The China Compass - August 2012
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The China Compass - August 2012

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Combines basic country data of China, as well as other major world economies, with more detailed analysis of a wide range of macroeconomic and social data...

Combines basic country data of China, as well as other major world economies, with more detailed analysis of a wide range of macroeconomic and social data
Presents a comprehensive picture of the ever-changing and evolving Chinese landscape
Contains up-to-date statistics, topical themes and insights
Is presented in a reader-friendly format as a useful desk reference for executives with a China agenda

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  • 1. The China Compass – August 2012Figures, Forecast and AnalysisChina-focusedInternational Advisory and Procurement www.thebeijingaxis.com
  • 2. DisclaimerThis document is issued by The Beijing Axis. While all reasonable care has been taken in the preparation of thisdocument, 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 BeijingAxis cannot be held responsible for any loss, irrespective of how it may arise. In addition, this document does notconstitute any offer, recommendation or solicitation to any person to enter into any transaction or to adopt any investmentstrategy, nor does it constitute any prediction of likely future movements or events in any form. Some investmentsdiscussed 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 mayhave a position in any of the investments mentioned in this document. All concerned are advised to form their ownindependent judgement with respect to any matter contained in this document. The Beijing Axis 1
  • 3. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators4. International Comparison5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 4 The Beijing Axis
  • 4. ForewordIn the same manner that a compass highlights the cardinal points of north, south, east, and west, The China Compass is intended to serveas a navigational instrument for determining China’s position and direction in the context of the world’s economic landscape. The growth ofChina’s economy is without precedent and its rise has been a unique and complex experience – requiring the adoption of a customisedand dedicated planning approach. Access to reliable information and channels of strategic knowledge are not always easy to come by andare, more often than not, the product of a long-term investment in research, analysis and strategic thinking. It is against this backgroundthat 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 towhether China’s economy is headed for a ‘soft’ or ‘hard’ landing. While Chinas GDP growth has subsequently slowed to 9.2% in 2011 and7.8% 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 thatChina’s annual growth rate for 2012 is still expected to be around 8%. As China attempts to rebalance its economy towards a moresustainable growth pattern that puts a greater emphasis on domestic consumption and shelter the economy from the global slowdown, weexpect 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 forother 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 futureprospects of a uniquely Chinese story of human development.As always, we welcome all feedback.Kobus van der WathFounder & Group Managing Director, The Beijing Axiskobus@thebeijingaxis.com The Beijing Axis 5
  • 5. Snapshot of key economic indicators for the second quarter Selected Q2 2012 Economic Indicators 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%*Note: CPI and PPI growth are based on H1 figuresSource: The Beijing Axis Analysis The Beijing Axis 6
  • 6. With a GDP of USD 7.3 tn, China now accounts for more than one-tenth of the world economy 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 USD 7.3 tn 100% Northwest Other China 90% Developing Southwest Tertiary Others Countries China 80% Others Industry Developed South 70% Gross Capital Canada Countries China Formation 60% Russia Hunan Italy UK Shanghai 50% Brazil Sichuan France Developing Asia Liaoning Germany (excl. China) China Hebei Final Consumption 40% Secondary Japan Henan Eastern Expenditure Developing Industry 30% Zhejiang China (Household + Countries (excl. Government) China China) Shandong Northeast 20% Jiangsu China 10% China Primary Net Exports US China Guangdong North China Industry 0% -10% World GDP World GDP Developing China GDP China GDP China GDP China GDP China GDP 2011 2011 Countries GDP 2011 2011 2011 2011 2011 2011Source: IMF; UNCTAD Statistics; China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 7
  • 7. 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) GDP Average Growth Rate (%, 2011-2015F) A bubble this size represents 10 Asia-Pacific is expected to account GDP = USD 1,000 bn for the largest share of world GDP Asia-Pacific (34%) by 2015F Shaded bubbles represent 2011E figures 25,807 Rising real incomes and Other Asia high commodity prices will continue to drive growth Forecast 4,486 Developed economies world average 2,259 are expected to 2011 to 2015F GDP growth continue to lose share until 2015F: 5 Africa 4,280 South America in world GDP in the 3.95% coming years BRICS 2015F GDP(USD bn) 2011 Growth Rate (%) 2011 GDP Per Capita (USD) China 10,904 9.2% 5,414 North America India 2,359 7.4% 1,389 19,634 Russia 1,926 4.1% 12,993 Brazil 2,547 2.9% 12,789 20,337 Europe South Africa 426 3.1% 8,066 2011 to 2015F % of World GDP (2015F) 0 0% 5% 10% 15% 20% 25% 30% 35% 40%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 8
  • 8. 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) A bubble this size represents GDP Growth Rate (%, 2011) GDP = USD 1,000 bn 15 China is the largest and fastest growing economy in the region China 10 7,298 SE economies are India collectively the third- largest in the region 1,676 Indonesia 846 Malaysia World average 123 Hong Kong Singapore GDP growth for 5 Vietnam 279 Taiwan 243 260 2011: 3.9% 213 4671,116 S. Korea Though large, Japan is a Philippines Australia slow growing economy New Zealand 1,488 Thailand 162 Japan 0 346 GDP Per Capita (2011) 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000Note: The regional breakdown accords to UNCTAD. Regional breakdown numbers will not add to the total due to overlapSource: IMF; The Beijing Axis Analysis The Beijing Axis 9
  • 9. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators4. International Comparison5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 10 The Beijing Axis 10
  • 10. 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 yearsSource: The Beijing Axis Analysis The Beijing Axis 11
  • 11. China’s economy is heading for a soft landing, with the long-term trend leaning towards more moderate and more sustainable growth China’s Quarterly Y-o-Y GDP Growth Rate (%, 2009- Contribution to China’s GDP (%, 1998-2012F) 2012F) 15% 140 Net Exports of Goods and Services Gross Capital Formation 120 Final Consumption Expenditure (Household + Government) 3-year (2009-2011) Policy easing to provide room for 100 average: 9.4% Gross capital formation remains growth moderation 10% 80 the largest contributor 60 Effect from stimulus package 40 Government stimulus 2012F y-o-y GDP: 5% package (USD 586 bn) 8.0% 20 0 2011 y-o-y GDP: Falling net exports 9.2% -20 contribution 0% -40 Q1 Q1 Q1 Q1 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12F 2009 2010 2011 2012FSource: CNBS; World Bank; IMF; The Beijing Axis Analysis The Beijing Axis 12
  • 12. 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 China’s Monthly Exports & Imports (USD bn, 2010- China’s Monthly Trade Balance (USD bn, 2010- June 2012) June 2012) 180 40 Exports Imports 140 30 100 20 60 10 20 0 20 -10 60 -20 100 -30 140 180 -40 J FMAM J J A SOND J FMAM J J A SOND J FMAM J J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J 2010 2011 2012 2010 2011 2012Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 13
  • 13. 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) 120 Although consumer confidence decreased, it was still among the 115 highest in the world 110 107.9 108.0 107.8 107.6 104.7 105.8 105.6 105 108.9 107.3104.4 102.9 108.1 103.4 103.9 104.2 106.6 106.6 104.2 99.9 105 105 100 103.8 103 100 97 100.5 100.4 99.6 100.5 95 When CCI is over the 100 mark, it indicates that consumers are optimistic 90 85 80 Aug-10 Sep-10 Aug-11 Sep-11 Feb-10 Mar-10 Apr-10 May-10 Feb-11 Mar-11 Apr-11 May-11 Feb-12 Mar-12 Apr-12 May-12 Oct-10 Nov-10 Dec-10 Oct-11 Nov-11 Dec-11 Jan-10 Jun-10 Jul-10 Jan-11 Jun-11 Jul-11 Jan-12Note: 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 The Beijing Axis 14
  • 14. 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 China’s Annual Retail Sales (USD bn, 1979-2012F) China’s Monthly Retail Sales (USD bn, 2006-June 2012) 3,200 Annual retail sales 300 279 reached USD 2,851 Seasonal peaks bn in 2011 due to Chinese 2,800 250 New Year holiday 2,400 200 2,000 1,600 150 1,200 100 800 50 400 0 0 79 83 87 91 95 99 03 07 11 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12Source: China Statistical Yearbook; China Monthly Economic Indicators; National Bureau Statistics of China; The Beijing Axis Analysis The Beijing Axis 15
  • 15. 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 Sales Price of Residential Buildings in Selected Sales Price of Residential Buildings in Selected Cities (%Y-o-Y, 2010-June 2012) Cities (%M-o-M, 2010-June 2012) 120 Beijing Shanghai 105 Beijing Shanghai Guangzhou Tianjin Guangzhou Tianjin Chongqing Shenzhen Chongqing Shenzhen 115 103 110 101 105 99 100 97 95 95 J FMAM J J A SOND J FMAM J J A SOND J FMAM J J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J 2010 2011 2012 2010 2011 2012Source: National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 16
  • 16. 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) General Rural Urban 108 104 is the designated inflation target Room for set by the Chinese government policy easing 104 China’s CPI averaged 105.4 in 2011 100 96 92 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 2010 2011 2012Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 17
