For more information contact: emailus@marcusevans.com Fabrice Jacob who is the CEO at JK Capital Management Ltd. and shared his presentation titled "Demystifying the Dragon: Myths and Realities of Investing in China" at the marcus evans European Pensions and Investments Summit on 12, May 2012. Join the 2015 Summit along with leading regional pension investors and global asset managers in an intimate environment for a focused discussion of key new drivers shaping institutional investment strategies today. For more information contact: emailus@marcusevans.com

1. Demystifying the Dragon:
Myths and Realities of Investing in China
Fabrice Jacob, CEO, JK Capital Management Ltd.
European Pensions & Investments Summit 2012
Grand Hotel Huis ter Duin, Noordwijk aan Zee, The Netherlands, May 15, 2012
This document is intended for professional investors as defined in the MIFID

2. China: A model that raises suspicions and fears
The fastest growing economy in the world
Between 1990 and 2011 – China has grown faster than any other economy to become the 2nd largest in the world
GDP 1990 GDP 2011
USD 3x
World 22 Trillion
USD 70.2 Trillion
USD 357 Billion
China 1.6% of the world 20x USD 7.3 Trillion
10.4% of the world
USD 317 Billion
India 1.4% of the world 5x USD 1.7 Trillion
2.5% of the world
Source: Bloomberg , World Bank, IMF – April 2012
2 This document is intended for professional investors as defined in the MIFID

3. China: A model that raises suspicions and fears
An unprecedented economic recipe
Chinese growth model is unique
Five-year plans dictate the growth paths
Foreign players are kept on a tight leash. Many of them are forced to partner with local companies
Trade barriers are everywhere
Local companies in strategic sectors are heavily subsidized, especially those that invest overseas
Building infrastructures became a top priority 30 years ago, well ahead of any other Asian country
Any form of political opposition to the ruling party is systematically crushed
 Yet, China received 10x more foreign direct investments than India in the past 15 years
China’s economic growth model is not unique in the principles it uses.
It is unique as it should have collapsed long ago.
3 This document is intended for professional investors as defined in the MIFID

4. The biased prism of Western observers
GDP growth under excessive scrutiny
At the beginning of each year the NPC gives its growth target for the year. In 2012, it raised concerns and took the
market down…
China’s annual GDP growth target
16
14 Official GDP Growth Target
12
10
%8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: National Bureau of Statistics, Capital Economics - February 2012
4 This document is intended for professional investors as defined in the MIFID

5. The biased prism of Western observers
GDP growth under excessive scrutiny
…. and yet it has never been a good proxy for Chinese growth
China’s GDP growth vs official target
16
China GDP Constant Price Cumulative YoY
14
Official GDP Growth Target
12
10
% 8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: National Bureau of Statistics, Capital Economics - February 2012 E
5 This document is intended for professional investors as defined in the MIFID

6. The biased prism of Western observers
CPI as the barometer of Chinese health
CPI was once a big subject in China. It no longer is but appears to have remained for many the indicator of
China’s health, with any spike raising the ghost of a “hard landing”
Consumer Prices (% Change YoY)
25
20
15
10 “Chinese inflation is up again [...] putting
5 China back in an old bind: How to support
growth without unleashing the dragon of
0 inflation?”
-5 Financial Times 10/04/12
Jan-05 Jun-06 Oct-07 Mar-09 Jul-10 Dec-11
FOOD NON FOOD OFFICIAL CPI
Source: National Bureau of Statistics, Capital Economics February 2012
 An exceptionally cold month of March caused a spike, not mentioned by any Western newspaper
China’s GDP growth has become so important in western minds that every single macro data is
scrutinized by analysts who look eager to find signs of impending doom
6 This document is intended for professional investors as defined in the MIFID

7. False Ideas about China
“China is highly dependent on exports”
Net Exports contribution to GDP Gross Exports as a share of GDP 2011
China GDP Breakdown (Expenditure Approach) China 26%
(2005 - 2011E)
100%
India 18%
80%
South Korea 50%
60%
Taiwan 66%
40%
Thailand 66%
20%
Malaysia 81%
0%
2005 2006 2007 2008 2009 2010 2011
Net exports Capital Formation (Est)
Government Consumption Private Consumption Source: Bloomberg data - April 2012
Note: National Bureau of Statistics, Capital Economics – March 2012
7 This document is intended for professional investors as defined in the MIFID

8. False Ideas about China
“China is highly dependent on exports”
And gross exports figures often do not reflect the true nature of Chinese exports
Retail price breakdown of a $600 iPhone 4S
Imported
Components
from Taiwan,
Korea, Japan
and the US: $177
Apple’s profit:
$404
China
Components:
$11
China Assembly
cost: $8
Source: KGI estimates – April 2012
In China’s exports numbers, an iPhone accounts for $196, not for the $19 local added value
8 This document is intended for professional investors as defined in the MIFID

