; MOFCOM; The Beijing Axis Analysis

-50%

0%

50%

100%

150%

0

20

40

60

80

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E

OFDI Flow OFDI Growth Rate (From 2003, rhs)

In 2005, SAFE* eased restrictions

on overseas investments made by

Chinese companies

Chinese companies increased

acquisition of overseas

depressed assets

The Beijing Axis 67

While China’s OFDI extends to all continents, international financial centres and tax havens such as Hong Kong, the Cayman Islands and BVI receive the bulk of OFDI stock China’s OFDI Flow by Destination (2010)

Note: Official 2011 OFDI data will be available when MOFCOM releases the 2011 Statistical Bulletin of China’s OFDI in September


38.5

6.1

3.5

1.7

1.3

1.1

1.1

0.7

0.6

0.4

Hong Kong

Virgin Is.

Cayman Is.

Australia

US

Canada

Singapore

Thailand

Russia

Germany

USD bn

HK 56% 1 3

Cayman Islands

5.1%

2

British Virgin Islands

8.9.%

5 US 1.9%

Australia 2.5%

4

7 Singapore 1.6%

Russia 0.8% 9

Thailand 1.0%

8

10

6

Canada 1.7%

China’s total cumulative outward FDI flow for 2010 amounted to USD 69 bn

Germany 0.6%

China’s outward

FDI flow in 2011

was USD 65 bn

The Beijing Axis 68

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

ZhejiangShandong

JiangsuGuangdong

ShanghaiHainan

LiaoningHunanBeijingHubei

GansuTianjin

YunnanSichuan

AnhuiShaanxi

ChongqingHebeiFujian

XinjiangHenanJiangxi

JilinHeilongjiang

ShanxiGuangxi

Inner MongoliaGuizhouNingxia

TibetQinghai

China’s OFDI by Province (USD mn, 2011E)

Note: OFDI figures include non-financial OFDI and exclude investments made by central enterprises.


In 2010, over half of China’s non-financial OFDI came from just six provinces, all located on the eastern coast. Zhejiang province, one of the forerunners of China’s ‘going out’ policy, registered the highest OFDI

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

2

5

1

Guangdong

Zhejiang

Shandong

4

6

Hainan

Jiangsu 3

Shanghai

Top 6 provinces’

OFDI accounts for

53%

Highlighted on

map on right

China’s OFDI by Province (2011E)

The Beijing Axis 69

China’s outward investments in leasing and business services*, transport and manufacturing grew substantially in 2010

China’s OFDI Flow by Sector (USD bn, 2004-2011E)

*Note: Business services includes investment in holding companies, regional headquarters and SPVs often established in offshore financial centers from where investments are made in other countries

and sectors; Finance includes investments in the banking industry such bank branch offices, bank affiliated institutions, bank rep. offices and insurance institutions; Wholesale and retailing as well as

transportation, warehousing and postal services are closely linked with China export and import activities


1 5 5 6

22 20 30 29

4 2

14 9

9 8

1 7

7

6

7 6

9 4

6 13

6 5

1 4

3 2 6

5

2

2 2

5 4

2

3 4

7 7

0

10

20

30

40

50

60

70

80

2004 2005 2006 2007 2008 2009 2010 2011E

Others

Manufacturing


Mining


Finance

Leasing and Business Services

CAGR

51.1%

34.1%

38.6%

21.2%

42.6%

25.3%

87.4%

52.4% Total


Agenda

1. Foreword







- Social Indicators




The Beijing Axis 71

92

96

100

104

108

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 H112

Consumer Price Index, Annual (1997-H1 2012)

Note: Preceding year = 100


Provinces with Highest and Lowest CPI (Jan-May 2012)

By the end of 2010, stemming inflation was a key concern of policymakers in the aftermath of the global financial crisis. Consumer inflation has since steadily fallen from its mid-2011 peak

Commodity and food

price pressures

Overheating and

overinvestment

Deflation and

overcapacity

Doubling of M2

money supply

4

Xinjiang

104.3

Qinghai

101.6

29

Hunan

102.9

5

31

Inner Mongolia

104.2

1

Guangxi

103.0

27

2

28

Chongqing

103.9

5 Hainan

103.9

Yunnan

104.3

Tibet

104.5

2

5

Sichuan

103.1

Ningxia

102.1

30

Shaanxi

103.9

Provinces with Lowest CPI

Provinces with Highest CPI

The Beijing Axis 72

92

96

100

104

108

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 H112

Producer Price Index, Annual (1997-H1 2012)

Note: Preceding year = 100

Source: China Statistical Yearbook; China Monthly Economic Indicators; Various; The Beijing Axis Analysis

Provinces with Highest and Lowest PPI (Jan-May 2012)

China’s PPI has seen fluctuations similar to the CPI, as depressed overseas market demand and sluggish domestic manufacturing activity have lowered PPI in 2012

4

31

4

28

3

Shaanxi

102.8

1

Heilongjiang

103.5

2 Guizhou

103.3

Inner Mongolia

103.0

Tianjin

96.4

29

Qinghai

98.0

30

Hebei

97.4 Jiangsu

97.8

Hainan

102.8 Provinces with Lowest PPI

Provinces with Highest PPI

27 Zhejiang

98.3

The Beijing Axis 73

0

5,000

10,000

15,000

20,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

Loans Deposits

Chinese bank deposits continue to rise faster than bank lending due to the fixed interest rate spread mandated by the PBOC. Total deposits reached USD 12.8 tn by the end of 2011, while loans amounted to USD 9 tn

Total Loans and Deposits (USD bn, 1997-2012F)


The Beijing Axis 74

12,818

5,413

4,363

1,181 454 308 115

983 0%

20%

40%

60%

80%

100%

Tot

al D

epos

its

Hou

seho

lds

Bus

ines

ses

Gov

ernm

ent

Fis

cal D

epos

its

Agr

icul

tura

l

Tru

sts

Oth

er

Sources of Deposits (USD bn, 2011E)

1,252 1,444 1,722 2,027 2,269 3,136

3,824 4,487

5,413

876 1,023 1,174

1,420 1,824

2,269

3,183

3,617

4,363

0

2,000

4,000

6,000

8,000

10,000

12,000

2003

2004

2005

2006

2007

2008

2009

2010

2011

E

Other Deposits

Trust Deposits

Agricultural Deposits

Fiscal Deposits

Deposits of Government Departments & Organisations

Company Deposits

Household Savings Deposits

Note: 2011 breakdown of bank deposits will be available when the 2012 China Statistical Yearbook is released in September

Source: China Statistical Yearbook; The People’s Bank of China; The Beijing Axis Analysis

Sources of Deposits (USD bn, 2003-2011E)

China’s high savings rate remains Chinese banks’ main source of funds. In 2011, household banking deposits accounted for 42% of total deposits, while company deposits accounted for 34%

42%

34%

The Beijing Axis 75

767 927 995 1,339 1,731 2,233

3,261 4,274

5,440

1,012 1,050 1,069 1,238

1,506

1,804

2,150

2,459

3,130

0

2,000

4,000

6,000

8,000

10,000

2003 2004 2005 2006 2007 2008 2009 2010 2011E

Medium & Long-term Loans Short-term Loans

Trust Loans Other Loans

9,022 5,440

3,130

116 336

0%

20%

40%

60%

80%

100%

TotalLoans

Medium &Long-term

Loans

Short-termLoans

TrustLoans

OtherLoans

Composition of New Loans (USD bn, 2011E)

Note: 2011 breakdown of bank loans will be available when the 2012 China Statistical Yearbook is released in September

Source: China Statistical Yearbook; The People’s Bank of China; The Beijing Axis Analysis

Composition of New Loans (USD bn, 2003-2011E)

In 2011, medium and long-term loans, a key measure of appetite for investment, made up 60% of total loans, up from 51% in 2008. However, recent bank’s reticence to lend may result in a slower pick up in domestic investment

60%

35%

The Beijing Axis 76

646 715 780 837 834 842 860 864 864 894 931

514 509 507 540 547 592 690 740 830

1,169 1,411

0

400

800

1,200

1,600

2,000

2,400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Number of companies listed on the Shenzhen Stock Exchange

