china's economic competitiveness and implications for the...
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China's Economic Competitiveness and China's Economic Competitiveness and
Implications for the U.S. EconomyImplications for the U.S. Economy
Global Security SeminarGlobal Security SeminarGlobal Security SeminarGlobal Security SeminarUniversity of California at Los AngelesUniversity of California at Los Angeles
November 7, 2007November 7, 2007
James BarthAuburn University and Milken Institute
Top 10 Leading EconomiesTop 10 Leading Economies1820 and 20061820 and 2006
1820, Share of World Total 2006, Share of World Tota l
GDP Population GDP PopulationChina 28.7 35.7 U.S. 27.3 4.7India 16.0 19.6 Japan 9.0 2.0France 5.4 2.9 Germany 6.0 1.3U.K. 5.2 2.0 China 5.5 20.4
22
U.K. 5.2 2.0 China 5.5 20.4Prussia 4.9 4.2 U.K. 5.0 1.0Japan 3.1 2.9 France 4.7 1.0Austria/ Hungary 1.9 1.3 Italy 4.0 0.9Spain 1.9 1.1 Canada 2.6 0.5U.S. 1.8 0.9 Spain 2.5 0.7Russia 1.7 1.1 Brazil 2.2 2.9Top Ten Total 70.6 71.7 Top Ten Total 68.7 35.2
Source: International Monetary Fund, World Economic Outlook Database, October 2007.
Top 10 Leading EconomiesTop 10 Leading Economies
Country GDP (US$ Trillion)
China 44.5USA 35.2India 27.8
Country GDP (US$ Trillion)
USA 11.4Japan 4.4Germany 2.0
20052005 20502050
33
India 27.8Japan 6.7Brazil 6.1Russia 5.9U.K. 3.8Germany 3.6France 3.1Italy 2.1
Source: Goldman Sachs.
Germany 2.0U.K. 1.6China 1.53France 1.46Italy 1.21Canada 0.73Spain 0.66Mexico 0.64
China Is Now the Largest Contributor to China Is Now the Largest Contributor to World Economic GrowthWorld Economic Growth
15
20
25
20062007
(Percent)
44
0
5
10
15
UnitedStates
EuroArea
China Japan India UnitedKingdom
Russia
Economic IndicatorsEconomic IndicatorsFor Largest CountriesFor Largest Countries
CountryPopulation(millions)
Real GDP per Capita(2000 US$)
Life Expectancy
at Birth
Percent Living on $1
or less
Percent Living on $2 or less
ChinaChina 1,3051,305 $1,449$1,449 7272 1010 3535
IndiaIndia 1,0951,095 $588$588 6464 3434 8080
United StatesUnited States 296296 $37,267$37,267 7878 00 00
55
United StatesUnited States 296296 $37,267$37,267 7878 00 00
IndonesiaIndonesia 221221 $942$942 6868 88 5252
BrazilBrazil 186186 $3,597$3,597 7171 88 2121
PakistanPakistan 156156 $596$596 6565 1717 7474
RussiaRussia 143143 $2,445$2,445 6565 22 1212
BangladeshBangladesh 142142 $433$433 6464 4141 8484
NigeriaNigeria 132132 $459$459 4444 7171 9292
JapanJapan 128128 $39,075$39,075 8282 00 00
Sources: World Development Indicator 2007.
China’s Nominal GDP GrowthChina’s Nominal GDP Growth1980 1980 -- 20062006
Percent Change, Year Ago
2,000
2,500
3,000
US$ Billions
20
25
30
35GDP
Growth
66
-
500
1,000
1,500
2,000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
-15
-10
-5
0
5
10
15
20
Source: CEIC.
China’s Population GrowthChina’s Population Growth1980 1980 -- 20062006
Percent Change, Year Ago
1.2
1.4
1.6
1.8
Billions
1.7
2.2PersonsGrowth
77
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
-0.3
0.2
0.7
1.2
Source: International Monetary Fund, World Economic Outlook Database, October 2007.
140
120
100
Millions
Population of Young AdultsPopulation of Young AdultsPopulation of 20Population of 20--24 Year24 Year--Olds, 1980Olds, 1980--20152015
China
India
88
20152010200520001995199019851980
80
60
40
20
0
Western Europe
United States
Contributors to China’s RecentContributors to China’s RecentReal GDP GrowthReal GDP Growth
In percentIn percentShares of Real GDP
2006Component
Contribution to GDP Growth
China India China India
ConsumptionConsumption 3636 5858 3.43.4 3.93.9
99
Government Government SpendingSpending
1414 1212 1.51.5 1.11.1
InvestmentInvestment 4343 3333 5.65.6 4.54.5
ExportsExports 3737 2424 7.97.9 4.84.8
ImportsImports --3030 --2727 --4.84.8 --5.05.0
GDPGDP 100100 100100
GDP GrowthGDP Growth 13.613.6 9.39.3
Sources: CEIC and WEO 2007.
Pace of Economic GrowthPace of Economic GrowthNumber of Years to Double Per Capita GDPNumber of Years to Double Per Capita GDP
1780-1838
1839-1986
70
60
50
Years
1780-1838
1839-1986
70
60
50
Years
1010
1885-1919
1986-2004
1966-1977 1978-19871988-19971998-2004
ChinaChina
ChinaS. Korea
IndiaJapan
U.S.U.K.
40
30
20
10
0
1885-1919
1986-2004
1966-1977 1978-19871988-19971998-2004
ChinaChina
ChinaS. Korea
IndiaJapan
U.S.U.K.
40
30
20
10
0
600
700
800
900
1000
Stock Markets Performance Worldwide Stock Markets Performance Worldwide Percent Gain 2007 YearPercent Gain 2007 Year--toto--DateDate
1111
0
100
200
300
400
500
Peru Egypt Brazil China Mexico India Korea Chile HongKong
U.S. -S&P
Source: Bloomberg 1/1/04 – 11/6/07.
