The China Compass

The China Compass
Economic Trends & Analysis
Q4 2017
The Beijing Axis 0

A Member of Axis Group International
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Combining extensive experience and comprehensive capabilities, we collaborate with Since our establishment in 2002, we have successfully worked with a large number of
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Agenda
1. Foreword
2. Feature – China’s Global Game
3. China Profile, Facts and Figures
4. China in the World
5. Conclusions, Implications and Recommendations
6. About The Beijing Axis

Foreword
In the same manner that a compass highlights the cardinal points of north, south, east and west, The China Compass is intended to serve as a navigational instrument for
determining China's position and direction in the global economic landscape. By closely examining China's importance to and progressive integration with the world
economy, The Beijing Axis presents The China Compass as a knowledge tool for executives with a China agenda.
A modest revival in global activity over the past 12 months has created a firmer international context but many uncertainties prevail with a slew of recent political transitions
now a defining characteristic of the wider landscape. US economic activity has rebounded but the post-election process remains painful as Americans grapple with issues
across a divide. Meanwhile, European revival remains tentative and BREXIT, coupled with shifting political sentiments across Europe, continue to cast a shadow of
uncertainty. However, global growth is firmer and emerging markets have stabilised somewhat. As such, a slight rebound in China’s GDP growth of 6.9% in Q2-17,
combined with firmer global data, provide a welcome and stable setting for the time being. Also, China’s overall moderation to lower long-term growth is now generally better
accepted as the new 'normal’, while previous overblown fears of a hard landing have dissipated.
China’s transformation continues - leaving a wake of changes that has been destructive for some, but that also heralds a new dawn for others. The impact is being felt
domestically and internationally. China’s policy makers clearly recognise the risks and evolving nature of the country's social, economic and financial terrain – and despite
many mounting challenges, our view is that Beijing still has enough policy leeway to offer critical support and offset the pressures in the economy; so, no hard landing on the
horizon. But, as stated previously, deep-rooted and often painful reforms must continue as a matter of urgency so as to safeguard not just the current cycle, but also the
structural integrity of China’s economy and its ability to deliver on its long-term development goals. This will ensure sustained high growth – despite many challenges along
the way - and the ongoing transition to a consumer-driven, service-oriented and higher-value-add economy.
Meanwhile, China’s global influence is only rising – and plays out across many dimensions, i.e. geopolitics, international economics, trade, capital flows and culture. In our
feature segment, we investigate China’s global game by looking into its role in global capital flows, international trade and its wider international influence.
In Section 1, we set the scene. Section 2 features 'China’s global game – outbound investment, trade and evolution and the belt and road initiative’. Sections 3 and 4
provide a more detailed, quantitative look into China's economic, social, financial and geopolitical make-up, domestically and when compared with selected economies in
the wider global community. Finally, Section 5 offers insights into key trends and outlines the high-level conclusions, implications and recommendations for players that are
engaging in/with China.
We trust that this edition will be useful for those who are in the midst of planning, and that it will shed light on past developments and future prospects of a uniquely Chinese
story of human development.
As always, we welcome all feedback.
Kobus van der Wath

Founder / Group Managing Director, Axis Group International & The Beijing Axis
kobus@thebeijingaxis.com

With a GDP of USD 11.2tn in 2016, China accounted for 15% of the world
economy, and 38% of developing markets – China, India and Indonesia
accounted for 49% of all developing markets in the same year
USD 75.3 tn USD 75.3 tn USD 29.2 tn USD 11.06 USD 11.2 tn USD 11.2 tn USD 11.2 tn
100% tn
Net Exports Northwest
90% Northeast
Other Other Tertiary
Others
Developed Developing Southwest Industry
80% Others
Countries Countries
70% Africa Final North

Canada Consumption
Brazil
60% Italy Expenditure
India Africa Fujian
France Other Central Hunan
U.K.
50% Germany Developed
Developing Asia
Indonesia
South Hebei
Hubei
Asia1 India
Japan Sichuan
40%
Henan
Secondary
China Other Zhejiang
30% Industry
Developing Gross
Countries Capital Shandong
20% Formation
Africa East Jiangsu
China
10% US
Primary
China Guangdong
Industry
0%
World GDP in 2016 World GDP in 2016 GDP in Developing China GDP in 2015² China GDP China GDP China GDP
Countries 2016 in 2016 in 2016 in 2016
Note: 1. Developed Asia includes Australia, Japan, South Korea, Singapore, Macao and Hong Kong
2. Breakdown data of China GDP in 2016 is not available
Source: IMF; National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 4
Emerging and Developing Asia accounted for around 21% of global GDP in
2015 – set to have its share increase to 23% by 2018
Note: refers to 2015 data
refers to forecasted 2018 data

Regional GDP Comparison (2015, 2018F)
Average GDP Growth Rate (12-15, 15-18F) A bubble of this size represent USD 5,000 bn
9%
2015 GDP 2015 GDP per 2018F GDP per
BRICS
Growth Rate (%) Capita (USD) Capita (USD bn)
8% 4,408
China 6.9 8,141 9,767
Others Brazil -3.8 8,670 9,699
3,486
7% Russia -3.7 9,243 10,681 15,754
India 7.6 1,604 2,005 19,363
Sub-Saharan Africa
S. Africa 1.3 5,723 5,167
6%
Emerging and 21,559
Middle East and Developing Asia
5%
North Africa
4% 8,717 25,150
1,504
North America
2,075 3,249
3% 1,895 2,843
1,555 Latin America Forecasted average
and Caribbean global GDP growth 17,559
2% Oceania (2015-2018): 3.3%
Developed Asia
1% 5,118 16,300
5,548 European Union
0%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28%
-1% 7,719 Share of Global GDP (2015, 2018F)
Note: Others includes the CIS countries
Source: IMF; The Beijing Axis Analysis The Beijing Axis 5
The Asia Pacific region is large and diverse, and consists of countries at
different stages of development
Tier 1: Emerging Markets Tier 2: Developing Markets Tier 3: Developed Markets
GDP Per- GDP Per- GDP Per-

GDP 2016 Population GDP 2016 Population GDP 2016 Population
Capita 2015 Capita 2015 Capita
(USD bn) 2015 (mn) (USD bn) 2015 (mn) (USD bn) 2015 (mn)
(USD) (USD) 2015 (USD)
Pakistan 284 1,428 189 China 11,218 8,141 1,376 Japan 4,939 32,479 127
Bangladesh 228 1,292 161 India 2,256 1,604 1,311 S. Korea 1,411 27,222 50
Sri Lanka 83 3,849 21 Indonesia 932 3,362 258 Australia 1,229 51,181 24
Myanmar 66 1,292 54 Thailand 407 5,742 68 Taiwan 528 22,263 23
Nepal 21 748 29 Malaysia 296 9,500 30 Hong
321 42,295 7
Cambodia 19 1,144 16 Philippines 305 2,863 101 Kong
Papua New Vietnam 201 2,088 93 Singapore 297 52,888 6
20 2,745 8
Guinea Total 15,615 4,723 3,237 New
181 37,066 5
Laos 14 1,787 7 Zealand
Brunei 11 30,993 0.4 Total 8,906 33,157 242
Mongolia
Mongolia 11 3,946 3
Japan
Timor-Leste 3 2,874 1 China
Bhutan 2 2,591 1 S. Korea GDP per capita data is calculated
Pakistan
Total 762 1,479 490 Bhutan by using total GDP and total
Taiwan population
India Myanmar HK
Bangladesh Laos
Thailand Vietnam
Total Asia Pacific GDP (2016) – USD 25,283 bn Cambodia Philippines
Asia Pacific’s Share of World GDP in 2016 – ~33.6% Brunei
Sri Lanka Malaysia
Asia Pacific’s Share of World Population in 2015 – ~54% Singapore
Indonesia Papua New Guinea
Timor-Leste
Australia
Note: GDP 2016 data is based on IMF estimation

Source: IMF; Various; The Beijing Axis Analysis The Beijing Axis 6
As the largest economy in Asia Pacific, China is playing a critical role in the
region’s ongoing transformation
Comparison of GDP Size, GDP per Capita and GDP Growth across Asian Economies
GDP per Capita (USD, 2016) Bubble Size: GDP = USD 2,000 bn
60,000
Singapore
Australia
50,000
Japan
40,000 Hong Kong
30,000
South Korea
China
Taiwan Myanmar
20,000 Brunei Indonesia Sri Lanka
Thailand Vietnam Mongolia
Malaysia
10,000 Nepal
Cambodia India
0
-1% 1% 3% 5% 7% Laos 9%
Pakistan Philippines Bangladesh Average Annual GDP Growth (2006-2016)
Note: Timor-Leste, Bhutan, and Papua New Guinea’s GDP are too small to appear
Source: World Bank; The Beijing Axis Analysis The Beijing Axis 7
China’s rapid economic growth has increased the country’s share of global GDP
from 2% in 1990, to 15% in 2015 and 2016
GDP Growth Rate (Annual Y-o-Y%, 1990-2016E) Global GDP Breakdown (1990-2016E)
16 % 1990 1995 2000 2005 2010 2015 2016E

China
Dev. Asia World GDP (USD tn) 23.4 30.9 33.7 47.3 65.6 73.6 75.3
12
World GDP 100% 100% 100% 100% 100% 100% 100%
Africa
8 Developed 80% 81% 80% 76% 66% 61% 57%
US 26% 25% 31% 28% 23% 25% 25%
4 Euro Area 26% 24% 20% 22% 19% 15% 21%
Japan 14% 17% 14% 10% 8% 6% 7%

LatAm World.
Other Developed 14% 15% 15% 16% 14% 15% 5%
0
Developing 20% 19% 20% 24% 34% 39% 43%
Developed
China 2% 2% 4% 5% 9% 15% 15%
-4 World
1992 1996 2000 2004 2008 2012 2016E LatAm 5% 6% 7% 6% 8% 7% 7%
World China Developed World Africa 1% 1% 1% 2% 2% 2% 3%
Developing Asia LatAm Africa
Other Developing 12% 9% 8% 11% 15% 15% 18%
Note: 2016 numbers are based on the IMF’s estimated data

Source: IMF; Various; The Beijing Axis Analysis The Beijing Axis 8
Over the last decade, China has been an increasingly major contributor to the
world economy, typically accounting for 35% of total global GDP growth
Contribution to World GDP growth, percentage points

Contribution to world GDP China US EU Other BRICS All other countries
6.00
growth as percentage points
from the different regions adds
5.00 up to the world growth rate in
any given year
World Total, % increase on a year earlier
4.00
3.22%
3.00 3%
0.99
2.00 0.27
0.39
0.41
1.00
1.15
0.00
Financial crisis in the US and In 2015, China contributed 1.15

-1.00 some EU countries led to overall percentage point to world GDP
global GDP decrease in 2009 growth, which accounts for 35%
of total 3.22% GDP growth
-2.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: Calculation through weighted GDP at purchasing-power parity
China’s economy continued to moderate in 2016, in line with its ‘new normal’
- GDP growth for the year stood at 6.7%
Components of China’s GDP (2010-2016) China GDP Breakdown, Expenditure Approach

(2010-2016)
RMB tn RMB tn
75 75
70 70 3.5%
65 25% 65 2.7%
19.4%
60 19.9% 60 2.4%
55 17.7% 6% 6.5% 55 2.7% 45.7%
50 17.1% 6.4%
8.4% 8.4%
50 2.4% 50.9%
6% 7.8%
45 16.5%
5.8% 6.9% 45 47.4% Annual GDP
40 5.8% 6.5% 15.9% 11.3% 40 3.6% 47.2% in 2016 was
16.6% 17.1%
6.3% 15.5% 47.7% 74.4 tn RMB
35 5.7% 15.4% 6.7% 35
6.2% 15.2% 7.5% 6.8%
30 6.8%
6.9% 30 47.6%
15.1% 6.7%
25 25
6.6%
20 34.3% 33.3% 20 52.4%
37.4% 39.3% 55.2%
15 39.9% 38.7% 15 50.2% 50.5%
40% 49.3%
10 10 48.2%
5 9.6% 10.1% 9.2% 8.9% 5
9.8% 9.7% 9.7%
0 0
2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016
Agriculture, forestry and fishing Industry, including energy
Final consumption expenditure Gross capital formation
Construction Trade, repair, catering, etc.
Financial and insurance activities Real estate activities
External balance of goods and services
Other service activities
Source: OECD; National Statistics Bureau; The Beijing Axis Analysis The Beijing Axis 10
Setting the scene
• Although China is in a long term structural adjustment phase towards lower GDP growth it maintains world-leading growth levels
and China is currently still the single largest contributor to global economic growth
• Drastic policy and reform measures are being undertaken to ensure that China’s long-term growth is sustainable
• Increased outward investment – despite the recent curbs on OFDI - and growing domestic demand are hallmarks of China’s
new economic growth model. We interrogate aspects of these developments in our special feature
• Indeed, for the last 30 years, China has traditionally been a net importer of FDI, with the country being a highly attractive
investment destination since the mid 1990’s. However, recent years have seen China evolve into a major net global investor
• China’s new role as a global investor is characterized by a surge in outward M&A activity, with traditional ‘old economy’ deals
being overshadowed by emerging ‘new economy’ outbound deals, as Chinese companies recognize the need to invest in
foreign technology and expand their market reach
• China is the world’s largest exporter, and ranks only behind the US as the largest importer. China’s position as a trade
behemoth, and its favourable trade surplus, also give it the necessary economic clout to make valuable overseas investments
• Despite China’s diminished demographic dividend, the rising size and wealth of the Chinese middle class is causing domestic
demand to rise dramatically. As this domestic demand increases, so too does the demand for foreign imports
• In the next section, we provide an overview that illustrates China going global in the context of its OFDI, international trade and
establishment of a New Silk Road – the latter being testament to the increasing prominence of Chinese institutions in the global
arena
Source: The Beijing Axis Analysis The Beijing Axis 11

Agenda
1. Foreword
– China’s Outbound FDI and M&A: Growth, Trends and Distribution
– Exports, Imports and Trade Partners
– Belt and Road Initiative
– Upshot

Between 2000 and 2016, the pace of China’s OFDI growth has been
significantly faster than the rest of the world, reaching an historic high of
USD 183 bn in 2016
OFDI Flows by Selected Regions (USD bn, 2000-2016)
US (LHS) Japan (LHS) China (LHS) World (RHS) EU (RHS) Region CAGR 2000-2016
1,400 2,500
World 1%
Thousands
2007: Beginning of the global financial
crisis. China responded by launching a EU -3%
1,200 stimulus package, increasing its OFDI
US 5%
2,000
Japan 10%
1,000
China 39%
1,500
800
China applied stricter requirements for

600 approving OFDI at the end of 2016 1,000
leading to a 46% fall in OFDI H1 2017
One-time tax provision – y-o-y. OFDI was USD 48.19bn for the
400 American Jobs Creation Act - period
2004
500
200
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: LHS refers to left axis, RHS refers to right axis

Source: UNCTAD; MOFCOM; The Beijing Axis Analysis The Beijing Axis 14
China’s share of global OFDI stock is increasing at a greater rate than its
share of global GDP, although its global OFDI stock is still low given its share
of global GDP
GDP (USD tn, 2000-2016) OFDI Stock (USD tn, 2000-2016)
80 Rest of the World 25 Rest of the World
75 US US
China China
70
65 20
China owned less than 5% of
60 the world’s foreign OFDI
stock in 2016, with the US
55 owning close to 25%
50
15
45
40
35
10 Global financial crisis creates
30
turbulence on global financial
25 market; assets are written
down
20
15 5
2015/6: The effect of state-
2016: China makes up 15% imposed capital restrictions
10
of global GDP, with the US starts to be apparent as OFDI
5 making up 25% growth loses steam
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: UNCTAD, The Beijing Axis Analysis The Beijing Axis 15

In 2016, China’s OFDI surpassed inward FDI for the first time in recent
history, reflecting a new role for China as a global investor. This trend is
expected to continue, despite the recent state-imposed restrictions on OFDI
China’s Inward and Outward FDI Flow (USD bn, China’s OFDI Stock and Flow (USD bn, 2005-2016)
2005-2016)
IFDI OFDI OFDI stock OFDI flow
200 1,400
2016 saw a record USD 183 bn in OFDI raising fears of
180 capital flight and a wave of irrational investments.
Stricter approval process was implemented at the end of 1,200
160 2016 to curb this
140 1,000
120
800
100 CAGR CAGR
19% 31%
600
80
60 400 OFDI Flow for H1
2017 was USD
48.19bn
40
200
20
0 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: Inward FDI refers to FDI that is coming into the country, while outward FDI refers to FDI that is going out of the country
Source: UNCTAD, MOFCOM, The Beijing Axis Analysis The Beijing Axis 16
China has become an important source of OFDI in the last decade, due to the
necessity to secure access to natural resources, enter new markets and acquire
advanced technology
World’s Top 20 Outward FDI Originators’ Flows China OFDI Stock and Flow (USD bn, 2005-2016)
(USD bn, 2001 & 2016) Flow Stock
0 25 50 75 100 125 150 175 200 0 25 50 75 100 125 150 175 200
1,400
US 124.9 US 299
UK China 183.1 1,200
France Netherlands
Netherlands Japan Chinese companies continue to expand
Germany Canada 1,000 their OFDI stock aggressively
Japan Hong Kong
Canada France
Spain Ireland 800
Singapore Spain
Switzerland Germany
Hong Kong Luxembourg 600
South Korea In 2016, China ranked 2rd
Italy
overall and 1st among all
Denmark Russia
developing economies in
Australia In 2001, Singapore OFDI, with total outbound 400
Finland China was Sweden investment reaching USD
Sweden ranked 17th Italy 183 bn
China 6.9 Finland 200
Portugal Belgium
Taiwan Taiwan
Mexico UAE 0
05 06 07 08 09 10 11 12 13 14 15 16
2001 2016
Note: 1. British Virgin Islands and Cayman Islands were omitted from the list because they are regarded as tax havens and financial channels
2. To make international comparisons, this slide utilizes China’s FDI and OFDI figures from the WIR 2016 instead of figures from MOFCOM
Source: WIR; UNCTAD; MOFCOM; The Beijing Axis Analysis The Beijing Axis 17
Asia had the largest share of China’s OFDI stock at the end of 2015, with HK
functioning as an offshore reinvestment financial center. Asia is an attractive
destination because of its geographical proximity and increasingly, its link with Belt-
and-Road
China’s Regional OFDI Stock by 2015 (USD bn) China’s Regional OFDI Flow in 2015 (USD bn)
Europe
1200 70% of China’s OFDI stock is in Asia, with USD 7.1bn
Rank Country Value
1,098* Hong Kong receiving over half of it, (4.9% of total) Rank Country Value
functioning as an offshore reinvestment 1 US 8.0
platform, whilst also providing business and Rank Country Value 1 Hong Kong 89.8
2 Canada 1.6
1000 financial services for Chinese enterprises 1 Netherlands 13.5 2 Singapore 10.4
North America 2 Russia 3.0 3 Indonesia 1.5
Top 3 Sectors: USD 10.7bn
800 Leasing & Business; (7.3% of total) 3 UK 1.8 China
Financial Services; Retail Asia
769 Latin America* USD 108.4bn
USD 12.6bn (74.4% of total)
600 (8.6% of total) Africa
Rank Country Value USD 3.0bn
(2% of total)
Top 3 Sectors: Top 3 Sectors: 1 Cayman Is. 10.2
Rank Country Value
Oceania
400 Leasing & Business; Mining; Construction; USD 3.9bn
2 BVI 1.8
Financial Services; Mining Manufacturing 1 Ghana 0.28 (2.7% of total)
Top 3 Sectors: 3 Venezuela 0.29 Rank Country Value
2 Kenya 0.28
126 Manufacturing; Top 3 Sectors: 1 Australia 3.4
200 Financial Services; Mining; Real Estate; 3 South Africa 0.23
Top 3 Sectors: 84 Leasing & Business Financial Services Focus Sectors: 2 New Zealand 0.35
Mining; Manufacturing; 52 Infrastructure;
Financial Services 35 32 116 Telecom/Information In 2015, total OFDI flows from Chinese enterprises to ‘Belt and
0 China’s total OFDI flow to Road Initiative’ countries reached USD 18.9bn, accounting for
World Asia Latin Europe North Africa Oceania Belt&Road the world: USD 145bn 13% of China’s total OFDI. The top 10 destinations were as
America* America* Countries follows: Singapore, Russia, Indonesia, UAE, India, Turkey,
WIR report data is USD 1,010bn 2015: WIR report data is USD Vietnam, Laos, Malaysia, and Cambodia
128 bn
Note: 1. Only MOFCOM’s data provides regional information, thus, MOFCOM sources have been instead of WIR
2. Based on MOFCOM’s statistics, Latin America* includes Mexico, whilst North America* only takes US, Canada, and Bermuda into account
Source: MOFCOM; The Beijing Axis Analysis The Beijing Axis 18
China’s OFDI flows are geographically diverse - in addition to Asia, China’s recent
attention has increasingly been concentrated in N. America and Europe, as
Chinese companies strive to acquire new technologies and enter new markets
China’s OFDI Flow to Each Region (USD bn, 2008-2015)

