IOSCO 34th Annual Conference June 29, Tel Aviv The Impact of the Global Financial Crisis on Emerging Markets - The Case of China Hua YU Vice Chairman, Fund Industry Committee, Securities Association of China CEO, Morgan Stanley and Huaxin Funds Management Company
The Impact of the Global Financial Crisis on Emerging Markets - The Case of China China: An Emerging Transitional Economy A Rapid Growing Economy with High Saving Rates GDP Growth Drivers Increasing Dependence on External Demand IOSCO 34th Annual Conference, June 29, Tel Aviv
China: An Emerging Transitional Economy China: A Rapid Growing Economy Growth Has Been Financed by Savings 12 % GDP Growth Rate 8 4 The economy of China has been growing at 9% on average for the past decade 2 24 1Q29 28 GDP of RMB 3 trillion (USD 4.4 trillion), US$338 per capita Savings Kept Increasing at a High Speed USD bn 4, Deposits Growth Rate(%) % 3 The growth has been financed mainly by domestic savings which increased at a high speed 3, 2, 1, 2 24 28 25 2 15 1 5 IOSCO 34th Annual Conference, June 29, Tel Aviv 2
China: An Emerging Transitional Economy GDP Growth Driver Composition Major Drivers of GDP Growth Consumption Investment Export(net) 1% 75% 5% 25% % -25% 2 24 1Q29 The investment has been the main driver for the GDP growth Consumptions and Exports have increased contributions to GDP growth 8% 6% 4% 2% An Increasingly Opened Economy 67% 38% 2 24 28 Increasing Dependence on External Demand Around two-thirds of China s economy is linked to global business IOSCO 34th Annual Conference, June 29, Tel Aviv 3
The Impact of the Global Financial Crisis on Emerging Markets - The Case of China Banking, Finance and Capital Market Banking Sector Has Been Sound and Stable Huge Reserves Ensure Supply of Liquidity A-Share Market: Relying on Domestic Fund Flows IOSCO 34th Annual Conference, June 29, Tel Aviv
Banking, Finance and Capital Market Deposits Have Grown with GDP Banking Sector Sound and Stable 3% GDP Growth Rate(%) Deposit Growth Rate(%) 2% 1% % 24 26 1Q29 Bank deposits grow rapidly, with an even higher growth rate than GDP Bank capital is growing and kept sufficiently high 24% 18% Banks Business Has Been Profitable As results of banking reform, NPLs ratio dropped from 17% in 23 to below 5% recently 12% 6% % 24 26 28 Average ROE of listed banks remains above 1% IOSCO 34th Annual Conference, June 29, Tel Aviv 5
Banking, Finance and Capital Market Foreign Revenue/Capital Accumulates Over Time Huge Reserves Ensure Liquidity 2, Foreign Exchange Reserves (USD Bn) 1,5 1, 61 5 15 1,954 FDI and surplus of Current Accounts make China a net receiver of offshore capital There is no access for portfolio investment of foreign capital with exception of QFII The economy and financial system does not rely on short term flows of offshore money 1996 24 3/29 Foreign Exchange Reserves have increased to nearly USD 2 trillion IOSCO 34th Annual Conference, June 29, Tel Aviv 6
Banking, Finance and Capital Market A-Share Market: Growth Based on Domestic Fund Flows Market with limited international exposure Conversion of State Shares made the market more efficient and transparent QDII are the only way to invest directly in securities overseas Almost no fund-raising by foreign borrowers and IPOs in China Limited access of foreign investors to A shares (QFII) Limited offshore IPO financing In 27, domestic IPO 489bn RMB (USD 7bn), overseas IPO USD6.9bn QFII and QDII as windows for foreign investors going to A- Shares and domestic investors going offshore A share market 3rd largest market in the world A-Share market the World s 3rd largest by market capitalization IOSCO 34th Annual Conference, June 29, Tel Aviv 7
The Impact of the Global Financial Crisis on Emerging Markets - The Case of China Impacts of Financial Crisis Due to China A-Share market s limited exposure to the international capital flows and thanks to China s stable and strong financial sector with dynamic reform and development: The direct impact of global financial crisis on A-Share market has been limited The indirect impact of the crisis through the performance of the economy, however, has been substantial IOSCO 34th Annual Conference, June 29, Tel Aviv
Impacts of Financial Crisis FDI Dropped Over the Past Quarters Unemployment Rate Soared 12 % 8 4 FDI (YTD) 4.5 % 4. 3.5 3. -4 1998 23 1Q29 2.5 1/2 6/25 3/29 % 5 25-25 Export Went Down Dramatically Export Import Earnings Growth Rate Declined Sharply % 8 6 4 2-5 1/28 9/28 4/29-2 -4 6/27 12/27 6/28 12/28 3/29 IOSCO 34th Annual Conference, June 29, Tel Aviv 9
Impacts of Financial Crisis NAV of QDII Funds Dropped Significantly 1..8.6 Investors Confidence Hit by the Crisis 8 China A-share (Hushen 3) Dow Jones 6 4 2 FTSE Hang Seng Nikkei225 25 27 6/29 Limited Direct Impacts Local securities institutions do not own stakes of offshore securities players They cannot trade on offshore securities and derivatives Shanghai SE Index lost nearly 7% from its peak in early 28 Investors lost their confidence on both domestic and international markets QDII funds incurred losses on their offshore markets investment.4.2. Dec-7 Mar-8 Jun-8 Sep-8 Dec-8 Mar-9 QFII moved funds out of A-Share market during the last quarter of 28 Some local institutions (banks, insurance companies) suffered losses on their offshore securities investment IOSCO 34th Annual Conference, June 29, Tel Aviv 1
The Impact of the Global Financial Crisis on Emerging Markets - The Case of China Dealing with The Crisis Government Programs to Stimulate the Economy Measures by Securities Regulators to stabilize the Market Focus on investor Education and Protection IOSCO 34th Annual Conference, June 29, Tel Aviv
Dealing with the Crisis % 35 35 3 25 25 3 2 25 15 1 1 5 % 12% 12 1% 1 8% 8 6% 6 4% 4 2% 2 % Monetary Expansion M2 Growth Rate (MoM) 1995 2 25 3/29 1 Year Deposit Rate 1989 1999 3/29 Fiscal Stimulation A fiscal stimulus total investment of RMB 4 trillion (USD 58bn) with more to follow Tax cuts and fiscal subsidies on certain products and services Job creating programs Programs of promoting certain industrial sectors IOSCO 34th Annual Conference, June 29, Tel Aviv 12
Dealing with the Crisis Measures Effectiveness 1 Allowing listed companies to buy back their shares 1 Helped to stabilize the market and restore investors confidence 2 Encouraging listed companies to pay dividend to investors 2 Leading investors to focus on value investing Promoting sustainable financial innovations 3 Acceleration of opening a Second-Tier Market with new investment opportunities 4 Segregation of clients assets from securities firms proprietary assets 4 Preventing misappropriation of clients assets, reducing potential investment and liquidity risks 5 Promoting KYC rule and reinforcing information disclosure at points of sales 5 A more transparent market with more confident clients IOSCO 34th Annual Conference, June 29, Tel Aviv 13
IOSCO 34th Annual Conference June 29, Tel Aviv Thank you!