Number of companies listed on the Shanghai Stock Exchange

Nonetheless, the Shanghai and Shenzhen Stock Exchanges are the world’s sixth and seventh largest stock markets by market capitalisation respectively

Number of Listed Companies and Total Market Value of China’s Stock Exchanges (2001-2011)

Source: World Federation of Stock Exchanges; China Statistical Yearbook; China Monthly Economic Indicators; World Federation of Exchanges; The Beijing Axis Analysis

526 463 513 448 396 1,122 4,302 1,747 3,655 3,926 3,330 Total Market Value

(USD bn)

2007 stock

market bubble

The Beijing Axis 77

Shenzhen Stock Exchange Trading Volume and Composite Index (2001-2011)

Source: China Monthly Economic Indicators; Shanghai Stock Exchange; Shenzhen Stock Exchange; www.sina.com.cn; The Beijing Axis Analysis

Shanghai Stock Exchange Trading Volume and Composite Index (2001-2011)

After recovering from the global financial crisis in 2009, China’s stock markets have since declined as both domestic and overseas investors have become weary of lax corporate governance and dampened profit outlook

0

5,000

10,000

15,000

20,000

0

500

1,000

1,500

2,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

0

2,000

4,000

6,000

0

2,000

4,000

6,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Volume (lhs) SH Composite Index(rhs)

bn shares

Average

P/E Ratio 37.7 34.4 36.5 24.2 16.3 33.3 59.2 14.9 28.73 21.61 13.4

Total

Turnover

USD bn 274 205 252 320 235 725 4,017 2,597 6,469 5,893 3,682

Average

P/E Ratio 39.8 37.0 36.2 24.6 16.4 32.7 69.7 16.7 46.01 44.69 23.11

Total

Turnover

USD bn 188 133 136 192 152 410 2,040 1,248 2,909 3,360 2,095

bn shares

Volume (lhs)

SZSE Component Index (rhs)

The Beijing Axis 78

0

500

1,000

1,500

2,000

2,500

3,000

3,500

J A J O J A J O J A

0

500

1,000

1,500

2,000

2,500

3,000

3,500Market Value of Tradable SharesIndex (rhs)

Shanghai Stock Exchange Composite Index (2010-June 2012)

0

3,000

6,000

9,000

12,000

15,000

0

200

400

600

800

1,000

J A J O J A J O J A

Market Value of Tradable SharesIndex (rhs)


Shenzhen Stock Exchange Component Index (2010-June 2012)

While China’s stock exchange indices remain highly volatile, the overall downward trend since the beginning of 2011 mirrors Chinese companies’ weaker domestic growth prospects

USD bn USD bn

2010 2011 2012 2010 2011 2012

The Beijing Axis 79

-10%

0%

10%

20%

30%

40%

50%

60%

70%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F

Foreign Exchange Reserves Growth Rate

Foreign Exchange Reserves (USD bn, 1997-2012F)

Note: FX stands for foreign exchange


China holds the largest FX reserves in the world, although the pace of accumulation has slowed since 2008. In 2011, China’s foreign reserves reached USD 3.2 tn, fueled in part by a solid trade surplus and FDI inflows

Slowest growth since 2001, caused

by slowing of ‘hot money’ inflows

The Beijing Axis 80

China’s FX reserves reached an all-time high of USD 3.3 tn in February 2012. However, reserves are expected to peak in the mid-term as the country transforms itself from a major exporter of goods into a major exporter of capital

Foreign Exchange Reserves (USD bn, 2010-June 2012)

Source: China Monthly Economic Indicators; People’s Bank of China; The Beijing Axis Analysis

2010 2011 2012

USD bn %

0

5

10

15

20

25

30

35

0

500

1,000

1,500

2,000

2,500

3,000

3,500

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

Foreign Exchange Reserves Y-o-Y Growth Rate (rhs)

China’s foreign exchange reserves

experienced its first quarterly drop in

more than a decade in Q4-2011

The Beijing Axis 81

According to various estimates, the renminbi remains undervalued, relative to other currencies, by some 5 to 20 percent¹

Annual RMB Exchange Rate² (2001-H1 2012)

Note: (1) There are varying perceptions on the degree of undervaluation; however, most international and domestic observers agree the currency is undervalued

(2) index 2001 = 100

Source: PBOC; Various; The Beijing Axis Analysis

60

80

100

120

140

160

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 H1 2012

EUR AUD ZAR USD RUB JPY KRW

AUD

EUR

USD

ZAR KRW JPY

RUB Renminbi appreciating against world’s

major currencies thus far in 2012

The Beijing Axis 82

Since China resumed the floating exchange rate mechanism in June 2010, the RMB has appreciated by around 12% in real terms against the US dollar

RMB to USD Exchange Rate (100, 2010-June 2012)

Source: China Monthly Economic Indicators; US Treasury Department; The Beijing Axis Analysis

620

630

640

650

660

670

680

690


2010 2011 2012

In June 2010, China announced

that it will target the RMB against

a basket of currencies rather

than solely on the USD

In April 2012, China announced that

it will widen RMB’s daily trade limit

against the USD from 0.5% to 1%


Agenda

1. Foreword







- Social Indicators




The Beijing Axis 84

China has the world’s largest population at 1.347 bn people, although its population growth rate has slowed to below 0.6%

China’s Population Indicators (mn, 1978-2011)

Source: IMF; CNBS; The Beijing Axis Analysis

0.0%

0.6%

1.2%

1.8%

0

500

1,000

1,500

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Population Population Growth Rate

The Beijing Axis 85

China’s Annual Births (mn, 1980-2011)

Source: CNBS; The Beijing Axis Analysis

0%

6%

12%

18%

0

10

20

30

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

Birth Rate Natural Growth Rate

Children born during the boom of the mid-

1980’s are entering childbearing age

China has around 12 million births per year. Although Chinese born during the boom in the mid-1980s are now reaching childbearing age, China’s birth rate has declined significantly rising costs of living are discouraging young families from having more than one child

Rising costs of living are discouraging

young urban families from having

more than one child

The Beijing Axis 86

Faced with declining birth and death rates, China’s population is now rapidly ageing. Demographers are calling on China to amend its One Child Policy to prevent China from ‘growing old before getting rich’

Breakdown of China’s Population by Age (mn, 1998 vs 2011)

Source: CNBS; The Beijing Axis Analysis

26%

68%

7%

0-14 15-64 65 and over

17%

74%

9%

1998 (Total Population - 1.2 bn) 2011 (Total Population - 1.3 bn)

123 222 84

843

321

1,002

The Beijing Axis 87

China Provincial Population Breakdown by Urban and Rural Residences (mn, 2010)

Note: Urban and rural population data for some provinces are not available

Source: Chinese Census 2010; China Statistical Yearbook; The Beijing Axis Analysis

China’s most populous provinces are located in Eastern China while the least populous provinces are generally in Western China

0 20 40 60 80 100

Guangdong Shandong

Henan Sichuan Jiangsu

Hebei Hunan Anhui Hubei

Zhejiang Guangxi Yunnan Jiangxi

Liaoning Heilongjiang

Shaanxi Fujian

Shanxi Guizhou

Chongqing Jilin

Gansu Inner Mongolia

Shanghai Xinjiang

Beijing Tianjin Hainan Ningxia Qinghai

Tibet

Urban Population

Rural Population

Total Population

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

2

4

3 5

1

Henan

Hainan

Shandong

Guangdong

Jiangsu Sichuan

31

Tibet

30

Qinghai 29

Ningxia

28

27 Tianjin

Top 5

Bottom 5

Highlighted on

map on right

Most and Least Populated Provinces (2010)

Higher wages in more developed

areas attract migrant workers from

surrounding provinces

The Beijing Axis 88

Primary industry, 266

35%

Secondary industry, 225

30%

Tertiary industry, 273

36%

In 2011, employment in China’s tertiary industry overtook the primary industry for the first time. As China’s economy continues to develop, the tertiary industry will play an even more important role

