Chinese Finance/Business

1. Chinese Finance/Business

2. China • The word China in the Chinese language literally means “middle kingdom.” The Chinese are thinking that China is the middle (center) of the world. • This mentality is similar to the US (in fact we are thinking that we are the universe).

5. Beijing

6. Tiananmen Square

7. Beijing

8. East Chang-On Street – Near Royal Place

9. Shanghai

10. Shenzhen

11. Shenzhen

12. Xian – A City in the Western China

13. Xi’an

14. Xi’an-Terra Cotta Warriors

15. A Small Town in Western China

16. A Primary School in Western Area

17. Village

18. A Weaving Woman

19. Economic Data 2001 2002 2003 2004 Population 1.3bn 1.3bn 1.3bn 1.3bn Population growth 0.7% 0.7% 0.6% 0.6% Urban population 37.7% 39.1% 40.5% 41.8% Life Expectancy 71.8 --- --- --- Literacy rate --- 86% 89% 90% GDP (US$ bn) 1,196 1,300 1,414 1,932 GDP growth 7.3% 7.8% 9.1% 9.5% Current account (US$bn) 17 35 46 69 Foreign reserves (US$bn) 212 286 403 610 Exports (US$bn) 266 325 438 655 Imports (US$bn) 244 295 413 606 Inflation (CPI) 1.6% -0.8% 1.2% 3.9%

20. Economic Data(Cont.) 2005 2006 2007 Population 1.3bn 1.3bn 1.3bn Population growth 0.6% 0.6% 0.5% Urban population 43% 44% 45% Life Expectancy 72 --- --- Literacy rate 89% --- --- GDP (US$ bn) 2,229 2,677 3378 GDP growth 9.9% .7% 11.4% Current account (US$bn) 161 250 --- Foreign reserves (US$bn) 819 1,066 1528 Exports (US$bn) 762 969 1218 Imports (US$bn) 660 792 956 Inflation (CPI) 1.8% 2.2% 4.8% sources: National Bureau of Statistics of China, E￥/$ =7.3 for 2007 GDP; State Administration of Foreign Exchange of China

21. Economic Data(Cont.) (US$bn) 2005 2006 2007 • GDP 2,229 2,677 3,420 • GDP growth 9.9% 10.7% 11.4% • Current account 161 250 262 • Foreign reserves 819 1,066 1,530 • Exports 762 969 1,218 • Imports 660 792 956 • Inflation (CPI) 1.8% 2.2% 4.8%

22. More Facts about China! • Manufactures two thirds of the world's copiers, microwave ovens, DVD players and shoes • The world's largest producer of coal, steel and cement, the second largest consumer of energy, and the third largest importer of oil. • Consumes 40% of the world’s cement, a third of its coal, and a quarter of its steel. • Its labor source with wages at less than 50 cents per hour can compete with anyone in the world.

23. General Remarks • China is still a poor country! • Income/capita in 2007 (=GDP/population) • = $3,378billion/1.3billion • =$2,598 • Is China a good Economic Model of Growth?

24. China's Top 10 Trade Partners in 2002 (US$ bn)

25. China 's Top Trade Partners in 2003(US$ bn) Rank Country Total trade % Total Trade % GDP 1 Japan 133.57 15.7 9.45 2 US 126.33 14.8 8.91 3 EU 125.22 14.7 8.85 4 HK 87.41 10.3 6.20 5 ASEAN 78.25 9.2 5.54 6 S. Korea 63.23 7.4 4.45 7 Taiwan 58.37 6.9 4.15 8 Russia 15.76 1.9 1.14 9 Australia 13.56 1.6 0.96 10 Canada 10.01 1.2 0.72 Source: General Administration of Customs, China Customs Statistics (2004)

26. China 's Top Trade Partners in 2006 (US$ bn) Rank Country Total trade % Total Trade % GDP 1 EU 272 15.5 10.2 2 US 263 14.9 9.8 3 Japan 207 11.8 7.7 4 HK 166 9.4 6.2 5 ASEAN 161 9.1 6.0 6 S. Korea 134 7.6 5.0 7 Taiwan 108 6.1 4.0 8 Russia 33 1.9 1.2 9 Australia 33 1.9 1.2 10 India 25 1.4 0.9 Sources: http://zhs.mofcom.gov.cn/aarticle/Nocategory/200702/20070204344141.html http://zhs.mofcom.gov.cn/tongji.shtml.

27. China 's Top Trade Partners in 2007 (US$ bn) Rank Country Total trade % Total Trade % GDP 1 EU 356 16.4 10.3 2 US 302 13.9 8.8 3 Japan 236 10.9 6.8 4 ASEAN 203 9.3 5.9 5 HK 197 9.1 5.7 6 S. Korea 160 7.4 4.6 7 Taiwan 124 5.7 3.6 8 Russia 48 2.2 1.4 9 Australia 44 2.0 1.3 10 India 39 1.8 1.1 Source: http://zhs.mofcom.gov.cn/aarticle/Nocategory/200802/20080205374134.html.