Asia
North America Europe 120 108.4
100 85.0
15 15 75.6
10.7 10.8 80 64.8
9.2 8.3
10 10 6.8 7.0 5.9 7.1 60 43.5 40.4 44.9 45.5
4.9 4.9 40
5 2.6 2.5 5 3.4
0.4 1.5 0.9 20
0 0 0
08 09 10 11 12 13 14 15 08 09 10 11 12 13 14 15 08 09 10 11 12 13 14 15
BVI, Cayman Islands and Mexico

are included in Latin America
Latin America Africa Oceania

14.4
15 11.9 12.6 15 15
10.5 10.5
10 7.3 10 10
6.2 5.5
3.7 4.4 3.9
5 5 3.2 2.5 3.4 3.2 3.0 5 3.2 2.2 3.5
1.4 2.1 1.9 2.4 1.7
0 0 0
08 09 10 11 12 13 14 15 08 09 10 11 12 13 14 15 08 09 10 11 12 13 14 15
Note: 70% of China’s OFDI stock is in Asia, with Hong Kong receiving over half of it and functioning as an offshore reinvestment platform
China has increased its OFDI in each sector during the last decade, with the
manufacturing sector having expanded significantly over the past 5 years
Sector Distribution of China’s OFDI Flow ( 2005/2010/2015, USD bn; H1 2016, % share)
0 1 2 3 4 5 0 2 4 6 8 10
2005 2010
Leasing and Business Services 30.3
Leasing and Business Services 4.94 Financial Services 8.6
Manufacturing 2.28 Wholesale and Retail Trade 6.7
Mining 5.7
Wholesale and Retail Trade 2.26 “Financial Services” Transportation, Storage and Postal Services 5.7
was not included Manufacturing 4.7
Mining 1.68 before 2006 Construction 1.6
Transportation, Storage and Postal Real Estate 1.6
Services 0.58 Scientific Research and Technical Services 1.0
Production and Supply of Electricity, Heat,… 1.0
Others 0.52 Agriculture, Forestry, Animal Husbandry… 0.5
Information Transmission, Software and… 0.5
2015 0 5 10 15 20 25 30
Others 0.8
Leasing and Business Services 36.3 0% 20% 40% 60% 80% 100%
Financial Services 24.3 H1 20161
Manufacturing 20.0 Leasing and Business Services 24.6%
Wholesale and Retail Trade 19.2
Mining 11.3
Real Estate 7.8
Manufacturing 19.8%
Information Transmission, Software… 6.8
Construction 3.7 Wholesale and Retail Trade 16.4%
Scientific Research and Technical… 3.4
Transportation, Storage and Postal… 2.7 Mining 4.7%
Agriculture, Forestry, Animal… 2.6
Production and Supply of Electricity,… 2.1 Others 34.5%
Others 5.6
Note: 1. Due to data availability, we only know the sector distribution for H1 2016
China’s OFDI growth is well above most countries but an unusually high
GFCF means OFDI as a percentage share of GFCF is low; but it is still
higher than most developing countries
Top 20 GDP Countries’ OFDI as a Percentage of Gross Fixed Capital Formation (%, 2016)
OFDI Growth
2005-2016 % -185% -216% 8% 28% -2% -7% 5% -214% -5% 11% -183% 3% 5% 11% -233% 0% -5% 9% -184% 31%
113.6
75
The Netherlands is a major conduit to
65 offshore tax havens resulting in an
unusually high OFDI to GFCF ratio
55
45
35
25
15
5
5
15
China
France
Germany
Italy
Turkey
Australia
Canada
India
Indonesia
Mexico
S. Korea
Netherlands
Saudi Arabia
Brazil
Spain
Japan
Switzerland
United Kingdom
United States
Russian
Note: GFCF = Gross fixed capital formation
Source: UNCTAD; The Beijing Axis Analysis The Beijing Axis 21
Chinese entities completed 54 transactions valued at more than USD 1bn in
2016 (1/3) There were 218 investment transactions worth more than USD 100mn in 2016, with 54 transactions larger than USD 1bn
No. Investor Value (USD bn) Share Size Transaction Party Date Country Sector
1 Tencent 8.60 84% Supercell Jun 2016 Finland Entertainment
2 HNA 6.50 25% Blackstone Oct 2016 US Tourism
3 HNA 6.00 100% Ingram Micro Feb 2016 US Technology
4 Anbang 5.72 Blackstone Mar 2016 US Tourism
5 Haier 5.40 General Electric Jan 2016 US Other
6 Midea 4.68 82% Kuka Aug 2016 Germany Technology
7 State Grid 4.49 55% CPFL Dec 2016 Brazil Energy
8 Shanghai Giant-led Consortium 4.40 Playtika Aug 2016 Israel Entertainment
9 Three Gorges 3.66 Jan 2016 Brazil Energy
10 Legendary Jan 2016
Dalian Wanda 3.50 100% US Entertainment
Entertainment
11 Zhuhai Seine Technology and Apr 2016
3.40 Lexmark US Technology
Legend
12 Jiangsu Shagang Led Consortium 2.96 49% Global Switch Dec 2016 UK Technology
13 CIC and Wise Road Capital 2.75 NXP Semi Jun 2016 Netherlands Technology
14 Oceanwide Holdings 2.70 100% Genworth Oct 2016 US Finance
15 China Molybdenum 2.65 56% Tenke Fungurume May 2016 DR Congo Metals
16 Zhuhai Zhenrong 2.10 70% Apr 2016 Myanmar Energy
17 Shandong Heavy 2.10 DH Services Jun 2016 Luxembourg Transport
18 HNA 2.01 100% Carlson Hotels Apr 2016 US Tourism
19 China Railway Engineering 1.97 Mar 2016 Malaysia Transport
Sub Total 73.58
Note: CGIT tracks the funds moving through HK to final destinations, thus, there is no HK as in MOFCOM’s data
Source: AEI China Global Investment Tracker; The Beijing Axis Analysis The Beijing Axis 22
20 CIC 1.78 11% National Grid Dec 2016 UK Energy
21 Ctrip 1.74 100% Skyscanner Nov 2016 UK Tourism
22 Dalian Wanda 1.73 50% Auchan Feb 2016 France Tourism
23 Beijing Enterprises 1.59 100% EEW Feb 2016 Germany Energy
China Energy Conservation, Jiangsu
24 1.57 ACS Sep 2016 Spain Utilities
Dadang, and China Tianying
25 Three Gorges 1.54 80% WindMW Jun 2016 Germany Energy
26 China Molybdenum 1.50 Anglo American Apr 2016 Brazil Chemicals
27 Shandong Ruyi 1.48 70% SMCP Mar 2016 France Other
28 CIC 1.46 20% Sep 2016 Australia Transport

29 CNPC 1.46 PDVSA Nov 2016 Venezuela Energy
30 HNA 1.44 100% Gategroup Apr 2016 Switzerland Transport
31 COSCO 1.44 49% Nidera Aug 2016 Netherlands Agriculture
32 China Communications Construction 1.43 Aug 2016 Sri Lanka Real Estate
33 Orient Securities 1.42 AppLovin Sep 2016 US Other
Adama Agricultural
34 Chem China 1.40 40% Jul 2016 Israel Agriculture
Solutions
35 Power Construction Corp 1.36 Apr 2016 Laos Energy
36 Fosun 1.26 86% Gland Pharma Jul 2016 India Technology
Sub Total 25.6
37 Dalian Wanda 1.21 100% Odeon and UCI Cinemas Jul 2016 UK Entertainment
38 HNA 1.20 Avolon Jan 2016 Ireland Transport
39 Three Gorges 1.20 Duke Oct 2016 Brazil Energy
40 Dalian Wanda 1.16 Jul 2016 US Entertainment
41 SAFE 1.15 10% Sibur Dec 2016 Russia Energy
42 Bank of China 1.14 30% Lundin Mining Nov 2016 DR Congo Metals
43 China Merchants 1.12 80% Dec 2016 Sri Lanka Transport
44 GNOOC 1.11 Dec 2016 Mexico Energy
45 Wuhan Kaidi Electric 1.10 100% Feb 2016 Finland Energy
46 Chinalco 1.10 47% Simandou Oct 2016 Guinea Metals
47 CIC 1.09 Petrobras Sep 2016 Brazil Energy
48 Beijing Enterprises 1.08 20% Verkhnechonskneftegaz Nov 2016 Russia Energy
49 CIC 1.03 45% Invesco Dec 2016 US Real Estate
50 CEFC 1.02 40% J&T Finance Mar 2016 Czech Republic Finance
51 Shandong Sun Paper 1.01 Apr 2016 US Other
52 ChemChina 1.00 100% KraussMaffei Jan 2016 Germany Real Estate
53 Alibaba 1.00 51% Lazada Apr 2016 Singapore Other
54 Didi Chuxing 1.00 2% Uber Global Aug 2016 US Transport
Sub Total 19.72
Total 118.9
the first half of 2017 There were 168 investment transactions worth more than USD 100mn in H1 2017, with 15 transactions larger than USD 1bn
1 ChemChina 41.19 95% Syngenta Jun 2017 Switzerland Agriculture
2 HNA 10.38 CIT Group Apr 2017 US Transport
3 Yankuang 2.69 Rio Tinto Jun 2017 Australia Energy
China Railway
4 2.56 70% Apr 2017 Laos Transport
Engineering
5 Tencent Holdings 1.78 5% Tesla Mar 2017 US Transport
6 CNPC 1.77 8% Feb 2017 UAE Energy
7 HNA 1.60 70% 245 Park Avenue May 2017 US Property
8 Nanjinzhao 1.50 Mar 2017 Peru Metals
9 State Power Investment 1.48 74% HUBCO Mar 2017 Pakistan Energy
10 HNA 1.43 17% Dufry Apr 2017 Switzerland Tourism
British Land and Oxford
11 CC Land 1.41 Mar 2017 UK Real Estate
Properties
12 HNA 1.36 5% Deutsche Bank May 2017 Germany Finance
13 Creat 1.31 Biotest Apr 2017 Germany Technology
14 BHR 1.14 14% Tenke Jan 2017 DRC Metals
15 Zhejiang Jinke 1.05 100 Outfit 7 Jan 2017 Slovenia Entertainment
Total 72.65
Note: CGIT tracks the funds moving through HK to final destinations, thus, there is no HK in MOFCOM’s data
China’s ‘Go Global’ strategy was initiated in 2000. However, its OFDI only started
increasing significantly after 2004, with the reformation of the investment system
Reform and Southern Three factors encouraging OFDI policies:
‘Go Global’ 1. The successful expansion of China’s exports
Opening Up SEZs
has been causing protectionist reactions in
• Establishment of The Notice about • Premier Zhu’s report to the NPC many host countries, which has lead many
Principles and The Scope of on the work of the government Chinese companies to move production
Authority for Examination and officially initiated the ‘Go Global’ overseas
Approval of Establishing Non- strategy 2. The large accumulation of foreign exchange
trading Enterprises in Foreign • 10th Five Year Plan (2001-2005) reserves
Countries, HK and Macao (1984) • 11th Five Year Plan (2006-2010) 3. Domestic cost increases
• Guidelines for Investments in
• Establishment of Interim Overseas Countries’ Industries
Regulations on the Administrative (MOFCOM, 2004) Another one of the
Measures and Procedures of ‘One Belt, One government’s recent aims
• Decision on Reforming the
Examinations and Approval of Investment System (State Road’ has been to create a better
Establishing Non-trading Council, 2004) balance between outward
Enterprises Abroad (1985) and inward FDI
1979 1992 2000 2010 2013 2015

Pre Phase Phase I Phase II Phase III
Restriction Standardization Building National Champions Expansion and “Go Global” Strategy
The Government has started

• No coherent • Supported projects were often monitoring and moderating capital
general targeted to certain industries and outflows more stringently
framework large SOEs. For example, light
• Overseas industry sectors such as textiles,
investment was machinery, and electrical equipment
In 2011, China raised the threshold for examination and approval of large
subject to case
overseas investment projects:
by case approval • Large SOEs’ encouragement of
The natural resources category was raised from USD 30mn to USD 300mn;
investment overseas was part of the
The ‘other’ category was raised from USD 10mn to USD 100mn
national strategy to nurture national
champions and gain global In the period leading up to the formulation of the 12th Five Year Plan, Chinese enterprises
competitiveness experienced some setbacks in making overseas investments, i.e. CNOOC’s failed acquisition of
UNOCAL in the US in 2005; Chinalco’s failed deal with Rio Tinto in Australia in 2009
Source: OECD China FDI Policy Reviews; The Beijing Axis Analysis The Beijing Axis 26
Long-term resource security concerns and the need for rapid adoption and
assimilation to the latest technologies have been driving forces behind
recent Chinese OFDI, over and above traditional market forces
Major Drivers of China Going Global
Drivers Overview
1
• Chinese economy going through transition from export-driven, low to medium-end manufacturing to high-tech manufacturing
Technology • Acquiring or merging with selected foreign companies provides a way to enhance internal technological capabilities
2
• The Chinese economy is entering the ‘new normal’ phase as the economy slows down amidst a global economic slowdown
Economy • Chinese companies are turning to both domestic and outbound M&A as a means of boosting slowing domestic growth
3
• In China, many crucial resources are scarce due to demographic and geographical reasons
Resources • China is securing resource assets through long-term loan provisions, as well as by requiring raw resource collateral
4
• As China’s economy has grown, the base of large companies and private/institutional investors has also grown
Market
• Recent wave of consolidation among small and medium-scale Chinese companies is also contributing to international buying
5 • The PBOC has sought to stimulate the economy by reducing domestic banks’ reserve requirement ratio from 20% to 17%
Financing • The benchmark interest rate has also been reduced to 4.35%, which has facilitated looser credit, creating new Chinese
investors, and enabling incumbents to diversify their assets
6 • A range of initiatives and policies have been introduced which aim to support both domestic and foreign investment
Geopolitical • The One Belt, One Road initiative, which aims at infrastructure investments on the silk route, as well as Made in China
2025, aimed at high-tech manufacturing, are both such policies
Source: Various; The Beijing Axis Analysis The Beijing Axis 27

Asymmetry in market access, technology absorption, national security
concerns, and a lack of experience are some of the largest barriers to
Chinese OFDI
Obstacles for Chinese Investment Going Global

National Security Technology Transfer
• Foreign ownership of assets gives foreign firms the opportunity • Large concerns over Chinese acquisitions wherein
to deny the provision of a country’s critical goods and services technological know-how is transferred from one country’s
• Investment can provide foreign interests with additional companies to another country’s companies, often causing the
channels for infiltration and sabotage of critical infrastructure company to forego its advantage and competitiveness
Non-Market Advantages & Subsidies Asymmetry in Market Access

• Access to preferential loans or political privileges help certain • China’s FDI restrictiveness level is very high, i.e. it is very
countries win the bid for a global asset, as opposed to merit difficult for foreign firms to invest in certain industries in China
• Foreign companies may find it difficult to compete with unfairly • Chinese firms can enjoy the benefit of investing in European
bolstered Chinese companies in their home countries markets, whilst foreign companies cannot do likewise in China
Experience Diminishing Regulatory Standards

• Chinese firms typically have little experience in dealing with • Developing countries like China do not operate in institutional /
western firms, particularly wrt culture, deal making, etc. regulatory environments akin to those of developed countries
• Chinese companies also have very little experience in • ‘Bad practices’ in environmental, labour and other standards
investing in the developed countries of N. America & Europe being exported would likely propel a ‘race to the bottom’
Source: Mercator Institute for China Studies; Rhodium Group; The Beijing Axis Analysis The Beijing Axis 28
China’s composition of Greenfield and M&A deal values have been similar
over the last decade, with the number of Greenfield deals slightly exceeding
those of M&A deals
Greenfield and M&A Value1 (USD bn, 2005-2016)

250 700
Value of Greenfield Projects (left axis) Value of M&A Deals (left axis)
Number of Greenfield Projects (right axis) Number of M&A Deals (right axis)
600
200
500
150
400
300
100
200
50
100
0 -
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: 1. Deals with China as purchaser and reporting coutry
Source: UNCTAD; The Beijing Axis Analysis The Beijing Axis 29
China has increased its M&A deals in developed regions such as N. America
and Europe in search of leading technologies and developed markets
Distribution of Chinese Enterprises Cross-border M&A (USD bn, 2011 vs. 2015) Top Receivers of Chinese Outbound
M&A Transactions
(Number of Deals, 2015)
Country/ No. of
Europe Rank
Region Deals
52 1 US 113
26
2 Australia 42
North America 3 S. Korea 38

2011 2015
4 Germany 26
27.5 Asia
11.6 19 5 Taiwan 24
7.8
2011 2015 Top Receivers of Chinese Outbound
M&A Transactions
2011 2015 (Disclosed Value, 2015)
Africa Country/ Value
Rank
5.4 Region (USD bn)
South America 0.7
1 US 14.4
Oceania
7.4 2011 2015 8.5 2 Italy 10.6
7.7
1.4 End of commodity super-cycle largely
3 Australia 8.4
driven by China led to a drop in
investments in resource rich regions
2011 2015 4 Ireland 7.5
2011 2015
such as Africa and South America 5 Taiwan 5.9
Source: Mergermarket; MOFCOM; UNCTAD; The Beijing Axis Analysis The Beijing Axis 30
Most Chinese overseas M&A deals are concentrated in developed regions
such as Europe and North America in search of advanced technology and
Asia because of its importance to Belt and Road
China-Initiated Overseas M&A Deals, by Number of China Outbound M&A Deals, by Number of Deals
Deals (2006-2011) (2016)
Australia Africa Asia North Anerica South America Europe

Europe Latin America North America Africa Russia Asia
Oceania
8%
20% 23%
29%
24%
10% 8%
2%
4%
1%
15%
24%
32%
Source: Chinese Statistical Bulletin of OFDI; Xinhua; Thomson Reuters, China Venture and The Beijing Axis Analysis The Beijing Axis 31
Over the last 10 years, deal-making in traditional industries like mining have slowed
down, whilst the chemical and logistics industries have recently seen large activity
as Chinese companies look internationally for new technologies
Annual Chinese Outbound ‘Old Economy’ Deal Value (USD bn, 2006-2016)
47.6
35
2006-2016
30 Cumulative
Total (USD)
25 Trad. Energy 148.4 bn