Total Employed Persons by Sector (mn, 1978-2011)

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


0

100

200

300

400

500

600

700

800

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

Primary industry

Secondary industry

Tertiary industry

Although the primary sector makes

the least contribution to GDP, it

employs a large number of people

The Beijing Axis 89

Although the income levels of urban households are three-times that of rural households, this disparity is slowly narrowing. Rural income growth now outpaces urban income growth Annual Income of Urban and Rural Households Per Capita (USD, 1997-2011)

Note: (1) Annual disposable income of urban households and net income of rural households per capita

(2) Growth rates are calculated at current prices

Source: National Statistics Database; The Beijing Axis Analysis

622 655 707 759 829

931 1,024

1,138 1,281

1,475 1,813

2,271

2,518

2,826

3,381

252 261 267 272 286 299 317 355 397 450 545 672 755 875

1,081

0%

5%

10%

15%

20%

25%

30%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Urban Rural Urban Growth Rural Growth

The Beijing Axis 90

3,000 1,000 1,000 3,000 5,000 7,000

ShanghaiBeijing

ZhejiangTianjin

GuangdongJiangsu

FujianShandong

LiaoningInner Mongolia

ChongqingGuangxi

HunanAnhui

YunnanHubei

HainanHebei

ShaanxiHenanShanxi

SichuanJilin

NingxiaJiangxi

GuizhouTibet

HeilongjiangQinghaiXinjiang

Gansu

Urban

Rural

1 2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

Beijing and Shanghai, China’s political and cultural capitals, continue to lead the country in terms of wealth accumulation. Overall, income levels are skewed towards the more developed eastern coastal provinces

Income of Urban and Rural Households Per Capita by Province (USD, 2011)


Zhejiang

Guangdong

Tianjin

Beijing

5

1

4

3

2

28 30

29

31

27

Gansu

Qinghai

Xinjiang

Top 5

Bottom 5

Highlighted on

map on right

Provinces with Highest and Lowest Urban Household Incomes (2011)

Shanghai Tibet

Heilongjiang

The Beijing Axis 91

While the downward trend of Engel’s coefficient¹ reflects a progressively higher standard of living, temporary increases in 2007, 2008 and 2011 underscore concerns over food price spikes China’s Urban and Rural Engel’s Coefficients (%, 1978-2011)

Note: Engel's Law states that household expenditure on food, on aggregate, declines as income rises; in other words, the income elasticity of demand for food on aggregate is less than one and declines towards

zero with income growth. A common application of this statistic is to regard it as a reflection of the living standards of a country. Engel’s coefficient has an inverse correlation with the standard of living of a country


25

35

45

55

65

75

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

Urban Areas Rural Areas

40.4

36.3

57.5

67.7

Temporary increases from high

levels of food inflation

Failed price reforms fueled

inflation, especially in urban

areas

The Beijing Axis 92

Income inequality in China is growing, as measured by the Gini Coefficient. Growing income equality, if left unchecked, can undermine social stability and future economic growth China’s Gini Coefficient (1978-2011)

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

0.30

0.51

0.00

0.10

0.20

0.30

0.40

0.50

0.60

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

China crossed the 0.40

recognised warning

level in 2000

0.50 signals

severe inequality

The Beijing Axis 93

China’s urban population outnumbered its rural population for the first time in 2011, marking an important milestone in China’s ongoing social and economic development

China’s Urbanisation Rate (%, 1978-2011)

Source: China Statistical Yearbook; Annual Report on Urban Development of China;The Beijing Axis Analysis

0

10

20

30

40

50

78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

China’s urbanisation rate

exceeded 50% for the first time


Agenda

1. Foreword








- Social Indicators



The Beijing Axis 95

Though affected by the global recession, China’s economy has shown greater resiliency than other major economies

GDP Growth Comparison (%, 2001-2012F)

Source: World Bank; IMF; The Beijing Axis Analysis

-10

-5

0

5

10

15

20

01 02 03 04 05 06 07 08 09 10 11 12F

Australia Brazil China India Japan Russia South Africa US EU

Over the past decade,

China’s growth has outpaced

those of large nations

China still experienced strong

economic growth despite the

global recession in 2009

The Beijing Axis 96

15.1

7.3

5.9

3.6 2.8 2.5 2.4 2.2 1.9 1.7 1.7 1.5 1.5 1.2 1.1 0.8 0.8 0.8 0.6 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.4 0.4 0.4 0.4

0

2

4

6

8

10

US

A

Chi

na

Japa

n

Ger

man

y

Fra

nce

Bra

zil

UK

Italy

Rus

sia

Can

ada

Indi

a

Spa

in

Aus

tral

ia

Mex

ico

Kor

ea

Indo

nesi

a

Net

herla

nds

Tur

key

Sw

itzer

land

Sau

di A

rabi

a

Sw

eden

Pol

and

Bel

gium

Nor

way

Iran

Tai

wan

Arg

entin

a

Aus

tria

Sou

th A

fric

a

UA

E

% of World GDP

After growing 9.2% in 2011,

China’s GDP reached USD 7.3 tn

In 2011, China strengthened its position as the world’s second-largest economy, with GDP growing by 10.5% to reach USD 7.3 tn

GDP of Top 30 Economies (USD tn, 2011)

The US is the world’s largest

economy, reaching USD 15.1 tn in

2011

World GDP in 2011 totaled

roughly USD 70 tn


21.7 10.5 8.4 5.1 4.0 3.6 3.5 3.2 2.7 2.5 2.4 2.1 2.1 1.7 1.6 1.2 1.2 1.1 0.9 0.8 0.8 0.7 0.7 0.7 0.7 0.7 0.6 0.6 0.6 0.5

The Beijing Axis 97

Although China’s economy growth slowed to 9.2% in 2011, its growth still outpaced the rest of Asia and other major economies

Annual GDP Growth for Asia and Major Economies (% y-o-y, 2011)


9.2

7.2 6.5

5.9 5.1 5.0 4.9

4.0 3.7 3.6

1.7 1.6

0.7 0.1

-0.7 -2

0

2

4

6

8

10

Chi

na

Indi

a

Indo

nesi

a

Vie

tnam

Mal

aysi

a

Hon

g K

ong

Sin

gapo

re

Tai

wan

Phi

lippi

nes

Sou

th K

orea US

Eur

o A

rea

UK

Tha

iland

Japa

n

The Beijing Axis 98

Asian economies, led by China’s 8.1% y-o-y first quarter growth rate, have outpaced the world economy thus far in 2012

GDP Growth for Asia and Major Economies (% y-o-y, Q1-2012)

Source: China Statistical Yearbook; tradingeconomics.com; The Beijing Axis Analysis

8.1 6.4 6.3

5.3 4.9

4.7 4.3

4 2.8 2.7

2 1.6

0.8 0.4 0.4 0.3

0 -0.1

-2.2 -6.5

-10 -8 -6 -4 -2 0 2 4 6 8 10

ChinaPhilippinesIndonesia

IndiaRussia

MalaysiaAustraliaVietnam

South KoreaJapan

USSingapore

BrazilHong Kong

TaiwanThailand

UKEuro Area

PortugalGreece

The Beijing Axis 99

China’s provincial GDP figures are comparable to those of national economies in Europe, Asia, Africa and Latin America

China GDP by Province Compared with Similar World Economies (USD bn, 2011)

817 744

698 493

419 376

341 326

304 304 298

271 248

234 217

194 192

182 180 174 171

161 155

136 102

87 78

39 32 25

9

840 778

636 484

419 408

346 328 316 303

279 267

248 236

218 211

191 190 178 174 174 162

140 123

101 96

72 39 31 29

9

900 600 300 0 300 600 900

GuangdongJiangsuShandongZhejiangHenanHebeiLiaoningSichuanHunanHubeiShanghaiFujianBeijingAnhuiInner MongoliaHeilongjiangShaanxiGuangxiJiangxiTianjinShanxiJilinChongqingYunnanXinjiangGuizhouGansuHainanNingxiaQinghaiTibet

Netherlands Turkey Switzerland Norway Austria South Africa Thailand Colombia Venezuela Greece Malaysia Finland Chile Egypt Ireland Pakistan Algeria Romania Kazakhstan Qatar Peru New Zealand Hungary Vietnam Angola Slovak Oman Lebanon Ethiopia Jordan Chad

Source: China Statistical Yearbook; IMF; The Beijing Axis Analysis

The Beijing Axis 100

Since 1980, China’s annual GDP growth rate has always exceeded the world average. China’s average growth rate of 9.7% during this period outpaces the US growth rate of 2.7%

China vs. US, Annual GDP Growth (% y-o-y, 1980-2012F)


-4

0

4

8

12

16

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12F

China US World Average


China’s sustained rapid economic growth over the past three decades has enabled it to surpass many other developed economies

GDP of Top Economies, excl. US (USD bn, 1990-2015F)

Note: Forecast GDP growth based on IMF Economic Outlook


China Rank 10 10 9 7 9 8 7 7 7 7 6 6 6 6 6 5 4 3 3 3 2 2 2 2 2 …1?

