The China Compass August 2012

Transcription

1 The China Compass August 212 Figures, Forecast and Analysis China-focused International Advisory and Procurement

2 Disclaimer This document is issued by The Beijing Axis. While all reasonable care has been taken in the preparation of this document, 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 Beijing Axis cannot be held responsible for any loss, irrespective of how it may arise. In addition, this document does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or to adopt any investment strategy, nor does it constitute any prediction of likely future movements or events in any form. Some investments discussed 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 may have a position in any of the investments mentioned in this document. All concerned are advised to form their own independent judgement with respect to any matter contained in this document. The Beijing Axis 1

3

4

5 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators 4. International Comparison 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 4

6 Foreword In the same manner that a compass highlights the cardinal points of north, south, east, and west, The China Compass is intended to serve as a navigational instrument for determining China s position and direction in the context of the world s economic landscape. The growth of China s economy is without precedent and its rise has been a unique and complex experience requiring the adoption of a customised and dedicated planning approach. Access to reliable information and channels of strategic knowledge are not always easy to come by and are, more often than not, the product of a long-term investment in research, analysis and strategic thinking. It is against this background that 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 to whether China s economy is headed for a soft or hard landing. While China's GDP growth has subsequently slowed to 9.2% in 211 and 7.8% y-o-y in H1 212, fears of hard landing seem overblown. Even growth of 7.6% in the second quarter fits with our core view that China s annual growth rate for 212 is still expected to be around 8%. As China attempts to rebalance its economy towards a more sustainable growth pattern that puts a greater emphasis on domestic consumption and shelter the economy from the global slowdown, we expect many cyclical and structural changes and volatility. However, we still do not foresee a hard landing. In this August 212 edition, we provide the latest macroeconomic data available for a wide range of indicators, for China as well as for other 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 future prospects of a uniquely Chinese story of human development. As always, we welcome all feedback. Kobus van der Wath Founder & Group Managing Director, The Beijing Axis kobus@thebeijingaxis.com The Beijing Axis 5

7 Snapshot of key economic indicators for the second quarter Selected Q2 212 Economic Indicators Economic Indicator Y-o-Y Growth Q-o-Q Growth GDP 7.6% 1.8% Exports 1.5% 22.% Imports 6.4% 6.2% Retail Sales 13.3% -.8% CPI* 3.3% N/A PPI* -.6% N/A Monthly Loans 24.4% -2.6% Urban Fixed Asset Investment 2.8% 114.9% *Note: CPI and PPI growth are based on H1 figures Source: The Beijing Axis Analysis The Beijing Axis 6

8 With a GDP of USD 7.3 tn, China now accounts for more than one-tenth of the world economy 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % -1% USD 7 tn USD 7 tn USD 25 tn USD 7.3 tn USD 7.3 tn USD 7.3 tn USD 7.3 tn Canada Russia Italy UK Brazil France Germany Japan China US Others World GDP 211 Developed Countries Developing Countries (excl. China) China World GDP 211 Other Developing Countries Developing Asia (excl. China) China Developing Countries GDP 211 China China GDP 211 Others Hunan Shanghai Sichuan Liaoning Hebei Henan Zhejiang Shandong Jiangsu Guangdong China GDP 211 Northwest China Southwest China South China Eastern China Northeast China North China China GDP 211 Tertiary Industry Secondary Industry Primary Industry China GDP 211 USD 7.3 tn Gross Capital Formation Final Consumption Expenditure (Household + Government) China GDP 211 Net Exports Source: IMF; UNCTAD Statistics; China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 7

9 Emerging economies are outperforming the developed world in terms of economic growth. The Asia-Pacific region is expected to account for onethird of world GDP by 215 Regional GDP Comparison (215F) GDP Average Growth Rate (%, F) 1 Asia-Pacific is expected to account for the largest share of world GDP (34%) by 215F A bubble this size represents GDP = USD 1, bn Asia-Pacific Rising real incomes and high commodity prices will continue to drive growth 5 2,259 Africa 4,28 Other Asia 4,486 South America Shaded bubbles represent 211E figures Developed economies are expected to continue to lose share in world GDP in the coming years 211 to 215F 25,87 Forecast world average GDP growth until 215F: 3.95% BRICS 215F GDP(USD bn) 211 Growth Rate (%) 211 GDP Per Capita (USD) China 1,94 9.2% 5,414 India 2, % 1,389 North America 19,634 Russia 1, % 12,993 Brazil 2, % 12,789 2,337 South Africa % 8,66 Europe 211 to 215F % of World GDP (215F) % 5% 1% 15% 2% 25% 3% 35% 4% 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

10 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, 211) GDP Growth Rate (%, 211) India 1, ,298 Vietnam Philippines China Indonesia 279 China is the largest and fastest growing economy in the region Malaysia SE economies are collectively the thirdlargest in the region Taiwan 467 1,116 S. Korea 243 Hong Kong New Zealand 1,488 Thailand 162 Japan 346 GDP Per Capita (211) 1, 2, 3, 4, 5, 6, 7, 8, 26 Singapore Though large, Japan is a slow growing economy A bubble this size represents GDP = USD 1, bn Australia World average GDP growth for 211: 3.9% Note: The regional breakdown accords to UNCTAD. Regional breakdown numbers will not add to the total due to overlap Source: IMF; The Beijing Axis Analysis The Beijing Axis 9

11 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators 4. International Comparison 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 1

12 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 28-9 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 211, 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 212, policy had tilted to become expansionary, especially in light of the weak global backdrop With growth rates above 1% no longer an option, 211 overall GDP growth stood at 9.2%. In Q1 212, this had fallen to 8.1% and to 7.6% in Q2 212 However, we anticipate a slight rebound in H2 212 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-212, means that China is facing possibly its toughest policy challenge ever in the next 5-1 years Source: The Beijing Axis Analysis The Beijing Axis 11

13 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 (%, F) Contribution to China s GDP (%, F) 15% 3-year (29-211) average: 9.4% 1% Policy easing to provide room for growth moderation Net Exports of Goods and Services Gross Capital Formation Final Consumption Expenditure (Household + Government) Gross capital formation remains the largest contributor 5% Government stimulus package (USD 586 bn) 212F y-o-y GDP: 8.% Effect from stimulus package 211 y-o-y GDP: 9.2% -2 Falling net exports contribution % Q1 Q1 Q1 Q F F Source: CNBS; World Bank; IMF; The Beijing Axis Analysis The Beijing Axis 12

14 In 211, China registered its smallest trade surplus since 25 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, 21- June 212) 18 Exports Imports China s Monthly Trade Balance (USD bn, 21- June 212) -4 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 J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 13

15 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Chinese consumers have remained optimistic thus far in 212, largely due to easing inflationary pressures as well as brighter income prospects China s Consumer Confidence Index (%, 21-May 212) When CCI is over the 1 mark, it indicates that consumers are optimistic Although consumer confidence decreased, it was still among the highest in the world Note: 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

16 Increased domestic consumption remains in line with the 12 th 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, F) China s Monthly Retail Sales (USD bn, 26-June 212) 3,2 2,8 Annual retail sales reached USD 2,851 bn in Seasonal peaks due to Chinese New Year holiday 279 2,4 2, 2 1,6 15 1, Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Source: China Statistical Yearbook; China Monthly Economic Indicators; National Bureau Statistics of China; The Beijing Axis Analysis The Beijing Axis 15

17 Housing prices in China s major cities have steadily fallen since Q2 21. 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 Cities (%Y-o-Y, 21-June 212) 12 Beijing Shanghai Guangzhou Tianjin Chongqing Shenzhen 115 Sales Price of Residential Buildings in Selected Cities (%M-o-M, 21-June 212) 15 Beijing Shanghai Guangzhou Tianjin Chongqing Shenzhen 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 95 J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J Source: National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 16

18 CPI fell to a two-and-a-half year low of 2.2% in June 212. Policymakers now have more room to bolster economic growth amidst a global economic slowdown Consumer Price Index (21-June 212) General Rural Urban is the designated inflation target set by the Chinese government China s CPI averaged 15.4 in 211 Room for policy easing 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 Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 17

19 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 (211-June 212) Food Clothing Health Cares & Personal Articles Recreation, Education, Culture Articles and Services Tobacco, Liquor and Articles Household Facilities, Articles and Services Transportation & Communication Residence A reduction in food prices has been the main driver behind slowing inflation J F M A M J J A S O N D J F M A M J Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 18

20 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 (21-June 212) 11 PPI for 211 was Depressed overseas market demand and sluggish domestic manufacturing activity 1 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 Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 19

21 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 (211-June 212) 12 Mining & Quarrying Industry Raw Materials Industry Manufacturing Industry Food Clothing Articles for Daily Use Durable Consumer Goods J F M A M J J A S O N D J F M A M J Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 2

22 Jan-1 Feb-1 Mar-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1 Sep-1 Oct-1 Nov-1 Dec-1 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 After bottoming out in late 211, 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 (21-June 212) 6 5 PMI 2 Month Moving Average (PMI) A reading above 5 reflects expansion; below 5 reflects contraction 4 3 Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 21

23 After bottoming out in January 211, lending rates in China have steadily increased as the government moves to counter a slowing economy Monthly Bank Loans (USD bn, 21-June 212) USD bn Monthly Loan Size Y-o-Y Growth Rate (rhs) % Fall in lending as demand for credit eased in a slowing economy 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 Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 22

24 23-Oct Mar-98 1-Jul-98 7-Dec-98 1-Jun Feb-2 29-Oct-4 28-Apr-6 19-Aug-6 18-Mar-7 19-May-7 21-Jul-7 22-Aug-7 15-Sep-7 21-Dec-7 16-Sep-8 9-Oct-8 3-Oct-8 27-Nov-8 23-Dec-8 2-Oct-1 26-Dec-1 9-Feb-11 6-Apr-11 7-Jul-11 7-Jun-12 5-Jul-12 After nearly two years of raising interest rates, the PBOC cut the cost of borrowing in June 212, signaling the government s commitment towards spurring growth Benchmark Lending Rates (%, ) 12 Longer than 5 years 3 years to 5 years (including 5 years) 1 year to 3 years (including 3 years) 6 months to 1 year (including 1 year) 1 8 First loan interest rate decrease in six years First loan interest rate decrease since global financial crisis 6 4 Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 23

25 21-Mar Nov Sep-3 25-Apr-4 5-Jul-6 15-Aug-6 15-Nov-6 15-Jan-7 25-Feb-7 16-Apr-7 15-May-7 5-Jun-7 15-Aug-7 25-Sep-7 25-Oct-7 26-Nov-7 25-Dec-7 25-Jan-8 25-Mar-8 25-Apr-8 2-May-8 7-Jun-8 25-Jun-8 15-Sep-8 15-Oct-8 26-Nov-8 13-Jan-1 25-Feb-1 2-May-1 1-Nov-1 19-Nov-1 1-Dec-1 14-Jan Feb Mar Apr May Jun-11 3-Nov Feb May-12 The PBOC* has responded to a slowing economy by lowering the reserve requirement ratio. The cut in November 211 signalled a policy shift from curbing inflation to boosting growth Bank Deposit-Reserve Ratio (%, 1998-July 212) 2 15 Economic overheating Economic slowdown Inflationary pressures First cut in two years 1 5 Note: 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 that banks 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 supply Source: BNET Business Dictionary; The Beijing Axis Analysis The Beijing Axis 24