80
100
120
140
Stock Markets Performance Worldwide Stock Markets Performance Worldwide Percent Gain 2004 Percent Gain 2004 -- 20072007
1212Source: Bloomberg 1/1/04 – 11/6/07.
0
20
40
60
80
China Peru Brazil India HongKong
Korea Chile Egypt Mexico U.S. -S&P
China’s Nominal GDP Growth and China’s Nominal GDP Growth and Contribution of GDP ComponentsContribution of GDP Components
25
30
35
40
45
Per
cent
age
5
10
15
20
25
30
35
40
Per
cent
age
Investment/GDP (Left) GDP Growth (Right)
40
45
50
55
Per
cent
age
5
10
15
20
25
30
35
40
Per
cent
age
Private Consumption/GDP (Left) GDP Growth (Right)
1313
20
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
0
5
35
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
0
5
10
12
14
16
18
20
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Per
cent
age
0
5
10
15
20
25
30
35
40P
erce
ntag
eGovernment Expenditure/GDP (Left) GDP Growth (Right)
-5
-3
-1
1
3
5
7
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Per
cent
age
0
5
10
15
20
25
30
35
40
Per
cent
age
Net Export/GDP (Left) GDP Growth (Right)
Are Fixed InvestmentsAre Fixed Investmentsin China and India a Source of Concern?in China and India a Source of Concern?
Fixed Investment As a Percentage of GDP, 1990 Fixed Investment As a Percentage of GDP, 1990 -- 20062006
40
50
1414
0
10
20
30
China India Korea Japan UnitedStates
Credit ExpansionCredit Expansion
“Mr. Wen [Chinese Prime Minister] indicated that Beijing is increasingly concerned about the quality of growth. He admitted that it had failed to adequately control investment in fixed assets such as factories and machinery. Overinvestment is among the biggest threats to the economy, as it
1515
among the biggest threats to the economy, as it leads to production gluts and can wipe out corporate profits, causing bankruptcies and a jump in bad loans. ‘The problem of excess production is getting worse. Corporate profits are down and losses are increasing, causing greater potential financing risks.’”
WSJ, March 6, 2006WSJ, March 6, 2006
Dispersed Manufacturing /Dispersed Manufacturing /Borderless ManufacturingBorderless Manufacturing
AssemblyCHINESE
MAINLAND
ShellKOREA
LiningTAIWAN
by����
Performing production slicing to identify the best location/ country to
1616
FillerCHINESE
MAINLAND
ZipperJAPAN
Label, elastic,studs, toggle
and stringHONG KONG
Made in Hong Kong
by����
location/ country to undertake each stage of process, adding value along the way & integrating the entire supply chain.
5%
6%
7%
8%China's World Trade ShareChina's World GDP Share
5%
6%
7%
8%India's World Trade ShareIndia's World GDP Share
World Trade and GDP Shares: World Trade and GDP Shares: China vs. IndiaChina vs. India
1717
0%
1%
2%
3%
4%
5%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
0%
1%
2%
3%
4%
5%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Source: IFS.
Top Global Trading NationsTop Global Trading Nations
Trade(US$ Billions)
GDP(US$ Billions)
Trade/GDP(%)
11 Euro AreaEuro Area 3,0473,047 9,9279,927 3131
22 United StatesUnited States 2,6402,640 12,48612,486 2121
33 ChinaChina 1,4221,422 2,2252,225 6464
44 JapanJapan 1,1101,110 4,5714,571 2424
1818
44 JapanJapan 1,1101,110 4,5714,571 2424
55 U. K.U. K. 854854 2,2012,201 3939
66 CanadaCanada 691691 1,1301,130 6161
77 Hong KongHong Kong 589589 178178 331331
88 KoreaKorea 546546 793793 6969
99 MexicoMexico 446446 768768 5858
1010 SingaporeSingapore 430430 118118 365365
1818 IndiaIndia 230230 775775 3030
Who is Trading with Whom?Who is Trading with Whom?
Year 2005 China India Japan U.S.
Total Exports(US$ Billions)
593 75 566 816
with: EU 18% 22% 16% 21%
Asia 46% 31% 48% 26%
1919
Asia 46% 31% 48% 26%
U.S. 21% 17% 23%
Total Imports(US$ Billions)
561 100 455 1,525
with: EU 12% 17% 13% 19%
Asia 54% 24% 45% 36%
U.S. 8% 6% 14%
Source: Direction of Trade Statistics 2006.
China and India's Top Trading Partners China and India's Top Trading Partners 20062006
Exports Imports
China India China India1. United States 1. United States 1. Japan 1. China
2. Hong Kong 2. U.A.E 2. South Korea 2. United States
3. Japan 3. Singapore 3. Taiwan 3. Switzerland
2020
3. Japan 3. Singapore 3. Taiwan 3. Switzerland
4. South Korea 4. China 4. United States 4. Germany
5. Germany 5. U.K. 5. Germany 5. Belgium
6. Netherlands 6. Hong Kong 6. Malaysia 6. U.A.E.
7. U. K. 7. Germany 7. Australia 7. Australia
8. Singapore 8. Belgium 8. Thailand 8. South Korea
9. Taiwan 9. Netherlands 9. Philippines 9. U.K.
10. Italy 10. Japan 10. Singapore 10. Japan
China’s Increased Exports and ImportsChina’s Increased Exports and Imports1998 1998 -- 20062006
US$ Billions
800
1,000
1,200
Exports
Imports
2121
0
200
400
600
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: IFS.
International Investment PositionsInternational Investment Positions20062006
US$ Billion China India
Net Foreign Assets 662 -46Gross Foreign Assets 1,627 183
Equity 84 13of which FDI 82 12
2222
of which FDI 82 12Debt 470 19Reserves 1,073 151
Gross Foreign Liabilities 965 229Equity 651 105
of which FDI 544 50Debt 314 124
Source: IFS September 2007.