0

2,000

4,000

6,000

8,000

10,000

12,000

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F 13F 14F 15F

China

Japan

Germany

France

Brazil

UK

Russia

India

Indonesia

South Africa

2005: China

Surpassed

France

2007: China

surpassed

Germany

2006: China

surpassed UK

2010: China

surpassed

Japan

2000: China

surpassed

Italy

1996: China

surpassed

Brazil

1995: China

surpassed

Canada

2011

2

3

4

5

6

7

9

11

16

29

2015F

2

3

4

5

6

7

8

9

16

28

Rank

At current growth

rates, China is likely

to overtake the US

around 2025


Despite the size of its economy, China’s GDP per capita remains low compared to other developed and developing countries. In 2011, China’s GDP per capita reached USD 5,414

Nominal GDP Per Capita (USD, 2011)

Source: IMF; National Bureau of Statistics of China; The Beijing Axis Analysis

USD 25,000 or more

USD 10,000-USD 25,000

USD 2,500-USD 10,000

Less than USD 2,500 or no data


0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

01 02 03 04 05 06 07 08 09 10 11

Australia Brazil China

India Japan Russia

South Africa US EU

GDP Per Capita Comparison of Selected Economies (USD, 2001-2011)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

01 02 03 04 05 06 07 08 09 10 11

Brazil China India

Russia South Africa

Source: IMF; World Bank; The Beijing Axis Analysis

On a per capita basis, China still has a long ways to go before it catches up with developed economies

In 2011, China’s

GDP per capita

reached USD 5,414


0%

20%

40%

60%

80%

100%

US

Chi

na

Japa

n

Ger

man

y

Fra

nce

UK

Bra

zil

Italy

Rus

sia

Can

ada

Indi

a

Aus

tral

ia

Spa

in

Mex

ico

Sou

th K

orea

Indo

nesi

a

Tur

key

Net

herla

nds

Sau

di A

rabi

a

Sw

itzer

land

Sw

eden

Pol

and

Nor

way

Bel

gium Iran

Tai

wan

Arg

entin

a

Sou

th A

fric

a

Aus

tria

UA

E

Agriculture Industry Services

Unlike other large economies, China’s economy is still dominated by its secondary industry

Share of GDP by Industry (%, 2011)

Note: 2011 figures are estimates

Source: CIA World Factbook; UNCTAD; The Beijing Axis Analysis

GDP Rank 2011

Advancing the services

industry is an integral part of

the current 12th Five-Year Plan


-20

0

20

40

60

80

100

120

US

A

Chi

na

Japa

n

Ger

man

y

Fra

nce

UK

Bra

zil

Italy

Rus

sia

Can

ada

Indi

a

Aus

tral

ia

Spa

in

Mex

ico

Kor

ea

Indo

nesi

a

Tur

key

Net

herla

nds

Sau

di A

rabi

a

Sw

itzer

land

Sw

eden

Pol

and

Nor

way

Bel

gium Iran

Tai

wan

Arg

entin

a

Sou

th A

fric

a

Aus

tria

UA

E

Net Exports Final Consumption Expenditure Gross Capital Formation

China remains dependent on gross capital formation for GDP growth. With gross capital formation at 54% of GDP in 2011, China’s investment/GDP ratio remains the highest in the world

Composition of GDP - Expenditure Approach (%, 2011)

Source: UNCTAD; China Statistical Yearbook; The Beijing Axis Analysis


Agenda

1. Foreword








- Social Indicators




(500)

0

500

1,000

1,500

2,000

2,500

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

In 2011, China was the world’s largest exporter with an exported total value of USD 1.9 tn, about 26% of its GDP

World’s Major Exporters (2011)

Note: To make international comparisons, this section utilises China’s export figure from the IMF instead of the one from MOFCOM

Source: IMF; UN Comtrade; The Beijing Axis Analysis

Exports (USD bn)

Export/GDP (%)

US

Italy Japan

Poland

UK

Hungary Ukraine

Indonesia

Malaysia

Finland

Brazil

Colombia

Belgium

Algeria

Canada

South Africa

China

Romania

S. Korea

Slovakia

Germany

Bubble Size: GDP=USD 1,000 bn


China has widened its lead as the world’s largest exporter of electrical machinery. In 2011, China exported a total of USD 446 bn or 24.2% of the world’s total electrical machinery China’s Top 10 Export Commodities 2011 (HS Code)


0 100 200 300 400 500

ChinaHong Kong

USGermany

JapanSingapore

S. KoreaMexico

MalaysiaFrance

UKHungary

ItalyThailand

CzechPoland

BelgiumSlovakiaCanada

Switzerland

Total: USD 1,898 bn

Electrical machinery and equipment

Nuclear reactors, machinery and mechanical appliances

Articles of apparel and clothing accessories (knitted)

Articles of apparel and clothing accessories (not knitted)

Optical, photo, technical, medical, etc. apparatus

Furniture, lighting, signs, prefabricated buildings

Iron and steel

Vehicles other than railway, tramway

Plastics and articles thereof

Ships, boats and other floating structures

24.2%

10.6%

8.6%

8.1%

7.0%

6.5%

6.4%

3.8%

3.3%

2.6%

1.8%

1.8%

1.8%

1.7%

1.5%

1.1%

0.9%

0.9%

0.8%

0.8%

% of World Total

85

84

61

62

90

94

73

87

39

89

Other

23%

19%

3%

2%

34%

3%

3% 3%

4%

3%

2%

Top 20 Exporters of Electrical Machinery (USD bn, 2011)


China’s Top 10 Export Commodities 2011 (HS Code)

Top 20 Exporters of Power Generation Equipment (USD bn, 2011)

China is the world’s largest exporter of power generation equipment. In 2011, China exported a total of USD 354 bn or 19.7% of the world’s power generation equipment

0 100 200 300 400

ChinaGermany

USJapan

ItalyUK

FranceHong Kong

S. KoreaSingapore

MexicoBelgiumThailand

Czech Rep.Canada

SwitzerlandMalaysia

PolandHungary

Brazil

19.7%

14.5%

11.4%

9.5%

5.8%

3.8%

3.7%

3.5%

3.3%

3.2%

2.7%

2.0%

1.9%

1.8%

1.8%

1.6%

1.4%

1.2%

1.1%

0.8%

% of World Total


Total: USD 1,898 bn







Iron and steel




85

84

61

62

90

94

73

87

39

89

Other

23%

19%

3%

2%

34%

3%

3% 3%

4%

3%

2%




Top 20 Exporters of Knitted Articles of Apparel (USD bn, 2011)

China is by far the world’s largest exporter of knitted articles of apparel and clothing accessories. In 2011, China exported a total of USD 80 bn or 51.1% of the world’s knitted apparel and clothing accessories

% of World Total

0 20 40 60 80

ChinaHong Kong

GermanyItaly

BelgiumFrance

IndonesiaUKUS

PakistanPortugal

Sri LankaThailand

MexicoPoland

PeruRomania

GuatemalaJordan

S. Korea

51.1%

7.9%

5.9%

5.2%

2.9%

2.7%

2.3%

1.8%

1.5%

1.4%

1.4%

1.4%

1.3%

1.1%

1.0%

0.9%

0.7%

0.6%

0.6%

0.6%

Total: USD 1,898 bn







Iron and steel




85

84

61

62

90

94

73

87

39

89

Other

23%

19%

3%

2%

34%

3%

3% 3%

4%

3%

2%




Top 20 Exporters of Non-knitted Articles of Apparel (USD bn, 2011)

China is the world’s largest exporter of non-knitted articles of apparel. In 2011, China exported a total of USD 63 bn or 43.1% of the world’s non-knitted articles of apparel

0 10 20 30 40 50 60 70

ChinaItaly

Hong KongGermany

FranceIndonesia

BelgiumUK

MexicoRomania

USPoland

Sri LankaPakistanPanamaThailandPortugalBulgaria

SwitzerlandCzech Rep.

