China’s Automotive Sector: Strategies for a Changing Industry


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JP Morgan Hands-On China Report from November 12, 2012. Contains an executive summary and abridged transcript of a presentation delivered by Bill Russo to investors in Hong Kong.

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China’s Automotive Sector: Strategies for a Changing Industry

  1. 1. China’s Automotive Sector: Strategies for a Changing Industry Executive Summary China’s automotive industry has arrived at an inflection point, following a periodHANDS-ON CHINA REPORT of rapid growth that culminated with a stimulus-driven surge in demand in 2009-November 12, 2012 2010. Since then, the industry has sharply decelerated, with total auto sales growth slipping to 2.5% in 2011. According to the China Association of Automobile Manufacturers (CAAM), in the ten months through October 2012,Bill Russo passenger car sales rose 6.7% YoY to 12.6 million vehicles, while total autoSenior Advisor sales rose 3.4% to 15.7 million vehicles. Although overall market growth hasBooz & Company decelerated, there is still sustainable and healthy growth occurring in lower-tierPresident, regions of the country, as well as in certain segments such as premium cars andSynergistics Ltd. compact SUVs. To examine the dynamics of the Chinese auto industry at thisBill Russo is Senior Advisor - employed juncture, we recently hosted a presentation by Bill Russo, Senior Advisor atby Booz & Company. He is not amember of J.P. Morgan’s Research Booz & Company and Chrysler’s former Vice President for Northeast Asia, whoDepartment. Unless otherwise discussed how automakers are adjusting their strategies to China’s new growthindicated, his views are his own and patterns.may differ from the views of the J.P.Morgan’s Research Department and  Annual car sales growth is expected to slow to between 5 and 8% over thefrom the views of others within J.P. next decade as a function of the central government’s desire for slower andMorgan. more sustainable economic growth, the phasing out of auto subsidies, and to a lesser extent the license plate restrictions in cities like Shanghai andFor more information on J.P. Morgan’s Beijing. Although there are now limitations on passenger vehicleHands-On China Series, please contact: registrations in 4 major cities, it is important to note that there are over 150 cities in China with populations over 1 million. There is also enormousJing UlrichAC growth potential in the lower-tier regions in China, with tier 4 and lower citiesManaging Director, Chairman, accounting for 80% of the Chinese population.Global Markets, China+852 2800 8635  An industry shakeout is likely in the next 3-5 years, in light of high levels overcapacity. By 2015, planned capacity will potentially exceed vehicle demand by as much as 35%. As a result, competitive dynamics will moreAmir Hoosain closely resemble developed markets, with larger annual profit swings, strong +852 2800 8641 purchasing incentives, and an increased emphasis on operational With smaller domestic car companies having given back most of their market share gains following the expiry of incentives launched in 2009 with theMark Stimson Automotive Industry Revitalization plan, the notable winners have been VW,+852 2800 8636 GM, and Nissan. In Mr. Russo’s view, Great Wall Motor and Geely are most capable domestic Chinese carmakers, with Great Wall having pursued an internal organic approach to R&D, while Geely has leveraged externalHenry Kerins partnerships and acquisitions to become the only Chinese carmaker with its+852 2800 own capability in higher speed automatic transmissions.  There is tremendous growth opportunity in the SUV segment, which grew atJ.P. Morgan Securities (Asia Pacific) Limited a 40% rate in 2011. Premium-branded cars are also bucking the slower growth trends – while overall sedan growth is in the 5% range, premium brands are enjoying robust double-digit growth. With an ever-increasing population of vehicles, significant growth potential exists in the automotive after-market. However, the sales and service network in China is still very fragmented, with the top 10 dealership groups representing only 17% of the 1
  2. 2. HANDS-ON CHINA REPORT – November 12, 2012 total market. In the US, new car sales contribute 60% of a dealer’s revenue and just 20% of their profit, in sharp contrast to China where new car sales comprise 80% of a dealer’s revenue and half of their profit. In China, the market leaders will be the dealerships with the right exposure to diversified growth segments including SUV, mid-market, and premium and the ability to adapt their portfolio to succeed in delivering after-sales services. Increasingly, they must also anticipate and position themselves to access the emerging growth opportunity of lower-tier city consumers.The following is an abridged transcript of Bill Russo’s presentation.China’s automotive industry has arrived at an inflection point and in the future, market competition willbe more intense. There will still be demand growth, but year-on-year growth will continue to slow.Companies – both MNCs and domestic