Mining 73.6 bn
Chemicals 56.7 bn
20
Utilities 43.1 bn
Logistics 30.2 bn
15 Home/Office Products 13.8 bn
Manufacturing 13.3 bn
10 Construction 13.1 bn
Agriculture 8.1 bn
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Bloomberg; The Beijing Axis Analysis The Beijing Axis 32

A selection of ‘new economy’ industries such as finance, IT and property
have seen a surge in investment levels, as Chinese companies look to
develop their own internal capacities in line with leading international firms
Annual Chinese Outbound ‘New Economy’ Deal Value (USD bn, 2006-2016)
2006-2016
35
Cumulative
Total (USD)
30 Finance 90.5 bn
Property 57.2 bn
25 Internet/Software 43.5 bn
Environment/New Energy 24.1 bn
Automotive 18.9 bn
20
Entertainment 16.2 bn
Semiconductors 12.9 bn
15 Food/Bev. 12.2 bn
Commercial Services 11.3 bn
10 Telecom 10.4 bn
Media/Ads 7.5 bn
5 Aviation 5.9 bn
Electronics 5.7 bn
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

The nature of China’s outbound M&A looks almost completely different from
what it was ten years ago, with retail, TMT and industrials being the largest
growing sectors
China Outbound M&A by Average Target Sector China Outbound M&A by Target Sector Split (USD
Split (USD bn, %, 2005-2010) bn, %, April 2015-April 2016)
Energy Industrials TMT¹ Retail FIG² Energy Industrials TMT¹ Retail FIG² Real Estate
In terms of China
outbound M&A, the
4% 10%
18% 6% energy sector has
lost significant
12% ground to the TMT
2% and FIG sectors over
1% the last 6 years
54%
18%
26% 50%
Note: 1. TMT refers to Technology, Media and Telecommunications

2. FIG refers to Financial Institutions Group
3. Only includes deals of over USD 10 mn in value
Source: Dealogic (M&A Manager); The Beijing Axis Analysis The Beijing Axis 34
China has the world’s largest trade surplus valued at over USD 509 bn in 2016,
far outpacing all developed countries. The US has the worlds largest trade deficit
OFDI Stock1 vs. Trade Balance of Selected Countries (USD bn, 2016)
OFDI Stock (USD bn)
Bubble Size: GDP = USD 5,000 bn
2,500
6,000
US
In 2016, the US had a trade

2,000 deficit of USD 797 bn trade
deficit, and an OFDI stock
level of USD 6 384 bn
UK Japan
1,500 Germany China
Canada
France
Netherlands
1,000 Switzerland
Australia Italy
500
Spain Russia
Saudi Arabia
Mexico
Brazil
India S. Korea
0 Turkey Indonesia
-550
-800 -500 -450 -400 -350 -300 -250 -200 -150 -100 -50 0 50 100 150 200 250 300 350 400 450 500 550
Trade Deficit (USD bn) China Developed Asia Others Trade Surplus (USD bn)
Note: 1. This refers to the accumulated OFDI stock of these selected countries, as measured in 2016; Netherlands and Saudi Arabia 2015 data was used due to data unavailability
Source: World Bank; UNCTAD; The Beijing Axis Analysis The Beijing Axis 35
Despite China being the world’s largest exporter, China’s OFDI stock still ranks
behind a number of countries
OFDI Stock1 vs. Exports of Selected Countries (USD bn, 2016)
Exports (USD bn)
2,500
China
2,000 US OFDI stock

was USD 6,384 bn
in 2016
US
1,500
Germany
1,000
Saudi Arabia Japan
Netherlands
S. Korea Italy France
500 Mexico Canada
Spain UK
Indonesia India Switzerland
Russia Australia
Turkey Brazil
0
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 6,000
2,000
China Developed Asia Others OFDI Stock (USD bn)
China is the worlds second largest importer and an important trade partner for a
number of countries
OFDI Stock1 vs. Imports of Selected Countries (USD bn, 2016)
Imports (USD bn)
3,000
US
2,500
2,000
China
US OFDI stock
was USD 6,384 bn
1,500 in 2016
Germany
1,000
Saudi Arabia UK
Netherlands France Japan
Mexico
S. Korea Italy
500 India
Spain Switzerland
Turkey Australia Canada
Brazil
Indonesia Russia
0
0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 6,000
2,000
China Developed Asia Others OFDI Stock (USD bn)
Various drivers are underpinning ‘China going global’
Geo-political Influence Domestic Economic Transformation

• China is expanding its strategic reach towards Central Asia, • China’s economy is transitioning from export-centric
Europe, Africa, and Latin America to grow its international manufacturing to being driven by technology, industrial know-
influence/role and maintain its access to resources how and domestic consumption
• With ‘the Belt and Road Initiative’ China is leading the way for • Chinese buyers need to enhance technological capabilities,
developing countries to grow their economies and participate in obtain high-value brands, and move upstream in the value chain
international trade • Chinese companies are looking to expand in foreign markets in
Scarcity of Raw Materials order to increase global market share
• Consolidation of small- and medium-sized enterprises China’s Broader Universe of Chinese Investors Overseas
• Domestic targets have been reduced Overseas • With the growth of China’s economy, and the increasing spread
• Increased domestic transaction costs Expansion of wealth across the economy, the number of Chinese investors
• Resource security leading to growing acquisition activity has increased
New Markets for Products, Services & Brands • This has allowed the proliferation of Chinese investors in both
• In addition to focusing on domestic consumption, Chinese the domestic and foreign markets
players have also shifted to high-growth emerging markets, Economic and Financial Environment
such as Africa and Latin America • Chinese companies have turned to both domestic and
• High-potential emerging markets provide opportunities for international markets in order to boost slowing organic growth
Chinese manufacturers to transfer domestic overcapacity • China is being faced with the challenge of containing a
• Chinese brands are becoming more reputable overseas depreciating currency

Resource security, a shift to high-end manufacturing, increases in production costs,
and the desire to expand and develop new global markets are the main reasons for
increased Chinese outbound investment – facilitated by recent regulatory easing
• Long-term resource security concerns and the need for rapid adoption and assimilation of the latest technologies have been driving forces behind recent
Chinese OFDI, over and above traditional market forces
• Recent years have seen an increasing net regulatory easing trend with regard to Chinese overseas investment, despite the pushback from the government over
the past few months – USD 75bn worth of outbound Chinese deals were said to have been cancelled in 2016, largely attributed to the Chinese Government not
providing the necessary approval
• In 2016, China’s OFDI reached USD 171bn, surpassing inward FDI for the first time, reflecting a new role for China as a global investor. This trend is expected
to continue, despite the recent state-imposed restrictions on OFDI
• Asia had the largest share of China’s OFDI stock at the end of 2015, with HK being an offshore reinvestment destination. Africa and other ‘Belt and Road’
countries have also been receiving significantly more OFDI flow from China recently
• China’s OFDI flows are geographically diversified - in addition to Asia, China’s recent attention has increasingly been concentrated in North America and Europe
• China has increased its OFDI in each sector during the last decade, with the manufacturing sector having expanded significantly over the past 5 years
• China’s high IFDI restrictiveness level creates asymmetry in market access, which together with the potential for unfairness wherein technology is transferred
from local to Chinese companies through acquisitions, creates barriers to Chinese OFDI
• In 2016, among all overseas investment deals by Chinese entities, 55 were worth over USD 1bn in value. China’s composition of Greenfield and M&A deal
values have been similar over the last decade, although the number of Greenfield deals exceed those of M&A deals
• Most Chinese overseas M&A deals are concentrated in Asia and Australia, with North America being the 3 rd most important M&A destination
• Over the last 10 years, deal-making in traditional industries like mining have slowed down, whilst the chemical and logistics industries have recently seen large
activity as Chinese companies look internationally for crucial new technologies
• A selection of ‘new economy’ industries such as finance, IT and property have seen new surges in investment levels, as Chinese companies look to develop
their own internal capacities in line with leading international firms, changing the nature of China’s outbound M&A profile

Agenda
1. Foreword
– Upshot

In 2016 China was the world’s largest exporter, with total exports of USD 2.1 tn,
making up 21% of its GDP
World’s Major Exporters (2016)

Once dependent on its
exports, China is seeing a Bubble Size: GDP = USD 2,000 bn
Exports (USD bn) shift towards domestic-driven
2,500 consumption
China
China overtook
China’s Exports (USD bn)
2,000
Germany to become 2002 326
the world’s largest
2007 1,218
exporter in 2010
1,500 2016 2,097
Germany CAGR (2002-2016) 13%
US France
1,000 China in 2002
Japan Italy Canada
500 UK S. Korea
Mexico Taiwan UAE
Belgium
India Spain Russia
0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Export/GDP (%)
China Developed Asia Others
Note: 2016 export data is based on CIA World Factbook estimations

Source: World Bank; IMF; UN Comtrade; China Customs; The Beijing Axis Analysis The Beijing Axis 41
In 2016 China was the 2nd largest importer after the USA, with imports of
USD 1.6 tn, equivalent to 13% of its GDP
World’s Major Importers (2016)
Imports (USD bn)

2,500
In 2002, the
USA US imports
2,000 China’s Imports (USD bn)
China joining the WTO in 2001 marked were six times
the beginning of its status as a major larger than 2002 244
player in the world trade market China’s 2007 956
China China
1,500 2016 1,587
CAGR (2002-2016) 13%
1,000 Germany
France
UK
Japan Canada
500 S. Korea Netherlands
India
Spain Mexico Taiwan
Italy Switzerland Belgium UAE
China in 2002
0
5 15 25 35 45 55 65 75
China Developing Asia Developed Asia Others

Imports/GDP (%)
Note: 2016 import data is based on CIA World Factbook estimations

Source: World Bank; IMF; China Customs; UN Comtrade; The Beijing Axis Analysis The Beijing Axis 42
In 2016, China’s trade deficits with import partners such as S. Korea, were
outweighed by the large trade surpluses that it ran with export partners like
the US
China’s Export/Import with Selected Countries (USD bn, 2016)
287 386
200
Export Import
150
100
50
The source is UN Comtrade,

-50 different data sources may show
different results
Trade Surplus
Trade Deficit
-100 271 252
Spain
Brazil
Canada
Russia
France
Argentina
Austria
UAE
Turkey
Iran
Poland
Italy
Sweden
Australia
Germany
S. Korea
Hong Kong
India
US
UK
Belgium
Thailand
Netherlands
Mexico
Indonesia
Nigeria
South Africa
Norway
Japan
Switzerland
Note: Imports reported by one country do not coincide with exports reported by its trading partner. Differences are due to various factors including valuation
Source: UN Comtrade, The Beijing Axis Analysis The Beijing Axis 43
China is a major trading partner for many countries and regions
Major Trade Partners for Key Countries; Trade Surplus/Deficit with China
Top Trade Partner Imports from and Exports to China Surplus or Deficit with China
#1 #2 #3 Deficit with Surplus with
Top 3 Trade Partners E.g. Imports from China Exports to China China China
USD bn
Russia
Canada
UK China, the US
438 Germany and Germany
are major trade
311 France
USA partners for
441 Spain Turkey Iran Japan many countries
China
177 Saudi Arabia
Europe &
Mexico Central Asia Italy 1004
South Korea
Egypt 771
North America Nigeria India
Colombia Indonesia
UAE Malaysia
Region China’s Rank
Brazil
as Trade Kenya
Partner 219
Chile 170 Australia
North America 1 South Africa
Argentina
Europe 2 131 Middle East Asia Pacific
104 & Africa
Africa 1
Latin America
South America 1 & Caribbean
Rest of Asia 1 New Zealand

Note: 1. Major trade partner data refers to the trade of goods i.e. merchandise exports/imports, and is the sum of exports and imports
2. 2015 data has been used, with 2014 data being used in instances where the latest data is not available
Source: UN Comtrade; UNCTAD; Various; The Beijing Axis Analysis The Beijing Axis 44
As China shifts towards high value-added exports, machinery and equipment are
accounting for an ever larger portion of its exports – over 50% of exports in 2016
China’s exports peaked in 2014 and

Composition of China’s Exports (USD bn, 2001-2016) have been declining ever since
however H1 2017 saw a 15 percent
CAGR 2001-2016 2016 Growth Category increase year-on-year reflecting
10% 32% Others government support and recovering
8% -3.0% Mineral Items global demand 2016 reflected
11% 5.1% Foodstuffs negative growth rate
2,400 16% -5.9% Chemicals and Related Products of 7.6% from 2015
15% -10.3% Products Classified by Material
13% -10% Miscellaneous Manufactured Articles
17% -7.1% Machinery and Equipment
1,800
15% -7.6% Total
1,200
600
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: Composition is according to the SITC Classification System

Source: China Customs; The Beijing Axis Analysis The Beijing Axis 45
In 2016, 46% of China’s total exports went to the US, Hong Kong, Japan,
South Korea and Germany. Export growth to the EU, US and especially
Japan has been sluggish amidst weaker demand
China’s Top Export Destinations (USD bn, 2016)
UK
2.7%
9
Netherlands 8 4 South Korea
Total Exports = USD 2,094 bn US 5 Germany
2.7% 4.5%
18.4% 1 3.1%
US 385 3 Japan
HK 288
Japan 129 6.2%
Korea 94 India 7 2
6
Germany 65 Vietnam Hong Kong
Vietnam 61 2.8%
India 58 2.9% 10 13.8% Hong Kong is a
Netherlands 57 trading hub for
UK 56 Singapore
Singapore 44 China and the
Over 68% of 2.1%
Taiwan 40 rest of Asia
Malaysia 38 China’s total
Russia 37 exports went to Top exported commodities:
Australia 37 the top 15 export
Thailand 37 • Electrical machinery, equipment and parts
partners
Indonesia 32 • Telecommunication, sound recording equipment
Philippines 30
Canada 27 and reproducing apparatus
Italy 26 • Automatic data processing machines and parts
France 25
As a manufacturing powerhouse, China relies heavily on imported products
such as machinery, chemicals and minerals. Domestic consumption and
China’s export strength are important drivers of these imports
Composition of China’s Imports (USD bn, 2001-2016)

CAGR 2001-2016 2016 Growth Category
China’s imports peaked in 2014 and
30% 28.8% Others have been declining ever since
16% -2.7% Foodstuffs however H1 2017 saw a 25.7
15% -6.5% Miscellaneous Manufactured Articles percent increase year-on-year
2,400 7% -8.6% Products Classified by Material signaling healthy domestic activity
11% -4.3% Chemicals and Related Products 2016 reflected a
15% -11.3% Mineral Items negative growth rate
1,800 18% -4.1% Crude Materials of 3.1% from 2015
14% -3.1% Total
1,200
600
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: SITC Classification System; Crude material: inedible, except fuels

In 2016, South Korea, Japan, Taiwan, the US and Germany were China’s
top sources of imports, accounting for about 57% of China’s total imports
Top Countries of Origin for China’s Imports (USD bn, 2016)

Machinery, technology,
consumer goods
Germany Japan
5.4% Vehicles,
Total Imports = USD 1,587 bn US
5
Machinery
9.2%
Machinery, vehicles,
Korea 159 8.5% 4 2 electronics
1
Japan 146 Thailand
Taiwai 139 South Korea 10%
2.4% 10
US 134 Brazil 3 Taiwan 8.8%
Germany 86 9
Vietnam Machinery,
Australia 71 2.9% 7
Malaysia 49 2.3% electronics
Brazil 46 8 Malaysia 3.1%
Thailand 39 6 Australia
Vietnam 37 4.4%
Russia 32 Iron ore, soybean,
Singapore 26 petroleum Petroleum, soft
commodities Iron ore,
South Africa 22
France coal
22
Indonesia 21 Top imported commodities
UK 19
Canada 18
Philippines 17 • Electrical machinery, equipment and parts
HK 17 • Mineral fuels, mineral oils and products of their distillation
Italy 17
• Metalliferrous ores and metal scrap
China’s trade with its four largest import partners differs between regions, with
electronics and machinery proving to be popular import categories throughout
South Korea’s Top 10 Exports to China (USD bn, 2016) Japan’s Top 10 Exports to China (USD bn, 2016)
0 5 10 15 0 5 10 15
Electronic Equipment 45.3 Electronic Equipment 23.7

Medical Equipment 16.6 Machinery 23.3
Machinery 13.9 Vehicles 11.3
Electronic equipment is
Organic Chemicals 10.2 Medical Equipment 10.0
the leading product
Plastics 9.0 Plastics 6.9
category across some of
Oil 5.0 China’s top import Live Plants 5.8
Vehicles 4.8 countries: S. Korea, Organic Chemicals 5.5
Iron and Steel 3.2 Japan and Taiwan. The Iron and Steel 4.7
Perfumes/Cosmetics 1.6 US is also one of China’s Copper 2.6
Inorganic Chemicals 1.6 top import sources for the Other Chemicals 1.7
same commodity
Taiwan’s Top 10 Exports to China (USD bn, 2016) USA’s Top 10 Exports to China (USD bn, 2016)
0 5 10 15 0 5 10 15
Electronic Equipment 33.4 Oil Seed 14.9

Medical Equipment 8.4 Aircraft & Spacecraft 14.6
Machinery 6.3 Electronic Equipment 12.4
Plastics 6.2 Machinery 11.4
Organic Chemicals 4.6 Vehicles 11.0
Copper 1.9 Medical Equipment 8.3
Iron and Steel 1.0 Plastics 4.9
Other Chemicals 0.9 Woodpulp 3.5
Glass 0.9 Mineral Fuels 2.7
Ores/Slag/Ash 0.8 Organic Chemicals 2.6
Note: Import breakdown split is based on UN Comtrade data, whereas 2016 trade figures used elsewhere in this publication are based on the latest China Customs data
Source: China Customs; International Trade Centre; UN Comtrade; The Beijing Axis Analysis The Beijing Axis 49
Germany’s Top 10 Exports to China (USD bn, 2016) Australia’s Top 10 Exports to China (USD bn, 2016)
0 5 10 15 0 5 10 15
Vehicles 23.2 Ores/Slag/Ash 35.2

Machinery 17.3 Mineral fuels 6.2
Electronics 12.6 Precious Metals 4.1
Medical Equipment 6.8 Germany’s trade surplus Wool 1.6
Aircraft/Spacecraft 4.8 with China is built on the Copper 1.2
Pharmaceuticals 2.6 basis of its strong Wood 0.9 Australia and
Plastics 2.5 manufacturing industry Meat 0.7 Brazil’s main
Iron and Steel 1.6 Other Food 0.6 exports to China
Organic Chemicals 1.1 Raw Hides 0.6 are from the
Meat 1.0 Pharmaceuticals 0.6 mining industry
Malaysia’s Top 10 Exports to China (USD bn, 2016) Brazil’s Top 10 Exports to China (USD bn, 2016)
0 5 10 15 0 5 10 15
Electronic Equipment 8.7 Oil Seed 14.4

Mineral Fuels 2.7 Ores/Slag/Ash 7.7
Machinery 2.3 Mineral Fuels 3.9
Fats and Oils 1.5 Woodpulp 2.2
Ores/Slag/Ash 1.2 Meat 1.8
Rubber 1.1 Sugar 0.8
Plastics 1.1 Machinery 0.6
Organic Chemicals 1.0 Raw Hides 0.6
Medical Equipment 0.7 Iron & Steel 0.5
Other Chemicals 0.5 Copper 0.4
Thailand’s Top 10 Exports to China (USD bn, 2016) Vietnam’s Top 10 Exports to China (USD bn, 2015)
0 5 10 15 0 5 10 15
Rubber 3.7 Electronic Equipment 3.0

Electronic Equipment 2.9 Oil 1.6
Machinery 2.8 Rubber 1.5
Plastics 2.6 Wood 1.2
Medical Equipment 1.7 Cereals 1.1
Wood 1.4 Cotton 1.0
Organic Chemicals 1.2 Machines, engines, pumps 0.8
Vegetables 1.1 Milling products 0.8
Mineral Fuels 0.9 Fruits, nuts 0.7
Vehicles 0.8 Fish 0.5
Russia’s Top 10 Exports to China (USD bn, 2016) Singapore’s Top 10 Exports to China (USD bn, 2016)
0 5 10 15 0 5 10 15
Mineral Fuels 17.9 Electronic equipment 18.9