  • 17. 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) Food Tobacco, Liquor and Articles 120 Clothing Household Facilities, Articles and Services Health Cares & Personal Articles Transportation & Communication 115 Recreation, Education, Culture Articles and Services Residence A reduction in food prices has been the main driver behind 110 slowing inflation 105 100 95 J F M A M J J A S O N D J F M A M J 2011 2012Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 18
  • 18. 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) 110 PPI for 2011 was 106.0 105 Depressed overseas market demand and sluggish domestic manufacturing activity 100 95 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 2010 2011 2012Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 19
  • 19. 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) Mining & Quarrying Industry Raw Materials Industry Manufacturing Industry 120 Food Clothing Articles for Daily Use Durable Consumer Goods 115 110 105 100 95 J F M A M J J A S O N D J F M A M J 2011 2012Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 20
  • 20. 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) PMI 2 Month Moving Average (PMI) 60 A reading above 50 reflects expansion; below 50 reflects contraction 50 40 30 Nov-11 Dec-11 Nov-10 Dec-10 Feb-10 Apr-10 Feb-11 Apr-11 Feb-12 Apr-12 May-10 Oct-10 Oct-11 Mar-10 Mar-11 May-11 Mar-12 May-12 Jan-10 Jun-10 Jul-10 Aug-10 Sep-10 Jan-11 Jun-11 Jul-11 Aug-11 Sep-11 Jan-12 Jun-12Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 21
  • 21. 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) Monthly Loan Size Y-o-Y Growth Rate (rhs) USD bn % Fall in lending as demand 250 for credit eased in a 100 slowing economy 80 200 60 40 150 20 0 100 -20 50 -40 -60 0 -80 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 2010 2011 2012Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 22
  • 22. 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) Longer than 5 years 3 years to 5 years (including 5 years) 12 1 year to 3 years (including 3 years) 6 months to 1 year (including 1 year) 10 First loan interest rate First loan interest rate decrease in six years decrease since global financial crisis 8 6 4 10-Jun-99 19-Aug-06 21-Jul-07 22-Aug-07 15-Sep-07 16-Sep-08 9-Feb-11 23-Oct-97 6-Apr-11 25-Mar-98 7-Dec-98 21-Feb-02 29-Oct-04 18-Mar-07 19-May-07 30-Oct-08 20-Oct-10 1-Jul-98 28-Apr-06 9-Oct-08 27-Nov-08 23-Dec-08 26-Dec-10 7-Jul-11 5-Jul-12 7-Jun-12 21-Dec-07Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 23
  • 23. 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 Bank Deposit-Reserve Ratio (%, 1998-July 2012) First cut in 20 Economic Inflationary two years Economic slowdown pressures overheating 15 10 5 0 21-Sep-03 15-Aug-06 15-Jan-07 15-Aug-07 25-Sep-07 25-Jan-08 25-Jun-08 15-Sep-08 13-Jan-10 14-Jan-11 14-Jun-11 25-Feb-07 15-Oct-08 25-Feb-10 2-May-10 18-Feb-11 18-Feb-12 25-Apr-04 5-Jul-06 16-Apr-07 5-Jun-07 25-Oct-07 21-Mar-98 21-Nov-99 15-Nov-06 15-May-07 26-Nov-07 25-Dec-07 25-Apr-08 7-Jun-08 25-Mar-08 20-May-08 26-Nov-08 10-Nov-10 19-Nov-10 10-Dec-10 17-Apr-11 18-Mar-11 12-May-11 30-Nov-11 12-May-12Note: 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 thatbanks 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 supplySource: BNET Business Dictionary; The Beijing Axis Analysis The Beijing Axis 24
  • 24. Chinas 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) 5 years 1 year 6 months 3 months 10 First cut since 8 global financial crisis 6 4 2 Recent adjustments in 2012 to widen the range at which banks can set deposit rates mark an important step towards interest rate liberalisation 0 10-Jun-99 19-Aug-06 19-Aug-06 21-Jul-07 22-Aug-07 15-Sep-07 9-Feb-11 25-Mar-98 7-Dec-98 21-Feb-02 29-Oct-04 18-Mar-07 19-May-07 30-Oct-08 20-Oct-10 6-Apr-11 1-Jul-98 21-Dec-07 9-Oct-08 27-Nov-08 23-Dec-08 26-Dec-10 7-Jul-11 7-Jun-12 5-Jul-12Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 25
  • 25. 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) M2 M1 M0 16 14 12 10 8 6 4 2 0 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 2010 2011 2012Source: China Monthly Economic Indicators; People’s Bank of China; The Beijing Axis Analysis The Beijing Axis 26
  • 26. 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) Fixed Asset Investment Growth Rate 5,000 50% 40% 4,000 Global financial crisis induced 30% 3,000 stimulus 20% 2,000 10% 1,000 0% 0 -10% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012F*Note: National Development and Reform Commission - China’s top economic planning agencySource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 27
  • 27. 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) Urban Fixed Asset Investment 2 Month Moving Average (PMI) 700 Investments gaining strength from favourable policies 600 500 400 300 200 100 0 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 2010 2011 2012Source: China Monthly Economic Indicators; National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 28
  • 28. 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 yearsSource: The Beijing Axis Analysis The Beijing Axis 29
  • 29. 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 Internal • Handover to the fifth Short-term External generation of leaders in Bubble size: Probability of occurrence late 2012 is crucial as it sets the tone for policy • Commodity producers are the Degrees of China and political reform during most exposed to a slowdown Politics and power dependency the years ahead in China transition • Unclear whether banks or Property • Local governments are local governments can Domestic bubble pushing for a rollback of bear burden of NPLs if government property market curbs to prop economy were to slow finances (debt) up their economies sharply Low Risk High Risk FX risk EU debt • Worsening of euro zone debt • RMB must be closely crisis crisis threatening to further watched as a more dampen overseas demand for volatile period could lie Ageing population Chinese goods ahead and social safety Social net • Social unrest - wealth gap cohesion • Shrinking labour pool unable continues to widen, to shoulder social costs of potentially undermining rapidly ageing population social stability Long-termSource: IMF; The Beijing Axis Analysis The Beijing Axis 30
  • 30. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators4. International Comparison5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 31 The Beijing Axis 31
  • 31. 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) 16 Past periods of overheating Overheating concerns 7-10% GDP Soft landing amid 12 growth band global uncertainties 7-8% GDP growth band 8 4 0 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 12FSource: World Bank; China Statistical Abstract; OECD; IMF; The Beijing Axis Analysis The Beijing Axis 32
  • 32. 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 GDP by Province (USD bn, 2011) Geographical Distribution of China’s GDP (2011) 0 250 500 750 1 Guangdong 2 Jiangsu 3 Shandong 4 Zhejiang 5 Henan 6 Hebei 7 Liaoning Sichuan Gansu 8 9 Hunan Top 5 provinces’ Hubei 10 11 Shanghai GDP equate to 40% 27 Ningxia Fujian 12 13 Beijing of total GDP 14 Anhui 29 15 Inner Mongolia Heilongjiang 30 Qinghai 3 Shandong 16 Shaanxi 5 Henan 17 18 Guangxi 31 Tibet 19 Jiangxi Tianjin 2 Jiangsu 20 21 Shanxi 22 Jilin 4 Zhejiang 23 Chongqing 24 Yunnan 25 Xinjiang 26 Guizhou 1 27 Gansu Hainan 28 29 Ningxia Guangdong 28 30 Qinghai Tibet Top 5 Provinces by GDP 31 Bottom 5 Provinces by GDP Hainan Highlighted on map on rightNote: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and ShanghaiSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 33
  • 33. 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 GDP Growth Rate by Province (USD bn, 2011) China’s Fastest and Slowest Growing Provinces (2011) 0 10 20 1 Tianjin 2 Chongqing 3 Sichuan 4 Guizhou 5 Inner Mongolia 6 Shaanxi 7 Hubei 8 Jilin Yunnan 9 10 Anhui 5 Inner Mongolia Qinghai 11 12 Shanxi Beijing Hunan 31 13 14 Tibet 1 Tianjin 15 Jiangxi 16 Gansu 27 Shandong 17 Guangxi Heilongjiang Sichuan 18 Fujian 19 Liaoning 3 Chongqing 30 Shanghai 20 Hainan 21 22 Ningxia 2 29 Zhejiang 23 Xinjiang 4 Guizhou 24 Henan 25 Hebei 26 Jiangsu 28 27 Shandong Guangdong 28 29 Zhejiang Guangdong 30 Shanghai Beijing Top 5 Provinces by GDP growth 31 Bottom 5 Provinces by GDP growth Highlighted on map on rightNote: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and ShanghaiSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 34
  • 34. 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 GDP Per Capita by Province (USD, 2011) Provinces With Highest and Lowest GDP Per Capita in China (2011) 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 1 Tianjin 2 Shanghai 3 Beijing 4 Jiangsu 5 Zhejiang 6 Inner Mongolia 7 Guangdong 8 Liaoning 9 Fujian 10 Shandong Beijing 11 Jilin 12 Total Chongqing 3 13 Hubei Gansu 1 14 15 Hebei Tianjin 16 Shaanxi 30 17 Ningxia Heilongjiang 18 Shanxi 29 Tibet 4 Jiangsu 19 28 20 Xinjiang Hunan Anhui 2 Shanghai 21 Qinghai 22 23 Henan Highlighted on 5 Zhejiang Hainan 24 25 Jiangxi map on right Yunnan 31 Guangxi 26 Sichuan 27 27 Guangxi 28 Anhui 29 Tibet 30 Gansu Yunnan Top 5 Provinces by GDP per capita 31 Bottom 5 Provinces by GDP per capitaNote: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and ShanghaiSource: Various; The Beijing Axis Analysis The Beijing Axis 35
  • 35. 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) Primary Sector Tertiary Sector USD bn % Secondary Sector Growth Rate of Primary Sector (rhs) 9,000 8 8,000 7,000 6 6,000 4 5,000 4,000 2 3,000 2,000 0 1,000 0 -2 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012FNote: CAGR only includes the primary sector.Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 36
  • 36. 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 Value-added Breakdown of Secondary Sector (USD China’s Industrial Structure (2011) bn, 1997-2011) Industrial Sector Construction Sector 4,000 3,500 3,000 Primary 10% 2,500 Secondary 2,000 47% 1,500 Tertiary 1,000 43% 500 0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 37
  • 37. 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 Value-added Breakdown of Tertiary Sector (USD bn, China’s Industrial Structure (2011) 1997-2011E) Transport, Storage and Post 3,300 Wholesale and Retail Trades 3,000 Hostels and Catering Services 2,700 Financial Intermediation 2,400 Real Estate 2,100 Others 1,800 Tertiary Secondary 1,500 43% 47% 1,200 900 Primary 600 10% 300 0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11ENote: 2011 breakdown of tertiary industry will be available when the 2012 China Statistical Yearbook is released in SeptemberSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 38