brands – will need to develop new strategies to maintainrelevance and profitability. There will inevitably be a period of consolidation because the market isgeared towards a higher level of capacity than what the market demand is likely to be.Asia Pacific passenger vehicle sales in 2010 accounted for 22.2 million units, while in 2015 we expect30 million units. India will be the second largest market in the region by 2020, but will still lagsignificantly behind China. As the largest automotive production and sales region, Asia Pacific hasbecome the battle ground for dominance of the automotive industry in the 21st century. Automotiveleaders going forward must have very Asia-centric businesses if they want to compete in the globalauto industry. Over the last 5 years, China has represented 33% of the total global growth in lightvehicle sales, while developing countries account for 75% of global sales growth.China’s overall car sales totaled 18.5 million units in 2011, including commercial and passengervehicles. Overall automotive market growth was 2.5% last year, with commercial vehicle salesdeclining over the last year while passenger vehicle (PV) sales grew more than 5%. Infrastructurespending and investments in urbanization have largely driven the commercial vehicle segment. 2
  3. 3. HANDS-ON CHINA REPORT – November 12, 2012Meanwhile passenger vehicle sales were boosted in 2009 and 2010 by government incentives andsubsidies. This yielded 46% YoY growth in vehicle sales in 2009, and 32% YoY in 2010. Thiscontrasts rather sharply with the 2.5% growth achieved in 2011. This happened because many of theincentives that China implemented in 2009 were phased out over that two-year period. Whenincentives are removed from a market, you will typically see a decline in sales - which did not happenin China in 2011. In fact there are segments within the automotive sector that are growing quiterobustly, even without the subsidies in place. This is an indication of the fundamental strength of theChina auto market. With continued growth of an increasingly urbanized population of middle-classand higher consumers, China has been able to sustain growth in 2011, albeit at a slower pace.Annual car sales are expected to slow from a rate of 25% over the last 10 years, to between 5 and 8%over the next decade. The slower growth rate is a function of several inter-related drivers that includethe central government’s desire for slower economic growth, the phasing out of auto subsidies, and athird but less influential factor is the implementation of restrictions on passenger vehicle registration incities like Shanghai and Beijing. Although there are now restrictions on PV purchases in 4 major cities,there are still more than 150 cities in China with populations over 1 million, which in the grand schemeof things limits the negative impact of this policy on auto sales. In short, here are many places to goto tap new growth opportunities. However, the process of industry growth is beginning to shift to adifferent pattern. Automotive manufacturers, suppliers and dealers that adjust their strategies to thenew growth pattern will prosper. 3
  4. 4. HANDS-ON CHINA REPORT – November 12, 2012China’s commercial vehicle industry will recover gradually but at a relatively slow pace. The keydrivers are China’s urbanization, expected increases in FAI, and the shorter life cycle of Chinesetrucks due to poor maintenance, low quality fuel, and poor road conditions. China is now 50%urbanized, and we expect this ratio to grow to over 65% in 2020. 4
  5. 5. HANDS-ON CHINA REPORT – November 12, 2012We may see high levels of overcapacity and significant margin pressure within the next 3 - 5 years,and an industry shakeout is inevitable. On the supply side, there are some very big challenges interms of overcapacity since 2010. With a deceleration in growth in 2011, overall capacity growth inChina outstripped demand growth. This will become even more magnified by 2015. Chineseautomotive companies have limited experience in managing a market slowdown, and are now facingthe potential for a significant overhang if they continue to add new capacity. To some extent, theattitude is that if you have the authorization to build additional capacity, you build it quickly – or youmay not get a chance to do it later. The consequence of overcapacity in the automotive industry islarger inventories in the channel, higher discounts and thinner margins. Forecasted overcapacitylevels may be the catalyst for the long-anticipated phase of industry consolidation, and competitivedynamics may start to more closely resemble those of developed markets with larger annual profitswings, strong purchasing incentives, and increased emphasis on operational efficiency. Carcompanies which lack a diversified product portfolio with clear brand value propositions will be moresusceptible to large up and down swings in profits due to this development. 5
  6. 6. HANDS-ON CHINA REPORT – November 12, 2012In China, the top 10 automotive enterprises now account for 87% of total sales. All foreign brandsmanufactured in China are produced through joint ventures with Chinese partners. To ensure a stableand sustainable development of the domestic industry, the National Development and ReformCommission (NDRC) has set a target for the top ten automotive enterprises to achieve 90% share ofthe overall market. 6
