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Wine Country Conference

April 5, 2013

James ChanosKynikos Associates

China: The Edifice Complex

2

The China Way

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What we have learned

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Guanxi is a way of life

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Caveat emptor in acquisitions

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Beware reverse merger listings

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“Audited” numbers?

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What goes on in China Inc.

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Gaming receivables

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Questionable “Other Income”

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Property on the side

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Copper and steel financing

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Foreign technology partnerships

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“Absorb and digest”

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“Re

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innovate”

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Undercut partners

Source: shutterstock

3

“The Number” Is Paramount

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GDP drives economic activity, notvice versa

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Countervailing priorities

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Set centrally and locally

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Stability for Central Government

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Vehicle of ambition for local officials

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Regional-to-national GDP gapcontinues to grow

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Gap of RMB 5.8T in 2012 vs.RMB 2.6T in 2009

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“Size of Guangdong’s economy”

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Capacity overinvestment (2008-2012CAGR)

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Cement 12%

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Steel 10%

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Autos 18%

“GDP: Killing the Hen to Get the Egg”

Source: China Media Project

Source: “GDP gap in China the size of Guangdong economy”, South

China Morning Post, February 5, 2013