  • 38. 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 Contribution to the Growth of GDP¹ (%, 1997-2011E²) Net Exports of Goods and Services Gross Capital Formation Final Consumption Expenditure (household + gov) 10 8 6 4 2 0 -2 -4 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11ENote: (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 andservices. 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 SeptemberSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 39
  • 39. 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) A bubble this size represents 1% of total % of Provincial GDP Northern & Northeastern Provinces in central and western China have Eastern Tibet higher capital formation rates Central & Southern 110 Western & Southwestern Ningxia Capital formation takes place mostly Jilin Guangxi in coastal provinces Yunnan Inner Mongolia 80 Qinghai Tianjin Shanxi Liaoning Xinjiang Chongqing Shaanxi Henan Shandong Heilongjiang Anhui 50 Hainan Guizhou Hebei Zhejiang Jiangxi Gansu Sichuan Jiangsu Hubei Guangdong Beijing Hunan Fujian Shanghai Total Capital Formation (USD bn) 20 0 50 100 150 200 250 300 350 400Note: Provincial breakdown of 2011 gross capital formation will be available when the 2012 China Statistical Yearbook is released in SeptemberSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 40
  • 40. 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) A bubble this size represents 1% of total % of Provincial GDP Northern & Northeastern 80 Eastern 33% of China’s total final Central & Southern consumption is centered in just four 70 Jiangxi coastal provinces Western & Southwestern Tibet Heilongjiang Guizhou Guangxi Yunnan Hunan 60 Hubei Beijing Shanghai Gansu Anhui Xinjiang Qinghai Guangdong 50 Zhejiang Ningxia Shaanxi Hainan 40 Henan Chongqing Tianjin Liaoning Hebei Jiangsu Fujian Shandong 30 Jilin Sichuan Shanxi Inner Mongolia Total Final Consumption (USD bn) 20 0 50 100 150 200 250 300 350 400Note: Provincial breakdown of 2011 final consumption will be available when the 2012 China Statistical Yearbook is released in SeptemberSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 41
  • 41. 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) USD bn Industrial Value Added Output Growth Rate (rhs) % 4,000 45 3,000 30 2,000 WTO accession on 11 December 2001 15 1,000 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12FSource: CEIC Data; The Beijing Axis Analysis The Beijing Axis 42
  • 42. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators4. International Comparison5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 43 The Beijing Axis 43
  • 43. 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) USD bn¹ Retail Sales (Urban) Retail Sales (Suburban) Retail Sales (Rural) % Urban Growth (rhs) Suburban Growth (rhs) Rural Growth (rhs) 3,500 40 3,000 30 2,500 2,000 20 1,500 10 1,000 0 500 0 -10 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 1112FNote: (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 The Beijing Axis 44
  • 44. 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 China’s Annual Retail Sales of Consumer Goods by Sub-sector (USD bn, 1978 vs. 2011) Wholesale and Retail Trade Hotels and Catering Services Others 320 11% 4% 9% 87% 89% 2,532 1978 2011 CAGR = 10% Total: 120.3 bn Total: 2.9 tnSource: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 45
  • 45. 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 Total Retail Sales of Consumer Goods by Province Provinces With Highest and Lowest Retail Sales (2011) (USD bn, 2011E) 0 50 100 150 200 250 300 350 1 Guangdong 2 Shandong 3 Jiangsu 4 Zhejiang 5 Henan 6 Hubei 7 Liaoning 8 Hebei Gansu 9 10 Sichuan Beijing Ningxia 11 Shanghai 12 Hunan Qinghai 29 13 14 Fujian Anhui 30 27 2 Shandong 15 Heilongjiang 31 5 16 Jilin Tibet 3 Jiangsu 17 Inner Mongolia Shanxi Henan Zhejiang 18 19 Guangxi 4 20 Shaanxi Jiangxi 21 Chongqing Guangdong 22 23 Tianjin Highlighted on Yunnan 1 24 25 Xinjiang map on right 26 Guizhou 27 Gansu Hainan Hainan 28 28 29 Ningxia 30 Qinghai Tibet Top 5 Provinces by Retail Sales 31 Bottom 5 Provinces by Retail SalesNote: (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 capitaSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 46
  • 46. 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 Annual Exports (USD bn, 1997-2012F) China’s Monthly Exports (USD bn, 2010-June 2012) Exports Exports Growth Rate (rhs) Exports Exports Monthly Growth Rate (rhs) 2,000 40% 200 40% 1,500 China’s entry into 10% 150 the WTO 20% 1,000 -20% 100 0% 500 -50% 50 0 -80% 0 -20% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112F J A J O J A J O J A 2010 2011 2012Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 47
  • 47. 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) UK Russia 2.3% 9 2.1% 8 US Netherlands 6 4 South Korea 5 Germany 17.1% 3.1% 4.4% 1 4.0% 3 Japan Total Exports = USD 1,898 bn 7.8% US 325 7 India 2 Hong Kong Hong Kong 268 2.7% 10 14.1% Japan 148 Singapore South Korea 83 1.9% Germany 76 Netherlands 59 Top exported commodities India 51 UK 44 • Automatic data processing machines and parts Russia 39 • Garments and clothing accessories Singapore 36 • Textile yarn, fabrics and make-up articlesNote: Hong Kong is admittedly used as a gateway to the rest of the world.Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 48
  • 48. 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) 2,000 CAGR 13.4% Others 14.4% Mineral Items 1,600 14.7% Foodstuffs 320 309 24.0% Chemicals and Related Products 22.0% Products Classified by Material 249 1,200 Miscellaneous Manufactured Articles 442 18.1% 263 459 25.3% Machinery and Equipment 220 185 378 21.7% Total 336 800 175 297 300 129 238 101 194 902 935 400 780 69 156 673 590 53 126 577 44 101 352 456 87 188 268 95 127 0 01 02 03 04 05 06 07 08 09 10 11 12FNote: Composition is according to the SITC Classification System.Source: MOFCOM; The Beijing Axis Analysis The Beijing Axis 49
  • 49. 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 Annual Imports (USD bn, 1997-2012F) China’s Monthly Imports (USD bn, 2010-June 2012) Imports Imports Growth Rate (rhs) Imports Imports Monthly Growth Rate (rhs) 2,000 40% 200 60% 1,500 20% 150 30% 1,000 China’s entry 0% 100 into the WTO 0% 500 -20% 50 0 -40% 0 -30% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 1112F J A J O J A J O J A 2010 2011 2012Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 50
  • 50. 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) Russia 10 2.3% US Germany 2 South Korea 5 7.1% 5.3% 9.3% 4 1 Japan Total Imports = USD 1,743 bn 9 11.2% Japan 195 Saudi Arabia 3 Taiwan Brazil South Korea 163 Malaysia 7.2% 3.0% 2.8% 7 Taiwan 125 3.6% 8 US 123 Australia Germany 93 4.7% 6 Australia 83 Top imported commodities Malaysia 62 Brazil 52 • Electrical machinery, equipment and parts Saudi Arabia 49 • Mineral fuels, mineral oils and products of their distillation • Nuclear reactors, boilers, machinery and mechanical appliances Russia 40Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 51
  • 51. 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) 1,800 CAGR 1,600 36.6% Others 19.2% Foodstuffs 1,400 23.8% Miscellaneous Manufactured Articles 13.6% Products Classified by Material 1,200 18.9% Chemicals and Related Products 28.7% Mineral Items 276 336 1,000 32.2% Crude Materials 19.4% Machinery and Equipment 189 800 285 21.8% Total 167 274 211 600 118 141 83 169 105 124 400 70 89 55 64 630 601 48 550 200 357 413 442 408 253 290 107 137 193 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012FNote: SITC Classification System; Crude material: inedible, except fuelsSource: MOFCOM; The Beijing Axis Analysis The Beijing Axis 52
  • 52. 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) 10 Russia 2.2% Germany 5 4 South Korea US 4.6% 6.7% 1 2 Japan 12.3% 6 Taiwan 9.4% US 448 3 4.4% Japan 343 Hong Kong Malaysia 8 Hong Kong 284 7.8% S. Korea 9 2.5% 246 Germany 169 Brazil Australia 7 Taiwan 160 2.3% 3.2% Australia 117 China’s total trade with the world = USD 3,642 bn Malaysia 90 Total exports = USD 1,898 bn Brazil 84 Russia 79 Total imports = USD 1,743 bnSource: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 53
  • 53. 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) UK Netherlands US Japan South Korea China’s world trade surplus = USD 155 bn Saudi Arabia Taiwan Hong Kong 252 India Hong Kong US 202 Netherlands 51 UK 30 Australia India 27 Saudi Arabia -35 Japan -46 Australia -49 South Korea -80 Taiwan -90Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 54
  • 54. 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) USD bn Trade balance Exports, % change y-o-y (rhs) Imports, % change y-o-y (rhs) % 40 80 30 60 20 40 10 20 0 0 -10 -20 -20 -40 -30 -60 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 2005 2006 2007 2008 2009 2010 2011 2012Source: China Customs; The Beijing Axis Analysis The Beijing Axis 55
  • 55. 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 (%, Share of Net Exports in Quarterly GDP (%, 2007-Q2 1997-2012F) 2012) 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 0% -2% 97 99 01 03 05 07 09 11Source: China Statistical Yearbook; China Monthly Economic Indicators; National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 56
  • 56. 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) Heilongjiang Xinjiang Beijing Jilin 10.7% Gansu Inner Liaoning Mongolia Ningxia Hebei Tianjin Qinghai Shanxi Shandong Tibet Shaanxi Jiangsu Henan 14.8% Sichuan Anhui Shanghai Chongqing Hubei 12.0% Hunan Zhejiang Percentage of China’s total trade value: Guizhou Jiangxi 8.5% Imports: USD 1,743 bn Top 70 % Yunnan Fujian Exports: USD 1,898 bn Guangxi Taiwan Next 20 % Total Trade: USD 3,642 bn Next 10 % Guangdong 25.1% HainanSource: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 57
  • 57. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators4. International Comparison5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 58 The Beijing Axis 58
