China Beijing Equity Exchange

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Growing Outbound Investments by Chinese Investors
China Beijing Equity Exchange Frank Yi Han, MBA,
CFA Deputy Director, International Business Dept.
February 2006
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An Active M A Market in China

• Strategic Adjustment of State-owned Assets (SOA)
• Rapid Development of Private Sector
• Abundant Foreign Investments
• Growing Outbound Investments by Chinese Investors

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Some Outbound Investment Targets for My Clients

• Brand
• Distribution Channels
• Natural Resources
• Technology
• Pharmaceutical Companies
• Labor Intensive Business
• Small-Medium Consumer Goods Related Business

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Motivations Trends

• World Factory Concentrating on Manufacturing
• Buying Marketing Power
• Buying Suppliers
• Avoiding Intense Competition in Domestic Market
• Transferring Abundant Production Capacity
• Avoiding Trading Barriers
• Establishing Reputation
• More Strategic Decisions By SOE
• Different Motivations for Private Enterprises

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Government Policy Regulation

• Annual Review for Outbound Investment, 2002,
  Former International Trading and Economic
  Cooperation Dept.
• Outbound Investment Application Process,
  Document 44,107,2003,Former Economic and Trading
  Dept.
• Regulations on Foreign Exchange Management for
  Outbound Investment, 1989, 1990, 1995, 2003, SAFE

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Government Policy Regulation

• Notice on Simplifying Foreign Exchange Resource
  Examination for Outbound Investment, 2003, SAFE
• Approval Process on Outbound Investment of
  Projects, Oct. 2004, NDRC
• Approval Process on Establishing Companies
  Overseas, Sep. 2004, Dept. of Commerce
• The Law of Outbound Investment? (Draft)

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Government Policy Regulation

• Approved by NDRC, Dept. of Commerce, SAFE

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Government Policy Regulation

• Investment Environment
• Safety Concern
• Political Economic Relationships
• Guiding Policy for Outbound Investment
• Layout of Investments
• Obligation for International Agreements
• Company Protection

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Government Policy Regulation

• Examination on Foreign Exchange
• Resource

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Government Policy Regulation

• Outbound Investment Which Are Prohibited
• Hurting national interests and safety
• Using technology skills, of which exporting are
  prohibited
• Operating in areas which are prohibited by law
• Investing in areas which are prohibited by
  international agreements or local laws
• Cross border criminals

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Policy Trends

• Encouraging
• Liberalization
• Interests Groups
• Being Nervous
• Anti-Corruption
• Monitoring Regulating

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Policy Trends

• Formal The Law of Outbound Investment ?
• Cancellation of Quota for Foreign Exchange Used
  for Outbound Investment, 2006?
• Qualified Domestic Institutional Investor (QDII)
  ?
• New Regulations on Foreign Exchange Management
  for Outbound Investment, 2006, SAFE ?
• Regulations on Internal Use of Foreign Exchange
  by Multi-national Firms , SAFE ?

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The Background for China Equity Exchange Market
(EEM)
Strategic Adjustment of SOA

• Entering or retreating
• a. Key industries, which
  have important impact on
• general economy
  Control
• b. Common industries with
  intense competition Retreat
• c. Conductive and highly
  efficient industries Enter or retreat

• Shareholding system
• SOE, private sector, and overseas firms
  merge together

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China A Messy Market with Many Opportunities?
SOA Complexity

• Unclearly Defined Ownership
• Interest Group and Agency Problem
• Asset Valuation Problem
• Liabilities Pension, Debt, Off-Balance-Sheet
  Liabilities
• Business Opportunities

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China A Messy Market with Many Opportunities?

• Government Policy Changes
• CredibilityIndividual,Organization,intermediary
• Legal Environment
• Information Disclosure, Accounting Principles,
  Transparency
• Interests of Local Government
• Cultural Differences
• Under-the-table Rules of Doing Business

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The Background for China Equity Exchange Market
(EEM)
Problems Facing

• SOA Valuation
• Transparency
• How to keep both value and liquidity of SOAs

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The Background for China Equity Exchange Market
(EEM)

• China Equity Exchange Market (EEM)
• 1. An innovative system design in the world
• 2. OTC , MA, Private Placement Market in
  unique Chinese style
• a. Openness to find investors
• b. Competition to identify
  prices
• Legal Support
• Interim Regulations on Supervision and
  Management of
• State- owned Assets of Enterprises
  and other nine important official documents by
  State Council
• --By Law, SOA must enter EEM to
  make transactions

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China Beijing Equity Exchange (CBEX)
Brief Introduction

• One of the first trial EEMs authorized by the
  State-owned Assets Supervision and
  Administration Commission (SASAC) for the
  transaction of SOEs owned by the Central
  Government
• Relative Monopoly Status One of Three
• 61 Market Share of Central Government SOA MA
  Market
• The Only Capital Market in Beijing
• SOA owned by Beijing Municipal Government must
  enter CBEX.
• Absolute Monopoly Status

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CBEX Resources and Specialty

• Authorized by SASAC for the transaction of SOAs
  owned by the Central Government
• Profound Government Resources and Coordinating
  Capability

• Powerful Marketing Network

• Branch offices in 29 provinces across China
• More than 300 members providing professional
  financial

• services, such as brokerage, investment
  banking, auditing,
• legal services, appraisal, auction, etc.
• More than 60 international members.
• Promotion network of newspaper, internet,
  trade shows
• Information release platform, established
  with overseas

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CBEX Resources and Specialty

• Strategic partnership with the local government
  of Zhongguancun Science Park, so called silicon
  valley of China
• High Credibility
• Beijing Government Background
• Advanced Clearing System
• Guarantee Transaction Safety and Efficiency

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CBEX Resources and Specialty

• Completed 2,909 transactions, with actual
  transaction amount of 40.885 billion RMB, in
  2005.
• Currently, 61 Market Share of Central Government
  SOA MA Market
• In 2005,955 SOA projects were successfully
  transferred to domestic private firms and foreign
  investors, with actual transaction volume of RMB
  7.883 billion.

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What can we do for you a green channel for
foreign capital to enter China

• Providing deal flow Lowering searching costs
• Large marketing network Helping overseas firms
  search Chinese investors
• Processing information according to international
  rules Increasing project transparency
• Providing professional financial services, such
  as brokerage, investment banking, auditing, legal
  services, appraisal, etc.
• Government credibility Guarantee transaction
  safety
• Profound government resourcesproject
  coordinating, policy consulting

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Thank you!Questions or Comments?