Change in the Source of China’s Foreign Change in the Source of China’s Foreign Exchange ReserveExchange Reserve
1994 1994 -- 20062006Current Account Balance
Capital Account Balance
Among which: FDI
Reserve Assets
Net Errors and
Omissions
1994 7.66 32.64 33.79 -30.42 -9.78
1995 1.62 38.67 35.85 -21.98 -17.81
1996 7.24 39.97 40.18 -31.43 -15.56
1997 29.72 22.96 44.24 -34.86 -16.95
2323
1997 29.72 22.96 44.24 -34.86 -16.95
1998 31.47 -6.32 43.75 -5.07 -18.72
1999 21.11 5.18 38.75 -9.72 -17.79
2000 20.52 1.92 38.40 -10.90 -11.89
2001 17.41 34.78 44.24 -46.59 -4.86
2002 35.42 32.29 49.31 -74.24 7.79
2003 45.88 52.73 47.08 -116.84 18.42
2004 68.66 110.66 54.94 -206.68 27.05
2005 160.82 62.96 79.13 -207.02 -16.77
2006 249.87 10.04 78.10 -247.03 -12.88
Sources: National Bureau of Statistics of China, State Administration of Foreign Exchange, Federal Reserves and WEO 2007.
Asia’s FastAsia’s Fast--Growing Growing Foreign Exchange ReservesForeign Exchange Reserves
1999 2000 2001 2002 2003 2004 2005 20062007June
China 158 168 216 291 408 615 822 1,066 1,333
India 33 38 46 68 99 127 132 170 206
Japan 287 355 395 461 663 834 834 875 893
S. Korea 74 96 103 121 155 199 210 238 250
US$ Billions
2424
S. Korea 74 96 103 121 155 199 210 238 250
Hong Kong 96 108 111 112 118 124 124 133 136
Malaysia 31 28 30 33 44 66 70 82 98
Philippines 13 13 13 13 14 13 16 20 23
Singapore 77 80 75 82 96 112 116 136 144
Taiwan 106 107 122 162 207 242 253 266 266
Thailand 34 32 32 38 41 49 51 65 71
Total 706 811 910 1,108 1,520 2,014 2,250 3,051 3,420
Source: IFS.
Developing Countries’ Foreign Developing Countries’ Foreign Exchange ReservesExchange Reserves
2,500
3,000
3,500
4,000 US$ Billions
Brazil
Other
2525
0
500
1,000
1,500
2,000
2,500
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Q2
China
Russia
Africa
India
Mexico
Brazil
Source: IFS.
Countries That Export CapitalCountries That Export Capital20062006
Japan12%
China13%Other
countries35%
2626
Source: IMF.
Germany9%
Russia9%
Saudi Arabia9%
Netherlands4%
Switzerland4%
Norway5%
Countries That Import CapitalCountries That Import Capital20062006
France
Turkey2%
Italy2%
Other countries15%
2727
Source: IMF.
United States64%
France3%
United Kingdom4%
Australia3%
Spain7%
U.S. Treasuries Held by Foreign CountriesU.S. Treasuries Held by Foreign Countries
All Others $622
Taiwan $52
Japan $586
Total: US$2,231 Billions, August 2007
2828
Taiwan $52
Hong Kong $56
Luxembourg $64
Brazil $107
Oil Exporters $123
United Kingdom
$244
China $400Caribbean Banking
Centers $76
Source: US Treasury.
8.2
8.3
8.4
8.5
46
50
Exchange Rates: China vs. IndiaExchange Rates: China vs. India
Yuan per US Dollar(Left Axis)
2929
7.5
7.6
7.7
7.8
7.9
8
8.1
8.2
95 96 97 98 99 00 01 02 03 04 05 06 0730
34
38
42
RMB’s 2 percent revaluation
July 21, 2005Rupee per US Dollar(Right Axis)
Source: IFS.
China and India China and India Avoid Asian Financial CrisisAvoid Asian Financial Crisis
GDP Annual Percent Change
10
15
20
3030
-15
-10
-5
0
5
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
ChinaIndiaIndonesiaKoreaMalaysiaPhilippinesThailand
Source: International Monetary Fund, World Economic Outlook Database.
China’s Ratio of Foreign Exchange China’s Ratio of Foreign Exchange Reserve to GDP, 1999 Reserve to GDP, 1999 -- 2007 Q22007 Q2
Foreign Exchange Reserve
(US$ Billions)
GDP(US$
Billions)
Ratio of Foreign
Exchange to GDP(%)
Ratio of Foreign
Exchange to Imports (%)
1999 155 1,083 14 93
2000 166 1,198 14 74
3131
2000 166 1,198 14 74
2001 212 1,325 16 87
2002 286 1,454 20 97
2003 403 1,641 25 98
2004 610 1,932 32 109
2005 819 2,234 37 124
2006 1,066 2,627 41 135
2007 Q2 1,333 3,025 44 143
Sources: National Bureau of Statistics of China, State Administration of Foreign Exchange, and WEO 2007.
Top 10 SovereignTop 10 Sovereign--Wealth FundsWealth Funds
$875
330
300
1. Abu Dhabi Investment Auth., UAE
3. Government Pension Fund, Norway
2. GIC, Singapore
(In US$ Billions)
3232
40
37
30
200
100
100
70
10. Brunei Investment Authority, Brunei
9. Permanent Reserve Fund, U.S.
8. Australian Future Fund, Australia
7. Kuwait Investment Auth., Kuwait
6. Temasek Holdings, Singapore
5. Stabilization Fund, Russia
4. China Investment Co., China
Number of Global Mergers and AcquisitionsNumber of Global Mergers and Acquisitions1995 1995 -- 20062006
20,000
25,000Domestic Cross-border
3333
3,435 4,8317,210
9,510 9,63911,759
9,618 9,220 9,024 10,15212,616 14,354
1,2351,584
2,142
3,017 4,005
4,826
4,203 3,665 3,2533,907
4,5334,996
0
5,000
10,000
15,000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: Dealogic.