Wood 2.6 Machinery 4.8
Machinery 1.2 Russia is one Plastics 4.1
Fish
of China’s key Mineral fuels
1.0 3.2
suppliers of
Ores/Slag/Ash 0.8 Medical, technical equipment 2.4
mineral fuels
Fertilizers 0.7 Organic chemicals 2.0
Woodpulp 0.7 Other chemical goods 1.2
Plants & Trees 0.7 Aircraft, spacecraft 0.9
Medical Equipment 0.2 Copper 0.6
Organic Chemicals 0.2 Perfumes, cosmetics 0.6
South Africa’s trade with China
South Africa’s Top 10 Exports to China (USD bn, 2016)

0 1 2 3 4 5
Ores, slag, ash 4.0 SA’s Exports to China mainly Raw Materials
Iron and steel 1.2
• China is South Africa’s largest trading partner making up over 8%
of South Africa’s total exports valued at USD5.8bn in 2015
Woodpulp 0.3
• Minerals and Metals with 60% and 18% respectively of total trade
Wool 0.2
value are the main export categories to China
Gems, precious metals 0.2 • A drop in commodity prices has led to a decrease in export
Copper 0.2 revenue between 2011 and 2015
Nickel 0.1 • Fuels, Stone and Glass, Wood and Vegetables all saw increases in
Mineral fuels 0.1 Export product share between 2011 and 2015
Raw hides 0.1
Fruits and nuts 0.1
South Africa’s Exports to China (USD bn, 2005-2015)

14 12.49
Growth Opportunities Exist in other areas
12.05 • China’s economy is restructuring towards a consumption driven
12 10.34 economy characterised by a burgeoning middle class with an
10 8.68 affinity for imported products and brands
8.10
8 • China’s Agricultural imports such as wheat, barley, soybean, beef,
5.67 5.80 wine, fruits and nuts are rising rapidly
6
• Protocols allowing SA beef into China were signed on February
4 2017; full access would hopefully follow soon
2 1.37 • High-end manufacturing is an area with significant potential
0 • Services, i.e. tourism, is another area to focus upon
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Note: Import breakdown split is based on UN Comtrade data; Where as the China Custom may report different numbers
Greater demand and better access for foreign producers has underpinned further
growth in China’s meat, fish, fruit and vegetable imports in recent years
China’s Annual Meat, Fish, Fruit, and Vegetable Imports (USD bn, 1996-2016)
USD bn USD bn
10 10
Meat Fish
8 8 6.92
6 CAGR 6 CAGR
16% 14%
4 4
2 2
0.60 0.60
0 0
1996 2001 2006 2011 2016 1996 2001 2006 2011 2016
10 10
8 8
Fruits Vegetables
5.86
6 6
4 4
CAGR 1.86
20% CAGR
2 2 18%
0.20 0.08
0 0
1996 2001 2006 2011 2016 1996 2001 2006 2011 2016
Note: HS code 02 has been used for meat imports; HS code 03 (fish, crustaceans, mollusks, aquatic, invertebrates) has been used for fish imports; HS code 08 (edible fruit) has been used for fruit
imports; HS code 07 (edible vegetables and certain roots and tubers) has been used for vegetable imports
Source: UN Comtrade; The Beijing Axis Analysis The Beijing Axis 53
In 2015, China was the largest trading partner for most continents – China’s
prominence as a world trader is rising
China’s Annual Trade: Brief Overview (USD, 2015)

• China is the • China’s exports • China’s trade • North America,
world’s largest are becoming balance with South America,
exporter of an increasingly other important Africa, and the
merchandise smaller part of global rest of Asia all
2.3tn goods 21% of its GDP 335bn economies is 5 have China as
• China’s export • This % is set to favourable their largest,
economy is remain fairly • In 2015, China and most
worth more constant or had the world’s important trade
China’s Total than the entire China’s decline, as China’s Trade largest trade # of Large partner
Exports GDP of India, Exports as % China’s Surplus with Top surplus, with Global Regions • China is a key
amongst others of GDP domestic 30 Economies* Germany also with China as cog in the world
manufacturing boasting a large trade machine
Largest Trading
capacity grows trade surplus
Partner
• The US, Hong • Machinery & • South Korea, • Large trends

Kong, Japan, Equip. made up the US, Taiwan, can also be
South Korea the largest Japan and seen in more
and Germany source of Germany granular data
50% represent half 1.1tn China’s exports 42% account for 42% 25% • It is common for
of China’s in 2015 of China’s CAGR in major
export value for – reflective of import value, food categories
goods China’s together to be in excess
% of China’s • This is China’s growing focus % of China’s • Despite the Average CAGR of 25% for the
Exports to indicative Machinery on high-tech Imports from concentration, for In-demand last 20 years –
of China’s machinery many countries examples
5 Countries Exports 5 Countries Food Imports
asymmetrical • This is the around the include meat,
export profile fastest growing world depend on fruit and
export category China’s imports vegetables
This refers to data for the period What opportunities does this represent to large and
Note: The world’s top 30 economies in 2015 are according to GDP ranking
between 2001 and 2015 small food players alike in resource-rich countries? The Beijing Axis 54
Source: The Beijing Axis Analysis
Agenda
1. Foreword
– Upshot

The Belt and Road Initiative has an impact on social, political and economic
relations - opens considerable potential in various areas of business
Footprint and Characteristics of Belt and Road Countries
Share of Global
Population China has also announced that the China-
63%
Pakistan Economic Corridor (CPEC) and the
Moscow Bangladesh–China–India–Myanmar Forum
for Regional Cooperation (BCIM) will be
Rotterdam
35% closely associated with the New Silk Road
Duisburg Almaty Khorgas
Share of
Global GDP Istanbul Blshkek Urumqi
Venice Beijing
Samarkand
Athens Lanzhou
Dushanbe Fuzhou
Tehran Xi’an
Beihai Quanzhou New Silk Road
30% Kolkata Hanoi
Share of Guangzhou • Trade between China and NSR to
Zhanjiang
China’s Trade Haikou surpass USD 2.5 tn in a decade
Colombo • >900 planned cooperation projects
Kuala Lumpur
with more than USD 890 bn in
Nairobi investments
25% Jakarta • 63% of the world population, 29%
Share of of the world GDP
China’s OFDI
Maritime Silk Road
Silk Road Economic Belt
Source: Reuters; Various; The Beijing Axis Analysis The Beijing Axis 56
China is pursuing an ambitious global strategy with various international
initiatives and fora launched around the world to serve its goals and objectives
Key Details for New Silk Road, AIIB, BRICS/NDB Bank & FOCAC
New Silk Road AIIB BRICS/NDB Bank FOCAC

Year
September 2013 March 2015 July 2014 October 2000
Founded
A suite of joint investment projects New Asian multilateral Five BRICS governments (Brazil, Conference established for
and regional trade blocs with the organisation in the ‘Asian century’, Russia, India, China and South strengthening cooperation
Type of
potential to bring economic growth initiated by China, but attracting Africa) have agreed to establish a between China and African states,
Organization
and stability to all countries most major powers worldwide, development bank and a currency and to seek common economic
involved incl. European ones reserve pool development
58 countries worldwide, including Brazil, Russia, India, China & China, 50 African states and the
Members 14 countries
numerous Western nations South Africa Commission of the African Union
- Asian countries seeking funds - Mobilisation of resources for

- Equal consultation
- Policy coordination for infrastructure development infrastructure and other
- Enhancing understanding,
Key - Infrastructure connectivity - China wishes to bridge that sustainable development.
- Expanding consensus,
Objectives - Unimpeded trade gap by investing its funds projects
- Strengthening friendship and
- Financial integration - Constructive agenda for co- - Currency pool to combat
- Promoting cooperation
operation (donors & recipients） currency crises

The Belt and Road Initiative is based on the principles of facilitating further
trade and greater connectivity between China and its trading partners
Increased Connectivity Uninterrupted Trade
• Improved trade linkages – • Incentives to encourage

roads, ports, railways, etc. trade, such as exploring
Major Pillars of the Belt and FTAs, reduced tariffs, etc.
Road Initiative
• Increased Chinese funding
and support for infrastructure • Easier access for Chinese
development companies to global trade
market
Financial Integration Policy Coordination Personal Relationship Dev.

• Growing use of RMB for • Deepening policy • Increased growth of
trade settlement coordination between China’s ‘soft power’
countries
• Increased economic policy • Growing cultural
cooperation • Push forward globalization cooperation and exchanges
Source: World Bank; UN Comtrade; HSBC; The Beijing Axis Analysis The Beijing Axis 58
The importance of the BRICS economies to the world has grown tremendously –
this trend is being supported by new institutions such as the BRICS bank
BRICS Share of the Global Economy (%, 2016) Top 15 Economies by GDP (1970-2050F)
Foreign # 1970 1980 19902 2000 2010 2015 2050F
Regions/ IFDI OFDI
Population GDP Currency Exports Imports
Countries Flow Flow 1 US US US US US US China
Reserves
2 Germany Japan Japan Japan China China US
Developed
14% 57% 28% 54% 57% 59% 72%
Economies 3 Japan Germany Germany Germany Japan Japan India
Developing
82% 41% 68% 43% 41% 37% 26% 4 France France France UK Germany Germany Japan
Economies
5 UK UK Italy France France UK Germany
BRICS 43% 23% 37% 17% 5% 16% 14%
6 Italy Italy UK China UK France UK
Brazil 3% 2.4% 3% 1% 0% 3.4% 0% China Canada Canada Italy
7 Brazil India Brazil
Russia 2% 1.7% 3% 2% 1% 2% 2% 8 Canada Brazil Spain Canada Italy Italy Mexico

9 India Spain Russia Brazil Canada Brazil France
India 18% 3.0% 3% 2% 1% 2.5% 0.4%
10 Brazil Mexico Brazil Mexico India Canada Canada
China 19% 15% 28% 12% 3% 7.7% 12.6% 11 Australia China China Spain Russia S. Korea Italy
12 Spain India India S. Korea Spain Russia Turkey
S. Africa 1% 0.4% 0% 0% 0% 0.1% 0.2%
13 Mexico Netherlands Australia India Australia Australia S. Korea
Transition
4% 2% 4% 3% 2% 4% 2% Saudi
Economies1 14 Sweden Netherlands Australia Mexico Spain Spain
Arabia
World 100% 100% 100% 100% 100% 100% 100% 15 Netherlands Australia S. Korea Netherlands Korea Mexico Russia
South Africa’s
N/A 44 41 33 29 32 35
Note: 1. A transition economy is defined as changing from a controlled economy to an open market Position
2. The former USSR is not included
Source: IMF; HSBC; World Bank; UNCTAD; The Beijing Axis Analysis The Beijing Axis 59
The large infrastructure requirement in Asia, coupled with the inability of Asian
countries to meet these requirements themselves, has driven the emergence of
the Asian Infrastructure Investment Bank(AIIB)
Key AIIB Facts Key reasons for the establishment of AIIB

1
USD 100 bn Agreed Founding Capital Emerging Asia requires USD 11 tn in infra investments
through to 2030 – few governments can fund this
2
58 Current Members Countries such as China can also provide engineering and
construction expertise
Asia’s Share of Founding 3

70%
Capital Demographic pressure in countries such as India and
Indonesia reduces the ability to spend on infrastructure
70% Share of Non-Chinese 4

Existing institutions such as the World Bank and ADB are
Employees
more focused on development rather than on infrastructure
RMB Settlement Currency for the 5

The AIIB will address this problem by using capital resources
AIIB
to focus on the implementation of infrastructure development
Source: Bloomberg; BNP; The Beijing Axis Analysis The Beijing Axis 60
The New Development Bank is an important tool for economic stabilisation
and infrastructure funding available to BRICS countries
Key Facts about the New Development Bank (NDB) NDB Currency Reserve Pool Contribution (%, 2015)
The NDB currency reserve

• Announced in July 2014 at 6th BRICS summit in Brazil pool, known as the Contingent
5% Reserve Arrangement (CRA),
• Headquartered in Shanghai will provide liquidity to
members in the event of crises
18%
• USD 50 bn in initial capital – equally funded by all members
41%
• New tool of stabilisation by BRICS countries and other
Total = USD 100 bn
developing economies
18%
• Long-term goal of fostering the growth potential of member
countries via infrastructure projects
• Provides an alternative to the USD by funding projects in 18%

other currencies
• Further reflection of the need for an alternative to the IMF China Brazil Russia India South Africa
and World Bank

FOCAC is a strategic mechanism for cooperation between China and Africa -
must be seen strategically in this horizon and beyond
Key Developments in Past FOCAC Forums Key Developments/Planned Agenda

Location
Beijing
- Adoption of Beijing Declaration of the FOCAC
2000 (1st Ministerial
- Exemption of RMB 10 bn of debts by China of heavily indebted countries
Conference)
- Establishment of the Human Resources Development Fund for Africa
Addis Ababa
2004 (2nd Ministerial - China pledged to train 10,000 African professionals in various fields
Conference) - Zero-tariff treatment of selected exports to China by some African countries
Beijing
2006 (3rd Ministerial - Measures to strengthen cooperation to support development in Africa, including increased
Conference) assistance, provision of preferential loans, establishment of the China-Africa Development
Fund, etc.
Sharm el-Sheikh
2009 (4th Ministerial - USD 10 bn committed towards measures covering, agriculture, environmental protection,
Conference) investment, market access expansion, etc.
Beijing - USD 20 bn to assist with infrastructure & agricultural development

2012 (5th Ministerial
- A series of new measures to support Africa's development in investment and financing,
Conference)
assistance, integration, non. govt. exchanges and security
Johannesburg - Infra development from AIIB and New Development Bank
2015 (6th Ministerial
- Improving Africa’s healthcare system – post Ebola
Conference)
- Increased focus on security, stabilisation and conflict resolution in Africa
Source: FOCAC; The Beijing Axis Analysis The Beijing Axis 62

China is using its economic and political muscle in order to extend its global reach
– the New Silk Road and its OBOR initiative are prime examples, as well as the
increasing prominence of BRICS and its related institutions
The New Silk Road
B&R AIIB BRICS FOCAC
• The Belt & Road (B&R) • The large infrastructure • The importance of the BRICS • FOCAC is a strategic
initiative opens considerable requirement in Asia, coupled economies to the world has mechanism for cooperation
potential in economic, political with many Asian countries’ grown tremendously – this between China and Africa -
and cultural areas inability to meet these trend is being supported by must be seen strategically in
• New trade routes are set to requirements, has driven the new institutions such as the this horizon and beyond
develop as a result of B&R, emergence of the AIIB BRICS Bank, known more • 2018 will see the 7th FOCAC
allowing China to expand its • In H1 2017, 20 new countries commonly as the New Summit, likely to be subject to
market reach and global gained membership to the Development Bank increased attention from the
foothold AIIB; in the first new • Institutions like the NDP West, along with China’s rise
onboarding since its inception challenge the traditional order as a superpower

Agenda
1. Foreword
– Upshot

China’s growing influence in the world economy is exemplified by its increased
investments across regions, dominance in world trade and championing of new
institutions
China’s Global Game: Emerging Trends and Takeaways
Emerging Trends Takeaways
• Resource security, a shift to high-end manufacturing, increases in • Resource security – certain commodities are more strategically
production costs, and the desire to expand and develop new global valuable to China, expect focused investment behaviour
markets are the main reasons for increased Chinese outbound • The shift to high-end manufacturing is causing a new wave of M&A
investment as well as in certain strategic greenfield investments in new
Capital
• Despite the fact that there has been some recent regulatory manufacturing hotspots as far afield as the US; focus on emerging
pushback from the government, the general long term trend has still technology and ‘new’ industries
been that of regulatory easing; expect this to continue further out • Chinese companies are investing overseas not only to absorb new
• Chinese cross-border M&A has also been increasing, with high-tech technologies, but to also enter and/or expand in new global
companies becoming a bigger focus as opposed to i.e. resources markets; expect substantial investment to create beach-heads
• China is the world’s largest exporter, and the world’s 2nd largest • Many countries the world over are reliant on China for affordable
importer, after the US imports, and are also becoming more reliant on China’s large
Trade • China is the largest trading partner by value for all of the world’s domestic demand for their own exports
major regions, with the exception of the European Union, where • China’s centrality to the world economy is becoming ever more
it is 2nd ostensible, with its status as a major trading partner to the world
• Machinery & equipment has been China’s fastest rising export • It is common for CAGR in major food import categories to be in
category, illustrating its dedication to moving up the value chain, excess of 25% for the last 20 years, e.g. meat, fruit and vegetables
to a manufacturer of high-tech machinery, etc – specific opportunities can be found in granular data
• China’s import market continues to grow and restructure
• In an ambitious effort to advance its development, influence and • Countries along the Belt and Road, have been receiving a larger
geo-strategic goals – and re-establish the traditional East-West portion of China’s OFDI, as their importance to China increases
Belt and Road
Silk Road - China has come out with a set of policies and • Belt and Road Forum hosted in Beijing showed global support for
investments coupled together under the banner of ‘Belt and the China led initiative
Road’, focussing on large infrastructure construction ventures • Political sensitivities and competing interests do play a role but
does to detract from overall commitment and momentum
Agenda
1. Foreword

– Selected Macroeconomic Indicators
– Domestic Consumption and Foreign Trade
– Domestic and Foreign Investment
– Financial Indicators
– Social Indicators

China continues to see slower growth – a ‘new’ growth trajectory is unfolding,
but does this represent ‘better’ growth?
Major Economic Indicators for China (2012-2016E)

GDP Growth Rate (%) GDP per Capita (USD) Net Exports (USD bn)
9% 8.4 10.4 11.2 12,000 1.35 1.37 1.38 600 2.7% 3.7% 4.8%
8%
8,000 400
7% 540
7.9% 4,000 7,719 8,261 200 382
6% 7.3% 6,329
6.7% 231
5% 0 0
2012 2014 2016 2012 2014 2016E 2012 2014 2015
X Represents GDP in USD tn X Represents Population in bn X% Net Exports as a % of GDP
Consumption (USD tn) Gross Investment (USD tn) Govt. Debt (USD tn)
8 50% 50% 52% 6 48% 47% 44% 6 37.4% 37% 46%
5
6
4 4
4 3
4.7 4.7 5.0 5.3
5.2 5.8 2 2
2 4.2 3.1 3.1
1
0 0 0
2012 2014 2015 2012 2014 2016E 2012 2014 2016E
X% Consumption as a % of GDP X% Investment as a % of GDP X% Govt. Debt as a % of GDP
Note: Estimates based on 2016 estimates by the IMF; Due to data availability, Net Export and Consumption do not have 2016E
Source: World Bank; IMF; Various; The Beijing Axis Analysis The Beijing Axis 68
Following years of rapid growth, China’s economy is beginning to moderate
as the country undergoes a structural transformation
Y-o-Y Change in China’s Major Economic Indicators (2000-2016)
GDP Y-o-Y % Export Y-o-Y % Import Y-o-Y %

Fixed Asset Investment Y-o-Y % Personal Consumption Expenditure Y-o-Y % Industrial Production Y-o-Y %
40%
30% China’s major economic

indicators are beginning
to moderate
20%
10%
0%
-10%
Decline in global trade
during financial crisis
-20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 69
China is slowing and the growth levers are changing - household consumption
growth is accelerating, while government consumption and capital formation
growth are slowing down
Annual GDP growth rate (%)
Contribution to GDP Growth (% points, 1997-2015)
9.2 7.8 7.6 8.4 8.3 9.1 10.0 10.1 11.3 12.7 14.2 9.6 9.2 10.4 9.3 7.7 7.7 7.3 6.9
8%
6%
4%
2%
0%
-2% Government stimulating

