China s GDP slows out of double-digit growth

Transcription

1 China s GDP slows out of double-digit growth Percent change, annual Source: International Monetary Fund.

2 China s growth forecast slows among Asian countries Percent change in real GDP Percent change, annual South Korea Thailand Hong Kong SAR 214 Forecast Malaysia Indonesia India China Source: International Monetary Fund.

3 Consumption low in China compared to developing countries Final consumption expenditure Percent of GDP China Malaysia Russian Federation India Mexico South Africa Brazil Philippines Source: The World Bank.

4 GDP per capita growth still the highest in China Percent change, annual 2 15 China 1 5 Thailand Malaysia -5 Japan United States Source: The World Bank.

5 China s government expenditures and revenue Percent change, annual 35 3 Revenue Expenditure Source: Quandl.

6 China energy use outstrips domestic production Percent change, annual 15 1 Use 5 Production Imports (percent of energy use) Source: The World Bank.

7 China continues to increase total savings Gross savings per GDP Percent of GDP 6 5 China 4 3 Japan 2 1 United States Source: The World Bank.

8 China s inward and outward foreign investment flows Percent of GDP Inflows 2 1 Outflows Source: The World Bank.

9 China's foreign direct investment net inflows Percent of GDP Source: The World Bank.

10 China moves away from agriculture into services Percent of GDP 1 Agriculture Industry Services Source: The World Bank.

11 Migration from China s rural areas to urban Share of population Percent 1 Urban Population Rural Population Source: The World Bank.

12 All of China s tech exports are growing Tech exports from China to the world US$ billions 7 6 HiTech LoTech 2 1 MHTech MLTech Source: STAN bilateral trade database. Notes: MLTech refers to medium low tech, and MHTech refers to medium high tech.

13 US patents issued to China increase Patents 7, 6, 5, 4, 3, 2, 1, Source: U.S. Patent and Trademark Office.

14 Chinese internet users and internet penetration Millions Number of internet users (left) Internet penetration (right) Percent Source: China Internet Network Information Center, 33 rd Statistical Report on Internet Development in China.

15 Mobile internet is a main facilitator of internet access Millions Number of mobile internet users (left) Mobile internet users to total internet users Percent Source: China Internet Network Information Center, 33 rd Statistical Report on Internet Development in China.

16 China s internet users outnumber the entire U.S. population China internet users: 618 million U.S. population: 318 million Source: China Internet Network Information Center, 33 rd Statistical Report on Internet Development in China, U.S. Census Bureau.

17 China s e-commerce is dominated by large marketplaces Percent Marketplace Independent merchants China U.S. Source: iresearch, emarketer, McKinsey.

18 Enterprises that carry out online sales in key industries Percent Manufacturing Wholesale and retail Overall IT, computers, software Construction Transportation, storage, postal Leasing and commercial service Resident service and other services Real estate Source: China Internet Network Information Center, 33 rd Statistical Report on Internet Development in China.

19 China was already the second-largest e-tailing market in 211 US$ billions Source: Euromonitor, Forrester, iresearch, EIU, McKinsey.

20 Composition of China s e-commerce market Market share as of 213 B2B: large enterprises 26% B2B: SMEs 52% Online shopping 19% Online travel 2% O2O 1% Source: iresearch.

21 VC and PE investment in China s healthcare industry US$ billions Amount of investment (left) Number of deals (right) Count Source: Zero2ipo.

22 213 global box office All films US$ billion U.S./Canada International $32.6 $34.7 $35.9 $29.4 $ (64%) (66%) (69%) (69%) (7%) Rank Country Money spent on all films (US$ billions) 1 China $3.6 2 Japan $2.4 3 U.K. $1.7 4 France $1.6 5 India $1.5 6 South Korea $1.4 7 Russia $1.4 8 Germany $1.3 9 Australia $1.1 1 Mexico $.9 Source: Motion Picture Association of America.

23 Premier s NPC Lianghui speech and 214 targets Key targets GDP growth ~7.5% ~7.5% CPI inflation ~3.5% ~3.5% Household income growth In line with real GDP growth In line with real GDP growth Job creation >1 million >9 millionn Balance of payment Basically balanced Further improvement Budget deficit CNY 1.35 trillion (central govt 95 billion, local govt 4 billion), ~2.1% of GDP CNY 1.2 trillion (central govt 85 billion, local govt 35 billion), ~ 2% of GDP M2 growth ~13% ~13% Sources: Standard Chartered, Milken Institute.