Value of Global Mergers and AcquisitionsValue of Global Mergers and Acquisitions1995 1995 -- 20062006
3.5
4.0
4.5
Cross-border
Domestic
US$ Trillions
3434
0.400.78 1.03
1.47 1.71
2.56
1.500.96 0.97
1.42 1.772.47
0.160.20
0.34
0.580.88
1.27
0.68
0.48 0.41
0.54
0.79
1.06
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Domestic
Source: Dealogic.
Chinese Completed M&As AbroadChinese Completed M&As AbroadJanuary 1995 January 1995 –– August 2007August 2007
20,000
25,000
US$ Millions
70
80
90
Number
Deal Value
Number of Deals
3535
0
5,000
10,000
15,000
1995 1997 1999 2001 2003 2005 2007-August
0
10
20
30
40
50
60
Source: Dealogic.
Chinese Completed M&As Abroad:Chinese Completed M&As Abroad:Top 10 Countries by Number of DealsTop 10 Countries by Number of Deals
January 1995 January 1995 –– August 2007August 2007
Japan
South Korea
Indonesia
Germany
United
3636
Hong Kong
Singapore
Canada
JapanUnited
Kingdom
Australia
United StatesSource: Dealogic.
Chinese Completed M&As Abroad: Chinese Completed M&As Abroad: Top 10 Countries by Deal ValueTop 10 Countries by Deal Value
January 1995 January 1995 –– August 2007August 2007
South Korea
Indonesia
Ecuador
3737
Hong Kong
United KingdomKazakhstan
United States
Singapore
Russian Federation
Nigeria
Source: Dealogic.
Top 30 Chinese M&As Abroad by Deal ValueTop 30 Chinese M&As Abroad by Deal ValueJanuary 1995 January 1995 –– October 2007October 2007
Deal Value (US$
Millions)
Target Nationality/Completion
Date
Target Acquiror Acquiror Industry
5,486 South Africa, Pending
Standard Bank Group Ltd (20%)
Industrial & Commercial Bank of China - ICBC Finance
4,180 Kazakhstan, 10/26/2005 PetroKazakhstan Inc China National Petroleum Corp -
CNPC Oil & Gas
Russian Udmurtneft OAO China Petroleum & Chemical
3838Source: Dealogic.
3,652Russian
Federation, 8/10/2006
Udmurtneft OAO (99.49%)
China Petroleum & Chemical Corp - SINOPEC Oil & Gas
3,425 Singapore, 12/15/2006
Singapore Aircraft Leasing Enterprise Pte Ltd (SALE)
Bank of China Ltd Finance
3,073 Australia, Pending Nufarm Ltd
China National Chemical Corp -CNCC;Blackstone Group LP;Fox Paine Management III LLC
Finance
3,000 United States, 8/14/2007
Blackstone Group LP (10%) Chinese State Investment Co Finance
2,981United
Kingdom, 8/14/2007
Barclays plc (2.64%) China Development Bank Finance
Top 30 Chinese M&As Abroad by Deal ValueTop 30 Chinese M&As Abroad by Deal ValueJanuary 1995 January 1995 –– October 2007October 2007
Deal Value (US$
Millions)
Target Nationality/Completion
Date
Target Acquiror Acquiror Industry
2,692 Nigeria, 4/19/2006
Oil & Gas Assets (Akpo Offshore Oil & Gas Field in Nigeria)
China National Offshore Oil Corp - CNOOC Oil & Gas
2,106 Hong Kong, 1/29/1997
China Light & Power Co Ltd (20%)
China International Trust and Investment Corp - CITIC Finance
Kazakhstan, Oil & Gas Assets
3939Source: Dealogic.
1,910 Kazakhstan, 12/29/2006
Oil & Gas Assets (Kazakh Oil & Gas Assets)
CITIC Group Finance
1,750 United States, 5/2/2005
International Business Machines Corp - IBM (Personal Computer Business)
Lenovo Group Ltd Computers & Electronics
1,660 Hong Kong, 2/9/1998
Hong Kong Telecommunications Ltd (7.6%)
China Telecom Hong Kong (Group) Ltd Telecom.
1,420 Ecuador, 2/21/2006
Oil & Gas Assets (Oil & Pipeline Interests in Ecuador)
Andes Petroleum Co Oil & Gas
1,248 Hong Kong, 12/29/2006
Bank of America (Asia) Ltd
China Construction Bank Corp - CCB Finance
Top 30 Chinese M&As Abroad by Deal ValueTop 30 Chinese M&As Abroad by Deal ValueJanuary 1995 January 1995 –– October 2007October 2007
Deal Value (US$
Millions)
Target Nationality/Completion
Date
Target Acquiror Acquiror Industry
1,198 Hong Kong, Pending
Golden View Investment Ltd (48.93%)
China Cosco Holdings Co Ltd Transportation
1,186 Hong Kong, 6/6/1997
Hong Kong Telecommunications Ltd (5.5%)
China Telecom (Hong Kong) Ltd Telecom.
Hong Kong, China Network
4040Source: Dealogic.
1,016 Hong Kong, 4/1/2005 PCCW Ltd (20%)
China Network Communications Group Corp
Telecom.
1,000 United States, Pending
Bear Stearns Companies Inc (6.6%) CITIC Securities Co Ltd Finance
923 Angola, 6/13/2006
Oil & Gas Assets (Oil Blocks 17, 18 & 15 in Angola)
China Petroleum & Chemical Corp - SINOPEC Oil & Gas
850 Colombia, 9/21/2006
Omimex de Colombia Ltd (50%)
China Petrochemical Corp;Oil & Gas Technology Fund Inc
Oil & Gas
796United
Kingdom, 11/11/2006
Anglo American plc (1.127%) China Vision Resources Ltd Finance
789 Canada, 7/24/2007
Peru Copper Inc (90.03%)
Aluminum Corp of China Ltd - CHALCO Metal & Steel
Top 30 Chinese M&As Abroad by Deal ValueTop 30 Chinese M&As Abroad by Deal ValueJanuary 1995 January 1995 –– October 2007October 2007
Deal Value (US$
Millions)
Target Nationality/Completion
Date
Target Acquiror Acquiror Industry
650 South Korea, 9/6/2001
Hyundai Display Technology Inc - Hydis (80.1%)
Beijing Orient Electronics Group Co Ltd;Cando Corp
Consumer Products
697 Hong Kong, 7/18/2000
Shandong Huaneng Power Development Co Ltd
Huaneng Power International Inc Utility & Energy
4141Source: Dealogic.