  7. 7. HANDS-ON CHINA REPORT – November 12, 2012The pressures resulting from this overcapacity development may be the catalyst for the long-anticipated industry consolidation phase. The existence of many weak sub-scale manufacturers isunderstood, and the Chinese government had articulated a plan in 2009 to consolidate the industryinto 2 distinct “tiers”: the Tier 1 group consisting of companies with an annual capacity of 2 millionunits that are encouraged to acquire smaller automotive companies throughout China, whereas Tier 2consists of companies with an annual capacity of 1 million units that are encouraged to drive regionalconsolidation.Presently they have reached the Tier 1 target, with Chang’An, Dongfeng, FAW and SAIC. The goal ofhaving at least 4 other companies with sales above 1 million units has not been reached, with BAICcurrently the only company above that level. In order to achieve the NDRC targets, some structuralrealignment in the market will likely occur over the next several years.However, progress toward implementing this restructuring plan has been slow during a boominggrowth period where all companies were expanding. As the market slows, it is now time to accelerateindustry consolidation. This will not be easy, as many companies will resist a top-down push torestructure. Ultimately, market forces must determine the companies that have earned their right tosurvive this consolidation phase. 7
  8. 8. HANDS-ON CHINA REPORT – November 12, 2012In 2009 and 2010, local vehicle manufacturers have benefited from tax incentives and other subsidies,but they have lost momentum recently. Over the period where there were subsidies and incentives inthe market, the local OEMs saw their PV market share increase. The incentives were directed at carswith engine sizes of 1.6 liters and below, which are generally manufactured by the local OEM brands.Larger cars tend to be produced by the international car companies, although some internationalcompanies that produce cars with low engine displacement benefited as well. The increase in marketshare from 25% to 29% shows how local car companies were in fact propped up by these incentives.However, these share gains have largely been erased when the incentives were phased out.The very notable winners have been VW, GM, and Nissan, especially in 2011. With the localcompanies, there are a few which are particularly strong including Geely and Great Wall, twocompanies which I fundamentally think are the best run Chinese car companies. Geely has beenespecially interesting with their ability to create a full-range product and brand portfolio. In particular,they are the only Chinese car company that has in-house automatic transmission capability, whichhelps them to achieve a more upscale positioning with their Emgrand brand. Geely acquired thiscapability then they purchased the Australian gearbox maker Drive Train Systems International in2009. Great Wall Motors has also become a full-range manufacturer of sedans and SUVs. They havea very strong set of capabilities built around their manufacturing and body engineering skills, and haverelied on a more organic approach to their R&D. 8
  9. 9. HANDS-ON CHINA REPORT – November 12, 2012Early movers had the advantage in the early-2000s when China joined the WTO. Shanghai VW, FAW– VW and SGM were particularly well positioned due to their early relationships with the larger state-owned companies. In 2002, VW had a combined share of over 50%, but of a much smaller market,while Shanghai GM was third with 12%. Shanghai GM now has market share of 8%, but this does notinclude GM Wuling, which would bring the total closer to 13%. The clear winners have been VW, GMand Nissan, which is a result of having the right combination of products, localized capabilities, andstrong JV partner relationships. 9
  10. 10. HANDS-ON CHINA REPORT – November 12, 2012The Chinese auto market is reaching an inflection point, thus requiring new strategies. With slowergrowth prospects and a fragmented landscape of manufacturers, we may be tempted to becomepessimistic about China’s automotive future. However, we must remember this is still the largest andfastest growing auto market in the world, and companies that adjust their strategies to the new growthpattern will prosper.There is enormous opportunity in the lower-tier cities and provinces in China. China’s tier 1-3 citieshave seen incredible growth in auto sales, but tier 4 and lower cities account for 80% of the Chinesepopulation, and some companies are better positioned than others to succeed in these markets.Compared to the higher tier cities that are confronted with the problem of market saturation as notedbefore, the lower tier cities have greater potential for growing demand, and consumption ofautomobiles in the future. Moreover, this process will be further promoted, as the Chinesegovernment places a focus on boosting the economic development of these regions. 10