26 25-Mar-98 1-Jul-98 7-Dec-98 1-Jun Feb-2 29-Oct-4 19-Aug-6 19-Aug-6 18-Mar-7 19-May-7 21-Jul-7 22-Aug-7 15-Sep-7 21-Dec-7 9-Oct-8 3-Oct-8 27-Nov-8 23-Dec-8 2-Oct-1 26-Dec-1 9-Feb-11 6-Apr-11 7-Jul-11 7-Jun-12 5-Jul-12 China's first deposit rate cut since the global financial crisis in June 212 underpins the country s economic growth concerns Deposit Interest Rates (% p.a., 1998-July 212) 1 5 years 1 year 6 months 3 months 8 6 First cut since global financial crisis 4 2 Recent adjustments in 212 to widen the range at which banks can set deposit rates mark an important step towards interest rate liberalisation Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 25

27 The PBOC has set an M2 growth target of 14% for 212 in order to prevent contraction in an economy as market liquidity remains tight Money Supply (USD tn, 21-June 212) 16 M2 M1 M 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 Source: China Monthly Economic Indicators; People s Bank of China; The Beijing Axis Analysis The Beijing Axis 26

28 The NDRC¹ 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 28 stimulus program Fixed Asset Investment (USD bn, F²) 6, Fixed Asset Investment Growth Rate 6% 5, 5% 4, 4% 3, 2, 1, Global financial crisis induced stimulus F 3% 2% 1% % Note: (1) National Development and Reform Commission - China s top economic planning agency (2) 212 forecast has been amended since original publication Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 27

29 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, 21-June 212) Urban Fixed Asset Investment 2 Month Moving Average (PMI) Investments gaining strength from favourable policies 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 Source: China Monthly Economic Indicators; National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 28

30 Looking ahead: short, medium and long term For 212, we anticipate slower growth of around 8.%. We view such a sub-9% slowdown as essential for the future structural integrity and sustainability of China s economic success For 215, 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.% through 215, 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 26 to a resource hungry 1.4% in 211 Looking ahead it looks inevitable that China will become a USD 1 tn economy, making up 15% of global output within five years Source: The Beijing Axis Analysis The Beijing Axis 29

31 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 generation of leaders in late 212 is crucial as it sets the tone for policy and political reform during the years ahead Politics and power transition Short-term Bubble size: Probability of occurrence Degrees of China dependency External Commodity producers are the most exposed to a slowdown in China Unclear whether banks or local governments can bear burden of NPLs if economy were to slow sharply RMB must be closely watched as a more volatile period could lie ahead Social unrest - wealth gap continues to widen, potentially undermining social stability Low Risk Domestic government finances (debt) FX risk Social cohesion Long-term Property bubble EU debt crisis Ageing population and social safety net High Risk Local governments are pushing for a rollback of property market curbs to prop up their economies Worsening of euro zone debt crisis threatening to further dampen overseas demand for Chinese goods Shrinking labour pool unable to shoulder social costs of rapidly ageing population Source: IMF; The Beijing Axis Analysis The Beijing Axis 3

32 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 4. International Comparison 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 31

33 According to the latest forecasts from the IMF, China s annual GDP growth rate will reach 8.% in 212, the lowest in a decade, due to weak growth prospects for the global economy China Nominal GDP Growth Rate (% y-o-y, F) % GDP growth band Past periods of overheating 7-8% GDP growth band Overheating concerns Soft landing amid global uncertainties F Source: World Bank; China Statistical Abstract; OECD; IMF; The Beijing Axis Analysis The Beijing Axis 32

34 China s GDP is highly concentrated in five coastal provinces, which together account for 4% 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, 211) Geographical Distribution of China s GDP (211) Guangdong Jiangsu Shandong Zhejiang Henan Hebei Liaoning Sichuan Hunan Hubei Shanghai Fujian Beijing Anhui Inner Mongolia Heilongjiang Shaanxi Guangxi Jiangxi Tianjin Shanxi Jilin Chongqing Yunnan Xinjiang Guizhou Gansu Hainan Ningxia Qinghai Tibet Highlighted on map on right Top 5 provinces GDP equate to 4% of total GDP Note: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and Shanghai Source: China Statistical Yearbook; The Beijing Axis Analysis 31 Tibet 3 27 Gansu Qinghai Top 5 Provinces by GDP Bottom 5 Provinces by GDP Ningxia Guangdong Hainan Shandong Henan Jiangsu Zhejiang The Beijing Axis 33

35 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 (%, 211) China s Fastest and Slowest Growing Provinces (211) Tianjin Chongqing Sichuan Guizhou Inner Mongolia Shaanxi Hubei Jilin Yunnan Anhui Qinghai Shanxi Hunan Tibet Jiangxi Gansu Guangxi Heilongjiang Fujian Liaoning Hainan Ningxia Xinjiang Henan Hebei Jiangsu Shandong Guangdong Zhejiang Shanghai Beijing 1 2 Highlighted on map on right Note: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and Shanghai Source: China Statistical Yearbook; The Beijing Axis Analysis Top 5 Provinces by GDP growth Bottom 5 Provinces by GDP growth Inner Mongolia Beijing 31 1 Tianjin 27 Shandong Sichuan Chongqing 3 Shanghai 29 Zhejiang Guizhou 28 Guangdong The Beijing Axis 34

36 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, GDP Per Capita by Province (USD, 211) 1 Tianjin 2 Shanghai 3 Beijing 4 Jiangsu 5 Zhejiang 6 Inner Mongolia 7 Guangdong 8 Liaoning 9 Fujian 1 Shandong 11 Jilin 12 Total 13 Chongqing 14 Hubei 15 Hebei 16 Shaanxi 17 Ningxia 18 Heilongjiang 19 Shanxi 2 Xinjiang 21 Hunan 22 Qinghai 23 Henan 24 Hainan 25 Jiangxi 26 Sichuan 27 Guangxi 28 Anhui 29 Tibet 3 Gansu Yunnan 31 2, 4, 6, 8, 1, 12, 14, Highlighted on map on right Note: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and Shanghai Source: Various; The Beijing Axis Analysis Provinces With Highest and Lowest GDP Per Capita in China (211) 29 Tibet Yunnan 31 Gansu 3 Guangxi 27 Top 5 Provinces by GDP per capita Beijing 3 28 Anhui Bottom 5 Provinces by GDP per capita Tianjin 2 Jiangsu Shanghai Zhejiang The Beijing Axis 35

37 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 12 th Five-Year Plan Composition of GDP by Sector ( F) USD bn Primary Sector Tertiary Sector Secondary Sector Growth Rate of Primary Sector (rhs) % 9, 8 8, 7, 6, 5, 4, 3, 2, 1, F Note: CAGR only includes the primary sector. Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 36

38 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 bn, ) China s Industrial Structure (211) 4, Industrial Sector Construction Sector 3,5 3, 2,5 2, 1,5 1, 5 Secondary 47% Primary 1% Tertiary 43% Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 37

39 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, E) China s Industrial Structure (211) 3,3 3, 2,7 2,4 2,1 1,8 1,5 1,2 Transport, Storage and Post Wholesale and Retail Trades Hostels and Catering Services Financial Intermediation Real Estate Others Tertiary 43% Secondary 47% Primary 1% E Note: 211 breakdown of tertiary industry will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 38

40 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 (%, E²) Net Exports of Goods and Services Final Consumption Expenditure (household + gov) Gross Capital Formation E Note: (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 and services. For 29, 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 1% (2) 211 GDP growth contribution will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 39

41 China s gross capital formation remains concentrated in coastal provinces, while western provinces have far higher capital formation rates as a percent of GDP China s Gross Capital Formation (211E) % of Provincial GDP Tibet Ningxia Provinces in central and western China have higher capital formation rates Jilin Guangxi Qinghai Yunnan Inner Mongolia Tianjin Shanxi Xinjiang Shaanxi Liaoning Chongqing Heilongjiang Anhui Hainan Guizhou Jiangxi Hebei Gansu Hubei Sichuan Beijing Hunan Fujian Shanghai Zhejiang Guangdong Shandong Jiangsu Total Capital Formation (USD bn) Henan A bubble this size represents 1% of total Capital formation takes place mostly in coastal provinces Northern & Northeastern Eastern Central & Southern Western & Southwestern Note: Provincial breakdown of 211 gross capital formation will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 4

42 China s final consumption is slightly more concentrated, with 33% of China s total final consumption centered in just four coastal provinces led by Guangdong province China s Final Consumption (211E) % of Provincial GDP Tibet Jiangxi Guizhou Gansu Xinjiang Qinghai Ningxia Hainan Guangxi Yunnan Chongqing Tianjin Jilin Shanxi Heilongjiang Shaanxi Hunan Hubei Beijing Anhui Liaoning Fujian Inner Mongolia Hebei Shanghai Henan Sichuan 33% of China s total final consumption is centered in just four coastal provinces Zhejiang Shandong Jiangsu A bubble this size represents 1% of total Guangdong Northern & Northeastern Eastern Central & Southern Western & Southwestern Total Final Consumption (USD bn) Note: Provincial breakdown of 211 final consumption will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 41

43 China s industrial value added growth has slowed since 29 due to weak overseas demand. China s manufacturing dominance has driven output by 18% from 2 to 211 Industrial Value Added Output (USD bn, 2-212F) USD bn Industrial Value Added Output Growth Rate (rhs) % 4, 45 3, 3 2, 1, WTO accession on 11 December F Source: CEIC Data; The Beijing Axis Analysis The Beijing Axis 42

44 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 4. International Comparison 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 43

45 China s booming retail sector mirrors consumers confidence in China s economy. Urban areas still make up an overwhelmingly part of retail sales, despite a narrowing growth rate between urban and rural areas China s Annual Retail Sales and Growth Rate by Administrative Level ( F) USD bn¹ Retail Sales (Urban) Retail Sales (Suburban) Retail Sales (Rural) % Urban Growth (rhs) Suburban Growth (rhs) Rural Growth (rhs) 3,5 4 3, 2,5 2, 1,5 1, F Note: (1) Figures converted from RMB to USD using the average exchange rate for the respective years. The growth rate, however, does not factor in exchange rate fluctuations (2) Chinese Statistics Bureau has changed the structure of these figures since 21. In the new category breakdown, urban includes both urban and suburban. Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis -1 The Beijing Axis 44

46 While wholesale and retail trade continue to dominate retail sales, hotels and catering services have seen considerable growth, evidenced by the massive rise of five-star hotels in China s first and second-tier cities China s Annual Retail Sales of Consumer Goods by Sub-sector (USD bn, 1978 vs. 211) Wholesale and Retail Trade Hotels and Catering Services Others 4% 9% 32 11% % Total: 12.3 bn CAGR = 1% 89% 2, Total: 2.9 tn Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 45

47 The provinces with the highest population 1, employment and income per capita 2 generally have the highest retail sales. Further integrating urban and rural markets, especially in terms of logistics and supply, remains a key policy goal Total Retail Sales of Consumer Goods by Province (USD bn, 211E) Guangdong Shandong Jiangsu Zhejiang Henan Hubei Liaoning Hebei Sichuan Beijing Shanghai Hunan Fujian Anhui Heilongjiang Jilin Inner Mongolia Shanxi Guangxi Shaanxi Jiangxi Chongqing Tianjin Yunnan Xinjiang Guizhou Gansu Hainan Ningxia Qinghai Tibet Note: (1) Zhejiang is not among the top five provinces in terms of population (2) Henan is not among the top five provinces in terms of income per capita Source: China Statistical Yearbook; The Beijing Axis Analysis Highlighted on map on right Provinces With Highest and Lowest Retail Sales (211) Gansu Ningxia 31 Tibet Qinghai Hainan Henan Guangdong 28 Top 5 Provinces by Retail Sales Bottom 5 Provinces by Retail Sales 1 Shandong 3 4 Jiangsu Zhejiang The Beijing Axis 46

48 Although export growth has trended downward in response to weakening external demand, May 212 figures bounced back to an all-time monthly high China s Annual Exports (USD bn, F) China s Monthly Exports (USD bn, 21-June 212) 2, Exports Exports' Growth Rate (rhs) 4% 2 Exports Exports' Monthly Growth Rate (rhs) 4% 1,5 China s entry into the WTO 1% 15 2% 1, -2% 1 % 5-5% F -8% J A J O J A J O J A -2% Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 47

