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Chinese EconomyPerception vs. Reality
National Press
June 7th, 2007
James Yuan, CIO,
Everbright Pramerica Fund Management Co., Ltd
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. 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
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What is driving Chinese Economy lately?
GDP Composition 1999, RMB8.2 trillion
47%
13%
37%
3%
Consumption
Government
Investment
Trade
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. 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
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. 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 +/- %
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. 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)
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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 +/- %
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. 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%
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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 +/- %
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. 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 +/- %
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. 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 +/- %
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. 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 +/- %
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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
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. 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
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. 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 +/-(%)
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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
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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
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