  11. 11. HANDS-ON CHINA REPORT – November 12, 2012Demand will become more binary as lower tier cities cross the mobility threshold and OEMs may haveto adopt dual strategies. The domestic Chinese automakers tend to focus their sales in lower-tiercities. In Beijing, for example, local brands have a much smaller share of the market and there arefewer local brand dealerships. Some companies have started to seize the opportunity. For example,GM’s mini-vehicle China JV (SAIC-GM-Wuling) introduced the first own-brand car (Baojun, meaningtreasured horse) to target the fast-growing lower tier consumer, aiming to combine world-class quality& low ownership costs. By becoming a pioneer in moving down to compete in the low end market,GM-SAIC-Wuling aim to capture the shift in the growth pattern toward lower-tier cities and provinces.In 2011, Shanghai GM Wuling sold 1.21 million units, and this will grow significantly with theintroduction of the Baojun passenger vehicles. Baojun has already demonstrated how well GMunderstands the local Chinese market, with monthly sales recently exceeding 10,000 units for the firsttime. 11
  12. 12. HANDS-ON CHINA REPORT – November 12, 2012In the future, the main growth opportunities will be further inland. In order to capitalize on this,companies must have products that are appropriate for these consumers, but also need service anddealership networks. Hyundai is a very good example of a company that has taken a very balancedapproach to the market, by establishing R&D centers and dealer networks, which has assuredHyundai’s local adaptation and sales success. Hyundai outgrew the market in all 31 provinces inChina in 2009 because of their attractive price/value proposition and well-balanced approach todealership network development. 12
  13. 13. HANDS-ON CHINA REPORT – November 12, 2012Reflecting the expiry of government tax incentives and the shift in product preferences, 2011 has seenmixed results in terms of segment growth. In a market that grew at 2%, SUVs saw 20% growth, whilethere was over 40% growth in the compact SUV segment. In a market that is slowing overall, it isimportant to identify the segments that are outperforming. Vehicles with engine sizes that are 1.6 litersand below still account for 69% of total passenger cars sold. Volkswagen has capitalized on this byadapting smaller engines in new vehicles as a way to increase interest in the product, such as thenew generation VW 1.4TSI Polo GTI and Golf 6 that dropped the 1.6L and 1.8T engines used by thelast generation platform.On the flip side, pickups and minibuses have seen a decline of 8.9% in the last year. 13
  14. 14. HANDS-ON CHINA REPORT – November 12, 2012Premium vehicles are the sweet spot, and this segment represents 9.8% of the total automotivemarket in China. Premium-branded cars are also bucking the slower growth trends. While overallpassenger vehicle growth is in the 5% range, we are still seeing strong double-digit growth rates forpremium-branded cars.China is on a trajectory to be somewhere between Taiwan and the US in terms of premium car salesas a percentage of total sales. China is already Audi’s largest market, it was BMW’s largest market inthe first quarter of this year, and it is Mercedes’ third largest market after Germany and the US. 14
  15. 15. HANDS-ON CHINA REPORT – November 12, 2012It is no coincidence that companies with the most localized capabilities in China have also been themost successful in China. Japanese companies have relied on “transplanting” capabilities from Japanas opposed to tapping into localized capabilities, and this has not proven to be the ideal approach.The recent consumer shift away from Japanese brands today due to the islands territorial dispute is adeep emotional issue which is unlike the supply chain disruptions that occurred last year, and has thepotential for having a much longer-term impact on the sales of Japanese-branded products in China.There is a clear correlation between localized R&D and Product Development capability and marketperformance, where localization is defined as the ability to develop, source components andmanufacture a vehicle in China. Examples of highly localized products include the Audi A4L. It has a61mm larger wheel base than the European Audi, and a wider rear seat space. The customizeddesigned chassis with a 13 mm larger road clearance is also more appropriate to China’s roads. TheChinese A4L also has automatic fuel quality sensing to adjust engine performance based on gasolinequality. These are localized innovations that fit the typical Audi consumer, who normally has achauffeur, and is usually sitting in the back seat. These configurations are exclusive to China.Another example is GM’s multi-tiered product strategy, where their products also have more focus onrear seat entertainment as well as a turbo charged 1.6-liter car. 15