49 Half of China s total exports are destined for the US, Hong Kong, Japan, South Korea and Germany. However, growth of exports to the EU, US and especially Japan have been sluggish amidst weak external demand China s Top Export Destinations (USD bn, 211) 17.1% Total Exports = USD 1,898 bn US Hong Kong Japan South Korea Germany Netherlands India UK Russia Singapore US Note: Hong Kong is admittedly used as a gateway to the rest of the world. Source: UN Comtrade; The Beijing Axis Analysis 1 Netherlands 3.1% UK 2.3% Germany 4.% Top exported commodities India 2.7% Russia 2.1% Singapore 1.9% Automatic data processing machines and parts Garments and clothing accessories Textile yarn, fabrics and make-up articles Hong Kong 14.1% South Korea 3 4.4% Japan 7.8% The Beijing Axis 48

50 Manufactured goods, which have enjoyed the highest CAGR ( 1-11) among all of China s exported commodities, now make up almost half of China s exports, up from 36% in 21 Composition of China s Exports (USD bn, F) 2, 1,6 1,2 8 4 CAGR 13.4% Others 14.4% Mineral Items 14.7% Foodstuffs 24.% Chemicals and Related Products 22.% Products Classified by Material 18.1% Miscellaneous Manufactured Articles 25.3% Machinery and Equipment 21.7% Total F Note: Composition is according to the SITC Classification System. Source: MOFCOM; The Beijing Axis Analysis The Beijing Axis 49

51 Monthly imports regained their pre-crisis growth levels reaching an all-time high of USD 162 bn in May 212. This figure is set to increase as China targets a 1% increase in imports in 212 China s Annual Imports (USD bn, F) China s Monthly Imports (USD bn, 21-June 212) 2, Imports Imports' Growth Rate (rhs) 4% 2 Imports Imports' Monthly Growth Rate (rhs) 6% 1,5 2% 15 3% 1, China s entry into the WTO % 1 % 5-2% F -4% J A J O J A J O J A % Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 5

52 In 211, Japan, South Korea, Taiwan, the US and Germany were China s top suppliers, accounting for 4% of China s total imports Top Countries of Origin for China s Imports (USD bn, 211) 7.1% Total Imports = USD 1,743 bn Japan South Korea Taiwan US Germany Australia Malaysia Brazil Saudi Arabia Russia US Germany Brazil 3.% 5.3% 5 Saudi Arabia 2.8% Top imported commodities 9 Russia 2.3% Malaysia 3.6% Australia 4.7% South Korea 11.2% Taiwan 7.2% 9.3% Japan Electrical machinery, equipment and parts Mineral fuels, mineral oils and products of their distillation Nuclear reactors, boilers, machinery and mechanical appliances Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 51

53 As a manufacturing powerhouse, China relies on a variety of imported products especially machinery, chemicals and increasingly minerals to power its economy Composition of China s Imports (USD bn, F) 1,8 1,6 1,4 1,2 1, CAGR 36.6% Others 19.2% Foodstuffs 23.8% Miscellaneous Manufactured Articles 13.6% Products Classified by Material 18.9% Chemicals and Related Products 28.7% Mineral Items 32.2% Crude Materials 19.4% Machinery and Equipment 21.8% Total F Note: SITC Classification System; Crude material: inedible, except fuels Source: MOFCOM; The Beijing Axis Analysis The Beijing Axis 52

54 41% of China s total trade is with the US, Japan, Hong Kong, South Korea and Taiwan. The US, China s largest trading partner, accounted for USD 448 bn in 211 China s Largest Trading Partners (USD bn, 211) US Japan Hong Kong S. Korea Germany Taiwan Australia Malaysia Brazil Russia US 12.3% 448 Germany 4.6% Brazil 2.3% Australia Russia 2.2% Malaysia 2.5% South Korea 3 4.4% Hong Kong 7.8% 6.7% Japan Taiwan 9.4% 3.2% China s total trade with the world = USD 3,642 bn Total exports = USD 1,898 bn Total imports = USD 1,743 bn Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 53

55 China has a large trade surplus with both Hong Kong and the US. Meanwhile, its trade deficit is largely centered in the Asia-Pacific economies of South Korea, Australia and Japan China s Trade Balance with its Five Largest Surplus and Deficit Regions (USD bn, 211) UK China s world trade surplus = USD 155 bn Hong Kong US Netherlands 51 UK 3 India 27 Saudi Arabia -35 Japan -46 Australia -49 South Korea -8 Taiwan US Netherlands Saudi Arabia India Japan South Korea Taiwan Hong Kong Australia Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 54

56 China s foreign trade is becoming more balanced. Import growth has consistently outpaced export growth since H2 29, narrowing China s surplus with the rest of the world China s Monthly Trade Balance (25-June 212) USD bn Trade balance Exports, % change y-o-y (rhs) Imports, % change y-o-y (rhs) % J A J O J A J O J A J O J A J O J A J O J A J O J A J O J A Source: China Customs; The Beijing Axis Analysis The Beijing Axis 55

57 Fixed asset investment and total consumption are now the primary drivers of GDP growth, evidenced by net exports declining share of GDP. Policymakers are now emphasising a need to increase imports as a means of boosting domestic consumption Share of Net Exports in Annual GDP (%, F) Share of Net Exports in Quarterly GDP (%, 27-Q2 212) 1% 1% 8% 6% 8% 6% 4% 4% 2% % % % Q1-7 Q1-8 Q1-9 Q1-1 Q1-11 Q % Source: China Statistical Yearbook; China Monthly Economic Indicators; National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 56

58 9% of China s total international trade value is concentrated in ten provinces, largely a result of their access to world class port facilities along the coast China s Total Trade Value by Province (211) Heilongjiang Percentage of China s total trade value: Top 7 % Next 2 % Next 1 % Xinjiang Tibet Qinghai Gansu Beijing Jilin 1.7% Inner Liaoning Mongolia Ningxia Hebei Tianjin Shanxi Shandong Shaanxi Jiangsu Henan 14.8% Sichuan Anhui Shanghai Chongqing Hubei 12.% Hunan Zhejiang Guizhou Jiangxi 8.5% Yunnan Fujian Guangxi Taiwan Hainan Guangdong 25.1% Imports: USD 1,743 bn Exports: USD 1,898 bn Total Trade: USD 3,642 bn Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 57

59 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 4. International Comparison 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 58

60 In 211, China s total fixed asset investment stood at USD 4.8 tn. Concern over further economic slowdown has led the government to accelerate new project approvals in the power, water and railways industries Total Investment in Urban and Rural Areas (USD bn, F) 5, Rural Areas Urban Areas , 543 3, 2, 1, ,681 4, ,572 2, , , , F Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 59

61 China s fixed asset investment (FAI) continues to be primarily focused on the more developed coastal provinces. The top five provinces account for 35% of the total FAI Fixed Asset Investment by Province (USD bn, 211E) Top 5 Provinces by Investment in Fixed Assets (211E) Shandong Jiangsu Henan Liaoning Guangdong Hebei Sichuan Zhejiang Anhui Hubei Hunan Inner Mongolia Jiangxi Fujian Shaanxi Jilin Guangxi Heilongjiang Chongqing Tianjin Shanxi Yunnan Beijing Shanghai Xinjiang Gansu Guizhou Ningxia Hainan Qinghai Tibet Top five provinces account for 35% of total FAI Guangdong Liaoning Shandong Henan Jiangsu Highlighted on map on right Note: 211 provincial breakdown of fixed asset investment will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 6

62 China s manufacturing and real estate sectors attract the most fixed asset investment due to the country s ongoing industrialisation and urbanisation Fixed Asset Investment by Sector (USD bn, E) 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 CAGR 24.5% Others 33.5% Mining 25.3% Utilities 31.9% Environmental Protection and Public Facilities 28.7% Transport, Storage and Post 29.3% Real Estate % Manufacturing % Total , ,91 1,311 1, E Note: 211 sector breakdown of fixed asset investment will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 61

63 China s low manufacturing costs and large potential market have been key in attracting FDI inflows. China is now opening up more sectors of the economy to foreign investment, which is expected to offset slowing FDI inflows FDI Inflow (USD bn, F) 16 FDI Inflow FDI Growth (rhs) 25% 14 2% 12 15% 1 1% 8 5% 6 % 4-5% 2-1% F -15% Note: FDI = foreign direct investment Source: IMF; MOFCOM; The Beijing Axis Analysis The Beijing Axis 62

64 In 211, 88% of China s FDI came from just six regions led by Hong Kong. Hong Kong remains a crucial gateway for other countries FDI into China as well as FDI from Chinese firms headquartered in the SAR¹ China s FDI Inflow by Source Region² (USD bn, 211) Hong Kong Taiwan Japan Singapore US South Korea UK Germany France Netherlands USD bn US 2.6% 77 Germany 1% 7 UK 1.4% Netherlands.7% France.7% 5 9 Note: (1) SAR stands for Special Administrative Region (2) 211 data on China s FDI Inflow includes these countries investing through Virgin Is., Cayman Is., Samoa, Mauritius and Barbados. Source: MOFCOM; The Beijing Axis Analysis 1 8 Hong Kong 66.4% Singapore 5.5% China s total FDI inflow for 211 amounted to USD 116 bn Japan 5.5% South Korea 2.2% Taiwan 5.8% The Beijing Axis 63

65 Although China s coastal provinces attract the majority of FDI inflows, China s new FDI guidelines are encouraging foreign companies to invest in less-developed central and western regions FDI Inflow by Province (USD mn, 211E) Top 5 Provinces by FDI Inflow (211E) 5, 1, 15, 2, 25, Jiangsu Guangdong Shanghai Zhejiang Liaoning Fujian Shandong Beijing Tianjin Sichuan Jiangxi Hubei Hebei Henan Chongqing Hunan Anhui Guangxi Hainan Inner Mongolia Shanxi Jilin Heilongjiang Shaanxi Yunnan Gansu Xinjiang Guizhou Ningxia Qinghai Tibet Top 5 provinces account for 62% of total FDI inflows Highlighted on map on right Liaoning Jiangsu Shanghai Zhejiang Guangdong Note: 211 provincial breakdown of FDI inflows will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 64

66 China s manufacturing sector receives the bulk of China s FDI inflow. New FDI guidelines encourage foreign companies to invest in China s high-end manufacturing, high-tech and service sectors China s FDI Inflow by Sector (USD bn, E) CAGR % 14.2% 28.8% 12.3% 24.3% 4.3% 1.2% Total Others Transport, Storage and Post Wholesale and Retail Trades Leasing and Business Services Real Estate Manufacturing E Note: 211 sector breakdown of FDI inflows will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 65

67 China s OFDI flow is expecting to steadily grow, driven by Chinese companies increasing need to access new markets, technology and resources. In 211, China s OFDI hit USD 65 bn China s OFDI Flow (USD bn, E) 8 OFDI Flow OFDI Growth Rate (From 23, rhs) 15% 6 In 25, SAFE* eased restrictions on overseas investments made by Chinese companies 1% 4 5% 2 Chinese companies increased acquisition of overseas depressed assets % E -5% Note: Official 211 OFDI data will be available when MOFCOM releases the 211 Statistical Bulletin of China s OFDI in September; SAFE stands for the State Administration of Foreign Exchange Source: IMF; MOFCOM; The Beijing Axis Analysis The Beijing Axis 66