625 Hong Kong, 9/28/2006
Cathay Pacific Airways Ltd (9.14%) Air China Ltd Transportation
592 Indonesia, 4/22/2002
Repsol YPF SA (Indonesian assets)
China National Offshore Oil Corp (CNOOC) Oil & Gas
572 Macao, Pending Seng Heng Bank Ltd (79.933%)
Industrial & Commercial Bank of China - ICBC Finance
512 Hong Kong, 6/27/2007
China Resources Petrochems Investments Ltd
China Petroleum & Chemical Corp - SINOPEC Oil & Gas
509 South Korea, 1/27/2005
Ssangyong Motor Co Ltd (48.92%)
Shanghai Automotive Industry Corp - SAIC Auto/Truck
502 France, 2/1/2007
Rhodia SA (Silicones Business)
China National Chemical Corp - CNCC Chemicals
Most Valuable CompaniesMost Valuable CompaniesRank As of December, 1989 and 1999Rank As of December, 1989 and 1999
Rank As of Dec. 31, 1989 Country Value (US$
Billions)Rank As of Dec. 31, 1999 Country
Value (US$
Billions)
1Nippon Telegraph & Telephone Japan 160 1 Microsoft U.S. 604
2 Industrial Bank of Japan Japan 104 2 General Electric U .S. 508
3 Sumitomo Bank Japan 73 3 NTT DoCoMo Japan 367
4 Fuji Bank Japan 69 4 Cisco U.S. 350
5 Daichi Kangyo Bank Japan 64 5 Wal-Mart U.S. 308
6 Exxon U.S. 64 6 Exxon Mobil U.S. 280
7 General Electric U.S. 58 7 Intel U.S. 274
4242Source: Wall Street journal, October 20, 2007.
7 General Electric U.S. 58 7 Intel U.S. 274
8 Tokyo Electric Power Japan 57 8Nippon Telegraph & Telephone Japan 272
9 I.B.M U.S. 54 9 Lucent U.S. 235
10 Toyota Japan 51 10 Deutsche Telekom. Germany 215
11 AT&T U.S. 49 11 Nokia Finland 210
12 Nomura Japan 46 12 BP Amoco Britain 195
13 Royal Dutch Neth 42 13 I.B.M U.S. 194
14 Philip Morris U.S. 39 14 Citigroup U.S. 188
15 Nippon Steel Japan 37 15 Toyota Japan 183
16 Tokai Bank Japan 35 16 AOL U.S. 170
17 Mitsui Bank Japan 35 17 American Int'l Group U.S. 167
18 Matsushita Electric Japan 33 18 SBC U.S. 166
19 Kansai Electric Japan 32 19 AT&T U.S. 162
20 Hitachi Japan 32 20 Oracle U.S. 159
Most Valuable CompaniesMost Valuable CompaniesRank As of November 6, 2007Rank As of November 6, 2007
Country Market Capitalization (US$ Billions)
1 PetroChina China 916
2 Exxon United States 501
3 General Electric United States 406
4 China Mobile Hong Kong, China 366
5 Industrial & Commercial Bank of China China 346
6 Microsoft United States 340
7 Gazprom Russia 304
8 Royal Dutch Netherlands 268
4343
8 Royal Dutch Netherlands 268
9 BP PLC United Kingdom 251
10 China Petroleum & Chemical China 246
11 AT&T United States 243
12 China Construction Bank China 243
13 China Life Insurance China 232
14 Google United States 232
15 HSBC United Kingdom 223
16 Procter & Gamble United States 219
17 Bank of China China 217
18 EDF France 224
19 Vodafone Group United Kingdom 207
20 Berkshire Hathaway United States 207
Source: Bloomberg.
Comparative Financial SystemsComparative Financial Systems
2006Percent Accounted for by
China India U.S. Japan EU 27
GDP $48 trillion 5.5 1.8 27.5 9.1 30.1
Population 6.4 billion 20.4 17.3 4.6 2.0 7.6
4444
Population 6.4 billion 20.4 17.3 4.6 2.0 7.6
Bank Assets $87.2 trillion 5.1 0.7 15.9 11.8 51.1
Equity Market $53.4 trillion 4.5 1.5 36.3 8.8 24.0
Bond Market $68.1 trillion 1.7 0.5 39.2 12.8 34.6
Total Financial Assets
$152 trillion 1.8 0.5 39.2 12.7 34.6
China’s Banks Dominate Financial SystemChina’s Banks Dominate Financial System20062006
Corporate Bonds5%
Government
Total = $8.1 Trillion
4545
Bank Assets55%
Government Bonds10%
Equity Market30%
Sources: IFS, S&P and BIS.
Government Bonds17%
Corporate Bonds2%
Total = $1.8 Trillion
India Has a More Balanced Financial SystemIndia Has a More Balanced Financial System20062006
4646
Bank Assets35%
17%
Stock Market Capitalization
46%
Sources: IFS, S&P and BIS.
10% 17%
28%
5% 2% 8%
34%CorporateBonds
US$ Billions
100%=$8,065 $1,790 $23,733 $60,059
Financial System CompositionFinancial System Composition20062006
4747
55%
35%43%
23%
30%
46%20%
32%
28%
10%
China India Japan United States
GovernmentBonds
EquityMarket
Bank Assets
Sources: IFS, S&P and BIS.