  • 58. 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) Rural Areas Urban Areas 5,000 141 144 4,000 543 3,000 452 347 4,681 4,782 2,000 261 3,572 2,855 209 1,000 167 2,133 138 1,545 118 1,171 81 87 97 917 69 71 74 553 713 232 272 287 317 362 429 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012FSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 59
  • 59. 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 Fixed Asset Investment by Province (USD bn, 2011E) Top 5 Provinces by Investment in Fixed Assets (2011E) 0 100 200 300 400 500 1 Shandong 2 Jiangsu 3 Henan 4 Liaoning 5 Guangdong 6 Hebei 7 Sichuan 8 Zhejiang Top five provinces 9 Anhui account for 35% of 10 Hubei 4 11 Hunan total FAI Inner Mongolia 12 13 Jiangxi 14 Fujian Liaoning 15 Shaanxi 1 Shandong 16 Jilin 17 Guangxi 3 Henan 18 Heilongjiang 2 Jiangsu 19 Chongqing 20 Tianjin 21 Shanxi 22 Yunnan 23 Beijing 24 Shanghai 25 Xinjiang 26 Gansu 5 27 Guizhou 28 Ningxia Hainan 29 30 Qinghai Guangdong 31 Tibet Highlighted on map on rightNote: 2011 provincial breakdown of fixed asset investment will be available when the 2012 China Statistical Yearbook is released in SeptemberSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 60
  • 60. 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) CAGR 5,000 24.5% Others 33.5% Mining 4,500 25.3% Utilities 724 4,000 31.9% Environmental Protection and Public Facilities 637 185 3,500 28.7% Transport, Storage and Post 264 Real Estate 163 418 29.3% 232 3,000 Manufacturing 530 367 33.1% 506 135 2,500 29.6% Total 212 445 380 291 2,000 111 158 366 1,091 195 960 1,500 245 724 1,000 582 427 1,311 1,491 500 238 308 1,035 202 585 816 159 237 324 428 0 178 2003 2004 2005 2006 2007 2008 2009 2010 2011ENote: 2011 sector breakdown of fixed asset investment will be available when the 2012 China Statistical Yearbook is released in SeptemberSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 61
  • 61. 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) FDI Inflow FDI Growth (rhs) 160 25% 140 20% 120 15% 100 10% 80 5% 60 0% 40 -5% 20 -10% 0 -15% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012FNote: FDI = foreign direct investmentSource: IMF; MOFCOM; The Beijing Axis Analysis The Beijing Axis 62
  • 62. 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) Germany 1% 7 UK 1.4% 10 8 5 Netherlands 0.7% 9 3 Japan 5.5% US 2.6% France 0.7% 6 South Korea USD bn 2.2% Hong Kong 2 Taiwan 5.8% 77 Hong Kong 66.4% 1 Taiwan 7 Japan 6 Singapore 4 Singapore 6 5.5% US 3 South Korea 3 UK 2 Germany 1 France 1 Netherlands 1 China’s total FDI inflow for 2011 amounted to USD 116 bnNote: (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.Source: MOFCOM; The Beijing Axis Analysis The Beijing Axis 63
  • 63. 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 FDI Inflow by Province (USD mn, 2011E) Top 5 Provinces by FDI Inflow (2011E) 0 5,000 10,000 15,000 20,000 25,000 1 Jiangsu 2 Guangdong 3 Shanghai 4 Zhejiang 5 Liaoning 6 Fujian 7 Shandong Top 5 provinces 8 Beijing 9 Tianjin account for 62% of 10 Sichuan 11 Jiangxi total FDI inflows 5 12 Hubei 13 Hebei 14 Henan Liaoning 15 Chongqing 16 Hunan 17 Anhui 18 Guangxi 19 Hainan 1 Jiangsu 20Inner Mongolia 3 21 Shanxi Shanghai 22 Jilin Highlighted on 4 23 Heilongjiang Zhejiang 24 Shaanxi map on right 25 Yunnan 26 Gansu 2 27 Xinjiang 28 Guizhou Guangdong 29 Ningxia 30 Qinghai 31 TibetNote: 2011 provincial breakdown of FDI inflows will be available when the 2012 China Statistical Yearbook is released in SeptemberSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 64
  • 64. 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) CAGR 120 14.7% Others 14.2% Transport, Storage and Post 18 100 28.8% Wholesale and Retail Trades 12.3% Leasing and Business Services 16 2 7 24.3% Real Estate 12 2 13 7 8 80 4.3% Manufacturing 3 7 4 3 10.2% Total 8 5 5 2 3 6 26 60 2 6 4 24 1 6 7 19 1 1 2 2 17 6 3 4 4 17 1 3 1 6 5 8 40 5 50 50 54 20 43 42 41 47 37 40 0 2003 2004 2005 2006 2007 2008 2009 2010 2011ENote: 2011 sector breakdown of FDI inflows will be available when the 2012 China Statistical Yearbook is released in SeptemberSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 65
  • 65. 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) OFDI Flow OFDI Growth Rate (From 2003, rhs) 80 150% In 2005, SAFE* eased restrictions 60 on overseas investments made by 100% Chinese companies 40 50% Chinese companies increased 20 0% acquisition of overseas depressed assets 0 -50% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011ENote: 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 ExchangeSource: IMF; MOFCOM; The Beijing Axis Analysis The Beijing Axis 66
  • 66. 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) 9 Russia 0.8% Canada 1.7% 6 Germany 0.6% 10 China’s outward US 1.9% 5 FDI flow in 2011 USD bn British Virgin Islands was USD 65 bn Hong Kong 38.5 8.9.% 3 2 1 HK 56% Virgin Is. 6.1 8 Cayman Is. 3.5 Thailand 1.0% 7 Singapore 1.6% Cayman Islands Australia 1.7 5.1% US 1.3 Canada 1.1 4 Singapore 1.1 Thailand 0.7 Australia 2.5% Russia 0.6 Germany 0.4 China’s total cumulative outward FDI flow for 2010 amounted to USD 69 bnNote: Official 2011 OFDI data will be available when MOFCOM releases the 2011 Statistical Bulletin of China’s OFDI in SeptemberSource: MOFCOM; The Beijing Axis Analysis The Beijing Axis 67
  • 67. 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 China’s OFDI by Province (USD mn, 2011E) China’s OFDI by Province (2011E) 0 500 1,000 1,500 2,000 2,500 1 Zhejiang 2 Shandong 3 Jiangsu 4 Guangdong 5 Shanghai 6 Hainan 7 Liaoning 8 Hunan 9 Beijing Top 6 provinces’ 10 Hubei 11 Gansu OFDI accounts for 12 Tianjin 53% 13 Yunnan 14 Sichuan 15 Anhui 16 Shaanxi 2 17 Chongqing Hebei Shandong 18 3 19 Fujian Jiangsu 20 Xinjiang 5 21 Henan Highlighted on 1 Shanghai 22 Jiangxi 23 Jilin Zhejiang 24 Heilongjiang map on right 25 Shanxi 26 Guangxi 4 27 Inner Mongolia 28 Guizhou 29 Ningxia Guangdong 30 Tibet 6 31 Qinghai HainanNote: OFDI figures include non-financial OFDI and exclude investments made by central enterprises.Source: MOFCOM; The Beijing Axis Analysis The Beijing Axis 68
  • 68. 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) CAGR 80 51.1% Others 34.1% Manufacturing 70 38.6% Transport, Storage and Post 7 21.2% Mining 7 60 5 42.6% Wholesale and Retail Trades 3 4 4 Finance 2 2 6 50 25.3% 5 3 2 6 87.4% Leasing and Business Services 6 5 52.4% Total 13 7 40 7 6 9 8 6 30 14 2 9 2 20 1 4 4 30 29 9 10 1 7 22 20 4 2 5 5 6 0 1 2004 2005 2006 2007 2008 2009 2010 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 countriesand 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 astransportation, warehousing and postal services are closely linked with China export and import activitiesSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 69
  • 69. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators4. International Comparison5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 70 The Beijing Axis 70
  • 70. 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 Consumer Price Index, Annual (1997-H1 2012) Provinces with Highest and Lowest CPI (Jan-May 2012) Doubling of M2 108 money supply 2 Ningxia Overheating and 102.1 Inner Mongolia overinvestment Xinjiang 104.2 104 104.3 4 Shaanxi Qinghai 30 103.9 Tibet 100 31 101.6 Chongqing 104.5 5 1 Sichuan 103.9 Commodity and food price pressures 103.1 5 Hunan 96 Deflation and 27 102.9 29 overcapacity Yunnan 2 104.3 28 92 Hainan Guangxi 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 H1 103.9 5 103.0 12 Provinces with Highest CPI Provinces with Lowest CPINote: Preceding year = 100Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 71
  • 71. 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 Producer Price Index, Annual (1997-H1 2012) Provinces with Highest and Lowest PPI (Jan-May 2012) 108 Heilongjiang 103.5 1 104 Inner Mongolia 103.0 3 Tianjin 30 31 96.4 100 28 Qinghai Shaanxi Hebei 98.0 102.8 4 97.4 29 Jiangsu 96 97.8 27 Zhejiang Guizhou 2 98.3 103.3 92 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 H1 Hainan 4 12 Provinces with Highest PPI 102.8 Provinces with Lowest PPINote: Preceding year = 100Source: China Statistical Yearbook; China Monthly Economic Indicators; Various; The Beijing Axis Analysis The Beijing Axis 72
  • 72. 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) Loans Deposits 20,000 15,000 10,000 5,000 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012FSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 73
  • 73. 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% Sources of Deposits (USD bn, 2011E) Sources of Deposits (USD bn, 2003-2011E) 12,000 Other Deposits 100% Trust Deposits 10,000 80% 5,413 42% Agricultural Deposits Fiscal Deposits 8,000 60% Deposits of Government Departments & Organisations 4,363 12,818 Company Deposits 3,617 34% 6,000 40% 4,363 Household Savings Deposits 3,183 4,000 2,269 20% 1,181 1,824 454 308 1,420 5,413 115 2,000 1,174 4,487 0% 983 876 1,023 3,136 3,824 2,027 2,269 1,252 1,444 1,722 Fiscal Deposits Households Businesses Total Deposits Government Trusts Agricultural Other 0 2003 2004 2005 2006 2007 2008 2009 2010 2011ENote: 2011 breakdown of bank deposits will be available when the 2012 China Statistical Yearbook is released in SeptemberSource: China Statistical Yearbook; The People’s Bank of China; The Beijing Axis Analysis The Beijing Axis 74
  • 74. 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 Composition of New Loans (USD bn, 2011E) Composition of New Loans (USD bn, 2003-2011E) 100% 9,022 5,440 10,000 Medium & Long-term Loans Short-term Loans Trust Loans Other Loans 80% 8,000 60% 3,130 60% 6,000 2,459 3,130 2,150 40% 4,000 1,804 1,506 5,440 20% 35% 2,000 1,238 4,274 3,261 116 1,012 1,050 1,069 2,233 336 1,339 1,731 767 927 995 0% 0 Total Medium & Short-term Trust Other 2003 2004 2005 2006 2007 2008 2009 2010 2011E Loans Long-term Loans Loans Loans LoansNote: 2011 breakdown of bank loans will be available when the 2012 China Statistical Yearbook is released in SeptemberSource: China Statistical Yearbook; The People’s Bank of China; The Beijing Axis Analysis The Beijing Axis 75