68 While China s OFDI extends to all continents, international financial centres and tax havens such as Hong Kong, the Cayman Islands and BVI receive the bulk of OFDI stock China s OFDI Flow by Destination (21) Hong Kong Virgin Is. Cayman Is. Australia US Canada Singapore Thailand Russia Germany USD bn US 1.9% Canada 1.7% Cayman Islands 5.1% 3 British Virgin Islands 8.9.% 2 Germany.6% 1 Thailand 1.% 9 8 Russia.8% 1 HK 56% 7 Singapore 1.6% 4 Australia 2.5% China s total cumulative outward FDI flow for 21 amounted to USD 69 bn China s outward FDI flow in 211 was USD 65 bn Note: Official 211 OFDI data will be available when MOFCOM releases the 211 Statistical Bulletin of China s OFDI in September Source: MOFCOM; The Beijing Axis Analysis The Beijing Axis 67

69 In 21, over half of China s non-financial OFDI came from just six provinces, all located on the eastern coast. Zhejiang province, one of the forerunners of China s going out policy, registered the highest OFDI China s OFDI by Province (USD mn, 211E) China s OFDI by Province (211E) 5 1, 1,5 2, 2,5 1 Zhejiang 2 Shandong 3 Jiangsu 4 Guangdong 5 Shanghai 6 Hainan 7 Liaoning 8 Hunan 9 Beijing 1 Hubei 11 Gansu 12 Tianjin 13 Yunnan 14 Sichuan 15 Anhui 16 Shaanxi 17 Chongqing 18 Hebei 19 Fujian 2 Xinjiang 21 Henan 22 Jiangxi 23 Jilin 24 Heilongjiang 25 Shanxi 26 Guangxi 27 Inner Mongolia 28 Guizhou 29 Ningxia 3 Tibet 31 Qinghai Top 6 provinces OFDI accounts for 53% Highlighted on map on right Hainan Guangdong Shandong Jiangsu Shanghai Zhejiang Note: OFDI figures include non-financial OFDI and exclude investments made by central enterprises. Source: MOFCOM; The Beijing Axis Analysis The Beijing Axis 68

70 China s outward investments in leasing and business services*, transport and manufacturing grew substantially in 21 China s OFDI Flow by Sector (USD bn, E) CAGR 51.1% Others 34.1% Manufacturing 38.6% Transport, Storage and Post % Mining % Wholesale and Retail Trades % Finance % Leasing and Business Services % Total E *Note: Business services includes investment in holding companies, regional headquarters and SPVs often established in offshore financial centers from where investments are made in other countries and sectors; Finance includes investments in the banking industry such bank branch offices, bank affiliated institutions, bank rep. offices and insurance institutions; Wholesale and retailing as well as transportation, warehousing and postal services are closely linked with China export and import activities Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 69

71 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 4. International Comparison 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 7

72 By the end of 21, stemming inflation was a key concern of policymakers in the aftermath of the global financial crisis. Consumer inflation has since steadily fallen from its mid-211 peak Consumer Price Index, Annual (1997-H1 212) Provinces with Highest and Lowest CPI (Jan-May 212) Overheating and overinvestment Deflation and overcapacity Doubling of M2 money supply Commodity and food price pressures H1 12 Note: Preceding year = 1 Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis Tibet 14.5 Xinjiang Qinghai Yunnan 14.3 Ningxia 12.1 Sichuan Hainan 13.9 Provinces with Highest CPI Provinces with Lowest CPI Inner Mongolia Guangxi 13. Shaanxi 13.9 Chongqing 13.9 Hunan 12.9 The Beijing Axis 71

73 China s PPI has seen fluctuations similar to the CPI, as depressed overseas market demand and sluggish domestic manufacturing activity have lowered PPI in 212 Producer Price Index, Annual (1997-H1 212) Provinces with Highest and Lowest PPI (Jan-May 212) H1 12 Note: Preceding year = 1 Source: China Statistical Yearbook; China Monthly Economic Indicators; Various; The Beijing Axis Analysis Qinghai Guizhou 13.3 Shaanxi 12.8 Provinces with Highest PPI Provinces with Lowest PPI Inner Mongolia Heilongjiang Tianjin 96.4 Hebei 97.4 Jiangsu Zhejiang Hainan 12.8 The Beijing Axis 72

74 Chinese bank deposits continue to rise faster than bank lending due to the fixed interest rate spread mandated by the PBOC. Total deposits reached USD 12.8 tn by the end of 211, while loans amounted to USD 9 tn Total Loans and Deposits (USD bn, F) 2, Loans Deposits 15, 1, 5, F Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 73

75 Total Deposits Households Businesses Government Fiscal Deposits Agricultural E Trusts Other China s high savings rate remains Chinese banks main source of funds. In 211, household banking deposits accounted for 42% of total deposits, while company deposits accounted for 34% Sources of Deposits (USD bn, 211E) Sources of Deposits (USD bn, E) 1% 8% 6% 5,413 42% 12, 1, 8, Other Deposits Trust Deposits Agricultural Deposits Fiscal Deposits Deposits of Government Departments & Organisations 4,363 4% 12,818 4,363 34% 6, Company Deposits Household Savings Deposits 3,617 3,183 2% % 1, , 2, 2,269 1,824 1,42 1,174 4,487 5, ,23 3,824 3,136 1,252 1,444 1,722 2,27 2,269 Note: 211 breakdown of bank deposits will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The People s Bank of China; The Beijing Axis Analysis The Beijing Axis 74

76 In 211, medium and long-term loans, a key measure of appetite for investment, made up 6% of total loans, up from 51% in 28. However, recent bank s reticence to lend may result in a slower pick up in domestic investment Composition of New Loans (USD bn, 211E) Composition of New Loans (USD bn, E) 1% 9,22 5,44 1, Medium & Long-term Loans Short-term Loans 8% 8, Trust Loans Other Loans 6% 3,13 6% 6, 2,459 4% 2% % Total Loans Medium & Long-term Loans 3,13 Short-term Loans 35% 116 Trust Loans 336 Other Loans 4, 2, Note: 211 breakdown of bank loans will be available when the 212 China Statistical Yearbook is released in September Source: China Statistical Yearbook; The People s Bank of China; The Beijing Axis Analysis 1,12 1,5 1,69 1, ,339 1,56 1,84 1,731 2,233 2,15 3,261 4,274 5, E The Beijing Axis 75

77 Nonetheless, the Shanghai and Shenzhen Stock Exchanges are the world s sixth and seventh largest stock markets by market capitalisation respectively Number of Listed Companies and Total Market Value of China s Stock Exchanges (21-211) Total Market Value (USD bn) 2, ,122 4,32 1,747 3,655 3,926 3,33 Number of companies listed on the Shenzhen Stock Exchange Number of companies listed on the Shanghai Stock Exchange 27 stock market bubble 2, 1,6 1, ,169 1, Source: World Federation of Stock Exchanges; China Statistical Yearbook; China Monthly Economic Indicators; World Federation of Exchanges; The Beijing Axis Analysis The Beijing Axis 76

78 After recovering from the global financial crisis in 29, China s stock markets have since declined as both domestic and overseas investors have become weary of lax corporate governance and dampened profit outlook Shenzhen Stock Exchange Trading Volume and Composite Index (21-211) Average P/E Ratio Total Turnover USD bn bn shares ,17 2,597 6,469 5,893 3,682 Shanghai Stock Exchange Trading Volume and Composite Index (21-211) Average P/E Ratio Total Turnover USD bn bn shares ,4 1,248 2,99 3,36 2,95 6, 4, Volume (lhs) SH Composite Index(rhs) 6, 4, 2, 1,5 Volume (lhs) SZSE Component Index (rhs) 2, 15, 1, 1, 2, 2, 5 5, Source: China Monthly Economic Indicators; Shanghai Stock Exchange; Shenzhen Stock Exchange; The Beijing Axis Analysis The Beijing Axis 77

79 While China s stock exchange indices remain highly volatile, the overall downward trend since the beginning of 211 mirrors Chinese companies weaker domestic growth prospects Shanghai Stock Exchange Composite Index (21- June 212) USD bn 3,5 Market Value of Tradable Shares Index (rhs) 3,5 Shenzhen Stock Exchange Component Index (21- June 212) USD bn 1, Market Value of Tradable Shares Index (rhs) 15, 3, 3, 8 12, 2,5 2, 2,5 2, 6 9, 1,5 1,5 4 6, 1, 5 1, 5 2 3, J A J O J A J O J A J A J O J A J O J A Source: China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 78

80 China holds the largest FX reserves in the world, although the pace of accumulation has slowed since 28. In 211, China s foreign reserves reached USD 3.2 tn, fueled in part by a solid trade surplus and FDI inflows Foreign Exchange Reserves (USD bn, F) 4, Foreign Exchange Reserves Growth Rate 7% 3,5 6% 3, 5% 2,5 4% 2, 3% 1,5 1, 5 Slowest growth since 21, caused by slowing of hot money inflows F 2% 1% % -1% Note: FX stands for foreign exchange Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 79

81 China s FX reserves reached an all-time high of USD 3.3 tn in February 212. However, reserves are expected to peak in the mid-term as the country transforms itself from a major exporter of goods into a major exporter of capital Foreign Exchange Reserves (USD bn, 21-June 212) USD bn Foreign Exchange Reserves Y-o-Y Growth Rate (rhs) % 3,5 35 3, 2,5 2, 1,5 1, 5 China s foreign exchange reserves experienced its first quarterly drop in more than a decade in Q4-211 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 J Source: China Monthly Economic Indicators; People s Bank of China; The Beijing Axis Analysis The Beijing Axis 8

82 According to various estimates, the renminbi remains undervalued, relative to other currencies, by some 5 to 2 percent¹ Annual RMB Exchange Rate² (21-H1 212) 16 EUR AUD ZAR USD RUB JPY KRW 14 EUR AUD 12 1 JPY ZAR RUB KRW Renminbi appreciating against world s major currencies thus far in USD H1 212 Note: (1) There are varying perceptions on the degree of undervaluation; however, most international and domestic observers agree the currency is undervalued (2) index 21 = 1 Source: PBOC; Various; The Beijing Axis Analysis The Beijing Axis 81

83 Since China resumed the floating exchange rate mechanism in June 21, the RMB has appreciated by around 12% in real terms against the US dollar RMB to USD Exchange Rate (1, 21-June 212) In June 21, China announced that it will target the RMB against a basket of currencies rather than solely on the USD In April 212, China announced that it will widen RMB s daily trade limit against the USD from.5% to 1% 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 Source: China Monthly Economic Indicators; US Treasury Department; The Beijing Axis Analysis The Beijing Axis 82

84 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 4. International Comparison 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 83

85 China has the world s largest population at bn people, although its population growth rate has slowed to below.6% China s Population Indicators (mn, ) 1,5 Population Population Growth Rate 1.8% 1, 1.2% 5.6% % Source: IMF; CNBS; The Beijing Axis Analysis The Beijing Axis 84

86 China has around 12 million births per year. Although Chinese born during the boom in the mid-198s are now reaching childbearing age, China s birth rate has declined significantly rising costs of living are discouraging young families from having more than one child China s Annual Births (mn, ) 3 Birth Rate Children born during the boom of the mid- 198 s are entering childbearing age Natural Growth Rate 18% 2 Rising costs of living are discouraging young urban families from having more than one child 12% 1 6% % Source: CNBS; The Beijing Axis Analysis The Beijing Axis 85

87 Faced with declining birth and death rates, China s population is now rapidly ageing. Demographers are calling on China to amend its One Child Policy to prevent China from growing old before getting rich Breakdown of China s Population by Age (mn, 1998 vs 211) and over % 26% 321 9% 17% % 1,2 74% 1998 (Total Population bn) 211 (Total Population bn) Source: CNBS; The Beijing Axis Analysis The Beijing Axis 86