28. China’s Exports vs. World’s Exports (US$ bn) • Year World Expts China exports (%) Ranking • 1978 1,242 10 (0.8%) 32 • 6,358 249 (3.9%) 7 • 6,512 266 (4.4%) 6 • 6,512 326 (5.0%) 4 • 2003 7,274 438 (6.0%) 4 • 2004 11,140 655 (5.9%) 3 • 2005 12,621 836 (6.6%) 3 • 2006 14,838 1,060 (7.1%) 3 • The top three exporting countries are in 2006: • U.S., Germany, and China, (Japan)

29. Total Realized FDI in China Year FDI (US$bn) Year FDI (US$bn) 1984 1.419 2001 46.8 1986 1.875 2002 52.7 1988 3.194 2003 53.5 1990 3.487 2004 60.6 1992 11.0 2005 60.3 1994 33.8 2006 63.0 1996 41.7 2007 74.8 1997 45.3 1998 45.5 1999 40.4 2000 40.8 Sources: www.mofcom.gov.cn/table/wztj/2002_12.html http://zhs.mofcom.gov.cn/tongji.shtml

30. Ranking in Foreign Reserves (US$ bn) Source: //en.wikipedia.org/wiki/Foreign_reserves#Data www.federalreserve.gov

32. Trade/GDP in China 1990 29.76 (%) 2004 59.77% 1991 35.77 2005 63.8 1992 38.00 2006 65.77 1993 32.67 2007 64.35 . 2000 44.18 2001 43.98 2002 49.92 2003 60.19 Sources: National Bureau of Statistics of China, www.stats.gov.cn/tjgb/

34. Top 10 Items China Exported to U.S. in 2007

35. Sources: www.ustreas.gov/tic/shl2005r.pdf www.ustreas.gov/tic/shlhistdat.html www.ustreas.gov/tic/lb_asia.tic www.ustreas.gov/tic/mfh.txt

36. 4 Growing Regions in China Regions GDP (%) • Yangtze River Valley 38.5% Shanghai, Jiangsu, Zhejiang • Yellow River Valley 30.2% Beijing, Tianjin, Shandong • North-east Areas 11.3% Heilongjiang, Jilin, Liaoning • Zhujian (Pearl) River Valley 16.8%Guangdong and Fujian

37. Private Sector’s Growth • Changes in Political attitude • 1952: socialistic reform • 1982: constitutional change--allow individual enterprise (less than 8 persons) • 1988: constitutional amendment– recognize private enterprises • 1997 – legal status established • 1999– protection from laws

38. Total Realized FDI in China Year FDI(US$bn)Year FDI(US$bn) 1984 1.419 2001 46.8 1986 1.875 2002 52.7 1988 3.194 2003 53.5 1990 3.487 2004 60.6 1992 11.0 2005 60.3 1994 33.8 2006 63.0 1996 41.7 2007 74.8 1997 45.3 1998 45.5 1999 40.4 2000 40.8 Source: www.mofcom.gov.cn

39. Industrial Production -- State-Owned Enterprises, Non-State Sector, and Foreign Funded Enterprises (RMB bn)

40. Employment -- Ownership Unit in million (share in %)

41. Tax Contribution -- State-Owned, Collective-Owned Private Enterprises in CNY million (% share)

42. Financial OpennessBanking Sector • Central bank - People’s Bank of China • 4 big banks - control 70 % business • (1) Bank of China; (2)Industrial and Commercial Bank of China, (3) Agricultural bank, (4) China’s Construction bank • Under financial reforms • Adopt US federal Reserve System • bad debts; Set up Asset Management Company: asset sale, equity to debt swap • Encourage competition among stock equity banks • Savings in banks: $1.74 trillion in 2005

43. The Structure of China’s Banking System

44. The Four Asset Management Companies Source: China’s Capital Market, 2007

45. Shenzhen Development bank • Newbridge Capital, a U.S. investment firm, seeking up to 20% • Bank of Shanghai • HSBC (HK bank with UK registered) has 5% stake • Shanghai Pudong Development Bank • Citigroup has 5% stake • Xian City Commercial Bank • Scotiabank and the IFC (world bank) hold about 2% each • Nanjing City commerical bank • IFC has 15% stake Foreign Investors in Chinese Banks

46. Financial Market Openness • Two Major Stock Markets • Shanghai Stock exchange, Dec 1989 • Shenzhen Stock exchange, April 1991 • A-share, B-share, H-share, and N-Share • Small and Medium Enterprise Block market • Shenzhen Stock Exchange, May 2004 • China Technology and Equity Exchange • Zhouguancun, Beijing 2003

47. Requirements for Qualified Foreign Institutional Investors (QFIIs) Type of QFIIs History Capital Assets Under Management ________________________________________________________________________ Funds > 5 years -- > US$ 10 billion Insurance > 30 years > US$ 1billion > US$ 10 billion Brokerage > 30 years > US$ 1 billion > US$ 10 billion Banks Top 100 globally > US$ 10 billion

48. Custodian Banks • Ten custodian bank status in charge of QFII, • Big Four Bank • Bank of China, China Construction Bank, Industrial and Commercial Bank of China, and Agricultural Bank of China, • Three smaller domestic commercial bank • the China Merchants Bank, the Communication Bank, and the China Everbright Bank, and • Three foreign bank branches • the Shanghai branches of Citi Bank, HSBC, and Standard Chartered Bank.