  • 75. 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) Total Market Value 526 463 513 448 396 1,122 4,302 1,747 3,655 3,926 3,330 (USD bn) Number of companies listed on the Shenzhen Stock Exchange Number of companies listed on the Shanghai Stock Exchange 2007 stock 2,400 market bubble 2,000 1,600 1,411 1,169 1,200 690 740 830 540 547 592 509 507 514 800 400 780 837 834 842 860 864 864 894 931 646 715 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: World Federation of Stock Exchanges; China Statistical Yearbook; China Monthly Economic Indicators; World Federation of Exchanges; The Beijing Axis Analysis The Beijing Axis 76
  • 76. 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 Shenzhen Stock Exchange Trading Volume and Shanghai Stock Exchange Trading Volume and Composite Index (2001-2011) Composite Index (2001-2011) Average 37.7 34.4 Average 39.8 37.0 36.2 24.6 16.4 32.7 69.7 16.7 46.01 44.69 23.11 36.5 24.2 16.3 33.3 59.2 14.9 28.73 21.61 13.4 P/E Ratio P/E Ratio Total Total Turnover 274 205 252 320 235 725 4,017 2,597 6,469 5,893 3,682 Turnover 188 133 136 192 152 410 2,040 1,248 2,909 3,360 2,095 USD bn USD bn bn shares bn shares 6,000 6,000 2,000 20,000 Volume (lhs) Volume (lhs) SZSE Component Index (rhs) SH Composite Index(rhs) 1,500 15,000 4,000 4,000 1,000 10,000 2,000 2,000 500 5,000 0 0 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Source: China Monthly Economic Indicators; Shanghai Stock Exchange; Shenzhen Stock Exchange; www.sina.com.cn; The Beijing Axis Analysis The Beijing Axis 77
  • 77. 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 Shanghai Stock Exchange Composite Index (2010- Shenzhen Stock Exchange Component Index (2010- June 2012) June 2012) USD bn USD bn Market Value of Tradable Shares 1,000 Market Value of Tradable Shares 15,000 3,500 Index (rhs) 3,500 Index (rhs) 3,000 3,000 800 12,000 2,500 2,500 600 9,000 2,000 2,000 1,500 1,500 400 6,000 1,000 1,000 200 3,000 500 500 0 0 0 0 J A J O J A J O J A J A J O J A J O J A 2010 2011 2012 2010 2011 2012Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 78
  • 78. 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 Foreign Exchange Reserves (USD bn, 1997-2012F) 4,000 Foreign Exchange Reserves Growth Rate 70% 3,500 60% 3,000 50% 2,500 40% 2,000 30% 1,500 Slowest growth since 2001, caused 20% by slowing of ‘hot money’ inflows 1,000 10% 500 0% 0 -10% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012FNote: FX stands for foreign exchangeSource: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 79
  • 79. 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) Foreign Exchange Reserves Y-o-Y Growth Rate (rhs) USD bn % 3,500 35 3,000 30 2,500 25 2,000 20 1,500 15 China’s foreign exchange reserves 1,000 10 experienced its first quarterly drop in more than a decade in Q4-2011 500 5 0 0 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 2010 2011 2012Source: China Monthly Economic Indicators; People’s Bank of China; The Beijing Axis Analysis The Beijing Axis 80
  • 80. 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) EUR AUD ZAR USD RUB JPY KRW 160 AUD 140 EUR 120 JPY KRW ZAR Renminbi appreciating against world’s RUB major currencies thus far in 2012 100 USD 80 60 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 H1 2012Note: (1) There are varying perceptions on the degree of undervaluation; however, most international and domestic observers agree the currency is undervalued (2) index 2001 = 100Source: PBOC; Various; The Beijing Axis Analysis The Beijing Axis 81
  • 81. 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) 690 680 In June 2010, China announced 670 that it will target the RMB against a basket of currencies rather 660 than solely on the USD In April 2012, China announced that 650 it will widen RMB’s daily trade limit against the USD from 0.5% to 1% 640 630 620 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 2010 2011 2012Source: China Monthly Economic Indicators; US Treasury Department; The Beijing Axis Analysis The Beijing Axis 82
  • 82. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators4. International Comparison5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 83 The Beijing Axis 83
  • 83. 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) Population Population Growth Rate 1,500 1.8% 1,000 1.2% 500 0.6% 0 0.0% 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 11Source: IMF; CNBS; The Beijing Axis Analysis The Beijing Axis 84
  • 84. 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 China’s Annual Births (mn, 1980-2011) Birth Rate Natural Growth Rate 30 18% Children born during the boom of the mid- 1980’s are entering childbearing age 20 12% Rising costs of living are discouraging young urban families from having more than one child 10 6% 0 0% 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 11Source: CNBS; The Beijing Axis Analysis The Beijing Axis 85
  • 85. 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) 0-14 15-64 65 and over 123 84 222 7% 9% 17% 321 26% 68% 843 74% 1,002 1998 (Total Population - 1.2 bn) 2011 (Total Population - 1.3 bn)Source: CNBS; The Beijing Axis Analysis The Beijing Axis 86
  • 86. China’s most populous provinces are located in Eastern China while the least populous provinces are generally in Western China China Provincial Population Breakdown by Urban and Most and Least Populated Provinces (2010) Rural Residences (mn, 2010) 0 20 40 60 80 100 1 Guangdong 2 Shandong Higher wages in more developed 3 Henan areas attract migrant workers from 4 Sichuan surrounding provinces 5 Jiangsu 6 Hebei 7 Hunan 8 Anhui 9 Hubei 10 Zhejiang 11 Guangxi 12 Yunnan Urban Population Ningxia 13 Jiangxi 30 27 Tianjin 14 Liaoning Rural Population 29 15 Heilongjiang Qinghai 2 Shandong 16 Shaanxi Total Population 31 17 Fujian Tibet 3 18 Shanxi Sichuan 5 Jiangsu 19 Guizhou 4 Henan 20 Chongqing 21 Jilin Highlighted on 22 Gansu 23 Inner Mongolia map on right 24 Shanghai 25 Xinjiang 1 26 Beijing Top 5 Guangdong 27 Tianjin 28 Hainan Bottom 5 Hainan 28 29 Ningxia 30 Qinghai 31 TibetNote: Urban and rural population data for some provinces are not availableSource: Chinese Census 2010; China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 87
  • 87. 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) Although the primary sector makes the least contribution to GDP, it employs a large number of people 800 700 600 Tertiary industry Primary industry, 266 Tertiary 35% 500 industry, 273 Secondary industry 36% 400 300 Primary industry Secondary 200 industry, 225 30% 100 0 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10Note: 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 CensusSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 88
  • 88. 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) 3,500 Urban Rural Urban Growth Rural Growth 3,381 30% 3,000 2,826 25% 2,518 2,500 2,271 20% 2,000 1,813 1,475 15% 1,500 1,138 1,281 1,024 1,081 10% 931 875 1,000 707 759 829 755 622 655 545 672 397 450 5% 500 261 267 272 299 317 355 252 286 0 0% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011Note: (1) Annual disposable income of urban households and net income of rural households per capita (2) Growth rates are calculated at current pricesSource: National Statistics Database; The Beijing Axis Analysis The Beijing Axis 89
  • 89. 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 Provinces with Highest and Lowest Urban Household Province (USD, 2011) Incomes (2011) 3,000 1,000 1,000 3,000 5,000 7,000 1 Shanghai 2 Beijing 3 Zhejiang 4 Tianjin 28 5 Guangdong 6 Jiangsu 30 Heilongjiang 7 Fujian 8 Shandong Xinjiang 9 Liaoning Beijing 10 Inner Mongolia 31 Gansu 2 11 Chongqing 29 4 Tianjin 12 Guangxi 13 Hunan Urban 14 Anhui Qinghai 15 Yunnan Rural 27 16 Hubei 17 Hainan Tibet 18 Hebei 1 Shanghai 19 Shaanxi 3 Zhejiang 20 Henan 21 Shanxi 22 Sichuan 23 Jilin 24 Ningxia 5 25 Jiangxi Top 5 Guangdong 26 Guizhou 27 Tibet Bottom 5 28 Heilongjiang 29 Qinghai Highlighted on 30 Xinjiang 31 Gansu map on rightSource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 90
  • 90. 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) 75 Urban Areas Rural Areas 67.7 Failed price reforms fueled inflation, especially in urban 65 areas 57.5 Temporary increases from high 55 levels of food inflation 45 40.4 35 36.3 25 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010Note: Engels 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 towardszero 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 countrySource: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 91
  • 91. 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) 0.60 0.50 signals severe inequality 0.51 0.50 0.40 0.30 China crossed the 0.40 0.30 recognised warning level in 2000 0.20 0.10 0.00 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 11Note: 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 withvalues between 0 and 1. A low Gini Coefficient indicates more equal income or wealth distribution, while a high Gini Coefficient indicates more unequal distributionSource: National Statistics Database; The Beijing Axis Analysis The Beijing Axis 92
  • 92. 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) 50 China’s urbanisation rate 40 exceeded 50% for the first time 30 20 10 0 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 11Source: China Statistical Yearbook; Annual Report on Urban Development of China;The Beijing Axis Analysis The Beijing Axis 93
  • 93. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 94 The Beijing Axis 94
  • 94. Though affected by the global recession, China’s economy has shown greater resiliency than other major economies GDP Growth Comparison (%, 2001-2012F) Australia Brazil China India Japan Russia South Africa US EU 20 China still experienced strong Over the past decade, 15 economic growth despite the China’s growth has outpaced global recession in 2009 those of large nations 10 5 0 -5 -10 01 02 03 04 05 06 07 08 09 10 11 12FSource: World Bank; IMF; The Beijing Axis Analysis The Beijing Axis 95
  • 95. 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) % of World GDP 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 US is the world’s largest World GDP in 2011 totaled 10 economy, reaching USD 15.1 tn in roughly USD 70 tn 2011 8 15.1 After growing 9.2% in 2011, China’s GDP reached USD 7.3 tn 6 4 7.3 5.9 2 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 USA UAE Iran France Turkey Austria China UK Germany Italy Australia Russia Korea Indonesia Saudi Arabia Poland South Africa Brazil Canada India Mexico Netherlands Belgium Argentina Spain Taiwan Norway Japan Switzerland SwedenSource: IMF; The Beijing Axis Analysis The Beijing Axis 96