88 China s most populous provinces are located in Eastern China while the least populous provinces are generally in Western China China Provincial Population Breakdown by Urban and Rural Residences (mn, 21) Guangdong Shandong Henan Sichuan Jiangsu Hebei Hunan Anhui Hubei Zhejiang Guangxi Yunnan Jiangxi Liaoning Heilongjiang Shaanxi Fujian Shanxi Guizhou Chongqing Jilin Gansu Inner Mongolia Shanghai Xinjiang Beijing Tianjin Hainan Ningxia Qinghai Tibet Note: Urban and rural population data for some provinces are not available Source: Chinese Census 21; China Statistical Yearbook; The Beijing Axis Analysis Urban Population Rural Population Total Population Highlighted on map on right Most and Least Populated Provinces (21) Higher wages in more developed areas attract migrant workers from surrounding provinces 31 Top 5 Bottom 5 Tibet 3 Qinghai Sichuan 4 Hainan 28 Ningxia Tianjin Henan 1 Guangdong Shandong Jiangsu The Beijing Axis 87

89 In 211, employment in China s tertiary industry overtook the primary industry for the first time. As China s economy continues to develop, the tertiary industry will play an even more important role Total Employed Persons by Sector (mn, ) 8 Although the primary sector makes the least contribution to GDP, it employs a large number of people Tertiary industry Secondary industry Tertiary industry, % Primary industry, % Primary industry Secondary industry, 225 3% Note: The sizeable gap between the 1989 and 199 figures is due to the adjustment of urban and rural employed persons subtotals in accordance with the data obtained from the 5 th National Population Census Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 88

90 Although the income levels of urban households are three-times that of rural households, this disparity is slowly narrowing. Rural income growth now outpaces urban income growth Annual Income of Urban and Rural Households Per Capita (USD, ) 3,5 Urban Rural Urban Growth Rural Growth 3,381 3% 3, 2,5 2,271 2,518 2,826 25% 2% 2, 1,5 1, 5 1, ,813 1,475 1,138 1, ,81 15% 1% 5% Note: (1) Annual disposable income of urban households and net income of rural households per capita (2) Growth rates are calculated at current prices Source: National Statistics Database; The Beijing Axis Analysis % The Beijing Axis 89

91 Beijing and Shanghai, China s political and cultural capitals, continue to lead the country in terms of wealth accumulation. Overall, income levels are skewed towards the more developed eastern coastal provinces Income of Urban and Rural Households Per Capita by Province (USD, 211) Provinces with Highest and Lowest Urban Household Incomes (211) 3, 1, 1, 3, 5, 7, Shanghai Beijing Zhejiang Tianjin Guangdong Jiangsu Fujian Shandong Liaoning Inner Mongolia Chongqing Guangxi Hunan Anhui Yunnan Hubei Hainan Hebei Shaanxi Henan Shanxi Sichuan Jilin Ningxia Jiangxi Guizhou Tibet Heilongjiang Qinghai Xinjiang Gansu Source: China Statistical Yearbook; The Beijing Axis Analysis Urban Rural Highlighted on map on right 3 Xinjiang 27 Tibet Top 5 Bottom Qinghai Gansu 28 Heilongjiang Beijing 2 4 Tianjin 1 Shanghai 3 Zhejiang 5 Guangdong The Beijing Axis 9

92 While the downward trend of Engel s coefficient¹ reflects a progressively higher standard of living, temporary increases in 27, 28 and 211 underscore concerns over food price spikes China s Urban and Rural Engel s Coefficients (%, ) Failed price reforms fueled inflation, especially in urban areas Urban Areas Rural Areas Temporary increases from high levels of food inflation Note: Engel's Law states that household expenditure on food, on aggregate, declines as income rises; in other words, the income elasticity of demand for food on aggregate is less than one and declines towards zero with income growth. A common application of this statistic is to regard it as a reflection of the living standards of a country. Engel s coefficient has an inverse correlation with the standard of living of a country Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 91

93 Income inequality in China is growing, as measured by the Gini Coefficient. Growing income equality, if left unchecked, can undermine social stability and future economic growth China s Gini Coefficient ( ) signals severe inequality China crossed the.4 recognised warning level in Note: The Gini Coefficient is a measure of statistical dispersion. It is most prominently used as a measure of inequality of income distribution or inequality of wealth distribution. It is defined as a ratio with values between and 1. A low Gini Coefficient indicates more equal income or wealth distribution, while a high Gini Coefficient indicates more unequal distribution Source: National Statistics Database; The Beijing Axis Analysis The Beijing Axis 92

94 China s urban population outnumbered its rural population for the first time in 211, marking an important milestone in China s ongoing social and economic development China s Urbanisation Rate (%, ) 5 4 China s urbanisation rate exceeded 5% for the first time Source: China Statistical Yearbook; Annual Report on Urban Development of China;The Beijing Axis Analysis The Beijing Axis 93

95 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators 4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 94

96 Though affected by the global recession, China s economy has shown greater resiliency than other major economies GDP Growth Comparison (%, F) 2 Australia Brazil China India Japan Russia South Africa US EU 15 1 Over the past decade, China s growth has outpaced those of large nations China still experienced strong economic growth despite the global recession in F Source: World Bank; IMF; The Beijing Axis Analysis The Beijing Axis 95

97 USA China Japan Germany France Brazil UK Italy Russia Canada India Spain Australia Mexico Korea Indonesia Netherlands Turkey Switzerland Saudi Arabia Sweden Poland Belgium Norway Iran Taiwan Argentina Austria South Africa UAE In 211, China strengthened its position as the world s second-largest economy, with GDP growing by 1.5% to reach USD 7.3 tn GDP of Top 3 Economies (USD tn, 211) % of World GDP The US is the world s largest economy, reaching USD 15.1 tn in 211 World GDP in 211 totaled roughly USD 7 tn After growing 9.2% in 211, China s GDP reached USD 7.3 tn Source: IMF; The Beijing Axis Analysis The Beijing Axis 96

98 China India Indonesia Vietnam Malaysia Hong Kong Singapore Taiwan Philippines South Korea US Euro Area UK Thailand Japan Although China s economy growth slowed to 9.2% in 211, its growth still outpaced the rest of Asia and other major economies Annual GDP Growth for Asia and Major Economies (% y-o-y, 211) Source: IMF; The Beijing Axis Analysis The Beijing Axis 97

99 Asian economies, led by China s 8.1% y-o-y first quarter growth rate, have outpaced the world economy thus far in 212 GDP Growth for Asia and Major Economies (% y-o-y, Q1-212) China Philippines Indonesia India Russia Malaysia Australia Vietnam South Korea Japan US Singapore Brazil Hong Kong Taiwan Thailand UK Euro Area Portugal Greece Source: China Statistical Yearbook; tradingeconomics.com; The Beijing Axis Analysis The Beijing Axis 98

100 China s provincial GDP figures are comparable to those of national economies in Europe, Asia, Africa and Latin America China GDP by Province Compared with Similar World Economies (USD bn, 211) Netherlands Turkey Switzerland Norway Austria South Africa Thailand Colombia Venezuela Greece Malaysia Finland Chile Egypt Ireland Pakistan Algeria Romania Kazakhstan Qatar Peru New Zealand Hungary Vietnam Angola Slovak Oman Lebanon Ethiopia Jordan Chad Guangdong Jiangsu Shandong Zhejiang Henan Hebei Liaoning Sichuan Hunan Hubei Shanghai Fujian Beijing Anhui Inner Mongolia Heilongjiang Shaanxi Guangxi Jiangxi Tianjin Shanxi Jilin Chongqing Yunnan Xinjiang Guizhou Gansu Hainan Ningxia Qinghai Tibet Source: China Statistical Yearbook; IMF; The Beijing Axis Analysis The Beijing Axis 99

101 Since 198, China s annual GDP growth rate has always exceeded the world average. China s average growth rate of 9.7% during this period outpaces the US growth rate of 2.7% China vs. US, Annual GDP Growth (% y-o-y, F) 16 China US World Average F -4 Source: IMF; The Beijing Axis Analysis The Beijing Axis 1

102 China s sustained rapid economic growth over the past three decades has enabled it to surpass many other developed economies GDP of Top Economies, excl. US (USD bn, F) China Rank ? 12, 1, 8, 6, Rank China Japan Germany France Brazil UK Russia India Indonesia South Africa F : China surpassed Canada 1996: China surpassed Brazil 2: China surpassed Italy 25: China Surpassed France 26: China surpassed UK 21: China surpassed Japan At current growth rates, China is likely to overtake the US around 225 4, 2, 27: China surpassed Germany F 13F 14F 15F Note: Forecast GDP growth based on IMF Economic Outlook Source: IMF; The Beijing Axis Analysis The Beijing Axis 11

103 Despite the size of its economy, China s GDP per capita remains low compared to other developed and developing countries. In 211, China s GDP per capita reached USD 5,414 Nominal GDP Per Capita (USD, 211) USD 25, or more USD 1,-USD 25, USD 2,5-USD 1, Less than USD 2,5 or no data Source: IMF; National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 12

104 On a per capita basis, China still has a long ways to go before it catches up with developed economies GDP Per Capita Comparison of Selected Economies (USD, ) 7, 6, Australia Brazil China India Japan Russia South Africa US EU 14, 12, Brazil China India Russia South Africa 5, 1, 4, 8, 3, 2, 6, 4, In 211, China s GDP per capita reached USD 5,414 1, 2, Source: IMF; World Bank; The Beijing Axis Analysis The Beijing Axis 13

105 US China Japan Germany France UK Brazil Italy Russia Canada India Australia Spain Mexico South Korea Indonesia Turkey Netherlands Saudi Arabia Switzerland Sweden Poland Norway Belgium Iran Taiwan Argentina South Africa Austria UAE Unlike other large economies, China s economy is still dominated by its secondary industry Share of GDP by Industry (%, 211) Agriculture Industry Services 1% 8% Advancing the services industry is an integral part of the current 12 th Five-Year Plan 6% 4% 2% % GDP Rank 211 Note: 211 figures are estimates Source: CIA World Factbook; UNCTAD; The Beijing Axis Analysis The Beijing Axis 14

106 USA China Japan Germany France UK Brazil Italy Russia Canada India Australia Spain Mexico Korea Indonesia Turkey Netherlands Saudi Arabia Switzerland Sweden Poland Norway Belgium Iran Taiwan Argentina South Africa Austria UAE China remains dependent on gross capital formation for GDP growth. With gross capital formation at 54% of GDP in 211, China s investment/gdp ratio remains the highest in the world Composition of GDP - Expenditure Approach (%, 211) Net Exports Final Consumption Expenditure Gross Capital Formation Source: UNCTAD; China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 15

107 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators 4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 16

108 In 211, China was the world s largest exporter with an exported total value of USD 1.9 tn, about 26% of its GDP World s Major Exporters (211) Exports (USD bn) 2,5 Bubble Size: GDP=USD 1, bn 2, 1,5 US China Germany 1, 5 (5) South Africa Japan Indonesia Italy S. Korea Belgium UK Canada Brazil Poland Algeria Malaysia Colombia Ukraine Hungary Finland Slovakia Romania % 1% 2% 3% 4% 5% 6% 7% 8% 9% 1% Note: To make international comparisons, this section utilises China s export figure from the IMF instead of the one from MOFCOM Source: IMF; UN Comtrade; The Beijing Axis Analysis Export/GDP (%) The Beijing Axis 17