43.1%

9.0%

7.4%

7.3%

4.0%

2.8%

2.7%

2.4%

1.9%

1.7%

1.5%

1.3%

1.3%

1.2%

0.9%

0.9%

0.8%

0.7%

0.7%

0.6%

% of World Total

Total: USD 1,898 bn







Iron and steel




85

84

61

62

90

94

73

87

39

89

Other

23%

19%

3%

2%

34%

3%

3% 3%

4%

3%

2%




Top 20 Exporters of Optical and Photographic Equipment (USD bn, 2011)

China is the third-largest exporter of optical and photographic equipment. In 2011, China exported over 13% of the world’s products in this category, indicating that the country is moving up the value chain

% of World Total

0 20 40 60 80

USGermany

ChinaJapan

S. KoreaFrance

UKSwitzerlandHong Kong

ItalySingapore

BelgiumIrelandMexico

MalaysiaCanada

IsraelHungaryThailandAustralia

17.2%

14.5%

13.2%

9.9%

8.0%

4.0%

3.9%

3.5%

3.3%

2.6%

2.6%

2.5%

2.4%

2.4%

1.3%

1.3%

0.9%

0.9%

0.8%

0.6%

Total: USD 1,898 bn







Iron and steel




85

84

61

62

90

94

73

87

39

89

Other

23%

19%

3%

2%

34%

3%

3% 3%

4%

3%

2%


In 2011, China was the second-largest importer after the US, importing a total of USD 1,743 bn worth of goods, equivalent to about 24% of its GDP

World’s Major Importers (USD bn, 2011)

Note: To make international comparisons, this section utilises China’s import figure from the IMF instead of the one from MOFCOM


0

400

800

1,200

1,600

2,000

2,400

2,800

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Ukraine

US

Japan

China

Imports (USD bn)

Imports/GDP (%)

S. Korea

Malaysia

US

Brazil Poland

Bubble Size: GDP=USD 1,000 bn

UK

Italy Canada

South Africa

Romania

Belgium

Slovakia Hungary

Germany

Finland

Philippines

Israel

Indonesia


China’s Top 10 Import Commodities 2011 (HS Code)


Top 20 Importers of Electrical Machinery (USD bn, 2011)

China is the world’s largest importer of electrical machinery and equipment. In 2011, China imported a total of USD 351 bn or 17.8% of the world’s electrical machinery and equipment

85

27

84

26

90

39

87

29

74

99

Other

0 50 100 150 200 250 300 350

ChinaUS

Hong KongGermany

JapanSingapore

MexicoKorea

FranceUK

MalaysiaCanada

ItalyThailand

RussiaBrazil

HungaryCzech Rep.

AustraliaBelgium

% of World Total

Total: USD 1,743 bn


Mineral fuels, mineral oils and products of their distillation


Ores, slag and ash

Optical, photographic and cinematographic, equipment



Organic chemicals

Copper and articles thereof

Commodities not elsewhere specified

17.8%

14.4%

10.4%

7.1%

4.7%

4.4%

3.9%

3.5%

3.0%

3.0%

2.6%

2.3%

2.3%

1.8%

1.6%

1.3%

1.3%

1.2%

1.2%

1.1%

21%

20%

16%

11%

9%

6%

4% 4%

3% 3%

4%


0 100 200 300 400 500

USChinaJapanKorea

GermanySingapore

FranceItaly

UkraineBelgiumCanada

ThailandBrazil

IndonesiaAustralia

MexicoUkrainePoland

MalaysiaSouth Africa



Top 20 Importers of Mineral Fuels (USD bn, 2011)

China is the world’s second-largest importer of mineral fuels. In 2011, China imported a total of USD 276 bn or 10.7% of the world’s mineral fuels

18.0%

10.7%

10.6%

6.7%

6.6%

4.6%

4.5%

4.3%

3.5%

3.0%

2.1%

1.7%

1.6%

1.6%

1.5%

1.4%

1.1%

1.0%

0.9%

0.8%

85

27

84

26

90

39

87

29

74

99

Other

Total: USD 1,743 bn




Ores, slag and ash




Organic chemicals



21%

20%

16%

11%

9%

6%

4% 4%

3% 3%

4%

% of World Total




Top 20 Importers of Power Generation Equipment (USD bn, 2011)

China is the world’s second-largest importer of power generation equipment. In 2011, China imported a total of USD 199 bn or 11.7% of the world’s power generation equipment

0 50 100 150 200 250 300

USChina

GermanyFrance

UKCanada

Hong KongJapan

MexicoRussia

S. KoreaSingapore

ItalyBelgiumAustralia

BrazilThailand

Czech Rep.Indonesia

Poland

17.3%

11.7%

9.0%

4.6%

4.4%

3.8%

3.8%

3.8%

3.2%

3.0%

2.9%

2.9%

2.6%

2.2%

2.0%

2.0%

1.7%

1.6%

1.5%

1.4%

85

27

84

26

90

39

87

29

74

99

Other

Total: USD 1,743 bn




Ores, slag and ash




Organic chemicals



21%

20%

16%

11%

9%

6%

4% 4%

3% 3%

4%

% of World Total




Top 20 Importers of Ores, Slag and Ash (USD bn, 2011)

China is the world’s largest importer of ores, slag and ash. In 2011, China imported a total of USD 150.7 bn or 55.8% of the world’s ores, slag and ash

0 20 40 60 80 100

ChinaJapan

S. KoreaGermanyBelgium

USUK

CanadaItaly

FranceFinland

BulgariaBrazil

BahrainChile

ArgentinaCzech Rep.

MalaysiaMexicoUkraine

55.8%

14.5%

7.9%

4.9%

1.7%

1.5%

1.5%

1.4%

1.3%

1.1%

1.0%

0.8%

0.6%

0.5%

0.5%

0.5%

0.4%

0.4%

0.4%

0.4%

150.7

85

27

84

26

90

39

87

29

74

99

Other

Total: USD 1,743 bn




Ores, slag and ash




Organic chemicals



21%

20%

16%

11%

9%

6%

4% 4%

3% 3%

4%

% of World Total




Top 20 Importers of Optical and Photographic Equipment (USD bn, 2011)

China is the world’s largest importer of optical and photographic equipment. In 2011, China imported a total of USD 99 bn or 22.7% of the world’s optical and photographic equipment