24 Premier s NPC Lianghui speech and 214 targets Key targets Credit growth Maintain appropriate growth, reasonably increase total social financing Maintain appropriate growth, reasonably increase total social financing Farmland area 1.8 billion mu red line 1.8 billion mu red line Social housing Start 7 million new units; renovate 2.6 million houses in rural areas Complete 4.7 million units and start 6.3 million new units in cities; continue renovation in rural areas Sources: Standard Chartered, Milken Institute.

25 Premier s NPC Lianghui speech and 214 targets Key targets Fiscal policy stance Proactive fiscal policy (limited detail provided in the speech) Proactive fiscal policy: 1. Maintain stable growth, advance reforms, improve people's livelihood 2. Expand VAT coverage, reduce tax burden 3. Restrict general expenses 4. Support social housing, infrastructure, and social projects 5. Better manage local government debt; properly deal with financing for existing investment projects and debt repayment. Sources: Standard Chartered, Milken Institute.

26 Premier s NPC Lianghui speech and 214 targets Key targets Monetary policy stance Prudent monetary policy: 1. Balanced demand and supply, stable financial environment 2. Perfect macro-prudential framework, appropriate growth in M2 and credit 3. Enhance coordination with fiscal, industrial, and investment policies 4. Fine-tune policy to ensure stable economic growth Prudent monetary policy: 1. Perfect macro-prudential framework, appropriate growth in M2 and credit 2. Support agricultural SMEs, new strategic industries, and key national projects 3. Prevent systematic or regional financial crisis, improve supervision and sustainability Sources: Standard Chartered, Milken Institute.

27 China healthcare expenditures shift from private to public Percent of GDP 4 3 Private Public Source: The World Bank.

28 Difference between a clear and smoggy day in Beijing Source: The Atlantic, China Air Daily.

29 Third Plenum decisions Social reform One Child Policy Reform through Labor System If one parent is an only child, a couple can now have two kids Dismantling a form of imprisonment without trial Source: Milken Institute.

30 Third Plenum decisions Ministry of Finance mandates Oversee open and transparent budgets Create local government debt-management framework Sort out transfer system Reform VAT and resource taxes Accelerate property tax legislation Source: Milken Institute.

31 Third Plenum decisions Financial sector reforms Accelerated interest rate liberalization Further opening up of capital account Privately held banks Greater freedom for companies to issue foreign debt Source: Milken Institute.

32 Biggest gains and losses in total wealth Change in total wealth, US$ trillions U.S. China Germany U.K. Mexico India Russia Brazil Japan Sources: Davies, Lluberas, Shorrocks, Credit Suisse. Note: Net worth or wealth is defined as the value of financial assets plus real assets (principally housing) owned by households, less their debts.

33 Wealth growth rates Since 2 Percent, China India Lat. America Africa World Asia Source: Davies, Lluberas, Shorrocks, Credit Suisse. Note: Net worth or wealth is defined as the value of financial assets plus real assets (principally housing) owned by households, less their debts.

34 China s wealth distribution relative to the world Percent China World <US$ 1, US$ 1,-1, US$ 1, - 1m >US$ 1m Source: Davies, Lluberas, Shorrocks, Credit Suisse. Note: Net worth or wealth is defined as the value of financial assets plus real assets (principally housing) owned by households, less their debts.

35 China s composition of wealth per adult Composition of wealth per adult, US$ 25, 2, 15, 1, 5, -5, Financial Real Debts Net worth Source: Davies, Lluberas, Shorrocks, Credit Suisse. Note: Net worth or wealth is defined as the value of financial assets plus real assets (principally housing) owned by households, less their debts.

36 China s wealth per adult over time US$ billions 25, Wealth per adult 2, 15, 1, Wealth per adult at constant exchange rate 5, Source: Davies, Lluberas, Shorrocks, Credit Suisse. Note: Net worth or wealth is defined as the value of financial assets plus real assets (principally housing) owned by households, less their debts.