Government Owned Banks’ Share of Government Owned Banks’ Share of Total Bank AssetsTotal Bank Assets
4848
75 Percent 98 Percent
Ratios of Nonperforming Loans to Total Ratios of Nonperforming Loans to Total Loans of the China Big Four BanksLoans of the China Big Four Banks
(percentages, end of year) 2002 2003 2004 2005 2006
Agricultural Bank of China 36.7 30.7 26.8 26.3 23.7
Industrial and Commercial Bank
4949
Industrial and Commercial Bank of China
25.5 21.3 19.1 4.7 3.9
Bank of China 22.4 15.9 5.1 4.6 4.2
China Construction Bank 15.4 9.1 3.7 3.8 3.4
Aggregate of the Big Four 23.1 17.8 15.6 10.5 9.1
Sour
Source: Bankscope.
Ratios of Equity to Total Assets of the Ratios of Equity to Total Assets of the China Big Four BanksChina Big Four Banks
(percentages) 2001 2002 2003 2004 2005 2006
Agricultural Bank of China 5.3 4.6 4.0 1.9 1.7 1.6
Industrial and Commercial Bank of China
4.5 3.8 3.3 2.9 3.9 6.3
5050
of China4.5 3.8 3.3 2.9 3.9 6.3
Bank of China 6.6 6.7 5.8 5.5 4.9 7.9
China Construction Bank 3.9 4.7 5.3 5.0 6.3 6.1
Aggregate of the Big Four 5.0 3.0 4.6 3.8 4.4 5.5
Source: Bankscope.
Nonperforming LoansAmount
($ billion)% of
Total Loans% of GDP
State owned commercial banks (Big Four) 134.9 9.2 5.0
Joint stock commercial banks 15.0 2.8 0.6
China’s Reported Nonperforming LoansChina’s Reported Nonperforming Loans20062006
5151
Joint stock commercial banks 15.0 2.8 0.6
City commercial banks 8.4 4.8 0.3Rural commercial banks 2.0 5.9 0.07Foreign banks 0.5 0.8 0.02Total 160.7 7.1 6.0Memo:
Asset Management Corporations 110.9 4.1
Source: China Banking Regulatory Commission.
Nonperforming Loans of the China Nonperforming Loans of the China Big Four BanksBig Four Banks
NPL Ratio (Right)
25
30
35
40
Percent
1,000
1,200
1,400
1,600
US$ Bil lions
5252Source: Bankscope
Total Loans (Left) Non-performing
laons (Left)
0
5
10
15
20
25
2006200520042003200220010
200
400
600
800
1,000
Bank Lending and Deposit Rates (1 year)Bank Lending and Deposit Rates (1 year)
Ceiling lending rate
10
12
14
16
Percentage
10
12
14
16On October 29, 2004, upper limit on lending rate was removed
5353Source: PBOC and IFS.
Reference deposit rate
Reference lending rate
Lowest lending rate
0
2
4
6
8
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20070
2
4
6
8
China Construction BankChina Construction BankJune 2007June 2007
Average Annualized Cost of Deposits from Customers
1.49% Deposits from Customers/Total Assets
82.5%
Average Annualized Yield on Loans and Advances from
6.08% Loans and Advances/Total Assets
50.4%
5454
Advances from Customers
Assets
Average Yield on Investment in Debt Securities
3.16% Investment in Debt Securities/Total Assets
34.7%
Net Interest Margin 3.11%
Non-interest Income/Total Income
10.14%
Source: China Construction Bank Interim Report 2007.
Private Enterprises: Contribution to GDP Private Enterprises: Contribution to GDP vs. Share of Corporate Bank Loansvs. Share of Corporate Bank Loans
Contribution to GDP
State-owned enterprises
23%
Share in corporate bank loans
State-owned
Private and foreign
enterprises27%
5555
Shareholding enterprises
19%
Collective enterprises
6%
Private and foreign
enterprises52%
State-owned enterprises
35%
Shareholding enterprises
27%
Collective enterprises
11%
27%
China’s Most Bank Loans Go to Large FirmsChina’s Most Bank Loans Go to Large Firms
75%
55%40%
16%
5656
25%
45%60%
84%
99%
75%
1%
Number Employment GDP Assets Bank loans
SMEsLarge firms
Foreign Direct Investment Flows Overview Foreign Direct Investment Flows Overview 1990 1990 -- 20062006
FDI Flows (US$ Millions)1990-2000 (Annual average)
2003 2004 2005 2006
China Inward 30,104 53,505 60,630 72,406 69,468
Outward 2,195 2,855 5,498 12,261 16,130
India Inward 1,705 4,323 5,771 6,676 16,881
Outward 121 1,879 2,179 2,495 9,676
Singapore Inward 9,204 11,664 19,828 15,004 24,207
Outward 4,757 2,695 8,074 5,034 8,626
5757
Outward 4,757 2,695 8,074 5,034 8,626
United States Inward 109,513 53,146 135,826 101,025 1 75,394
Outward 92,010 129,352 257,967 27,736 216,614
East Asia Inward 48,832 72,666 106,314 116,253 125,77 4
Outward 29,472 17,447 62,924 49,836 74,099
Asia and Oceania Inward 76,700 115,330 170,722 209,12 7 259,773
Outward 37,432 22,445 87,516 77,845 117,072
Developing Economies Inward 130,722 178,699 283,030 3 14,316 379,070
Outward 52,836 45,372 117,336 115,860 174,389
World Inward 495,399 564,078 742,143 945,795 1,305,85 2
Outward 492,622 560,087 877,301 837,194 1,215,789
Source: UNCTAD, World Investment Report 2007.
Foreign Direct Investment Stocks Overview Foreign Direct Investment Stocks Overview 1980 1980 -- 20062006
FDI Stocks (US$ Millions) 1980 1990 2000 2005 2006
China Inward 1,074 20,691 193,348 272,094 292,559
Outward - 4,455 27,768 57,206 73,330
India Inward 452 1,657 17,517 44,019 50,680
Outward 78 124 1,859 10,033 12,964
Singapore Inward 5,351 30,468 112,633 185,882 210,089
Outward 623 7,808 56,766 108,954 117,580
5858
United States Inward 83,046 394,911 1,256,867 1,594,4 88 1,789,087
Outward 215,375 430,521 1,316,247 2,135,492 2,384,00 4
East Asia Inward 28,782 84,065 708,511 911,569 1,191, 291
Outward 13,284 49,032 509,636 674,133 923,403
Asia and Oceania
Inward 65,461 200,566 1,073,401 1,533,932 1,932,153
Outward 16,451 66,231 610,344 876,475 1,152,349
Developing economies
Inward 140,356 364,683 1,707,639 2,621,615 3,155,856
Outward 72,433 145,793 858,921 1,284,857 1,600,305
World Inward 551,221 1,779,198 5,810,189 10,048,015 1 1,998,838
Outward 599,259 1,815,213 6,209,455 10,578,800 12,47 4,261
Source: UNCTAD, World Investment Report 2007.
