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The China Compass – August 2012Figures, Forecast and AnalysisChina-focusedInternational Advisory and Procurement   www.the...
DisclaimerThis document is issued by The Beijing Axis. While all reasonable care has been taken in the preparation of this...
Agenda1.   Foreword2.   What’s New: China Moves Towards Growth Moderation and Sustainability3.   China Economic Indicators...
ForewordIn the same manner that a compass highlights the cardinal points of north, south, east, and west, The China Compas...
Snapshot of key economic indicators for the second quarter         Selected Q2 2012 Economic Indicators           Economic...
With a GDP of USD 7.3 tn, China now accounts for more than one-tenth of          the world economy                        ...
Emerging economies are outperforming the developed world in terms of          economic growth. The Asia-Pacific region is ...
As Asia’s largest and fastest-growing economy, China plays a crucial role in          the region’s ongoing transformation ...
Agenda1.   Foreword2.   What’s New: China Moves Towards Growth Moderation and Sustainability3.   China Economic Indicators...
Backdrop          •     With the on-set of the global financial crisis and a booming commodity market, developing regions ...
China’s economy is heading for a soft landing, with the long-term trend         leaning towards more moderate and more sus...
In 2011, China registered its smallest trade surplus since 2005 as import growth          outpaced export growth. Weakened...
Chinese consumers have remained optimistic thus far in 2012, largely due          to easing inflationary pressures as well...
Increased domestic consumption remains in line with the 12th Five-Year Plan.          The dramatic increase in retail sale...
Housing prices in China’s major cities have steadily fallen since Q2 2010.          The latest readings indicate China’s r...
CPI fell to a two-and-a-half year low of 2.2% in June 2012. Policymakers now          have more room to bolster economic g...
However, with inflation forecast to continue falling, there are now real          concerns that deflation will emerge as a...
China’s rapidly falling PPI indicates producer prices are easing not just          because of declining commodity and othe...
Falling producer prices have led to renewed calls from top policymakers to take          more aggressive action to support...
After bottoming out in late 2011, China’s manufacturing industry has remained          in expansionary territory. However,...
After bottoming out in January 2011, lending rates in China have steadily          increased as the government moves to co...
After nearly two years of raising interest rates, the PBOC cut the cost of          borrowing in June 2012, signaling the ...
The PBOC* has responded to a slowing economy by lowering the reserve          requirement ratio. The cut in November 2011 ...
Chinas first deposit rate cut since the global financial crisis in June 2012          underpins the country’s economic gro...
The PBOC has set an M2 growth target of 14% for 2012 in order to prevent          contraction in an economy as market liqu...
The NDRC* has quickened the appraisal of major infrastructure projects in         response to a slowing economy. Thus far,...
Stressing quality and efficiency to keep local debt levels in check, the central          government is promoting reasonab...
Looking ahead: short, medium and long term          •     For 2012, we anticipate slower growth of around 8.0%. We view su...
China faces a number of important risks on the domestic front. Similarly, the          world faces a set of variables and ...
Agenda1.   Foreword2.   What’s New: China Moves Towards Growth Moderation and Sustainability3.   China Economic Indicators...
According to the latest forecasts from the IMF, China’s annual GDP growth          rate will reach 8.0% in 2012, the lowes...
China’s GDP is highly concentrated in five coastal provinces, which together          account for 40% of the country’s tot...
With the exception of Tianjin, the coastal regions are no longer the fastest          growing regions of China. The govern...
The provinces with the highest per capita income are all located on the eastern          coast. Tianjin, Shanghai and Beij...
China’s secondary sector remains the largest contributor to the country’s          GDP. However, the tertiary sector has g...
China’s secondary sector and larger economy is still sustained by industry, a          remnant of past government policies...
Since China joined the WTO a decade ago, national economic restructuring          has lead to rapid growth in the tertiary...
Gross capital formation and final consumption expenditures, which are both          mainly driven by the government, subst...
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The Beijing Axis has just released The China Compass - August 2012, a publication that: 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; and is presented in a reader-friendly format as a useful desk reference for executives with a China agenda. Available for download now from The Beijing Axis website.

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  1. 1. The China Compass – August 2012Figures, Forecast and AnalysisChina-focusedInternational Advisory and Procurement www.thebeijingaxis.com
  2. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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
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