37 The population is aging Age dependency ratio, old India Brazil China 212 World Asia Pacific Russia U.S. China 225 U.K. Euro area Japan Source: World Bank. Note: The old age dependency ratio is the ratio of the elderly to the workforce. All countries are 212.

38 China share of elderly will increase rapidly Share of population 65+ Percent U.S. China India Source: World Bank.

39 China s aging population mirrors problem throughout Asia Population, millions 1, & over Source: United Nations.

40 China and India will make waves in the global middle class Share of global middle-class consumption, 2-25 Source: OECD.

41 China and U.S. current account balances converge Current account balance, percent of GDP U.S. China Sources: World Bank, BEA, SAFE.

42 China s external imbalance is getting worse Current account, percent of GDP Source: CEIC.

43 China PMI manufacturing falls to an 8-month low Markit PMI composite Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Sources: Markit, Bloomberg.

44 China s debt is on the rise RMB trillions 6 5 Non-bank debt 4 3 Bank loans Source: Bloomberg. Note: Non-bank debt refers to Entrusted loans, trust loans, bank acceptance, corporate bond financing.

45 Bad debts have not followed the credit boom yet RMB trillions Non-performing loans, percent of total Total loans Sources: Economist, Bloomberg.

46 China relies on increasing domestic credit to support growth Percent of GDP Domestic credit to private sector (left) Percent of GDP Current account balance (right) Source: World Bank.

47 Shenzhen outperforms Shanghai index Index, 1=1/1/ Small caps (Shenzhen Index) Large caps (Shanghai Index) Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 Source: Bloomberg.

48 Emerging market equity index performance Index, 1=1/1/ South Africa 11 India 15 Russia China 8 Emerging markets 75 Brazil 7 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Source: Bloomberg.

49 Cost of offshore CNY borrowing market decreases 3 year dim sum bond yield Percent Source: Bloomberg. Note: 3-year bonds have historically seen the most issuance.

50 Total social financing stock breakdown Percent of total social financing outstanding, 213 Corporate bonds 8% BADs 6% Public equity 3% Trust loans 4% Entrusted loans 7% Bank FX loans 5% Bank loans 67% Sources: CEIC, Standard Chartered Research. Note: BADs are defined as bankers accepted drafts.

51 Analyzing Chinese acquisitions of U.S. companies US$ billions Volume (left) Deal count (right) Count Source: Bloomberg.

52 CNYs onshore-offshore funding costs converge Percent Onshore CNY Offshore CNY 6.1 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 Source: Bloomberg.

53 Dim sum bond issuance By country US$ trillions Other HK 6 CN Source: Bloomberg.

54 Financial issuers have dominated the dim sum bond market Issuance, US$ billions Other sectors Financials Q1 211 Q2 211 Q3 211 Q4 211 Q1 212 Q2 212 Q3 212 Q4 212 Q1 213 Q2 213 Q3 213 Q4 213 Q1 214 Q2 214 Source: Bloomberg.

55 RMB tumbled to lowest levels in a year 1 CNY to USD Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Source: Bloomberg.

56 RMB internationalization US$ billions Volume of cross-border RMB trade settlement (left) Percent of total foreign trade Share of PRC s RMB Trade Settlement (right) Mar-1 Mar-11 Mar-12 Mar Source: Eichengreen (213).

57 The bulk of Chinese lending goes to real estate Top 1 industries US$ billion Loan tranche size (left) Percent Market share (right) 1 5 Utilities Real Estate Metals & Mining Industrial Transportation Financial Chemicals Govt Regional & Local Airlines Railroad Source: Bloomberg. Note: Loans from ICBC, Bank of China, BoAg, BoCom, China Construction Bank, China Merchants, Minsheng, Everbright, and Citic.

58 China s biggest maturing loans concentrated in real estate Percent of total expiring loans Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Source: Bloomberg.

59 Importance of China s property market to wider economy Property market, percent of each category GDP Fixed asset investment Outstanding loans New loans Government revenues Source: Nomura.

60 Non-loan credit extension has accelerated substantially China, moving 12-month average RMB billions Social financing Alternative financing RMB loans Sources: PBOC, Datastream.