  • 96. 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) 10 9.2 8 7.2 6.5 5.9 6 5.1 5.0 4.9 4.0 3.7 4 3.6 1.7 1.6 2 0.7 0.1 0 -0.7 -2 South Korea China India Indonesia US Euro Area UK Thailand Singapore Vietnam Malaysia Taiwan Philippines Japan Hong KongSource: IMF; The Beijing Axis Analysis The Beijing Axis 97
  • 97. 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) -10 -8 -6 -4 -2 0 2 4 6 8 10 China 8.1 Philippines 6.4 Indonesia 6.3 India 5.3 Russia 4.9 Malaysia 4.7 Australia 4.3 Vietnam 4 South Korea 2.8 Japan 2.7 US 2 Singapore 1.6 Brazil 0.8 Hong Kong 0.4 Taiwan 0.4 Thailand 0.3 UK 0 Euro Area -0.1 Portugal -2.2 Greece -6.5Source: China Statistical Yearbook; tradingeconomics.com; The Beijing Axis Analysis The Beijing Axis 98
  • 98. 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) 900 600 300 0 300 600 900 Netherlands 840 817 Guangdong Turkey 778 744 Jiangsu Switzerland 636 698 Shandong Norway 484 493 Zhejiang Austria 419 419 Henan South Africa 408 376 Hebei Thailand 346 341 Liaoning Colombia 328 326 Sichuan Venezuela 316 304 Hunan Greece 303 304 Hubei Malaysia 279 298 Shanghai Finland 267 271 Fujian Chile 248 248 Beijing Egypt 236 234 Anhui Ireland 218 217 Inner Mongolia Pakistan 211 194 Heilongjiang Algeria 191 192 Shaanxi Romania 190 182 Guangxi Kazakhstan 178 180 Jiangxi Qatar 174 174 Tianjin Peru 174 171 Shanxi New Zealand 162 161 Jilin Hungary 140 155 Chongqing Vietnam 123 136 Yunnan Angola 101 102 Xinjiang Slovak 96 87 Guizhou Oman 72 78 Gansu Lebanon 39 39 Hainan Ethiopia 31 32 Ningxia Jordan 29 25 Qinghai Chad 9 9 TibetSource: China Statistical Yearbook; IMF; The Beijing Axis Analysis The Beijing Axis 99
  • 99. 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) China US World Average 16 12 8 4 0 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12F -4Source: IMF; The Beijing Axis Analysis The Beijing Axis 100
  • 100. 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) 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? At current growth Rank 2011 2015F rates, China is likely 2000: China 2010: China to overtake the US 12,000 China 2 2 surpassed Japan 3 3 surpassed around 2025 Italy Germany 4 4 1995: China Japan 10,000 France 5 5 2005: China surpassed Brazil 6 6 Surpassed Canada UK 7 7 France 8,000 Russia 9 8 India 11 9 1996: China 2006: China Indonesia 16 16 surpassed surpassed UK 6,000 Brazil South Africa 29 28 4,000 2007: China surpassed Germany 2,000 0 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 15FNote: Forecast GDP growth based on IMF Economic OutlookSource: IMF; The Beijing Axis Analysis The Beijing Axis 101
  • 101. 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) USD 25,000 or more USD 10,000-USD 25,000 USD 2,500-USD 10,000 Less than USD 2,500 or no dataSource: IMF; National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 102
  • 102. On a per capita basis, China still has a long ways to go before it catches up with developed economies GDP Per Capita Comparison of Selected Economies (USD, 2001-2011) Australia Brazil China Brazil China India 70,000 14,000 Russia South Africa India Japan Russia 60,000 South Africa US EU 12,000 50,000 10,000 40,000 8,000 In 2011, China’s 30,000 6,000 GDP per capita reached USD 5,414 20,000 4,000 10,000 2,000 0 0 01 02 03 04 05 06 07 08 09 10 11 01 02 03 04 05 06 07 08 09 10 11Source: IMF; World Bank; The Beijing Axis Analysis The Beijing Axis 103
  • 103. Unlike other large economies, China’s economy is still dominated by its secondary industry Share of GDP by Industry (%, 2011) Agriculture Industry Services 100% Advancing the services industry is an integral part of 80% the current 12th Five-Year Plan 60% 40% 20% 0% GDP South Korea Germany Sweden UAE Iran France Italy Turkey Poland Austria US China Australia UK Russia Canada India Mexico Indonesia South Africa Netherlands Saudi Arabia Brazil Belgium Spain Switzerland Argentina Taiwan Japan Norway Rank 2011Note: 2011 figures are estimatesSource: CIA World Factbook; UNCTAD; The Beijing Axis Analysis The Beijing Axis 104
  • 104. 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) Net Exports Final Consumption Expenditure Gross Capital Formation 120 100 80 60 40 20 0 -20 Switzerland USA UAE Japan Spain France Italy Korea Turkey Poland Iran Austria China Germany UK Russia India Australia Mexico Indonesia South Africa Brazil Canada Netherlands Saudi Arabia Belgium Argentina Taiwan Norway SwedenSource: UNCTAD; China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 105
  • 105. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 106 The Beijing Axis 106
  • 106. 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) Exports (USD bn) Bubble Size: GDP=USD 1,000 bn 2,500 2,000 China Germany 1,500 US 1,000 South Africa Japan Indonesia Italy S. Korea Belgium 500 UK Canada Brazil Poland Algeria Malaysia Colombia Ukraine Hungary FinlandRomania Slovakia 0 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (500) Export/GDP (%)Note: To make international comparisons, this section utilises China’s export figure from the IMF instead of the one from MOFCOMSource: IMF; UN Comtrade; The Beijing Axis Analysis The Beijing Axis 107
  • 107. 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) Top 20 Exporters of Electrical Machinery (USD bn, 2011) % of World Total Total: USD 1,898 bn 24.2% China Hong Kong 10.6% 85 Electrical machinery and equipment US 8.6% 23% 84 Nuclear reactors, machinery and mechanical appliances Germany 8.1% Japan 7.0% 61 Articles of apparel and clothing accessories (knitted) Singapore 6.5% S. Korea 6.4% 19% 62 Articles of apparel and clothing accessories (not knitted) Mexico 3.8% Malaysia 3.3% 90 Optical, photo, technical, medical, etc. apparatus France 2.6% 4% 3% UK 1.8% 3% 94 Furniture, lighting, signs, prefabricated buildings Hungary 3% 1.8% 3% Italy 1.8% 3% 73 Iron and steel 2% Thailand 1.7% 2% Czech 87 Vehicles other than railway, tramway 1.5% Poland 1.1% 39 Plastics and articles thereof Belgium 0.9% 34% Slovakia 0.9% 89 Ships, boats and other floating structures Canada 0.8% Switzerland 0.8% Other 0 100 200 300 400 500Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 108
  • 108. 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 China’s Top 10 Export Commodities 2011 (HS Code) Top 20 Exporters of Power Generation Equipment (USD bn, 2011) % of World Total Total: USD 1,898 bn 19.7% China Germany 14.5% 85 Electrical machinery and equipment US 11.4% 23% 84 Nuclear reactors, machinery and mechanical appliances Japan 9.5% Italy 5.8% 61 Articles of apparel and clothing accessories (knitted) UK 3.8% France 3.7% 19% 62 Articles of apparel and clothing accessories (not knitted) Hong Kong 3.5% S. Korea 3.3% 90 Optical, photo, technical, medical, etc. apparatus Singapore 3.2% 4% 3% Mexico 2.7% 3% 94 Furniture, lighting, signs, prefabricated buildings Belgium 2.0% 3% 1.9% 3% Thailand 3% 73 Iron and steel 1.8% 2% Czech Rep. 2% Canada 1.8% 87 Vehicles other than railway, tramway Switzerland 1.6% Malaysia 1.4% 34% 39 Plastics and articles thereof Poland 1.2% 89 Ships, boats and other floating structures Hungary 1.1% Brazil 0.8% Other 0 100 200 300 400Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 109
  • 109. 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 China’s Top 10 Export Commodities 2011 (HS Code) Top 20 Exporters of Knitted Articles of Apparel (USD bn, 2011) % of World Total Total: USD 1,898 bn 51.1% China Hong Kong 7.9% 85 Electrical machinery and equipment Germany 5.9% 23% 84 Nuclear reactors, machinery and mechanical appliances Italy 5.2% Belgium 2.9% 61 Articles of apparel and clothing accessories (knitted) France 2.7% Indonesia 2.3% 19% 62 Articles of apparel and clothing accessories (not knitted) UK 1.8% US 1.5% 90 Optical, photo, technical, medical, etc. apparatus Pakistan 1.4% 4% 3% Portugal 1.4% 3% 94 Furniture, lighting, signs, prefabricated buildings Sri Lanka 1.4% 3% 1.3% 3% Thailand 3% 73 Iron and steel 1.1% 2% Mexico 2% Poland 1.0% 87 Vehicles other than railway, tramway Peru 0.9% Romania 0.7% 34% 39 Plastics and articles thereof Guatemala 0.6% 89 Ships, boats and other floating structures Jordan 0.6% S. Korea 0.6% Other 0 20 40 60 80Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 110
  • 110. 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 China’s Top 10 Export Commodities 2011 (HS Code) Top 20 Exporters of Non-knitted Articles of Apparel (USD bn, 2011) % of World Total Total: USD 1,898 bn 43.1% China Italy 9.0% 85 Electrical machinery and equipment Hong Kong 7.4% 23% 84 Nuclear reactors, machinery and mechanical appliances Germany 7.3% France 4.0% 61 Articles of apparel and clothing accessories (knitted) Indonesia 2.8% Belgium 2.7% 19% 62 Articles of apparel and clothing accessories (not knitted) UK 2.4% Mexico 1.9% 90 Optical, photo, technical, medical, etc. apparatus Romania 1.7% 4% 3% US 1.5% 3% 94 Furniture, lighting, signs, prefabricated buildings Poland 1.3% 3% 1.3% 3% Sri Lanka 3% 73 Iron and steel 1.2% 2% Pakistan 2% Panama 0.9% 87 Vehicles other than railway, tramway Thailand 0.9% Portugal 0.8% 34% 39 Plastics and articles thereof Bulgaria 0.7% 89 Ships, boats and other floating structures Switzerland 0.7% Czech Rep. 0.6% Other 0 10 20 30 40 50 60 70Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 111
  • 111. 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 China’s Top 10 Export Commodities 2011 (HS Code) Top 20 Exporters of Optical and Photographic Equipment (USD bn, 2011) % of World Total Total: USD 1,898 bn 17.2% US Germany 14.5% 85 Electrical machinery and equipment China 13.2% 23% 84 Nuclear reactors, machinery and mechanical appliances Japan 9.9% S. Korea 8.0% 61 Articles of apparel and clothing accessories (knitted) France 4.0% UK 3.9% 19% 62 Articles of apparel and clothing accessories (not knitted) Switzerland 3.5% Hong Kong 3.3% 90 Optical, photo, technical, medical, etc. apparatus Italy 2.6% 4% 3% Singapore 2.6% 3% 94 Furniture, lighting, signs, prefabricated buildings Belgium 2.5% 3% 2.4% 3% Ireland 3% 73 Iron and steel 2.4% 2% Mexico 2% Malaysia 1.3% 87 Vehicles other than railway, tramway Canada 1.3% Israel 0.9% 34% 39 Plastics and articles thereof Hungary 0.9% 89 Ships, boats and other floating structures Thailand 0.8% Australia 0.6% Other 0 20 40 60 80Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 112