109 China has widened its lead as the world s largest exporter of electrical machinery. In 211, China exported a total of USD 446 bn or 24.2% of the world s total electrical machinery China s Top 1 Export Commodities 211 (HS Code) Total: USD 1,898 bn 23% 19% 4% 3% 3% 3% 3% 3% 2% 2% 34% Other Electrical machinery and equipment Nuclear reactors, machinery and mechanical appliances Articles of apparel and clothing accessories (knitted) Articles of apparel and clothing accessories (not knitted) Optical, photo, technical, medical, etc. apparatus Furniture, lighting, signs, prefabricated buildings Iron and steel Vehicles other than railway, tramway Plastics and articles thereof Ships, boats and other floating structures Top 2 Exporters of Electrical Machinery (USD bn, 211) China Hong Kong US Germany Japan Singapore S. Korea Mexico Malaysia France UK Hungary Italy Thailand Czech Poland Belgium Slovakia Canada Switzerland % of World Total 24.2% 1.6% 8.6% 8.1% 7.% 6.5% 6.4% 3.8% 3.3% 2.6% 1.8% 1.8% 1.8% 1.7% 1.5% 1.1%.9%.9%.8%.8% Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 18

110 China is the world s largest exporter of power generation equipment. In 211, China exported a total of USD 354 bn or 19.7% of the world s power generation equipment China s Top 1 Export Commodities 211 (HS Code) Total: USD 1,898 bn 23% 19% 4% 3% 3% 3% 3% 3% 2% 2% 34% China 85 Electrical machinery and equipment Germany US Nuclear reactors, machinery and mechanical appliances Articles of apparel and clothing accessories (knitted) Japan Italy UK 62 France Articles of apparel and clothing accessories (not knitted) Hong Kong Optical, photo, technical, medical, etc. apparatus Furniture, lighting, signs, prefabricated buildings Iron and steel S. Korea Singapore Mexico Belgium Thailand Czech Rep. 87 Vehicles other than railway, tramway Canada Switzerland 39 Plastics and articles thereof Malaysia Poland 89 Ships, boats and other floating structures Hungary Brazil Other Top 2 Exporters of Power Generation Equipment (USD bn, 211) % of World Total 19.7% 14.5% 11.4% 9.5% 5.8% 3.8% 3.7% 3.5% 3.3% 3.2% 2.7% 2.% 1.9% 1.8% 1.8% 1.6% 1.4% 1.2% 1.1%.8% Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 19

111 China is by far the world s largest exporter of knitted articles of apparel and clothing accessories. In 211, China exported a total of USD 8 bn or 51.1% of the world s knitted apparel and clothing accessories China s Top 1 Export Commodities 211 (HS Code) Total: USD 1,898 bn 23% 19% 4% 3% 3% 3% 3% 3% 2% 2% 34% Source: UN Comtrade; The Beijing Axis Analysis 85 Electrical machinery and equipment 84 Nuclear reactors, machinery and mechanical appliances 61 Articles of apparel and clothing accessories (knitted) 62 Articles of apparel and clothing accessories (not knitted) 9 Optical, photo, technical, medical, etc. apparatus 94 Furniture, lighting, signs, prefabricated buildings 73 Iron and steel 87 Vehicles other than railway, tramway 39 Plastics and articles thereof 89 Ships, boats and other floating structures Other Top 2 Exporters of Knitted Articles of Apparel (USD bn, 211) China Hong Kong Germany Italy Belgium France Indonesia UK US Pakistan Portugal Sri Lanka Thailand Mexico Poland Peru Romania Guatemala Jordan S. Korea % of World Total 51.1% 7.9% 5.9% 5.2% 2.9% 2.7% 2.3% 1.8% 1.5% 1.4% 1.4% 1.4% 1.3% 1.1% 1.%.9%.7%.6%.6%.6% The Beijing Axis 11

112 China is the world s largest exporter of non-knitted articles of apparel. In 211, China exported a total of USD 63 bn or 43.1% of the world s nonknitted articles of apparel China s Top 1 Export Commodities 211 (HS Code) Total: USD 1,898 bn 23% 19% 4% 3% 3% 3% 3% 3% 2% 2% 34% Other Electrical machinery and equipment Nuclear reactors, machinery and mechanical appliances Articles of apparel and clothing accessories (knitted) Articles of apparel and clothing accessories (not knitted) Optical, photo, technical, medical, etc. apparatus Furniture, lighting, signs, prefabricated buildings Iron and steel Vehicles other than railway, tramway Plastics and articles thereof Ships, boats and other floating structures Top 2 Exporters of Non-knitted Articles of Apparel (USD bn, 211) China Italy Hong Kong Germany France Indonesia Belgium UK Mexico Romania US Poland Sri Lanka Pakistan Panama Thailand Portugal Bulgaria Switzerland Czech Rep % of World Total 43.1% 9.% 7.4% 7.3% 4.% 2.8% 2.7% 2.4% 1.9% 1.7% 1.5% 1.3% 1.3% 1.2%.9%.9%.8%.7%.7%.6% Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 111

113 China is the third-largest exporter of optical and photographic equipment. In 211, China exported over 13% of the world s products in this category, indicating that the country is moving up the value chain China s Top 1 Export Commodities 211 (HS Code) Total: USD 1,898 bn 23% 19% 4% 3% 3% 3% 3% 3% 2% 2% 34% Other Electrical machinery and equipment Nuclear reactors, machinery and mechanical appliances Articles of apparel and clothing accessories (knitted) Articles of apparel and clothing accessories (not knitted) Optical, photo, technical, medical, etc. apparatus Furniture, lighting, signs, prefabricated buildings Iron and steel Vehicles other than railway, tramway Plastics and articles thereof Ships, boats and other floating structures Top 2 Exporters of Optical and Photographic Equipment (USD bn, 211) US Germany China Japan S. Korea France UK Switzerland Hong Kong Italy Singapore Belgium Ireland Mexico Malaysia Canada Israel Hungary Thailand Australia % of World Total 17.2% 14.5% 13.2% 9.9% 8.% 4.% 3.9% 3.5% 3.3% 2.6% 2.6% 2.5% 2.4% 2.4% 1.3% 1.3%.9%.9%.8%.6% Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 112

114 In 211, China was the second-largest importer after the US, importing a total of USD 1,743 bn worth of goods, equivalent to about 24% of its GDP World s Major Importers (USD bn, 211) Imports (USD bn) 2,8 US Bubble Size: GDP=USD 1, bn 2,4 2, 1,6 1,2 8 4 US China South Africa Germany Japan UK Philippines S. Korea Italy Belgium Brazil Canada Poland Ukraine Malaysia Finland Hungary Slovakia Indonesia Romania % 1% 2% 3% Israel 4% 5% 6% 7% 8% 9% 1% Imports/GDP (%) Note: To make international comparisons, this section utilises China s import figure from the IMF instead of the one from MOFCOM Source: IMF; The Beijing Axis Analysis The Beijing Axis 113

115 China is the world s largest importer of electrical machinery and equipment. In 211, China imported a total of USD 351 bn or 17.8% of the world s electrical machinery and equipment China s Top 1 Import Commodities 211 (HS Code) Total: USD 1,743 bn 2% 16% 11% 9% 6% 4% 4% 4% 3% 3% 21% Source: UN Comtrade; The Beijing Axis Analysis 85 Electrical machinery and equipment 27 Mineral fuels, mineral oils and products of their distillation 84 Nuclear reactors, machinery and mechanical appliances 26 Ores, slag and ash 9 Optical, photographic and cinematographic, equipment 39 Plastics and articles thereof 87 Vehicles other than railway, tramway 29 Organic chemicals 74 Copper and articles thereof 99 Commodities not elsewhere specified Other Top 2 Importers of Electrical Machinery (USD bn, 211) China US Hong Kong Germany Japan Singapore Mexico Korea France UK Malaysia Canada Italy Thailand Russia Brazil Hungary Czech Rep. Australia Belgium % of World Total 17.8% 14.4% 1.4% 7.1% 4.7% 4.4% 3.9% 3.5% 3.% 3.% 2.6% 2.3% 2.3% 1.8% 1.6% 1.3% 1.3% 1.2% 1.2% 1.1% The Beijing Axis 114

116 China is the world s second-largest importer of mineral fuels. In 211, China imported a total of USD 276 bn or 1.7% of the world s mineral fuels China s Top 1 Import Commodities 211 (HS Code) Top 2 Importers of Mineral Fuels (USD bn, 211) Total: USD 1,743 bn 2% 16% 11% 9% 6% 4% 4% 4% 3% 3% 21% Source: UN Comtrade; The Beijing Axis Analysis 85 Electrical machinery and equipment 27 Mineral fuels, mineral oils and products of their distillation 84 Nuclear reactors, machinery and mechanical appliances 26 Ores, slag and ash 9 Optical, photographic and cinematographic, equipment 39 Plastics and articles thereof 87 Vehicles other than railway, tramway 29 Organic chemicals 74 Copper and articles thereof 99 Commodities not elsewhere specified Other US China Japan Korea Germany Singapore France Italy Ukraine Belgium Canada Thailand Brazil Indonesia Australia Mexico Ukraine Poland Malaysia South Africa % of World Total 18.% 1.7% 1.6% 6.7% 6.6% 4.6% 4.5% 4.3% 3.5% 3.% 2.1% 1.7% 1.6% 1.6% 1.5% 1.4% 1.1% 1.%.9%.8% The Beijing Axis 115

117 China is the world s second-largest importer of power generation equipment. In 211, China imported a total of USD 199 bn or 11.7% of the world s power generation equipment China s Top 1 Import Commodities 211 (HS Code) Total: USD 1,743 bn 2% 16% 11% 9% 6% 4% 4% 4% 3% 3% 21% Source: UN Comtrade; The Beijing Axis Analysis 85 Electrical machinery and equipment 27 Mineral fuels, mineral oils and products of their distillation 84 Nuclear reactors, machinery and mechanical appliances 26 Ores, slag and ash 9 Optical, photographic and cinematographic, equipment 39 Plastics and articles thereof 87 Vehicles other than railway, tramway 29 Organic chemicals 74 Copper and articles thereof 99 Commodities not elsewhere specified Other Top 2 Importers of Power Generation Equipment (USD bn, 211) US China Germany France UK Canada Hong Kong Japan Mexico Russia S. Korea Singapore Italy Belgium Australia Brazil Thailand Czech Rep. Indonesia Poland % of World Total 17.3% 11.7% 9.% 4.6% 4.4% 3.8% 3.8% 3.8% 3.2% 3.% 2.9% 2.9% 2.6% 2.2% 2.% 2.% 1.7% 1.6% 1.5% 1.4% The Beijing Axis 116

118 China is the world s largest importer of ores, slag and ash. In 211, China imported a total of USD 15.7 bn or 55.8% of the world s ores, slag and ash China s Top 1 Import Commodities 211 (HS Code) Total: USD 1,743 bn 2% 16% 11% 9% 6% 4% 4% 4% 3% 3% 21% Source: UN Comtrade; The Beijing Axis Analysis 85 Electrical machinery and equipment 27 Mineral fuels, mineral oils and products of their distillation 84 Nuclear reactors, machinery and mechanical appliances 26 Ores, slag and ash 9 Optical, photographic and cinematographic, equipment 39 Plastics and articles thereof 87 Vehicles other than railway, tramway 29 Organic chemicals 74 Copper and articles thereof 99 Commodities not elsewhere specified Other Top 2 Importers of Ores, Slag and Ash (USD bn, 211) China Japan S. Korea Germany Belgium US UK Canada Italy France Finland Bulgaria Brazil Bahrain Chile Argentina Czech Rep. Malaysia Mexico Ukraine % of World Total % 14.5% 7.9% 4.9% 1.7% 1.5% 1.5% 1.4% 1.3% 1.1% 1.%.8%.6%.5%.5%.5%.4%.4%.4%.4% The Beijing Axis 117