0 20 40 60 80 100

ChinaUS

GermanyJapan

FranceKorea

UKHong Kong

CanadaItaly

BelgiumMexico

SingaporeAustralia

RussiaSwitzerland

BrazilPoland

MalaysiaThailand

22.7%

15.4%

8.4%

5.7%

4.4%

3.9%

3.7%

3.5%

2.9%

2.8%

2.6%

2.6%

2.1%

1.8%

1.7%

1.6%

1.4%

1.3%

1.2%

1.1%

85

27

84

26

90

39

87

29

74

99

Other

Total: USD 1,743 bn




Ores, slag and ash




Organic chemicals



21%

20%

16%

11%

9%

6%

4% 4%

3% 3%

4%

% of World Total


-782.9

155.0

-31.3

221.9

-0.2

-162.3

29.8

-34.3

-129.6

-0.1

193.3

-69.3

11.3

-1.3

30.8 52.7

-71.6

26.1 27.2 12.7

-19.7

9.7

144.3

29.1 54.1

-5.7

14.8

-6.8

0.3

-42.1

-200

-150

-100

-50

0

50

100

150

200

US

Chi

na

Japa

n

Ger

man

y

Fra

nce

UK

Bra

zil

Italy

Indi

a*

Can

ada

Rus

sia

Spa

in*

Aus

tral

ia

Mex

ico

Kor

ea

Net

herla

nds

Tur

key

Indo

nesi

a

Sw

itzer

land

Bel

gium

Pol

and

Sw

eden

*

Sau

di A

rabi

a*

Iran

*

Nor

way

*

Aus

tria

*

Arg

entin

a

Sou

th A

fric

a

Tha

iland

Den

mar

k*

Trade Balance of the World’s Major Economies (USD bn, 2011)

*Note: Trade balance from these countries are for 2010


China’s foreign trade is becoming more balanced, as China’s 2011 trade surplus narrowed to USD 155 bn, or roughly half its 2008 surplus


Agenda

1. Foreword








- Social Indicators




0 50 100 150 200 250

USFranceJapan

GermanyHong Kong

ChinaRussia

ItalyCanadaNorwaySwedenVirgin Is.

IrelandUK

AustraliaNetherlands

SpainDenmark

SwitzerlandLuxembourg

397

0 50 100 150 200

USJapan

UKFrance

Hong KongBelgium

SwitzerlandRussiaChina

Virgin Is.Germany

CanadaItaly

SpainNetherlands

AustriaSweden

SingaporeDenmarkS. Korea

Note: To make international comparisons, this section utilises China’s FDI and OFDI figures from the WIR 2012 instead of figures from MOFCOM

Source: WIR; The Beijing Axis Analysis

329

0 50 100 150 200

USGermany

FranceHong Kong

ChinaSwitzerland

JapanRussia

CanadaBelgium

NetherlandsSwedenAustralia

SpainItaly

Virgin Is.Singapore

S. KoreaLuxembourg

Ireland

In 2011, China ranked 9th overall and second among all developing economies in OFDI, with total outbound investment reaching USD 65 bn

In 2011, China’s ranking

slipped to 9th overall, as the

Euro debt crisis discouraged

overseas investments

In 2010, China

ranked 5th In 2009, China

ranked 6th

Top 20 World FDI Outflows (USD bn, 2009-2011)


0 50 100 150 200 250

USChina

BelgiumHong Kong

BrazilSingapore

UKVirgin Is.

RussiaAustrliaFrance

CanadaGermany

IndiaSpain

ItalyMexico

IndonesiaLuxembourg

Chile

Top 20 World FDI Inflows (USD bn, 2011)

Source: WIR 2012; The Beijing Axis Analysis

Top 20 World FDI Outflows (USD bn, 2011)

China’s FDI inflows outweigh its FDI outflows. In 2011, China ranked second in the world in for FDI inflow with USD 124 bn, while it ranked only ninth for OFDI with USD 65 bn

397 0 100 200 300

USJapan

UKFrance

Hong KongBelgium

SwitzerlndRussiaChina

Virgin Is.Germany

CanadaItaly

SpainNetherlands

AustriaSweden

SingaporeDenmarkS. Korea

China ranked 2nd

China ranked 9th


Top 20 World FDI Inward Stock (USD bn, 2011)


Top 20 World FDI Outward Stock (USD bn, 2011)

China ranked 7th overall and 2nd in Asia for FDI stock with USD 712 bn in 2011. For OFDI, it ranked 15th with USD 366 bn

0 1,000 2,000 3,000 4,000 5,000

USUK

GermanyFrance

Hong KongSwitzerland

JapanBelgium

NetherlandsCanada

SpainItaly

Virgin Is.Australia

ChinaRussia

SwedenSingapore

IrelandDenmark

0 1,000 2,000 3,000 4,000

USUK

Hong KongFrance

BelgiumGermany

ChinaBrazilSpain

CanadaNetherlandsSwitzerland

SingaporeAustralia

RussiaSweden

ItalyMexico

Virgin Is.Ireland

China ranked 7th

China ranked 15th


60

40

20

0

20

40

60

US

Chi

na

Japa

n

Ger

man

y

Fra

nce

Bra

zil

UK

Italy

Rus

sia

Can

ada

Indi

a

Spa

in

Aus

tral

ia

Mex

ico

S. K

orea

Indo

nesi

a

Net

herla

nds

Tur

key

Sw

itzer

land

Sau

di A

rabi

a

Inflow Outflow

China’s inflows and outflows as a percentage of GFCF remain relatively small. From 2010 to 2011, China’s FDI inflows and outflows both decreased

Top 20 GDP Countries’ FDI Inflow/Outflow as a Percentage of Gross Fixed Capital Formation (%, 2011)

Note: GFCF = Gross fixed capital formation


3% -16% 28% -21% 19% 4% 1% 194% -5% 54% 44% -29% 2% -18% -48% 15% -270% 39% -101% -41%

17% -26% 84% -54% 5% -107% 158% 34% 0% 13% 24% -5% 37% -43% -17% 145% -49% 33% -11% -12%

Growth 2010-2011

Growth 2010-2011


200

150

100

50

0

50

100

150

US

Chi

na

Japa

n

Ger

man

y

Fra

nce

Bra

zil

UK

Italy

Rus

sia

Can

ada

Indi

a

Spa

in

Aus

tral

ia

Mex

ico

S. K

orea

Indo

nesi

a

Net

herla

nds

Tur

key

Sw

itzer

land

Sau

di A

rabi

a

Inward Stock Outward Stock

China’s inflows and outflows as a percentage of GDP also remain relatively small when compared to other large economies. Both inward and outward FDI stock remained stagnant from 2010 to 2011

Top 20 GDP Countries’ FDI Inward/Outward Stock as a Percentage of GDP (%, 2011)


Growth 2010-2011

Growth 2010-2011

-1% -2% -2% -6% -15% -14% -3% -6% -25% -8% -13% -8% -16% -18% -5.7% -6% -8% -29% -14% -14%

-9% 0% 8% -8% -20% -7% 0% -2% -21% -5% 2% -8% -20% -4% 4% 359% -9% 5% -12% -12%


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

foreign affiliates in the host economy; net cross-border M&A purchases by a home economy = Purchases of companies abroad by home-based TNCs (-) Sales of foreign affiliates of home-based TNCs


Value of Cross-Border M&A ‘Net Sales’ for World’s Top 20 Countries (USD bn, 2011)

China now ranks 5th overall in cross-border M&A ‘net purchases.’ Increasingly competitive Chinese companies are becoming attractive targets for foreign investors with China ranking 14th overall in ‘net sales’

0 50 100 150

US

UK

Australia

Canada

Russia

France

Switzerland

Spain

Brazil

Netherlands

Italy

Germany

India

China

Poland

Luxembourg

Norway

Denmark

Sweden

Turkey

0 50 100 150

USJapan

UKCanada

ChinaFrance

NetherlandsSwitzerland

SpainHong Kong

IsraelKazakhstan

BelgiumSingapore

AustraliaIndia

JerseyUnited Arab Emirates

BrazilNew Zealand

China ranks 5th

China ranks 14th

Value of Cross-Border M&A ‘Net Purchases’ for World’s Top 20 Countries (USD bn, 2011)


Sovereign wealth funds are playing an ever greater role in overseas investment. China is home to four of the world’s largest sovereign wealth funds

Top 30 Principal Sovereign Wealth Funds (2012)

Note: We provide a breakdown in the next slide


<USD 100 bn

>USD 500 bn

USD 300 bn – USD 500 bn

USD 100 bn – USD 300 bn

China

1. State Administration of

Foreign Exchange (SAFE)

2. China Investment

Corporation (CIC)

3. Hong Kong Monetary

Authority (HKMA)-

Exchange Fund

4. National Social Security

Fund


Four Chinese sovereign wealth funds rank among the top 15 in the world in terms of assets under management. The combined assets under management by these four funds currently stands at around USD 1.4 tn

