China Investment Opportunity Overview

1
China Investment Opportunity Overview
2
Strong, Extended Growth

• Chinese economy has been on a sustained high
  growth cycle, with GDP growth averaging close to
  10 annually since 1990
• Its economy is now the 3rd largest in the world
  and the fastest growing

3
Growth Drivers

• Large inflows of Foreign Direct Investment
• Strong export growth driven by low wages and
  under-valued currency

4
Stock Market -- Playing Catch-Up

• From 2000 2004, the Chinese stock market
  stagnated due to the SARS scare and perceived
  corruption of the main exchanges
• Since 2005, the main China index has gained over
  400
• The Chinese Government has introduced measures to
  moderate the exuberance

5
Beginning of Long-Term Cycle

• There are several reasons why the China
  opportunity should be looked at as the early
  stages of a historic, long-term growth cycle

6
Macro Growth Drivers

• Since 1993, the Chinese stock market has
  significantly lagged other emerging market
  returns even though its economy significantly
  outperformed
• Market capitalization as a percentage of GDP in
  China is significantly lower compared to other
  countries

7
Corporate Growth Drivers

• Chinese companies predominately rely on bank
  financing and have barely tapped the bond and
  public equity markets
• Corporate bonds amount to only 4 of GDP in China
  compared with over 100 in the US
• Productivity growth is driving increasing
  profitability among Chinese companies
• Productivity is growing at 20 per year
• Corporate profits have grown by 36 per year
  since 1999

8
Individual Growth Drivers

• Chinese individuals save over 25 of their income
• China has over 4 trillion in deposits in the
  banking system
• The government keeps interest rates for bank
  accounts artificially depressed. Savers are
  getting negative real returns
• Individuals are setting up brokerage accounts in
  record numbers to invest in the stock market
• More than 8 million accounts have been set up in
  2007, which is 10 times the number of accounts
  opened in 2005
• Even with the surge in new accounts, only 7 of
  the Chinese population own shares vs. over 50 of
  the US population

9
Risk Factors
10
China Summary

• Fastest growing major economy in early stages of
  historic growth cycle
• Capital markets still in infancy, creating
  significant investing opportunities
• Domestic demand will drive continued growth,
  insulating the Chinese economy from external
  shocks

Source Economist Intelligence Unit