Chinese Economy: Perception vs Reality (James Yuan, CFA)

8/7/2019 Chinese Economy: Perception vs Reality (James Yuan, CFA)

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Chinese EconomyPerception vs. Reality

National Press

June 7th, 2007

James Yuan, CIO,

Everbright Pramerica Fund Management Co., Ltd


2/19

. Most dynamic sizable economy in the world

. 1Q07 GDP growth rate of 11.1%

GDP Growth Rate %

0

2

4

6

8

10

12

14

94-06

95-10

97-03

98-07

99-12

01-04

02-09

04-01

05-05

06-10

08-02


3/19

What is driving Chinese Economy lately?

GDP Composition 1999, RMB8.2 trillion

47%

13%

37%

3%

Consumption

Government

Investment

Trade


4/19

. Investment is getting more than its fare shares.

. Size grew from 3.0 trillion in 1995 to 8.4 trillion in 2006.

GDP Composition 2005, RMB18.5 trillion

38%

14%

4%

44%

Consumption

Government

Investment

Trade


5/19

. FAI growth of 14.3% p.a. since 1996.

. FAI growth of 25.6% yoy in first four months of 2007.

In estment

0

20000

40000

60000

80000100000

120000

140000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

E

0.0%

10.0%

20.0%

30.0%

40.0%

RMB100mm +/- %


6/19

. Foreign capital does help but not vital.

. Stable internal funding is key.

Funding Sources for Investment01/06-08/06

4.9%

78.3%

2.8%14.0%

Government Budget

Loan

foreign Source

Others(internal)


7/19

GDP growth and FAI growth is positively correlated (0.76 since1996 vs. Consumptions 0.55, and Government spendings .34).

GDP Growth & FAI Growth

0

2

4

6

8

10

12

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007E

0

5

10

15

20

25

30

GDP +/- % FAI +/- %


8/19

. Urbanization growth rate of 3.6% and a natural population growthrate of 0.589% (7.6mm increase in population a year) p.a. supportcontinuous Investment. Urbanization rate was 43% by the end of2005.. Survey shows that 17.5% of households would like to buy realestate.

1990 2003 Avg Growth p.a.

China 27% 39% 3.6%

Korea 74% 84% 1.8%

USA 75% 78% 1.4%

Japan 77% 79% 0.4%

India 26% 28% 2.5%

EU 75% 78% 0.6%

World 44% 49% 2.2%


9/19

Government spending growth of 15.2% p.a. since1996.

Government pending

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006F

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

RMB100mm +/- %


10/19

. Healthy tax revenue growth. Average 17.3% p.a. since 1996.

. Tax revenue is able to sustain government spending which hashad 15.2% growth p.a. since 1996.

Tax evenue and rowth

0

10000

20000

30000

40000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005E

2006F

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

RMB100mm +/- %


11/19

. Consumption has been playing and will play its key role asstrong support to the GDP growth.. 10.8% growth p.a. since 1996.

Consumption

0

20000

40000

6000080000

100000

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007E

0.0%

5.0%

10.0%

15.0%20.0%

25.0%

RMB100mn +/- %


12/19

. Exports is picking up steam. Trade surplus reached ~7% of GDPin 2006.. Net trade is expected to hit US$250bn in 2007.

T rade Surp lus

0

5000

10000

15000

20000

1996199

7199819992000200

12002200

3200420052006

2007E

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

RMB00mn +/- %


13/19


14/19

Higher exports growth rate than imports will furtherincrease already-large trade surplus.

Exports & Imports Growth Rate

-20

0

20

40

60

80

100

Apr-

Apr-

Aug-

Dec-

Dec-

Feb-

Jan-

Jan-

Jul-

Jun-

Jun-

Mar-

May-

May-

Nov-

Oct-

Oct-

Sep-

Exports Imports


15/19

. Industry wide over capacity caps pricing power.

. Government regulated energy price also helps to keep CPIgrowth at bay.

. Sign of inflation looms as reported CPI hit 3.0% in past April.CPI/PPI

-6

-4

-2

0

2

4

6

8

10

99-03

99-06

99-09

99-12

00-03

00-06

00-09

00-12

01-03

01-06

01-09

01-12

02-03

02-06

02-09

02-12

03-03

03-06

03-09

03-12

04-03

04-06

04-09

04-12

05-03

05-06

05-09

05-12

06-03

06-06

DIFF PPI CPI


16/19

. Money supply remains high as rapid accumulation of forexreserve continues.. More than US$2.2 trillion worth of RMB is sitting in the savings

accounts at the end of March 2007.

M1/M2/Loan Growth Comprison

0

5

10

15

20

25

30

01-01

01-04

01-07

01-10

02-01

02-04

02-07

02-10

03-01

03-04

03-07

03-10

04-01

04-04

04-07

04-10

05-01

05-04

05-07

05-10

06-01

06-04

06-07

Loan Growth(%) M1 =/-(%) M2 +/-(%)


17/19

RMBsL

ongMarch

hasonlystarte

RMB/USD

7.4

7.5

7.6

7.7

7.8

7.9 8

8.1

8.2

8.3

8.4

2002-12

2003-03

2003-06

2003-09

2003-122004-03

2004-06

2004-09

2004-12

2005-03

2005-06

2005-09

2005-12

2006-03

2006-06


18/19

Moving from need-to-have to nice-to have.Durables Goods per 100 households

Auto Gym

Equipments

Cell

Phone

Color

TV

Air

Con

Fridge PC Washing

machine

2005 3.4 4.7 137.0 134.8 80.7 90.7 41.5 95.5

2004 2.2 4.2 111.4 133.4 69.8 90.2 33.1 95.9

2003 1.4 4.1 90.1 130.5 61.8 88.7 27.8 94.4

2002 0.9 3.7 62.9 126.4 51.1 87.4 20.6 92.9

2001 0.6 4.0 34.0 120.5 35.8 81.9 13.3 92.2

2000 0.5 3.5 19.5 116.6 30.8 80.1 9.7 90.5

1999 0.3 3.8 7.1 111.6 24.5 77.7 5.9 91.4

1998 105.4 76.1 90.6

1997 100.5 73.0 89.1

1996 93.5 69.7 90.1


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. It has to be quality instead of quantity in food category.

. Chinese, in general, are full to the brim.

. No increase in food consumption volume per capita in almost

every category.Category

Food Consumption per capita (Kg)

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005

Pork Poultry

Acquatic Fishery Fresh Milk

Wine Beef/Lamb

Chinese Economy: Perception vs Reality (James Yuan, CFA)

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