  • 112. 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) US Imports (USD bn) Bubble Size: GDP=USD 1,000 bn 2,800 2,400 US 2,000 China 1,600 Germany 1,200 South Africa 800 Japan UK Philippines S. Korea Italy Belgium 400 Brazil Canada Poland Malaysia Hungary Finland Ukraine Slovakia 0 Indonesia Romania 0% 10% 20% 30% Israel 40% 50% 60% 70% 80% 90% 100% Imports/GDP (%)Note: To make international comparisons, this section utilises China’s import figure from the IMF instead of the one from MOFCOMSource: IMF; The Beijing Axis Analysis The Beijing Axis 113
  • 113. 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 China’s Top 10 Import Commodities 2011 (HS Code) Top 20 Importers of Electrical Machinery (USD bn, 2011) % of World Total Total: USD 1,743 bn 17.8% 85 Electrical machinery and equipment China 14.4% 20% US 10.4% 27 Mineral fuels, mineral oils and products of their distillation Hong Kong 7.1% Germany 4.7% 84 Nuclear reactors, machinery and mechanical appliances Japan 4.4% 16% Singapore 26 Ores, slag and ash Mexico 3.9% Korea 3.5% 90 Optical, photographic and cinematographic, equipment France 3.0% 11% UK 3.0% 39 Plastics and articles thereof Malaysia 2.6% 9% 2.3% Canada 6% 87 Vehicles other than railway, tramway Italy 2.3% 4% Thailand 1.8% 4% 29 Organic chemicals Russia 1.6% 4% 3% Brazil 1.3% 3% 74 Copper and articles thereof 1.3% Hungary Czech Rep. 1.2% 21% 99 Commodities not elsewhere specified 1.2% Australia Belgium 1.1% Other 0 50 100 150 200 250 300 350Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 114
  • 114. 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 China’s Top 10 Import Commodities 2011 (HS Code) Top 20 Importers of Mineral Fuels (USD bn, 2011) % of World Total Total: USD 1,743 bn US 18.0% 85 Electrical machinery and equipment China 10.7% 20% 10.6% Japan 27 Mineral fuels, mineral oils and products of their distillation Korea 6.7% Germany 6.6% 84 Nuclear reactors, machinery and mechanical appliances Singapore 4.6% 16% France 4.5% 26 Ores, slag and ash Italy 4.3% 90 Optical, photographic and cinematographic, equipment Ukraine 3.5% 11% Belgium 3.0% 39 Plastics and articles thereof Canada 2.1% 9% Thailand 1.7% 6% 87 Vehicles other than railway, tramway Brazil 1.6% 4% Indonesia 1.6% 4% 29 Organic chemicals Australia 1.5% 4% Mexico 3% 1.4% 3% 74 Copper and articles thereof Ukraine 1.1% Poland 1.0% 21% 99 Commodities not elsewhere specified Malaysia 0.9% South Africa 0.8% Other 0 100 200 300 400 500Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 115
  • 115. 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 China’s Top 10 Import Commodities 2011 (HS Code) Top 20 Importers of Power Generation Equipment (USD bn, 2011) % of World Total Total: USD 1,743 bn US 17.3% 85 Electrical machinery and equipment China 11.7% 20% Germany 9.0% 27 Mineral fuels, mineral oils and products of their distillation France 4.6% UK 4.4% 84 Nuclear reactors, machinery and mechanical appliances Canada 3.8% 16% 26 Ores, slag and ash Hong Kong 3.8% Japan 3.8% 90 Optical, photographic and cinematographic, equipment Mexico 3.2% 11% Russia 3.0% 39 Plastics and articles thereof S. Korea 2.9% 9% Singapore 2.9% 6% 87 Vehicles other than railway, tramway Italy 2.6% 4% Belgium 2.2% 4% 29 Organic chemicals Australia 2.0% 4% 3% Brazil 2.0% 3% 74 Copper and articles thereof Thailand 1.7% Czech Rep. 1.6% 21% 99 Commodities not elsewhere specified Indonesia 1.5% Poland 1.4% Other 0 50 100 150 200 250 300Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 116
  • 116. 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 China’s Top 10 Import Commodities 2011 (HS Code) Top 20 Importers of Ores, Slag and Ash (USD bn, 2011) % of World Total Total: USD 1,743 bn 150.7 China 55.8% 85 Electrical machinery and equipment Japan 14.5% 20% S. Korea 7.9% 27 Mineral fuels, mineral oils and products of their distillation Germany 4.9% Belgium 1.7% 84 Nuclear reactors, machinery and mechanical appliances US 1.5% 16% 26 Ores, slag and ash UK 1.5% Canada 1.4% 90 Optical, photographic and cinematographic, equipment Italy 1.3% 11% France 1.1% 39 Plastics and articles thereof Finland 1.0% 9% Bulgaria 0.8% 6% 87 Vehicles other than railway, tramway Brazil 0.6% 4% Bahrain 0.5% 4% 29 Organic chemicals Chile 0.5% 4% 3% Argentina 0.5% 3% 74 Copper and articles thereof Czech Rep. 0.4% Malaysia 0.4% 21% 99 Commodities not elsewhere specified Mexico 0.4% Ukraine 0.4% Other 0 20 40 60 80 100Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 117
  • 117. 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 China’s Top 10 Import Commodities 2011 (HS Code) Top 20 Importers of Optical and Photographic Equipment (USD bn, 2011) % of World Total Total: USD 1,743 bn China 22.7% 85 Electrical machinery and equipment US 15.4% 20% Germany 8.4% 27 Mineral fuels, mineral oils and products of their distillation Japan 5.7% France 4.4% 84 Nuclear reactors, machinery and mechanical appliances Korea 3.9% 16% 26 Ores, slag and ash UK 3.7% Hong Kong 3.5% 90 Optical, photographic and cinematographic, equipment Canada 2.9% 11% Italy 2.8% 39 Plastics and articles thereof Belgium 2.6% 9% Mexico 2.6% 6% 87 Vehicles other than railway, tramway Singapore 2.1% 4% Australia 1.8% 4% 29 Organic chemicals Russia 1.7% 4% 3% Switzerland 1.6% 3% 74 Copper and articles thereof Brazil 1.4% Poland 1.3% 21% 99 Commodities not elsewhere specified Malaysia 1.2% Thailand 1.1% Other 0 20 40 60 80 100Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 118
  • 118. 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 Trade Balance of the World’s Major Economies (USD bn, 2011) 200 221.9 193.3 155.0 144.3 150 100 52.7 54.1 50 29.8 30.8 26.1 27.2 29.1 11.3 12.7 9.7 14.8 0.3 0 -0.2 -0.1 -1.3 -5.7 -6.8 -50 -19.7 -31.3 -34.3 -42.1 -100 -69.3 -71.6 -150 -129.6 -162.3 -200 Turkey Poland Russia Brazil China Argentina Denmark* France Canada Norway* South Africa Mexico Japan India* US UK Italy Spain* Iran* Indonesia Saudi Arabia* Thailand Belgium Austria* Germany Korea Switzerland Sweden* Australia Netherlands -782.9*Note: Trade balance from these countries are for 2010Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 119
  • 119. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 120 The Beijing Axis 120
  • 120. In 2011, China ranked 9th overall and second among all developing economies in OFDI, with total outbound investment reaching USD 65 bn Top 20 World FDI Outflows (USD bn, 2009-2011) 0 50 100 150 200 250 0 50 100 150 200 0 50 100 150 200 US US 329 US 397 France Germany Japan Japan France UK Germany Hong Kong France Hong Kong China Hong Kong China Switzerland Belgium Russia In 2009, China Japan In 2010, China Switzerland Italy ranked 6th Russia ranked 5th Russia Canada Canada China Norway Belgium Virgin Is. Sweden Netherlands Germany Virgin Is. Sweden Canada In 2011, China’s ranking Ireland Australia Italy slipped to 9th overall, as the UK Spain Spain Euro debt crisis discouraged Australia Italy Netherlands overseas investments Netherlands Virgin Is. Austria Spain Singapore Sweden Denmark S. Korea Singapore Switzerland Luxembourg Denmark Luxembourg Ireland S. KoreaNote: To make international comparisons, this section utilises China’s FDI and OFDI figures from the WIR 2012 instead of figures from MOFCOMSource: WIR; The Beijing Axis Analysis The Beijing Axis 121
  • 121. 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 Top 20 World FDI Inflows (USD bn, 2011) Top 20 World FDI Outflows (USD bn, 2011) 0 50 100 150 200 250 0 100 200 300 397 US US China Japan Belgium UK Hong Kong China ranked 2nd France Brazil Hong Kong Singapore Belgium UK Switzerlnd Virgin Is. Russia Russia China Austrlia Virgin Is. China ranked 9th France Germany Canada Canada Germany Italy India Spain Spain Netherlands Italy Austria Mexico Sweden Indonesia Singapore Luxembourg Denmark Chile S. KoreaSource: WIR 2012; The Beijing Axis Analysis The Beijing Axis 122
  • 122. 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 Top 20 World FDI Inward Stock (USD bn, 2011) Top 20 World FDI Outward Stock (USD bn, 2011) 0 1,000 2,000 3,000 4,000 0 1,000 2,000 3,000 4,000 5,000 US US UK UK Hong Kong Germany France France Belgium Hong Kong Germany Switzerland China Japan Brazil China ranked 7th Belgium Spain Netherlands Canada Canada Netherlands Spain Switzerland Italy Singapore Virgin Is. Australia Australia China China ranked 15th Russia Sweden Russia Italy Sweden Singapore Mexico Ireland Virgin Is. Denmark IrelandSource: WIR 2012; The Beijing Axis Analysis The Beijing Axis 123
  • 123. 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) Growth 2010-2011 3% -16% 28% -21% 19% 4% 1% 194% -5% 54% 44% -29% 2% -18% -48% 15% -270% 39% -101% -41% 60 Inflow Outflow 40 20 0 20 40 60 17% -26% 84% -54% 5% -107% 158% 34% 0% 13% 24% -5% 37% -43% -17% 145% -49% 33% -11% -12% Netherlands Mexico France Italy India S. Korea Turkey Australia US China Germany Saudi Arabia Brazil UK Russia Indonesia Canada Spain Japan Switzerland Growth 2010-2011Note: GFCF = Gross fixed capital formationSource: WIR 2012; The Beijing Axis Analysis The Beijing Axis 124
  • 124. 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 -1% -2% -2% -6% -15% -14% -3% -6% -25% -8% -13% -8% -16% -18% -5.7% -6% -8% -29% -14% -14% 150 100 Inward Stock Outward Stock 50 0 50 100 150 -9% 0% 8% -8% -20% -7% 0% -2% -21% -5% 2% -8% -20% -4% 4% 359% -9% 5% -12% -12% 200 China Germany France Italy S. Korea Turkey Canada US UK Russia India Australia Mexico Indonesia Brazil Spain Netherlands Saudi Arabia Japan Switzerland Growth 2010-2011Source: WIR 2012; The Beijing Axis Analysis The Beijing Axis 125
  • 125. 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’ Value of Cross-Border M&A ‘Net Purchases’ for Value of Cross-Border M&A ‘Net Sales’ for World’s World’s Top 20 Countries (USD bn, 2011) Top 20 Countries (USD bn, 2011) 0 50 100 150 0 50 100 150 US US Japan UK UK Australia Canada Canada China Russia France France Netherlands Switzerland Switzerland China ranks 5th Spain Spain Brazil Hong Kong Netherlands Israel Italy Kazakhstan Germany Belgium India Singapore China Australia Poland India Luxembourg China ranks 14th Jersey Norway United Arab Emirates Denmark Brazil Sweden New Zealand TurkeyNote: 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 offoreign 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 TNCsSource: WIR 2012; The Beijing Axis Analysis The Beijing Axis 126