*Note: As of July 2012

Source: SWF Institute; The Beijing Axis Analysis

Names and Locations of World’s Top 30 Sovereign Wealth Funds (2012) Rank Economy Fund Assets under management* (USD bn)

1 United Arab Emirates Abu Dhabi Investment Authority (ADIA) 627

2 Norway Government Pension Fund-Global (GPF-G) 593

3 China SAFE Investment Company 568

4 Saudi Arabia Saudi Arabia Monetary Authority foreign holdings 533

5 China China Investment Corporation 440

6 Kuwait Kuwait Investment Authority (KIA) 296

7 China – Hong Kong Hong Kong Monetary Authority Investment Portfolio 293

8 Singapore Government of Singapore Investment Corporation 248

9 Singapore Temasek Holdings 158

10 Russia National Welfare Fund 150

11 China National Social Security Fund 135

12 Qatar Qatar Investment Authority 100

13 Australia Australian Future Fund 80

14 United Arab Emirates Investment Corporation of Dubai 70

15 UAE – Abu Dhabi International Petroleum Investment Company 65

16 Libya Libyan Investment Authority 65

17 Kazakhstan Kazakhstan National Fund 58

18 Algeria Revenue Regulation Fund 57

19 UAE – Abu Dhabi Mubadala Development Company 48

20 South Korea Korea Investment Corporation 43

21 US – Alaska Alaska Permanent Fund 40

22 Malaysia Khazanah Nasional 37

23 Azerbaijan State Oil Fund 30

24 Ireland National Pensions Reserve Fund 30

25 Brunei Brunei Investment Agency 30

26 France Strategic Investment Fund 28

27 US – Texas Texas Permanent School Fund 24

28 Iran Oil Stabilisation Fund 23

29 New Zealand New Zealand Superannuation Fund 16

30 Canada Alberta’s Heritage Fund 15


Agenda

1. Foreword








- Social Indicators




In 2011, China had the world’s largest current account balance at USD 281 bn, followed by Saudi Arabia (USD 151 bn) and Germany (USD 149 bn)

Current Account Balance for Select Countries (USD bn, 2011)

Source: CIA World Factbook; The Beijing Axis Analysis

Top 5 current account surpluses

Top 5 current account deficits

US

-600 bn

Russia

91 bn

Japan

123 bn

China

281 bn Turkey

-72 bn

Italy

-78 bn

Germany

149 bn

UK

-67 bn

Saudi

Arabia

151 bn

France

-74 bn


China, the world’s largest holder of foreign exchange reserves, possesses more than triple the FX reserves of the next largest holder, Japan. Asian countries dominate the top 15 Top 30 Largest Holders of Foreign Exchange and Gold Reserves (USD bn, 2011E)

Note: Estimates are as of 31 December 2011


0

400

800

1,200

1,600

2,000

Chi

na

Japa

n

Sau

di A

rabi

a

Rus

sia

Tai

wan

Bra

zil

Indi

a

S.K

orea HK

Sw

itzer

land

Sin

gapo

re

Ger

man

y

Alg

eria

Tha

iland

Fra

nce

Italy

Mex

ico

Indo

nesi

a

US

Mal

aysi

a

Pol

and

Iran

Tur

key

Den

mar

k

UK

Isra

el

Phi

lippi

nes

Liby

a

Can

ada

UA

E

3,236

Asia


In 2011, China’s external debt of around USD 700 bn accounted for less than 1% of the world’s total external debt

Top 30 Economies with Largest External Debt (USD bn, Q2-2011)

Note: (1) As of Q3-2011

(2) As of Q4-2011


0

4,000

8,000

12,000

16,000

EU

US

UK

Fra

nce

Ger

man

y

Japa

n

Italy

Net

herla

nds

Spa

in

Irel

and¹

Luxe

mbo

urg

Bel

gium

Aus

tral

ia²

Sw

itzer

land

Can

ada

Sw

eden

Hon

g K

ong

Aus

tria

Chi

na¹

Nor

way

Den

mar

k

Gre

ece

Fin

land

²

Por

tuga

l

Rus

sia¹

Bra

zil²

S. K

orea

²

Tur

key²

Pol

and²

Indi

a²

16,080

The external debt of the

EU was USD 16,080 bn

At the end of Q3 2011,

China’s external debt

amounted to USD 697 bn


As of July 2012, China’s discount rate stood at 6%, which is lower than that of other large developing economies

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

(2) The central bank discount rate is updated to the latest available month in 2012.

Source: IMF; Various; The Beijing Axis Analysis

Central Bank Discount Rate1 of Select Economies (%, 20122)

0

5

10

15

20

Ken

ya

Vie

tnam

Bra

zil

Rus

sia

Indi

a

Chi

na

Indo

nesi

a

Tur

key

Col

ombi

a

Sou

th A

fric

a

Chi

le

Mex

ico

Aus

tral

ia

S. K

orea

Can

ada

EU

UK

US

Japa

n

6%

High rate countries

Medium rate

countries

Low rate countries


0

20

40

60

Mad

agas

car

Bra

zil

Kyr

gyzs

tan

Par

agua

y

Gam

bia

Mon

golia

Tan

zani

a

Bur

undi

Arg

entin

a

Bul

garia

Cro

atia

Hun

gary

Sou

th A

fric

a

Rus

sia

Nam

ibia

Alg

eria

Aus

tral

ia

Chi

na

New

Zea

land

Cze

ch R

epub

lic

Bru

nei

Sin

gapo

re

Italy

Isra

el

Bah

amas

Sw

itzer

land

Net

herla

nds

Japa

n

UK

As of April 2012, China’s prime lending rate was 6.56%, which is comparable to that of its Asia-Pacific neighbors Australia and New Zealand

Note: (1) Prime lending rate is a short-term interest rate quoted by a commercial bank 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 prices.

(2) All lending rates are updated to the latest available monthly data in 2012. For February: Madagascar, Namibia; for March: Burundi, Brunei, Israel, Switzerland; for May: South Africa, Algeria, Australia,

Bahamas, Singapore, UK, Mongolia; all other countries are updated as of April.

Source: Various; The Beijing Axis Analysis

… …

High rate countries

Medium rate countries

Low rate countries 6.56

Commercial Bank Prime Lending Rate1 of Select Economies (%, 20122)


Agenda

1. Foreword








- Social Indicators




China is the most populous country in the world with 1.3 billion people. A cultural preference for male heirs has left China with one of the highest male-to-female ratios in the world, alongside UAE, Saudi Arabia and India Population of Top 30 Economies by GDP (mn, 2012)

Source: IMF; CIA World Factbook; The Beijing Axis Analysis

USChinaJapan

GermanyFrance

BrazilUnited Kingdom

ItalyRussia

CanadaIndia

SpainAustralia

MexicoS. Korea

IndonesiaNetherlands

TurkeySwitzerland

Saudi ArabiaSwedenPoland

BelgiumNorway

IranTaiwan

ArgentinaAustria

South AfricaUnited Arab Emirates

GDP rank 2011 Total

97 106 94 97 96 98 99 93 85 98

108 97

100 96

100 100

98 102

97 121 98 94 96 98

103 101 97 95 99

219

652 691

579 626

Ratio

Male/female

314 1,343

127 81 66

206 63 61

138 34

1,205 47 22

115 49

248 17 80

8 27 9

38 10 5

79 23 42

8 49 5

Female Male


0

5

10

15

20

25

30

35

0 5 10 15 20 25 30

While China currently has a demographic makeup that is highly favourable, its productive age population (15-64) is forecasted to shrink around 2015 due to a rapidly ageing population

Child and Elderly Population for Selected Countries (2012F)