  16. 16. HANDS-ON CHINA REPORT – November 12, 2012The sales channel in China is still very fragmented, despite the massive size and rapid growth of autosales in China. The market share of the top 10 dealerships in China represents 17% of the totalmarket, which shows a lot of room for consolidation. One of the large problems in building outcapabilities in lower-tier cities in China is the challenge of finding dealer groups with the ambition ofbecoming “national consolidators”. For automotive sales, the “go west” campaign will largely beplayed out by leading dealer groups from the profitable east coast, expanding into the central andwestern markets. Investors should look to the leaders in these developed coastal markets, with theright exposure to diversified growth segments including SUV, mass market, and premium productsThe main challenge is that some of these dealer groups will have a difficult time adapting theirbusiness portfolios to cater to preferences in the lower-tier cities. A lot of the larger companies areprivate, and will probably list their shares to obtain the capital needed to build out their lower-tier citycapabilities. Due diligence is very important for investors, to ensure that a dealership’s income is fromthe automotive sales and services business. Many dealer groups in China have made their money bybuying prime real estate, as opposed to having a solid core automotive business. 16
  17. 17. HANDS-ON CHINA REPORT – November 12, 2012There are other important trends to note as well. Today, there are over 100 million cars in use inChina, and we will see this grow significantly each year as the market produces 20 million new carsper annum.In the US, new car sales contribute 60% of a dealer’s revenue and just 20% of their profit, in sharpcontrast to China where new car sales comprise 80% of a dealer’s revenue and half of their profit. InChina, the market leaders will be the dealerships with the right exposure to diversified growthsegments including SUV, mid-market, and premium and the ability to adapt their portfolio to succeedin delivering after-sales services.With the growth of the auto market in recent years, the demand for after-sales service, maintenance,and used car sales is growing as well. In response to the slowdown, manufacturers and dealers mustrecapture growth by building capability across a variety of after sales services, includingestablishment of a sub-dealership network and heavier involvement into service delivery andinnovation.Questions and AnswersWith Japanese automakers experiencing headwinds from the islands territorial disputesituation, which brands do you see benefitting? Do you think Sino-Japanese tension willultimately hurt the image of Japanese car products and their brand value?Many analysts compare the recent disruptions to the supply shortages that Japanese automakersfaced after the earthquake and tsunami in Fukushima last year and the flooding in Thailand. This is atotally different situation, and consumers now are dealing with a much more emotional issue, with 17
  18. 18. HANDS-ON CHINA REPORT – November 12, 2012protests targeting anything Japanese and images of cars being burned. Moreover, dealers are morereticent to invest in Japanese brands. A recovery in China can occur, but it is not a 3-6 monthproposition, it is more like 2-3 years, because a car being projects your aspirations and image of yoursuccess and “face” is very important in the Chinese culture. Chinese consumers are now taking asecond look at other brands, and so the immediate beneficiaries are the Korean carmakers includingHyundai, and then the American and Europeans car makers as well.It will take a long time to establish the consumer belief that Japanese cars are once again fashionable.Chinese consumers have always had a very high esteem for Japanese products especially becauseof quality perception. I don’t think this is a permanent issue, the issue is whether or not therelationship between China and Japan will be restored with the political rhetoric in the leadershipchange in China this year and the national election in Japan next year. Though the anti-Japaneseprotests have stopped, the purchasing of Japanese branded cars has not come back and the interestof dealerships to invest in Japanese brands has not rebounded.Do you think future policy will continue to favor electric cars?Policy will continue to favor fuel economy and lower displacement. China will continue to invest innewer technologies, but I don’t think the market is there for electric cars. I think we have already seenvery large investments made, with very little payback. The electric vehicles will be most prominent incommercial applications including buses and taxis. You will see more future products coming fromOEMs emphasizing good fuel economy. For example, delivering good performance with smallerinternal combustion engines using turbo-charging is also something that is working well for severalmanufacturers.What are the key focus areas in investment for automotive R&D?Chinese companies started their development as copy-cat companies, and their transformation from a“reverse-engineering” to a “forward engineering” company, where they can do their own developmentof core technologies, has been a struggle. Geely is much further along than their counterparts withregard to their ability to develop their own technologies like power train systems. Although thisrequired an initial large investment, it is paying dividends now. Chinese car companies lackcapabilities to develop the more complex