9. False Ideas about China
“China is the United States’ largest banker”
US Treasuries outstanding: US$ 15 trillion
China total FX reserves: US$ 3.3 trillion
China’s reserves invested in US Treasuries: US$ 1.1 trillion
US Treasury Ownership
US Institutions and Individuals 42.3%
Social Security Trust 15.8%
67.4%
US Civil Service Retirement Fund 7.1%
Other Public Funds 2.2%
Foreign Ownership 32.6%
of which China 7.6%
Source: US Federal Reserve Bank as at December 2011
9 This document is intended for professional investors as defined in the MIFID

10. False Ideas about China
“Property prices in China have become unaffordable”
Property prices have risen in China, but salaries have risen even faster with the emergence of a large middle class
Property Price to Wage Ratio (index 100 in 2000)
110.0
100.0
90.0
80.0
70.0
60.0
50.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 E
Source: National Bureau of Statistics, Bloomberg, Capital Economics - April 2012; Note: CE 2012 Estimates based on Q1 2012 data
Note: CE 2012 Estimates based on Q1 2012 data
4% of sales are in Tier 1 cities, 69% are in Tier 3 where prices are 68% below Tier 1
(source: CLSA – April 2012)
10 This document is intended for professional investors as defined in the MIFID

11. False Ideas about China
“There is no genuine demand for property in China, it’s all speculation”
The number of flats built every year in China often leads to the assertion that no matter how big the population is,
such demand has to be speculation. It is forgetting the unique combination of 3 factors:
Property ownership only exists since 1993
In most cities and because of the gender imbalance, a young man will find it very difficult to get married if he
doesn’t own a flat
Confucianism: A cornerstone of Chinese culture is “filial piety" (xiao [孝] in Mandarin Chinese), the attitude of
obedience, devotion and care toward one’s parents.
An urban couple with one child and two sets of parents has an ultimate objective to own 3, if not 4 flats.
The real issue is they are often not allowed to.
11 This document is intended for professional investors as defined in the MIFID

12. False Ideas about China
“There is no genuine demand for property in China, it’s all speculation”
Property ownership in China remains low, first time buyers drive the market while investors account for a marginal part
Property buyers’ profiles Property Ownership in China -
2011
100% 7% 60.0%
53.8%
80% 48.9%
34% 50.0%
60% 40.0%
30.0%
40% 59% 30.0%
24.0%
20% 20.0%
0% 10.0%
Feb-11
Feb-12
Oct-10
Apr-11
May-11
Jul-11
Nov-10
Dec-10
Nov-11
Dec-11
Jan-11
Sep-07
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Aug-11
Sep-11
Mar-08
Mar-11
Jun-11
Jan-12
Mar-12
0.0%
Tier 1 Tier 2 Tier 3 National
Cities Cities Cities Average
Source: CLSA – April 2012 First Time Buyers Upgraders Investors Source: CLSA – April 2012
12 This document is intended for professional investors as defined in the MIFID

13. China’s Challenges
China is addicted to investments
Despite retail sales increasing by 15% year on year, China relies far too much on investments
Consumption & Investment (% of Nominal GDP)
80.0
60.0
40.0
20.0
Household & Government Consumption Investment & Inventory Building
0.0
Source: National Bureau of Statistics, Capital Economics – March 2012
Such an imbalance is unsustainable in the long run…
13 This document is intended for professional investors as defined in the MIFID

14. China’s Challenges
China is addicted to investments
Investments in infrastructures are still in strong demand: the freight train network example
Freight traffic by rail
35 000
30 319
Freight Traffic (1000 ton-
30 000
kilometre /kilometre)
25 000
20 000
15 000
10 000
5 000
0
USA Germany France UK Japan Russia China India
Source: CICC Research – February 2012;
Note: 2010 data for China, 2007 data for other countries
... but for another few years, a high level of infrastructure investments should not be a concern
14 This document is intended for professional investors as defined in the MIFID

15. China’s Challenges
After having been a strength, Chinese demography will become a burden
Demography is a real challenge for China in the long run as the population is ageing and the gender imbalance is
not closing
China's Population (m) China's labor force
500 1 800
1 600 995
400 1 400
1 200 990
300 1 000
800 985
200
600 980
100 400
200 975
- -
2000 2010 2020 2030 2040 2050 970
Population above 60 Years Old (in Million)
Total Population (in Million) - RHS
Source: China Population and Development Research Center – March 2012 Source: US Census Bureau – March 2012
China also faces other challenges along the road such as corruption and pollution
15 This document is intended for professional investors as defined in the MIFID

16. How to invest in China?
A combination of two approaches
A Top-Down approach:
Never stand against the wind !
The wind from Beijing is always the strongest
A Bottom-Up approach:
1. Check all connected transactions
2. Beware of auditors outside the big four
3. Keep a close eye on inventory and receivables
4. Both large cash balance and large debt is never a good sign Parmalat syndrome
5. Go on site very often, don’t take anything for granted !
China is not always easy to understand at close range, it becomes almost impossible from a distance.
The key to successful investments is proximity.
16 This document is intended for professional investors as defined in the MIFID

17. Disclaimer
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This presentation is not subject to the approval of the local Regulator.
This document is intended for professional investors as defined in the MIFID

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Through a long term approach and the association of two core competencies, real
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