after the economic crisis?

After the economic crisis:

Possible next Asian scenarios

• China’s Development and its impact • What role: India? • How will this impact the chemical industry?

?

2009

2007

By: Daniël de Blocq van Scheltinga

Polarwide Ltd.

The 5th Asian Aromatics & Derivatives Conference, July 2011

1

Current Situation

Current Situation

High oil and commodity prices

Emerging economies: growing at pre-crisis pace

Developed countries: recovery or another

new crisis?

Boost food prices and other end products

Inflationary pressures in Asian countries

2

Current Situation

EUROPE - Greek Debt Issue - Under austerity - How to boost GDP?

USA - Continually high unemployment rate - Weak dollar - Housing prices are still falling - 2% growth rate – weakest in 9 decades - QE3?

ASIA - China - India - Japan

3

IN ASIA... (China)

GDP Annual Growth in 2009

- World’s largest merchandise exporter - World’s second largest economy

• Holds foreign reserves of over $2.5 trillion

US, France -2.6%

China, India: 9.1% UK: -4.9%

Inflationary pressure Losing comparative advantage over other emerging economies – rising costs

Inflation Rates by June 2011

4

IN ASIA... (India)

A stable political regime and democracy

Huge deficit in infrastructures – power, roads, ports, etc.

Broaden economic base – gradually move up the agricultural value chain (3/4 of population depends on farming)

Low labour costs (competitive edge in certain industries)

Edge in technology in manufacturing industries (China: labour-intensive)

5

India GDP Composition

in 2010

Agriculture, Forestry & Fishing

Mining and Quarrying

Manufacturing

Construction

Hotel, Transport, Communication & Trade

Real Estate, Insurance, Financing, & Bus Service

Social, Personal & Community, Services

From: Business Maps of India

What‘s next?

1) Asian region will have a continued rapid growth in demand for consumer goods and raw materials a) Migration of high-end and low-end manufacturing industries b) Large scale import of natural resources

2) High oil prices and increasing awareness of

environmental issues lead to growth of investment in new energy sources

6

Impact on the chemical industry

1) Growth of China and emerging markets - It is expected that the China chemical industry will be able to

increase its world market share to 13% from present 8% within 2015.

9.3

10.1

5

13

8.8

6.4

0 2 4 6 8 10 12 14

World

E.U.

United States

Asia (exclude Japan)

Japan

South America

Chemical production (excluding pharmaceuticals) in 2010 Real change compared with the previous year (%)

7

Impact on the chemical industry

1) Growth of China and emerging markets - There will be a gradual shift in the chemical market: from

North America, Western Europe and Japan to China, India and other Asian emerging regions

- Increased M&As of worldwide chemical companies

8

The volume of transactions completed worldwide held steady at about 70 to

80 per year from 1999 to 2007. In 2008 and 2009 there was dramatic slow

down. Volume has picked-up in 2010 with 64 deals completed.

Acquisitions of Worldwide Chemical Companies – Number of Deals

M&A Trends

Impact on the chemical industry

2) Constrained resources - Insufficient oil supply - Surging demand - A drive for sustainable and green innovation

9 Source: IEA WEO 2008, BP Statistical Review of World Energy 2008

Possible Scenario (1) : If China succeeds...

10

Europe – US – Japan

US - China

Long term shift

In China: - Still remainining heavily dependent on investment from public sectors and

exports - More infrastructure construction projects are still needed to direct the

migration of rural labour - Reforms are needed to maintain the edge of lower cost - Result: China will maintain a growth of 9% and surpass US to be the

world’s number one energy importer

Possible Scenario (2): If China fails...

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Europe – US – Japan

US – India-emerging markets

Long term shift

In China: - Insufficient returns from the heavy investments in infrastructures Bad debts in the banking systems Burst of a property price bubble

- Tight monetary policies may have hurt economic growth and caused

credit crunch for companies - Widening inequality in income - Inadequate legislation, social welfare and medical care system

Conclusion

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• Not yet clear if the global slowdown is a soft patch, or something more serious;

• With both Europe and the US facing sovereign debt issues, fiscal tightening and austerity, Asia is key ;

• Oil prices remain important to watch;

• China’s hard or soft landing is vital to Asia, and hence globally;

• Scenario 1 or 2: “flip a coin” !

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Thank you!

Contact Details

14

Daniel de Blocq van Scheltinga Tel: +852-2530-0611 E-mail: daniel.dbvs@polarwide.com Website: http://www.polarwide.com Truly Objective and Independent Financial Advisory & Consultancy Services Polarwide Limited, Registered in Hong Kong