61 Banks wealth management products continue to rise Assets under management CNY billions WMP Deposits Q3 21 Q1 211 Q3 211 Q1 212 Q3 212 Q1 213 Q3 213 Sources: CEIC, Standard Chartered.

62 Where trust funds go Assets under management Infrastructure 26% Industry 3% Other 13% Real estate 9% Financial institutions 11% Stock market 11% Sources: CEIC, Standard Chartered Research.

63 China s demographic dividend Working Age Population Share Comparisons (%) (China vs. Japan) 7 China Japan During the 195s to early 197s, China s birth rate stayed at a high level up to roughly 3% due to a peaceful environment, improved medical services, and the government policy of honorable mother. The Chinese government began to introduce family planning policy at the end of 197s, and the onechild policy was implemented across the country, causing birth rate collapse. From 198 to 21, as the baby boomers grew into the labor force, the share of working-age population rose continuously. Economic growth was supported by a rising share of working-age population and falling dependency ratio. Demographic dividends are projected to peak out during and fall precipitously afterwards. Source: Goldman Sachs Investment Strategy Group, IMF, CEIC, National Bureau of Statistic of China This is for informational purposes only. This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of Goldman Sachs Asset Management or Goldman Sachs Global Investment Research. The views and opinions expressed herein may differ from those expressed by other groups of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

64 %GDP Imbalanced Growth Unsustainable 55% 5% 45% 4% 35% 3% China: Private Consumption vs. Investment (%GDP) Through 213 Private Consumption 27: Prime Minister Wen Jiabao calls the Chinese economy increasingly "unstable, imbalanced, uncoordinated, and ultimately unsustainable." 2 Investment 211: President Hu Jintao says that economic development remains "imbalanced, uncoordinated, and unsustainable." 3 212: Prime Minister Li Keqiang says that "the problem of imbalanced, uncoordinated, and unsustainable development is still serious." 4 53% 33% Implementing reforms in China will be a catch-22. Both the level and the trajectory of China s investment-to-gdp ratio are unsustainable. Such high levels of investment have led to overcapacity in many sectors of the economy and have been facilitated by tight financial controls. China s investment boom has also been fueled by rapid credit expansion, especially of the shadow banking, raising concerns about credit quality and potential defaults. 25% Source: Goldman Sachs Investment Strategy Group, CEIC, National Bureau of Statistic of China This is for informational purposes only. This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of Goldman Sachs Asset Management or Goldman Sachs Global Investment Research. The views and opinions expressed herein may differ from those expressed by other groups of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

65 Total Gross Debt as % of GDP Rapid debt increase 35 Total Gross Debt as a Percent of GDP and the Cumulative 5-Year Increase 24 pp 33 pp 13 pp 38 pp 43 pp Over the past five years, China s debt has grown at a faster rate than the rate preceding financial crises in other more advanced countries. China s debt-to-gdp ratio now exceeds that of the U.S. prior to the financial crisis. 5 US (23-27) 27 per capita GDP: $52,423 UK (23-27) 27 per capita GDP: $51,223 Japan ( ) 199 per capita GDP: $4,8 South Korea ( ) 1998 per capita GDP: $1,49 China (29-213) 213 per capita GDP: $6,569 Source: Goldman Sachs Investment Strategy Group, The Wall Street Journal, Datastream, IMF, CEIC, Goldman Sachs Investment Research, US Federal Reserve. This is for informational purposes only. This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of Goldman Sachs Asset Management or Goldman Sachs Global Investment Research. The views and opinions expressed herein may differ from those expressed by other groups of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.

66 Higher cost of funding China: Real GDP Growth vs. Real Lending Rate (%) 18 Real Lending Rate (%) Real GDP: Secondary Industry YoY% The GDP growth in secondary industry has been decreasing while the real leading rate has climbed up in recent years /25 6/26 6/27 6/28 6/29 6/21 6/211 6/212 6/213 Source: Goldman Sachs Investment Strategy Group, CEIC, National Bureau of Statistic of China This is for informational purposes only. This material represents the views of the Investment Strategy Group of the Investment Management Division of Goldman Sachs and is not a product of Goldman Sachs Asset Management or Goldman Sachs Global Investment Research. The views and opinions expressed herein may differ from those expressed by other groups of Goldman Sachs and is not a product of the Goldman Sachs Global Investment Research Department.