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Springboarding Technology for Commercial Success Dr. K.B. Chan Chairman and Managing Director Surface Mount Technology Ltd. November 21, 2005 China’s growth & major economic zones Opportunities - Automotive and electronics Partnership with Hong Kong Summary Content Major Economic Zones

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Springboarding Technology for Commercial Success

Dr. K.B. Chan

Chairman and Managing Director

Surface Mount Technology Ltd.

November 21, 2005


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China’s growth & major economic zones

Opportunities - Automotive and electronics

Partnership with Hong Kong

Summary

Content


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Major Economic Zones

Growth 2005>9%

05/10 > 7.5%

Bohai Economic Zone

7+2

CHINA

Yangtze River Delta (YRD)

6+1

Pan-Pearl River Delta (PPRD)

9+2


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Strength of EconomicZones

1

Total 2,054 95% 1,207 93%

1 Includes eastern China, *Includes China, Hong Kong and Macao

Source: China Statistics Bureau, Hong Kong Census & Statistics Dept, Macau Statistics and Census Service


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Bohai Economic Zone – 7+2

  • Diversified economy:

  • Political, culture, R&D center - Beijing

  • Export, manufacturing base - Tianjin

  • Major industries/sectors:

  • Heavy industry, machineries, steel, military

  • Central Government designates as Third Wave


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Yangtze River Delta – 6+2

  • Industry and investment-oriented:

  • Shanghai as the regional leader – banking and finance, industrial manufacturing, tourism

  • becoming more internationalized

  • Major industries:

  • Very diversified

  • Automotive & auto parts, electronics equipment and parts, textile, chemicals,


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Pan-Pearl River Delta – 9+2

  • Export-oriented:

  • external trade of Guangdong accounts for over 30% of China’s total

  • large numbers of foreign-invested manufacturers in Guangdong, with a high concentration of Hong Kong-invested companies> 60,000

  • Major industries/sectors:

  • consumer goods, light Industries, petrochemical,

  • > 40% are electronic related


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Opportunities : Automotive & Electronics Industry


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China is Factory of the World

Advantage – Low cost & huge domestic market

Electronics market – forecast by 2007

300 Billion US$

20% of world output

Growth rate 12%, double of world’s

Largest market – hand set, DVD, TV,

Top 5 – PC, home appliance,

Electronics Production in China

Source: isuppli, 03/2004


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Electronic is major industry, highest growth

Electronics Output in MajorEconomic Zones

40% of PPRD GDP,Over 80% from Guangdong

Source: China’s Electronic Information Industry Yearbook


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EMS in China to Increase

Source: iSuppli, June 2003


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2004World Ranking

4th largest producer

3rd largest market

Automotive Industry in China

2003 Sales > 100 Billions US$ ; Vehicle Output (Units)

Started

> 200 thousand

> 3 million

> 5 million

1953

1971

1980

2000

2002

2003

2004

> 100 thousand

> 2 million

> 4 million

Vehicle Sales (Million Units)

2005-2010 CAGR 16%

Source: State Information Center – China Economic Information Network


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Automotive Electronics in China

2000 - 2010 CAGR >30%

Source: FOURIN China Auto Weekly


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Automotive Output – could exceed 10 M vehicles by 2010

Automotive Components–over 30% growth

Share of automotive electronic components in a car will increase from 10% to 30% by value

Foreign/ JV auto makers to procure local low-cost and high quality parts and components

Domestic brands increase from 25% to over 50%

Trend in China’s Automotive Components Industry


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Partnership with Hong Kong

The Advantages


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Major economic engine of the Pan-Pearl River Delta, finance and service center

Over 40% of China’s Foreign Direct Investment - FDI is from Hong Kong

HK companies operate more than 60,000 factories in Southern China - employing > 10 million workers

40% of HK Manufacturing GDP is electronics

Position of Hong Kong

Source: Hong Kong Trade Development Council


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Advantages of Hong Kong

  • Cosmopolitan city – large number of foreign company

  • Excellent infra-structure, transportation, telecom

  • Sound legal and tax system, center for arbitration

  • Mature equity market

  • Efficient government with no corruption

  • Easy communication, English, Chinese

  • Risk Management

  • IP Rights protection

  • Currency management - RMB


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HK - R&D – Technology Developments

  • Administer under ITC – Innovation & Technology Commission – Funding ~ 4Billion HK$

  • 8 Universities

  • Establish 5 R&D centers from 2006

  • Auto parts, logistics, textile, nano tech, IT & telecom

  • ASTRI – Apply Science and Technology Institute

  • HKScience & Technology Park – IC design, photonics

  • Cyber Port – Digital entertainment

  • HK Productivity Center


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Guangdong/HK Technology Co-operation Funding Scheme

  • Joint funding efforts between the 2 Government to support R&D projects

  • 2004> US$ 40 m in 6 areas

  • RFID , Auto-parts, elctronics & IT, energy tech

  • new materials, precision equipments

  • 2005> US$ 67 m in 6 areas

  • communication, medical & bio tech, new materials

  • green manufacturing, agriculture,


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HK Companies as Partners

  • Understand both International and Chinese cultures, acting as a bridge

  • Historic link with multinational companies, and foreign countries

  • Substantial business experience in China, know “what not to do”

  • Fast response

  • Strong business integrity


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Summary

  • The 3 major economics zones will be China’s economy growth engine > 90%

  • Pan Pearl River Delta – Super Economic Zone

  • Bohai Economic Zone is the Third Wave

  • Electronics and automotive will be the leading industries

  • Partnership with Hong Kong companies for outsourcing or entering the China market



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