The Impact of the Global Financial Crisis on Emerging Markets · The Impact of the Global Financial Crisis on Emerging Markets - The Case of China. IOSCO 34th Annual Conference, June

The Impact of the Global Financial Crisis

on Emerging Markets

- The Case of China

Hua YU

Vice Chairman, Fund Industry Committee, Securities Association of China

CEO, Morgan Stanley and Huaxin Funds Management Company

IOSCO 34th Annual Conference June 2009, Tel Aviv

IOSCO 34th Annual Conference, June 2009, Tel Aviv

• A Rapid Growing Economy with High Saving Rates

• GDP Growth Drivers

• Increasing Dependence on External Demand

China: An Emerging Transitional Economy

The Impact of the Global Financial Crisis on Emerging Markets

- The Case of China


0

1,000

2,000

3,000

4,000

USD bn

0

5

10

15

20

25

30

%

Deposits Growth Rate(%)

0

4

8

12

%GDP Growth Rate

2


China: A Rapid Growing Economy

Source: Wind, Morgan Stanley Huaxin,

Savings Kept Increasing at a High Speed


The economy of China has been

growing at 9% on average for the

past decade

2008 GDP of RMB 30 trillion (USD

4.4 trillion), US$3380 per capita

The growth has been financed mainly

by domestic savings which increased

at a high speed

Growth Has Been Financed by Savings

2000 2004 2008

2000 2004 1Q2009


-25%

0%

25%

50%

75%

100%

Consumption Investment Export(net)

3

GDP Growth Driver Composition


An Increasingly Opened Economy


2000 2004 2008

2000 2004 1Q2009

38%

67%

20%

40%

60%

80%

Major Drivers of GDP Growth

• The investment has been the main

driver for the GDP growth

• Consumptions and Exports have

increased contributions to GDP growth

Increasing Dependence on External

Demand

Around two-thirds of China’s

economy is linked to global business



• Banking Sector Has Been Sound and Stable

• Huge Reserves Ensure Supply of Liquidity

• A-Share Market: Relying on Domestic Fund Flows

Banking, Finance and Capital Market


- The Case of China


0%

10%

20%

30%GDP Growth Rate(%)

Deposit Growth Rate(%)

0%

6%

12%

18%

24%

5

Deposits Have Grown with GDP


Banks Business Has Been Profitable


2004 2006 2008

2004 2006 1Q2009

Banking Sector Sound and Stable

Bank deposits grow rapidly, with an

even higher growth rate than GDP

Bank capital is growing and kept

sufficiently high

As results of banking reform, NPLs

ratio dropped from 17% in 2003 to

below 5% recently

Average ROE of listed banks

remains above 10%



610

1,954

105

0

500

1,000

1,500

2,000 Foreign Exchange Reserves (USD Bn)

6

Foreign Revenue/Capital Accumulates Over Time


1996 2004 03/2009

Huge Reserves Ensure Liquidity

• FDI and surplus of Current Accounts

make China a net receiver of offshore

capital

• There is no access for portfolio

investment of foreign capital with

exception of QFII

• The economy and financial system

does not rely on short term flows of

offshore money

• Foreign Exchange Reserves have

increased to nearly USD 2 trillion


IOSCO 34th Annual Conference, June 2009, Tel Aviv 7

A-Share Market: Growth Based on Domestic Fund Flows


Limited offshore IPO financing

Market with limited international

exposure

Almost no fund-raising by foreign

borrowers and IPOs in China

Limited access of foreign

investors to A shares (QFII)QDII are the only way to invest

directly in securities overseas

A share market—3rd largest

market in the world

Conversion of State Shares

made the market more

efficient and transparent

In 2007, domestic

IPO 489bn RMB (USD

70bn), overseas

IPO USD6.9bn

QFII and QDII as

windows for foreign

investors going to A-

Shares and domestic

investors going offshore

A-Share market the

World’s 3rd largest by

market capitalization



Due to China A-Share market’s limited exposure to the international capital flows and

thanks to China’s stable and strong financial sector with dynamic reform and development:

• The direct impact of global financial crisis on A-Share market

has been limited

• The indirect impact of the crisis through the performance of the

economy, however, has been substantial

Impacts of Financial Crisis


- The Case of China



Unemployment Rate Soared

-40

-20

0

20

40

60

80

06/2007 12/2007 06/2008 12/2008 03/2009

%

FDI (YTD)

-40

0

40

80

120%

2.5

3.0

3.5

4.0

4.5%

FDI Dropped Over the Past Quarters

Export Went Down Dramatically Earnings Growth Rate Declined Sharply

1998 2003 1Q2009

-50

-25

0

25

50Export

Import

01/2008 09/2008 04/2009

%

03/200901/2000 06/2005




0.00

0.20

0.40

0.60

0.80

1.00

Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09

NAV of QDII Funds Dropped Significantly

Investors Confidence Hit by the Crisis

Local securities institutions do not own

stakes of offshore securities players

They cannot trade on offshore securities

and derivatives

Shanghai SE Index lost nearly 70%

from its peak in early 2008

Investors lost their confidence on both

domestic and international markets

QDII funds incurred losses on their

offshore markets investment

• QFII moved funds out of A-Share market

during the last quarter of 2008

• Some local institutions (banks, insurance

companies) suffered losses on their offshore

securities investment

0

200

400

600

800 China A-share (Hushen 300)

Dow Jones

FTSE

Hang Seng

Nikkei225

2005 2007 06/2009

Limited Direct Impacts



Government Programs to Stimulate the Economy

Measures by Securities Regulators to stabilize the Market

Focus on investor Education and Protection

Dealing with The Crisis


- The Case of China


0%

2%

4%

6%

8%

10%

12%

1 Year Deposit Rate

0

5

10

15

20

25

30

35

M2 Growth Rate (MoM)

12


Monetary Expansion Fiscal Stimulation

A fiscal stimulus total

investment of RMB 4 trillion

(USD 580bn) with more to follow

Tax cuts and fiscal subsidies

on certain products and services

Job creating programs

Programs of promoting certain

industrial sectors

%

35

25

30

25

10

0

1995 2000 2005 03/2009

%

12

10

8

6

4

2

1989 1999 03/2009

Dealing with the Crisis


Measures

Allowing listed companies to buy

back their shares

Encouraging listed companies

to pay dividend to investors

Promoting sustainable financial

innovations

Segregation of clients assets from

securities firms proprietary assets

Promoting KYC rule and reinforcing

information disclosure at points of sales

5

4

2

1

5

4

Effectiveness

Helped to stabilize the market and restore

investors confidence

Leading investors to focus on value

investing

Acceleration of opening a Second-Tier

Market with new investment opportunities

Preventing misappropriation of clients

assets, reducing potential investment

and liquidity risks

A more transparent market with more

confident clients

3

2

1

Dealing with the Crisis

Thank you!

IOSCO 34th Annual Conference June 2009, Tel Aviv

Documents

The Impact of the Global Financial Crisis on Emerging Markets · The Impact of the Global Financial Crisis on Emerging Markets - The Case of China. IOSCO 34th Annual Conference, June