powertrain and safety technology typically available inJapanese and other Western brands. This is where they need to focus and invest.More cities are trying to regulate car purchases by restricting the number of license platesissued. Do you think this is a threat to the automotive industry?It does restrict sales, but there are many other cities that can absorb the lost sales in the near-term. Itis, however, a pattern for dealing with traffic congestion that will be repeated in other cities as well.The interesting thing about restrictions in cities like Beijing and Shanghai, is that it typically results in aricher mix of products being sold in these cities. This clearly indicates that people in China prefer tobuy as much car as they have the opportunity to buy, and that premium cars have a very bright futurein this market. The pattern of restrictions on license plates may take on different forms, but I think itwill continue to be a policy that China’s city governments pursue. I don’t agree that it addresses theroot cause of the problem of traffic congestion. The government would do better by providingadequate public transportation, increasing parking capacity, enforcement of traffic laws, and betterurban planning to attack this issue. Densely populated cities like New York and Tokyo have far morecars per capita, yet Beijing has the worst traffic congestion in the world. 18
  19. 19. HANDS-ON CHINA REPORT – November 12, 2012DisclaimerConflict of InterestThis research contains the views, opinions and recommendations of J.P. Morgan research analysts. J.P. Morgan hasadopted research conflict of interest policies, including prohibitions on non-research personnel influencing thecontent of research. Research analysts still may speak to J.P. Morgan trading desk personnel in formulating views,opinions and recommendations. Trading desks may trade, or have traded, as principal on the basis of the researchanalysts’ views and research. Therefore, this research may not be independent from the proprietary interests of J.P.Morgan trading desks, which may conflict with your interests. As a general matter, J.P. Morgan and/or its affiliatestrade as principal in connection with making markets in fixed income securities discussed in research reports.Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, wheremultiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on thecover or within the document individually certifies, with respect to each security or issuer that the research analystcovers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal viewsabout any and all of the subject securities or issuers; and (2) no part of any of the research analysts compensation was,is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s)in this report.Important DisclosuresCompany-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and allJ.P. Morgan–covered companies by visiting, calling 1-800-477-0406, oremailing with your request.Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report areemployees of non-US affiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may notbe associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions oncommunications with covered companies, public appearances, and trading securities held by a research analyst account.Other DisclosuresJ.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P.Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equityresearch businesses of JPMorgan Chase & Co. and its subsidiaries.Options related research: If the information contained herein regards options related research, such information is availableonly to persons who have received the proper option risk disclosure documents. For a copy of the Option ClearingCorporations Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit theOCCs website at Entities DisclosuresU.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and isauthorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities plc (JPMS plc) is amember of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Registered inEngland & Wales No. 2711006. Registered Office 25 Bank Street, London, E14 5JP. South Africa: J.P. Morgan EquitiesLimited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. Hong Kong: J.P. MorganSecurities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and theSecurities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulatedby the Korea Financial Supervisory Service. Australia: J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS LicenceNo: 238188) is regulated by ASIC and J.P. Morgan Securities Australia Limited (ABN 61 003 245 234/AFS Licence No:238066) is a Market Participant with the ASX and regulated by ASIC. Taiwan: J.P.Morgan Securities (Taiwan) Limited is aparticipant of the Taiwan Stock Exchange (company-type) and regulated by the Taiwan Securities and Futures Bureau. India:J.P. Morgan India Private Limited, having its registered office at J.P. Morgan Tower, Off. C.S.T. Road, Kalina, SantacruzEast, Mumbai - 400098, is a member of the National Stock Exchange of India Limited (SEBI Registration Number - INB230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB 19
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