Net Exports of Goods and Services
household consumption as a
Gross Capital Formation
Household Consumption Expenditure means of driving GDP growth
-4%
Government Consumption Expenditure
-6%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Note: The four components of GDP by expenditure approach are final consumption expenditure (composed of household and government consumption), gross capital formation and net exports of goods
and services
Source: China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 70
High-value services such as finance and retail are replacing industry and
manufacturing as the primary drivers of China’s economy
China Share of GDP Growth by Sector (%, 2012- China Service Sector GDP Growth Rates (%, 2011-
2016) 2016)
7.7% 7.7% 7.3% 6.9% 6.7% Growth
Trend ‘16
100% 10% 20%
Policies to control the growth of credit and local
govt. debt have reduced the contribution of industry
– services are increasingly driving GDP growth
80% 38% 9%
15%
57%
60% 8%
10%
40% 7%
60%
38% 5%
20% 6%
0% 5% 0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016
Agriculture Industry Services Y-o-Y GDP Growth (RHS) Industrial Services Construction
Wholesale & Retail Transportation, Storage & Post
X% Annual GDP growth rate Finance Real Estate
Other Services
Source: World Bank; IMF; The Beijing Axis Analysis The Beijing Axis 71
China’s focus is shifting inward, away from the coast – Western provinces
are increasingly becoming major drivers of GDP growth
China’s Fastest Growing Provinces (Avg. Annual China’s Fastest Growing Provinces (Avg. Annual
GDP Growth Rate, 2006-2010) GDP Growth Rate, 2011-2015)
Jilin Xinjiang
Inner Mongolia 14.9% 10.8%
17.4%
4 10
1
7 Shaanxi
Liaoning
2 11.1% Tianjin
13.9% Qinghai 3
Shaanxi 10.8% 7 12.4%
Tianjin
14.6% 6
16.1%
5 4
Sichuan Sichuan 8 9 Anhui
13.7% 3 10 Hubei 1 10.8%
Tibet 10.8%
9 13.7%
11.7%
8 Hunan 2
13.9% 5 Guizhou
6 Yunnan 12.5%
Chongqing 11.1%
Guangxi
14.9% Chongqing
13.9%
12.8%
Megacities are on the rise in China – as new global business and consumption
hubs emerge, companies will have new markets to serve and will need to alter
their strategies accordingly
Major metropolises and large Tier
1 cities are still concentrated along
Population and Density of Chinese Megacities (2016) coastal areas in Eastern China –
expect this to shift westward
Region No. of Megacities In terms of global megacities, China dominates – Harbin 10.5
China 15 with increasing urbanisation, this trend of the 21.7 mn mn
development of megacities is set to continue Beijing
Rest of Asia 16
Africa 1
12.9 Xi’an Tianjin
Latin America 4 10.9
mn mn
North America 2 11.7 Jinan
mn 11 mn Changzhou
Europe 2
12.4
Middle East 1 19 mn
Wuhan Nanjing Shanghai mn
Total 41 24.3 mn
Chengdu 10.4 13.4
mn
Population mn mn
25 17 mn Shantou
Chongqing Guangzhou
12 Hangzhou
20 mn
15 12.1
10 29.7 mn mn
Shenzhen
Note: A ‘megacity’ is defined as a city with a population greater than 10 mn
Source: OECD; The Beijing Axis Analysis The Beijing Axis 73
China’s ongoing economic transition will entail more moderate growth –
capital formation will remain a key contributor, but consumption is likely to
play an increasingly bigger role
China’s Quarterly Y-o-Y GDP Growth Rate (%, 2011- Contribution to China’s GDP (% of Total, 1999-2016)
Q1 2017) Net Exports of Goods and Services
Policy easing to Gross Capital Formation (GCF)
provide room for Final Consumption Expenditure (FCE)
12 140%
growth moderation
2017 Q1 Y-o-Y Effect from stimulus
GDP growth 120%
package in 2009
rate was 6.9%
100% 3%
8 80%
44%
60%
40%
4 53%
20%
2011 Y-o-Y 2012 Y-o-Y 2013 Y-o-Y 2014 Y-o-Y 2015 Y-o-Y 0%
GDP: 9.5% GDP: 7.9% GDP: 7.8% GDP: 7.3% GDP: 6.9%
-20%
Falling net exports
0 -40% contribution
Q1 Q1 Q1 Q1 Q1 Q1 Q1 1999 2001 2003 2005 2007 2009 2011 2013 2015
2011 2012 2013 2014 2015 2016 2017
China’s GDP growth is expected to continue moderating, making it more
sustainable going into the future - GDP growth rates in recent years already
reflect this ‘new normal’
China’s Real Y-o-Y GDP Growth Rate (%, 1978-2018F)
16
Past periods of
Overheating More
overheating
concerns moderate
Soft landing and stable
12 7-10% GDP amid global growth rate
growth band uncertainty
7-8% GDP
growth band
4 6-7% GDP
growth
band
0
78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18F
Source: The World Bank; IMF: The Beijing Axis Analysis The Beijing Axis 75
Five coastal provinces account for about 40% of China’s total GDP, although
this share has started to decline as the output of other provinces increases
China’s GDP by Province (USD bn, 2016) Geographical Distribution of China’s GDP (USD bn,
2016)
0 400 800 1,200
1 Guangdong
2 Jiangsu
3 Shandong
4 Zhejiang
5 Henan
6 Sichuan Gansu
7 Hubei
8 Hebei
9 Hunan Top 5 provinces share 107.71 Shandong
10 Fujian of GDP amounts to
11 Shanghai 27 1,009.16
12 Beijing 39.5% of total GDP Ningxia
13 Anhui
14 Liaoning 29 47.44
Henan
15
16
Shaanxi
Inner Mongolia
30 Qinghai 3
604.82
17 Jiangxi
31 Tibet 38.74 5
Jiangsu
18 Guangxi
19 Tianjin 2
20 Chongqing 17.32 1,145.88
21 Heilongjiang
22 Jilin 4
23 Yunnan
24 Shanxi Zhejiang
25 Guizhou
26 Xinjiang 1
27 Gansu 700.08
28 Hainan
29 Ningxia
28
Guangdong
30 Qinghai
31 Tibet Top 5 Provinces by GDP Hainan 1,197.47
Highlighted on the RHS map Bottom 5 Provinces by GDP 60.91
Note: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and Shanghai
Tianjin, Beijing and Shanghai, three of the centrally-administered municipalities,
each have per capita incomes greater than USD 16,000
China’s GDP Per Capita by Province (USD ‘000, Geographical Distribution of China’s GDP Per Capita
2015) Thousands (2015)
0 5 10 15
1 Tianjin
2 Beijing
3 Shanghai
4 Jiangsu
5 Zhejiang
6 Inner Mongolia
7 Fujian
8 Guangdong
9 Liaoning
10 Shandong
11 Chongqing Beijing
12 Jilin
13 Hubei Shanxi 2
1 Tianjin
14 Shaanxi Gansu 27
15 Ningxia 31
16 Hunan China’s GDP per capita
17 Qinghai Jiangsu
18 Hainan reached USD 7,858 in 2015 28 Tibet 4
19 Hebei Shanghai
20 Xinjiang 3
Heilongjiang
21
22 Henan Guizhou 5 Zhejiang
23 Sichuan 29
24 Jiangxi
25 Anhui Yunnan 30
26 Guangxi
27 Shanxi
28 Tibet
29 Guizhou
30 Yunnan
31 Gansu Top 5 Provinces by GDP per capita
Highlighted on the map on right Bottom 5 Provinces by GDP per capita
Tianjin aside, the coastal regions are no longer China’s fastest growing regions –
reflective of the government’s growing emphasis on developing inland provinces
China’s GDP Growth Rate by Province (2016) Geographical Distribution of China’s GDP Growth Rate
(2016)
0% 3% 6% 9% 12%
1 Tibet
2 Guizhou
3 Chongqing
4 Shanghai Heilongjiang
5 Jiangxi 29
6 Fujian
7 Anhui
8 Hubei
9 Hainan Xinjiang 28
10
11
Guangdong
Guangxi
Inner 31
12 Sichuan 27 Mongolia Liaoning
13 Jiangsu
14 Henan Shanxi
15 Beijing Tibet 30
16 Yunnan
17 Zhejiang
18 Ningxia 1 Chongqing Jiangxi
19 Tianjin 5
20 Hunan 3 4 Shanghai
21 Hebei
22 Qinghai
23 Shandong 2 Guizhou
24 Shaanxi
25 Gansu
26 Jilin
27 Inner Mongolia
28 Xinjiang
29 Heilongjiang
30 Shanxi
31 Liaoning Top 5 Provinces by GDP growth
Highlighted on the map on right Bottom 5 Provinces by GDP growth
The tertiary sector has been the fastest growing sector in recent years,
becoming the largest contributor to China’s GDP in 2016
Composition of GDP by Sector (USD tn, 1997-2016)
Primary Sector Secondary Sector Tertiary Sector

12 CAGR (1997-2016)
9.3 %
CAGR
12.8 %
6 = 13.7%
3 16.1 %
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: The primary sector includes industries involved in the extraction and collection of natural resources. The secondary sector of an economy is dominated by the manufacturing of finished products
The tertiary industry is made up of companies that primarily earn revenue by providing intangible products and services
While China’s secondary sector has traditionally played the largest role in the
economy, the tertiary sector is now the largest contributor to the country’s GDP
Value-added Breakdown of Secondary Sector (USD Value-added Breakdown of Tertiary Sector (USD bn,
bn, 1997-2016) 1998-2016)
Industrial Sector Construction Sector Others
5,000 5,000 Real Estate
Financial Intermediation
Hostels and Catering Services
4,000 4,000 Wholesale and Retail Trades
Transport, Storage and Post
3,000 3,000
CAGR CAGR
= 13.7% = 17.4%
2,000 2,000
1,000 1,000
0 0
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Note: Others includes sectors such as Tourism, Education, Science and Technology, Telecom, Media, Public Health etc
Capital formation, which is primarily concentrated in China’s larger coastal
provinces, remains a large contributor to the economy - far surpassing the World
average
China’s Gross Capital Formation (2015)
A bubble this size represents 1% of total GDP
% of Provincial GDP
Northern Southwestern
140 Qinghai Provinces in central and western China Northeastern Northwestern
are very dependent on capital formation
Eastern Central
Ningxia
120 Southern
Xinjiang
Yunnan
100 Tibet
Jilin Henan
Guizhou Shanxi
80 Gansu Guangxi Inner Mongolia
Shandong
Fujian Hubei
60 Heilongjiang TianjinShaanxi
Chongqing Jiangsu
Hainan Jiangxi
Hebei Zhejiang
40 World avg. =
Beijing Anhui 23.75%
Hunan
Liaoning Guangdong
Shanghai Sichuan
20
0 50 100 150 200 250 300 350 400 450 500 550 600
Total Capital Formation (USD bn)
Source: World Bank; China Statistical Yearbook; The Beijing Axis Analysis The Beijing Axis 81
33% of final consumption in China is focused in just four coastal provinces,
with Guangdong as the outright leader
China’s Final Consumption (2015)

A bubble this size represents 1% of total
% of Provincial GDP final consumption
80 Tibet
Northern Southwestern
Northeastern Northwestern
Eastern Central
70 Gansu Southern
Qinghai Hainan Xinjiang Yunnan
Beijing
60 Heilongjiang Shanghai Guangdong
Guizhou Sichuan Henan
Ningxia
Guangxi
50 Anhui
Shanxi Hunan Zhejiang
Chongqing Jiangxi
Hubei
Shaanxi
Tianjin Liaoning Jiangsu
40 Shandong
Hebei
Jilin Fujian
Inner Mongolia
30
0 50 100 150 200 250 300 350 400 450 500 550 600
Total Final Consumption (USD bn)

Note: Final consumption includes both household consumption expenditure and government consumption expenditure
During the last decade, China’s industrial value-added output growth has
averaged 20% per year, although this growth has been affected by weak
overseas demand in recent years
Industrial Value Added Output (2000-2016)
USD bn %
4,000 Industrial Value Added Output Y-o-Y Growth Rate (RHS) 50
40
3,000
30
CAGR
= 19.8%
2,000 20
WTO accession on
11 December 2001
10
1,000
0
0 -10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
China’s consumer confidence has also remained high and stable, reflecting the
overall optimistic economic outlook generally shared by consumers
China’s Consumer Confidence Index (2012-May 2017)
The calculation of the CCI combines the

level of optimism that consumers have CCI over 100 indicates that
115
about their consumption intentions with consumers are optimistic
their expectations of living standards 113.4
110 112.6 112 110
108 108 111
106 109 109.2
105 105 106 107 108 104 106 108
104 105 104 104 104 107 107
105 106
105 105 104 103 105 106 106 106 105
104 102 104 104 104 104 104
104 103 103
103 103 103
102
101
100 99 99 100 101 101
100 100
99 98 99
98
95 97 97
85
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
May-12
May-13
May-14
May-15
May-16
May-17
Jan-12
Mar-12
Jan-13
Mar-13
Jan-14
Mar-14
Jan-15
Mar-15
Jan-16
Mar-16
Jan-17
Mar-17
Nov-14
Nov-12
Nov-13
Nov-15
Nov-16
Note: The consumer confidence index measures the level of optimism that consumers have about the performance of the economy
China’s annual inflation rate stood at 2.0% in 2016. Policymakers are likely to
continue their prudent monetary policy approach to keep the economy stable
Represents avg. annual consumer

X%
China’s Consumer Price Inflation (%, 2012-Apr 2017) price inflation for the year
2.7% 2.6% 2.0% 1.4% 2.0% 1.4%
5
General Rural Urban
Designated inflation target of 1.7% set

3 by the Chinese government for 2016
0
J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMA
2012 2013 2014 2015 2016 2017
China’s CPI hit a five-year low in January 2015, but has subsequently
increased throughout 2016. Actual inflation rates for 2016 were lower than
the year’s target of 3%
China’s Consumer Price Inflation Breakdown (%, 2013-Apr 2017)

General Food Tobacco, Liquor and Articles
Clothing Household Facilities and Articles Healthcare & Personal Articles
Transportation & Communication Recreation, Education, Culture Articles Residence
8
Food is an important driver, Seasonal peaks due to Chinese New Year holiday
with a weight of over 30%
6 of the total CPI As of 2016, the NBS has
merged Food and Tobacco
-2
-4
J FMAMJ J ASOND J FMAMJ J ASOND J FMAMJ J ASOND J FMAMJ J ASOND J FMA
2013 2014 2015 2016 2017
Note: The consumer price index (CPI) shows the change in prices of a standard package of goods and services which Chinese households purchase for consumption
Stymying inflation is no longer as key a concern for policymakers as it was
in the aftermath of the global financial crisis. Inflation has fallen steadily
since 2011, and appears to be leveling out
China’s Annual Consumer Price Inflation (%, 1997- Geographical Distribution of China’s Consumer Inflation
2016) (Y-o-Y, %, Apr 2017)
Doubling of M2
money supply Heilongjiang
6 0.3%
Overheating and Gansu 29
overinvestment Beijing 1.9%
0.4%
4 28
4
2 Tianjin 2.4%
31
2 Deflation and
overcapacity 5 Jiangsu 1.8%
Qinghai 30
0 Commodity and -0.2% 27 3

Zhejiang 1.9%
food price
pressure
Guizhou
-2 0.6% 1
Hainan Chongqing
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Provinces with Highest Inflation 2.8% 0.2%
Provinces with Lowest Inflation
Producer prices in China cooled after 8 consecutive months of increase, with
the PPI for March 2017 rising by 7.6%
Represents avg. annual producer

X%
price inflation for the year
China’s Producer Price Inflation (%, 2012-Apr 2017)
Avg. Producer
-1.7% -1.9% -1.9% -4.6% -1.3% 7.2%
Price Inflation
10 Deflation due to
depressed overseas
8 market demand and
sluggish domestic
6 manufacturing activity
4
2
0
-2
-4
-6
-8
2012 2013 2014 2015 2016 2017
China’s Producer Price Inflation for Mining and Quarrying moderated in March and
April on the back of lower commodity prices and industrial overcapacity. This has
negatively affected corporate profits in the mining sector whilst reducing inflationary
pressure
China’s Producer Price Inflation Breakdown by Industry (%, 2012-Apr 2017)
Mining & Quarrying Raw Materials Manufacturing Food

Clothing Articles for Daily Use Durable Consumer Goods
46
36
26
16
-4
-14
-24
2012 2013 2014 2015 2016 2017
China’s PPI has been making a recovery since September 2016 after 5 years
of continual decline
China’s Annual Producer Price Inflation (%, 1997- Geographical Distribution of China’s Producer Price
2016) Inflation (Y-o-Y, %, Apr 2017)
8 Beijing
Xinjiang Gansu Shanxi5.4%
6 14.9% 18.3% 18.0%
5
4 27 31 Jilin
2
29 3.0%
2
4 3
Inner Mongolia
0 6.4%
-2
30 Hebei 18.0%
Chongqing
-4 4.9%
28
-6 Yunnan 5.6%
-8 Hainan 19.5% 1
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Provinces with Lowest Producer Inflation
Provinces with Highest Producer Inflation
Source: National Bureau of Statistics; The Beijing Axis Analysis The Beijing Axis 90
China’s manufacturing sector has generally been expanding over the last few
years if PMI is used as a yardstick. In the face of low inflation, there have been
renewed calls for a more liberal credit policy as a means of boosting production
China’s Purchasing Managers’ Index of the Manufacturing Industry (2012 – May 2017)
Series1
60 2-month Moving Average
A reading above 50 reflects expansion;

below 50 reflects contraction
50
40
30
May-16
Mar-12
May-12
Mar-13
May-13
Mar-14
May-14
Mar-15
May-15
Mar-16
Mar-17
May-17
Sep-12
Nov-12
Sep-13
Nov-13
Sep-14
Nov-14
Sep-15
Nov-15
Sep-16
Nov-16
Jan-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-12
House prices in China’s major cities have increased through 2016, with the
exception of Shenzhen. Policymakers have eased restrictions on purchases
amidst concerns around slower economic growth
Sales Price Index of Residential Buildings in Sales Price Index of Residential Buildings in
Selected Cities (Y-o-Y, July 2012-Dec 2016) Selected Cities (M-o-M, July 2012-Dec 2016)
Beijing Tianjin Shanghai Beijing Tianjin Shanghai
Chongqing Guangzhou Shenzhen Chongqing Guangzhou Shenzhen
170 108
Shenzhen has the least Shenzhen has the least
160 restriction among the 107
restriction among the
six Tier-1 cities 106 six Tier-1 cities
150
105
140
104
130
103
120
102
110
101
100 100
90 99
80 98
J S N J MM J S N J MM J S N J MM J S N J MM J S N J S N J MM J S N J MM J S N J MM J S N J MM J S N
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
Note: Sales prices for residential buildings in each city in Jan 2012 are given a base value of 100
Internet penetration in China is rapidly rising, but is still very unevenly
distributed
With the increasing popularity of smartphones
and the further implementation of broadband
Internet Penetration in China (%, 2016) networks, regional differences in Internet
development in China will be further reduced
China’s overall Internet
penetration was at
53.1% as of Dec 2016 21 Despite significantly lower
Heilongjiang 48.1% internet penetration levels,
10 both China and India have
Ningxia 50.7% 19 more internet users than
Xinjiang 54.9% 15 Jilin 50.9% the USA does
7
30 Liaoning 62.6%
1 Beijing 77.8%
6 Tianjin 64.6%
Qinghai 54.5% 12 Hebei 53.3%
20 9 Shanxi 55.5%
22 11
14 13 Shandong 52.9%
Tibet 46.1% 28
Shaanxi Jiangsu 56.6%
Henan 8
52.4%
27 43.4% 26
Sichuan 43.6% 18 Anhui
2 Shanghai 74.1% Selected Countries’ Internet
17 44.3%
24 5 Zhejiang 65.6% Penetration (%, 2016*)
Chongqing 31 29 Hunan
Jiangxi 89 85
51.6% Guizhou 43.2% 44.4% 44.6% 4 53
25 35
Provinces with internet penetration above 50% Yunnan 39.9% 23 Fujian 69.7% 20
Guangxi
Provinces with internet penetration between 40-50% 46.1% 3
Provinces with internet penetration below 40% Guangdong 74.0%
Hubei 51.4%
Note: Internet penetration rate as of 31 December 2016 16 Hainan 51.6%
Source: China Internet Watch; China Internet Network Information Center; Various; The Beijing Axis Analysis The Beijing Axis 93
Agenda
1. Foreword