China’s “Harmonious Society”China’s “Harmonious Society”
President Hu Jintao’s signature slogan is the drive for a “harmonious society”-one that would bridge the widening income gaps and ease the strains that
5959
income gaps and ease the strains that are causing social unrest.
WSJ, November 22, 2006(A4)WSJ, November 22, 2006(A4)
China’s Inequality in Urbanand Rural AreasChina’s Inequality in Urbanand Rural AreasDecomposing China's National InequalityDecomposing China's National Inequality
0.25
0.30
0.35
0.40
Theil Index
Rural Urban Between Rural-Urban
6060Source: WEO 2007.
0.00
0.05
0.10
0.15
0.20
0.25
1985 1990 1995 1999 2000 2001 2004
Income Inequality, Rising Gap Between Income Inequality, Rising Gap Between Rich and Poor Rich and Poor
�� In the 1950s through 1970s, everyone in China In the 1950s through 1970s, everyone in China was equally poor. was equally poor.
�� Since the beginning of reform, China has followed Since the beginning of reform, China has followed
6161
Deng Xiaoping's dictum, "Let some people get rich Deng Xiaoping's dictum, "Let some people get rich first," all too well, and the country's Gini cofirst," all too well, and the country's Gini co--efficient efficient (an economist's measure of income inequality) has (an economist's measure of income inequality) has been rising steadily and, to some, alarmingly (from been rising steadily and, to some, alarmingly (from below 0.3 four decades ago to 0.46 today; some below 0.3 four decades ago to 0.46 today; some
say it is nearly 0.5).say it is nearly 0.5).
Source: BusinessWeek, October 16, 2007.
A Snapshot of China’s Wealth A Snapshot of China’s Wealth by the Numbersby the Numbers
106Number of billionaires in China, more than Number of billionaires in China, more than any country except the U.S. any country except the U.S.
800Number of Chinese estimated to have a net Number of Chinese estimated to have a net worth of $105 million or above. worth of $105 million or above.
2,230 Average annual income in China. Average annual income in China.
6262
2,230 Average annual income in China. Average annual income in China.
38Percent of highPercent of high--netnet--worth individuals in worth individuals in China who are women. China who are women.
18Percent of the world’s poor living in China, Percent of the world’s poor living in China, according to the World Bank.according to the World Bank.
2Number of China’s wealthiest entrepreneurs Number of China’s wealthiest entrepreneurs in prison. in prison.
Source: Wall Street Journal, November 2 2007.
College Graduates Face Harsh Job MarketCollege Graduates Face Harsh Job Market2007 Job Fair in in Beijing2007 Job Fair in in Beijing
6363
Environmental Crisis of Epic ScaleEnvironmental Crisis of Epic Scale
� 300 million people drink contaminated water daily
� 25% increase in birth defects between 2001-2003
� 25% of land is desert, increasing at 1,300
6464
� 25% of land is desert, increasing at 1,300 square miles / annum
� 15 of the world’s 20 most polluted cities
� World Bank estimates environmental and degradation cost at 8-12% of GDP annually
China Heats UpChina Heats UpShare of Energy Consumption by Region, 1973 and 2005Share of Energy Consumption by Region, 1973 and 2005
1973
Asia ex China,
Africa, 4.1%
Latin America,
3.7% Other, 4.9%
China, 7.9%
2005
Other, 7.3%
China, 14.2%
Asia ex China,
Africa, 5.6%
Latin America,
5.0%
6565
OECD Countries,
60.5%
China, 6.4%
Former USSR, 12.5%
14.2%
Former USSR, 7.9%
China, 11.3%
OECD Countries,
48.7%
Actual and Projected FuelActual and Projected Fuel--Related Carbon Related Carbon Emissions Under "BusinessEmissions Under "Business--asas--Usual"Usual"
3,500
4,000
4,500
5,000United States
Other OECD
Economies in transition
(Millions of tons of carbon per year)
6666
0
500
1,000
1,500
2,000
2,500
3,000
3,500
1970 1980 1990 2000 2005 2010 2020 2030 2040 2050
China
India
Other non-OECD
Source: WEO Oct 2007.
1,750
1,000
1,500
2,000
Water ScarcityWater ScarcityWater Scarcity Below Danger LevelWater Scarcity Below Danger Level
6767
1,000
750
500
0
500
1,000
Threshold of Concern:Remedial Action
Urgently Required
Threshold of Danger:Economic and SocialDisruption Expected
Average RenewableWater Supply for Entire
North China Area
Average RenewableWater Supply for North
China Plain
Source: Deutsche Bank.
Accelerating UrbanizationAccelerating Urbanization
400
500
600
700
Pop
ulat
ion,
Mill
ions
30%
35%
40%
45%
50%
% of T
otal Population
Urban Population
% of Total Population
6868
0
100
200
300
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Pop
ulat
ion,
Mill
ions
0%
5%
10%
15%
20%
25%
% of T
otal Population
Source: CEIC.
Satellite Enters Moon's OrbitSatellite Enters Moon's OrbitChina's First Lunar Probe Enters Moon OrbitChina's First Lunar Probe Enters Moon Orbit
“China's lunar probe “China's lunar probe project, which aims to project, which aims to send the country's first send the country's first circumlunar probe to a circumlunar probe to a destined orbit for destined orbit for
6969
destined orbit for destined orbit for scientific explorations, scientific explorations, will boost the nation's will boost the nation's explorative and explorative and innovative spirit, a innovative spirit, a government spokesman government spokesman said.”said.”