119 China is the world s largest importer of optical and photographic equipment. In 211, China imported a total of USD 99 bn or 22.7% of the world s optical and photographic equipment China s Top 1 Import Commodities 211 (HS Code) Total: USD 1,743 bn 2% 16% 11% 9% 6% 4% 4% 4% 3% 3% 21% Source: UN Comtrade; The Beijing Axis Analysis 85 Electrical machinery and equipment 27 Mineral fuels, mineral oils and products of their distillation 84 Nuclear reactors, machinery and mechanical appliances 26 Ores, slag and ash 9 Optical, photographic and cinematographic, equipment 39 Plastics and articles thereof 87 Vehicles other than railway, tramway 29 Organic chemicals 74 Copper and articles thereof 99 Commodities not elsewhere specified Other Top 2 Importers of Optical and Photographic Equipment (USD bn, 211) China US Germany Japan France Korea UK Hong Kong Canada Italy Belgium Mexico Singapore Australia Russia Switzerland Brazil Poland Malaysia Thailand % of World Total 22.7% 15.4% 8.4% 5.7% 4.4% 3.9% 3.7% 3.5% 2.9% 2.8% 2.6% 2.6% 2.1% 1.8% 1.7% 1.6% 1.4% 1.3% 1.2% 1.1% The Beijing Axis 118

120 US China Japan Germany France UK Brazil Italy India* Canada Russia Spain* Australia Mexico Korea Netherlands Turkey Indonesia Switzerland Belgium Poland Sweden* Saudi Arabia* Iran* Norway* Austria* Argentina South Africa Thailand Denmark* China s foreign trade is becoming more balanced, as China s 211 trade surplus narrowed to USD 155 bn, or roughly half its 28 surplus Trade Balance of the World s Major Economies (USD bn, 211) *Note: Trade balance from these countries are for 21 Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 119

121 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators 4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 12

122 In 211, China ranked 9 th overall and second among all developing economies in OFDI, with total outbound investment reaching USD 65 bn Top 2 World FDI Outflows (USD bn, ) US France Japan Germany Hong Kong China Russia Italy Canada Norway Sweden Virgin Is. Ireland UK Australia Netherlands Spain Denmark Switzerland Luxembourg In 29, China ranked 6th US Germany France Hong Kong China Switzerland Japan Russia Canada Belgium Netherlands Sweden Australia Spain Italy Virgin Is. Singapore S. Korea Luxembourg Ireland In 21, China ranked 5th 329 US Japan UK France Hong Kong Belgium Switzerland Russia China Virgin Is. Germany Canada Italy Spain Netherlands Austria Sweden Singapore Denmark S. Korea 397 In 211, China s ranking slipped to 9 th overall, as the Euro debt crisis discouraged overseas investments Note: To make international comparisons, this section utilises China s FDI and OFDI figures from the WIR 212 instead of figures from MOFCOM Source: WIR; The Beijing Axis Analysis The Beijing Axis 121

123 China s FDI inflows outweigh its FDI outflows. In 211, China ranked second in the world in for FDI inflow with USD 124 bn, while it ranked only ninth for OFDI with USD 65 bn Top 2 World FDI Inflows (USD bn, 211) Top 2 World FDI Outflows (USD bn, 211) US China Belgium Hong Kong Brazil Singapore UK Virgin Is. Russia Austrlia France Canada Germany India Spain Italy Mexico Indonesia Luxembourg Chile China ranked 2nd US Japan UK France Hong Kong Belgium Switzerlnd Russia China Virgin Is. Germany Canada Italy Spain Netherlands Austria Sweden Singapore Denmark S. Korea China ranked 9th Source: WIR 212; The Beijing Axis Analysis The Beijing Axis 122

124 China ranked 7 th overall and 2 nd in Asia for FDI stock with USD 712 bn in 211. For OFDI, it ranked 15 th with USD 366 bn Top 2 World FDI Inward Stock (USD bn, 211) Top 2 World FDI Outward Stock (USD bn, 211) US UK Hong Kong France Belgium Germany China Brazil Spain Canada Netherlands Switzerland Singapore Australia Russia Sweden Italy Mexico Virgin Is. Ireland 1, 2, 3, 4, China ranked 7th US UK Germany France Hong Kong Switzerland Japan Belgium Netherlands Canada Spain Italy Virgin Is. Australia China Russia Sweden Singapore Ireland Denmark 1, 2, 3, 4, 5, China ranked 15th Source: WIR 212; The Beijing Axis Analysis The Beijing Axis 123

125 US China Japan Germany France Brazil UK Italy Russia Canada India Spain Australia Mexico S. Korea Indonesia Netherlands Turkey Switzerland Saudi Arabia China s inflows and outflows as a percentage of GFCF remain relatively small. From 21 to 211, China s FDI inflows and outflows both decreased Top 2 GDP Countries FDI Inflow/Outflow as a Percentage of Gross Fixed Capital Formation (%, 211) Growth % -16% 28% -21% 19% 4% 1% 194% -5% 54% 44% -29% 2% -18% -48% 15% -27% 39% -11% -41% Inflow Outflow 6 17% -26% 84% -54% 5% -17% 158% 34% % 13% 24% -5% 37% -43% -17% 145% -49% 33% -11% -12% Growth Note: GFCF = Gross fixed capital formation Source: WIR 212; The Beijing Axis Analysis The Beijing Axis 124

126 US China Japan Germany France Brazil UK Italy Russia Canada India Spain Australia Mexico S. Korea Indonesia Netherlands Turkey Switzerland Saudi Arabia China s inflows and outflows as a percentage of GDP also remain relatively small when compared to other large economies. Both inward and outward FDI stock remained stagnant from 21 to 211 Top 2 GDP Countries FDI Inward/Outward Stock as a Percentage of GDP (%, 211) Growth % -2% -2% -6% -15% -14% -3% -6% -25% -8% -13% -8% -16% -18% -5.7% -6% -8% -29% -14% -14% Inward Stock Outward Stock % % 8% -8% -2% -7% % -2% -21% -5% 2% -8% -2% -4% 4% 359% -9% 5% -12% -12% Growth Source: WIR 212; The Beijing Axis Analysis The Beijing Axis 125

127 China now ranks 5 th overall in cross-border M&A net purchases. Increasingly competitive Chinese companies are becoming attractive targets for foreign investors with China ranking 14 th overall in net sales Value of Cross-Border M&A Net Purchases for World s Top 2 Countries (USD bn, 211) US Japan UK Canada China France Netherlands Switzerland Spain Hong Kong Israel Kazakhstan Belgium Singapore Australia India Jersey United Arab Emirates Brazil New Zealand China ranks 5th Value of Cross-Border M&A Net Sales for World s Top 2 Countries (USD bn, 211) US UK Australia Canada Russia France Switzerland Spain Brazil Netherlands Italy Germany India China Poland Luxembourg Norway Denmark Sweden Turkey China ranks 14th Note: Cross-border M&A sales and purchases are calculated on a net basis as follows: Net cross-border M&A sales in a host economy = Sales of companies in the host economy to foreign TNCs (-) Sales of foreign affiliates in the host economy; net cross-border M&A purchases by a home economy = Purchases of companies abroad by home-based TNCs (-) Sales of foreign affiliates of home-based TNCs Source: WIR 212; The Beijing Axis Analysis The Beijing Axis 126

128 Sovereign wealth funds are playing an ever greater role in overseas investment. China is home to four of the world s largest sovereign wealth funds Top 3 Principal Sovereign Wealth Funds (212) >USD 5 bn USD 3 bn USD 5 bn USD 1 bn USD 3 bn <USD 1 bn China 1. State Administration of Foreign Exchange (SAFE) 2. China Investment Corporation (CIC) 3. Hong Kong Monetary Authority (HKMA)- Exchange Fund 4. National Social Security Fund Note: We provide a breakdown in the next slide Source: WIR 212; The Beijing Axis Analysis The Beijing Axis 127

129 Four Chinese sovereign wealth funds rank among the top 15 in the world in terms of assets under management. The combined assets under management by these four funds currently stands at around USD 1.4 tn Names and Locations of World s Top 3 Sovereign Wealth Funds (212) Rank Economy Fund Assets under management* (USD bn) 1 United Arab Emirates Abu Dhabi Investment Authority (ADIA) Norway Government Pension Fund-Global (GPF-G) China SAFE Investment Company Saudi Arabia Saudi Arabia Monetary Authority foreign holdings China China Investment Corporation 44 6 Kuwait Kuwait Investment Authority (KIA) China Hong Kong Hong Kong Monetary Authority Investment Portfolio Singapore Government of Singapore Investment Corporation Singapore Temasek Holdings Russia National Welfare Fund China National Social Security Fund Qatar Qatar Investment Authority 1 13 Australia Australian Future Fund 8 14 United Arab Emirates Investment Corporation of Dubai 7 15 UAE Abu Dhabi International Petroleum Investment Company Libya Libyan Investment Authority Kazakhstan Kazakhstan National Fund Algeria Revenue Regulation Fund UAE Abu Dhabi Mubadala Development Company 48 2 South Korea Korea Investment Corporation US Alaska Alaska Permanent Fund 4 22 Malaysia Khazanah Nasional Azerbaijan State Oil Fund 3 24 Ireland National Pensions Reserve Fund 3 25 Brunei Brunei Investment Agency 3 26 France Strategic Investment Fund US Texas Texas Permanent School Fund Iran Oil Stabilisation Fund New Zealand New Zealand Superannuation Fund 16 3 Canada Alberta s Heritage Fund 15 *Note: As of July 212 Source: SWF Institute; The Beijing Axis Analysis The Beijing Axis 128

130 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators 4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 129

131 In 211, China had the world s largest current account balance at USD 281 bn, followed by Saudi Arabia (USD 151 bn) and Germany (USD 149 bn) Current Account Balance for Select Countries (USD bn, 211) UK -67 bn Germany 149 bn Russia 91 bn US -6 bn France -74 bn Italy -78 bn Turkey -72 bn Saudi Arabia 151 bn China 281 bn Japan 123 bn Top 5 current account surpluses Top 5 current account deficits Source: CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 13

132 China Japan Saudi Arabia Russia Taiwan Brazil India S.Korea HK Switzerland Singapore Germany Algeria Thailand France Italy Mexico Indonesia US Malaysia Poland Iran Turkey Denmark UK Israel Philippines Libya Canada UAE China, the world s largest holder of foreign exchange reserves, possesses more than triple the FX reserves of the next largest holder, Japan. Asian countries dominate the top 15 Top 3 Largest Holders of Foreign Exchange and Gold Reserves (USD bn, 211E) 2, 3,236 1,6 Asia 1,2 8 4 Note: Estimates are as of 31 December 211 Source: CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 131

133 EU US UK France Germany Japan Italy Netherlands Spain Ireland¹ Luxembourg Belgium Australia² Switzerland Canada Sweden Hong Kong Austria China¹ Norway Denmark Greece Finland² Portugal Russia¹ Brazil² S. Korea² Turkey² Poland² India² In 211, China s external debt of around USD 7 bn accounted for less than 1% of the world s total external debt Top 3 Economies with Largest External Debt (USD bn, Q2-211) 16, 12, 8, 16,8 The external debt of the EU was USD 16,8 bn At the end of Q3 211, China s external debt amounted to USD 697 bn 4, Note: (1) As of Q3-211 (2) As of Q4-211 Source: CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 132

134 Kenya Vietnam Brazil Russia India China Indonesia Turkey Colombia South Africa Chile Mexico Australia S. Korea Canada EU UK US Japan As of July 212, China s discount rate stood at 6%, which is lower than that of other large developing economies Central Bank Discount Rate 1 of Select Economies (%, ) 2 15 High rate countries 1 5 6% Medium rate countries Low rate countries Note: (1) The interest rate charged by a central bank on loans to its member banks. A change in the discount rate is usually followed by similar changes in the interest rates charged by banks and in money markets. (2) The central bank discount rate is updated to the latest available month in 212. Source: IMF; Various; The Beijing Axis Analysis The Beijing Axis 133