China’s growing retail sector is indicative of consumer confidence in the
economy. Urban areas still make up an overwhelmingly large part of retail
sales, despite rural retail sales now growing at a faster rate
China’s Annual Retail Sales and Growth Rate by Administrative Level (1978-2016)
USD bn¹ Retail Sales (Urban) Retail Sales (Suburban) Retail Sales (Rural) %
Urban Growth (RHS) Suburban Growth (RHS) Rural Growth (RHS)
6,000 40%
35%
5,000
30%
25%
4,000
20%
3,000 15%
10%
2,000
5%
0%
1,000
-5%
0 -10%
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Note: 1. Chinese Statistics Bureau has changed the structure of these figures since 2010. In the new category breakdown, urban includes suburban
2. Figures converted from RMB to USD using the average exchange rate for the respective years. The growth rate, however, does not factor in exchange rate fluctuations
Domestic consumption has increased in line with targets set within the 13th
Five-Year Plan. The dramatic increase in retail sales over the past decade has
made domestic consumption a key pillar of the Chinese economy
China’s Annual Retail Sales (USD bn, 1979-2016) China’s Monthly Retail Sales (USD bn, 2006-Jun
2017)
5,400 600
Seasonal peaks
4,800 due to Chinese
Annual retail sales New Year holiday
reached USD 5,112
500
4,200
bn in 2016
3,600 400 420
3,000
300
2,400
1,800 200
1,200
100
600
0 0
79 82 85 88 91 94 97 00 03 06 09 12 15
China’s eastern, coastal provinces have a large population, high employment
and high disposable income; therefore, they also have the highest retail sales
China’s Retail Sales by Province (USD bn, 2016) Geographical Distribution of China’s Retail Sales
(2016)
0 100 200 300 400 500 600
1 Guangdong
2 Shandong
3 Jiangsu
4 Zhejiang
5 Henan
6 Hubei
7 Sichuan 27
8 Hebei Xinjiang
9 Hunan
10 Liaoning
11 Fujian
12 Beijing Qinghai Ningxia
13 Shanghai
14 Anhui China’s total 30 29
15 Heilongjiang Tibet 2
Shandong
16 Jilin retail sales in 31 5
17
18
Shaanxi
Chongqing 2016 was USD Henan 3
Jiangsu
19 Guangxi 5.1 tn
20 Inner Mongolia
21 Jiangxi 4 Zhejiang
22 Shanxi
23 Yunnan
24 Tianjin
25 Guizhou Total retail sales 1
26 Gansu of United States
27 Xinjiang Guangdong
28 Hainan in 2016 was USD
29 Ningxia 5.5 tn Hainan 28
30 Qinghai
31 Tibet
Top 5 Provinces by Retail Sales
Highlighted on the map on right
Bottom 5 Provinces by Retail Sales
In February 2017, China registered a trade deficit for the first time in 3 years,
reflective of the growth in its import sector over recent months
China’s Monthly Exports and Imports (USD bn, China’s Monthly Trade Balance (USD bn, 2012-May
2012-May 2017) 2017)
300 80
Exports Imports Import surge
Yearly Total: 2,080 2,210 2,343 2,277 2,097 663 gives China
60 decade-high
200 monthly trade
deficit
40
100
20
Seasonal swings
0 due to Chinese
New Year holiday
0
Yearly Total: 1,817 1,946 1,963 1,682 1,587 559
-100
-20
-200 -40
J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
The growth rate of Chinese exports has been slowing since 2010, with exports
experiencing a decreasing trend since 2015
China’s Annual Exports (1997-2016) China’s Monthly Exports (2012-May 2017)

Exports
Exports' Monthly Growth Rate (M-o-M, RHS)
USD bn Exports Exports' Growth Rate (RHS) USD bn Seasonal drop due to Chinese New Year holiday
2,500 China’s entry 50% 250 X Total Annual Exports (USD bn) 60%
into the WTO 2,049 2,210 2,343 2,277 2,097
increased its 40% 40%
2,000 export growth 200
rate
30%
20%
1,500 150
20%
0%
10%
1,000 100
-20%
0%
500 50
-10% -40%
0 -20% 0 -60%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM
2012 2013 2014 2015 2016 2017
Source: National Bureau of Statistics of China; China Monthly Economic Indicators; The Beijing Axis Analysis The Beijing Axis 99
As China shifts towards high value-added exports, machinery and equipment are
accounting for an ever larger portion of its exports – over 50% of exports in 2016
Composition of China’s Exports (USD bn, 2001-2016)

10% 32% Others
8% -3.0% Mineral Items 2016 records a
11% 5.1% Foodstuffs negative growth rate
2,400 16% -5.9% Chemicals and Related Products of 7.6% from 2015
15% -10.3% Products Classified by Material
13% -10% Miscellaneous Manufactured Articles
1,800
15% -7.6% Total
1,200
600
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: Composition is according to the SITC Classification System

The Chinese economy has been experiencing consecutive negative import
growth since 2015, following light growth in 2014, and rebounded in 2016
China’s Annual Imports (USD bn, 2002-2016) China’s Monthly Imports (USD bn, 2012-May 2017)
Imports Imports' Monthly Growth Rate (M-o-M, rhs)
USD bn USD bn
Imports Imports' Growth Rate (rhs) X Total Annual Imports (USD bn)
2,500 50%
250 60%
1,818 1,950 1,960 1,682 1,587
40%
2,000
200 40%
30%
1,500 150 20%

20%
China’s entry
10%
1,000 into the WTO 100 0%
0%
500 50 -20%
-10%
0 -20% 0 -40%
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM
2012 2013 2014 2015 2016 2017
Source: National Bureau of Statistics of China; National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 101
In 2016, South Korea, Japan, Taiwan, the US and Germany were China’s
top sources of imports, accounting for about 57% of China’s total imports
Top Countries of Origin for China’s Imports (USD bn, 2016)

Machinery, technology,
consumer goods
Germany Japan
5.4% 5 Vehicles, 9.2%
US Machinery Machinery, vehicles,
4 2 electronics
8.5% 1
Thailand
South Korea 10%
2.4% 10
Total Imports = USD 1,587 bn Brazil 9
3 Taiwan 8.8%
Vietnam Machinery,
2.9% 7
Korea 159 2.3% electronics
Japan 146 8 Malaysia 3.1%
6 Australia
Taiwan 139
Iron ore, soybean,
4.4%
US 134 Petroleum, soft
petroleum
Germany 86 commodities Iron ore,
Australia 71 coal
Malaysia 49 Top imported commodities
Brazil 46
Thailand 39 • Electrical machinery, equipment and parts
Vietnam 37 • Mineral fuels, mineral oils and products of their distillation
• Metalliferrous ores and metal scrap
As a manufacturing powerhouse, China relies heavily on imported products
such as machinery, chemicals and minerals. Domestic consumption and
China’s export strength are important drivers of these imports
Composition of China’s Imports (USD bn, 2001-2016)

30% 28.8% Others
16% -2.7% Foodstuffs
15% -6.5% Miscellaneous Manufactured Articles
2,400 7% -8.6% Products Classified by Material
11% -4.3% Chemicals and Related Products 2016 records a
15% -11.3% Mineral Items negative growth rate
1,800 18% -4.1% Crude Materials of 3.1% from 2015
14% -3.1% Total
1,200
600
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: SITC Classification System; Crude material: inedible, except fuels

Almost 42% of China’s total trade is with the US, Hong Kong, Japan, South
Korea and Taiwan. The US, China’s largest trading partner, accounted for
USD 520 bn, or 14% of the total trade, in 2016
China’s Largest Trading Partners (USD bn, 2016)
Germany
6
4.1%
US South Korea 6.9%
1 4
14.1% 3
Japan 7.5%
5 Taiwan 4.9%
Total Exports = USD 2,097 bn Thailand 10 2
Hong Kong 8.3%
2.1% 9
US 520 Malaysia 8 Vietnam
HK 305 2.4% 2.7%
Japan 275
Korea 252 7
Taiwan 180
Australia
Germany 151 2.9%
Australia 108
Vietnam 98 Trade Surplus China’s total trade: USD 3,685 bn
Malaysia 87 Total imports: USD 1,587 bn
Thailand 76 Trade Deficit
Total exports: USD 2,097 bn
While China has a large trade surplus with both Hong Kong and the US, its
trade deficit is largely centered in the Asia Pacific economies of Taiwan, South
Korea and Australia
China’s Trade Balance with its Five Largest Surplus and Deficit Regions (USD bn, 2016)
Netherlands
UK
Germany
USA
South Korea
China’s world trade surplus = USD 510 bn Taiwan
Hong Kong 322 India Hong Kong
USA 260
48 Brazil
Netherlands
India 47
Australia
UK 37
Brazil -21
Germany -24
Australia -34
Trade Surplus
South Korea -65
Taiwan -99 Trade Deficit
China’s trade balance has been decreasing since a high in 2015 as its exports
decrease, and its import demand stagnates - China posted a trade deficit in
February 2017 for the first time in three years
China’s Monthly Trade Balance (2007-2016)

USD bn
X Average Monthly Trade Balance Trade Balance Exports, % change Y-o-Y (RHS) Imports, % change Y-o-Y (RHS)
80 21.9 24.6 16.4 15.4 13.2 19.4 22.1 31.7 45.2 42.5 100%
60 75%
40 50%
20 25%
0 0%
-20 -25%
-40 -50%
J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J MM J S N J M
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Contribution of net exports to GDP has been declining, while fixed asset
investment and total consumption are becoming the primary drivers of GDP
growth – in line with the government’s policy of boosting domestic consumption
Share of Net Exports in China’s Annual GDP (%, Share of Net Exports in China’s Quarterly GDP (%,
2000-2016) 2009-Q1 2017)
10 10
8 8
6 6
4 4
2 2
0 0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1- Q1 -
07 08 09 10 11 12 13 14 15 16 17
Source: National Bureau of Statistics of China; China Customs; The Beijing Axis Analysis The Beijing Axis 107
About 80% of China’s total international trade value is concentrated in 6
coastal provinces. This is chiefly due to their access to world-class port
facilities, large manufacturing bases and large share of domestic consumption
Trade by Province as a Percentage of China’s Total Trade Value (2016)
Heilongjiang
Beijing
Xinjiang 7.6% Jilin
Liaoning
Gansu Inner 2.4%
Mongolia Hebei Tianjin
Ningxia 1.3% 2.8%
Qinghai Shanxi Shandong
6.4%
Tibet Shaanxi Henan Jiangsu
Sichuan 1.9%
Anhui 13.8%
1.3% Hubei Shanghai
Chongqing
11.8%
1.7% Hunan
Percentage of China’s total trade value: Guizhou Jiangxi Zhejiang
Total Trade: USD 3,685 bn
9.1%
Top 60 % Yunnan Fujian Taiwan Imports: USD 1,587 bn
Next 30 % Guangxi 4.3% Exports: USD 2,097 bn
1.3%
Next 10 % Guangdong
26%
Hainan
Greater demand and better access for foreign producers has underpinned further
growth in China’s meat, fish, fruit and vegetable imports in recent years
China’s Annual Meat, Fish, Fruit, and Vegetable Imports (USD bn, 1996-2016)
USD bn USD bn
10 10
Meat Fish
8 8 6.92
6 CAGR 6 CAGR
=16% =14%
4 4
2 2
0.60 0.60
0 0
1996 2001 2006 2011 2016 1996 2001 2006 2011 2016
10 10
8 8
Fruits Vegetables
5.86
6 6
4 4
CAGR 1.86
=20% CAGR
2 2 =18%
0.20 0.08
0 0
1996 2001 2006 2011 2016 1996 2001 2006 2011 2016
Note: HS code 02 has been used for meat imports; HS code 03 (fish, crustaceans, mollusks, aquatic, invertebrates) has been used for fish imports; HS code 08 (edible fruit) has been used for fruit
imports; HS code 07 (edible vegetables and certain roots and tubers) has been used for vegetable imports
Agenda
1. Foreword


Slower growth in FAI1, which has traditionally been one of China’s core
economic drivers, is a key factor in China’s slowing GDP growth rate
Total Fixed Asset Investment2 in Urban and Rural Areas in China (1997-2016) FAI was USD
8.98 tn in
USD bn Urban Areas Rural Areas Growth of Total FAI (RHS) 2016
9,000 150 40%
Stimulus-induced rise during
the global financial crisis
7,500
32%
6,000
24%
4,500 8,983
16%
3,000
8%
1,500
0 0%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: 1. FAI: Fixed Asset Investment
2. Fixed asset investment figures are often overstated by local governments, with figures even exceeding GDP in some provinces. In June 2013, NBS announced a pilot reform of data collection
relating to fixed asset investment in order to make local economic statistics more reliable
The government is focusing on reasonable investment growth in urban
infrastructure projects to keep local debt levels in check. Urban fixed asset
investment reached an all-time high of USD 1,088 bn in June 2016
Monthly Urban Fixed Asset Investment (USD bn, 2012-Apr 2017)

The recent RMB depreciation against
USD bn Urban Fixed Asset Investment 2-month Moving Average the USD distorts the RMB value of the
urban fixed asset investment
1,200
Investments gaining strength 1,088
from favourable policies
900
600
300
0
J-F A J A O D M M J S N J-F A J A O D M M J S N J-F A J A O D M M J S N J-F A J A O D M
2012 2013 2014 2015 2016 2017

Note: In 2011, the National Bureau of Statistics of China extended the statistical scale of monthly fixed assets investment to cover both urban areas and rural enterprises, and defined it as ‘Investment in
Fixed Assets (Excluding Rural Households)’
China’s fixed asset investment continues to be primarily concentrated in the
more developed coastal provinces. The top five provinces account for over
35% of total FAI
China’s Fixed Asset Investment by Province (USD Geographical Distribution of China’s Fixed Asset
bn, 2016) Investment (2016)
0 200 400 600 800 1000
1 Shandong
2 Jiangsu
3 Henan
4 Guangdong
5 Hebei
6 Zhejiang
7 Hubei Top five provinces
8 Sichuan
9 Hunan account for 34%
10 Anhui Hebei
11 Fujian of total FAI 27
12 Shaanxi Ningxia Liaoning
13 Jiangxi
14 Guangxi Qinghai 29
5
15 Chongqing 30 1 Shandong
16 Yunnan
17Inner Mongolia Tibet 3 Jiangsu
18 Shanxi 31 2
19 Jilin Henan
20 Guizhou
21 Tianjin
22 Heilongjiang
23 Xinjiang
24 Gansu
25 Beijing Beijing’s and Shanghai’s low rankings are
26 Shanghai 4
27 Liaoning no coincidence – reflective of prudence and Guangdong
28 Hainan intent to reign in investment levels following
29 Ningxia 28
30 Qinghai previous periods of overinvestment
31 Tibet Top 5 Provinces by FAI Hainan
Highlighted on the map on right Bottom 5 Provinces by FAI
Manufacturing and real estate attracts the majority of fixed asset investment
in China, accounting for almost 48% of China’s total FAI, reflective of ongoing
industrialisation and urbanisation trends
China’s Fixed Asset Investment by Sector (USD bn, 2004-2016)

Real estate and
Annual Growth manufacturing account
CAGR Category
Rate for 48% of the total FAI
9,000 25% 39% Others
15% -20% Mining
8,000 17% 12% Utilities
27% 23% Environmental Protection and Public Facilities
7,000
20% 10% Transport, Storage and Post
6,000 23% -19% Real Estate
25% 4% Manufacturing
5,000 21% 8% Total
4,000
The 19% decrease of real estate
investment indicates the slowing
3,000
down of urbanization, especially
in first tier cities. Significant
2,000 increase of other investment
shows diversification of the
1,000 development structure
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
China's low-cost production base has been a key driver of past FDI growth.
Going forward, the country's large domestic consumption potential and the
liberalisation of various sectors will be key drivers
China’s FDI Inflow (USD bn, 1997-2016)
FDI growth has

USD bn been moderating
FDI Inflow FDI Growth (RHS) over the last 5 years
140 30%
120
20%
100
10%
80
60
0%
40
-10%
20
0 -20%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: FDI: Foreign Direct Investment

In 2015, 94% of China’s FDI came from just five regions, led by Hong Kong.
Hong Kong remains a crucial gateway for FDI from other countries into China,
as well as FDI from Chinese firms headquartered in the SAR
China’s FDI Inflow by Source Region (% of Total FDI Inflow, 2015)
Germany 2.2%
UK 1.8%
9 Japan 2.5%
8
4 10 7
US 3.0%
USD bn Luxemburg 1.1% 3 South Korea 3.8%
Hong Kong 5 Taiwan 2.9%
87 6 1
Macao 2.8% Hong Kong 69.2%
Singapore 6
Taiwan 5 Singapore 2
South Korea 4 4.9%
Japan 4
US 3
Germany 3
France 3
UK 2
Macao 1 MOFCOM China’s total FDI inflow for 2015 amounted to USD 126 bn; UNCTAD value is 135.6 bn
Note: SAR – Special Administrative Region of Hong Kong
China’s coastal regions still attract the majority of FDI inflows, but new FDI
guidelines are utilising schemes to encourage and incentivise foreign
investment in the less-developed central and western regions
China’s FDI Inflow by Province (USD bn, 2015) Geographical Distribution of China’s FDI Inflow
(2015)
0 30 60 90 120 150 180
1 Beijing
2 Shanghai
3 Guangdong
4 Jiangsu 31
5 Anhui Heilongjiang
6 Tianjin 28
7 Zhejiang Top 5 provinces 27 Jilin
8 Fujian Gansu
9 Shandong account for 69% of Xinjiang 29
10 Hubei total FDI inflows 1
11 Hebei
12 Chongqing
13 Henan Beijing
14 Inner Mongolia
15 Liaoning 30 Tibet
16 Yunnan Jiangsu
17 Shanxi 4
5
18 Hunan Anhui 2 Shanghai
19 Sichuan
20 Jiangxi
21 Qinghai
22 Guangxi
23 Ningxia
24 Hainan 3
25 Guizhou
26 Shaanxi Guangdong
27 Jilin
28 Xinjiang
29 Gansu
30 Tibet Top 5 Provinces by FDI Inflow
31 Heilongjiang
Bottom 5 Provinces by FDI Inflow
China’s manufacturing sector receives the bulk of China’s FDI inflow. New
FDI guidelines provide incentives for foreign companies to invest in China’s
high-end manufacturing, technology and service sectors
China’s FDI Inflow by Sector (USD bn, 2004-2015)
Annual
CAGR Category
Growth Rate
27% 76% Others
140 12% 0% Transport, Storage and Post
8% -8% Wholesale and Retail Trades
120 14% -11% Leasing and Business Services
17% -6% Real Estate
1% -18% Manufacturing 30
100 7% 1% Total
4
80 11
10
60
28
40
20 38
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
China’s OFDI flow is expected to continue growing steadily, largely driven by
Chinese companies’ growing need to access new markets, technology and
resources. In 2016, China’s OFDI reached USD 183 bn
China’s OFDI Flow (2003-2016)
USD bn
OFDI Flow OFDI Growth Rate (RHS)
200 140%
In 2005, SAFE eased restrictions
175 120%
on overseas investments made
by Chinese companies
150
100%
125
80%
100
60%
75
Chinese companies
increased acquisition of 40%
50
overseas depressed assets
25 20%
0 0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: SAFE – State Administration of Foreign Exchange