The Third Largest Defense SpenderChina’s Increased Defense Expenditures
“In 2005, the U.S. “In 2005, the U.S. Department of Defense Department of Defense predicted a possible predicted a possible threethree--fold or greater fold or greater increase in China's increase in China's
7070
increase in China's increase in China's defense spending over defense spending over the next 20 years, which the next 20 years, which would place its military would place its military budget at $210budget at $210--$315 $315 billion (in constant 2005 billion (in constant 2005 U.S. dollars) or more in U.S. dollars) or more in 2025.” 2025.”
Potential Conflict?Potential Conflict?
“Taiwan's President “Taiwan's President Chen ShuiChen Shui--bian warned bian warned in a national address in a national address that China's military that China's military buildbuild--up was threatening up was threatening
7171
buildbuild--up was threatening up was threatening world peace, and urged world peace, and urged it to halt military it to halt military exercising targeting the exercising targeting the island on October 10, island on October 10, 2007.”2007.”
Massive Impact on Global Natural ResourcesMassive Impact on Global Natural Resources
Changing Share of Global Consumption
4%
25%
7% 5%
25%
12%19% 20%
35% 38%
0%
10%
20%
30%
40%
Crude Oil Steel Copper Aluminium Coal
1992 2003
7272
Contribution to Global Consumption Growth (1997-2002)
Crude Oil Steel Copper Aluminium Coal
-6%
2% 5% 6% 8% 12%25%
49%
-15%
8%29%
0%
-11%
18% 10%
59%
-40%-20%
0%20%40%60%80%
Japan CIS RoW E. Europe USA OtherAsia
W.Europe
China
Aluminum Copper
Source: BP, GS JBWere Research, GS Commodity Research.
An Enormous Thirst for EnergyAn Enormous Thirst for Energy
History
8
10
12
14
Bar
rels
per
Day
in M
illio
ns
Projections
China’s Oil Balance
7373
0
2
4
6
8
Bar
rels
per
Day
in M
illio
ns
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Exports
Imports
DomesticProduction
Source: EIA, International Energy Outlook 2004.
Energy Consumption Per CapitaEnergy Consumption Per Capita
6
8
10
Ton
nes
oil e
quiv
alen
t per
per
son
United States China India
7474
0
2
4
6
1980 1985 1990 1995 2000 2004
Ton
nes
oil e
quiv
alen
t per
per
son
Sources: BP Amoco and IFS.
Energy Consumption Per $1,000 GDPEnergy Consumption Per $1,000 GDP
1.5
2.0
Ton
nes
oil e
quiv
alen
t per
US
$ 1,
000
GD
P
United States China India
7575
0.0
0.5
1.0
1980 1985 1990 1995 2000 2004
Ton
nes
oil e
quiv
alen
t per
US
$ 1,
000
GD
P
Sources: BP Amoco and IFS.
2001Member of
WTO
China: More Than Two Decades of GrowthChina: More Than Two Decades of Growth
20
10
0
Percent Change in RGDP, Year Ago
7676
1966-76 Cultural
Revolution
1990Shanghai and
Shenzhen Stock Exchanges established
200019951990198519801975197019651960
0
-10
-20
-30
Source: World Bank and IMF.
U.S. Companies in Top 100 by Market Cap.U.S. Companies in Top 100 by Market Cap.
1925 20072007
Worldwide
Railroads 23 0 0
Metals 4 1 1
7777
Source: Bloomberg, 06/05/07.
Metals 4 1 1
Autos & Parts 10 0 2
Technology 0 28 24
Financial Services 0 22 34
Healthcare/Pharma 0 15 11
Average Industry Concentration Ratios in Select Countries
70
80
90
Potential Driver: Industry ConsolidationPotential Driver: Industry ConsolidationChina Has Some of The Most Fragmented IndustriesChina Has Some of The Most Fragmented Industries
7878
0
10
20
30
40
50
60
70
China Brazil India Russia US
Perc
ent
Private Equity Investments in ChinaPrivate Equity Investments in ChinaPrivatizing and Restructuring State Owned EnterprisesPrivatizing and Restructuring State Owned Enterprises
Gross Industrial Output
Value of SOE’s to TotalPercent
Total number of SOE’s =340,000
Gross Industrial Output
Value of SOE’s to TotalPercent
Total number of SOE’s =340,000
7979
52 4737 34 36 32 28 28 27 26 24
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
SOEs to be kept – less than 200
SOEsto be privatized
Source: China Statistics Year Book.
52 4737 34 36 32 28 28 27 26 24
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
52 4737 34 36 32 28 28 27 26 24
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
SOEs to be kept – less than 200
SOEsto be privatized
Source: China Statistics Year Book.
Privatization of Industrial SOEs in China: 1996-2005
100,000
120,000
PrivatizationPrivatizationIn the Last 10 years, More Than Half of Industrial SOEs In the Last 10 years, More Than Half of Industrial SOEs
Privatized and a Quarter Merged or LiquidatedPrivatized and a Quarter Merged or Liquidated
8080
0
20,000
40,000
60,000
80,000
1996 1998 2001 2005
Number of Ind SOEs
Number Privatized
China’s Private EmploymentChina’s Private Employment
8181
Employment: End of 2003, MillionsAbove 4.88 (4)3.73 – 4.88 (8)2.79 – 3.73 (6)2.06 – 2.79 (5)Below 2.05 (8)
China’s GDP per CapitaChina’s GDP per Capita
8282
GDP per Capita: 2003, YuanAbove 16,800 (6)9,700 – 16,800 (6)7,600 – 9,700 (4)6,700 – 7,600 (6)Below 6,700 (9)
China’s Regional Dependence on TradeChina’s Regional Dependence on Trade
8383
Import and Export: 2003, US$ BillionAbove 90 (9)60 – 90 (2)50 – 60 (4)40 – 50 (2)Below 40 (14)