Chinese Economy

Perception vs. Reality

National Press
June 7th, 2007

James Yuan, CIO,

Everbright Pramerica Fund Management Co., Ltd
 . Most dynamic sizable economy in the world
. 1Q07 GDP growth rate of 11.1%

GDP Growth Rate %

14

12

10

06-10
94-06

95-10

97-03

98-07

99-12

01-04

02-09

04-01

05-05

08-02
What is driving Chinese Economy lately?

GDP Composition 1999, RMB8.2 trillion

3%

37% Consumption
47% Government
Investment
Trade

13%
. Investment is getting more than its fare shares.
. Size grew from ￥ 3.0 trillion in 1995 to ￥ 8.4 trillion in 20
06.

GDP Composition 2 0 0 5 , RMB18.5 trillion

4%

38%
Consumption
Government
44%
Investment
Trade

14%
. FAI growth of 14.3% p.a. since 1996.
. FAI growth of 25.6% yoy in first four months of 2007.

Investment

140000 40.0%
120000
100000 30.0%
80000
60000 20.0%
40000 10.0%
20000
0 0.0%
96
97
98
99
00
01
02
03
04
05

20 6
E
0
07
19
19
19
19

20
20
20
20
20
20
20

RMB100mm +/- %
. Foreign capital does help but not vital.
. Stable internal funding is key.

Funding Sources for Investment01/06-08/06

2.8%
14.0%
Government Budget
Loan
4.9% foreign Source
Others(internal)

78.3%
•GDP growth and FAI growth is positively correlated (0.76 since
1996 vs. Consumption’s 0.55, and Government spending’s .34).

GDP Growth & FAI Growth

12 30
10 25
8 20
6 15
4 10
2 5
0 0

GDP +/- % FAI +/- %

. Urbanization growth rate of 3.6% and a natural population
growth rate of 0.589% (7.6mm increase in population a year) p.a.
support continuous Investment. Urbanization rate was 43% by
the end of 2005.
. Survey shows that 17.5% of households would like to buy real
estate.

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%
• Government spending growth of 15.2% p.a. since 199
6.

Government Spending

35000 60.0%
30000 50.0%
25000 40.0%
20000
30.0%
15000
10000 20.0%
5000 10.0%
0 0.0%

RMB100mm +/- %
. Healthy tax revenue growth. Average 17.3% p.a. since 1996.
. Tax revenue is able to sustain government spending which has
had 15.2% growth p.a. since 1996.

Tax Revenue and Growth

40000 25.0%
30000 20.0%
15.0%
20000
10.0%
10000 5.0%
0 0.0%

RMB100mm +/- %
. Consumption has been playing and will play its key role as
strong support to the GDP growth.
. 10.8% growth p.a. since 1996.

Consumption

100000 25.0%
80000 20.0%
60000 15.0%
40000 10.0%
20000 5.0%
0 0.0%

RMB100mn +/- %
. Exports is picking up steam. Trade surplus reached ~7% of GDP
in 2006.
. Net trade is expected to hit US$250bn in 2007.

Trade Surplus
20000 120%
100%
15000 80%
60%
10000 40%
20%
5000 0%
-20%
0 -40%

RMB00mn +/- %
. Rapid accumulation of forex reserve stymies Central Bank’s
money policy maneuverability.
. China is ready.

Forex Reserve Baloons(US$bn)

1400
1200
1000
800
600
400 r
200
0
2001-09
2002-02
2002-07
2002-12
2003-05
2003-10
2004-03
2004-08
2005-01
2005-06
2005-11
2006-04
2006-09
2007-02
Higher exports growth rate than imports’ will further
increase already-large trade surplus.

Exports & Imports Growth Rate

100
80
60
40
20
0
-20
Apr-

Aug-

Dec-
Feb-
Jan-
Jan-
Jul-

Jun-

May-
May-

Oct-

Sep-
Apr-

Dec-

Jun-

Mar-

Nov-

Oct-
Exports Imports
. Industry wide over capacity caps pricing power.
. Government regulated energy price also helps to keep CPI
growth at bay.
. Sign of inflation looms as reported CPI hit 3.0% in past April.
CPI/PPI

10

-2

-4

-6
99-03

99-09

00-03
00-06
00-09

01-03
01-06
01-09
01-12
02-03

02-12
03-03
03-06
03-09

04-03
04-06
04-09
04-12

05-09
05-12
06-03
06-06
99-06

99-12

00-12

02-06
02-09

03-12

05-03
05-06
DIFF PPI CPI
. Money supply remains high as rapid accumulation of forex
reserve 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

30

25

20

15

10

0
01-04

02-04

02-10

03-04

03-07

04-10

05-01

05-07

06-01
01-01

01-07

01-10

02-01

02-07

03-01

03-10

04-01

04-04

04-07

05-04

05-10

06-04

06-07
Loan Growth(%) M1 =/-(%) M2 +/-(%)
 7.4
7.5
7.6
7.7
7.8
7.9
8.1
8.2
8.3
8.4

8
2002-12
2003-03
2003-06
2003-09
2003-12
2004-03
2004-06
2004-09
2004-12
2005-03
RMB/USD

2005-06
2005-09
2005-12
2006-03
2006-06
2006-09
RMB’s Long March has only started.

2006-12
2007-03
 Moving from need-to-have to nice-to have.
Durables Goods per 100 households

Auto Gym Cell Color Air Fridge PC Washing

Equipments Phone TV Con 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
. 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)
25
20
15
10
5
0
2000 2001 2002 2003 2004 2005

Pork Poultry
Acquatic Fishery Fresh Milk
Wine Beef/Lamb