Source: MOFCOM; WIR; The Beijing Axis Analysis The Beijing Axis 119
While China’s OFDI extends to all continents, international financial centres
such as Hong Kong and BVI receive the bulk of OFDI flow
China’s OFDI Flow by Destination (2015)
10 Russian Federation 2% 7
Canada 1.1%
UK 1.3% 9Netherlands
2
9.2%
US 5.5%
5
USD bn
BVI 1.3%
Hong Kong 89.8 8 1
4
Netherlands 13.5 Hong Kong 61.6%
Cayman Islands 7%
Singapore 10.5 3
Cayman Islands 10.2 Singapore 7.2%
US 8.0
Australia 3.4 6
Australia 2.3%
Russian Federation 3.0
Virgin Islands 1.8
UK 1.8
Canada 1.6
MOFCOM China’s total OFDI flow for 2015 amounted to USD 145.7 bn; UNCTAD value is 128 bn
In 2015, more than half of China’s non-financial OFDI came from just five
provinces, all located along the east coast, except for Beijing
China’s OFDI Flow by Province (USD bn, 2015) China’s OFDI Flow by Province (2015)
0 5 10 15 20 25
1 Shanghai
2 Beijing
3 Guangdong
4 Jiangsu
5 Shandong
6 Zhejiang
7 Fujian
8 Tianjin Top 5 provinces’
9 Liaoning 27
10 Anhui OFDI accounts for Inner Mongolia 2
11 Chongqing 62% of the total Beijing
12 Henan Qinghai 30 29
13 Qingdao 31 Gansu
14 Hainan Shanxi 5
15 Sichuan Shandong
16 Hunan Tibet
17 Ningxia 28 4 Jiangsu
18 Jiangxi
19 Xiamen 1 Shanghai
20 Yunnan
21 Hebei
22 Jilin
23 Hubei Shanghai, one of
24 Shaanxi the major drivers of
25 Guangxi 3
26 Heilongjiang China’s ‘going out’
27 Inner Mongolia Guangdong policy, registered
28 Tibet
29 Shanxi the highest OFDI
30 Gansu Top 5 Provinces by OFDI
31 Qinghai
Bottom 5 Provinces by OFDI
Note: OFDI figures include non-financial OFDI and exclude investments made by central enterprises
China’s outward investments in manufacturing, as well as finance, grew
substantially in 2015 – reflective of China’s new OFDI profile
China’s OFDI Flow by Sector (USD bn, 2005-2015)

Annual
CAGR Category
160 Growth Rate
52% 190% Others
140 24% 109% Manufacturing
16% -35% Transport, Storage and Post 32
120 21% -32% Mining
24% 5% Wholesale and Retail Trades
100 20
29% 52% Finance
Leasing and Business Services 3
22% -2% 11
80
28% 18% Total
19
60
24
40
20 36
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Note: Business services includes investment in holding companies, regional headquarters and SPVs often established in offshore financial centers from where investments are made in other countries
and sectors; Finance includes investments in the banking industry such bank branch offices, bank affiliated institutions, bank rep. offices and insurance institutions; Wholesale and retailing, as well as
transportation, warehousing and postal services are closely linked with China’s export and import activities
Agenda
1. Foreword


China resumed the semi-floating (controlled) exchange rate mechanism in 2010.
The doubling of the USD/RMB trading bandwidth in 2014 has been seen as an
important step towards establishing a market-based exchange rate system
RMB to USD Nominal Exchange Rate (1 USD, 1990-Present)

In July 2005, the PBoC announced that it would lift
the dollar peg and phase in a flexible exchange
9.00
Depreciation rate mechanism. Following the announcement,
the RMB to dollar rate was revaluated to 8.1
8.00 In March 2014, China announced that

From 1997 to 2005, China it will widen RMB’s daily trade limit
pegged the RMB to the band against the USD from 1% to 2%
7.00 USD at a rate of 8.3 to 1, 6.75
despite significant criticism
In April 2012, China announced

6.00
that it would widen the RMB’s On 11 Aug 2015, China
daily trade limit band against devalued the RMB by 1.9%,
the USD from 0.5% to 1% triggering the RMB’s biggest
5.00
one-day drop since 1994
Appreciation
4.00
Source: The People’s Bank of China; Federal Reserve Bank of St. Louis; The Beijing Axis Analysis The Beijing Axis 124
The RMB and ZAR have both depreciated against the USD over the last year
and a half, mainly due to falling commodity prices in the mining sector
Nominal Exchange Rates Comparison (Jul 2014 – Jul 2017)
7.00 1.00 7.00 17.00

16.50
6.90 0.95 6.90 16.00
0.90 15.50
6.80 6.80 15.00
0.85 14.50
6.70 6.70 14.00
0.80 13.50
6.60 6.60
0.75 13.00
6.50 6.50 12.50
0.70 12.00
6.40 6.40 11.50
0.65 11.00
6.30 0.60 6.30 10.50
10.00
6.20 0.55 6.20 9.50
9.00
6.10 0.50 6.10 8.50
Oct-14
Oct-15
Oct-16
Apr-15
Apr-16
Apr-17
Jul-14
Jul-15
Jul-16
Jul-17
Jan-15
Jan-16
Jan-17
Oct-14
Oct-15
Apr-16
Apr-15
Jul-16
Oct-16
Apr-17
Jul-14
Jul-15
Jan-15
Jan-16
Jan-17
RMB to USD (LHS) USD to AUD (RHS) RMB to USD (LHS) USD to ZAR (RHS)
Note: The nominal exchange rate is defined as the actual quote for a currency in relation to another currency
Source: BIS; The Beijing Axis Analysis The Beijing Axis 125
From November 2014 to the end of October 2015, the PBoC cut interest rates
six times to spur economic growth. On 24 October 2015, the benchmark
interest rate was cut to a record low of 4.35%
China’s Benchmark Lending Rates (%, 1997-2016)

12
6 months to 1 year (including 1 year) 1 year to 3 years (including 3 years) 3 years to 5 years (including 5 years) Longer than 5 years
10
First loan interest rate Four adjustments
decrease since the in the loan
First loan interest rate interest rate since
decrease in six years global financial crisis
Nov. 2014
8
4
Oct-97
Nov-99
Dec-01
Oct-02
Nov-04
Dec-06
Oct-07
Dec-08
Oct-09
Nov-11
Apr-12
Dec-13
Oct-14
Apr-00
Sep-00
Apr-05
Jul-01
May-02
Jul-06
May-07
May-09
Jul-13
May-14
Aug-98
Aug-03
Sep-05
Aug-08
Aug-10
Sep-12
Aug-15
Feb-01
Feb-06
Feb-13
Mar-98
Jan-99
Jun-99
Mar-03
Jan-04
Jun-04
Mar-08
Mar-10
Jan-11
Jun-11
Mar-15
Jan-16
Source: Hexun; The Beijing Axis Analysis The Beijing Axis 126
In order to stimulate the economy, the Chinese government cut the benchmark
lending rate six times between November 2014 and October 2015, with the rate
being held constant at 4.35% since October 2015
China’s Benchmark 1-Year Lending Rate (%, 2011- Key Business Implications of China’s Lending Rate
April 2017) Buoyed by stable fundamentals, China’s
Cuts
7% benchmark lending rate stayed at 6% for • Given financial market volatility, flexible use of monetary
almost two years between 2012 and 2014
policy tools is more suitable to boost the economy
6% • Market-based tools are also part of a push toward

economic reforms
• Banks are now largely autonomous in setting both

5% lending and saving rates for longer-term deposits
China’s benchmark lending rate was cut • After initial concerns, China’s capital outflows have
to 4.35% in Oct 2015, to keep the stabilized easing the pressure for monetary policy action
4% economy growing at a reasonable pace
• China has recently raised open market rates and medium-

term lending facility to reign in debt but benchmark lending
3% rate is expected to remain constant
J A J O J A J O J A J O J A J O J A J O J A J O J A
2011 2012 2013 2014 2015 2016 2017
China’s stock market has been stable over the last year – after a swift initial
increase in 2015, the period from June 2015 saw a rapid correction in the
market, paving the way for a steadier 2016
China Stock Market Indices (Index Value, 2015- May 2017)
6,000
SSE SZSE
5,000
4,000
3,000
2,000
1,000
Apr 2015
Apr 2016
Apr 2017
Jul 2015
Jul 2016
Mar 2016
Mar 2017
Mar 2015
May 2015
May 2016
May 2017
Feb 2015
Aug 2015
Sep 2015
Feb 2016
Aug 2016
Sep 2016
Feb 2017
Oct 2015
Nov 2015
Dec 2015
Oct 2016
Nov 2016
Dec 2016
Jan 2015
Jun 2015
Jan 2016
Jun 2016
Jan 2017
Source: Yahoo Finance; Bloomberg; The Beijing Axis Analysis The Beijing Axis 128
QFII and RQFII are two major quotas for foreign institutional investors
looking to access China’s stock market. Beijing has used these quotas to
allow increased access to local markets
Comparison of QFII and RQFII Investors Approved Quotas and Number of Licensed
Institutions (USD bn, Number)
No. of
QFII RQFII USD bn Institutions
Qualified Foreign Institution RMB Qualified Foreign 90 300
Name
Investor Institution Investor
80
Date 250
2002 2011
Created 70
Regulator CSRC, SAFE CSRC, SAFE, PBoC 60 200
Commercial banks, 50
Financial institutions 150
Eligible securities companies, asset
registered and mainly 40
Applicants mgmt. companies,
operated in Hong Kong
insurance companies, etc. 30 100
Currency USD RMB 20
50
Stocks, bonds, funds, warrants, Initial Public Offerings 10
Investment
(IPOs), bond issuance, and other products approved by
Scope 0 0
CSRC 2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Cannot hold >10% of the total outstanding shares in a
Investment
single A-share listed company; the aggregate of all foreign
Limitations QFII quota RQFII quota
investors in a single A-share company cannot be > 30%
QFII institutions (RHS) RQFII institutions (RHS)
Source: SAFE; CSRC; The Beijing Axis Analysis The Beijing Axis 129
Deregulation of the LDR through a revision of the calculation methodology
boosts banks’ ability to lend – further supporting China’s transitioning economy
Loans-to-Deposits (LDR) Ratio for Major Chinese Recent Removal of the LDR Limit
Banks (%, 2016) With effect from 1 October 2015,
85.00% the 75% LDR upper limit has • The LDR limit was used as a risk management tool
been removed
80.00%
• A slowdown in China’s current account surplus and capital
75.00%
inflows has slowed the growth of deposits
70.00% • Consequently, the LDR for many banks was near the 75%
limit in 2014
65.00%
60.00% • This constrained banks’ ability to lend, despite a push to

boost credit supply to support growth
55.00%
• As a result, the LDR limit has been removed. This is aimed
50.00% at stimulating the economy in general, with particular
emphasis on rural economies and micro-sized businesses,
whilst traditional state-owned powerhouses will lose ground
• The risk is that a freer banking system would lead to an

unbridled flow of funds to high-risk marketplaces and
investment vehicles
Source: Bank Websites; BBVA; Bloomberg; The Beijing Axis Analysis The Beijing Axis 130
The PBoC’s M2 growth for 2016 fell just short of its 13% target. The PBoC tends
not to set fixed targets, and has been known to implement regular revisions of the
target based on the needs of the economy
China’s Money Supply (USD tn, 2012-Apr 2017)
M2 M1 M0
30
25
20
15
10
0
2012 2013 2014 2015 2016 2017
Note: PBoC – People’s Bank of China
Source: The People’s Bank of China; The Beijing Axis Analysis The Beijing Axis 131
The PBoC has continued to maintain a prudent monetary policy in 2016, as it
looks to keep credit growth stable and quicken the pace of market-oriented
interest rate reform
The interest rates
China’s Deposit Interest Rates (% p.a., March 1998-October 2015) remain unchanged
since October 2015
5 years 1 year 6 months 3 months

8
First cut since
global financial
crisis
6
2
Adjustments in 2012 to widen the range within which banks can set deposit
rates mark an important step towards interest rate liberalisation
0
1-Jul-98
7-Jul-11
6-Jul-12
21-Dec-07
27-Nov-08
23-Dec-08
26-Dec-10
22-Nov-14
6-Apr-11
7-Dec-98
25-Mar-98
18-Mar-07
10-Jun-99
21-Feb-02
28-Jun-15
1-Mar-15
8-Jun-12
23-Oct-15
29-Oct-04
9-Oct-08
30-Oct-08
20-Oct-10
9-Feb-11
19-May-07
21-Jul-07
11-May-15
19-Aug-06
19-Aug-06
22-Aug-07
15-Sep-07
25-Aug-15
Chinese banks have funded themselves mainly from deposits at a loan-to-
deposit (LTD) ratio of about 71%. Total deposits reached USD 22.7 tn by the
end of 2016, while loans amounted to USD 16 tn
China’s Total Loans and Deposits1 (USD bn, 2000-2016)

X Loans-to-Deposit Ratio (%)
80 78 77 76 74 68 67 67 65 70 69 70 71 72 74 71 71
25,000
Loans In 2015, the LTD ratio reached 75%. In
Deposits June 2015 the China’s State Council issued
20,000 a draft proposal to relax the ratio limit
In 2007, the CBRC²

15,000
implemented a 75% LTD ratio CAGR
limit for all banks in China = 18.5%
10,000
CAGR
= 17.6%
5,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: 1. Total Loans and Deposits in RMB and Foreign Currency
2. CBRC: China Banking Regulatory Commission
China’s high savings rate remains the main source of funds for Chinese banks.
In 2016, household banking deposits accounted for 39% of total deposits, while
non-financial companies deposits accounted for 34%
China’s Sources of Deposits (USD bn, 2007-2016) China’s Sources of Deposits (USD bn, 2016)
Other Deposits Other Deposits Overseas 25,000 24,135 9,331

Designated Deposits
Trust Deposits Temporary Deposits Non-banking
Financial Institutions
Agricultural Deposits
Fiscal Deposits
Government
Personal Deposits 20,000
39%
Fiscal Deposits Corporate Deposits Non-financial
Enterprises
Deposits of Gov. Dept. &
25,000 Households
Org. 8,156
Company Deposits 15,000
20,000 Household Savings

Deposits
34%
15,000 10,000
4,170
10,000
5,000
5,000 2,211
267
0 0
07 08 09 10 11 12 13 14 15 16 Total Households Non-financial Government Non-banking Overseas
Deposits Enterprises Financial
Institutions
Note: Classification in Sources & Uses of Financial Institution Credit Funds was changed in 2011 and 2015
Source: People’s Bank of China; The Beijing Axis Analysis The Beijing Axis 134
After bottoming out in July 2014, monthly bank loans have since grown
steadily as a result of several reductions in interest rates and bank deposit-
reserve ratios
China’s Monthly Bank Loans (USD bn, 2011-Dec 2016)
USD bn Monthly Loan Size Y-o-Y Growth Rate (rhs)

450 350%
400 300%
350 250%
300 200%
250 150%
200 100%
150 50%
100 0%
50 -50%
0 -100%
J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND
2011 2012 2013 2014 2015 2016
Source: The People Banks of China; The Beijing Axis Analysis The Beijing Axis 135
In 2016, medium and long-term loans – key measures of the appetite for
investment, accounted for 94% of total loans. New yuan loans also reached a
record high of RMB 112tn in 2016
Composition of China’s New Loans (USD bn, 2003- Composition of China’s New Loans (USD bn, 2016)
2016)
Overseas Loans Overseas 18,000
Other Loans 17,197
Trust Loans Advances 16,000 5,070
Non-banking
Short-term Loans Bill Financing Financial Institutions 29%
14,000
Medium & Long-term Financial Lease
Loans Non-financial 12,000
25,000 Enterprises and Gov.
Medium & Long-term
Loans Dep. & Org.
10,000 11,188
20,000 Short-term Loans Households
8,000
15,000
65%
6,000
10,000
4,000
5,000 2,000 441

498
0 0
07 08 09 10 11 12 13 14 15 16 Total Loans Households Non-financial Non-banking Overseas
Enterprises and Institions
Gov. Dep. &
Note: Classification in Sources & Uses of Credit Funds of Financial Institutions was changed in 2011 and 2015 Org.
Source: People’s Bank of China; The Beijing Axis Analysis The Beijing Axis 136
By the end of March 2016, the Shanghai and Shenzhen Stock Exchanges
were the world’s 4th and 7th largest stock markets, respectively, by market
capitalisation. However, market capitalisation decreased significantly in 2015
Number of Listed Companies and Total Market Value of China’s Stock Exchanges (2005-2016)
Total Market
396 1,122 4,302 1,747 3,655 3,926 3,330 3,655 3,732 6,064 4,808 7,310
Value (USD bn)
Number of companies listed on the Shanghai Stock Exchange Number of companies listed on the Shenzhen Stock Exchange
3,500
3,000
2,500
1,959
2,000 1,729
1,540 1,536 1,618
1,411
1,500 1,169
690 740 830
547 592
1,000
1,284
500 894 931 954 953 995 1,071
834 842 860 864 864
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
From 2014, the market value of tradable shares increased significantly, until
the drop in mid-2015
Shanghai Stock Exchange Composite Index (2010- Shenzhen Stock Exchange Component Index (2010-
2016) 2016)
USD bn Market Value of Tradable Shares USD bn Market Value of Tradable Shares
Composite Index (RHS) Component Index (RHS)
6,000 5,000 3,500 21,000
4,500
5,000 3,000 18,000
4,000
3,500 2,500 15,000
4,000
3,000 2,000 12,000
3,000 2,500
2,000 1,500 9,000
2,000
1,500 1,000 6,000
1,000
1,000
500 3,000
500
0 0 0 0
J A JOJ A JOJ A JOJ A JOJ A JOJ A JOJ A JO J A JOJ A JOJ A JOJ A JOJ A JOJ A JOJ A JO
2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016
After recovering from the global financial crisis in 2009, China’s stock
markets have since declined as both domestic and overseas investors have
become weary of lax corporate governance and dampened profit outlook
Shanghai Stock Exchange Trading Volume and Shenzhen Stock Exchange Trading Volume and
Composite Index (2005-2016) Component Index (2005-2016)
Average Average
16.3 33.3 59.2 14.9 28.73 21.61 13.4 10.99 10.99 15.99 17.63 15.91
P/E Ratio
16.4 32.7 69.7 16.7 46.01 44.69 23.11 22.02 27.76 34.05 52.75 41.21
P/E Ratio
Total Total
Turnover 235 725 4,017 2,597 6,469 5,893 3,682 8,423 13,309 19,715 40,979 7,375 Turnover 152 410 2,040 1,248 2,909 3,360 2,095 2,309 3,669 5,642 18,845 11,494
USD bn USD bn
Volume (lhs) The turnover value

bn shares dropped dramatically
bn shares
SH Composite Index(rhs) Volume (lhs)
12,000 in 2016 compared 6,000 8,000 20,000
SZSE Component Index (rhs)
with 2015
10,000 7,000
6,000 15,000
8,000 4,000
5,000
6,000 4,000 10,000
4,000 2,000 3,000

2,000 5,000
2,000
1,000
0 0 0 0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: EastMoney; Shanghai Stock Exchange; Shenzhen Stock Exchange; The Beijing Axis Analysis The Beijing Axis 139
China holds the world’s largest FX1 reserves. The foreign reserve growth rate
has been negative since 2014 – a sign that speculative capital is being pulled
from the country
China’s Foreign Exchange Reserves (USD bn, 1997-2016)