Source: UN Population Division; The Beijing Axis Analysis

% Population under 15

% Population aged 65+

India

Saudi Arabia

Poland S. Korea

US

Canada

Norway

Belgium

Argentina

France

Russia

Austria

China Sweden

United Arab Emirates Iran

Taiwan

A bubble this size represents a

population of 10,000

Japan

Germany Italy Switzerland Spain

UK

Netherland

Australia

Turkey Brazil

Mexico

South Africa


86 78 74

51

80 85 68

77 81 87 73

31

83 78 68

83 70

97 85

44 61

74 79 82 68 61

87

62 71

92

14 22 26

49

20 15 32

23 19 13 27

69

17 22 32

17 30

3 15

56 39

26 21 18 32 39

13

38 29

8

US

*

Japa

n*

Ger

man

y

Chi

na*

UK

Fra

nce

Italy

Spa

in

Can

ada

Bra

zil

Rus

sia

Indi

a*

S. K

orea

Mex

ico

Aus

tria

Net

herla

nds

Tur

key

Bel

gium

Sw

eden

Indo

nesi

a

Pol

and

Sw

itzer

land

Nor

way

S. A

rabi

a

Aus

tria

Gre

ece

Den

mar

k

S. A

fric

a

Iran

Arg

entin

a

Urban Rural

China’s urbanisation surpassed 50% for the first time in 2011. China, along with India, has the fastest urbanisation rate among large economies

Urban and Rural Population of Selected Economies (%, 2010)

*Note: Urbanisation figures from these countries have been updated to 2011

Source: CIA World Factbook; World Bank; The Beijing Axis Analysis

Annual rate of urbanisation change (%, 2010-2015F)

0

100

Urban 1.2 0.2 0.0 2.3 0.7 1.0 0.5 1.0 1.1 1.1 -0.2 2.4 0.6 1.2 0.6 0.8 1.7 0.4 0.6 1.7 -0.1 0.5 1.2 2.2 0.6 0.6 0.4 1.2 1.9 1.1


10080604020020406080100

USChinaJapan

GermanyFrance

BrazilUK

ItalyRussia

CanadaIndia

SpainAustralia

MexicoS. Korea


TurkeySwitzerland

S. ArabiaSwedenPoland

BelgiumNorway

IranTaiwan

ArgentinaAustriaGreece

UAEDenmark

Male Female

While the average life expectancy for both males and females in China is higher than in other large developing economies, it still lags behind more developed economies

Life Expectancy (years, 2012)


GDP Rank 2011


China’s economic activity rate is comparatively larger than those of major developed economies. China has the second-highest female economic activity rate among the world’s top economies

Adult (15 and older) Economic Activity Rate (%, 2010)

Source: UN Statistics Division; The Beijing Axis Analysis

10080604020020406080100

USChinaJapan

GermanyFrance

BrazilUK

ItalyRussia

CanadaIndia

SpainAustralia

MexicoS. Korea


TurkeySwitzerland

S. ArabiaSwedenPoland

BelgiumNorway

IranArgentina

AustriaGreece

UAEDenmark

Male FemaleGDP Rank 2011

Total 63.7 74.2 60.4 59.6 56.4 69.9 61.9 48.3 62.7 66.6 55.6 59.3 65.5 61.7 60.3 67.4 64.8 49.5 67.8 50.0 63.7 55.9 54.0 65.8 44.3 60.5 60.6 54.5 79.1 64.6


Agenda

1. Foreword







Conclusions


Indicators Conclusions

Selected Macroeconomic Data

The ongoing European debt crisis and slower-than-expected recovery of the US economy is prompting China to take measures aimed at turning

around a six-quarter slowdown in economic growth. China’s economy expanded by 7.8% in the first half of 2012, down from 9.2% in 2011. For the

year, GDP is forecasted to grow by around 8%, the lowest in a decade. With growth yet to rebound amidst a slowing world economy, speculation

abounds as to whether China’s economy is headed for a ‘soft’ or ‘hard’ landing. Meanwhile, the Chinese government is steering economic growth

to become more reliant on domestic consumption as part of its long term goal of rebalancing the economy.

Trade China's trade surplus fell to USD 155 bn in 2011 and has been steadily declining over the past three years. This trend is likely to continue as the economies of key export markets such as the US and Europe continue to grapple with high debt levels. A rising Chinese RMB against the USD is expected to further contribute to this decline by making Chinese exports more expensive and foreign imports more affordable. Furthermore, as Chinese manufacturers move up the value chain, the complexity and subsequent value of China’s exports will continue to increase.

Investment China’s total fixed asset investment reached USD 4.8 tn in 2011. Most of this investment is disproportionally allocated to already developed coastal provinces that are highly urbanised, fueling massive real estate speculation in many of China’s largest cities. While policymakers were previously preoccupied with curbing inflation largely a result of rising food prices, attention has now shifted into boosting growth with inflation cooling below the government’s official target in H1 2012. A slowing Chinese economy and weak global recovery is coercing the Chinese government to promote reasonable investment growth into urban infrastructure projects and opening the private sector to investment in state-dominated industries. Meanwhile, Chinese companies continues to search for strategic acquisitions overseas to gain access to resources and technological know-how.

Financial A high national saving’s rate and decades of trade surpluses have resulted in China having a massive financial sector with excessive liquidity. With

this much liquidity, Chinese banks have naturally been seeking overseas expansion and are actively looking for more OFDI opportunities.

Furthermore, there is political pressure for China’s state-owned banks to accelerate their pace of internationalisation, particularly in developing

countries that are attracting significant Chinese investment. China is now also the world’s second-largest equity market and is continuing with

reform to upgrade its financial markets to match the status of China’s role in the world economy.

Social While the One Child Policy achieved its goal of controlling China’s population growth, it also had negative unintended consequences such as a

skewed male-to-female ratio and a rapidly ageing population. Since the late 1980s, China’s birth rate has been in steady decline, leaving the

possibility that the population will ‘grow old before getting rich’. Meanwhile, continued mass migration to more-developed coastal provinces has

resulted in China’s urbanisation rate exceeding 50% for the first time in 2011.


Implications


Indicators Implications

Selected Macroeconomic Data

China's 30 years of uninterrupted growth is unprecedented. While some sort of correction can be expected in the near future, how the government

responds remains far more important than preventing such an economic slowdown. Central planners will most likely take actions to ensure that

Chinese economic growth stabilises to between 7% to 8% annually for the coming years, which should erase fears of a ‘hard’ landing and keep

China on its path towards becoming the world’s largest economy by 2025. In addition, shifting the focus of economic growth to domestic demand

will provide foreign companies with more opportunities to target Chinese consumers.

Trade With the US and Europe mired in debt and an economic slowdown, China is looking towards other developing markets such as Latin America and Africa to make up for the loss of export sales to developed economies, with the developing world accounting for an ever larger share of China’s trade in recent years. As China rebalances its trade structure, expect more Chinese companies to have a stronger presence in these markets. The renminbi’s appreciation, coupled with China’s insatiable need for imported commodities, will open up additional opportunities to foreign companies.

Investment China seems to be following the US and European playbook of relying on government expenditure to stave off an economic slowdown. In 2009, China released a USD 600 bn stimulus package that was heavily focused on construction and infrastructure projects. Although the stimulus achieved the desired effect of maintaining China’s economic growth in double digits, it asserted strong inflationary pressures on the rest of the economy, especially in the real estate sector. This time around, China is reluctant to launch a massive stimulus package; instead central planners have opted to quicken the approval of previously planned major infrastructure projects, which is expected to benefit companies engaged in the mining, construction and heavy machinery sectors in the second half of 2012.

Financial Although China's four biggest banks are among the world's top 10 banks measured by market capitalisation, they have yet to match the capabilities and reach of their international peers. The relative lack of international experience of Chinese banks means that opportunities exist for foreign banks to cooperate with them in their expansion into overseas markets. The plans for the Shanghai Stock Exchange to allow foreign firms to list will be a significant step in internationalising China’s equity market, and will enable foreign companies to directly access China’s huge pool of excess liquidity to raise capital.

Social With mass urbanisation and the high cost associated with living in cities acting as a natural deterrent to having more than one child, speculation

has grown as to whether China will amend the policy in the near future. Accordingly, various service sectors such as healthcare are poised to surge

to accommodate China’s fast-changing population structure.


Agenda

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