  • 126. 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) 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 >USD 500 bn USD 300 bn – USD 500 bn USD 100 bn – USD 300 bn <USD 100 bnNote: We provide a breakdown in the next slideSource: WIR 2012; The Beijing Axis Analysis The Beijing Axis 127
  • 127. 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 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*Note: As of July 2012Source: SWF Institute; The Beijing Axis Analysis The Beijing Axis 128
  • 128. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 129 The Beijing Axis 129
  • 129. 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) Germany Russia 149 bn 91 bn UK -67 bn US China France Japan -600 bn Turkey 281 bn -74 bn 123 bn -72 bn Saudi Italy Arabia -78 bn 151 bn Top 5 current account surpluses Top 5 current account deficitsSource: CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 130
  • 130. 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) 3,236 2,000 1,600 Asia 1,200 800 400 0 Algeria France Indonesia Brazil China Iran Libya UAE Germany Italy Poland Turkey Israel Canada Saudi Arabia Russia India HK Singapore Thailand Mexico US Malaysia Denmark UK Philippines Taiwan S.Korea Switzerland JapanNote: Estimates are as of 31 December 2011Source: CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 131
  • 131. 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) 16,080 16,000 The external debt of the EU was USD 16,080 bn 12,000 At the end of Q3 2011, China’s external debt 8,000 amounted to USD 697 bn 4,000 0 Luxembourg Canada Austria EU France Germany Italy Ireland¹ Greece US UK Netherlands Belgium Finland² Brazil² Spain China¹ Denmark Portugal Poland² S. Korea² Japan Australia² Switzerland Sweden Hong Kong Norway Russia¹ Turkey² India²Note: (1) As of Q3-2011 (2) As of Q4-2011Source: CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 132
  • 132. As of July 2012, China’s discount rate stood at 6%, which is lower than that of other large developing economies Central Bank Discount Rate1 of Select Economies (%, 20122) 20 15 High rate countries Medium rate 10 countries 6% Low rate countries 5 0 Brazil Chile China Turkey Indonesia Colombia South Africa S. Korea EU Russia India Mexico Australia Canada UK US Kenya Vietnam JapanNote: (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 The Beijing Axis 133
  • 133. 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 Commercial Bank Prime Lending Rate1 of Select Economies (%, 20122) 60 High rate countries 40 20 Medium rate countries Low rate countries 6.56 0 … … Mongolia Namibia Gambia Bulgaria Algeria Italy Madagascar Paraguay Hungary South Africa Australia Russia China Brazil Israel Netherlands UK Bahamas Kyrgyzstan Tanzania Argentina New Zealand Czech Republic Singapore Croatia Switzerland Japan Brunei BurundiNote: (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 primerate, 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 The Beijing Axis 134
  • 134. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 135 The Beijing Axis 135
  • 135. 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) Ratio Female Male GDP rank 2011 Total Male/female US 314 97 China 1,343 106 Japan 127 94 Germany 652 81 97 France 691 66 96 Brazil 206 98 United Kingdom 63 99 Italy 61 93 Russia 138 85 Canada 34 98 India 1,205 108 Spain 47 97 Australia 579 626 22 100 Mexico 115 96 S. Korea 49 100 Indonesia 248 100 Netherlands 17 98 Turkey 80 102 Switzerland 8 97 Saudi Arabia 27 121 Sweden 9 98 Poland 38 94 Belgium 10 96 Norway 5 98 Iran 79 103 Taiwan 23 101 Argentina 42 97 Austria 8 95 South Africa 49 99 United Arab Emirates 5 219Source: IMF; CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 136
  • 136. 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) % Population under 15 35 India A bubble this size represents a population of 10,000 Saudi Arabia 30 Mexico Argentina Australia 25 South Africa Brazil Netherland Norway Turkey US Iran 20 United Arab Emirates France Belgium China S. Korea UK 15 Poland Sweden Taiwan Russia Canada Japan 10 Austria Switzerland Italy Germany 5 Spain % Population aged 65+ 0 0 5 10 15 20 25 30Source: UN Population Division; The Beijing Axis Analysis The Beijing Axis 137
  • 137. 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) Annual rate of urbanisation change (%, 2010-2015F) 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 Urban Rural 100 3 15 8 14 20 15 13 17 22 17 13 22 26 23 19 27 26 21 18 32 32 30 32 39 29 39 38 49 56 69 97 92 86 80 85 87 83 78 83 85 87 78 74 77 81 73 74 79 82 68 68 70 68 61 71 61 62 51 44 31 0 Netherlands Belgium Mexico US* Iran France Italy S. Korea Austria Turkey Austria Greece Japan* Germany UK Russia Indonesia Poland China* Spain Canada Brazil Denmark S. Arabia S. Africa Norway Argentina Sweden Switzerland India**Note: Urbanisation figures from these countries have been updated to 2011Source: CIA World Factbook; World Bank; The Beijing Axis Analysis The Beijing Axis 138
  • 138. 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 Male Female US China Japan Germany France Brazil UK Italy Russia Canada India Spain Australia Mexico S. Korea Indonesia Netherlands Turkey Switzerland S. Arabia Sweden Poland Belgium Norway Iran Taiwan Argentina Austria Greece UAE Denmark 100 80 60 40 20 0 20 40 60 80 100Source: IMF; The Beijing Axis Analysis The Beijing Axis 139
  • 139. 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) Male Female GDP Rank 2011 Total US 63.7 China 74.2 Japan 60.4 Germany 59.6 France 56.4 Brazil 69.9 UK 61.9 Italy 48.3 Russia 62.7 Canada 66.6 India 55.6 Spain 59.3 Australia 65.5 Mexico 61.7 S. Korea 60.3 Indonesia 67.4 Netherlands 64.8 Turkey 49.5 Switzerland 67.8 S. Arabia 50.0 Sweden 63.7 Poland 55.9 Belgium 54.0 Norway 65.8 Iran 44.3 Argentina 60.5 Austria 60.6 Greece 54.5 UAE 79.1 Denmark 64.6 100 80 60 40 20 0 20 40 60 80 100Source: UN Statistics Division; The Beijing Axis Analysis The Beijing Axis 140
  • 140. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators4. International Comparison5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 141 The Beijing Axis 141
  • 141. Conclusions Indicators Conclusions Selected The ongoing European debt crisis and slower-than-expected recovery of the US economy is prompting China to take measures aimed at turning Macroeconomic 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 Data 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 Chinas 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.Source: The Beijing Axis Analysis The Beijing Axis 142
  • 142. Implications Indicators Implications Selected Chinas 30 years of uninterrupted growth is unprecedented. While some sort of correction can be expected in the near future, how the government Macroeconomic responds remains far more important than preventing such an economic slowdown. Central planners will most likely take actions to ensure that Data 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 Chinas four biggest banks are among the worlds 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.Source: The Beijing Axis Analysis The Beijing Axis 143
  • 143. Agenda1. Foreword2. What’s New: China Moves Towards Growth Moderation and Sustainability3. China Economic Indicators4. International Comparison5. Conclusions and Implications6. About The Beijing Axis The Beijing Axis 144 The Beijing Axis 144
  • 144. The Beijing Axis - China-focused International Advisory and Procurement Beijing Axis Beijing Axis Beijing Axis Beijing Axis Commodities Capital Procurement Strategy • Commodity Marketing • Transaction Origination • Comprehensive • Strategy Formulation • Commodity Procurement • Corporate Finance Procurement Solutions • Strategy Implementation Advisory The Beijing Axis’ Knowledge & Network Synergies • Founded in 2002; has successfully worked with many international and Chinese MNCs • Operates in four synergistic cross-border China businesses • Provides services across various sectors, with a core focus on the MINING, RESOURCES, INDUSTRIAL ENGINEERING and OTHER SERVICES sectors • Provides solutions to international firms as they act in unfamiliar territory in China/Asia • Provides solutions to Chinese/Asian firms as they venture out and ‘go global’ The Beijing Axis 145
  • 145. The Beijing Axis Publications – The China Analyst A Knowledge Tool for Executives with a China Agenda April 2012 September 2011 March 2011 August 2010Note: The latest and archived editions of The China Analyst are freely downloadable from our website, www.thebeijingaxis.com/tca; alternatively please e-mail us at info@thebeijingaxis.com to beadded to our distribution list The Beijing Axis 146
  • 146. TBA China Sourcing Blog @ www.chinasourcingblog.orgAn Up-to-date Information Platform for Procurement and Trade Industries in China The Beijing Axis 147
  • 147. Beijing, China Shanghai, China Hong KongCheryl Tang Julia Wang TBA Secretary Corporate OfficeDirector & GM, China Procurement Specialist 3806 Central Plaza, 18 Harbour Rdcheryl@thebeijingaxis.com Wanchai, HKSingapore Perth, Australia Johannesburg, South AfricaAndrew Kagoro, Finance & Projects Kobus van der Wath Dirk KotzePenthouse & LV 42 Founder & Group MD Director & GM, AfricaSuntec Tower 3, 8 Temasek Blvd kobus@thebeijingaxis.com dirk@thebeijingaxis.comSingaporeLondon, UK/Europe Russia Desk Latin America DeskMatt Pieterse Lilian Luca (Beijing) Javier Cuñat (Beijing)MD, Beijing Axis Capital MD, Beijing Axis Procurement GM, Beijing Axis Strategymatt@thebeijingaxis.comYangon, Myanmar India Desk Eastern Africa DeskDr. Wong YF Ankit Khaitan (Singapore) Walter Ruigu (Beijing)Chief Representative Beijing Axis Strategy Beijing Axis StrategyChina-focusedInternational Advisory and ProcurementCOPYRIGHT© The Beijing Axis Ltd. 2012. No part of this publication may be reproduced or transmitted in any form orby any means without prior written consent of The Beijing Axis.Picture credit: Cover and agenda images by Stuck in Customs (flickr), used under a Creative Commons license. www.thebeijingaxis.com