135 Madagascar Brazil Kyrgyzstan Paraguay Gambia Mongolia Tanzania Burundi Argentina Bulgaria Croatia Hungary South Africa Russia Namibia Algeria Australia China New Zealand Czech Republic Brunei Singapore Italy Israel Bahamas Switzerland Netherlands Japan UK As of April 212, China s prime lending rate was 6.56%, which is comparable to that of its Asia-Pacific neighbors Australia and New Zealand Commercial Bank Prime Lending Rate 1 of Select Economies (%, ) 6 High rate countries 4 2 Medium rate countries 6.56 Low rate countries Note: (1) Prime lending rate is a short-term interest rate quoted by a commercial bank to its best commercial customers. Even though banks frequently charge more and sometimes less than the quoted prime rate, it is a benchmark against which other rates are measured. For various reasons, a rising prime rate is generally considered detrimental to security prices. (2) All lending rates are updated to the latest available monthly data in 212. For February: Madagascar, Namibia; for March: Burundi, Brunei, Israel, Switzerland; for May: South Africa, Algeria, Australia, Bahamas, Singapore, UK, Mongolia; all other countries are updated as of April. Source: Various; The Beijing Axis Analysis The Beijing Axis 134

136 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators 4. International Comparison - Selected Macroeconomic Indicators - Domestic Consumption and Foreign Trade - Domestic and Foreign Investment - Financial Indicators - Social Indicators 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 135

137 China is the most populous country in the world with 1.3 billion people. A cultural preference for male heirs has left China with one of the highest male-to-female ratios in the world, alongside UAE, Saudi Arabia and India Population of Top 3 Economies by GDP (mn, 212) Female Male GDP rank 211 US China Japan Germany 652 France 691 Brazil United Kingdom Italy Russia Canada India Spain Australia Mexico S. Korea Indonesia Netherlands Turkey Switzerland Saudi Arabia Sweden Poland Belgium Norway Iran Taiwan Argentina Austria South Africa United Arab Emirates Total 314 1, , Ratio Male/female Source: IMF; CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 136

138 While China currently has a demographic makeup that is highly favourable, its productive age population (15-64) is forecasted to shrink around 215 due to a rapidly ageing population Child and Elderly Population for Selected Countries (212F) % Population under Saudi Arabia South Africa India Iran United Arab Emirates Mexico Argentina Brazil Turkey US China S. Korea Poland Taiwan Canada Russia Australia Netherland Norway France UK Switzerland Spain Austria Italy Belgium Sweden A bubble this size represents a population of 1, Germany % Population aged Japan Source: UN Population Division; The Beijing Axis Analysis The Beijing Axis 137

139 US* Japan* Germany China* UK France Italy Spain Canada Brazil Russia India* S. Korea Mexico Austria Netherlands Turkey Belgium Sweden Indonesia Poland Switzerland Norway S. Arabia Austria Greece Denmark S. Africa Iran Argentina China s urbanisation surpassed 5% for the first time in 211. China, along with India, has the fastest urbanisation rate among large economies Urban and Rural Population of Selected Economies (%, 21) Annual rate of urbanisation change (%, F) Urban Urban Rural *Note: Urbanisation figures from these countries have been updated to 211 Source: CIA World Factbook; World Bank; The Beijing Axis Analysis The Beijing Axis 138

140 While the average life expectancy for both males and females in China is higher than in other large developing economies, it still lags behind more developed economies Life Expectancy (years, 212) GDP Rank 211 Male Female US China Japan Germany France Brazil UK Italy Russia Canada India Spain Australia Mexico S. Korea Indonesia Netherlands Turkey Switzerland S. Arabia Sweden Poland Belgium Norway Iran Taiwan Argentina Austria Greece UAE Denmark Source: IMF; The Beijing Axis Analysis The Beijing Axis 139

141 China s economic activity rate is comparatively larger than those of major developed economies. China has the second-highest female economic activity rate among the world s top economies Adult (15 and older) Economic Activity Rate (%, 21) GDP Rank 211 US China Japan Germany France Brazil UK Italy Russia Canada India Spain Australia Mexico S. Korea Indonesia Netherlands Turkey Switzerland S. Arabia Sweden Poland Belgium Norway Iran Argentina Austria Greece UAE Denmark Male 2 Female Total Source: UN Statistics Division; The Beijing Axis Analysis The Beijing Axis 14

142 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators 4. International Comparison 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 141

143 Conclusions Indicators Selected Macroeconomic Data Trade Investment Financial Social Source: The Beijing Axis Analysis Conclusions The ongoing European debt crisis and slower-than-expected recovery of the US economy is prompting China to take measures aimed at turning around a six-quarter slowdown in economic growth. China s economy expanded by 7.8% in the first half of 212, down from 9.2% in 211. For the year, GDP is forecasted to grow by around 8%, the lowest in a decade. With growth yet to rebound amidst a slowing world economy, speculation abounds as to whether China s economy is headed for a soft or hard landing. Meanwhile, the Chinese government is steering economic growth to become more reliant on domestic consumption as part of its long term goal of rebalancing the economy. China's trade surplus fell to USD 155 bn in 211 and has been steadily declining over the past three years. This trend is likely to continue as the economies of key export markets such as the US and Europe continue to grapple with high debt levels. A rising Chinese RMB against the USD is expected to further contribute to this decline by making Chinese exports more expensive and foreign imports more affordable. Furthermore, as Chinese manufacturers move up the value chain, the complexity and subsequent value of China s exports will continue to increase. China s total fixed asset investment reached USD 4.8 tn in 211. Most of this investment is disproportionally allocated to already developed coastal provinces that are highly urbanised, fueling massive real estate speculation in many of China s largest cities. While policymakers were previously preoccupied with curbing inflation largely a result of rising food prices, attention has now shifted into boosting growth with inflation cooling below the government s official target in H A slowing Chinese economy and weak global recovery is coercing the Chinese government to promote reasonable investment growth into urban infrastructure projects and opening the private sector to investment in state-dominated industries. Meanwhile, Chinese companies continues to search for strategic acquisitions overseas to gain access to resources and technological know-how. A high national saving s rate and decades of trade surpluses have resulted in China having a massive financial sector with excessive liquidity. With this much liquidity, Chinese banks have naturally been seeking overseas expansion and are actively looking for more OFDI opportunities. Furthermore, there is political pressure for China s state-owned banks to accelerate their pace of internationalisation, particularly in developing countries that are attracting significant Chinese investment. China is now also the world s second-largest equity market and is continuing with reform to upgrade its financial markets to match the status of China s role in the world economy. While the One Child Policy achieved its goal of controlling China s population growth, it also had negative unintended consequences such as a skewed male-to-female ratio and a rapidly ageing population. Since the late 198s, China s birth rate has been in steady decline, leaving the possibility that the population will grow old before getting rich. Meanwhile, continued mass migration to more-developed coastal provinces has resulted in China s urbanisation rate exceeding 5% for the first time in 211. The Beijing Axis 142

144 Implications Indicators Selected Macroeconomic Data Trade Implications China's 3 years of uninterrupted growth is unprecedented. While some sort of correction can be expected in the near future, how the government responds remains far more important than preventing such an economic slowdown. Central planners will most likely take actions to ensure that Chinese economic growth stabilises to between 7% to 8% annually for the coming years, which should erase fears of a hard landing and keep China on its path towards becoming the world s largest economy by 225. In addition, shifting the focus of economic growth to domestic demand will provide foreign companies with more opportunities to target Chinese consumers. With the US and Europe mired in debt and an economic slowdown, China is looking towards other developing markets such as Latin America and Africa to make up for the loss of export sales to developed economies, with the developing world accounting for an ever larger share of China s trade in recent years. As China rebalances its trade structure, expect more Chinese companies to have a stronger presence in these markets. The renminbi s appreciation, coupled with China s insatiable need for imported commodities, will open up additional opportunities to foreign companies. Investment China seems to be following the US and European playbook of relying on government expenditure to stave off an economic slowdown. In 29, China released a USD 6 bn stimulus package that was heavily focused on construction and infrastructure projects. Although the stimulus achieved the desired effect of maintaining China s economic growth in double digits, it asserted strong inflationary pressures on the rest of the economy, especially in the real estate sector. This time around, China is reluctant to launch a massive stimulus package; instead central planners have opted to quicken the approval of previously planned major infrastructure projects, which is expected to benefit companies engaged in the mining, construction and heavy machinery sectors in the second half of 212. Financial Social Although China's four biggest banks are among the world's top 1 banks measured by market capitalisation, they have yet to match the capabilities and reach of their international peers. The relative lack of international experience of Chinese banks means that opportunities exist for foreign banks to cooperate with them in their expansion into overseas markets. The plans for the Shanghai Stock Exchange to allow foreign firms to list will be a significant step in internationalising China s equity market, and will enable foreign companies to directly access China s huge pool of excess liquidity to raise capital. With mass urbanisation and the high cost associated with living in cities acting as a natural deterrent to having more than one child, speculation has grown as to whether China will amend the policy in the near future. Accordingly, various service sectors such as healthcare are poised to surge to accommodate China s fast-changing population structure. Source: The Beijing Axis Analysis The Beijing Axis 143

145 Agenda 1. Foreword 2. What s New: China Moves Towards Growth Moderation and Sustainability 3. China Economic Indicators 4. International Comparison 5. Conclusions and Implications 6. About The Beijing Axis The The Beijing Axis 144

146 The Beijing Axis - China-focused International Advisory and Procurement Beijing Axis Commodities Beijing Axis Capital Beijing Axis Procurement Beijing Axis Strategy Commodity Marketing Commodity Procurement Transaction Origination Corporate Finance Advisory Comprehensive Procurement Solutions The Beijing Axis Knowledge & Network Synergies Strategy Formulation Strategy Implementation Founded in 22; has successfully worked with many international and Chinese MNCs Operates in four synergistic cross-border China businesses Provides services across various sectors, with a core focus on the MINING, RESOURCES, INDUSTRIAL ENGINEERING and OTHER SERVICES sectors Provides solutions to international firms as they act in unfamiliar territory in China/Asia Provides solutions to Chinese/Asian firms as they venture out and go global The Beijing Axis 145

147 The Beijing Axis Publications The China Analyst A Knowledge Tool for Executives with a China Agenda April 212 September 211 March 211 August 21 Note: The latest and archived editions of The China Analyst are freely downloadable from our website, alternatively please us at info@thebeijingaxis.com to be added to our distribution list The Beijing Axis 146

148 TBA China Sourcing An Up-to-date Information Platform for Procurement and Trade Industries in China The Beijing Axis 147

149 Beijing, China Cheryl Tang Director & GM, China Shanghai, China Julia Wang Procurement Specialist Hong Kong TBA Secretary Corporate Office 386 Central Plaza, 18 Harbour Rd Wanchai, HK Singapore Andrew Kagoro, Finance & Projects Penthouse & LV 42 Suntec Tower 3, 8 Temasek Blvd Singapore Perth, Australia Kobus van der Wath Founder & Group MD kobus@thebeijingaxis.com Johannesburg, South Africa Dirk Kotze Director & GM, Africa dirk@thebeijingaxis.com London, UK/Europe Matt Pieterse MD, Beijing Axis Capital matt@thebeijingaxis.com Russia Desk Lilian Luca (Beijing) MD, Beijing Axis Procurement Latin America Desk Javier Cuñat (Beijing) GM, Beijing Axis Strategy Yangon, Myanmar Dr. Wong YF Chief Representative India Desk Ankit Khaitan (Singapore) Beijing Axis Strategy Eastern Africa Desk Walter Ruigu (Beijing) Beijing Axis Strategy China-focused International Advisory and Procurement COPYRIGHT The Beijing Axis Ltd No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of The Beijing Axis. Picture credit: Cover and agenda images by Stuck in Customs (flickr), used under a Creative Commons license.