USD bn
4,800 60%
Foreign Exchange Reserves Y-o-Y Growth Rate (RHS)
4,200 50%
3,600 40%
3,000 30%
2,400 20%
1,800 10%
1,200 0%
600 -10%
0 -20%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Note: 1. FX – Foreign Exchange

Source: Bloomberg; The People’s Bank of China; The Beijing Axis Analysis The Beijing Axis 140
China’s FX reserves reached an all-time high of USD 4 tn in June 2014; however,
reserve levels have been dropping as the country transforms from a major
exporter of goods into a major exporter of capital
China’s Foreign Exchange Reserves (2011-Apr 2017)

USD bn Foreign Exchange Reserves Y-o-Y Growth Rate (RHS)
4,500 40%
China’s foreign exchange reserves 30%

experienced its first quarterly drop
4,000
in more than a decade in Q4-2011
20%
3,500 10%
0%
3,000
-10%
2,500 -20%
J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMAM J J A SOND J FMA
2011 2012 2013 2014 2015 2016 2017
Source: The People’s Bank of China; Various; The Beijing Axis Analysis The Beijing Axis 141
Many economists have long considered China’s currency to be undervalued. The
IMF officially declared the Renminbi (RMB) to no longer be undervalued in May
2015, with the RMB officially being included in the SDR¹ from October 2016
Annual RMB to Certain Currency Exchange Rate (2001-2016)

EUR AUD ZAR USD RUB JPY KRW
340
290 The higher the rates are, the more the RMB has
appreciated in relation to these currencies. RUB
Conversely, RMB gains weaken Chinese
240 exports to these countries
The USD is the only

190 currency that appreciated ZAR
against the RMB between
2014 and 2015
USD KRW
140
JPY
EUR
90
AUD
40
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Note: 1. SDR= Special Drawing Rights; Artificial currency unit based upon several national currencies. The SDR serves as the official monetary unit of several international organizations and acts as a
supplementary reserve for national banking system
2. Index 2001 = 100
Source: OANDA; The Beijing Axis Analysis The Beijing Axis 142
The RMB has gradually strengthened in comparison to other emerging market
currencies over the last 6 years, which has detracted from China’s relative
manufacturing competitiveness over this long-term period…
Real Effective Exchange Rate (2011-Mar 2017)

Currency Pair May 2017 2016 2011 Competitive
160 Trend
USD-RMB 6.90 6.64 6.46 Further expanded Appreciation
140 in the next slide
AUD-RMB 5.10 4.95 6.67
EUR-RMB 7.60 7.35 8.99
120
100
80
Over a 6 year period, the relative Depreciation
60 competitiveness of the RMB declined
and made exports more expensive
40
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
May-11
Jul-11
May-12
Jul-12
May-13
Jul-13
May-14
Jul-14
May-15
Jul-15
May-16
Jul-16
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Jan-11
Mar-11
Jan-12
Mar-12
Jan-13
Mar-13
Jan-14
Mar-14
Jan-15
Mar-15
Jan-16
Mar-16
Jan-17
Mar-17
China Brazil Germany
Note: Real effective exchange rates are the geometric weighted averages of bilateral exchange rates, adjusted by relative consumer prices. The assigned weights represents the partner country’s trade
share within the total trade. The real effective exchange rate on Jan 2011 is assigned a value of 100 to compute the index
…however, the recent relative stabilization and decline in the RMB’s real
effective exchange rate implies that the impact of currency on China’s export
competitiveness has become less significant
The RMB has stabilized after a long period of
Appreciation
appreciation, and even weakened, which
Real Effective Exchange Rate (2015-Mar 2017) implies that the RMB’s negative impact on
export competitiveness is declining
110
100
90
80
Depreciation
70
China Brazil Germany India

Indonesia Japan Australia Mexico
Note: The real effective exchange rate on Jan 2015 is assigned a value of 100 to compute the index
Agenda
1. Foreword


In 2016, China had the world’s largest population with 1.378 bn people. However,
its population growth has consistently decreased over the past few decades, with
current growth recently having dipped to less than 0.4% per annum
China’s Population (mn, 1978-2016)

mn
1,500 2.0%
1.6%
1,000
1.2%
0.8%
500
Population 0.4%
Natural Growth Rate (RHS)
0 0
0.0%
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Note: 2016 World population estimates at August 2016

Source: IMF; National Bureau of Statistics of China; The Beijing Axis Analysis The Beijing Axis 146
Since 1987, China’s birth rate has been declining significantly – as of Nov 2015,
the amended One Child Policy now allows all families to have a second child
China’s Annual Births (1980-2016)

mn
Birth Rate Natural Population Growth Rate (RHS)

30 In 2016, among all newly 2.0%
born children, 45% of them
are second or more child in
24 the family 1.6%
Rising costs of living are

18 discouraging young urban 1.2%
families from having more
than one child
12 0.8%
6 0.4%
0 0.0%
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
China’s population is aging rapidly – unlike other developing economies, it
will not be able to leverage a young population base to drive growth
China Population Maturity Forecast (mn, 1980- Fertility Rates by Country (1971-2016)
2060F) One Child Policy
1050 80% 6 enacted in 1980 • Recent relaxations of One Child Policy – all
2015, families are now entitled to have a second child
996 mn • While it is projected that China’s fertility rates will
5 not fall to the levels of Japan and S. Korea, China
950 2015, -206 mn 75%
has lost its demographic dividend
73% (-21%)
4
850 70%
2050F, 3
790 mn
750 65%
Significant decline in 2
working population
implies China will lose its
650 2050F, 60%
demographic dividend 1 Fueled by growing urbanisation and
61%
incomes, the fastest decline in China’s
550 55% fertility rate occurred before 1980
0
1980 1990 2000 2010 2020F 2030F 2040F 2050F 2060F
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Working Age Popn. (15-64)
Working Age Pop. as % of Total Population (RHS) China India Indonesia Japan South Korea
Note: The fertility rate is defined as the number of births per 1000 women aged between 15 and 44 in a calendar year
Source: United Nations; World Bank; The Beijing Axis Analysis The Beijing Axis 148
China’s aging population is driving the growth of the healthcare and pharma
industries, which are also starting to play a key role in exports
The major drivers of increased healthcare spending in China are the
ageing population, increased govt. focus on healthcare, and
increased spending power in rural and less accessible areas
China’s Healthcare Spending (USD bn, 2012-2020F) China Pharmaceutical Sales (USD bn, 2010–2020F)
Will become the 2nd largest
Represents healthcare
X% pharma market globally by 2020
expenditure as a % of GDP 400
Growth rate is expected to be lower in 370
5.3% 5.6% 6.2% the next few years, in line with China’s
1,000 general economic development and
the gradual maturing of the market
300 CAGR
800 314 = 8.4%
Became the 3rd largest pharma
market globally in 2011 211
600 200 7.4%
3.6% Traditional
325 CAGR 15.2% Chinese
174 = 26.2% 9.5% Medicine
400
149 4.9% 105
100
207 3.3% 13.8%
154 7.8% 50% Western
200
330 Medicine
50.7%
130 163
19.5% 14.3%
0 0
2012 2014 2020F 2010 2013 2020F
Govt. Health Exp. Social Health Exp. Out of Pocket Health Exp. Others Chinese Herb Medicines
Chinese Patent Drugs OTC Drugs
Generic Precription Drugs Patented Prescription Drugs
Note: Others include disposals (e.g. needles and syringe), chemical agent, glass ware, etc.
Source: MOFCOM; NBS; The Beijing Axis Analysis The Beijing Axis 149
As more migrants move to coastal areas in search of better economic
opportunities, the already populous regions are facing new socioeconomic
challenges in accommodating the incoming population
China Provincial Population Breakdown by Urban and Geographical Distribution of China’s Population
Rural Residences (mn, 2015) (2015)
0 20 40 60 80 100 120
1 Guangdong Higher wages in more developed areas attract
2 Shandong migrant workers from surrounding provinces
3 Henan
4 Sichuan
5 Jiangsu
6 Hebei
7 Hunan
8 Anhui Xinjiang
9 Hubei
10 Zhejiang 27
11 Guangxi
12 Yunnan Ningxia
13 Jiangxi Urban Rural 30
14 Liaoning 29
15 Fujian Qinghai 2 Shandong
16 Heilongjiang 31
17 Shaanxi Tibet 3
18 Shanxi 5 Jiangsu
Guizhou Sichuan
19
4 Henan
20 Chongqing
21 Jilin Highlighted on the
22 Gansu
23 Inner Mongolia map on right
24 Shanghai
25 Beijing 1
26 Tianjin Top 5 Guangdong
27 Xinjiang
28 Hainan Bottom 5 Hainan 28
29 Ningxia
30 Qinghai
31 Tibet
In 2011, employment in China’s Services sector overtook the Agricultural
sector for the first time. As China’s economy continues to develop, the services
sector will play an increasingly important role
Total Employed Persons by Sector (2005-2015) Contribution of each sector to GDP (%, 2016)
100%
90%
Services Sector Agricultural
80% Sector, 9%
70%
60%
50% Industry Sector Services Industry Sector,

Sector, 52% 40%
40%
30%
20% Agricultural Sector

10%
0%
05 07 09 11 13 15
Source: STATISTA; The Beijing Axis Analysis The Beijing Axis 151
Despite a gradual narrowing of the rural-urban income disparity, income levels
in urban households are still almost three times those of rural households
Annual Income of Urban and Rural Households in China (1997-2016)
USD
Urban Rural Urban Growth (RHS) Rural Growth (RHS)
6,000 30%
5,063
5,000
24%
4,000
18%
3,000
12%
2,000 1,862
6%
1,000
662
252
0 0%
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Note: 1. Annual disposable income of urban households and net income of rural households per capita
2. Growth rates are calculated at current prices
Beijing and Shanghai, China’s political and financial capitals, continue to lead
the country in terms of wealth accumulation. Overall, income levels are
substantially skewed towards the more developed, Eastern coastal provinces
Urban and Rural Households Income Per Annum by Geographical Distribution of China’s Household
Province in China (USD, 2016) Income (2016)
4,000 2,000 0 2,000 4,000 6,000 8,000 10,000
1 Shanghai
2 Beijing
3 Zhejiang
4 Jiangsu Heilongjiang
5 Guangdong
6 Tianjin
7 Fujian 29
8 Shandong
9 Inner Mongolia Xinjiang 31
10 Liaoning 28
Gansu Beijing Jilin
11 Hunan 30
12 Chongqing 2
13 Hubei Urban Rural
14 Anhui
15 Jiangxi
16 Yunnan
17 Hainan 4
Jiangsu
18 Shanxi
19 Sichuan 1 Shanghai
20 Guangxi 3 Zhejiang
21 Hebei
22 Tibet 27
23 Shaanxi Guizhou
24 Henan
25 Ningxia 5
26 Qinghai Top 5 Guangdong
27 Guizhou
28 Jilin Bottom 5
29 Heilongjiang Highlighted on
30 Gansu
31 Xinjiang the map on right
Note: Represents disposable income of urban households and net income of rural households
While the downward trend of the Engel Coefficient reflects a progressively
higher standard of living, temporary increases in 2004, 2008 and 2011
underscore concerns over food price spikes
China’s Urban and Rural Engel Coefficients (%, 1978-2016)
Urban Areas Rural Areas

75
67.7 Failed price reforms

fueled inflation,
65 especially in urban areas
57.5
55
Temporary increases from
high levels of food inflation
45
35 32.2
29.3
25
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Note: Engel's Law states that household expenditure on food, on aggregate, declines as income rises; in other words, the income elasticity of demand for food on aggregate is less than one and declines towards
zero with income growth. A common application of this statistic is to regard it as a reflection of the living standards of a country. An Engel Coefficient has an inverse correlation with the standard of living of a country
Source: National Bureau of Statistics of China; Hexun database; The Beijing Axis Analysis The Beijing Axis 154
Income inequality in China is growing, as measured by the Gini Coefficient.
There are concerns in China that growing income inequality, if left unchecked,
could undermine social stability and future economic growth
China’s Gini Coefficient (1978-2016)

Official data shows China’s Gini Coefficient
peaked in 2008 at 0.491, while non-official
data shows it has already been greater than
0.6 0.5 for some time, signaling severe inequality
0.5 0.47
0.4
0.3 China exceeded 0.4 – the

recognised warning level for
dangerous levels of
0.2 inequality – in 2000
0.1
0
0.0
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Note: The Gini Coefficient is a measure of statistical dispersion. It is most prominently used as a measure of inequality of income distribution or inequality of wealth distribution. It is defined as a ratio with
values between 0 and 1. A low Gini Coefficient indicates more equal income or wealth distribution, while a high Gini Coefficient indicates more unequal distribution
China’s urban population outnumbered its rural population for the first time
in 2011, marking an important milestone in China’s ongoing socio-economic
transformation
China’s Urbanisation Rate (%, 1978-2016)
60 China’s urbanisation
rate exceeded 50% for
the first time in 2011
50
40
30
20
10
0
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: National Bureau of Statistics of China; Annual Report on Urban Development of China;The Beijing Axis Analysis The Beijing Axis 156
Agenda
1. Foreword

China’s rapid economic growth has positioned it as the world’s 2nd largest
economy. Furthermore, it is projected to overtake the US in 2026 to become
the world’s largest economy
GDP of Top Economies, excl. US (USD bn, 1995-2018F)
China Rank 7 6 6 6 6 5 5 5 5 5 4 3 2 2 1 1 1 1 1 1 1 1 1 1
Country 2015 Rank At current growth rates,

China 2 China is projected to
14,000 2000: China 2009: China
Japan 3 overtake the US in
surpassed Italy surpassed Japan
Germany 4 around 2026
UK 5
12,000 2005: China
France 6
1996: China
India 7 surpassed
Italy 8
surpassed France
10,000
Brazil 9 Brazil
Canada 10 2006: China Between 2013 & 2014,
8,000 Russia surpassed UK
12 China’s GDP growth was
Indonesia 16 1995: China
more than Indonesia’s
South Africa 33 surpassed 2007: China
6,000 total nominal GDP
Canada surpassed
Germany
4,000
2,000
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17F 18F
Note: Forecast GDP growth based on IMF Economic Outlook as of April 2017. 2026 forecast based on Bloomberg data
Source: IMF; Bloomberg; The Beijing Axis Analysis The Beijing Axis 159
Since 1980, China’s annual GDP growth rate has consistently exceeded the
world average. China’s average growth rate of 9.7% for this period has also
outpaced the US growth rate of 2.6%
China vs. US, Annual GDP Growth (% y-o-y, 1980-2016)
China US World Average

16
12
0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
-4
Source: IMF; World Bank; The Beijing Axis Analysis The Beijing Axis 160
The sheer size of China’s economy can be highlighted by the fact that its
provinces have GDP figures comparable to those of major global economies
China’s GDP by Province Compared with Similarly Sized World Economies (USD bn, 2016)
1,400 1,200 1,000 800 600 400 200 0 200 400 600 800 1,000 1,200
Mexico 1,046 1,197Guangdong
Mexico 1,046 1,146Jiangsu
Mexico 1,046 1,009 Shandong
Switzerland 660 700 Zhejiang
Argentina 545 605 Henan
Poland 468 492 Sichuan
Poland 468 486 Hubei
Poland 468 479 Hebei
Poland 468 471 Hunan
Belgium 467 430 Fujian
Belgium 467 414 Shanghai
Thailand 407 375 Beijing
Austria 387 363 Anhui
UAE 371 332 Liaoning
Philippines 305 289 Shaanxi
Philippines 305 281 Inner Mongolia
Pakistan 284 277 Jiangxi
Pakistan 284 275 Guangxi
Pakistan 284 269 Tianjin
Pakistan 284 264 Chongqing
Chile 247 232 Heilongjiang
Finland 239 224 Jilin
Bangladesh 228 224 Yunnan
Bangladesh 228 195 Shanxi
Iraq 167 177 Guizhou
Kuwait 110 145 Xinjiang
Morocco 104 108 Gansu
Oman 63 61 Hainan
Croatia 50 47 Ningxia
DR Congo 42 39 Qinghai
PNG 20 17 Tibet
Note: There is a slight discrepancy between IMF and NBS data for overall GDP levels
Source: National Bureau of Statistics of China; IMF; The Beijing Axis Analysis The Beijing Axis 161
China’s individual provinces are gaining economic prominence in the global
context, with GDP per capita figures comparable to those of developing
economies
China’s GDP Per Capita by Province Compared with Selected Developing Economies1 (USD bn, 2016/20152)
20,000 15,000 10,000 5,000 0 5,000 10,000 15,000 20,000

Czech Republic 18,286 17,024 Tianjin
St. Kitts and Nevis 16,058 16,924 Beijing
Palau 16,222 16,417 Shanghai
Lithuania 14,890 14,012 Jiangsu
Hungary 12,778 12,364 Zhejiang
Croatia 12,095 11,450 Inner Mongolia
Costa Rica 11,835 10,823 Fujian
Costa Rica 11,835 10,749 Guangdong
Costa Rica 11,835 10,433 Liaoning
Costa Rica 11,835 10,218 Shandong
St. Lucia 7,940 8,333 Chongqing
St. Lucia 7,940 8,257 Jilin
St. Lucia 7,940 8,091 Hubei
Gabon 7,587 7,647 Shaanxi
Dominica 7,356 6,975 Ningxia
Bulgaria 7,387 6,842 Hunan
Turkmenistan 6,622 6,569 Qinghai
Montenegro 6,629 6,500 Hainan
Montenegro 6,629 6,428 Hebei
Montenegro 6,629 6,375 Xinjiang
Montenegro 6,629 6,266 Heilongjiang
Colombia 5,792 6,246 Henan
Namibia 4,630 5,866 Sichuan
Namibia 4,630 5,848 Jiangxi
Belarus 5,143 5,732 Anhui
Thailand 5,899 5,628 Guangxi
South Africa 5,261 5,576 Shanxi
Serbia 5,376 5,095 Tibet
Macedonia 5,263 4,753 Guizhou
Macedonia 5,263 4,620 Yunnan
Samoa 4,035 4,166 Gansu
Algeria 3,944 4,297 Guizhou
Note: 1. There is a slight discrepancy between IMF and NBS data for overall GDP levels
2. China’s provincial data is in 2015
Source: National Bureau of Statistics of China; IMF; The Beijing Axis Analysis The Beijing Axis 162
China’s economy has shown greater resilience than most other major
economies, even during the global financial crisis
GDP Growth Comparison (%, 2000-2018F)

20
China Australia Brazil India Japan Russia South Africa US EU
China’s economy is
15
stabilising at sub-7%
Global financial crisis growth
10
-5
Dotcom bubble
Eurozone crisis
-10
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17F 18F
Since 1980, China’s annual GDP growth rate has consistently exceeded the
global average. China will remain a global economic engine, even at a lower
growth rate of under 7%
China vs. US vs. World Average Annual GDP Growth (% Y-o-Y, 1980-2018E)
China US World Average

16
12
-4
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17F18F
Although China's economic growth slowed to 6.7% in 2016, it still outpaced the
rest of Asia and other major economies, with India and the Philippines being
the two exceptions
Annual GDP Growth for Asia and Major Economies (% Y-o-Y, 2016)
8
6.7 6.8 6.8
6.2
6
5.0
4.2 Global economy
4 GDP growth = 3.1%
2.0 3.2
2 2.8 1.8 2.0 1.8
1.4 1.6
1.0
0
South Korea
China
India
Indonesia
UK
US
Euro Area
Thailand
Philippines
Malaysia
Vietnam
Taiwan
Singapore
Japan
Hong Kong
Developed Markets Developing Markets
Despite the size of its economy, China’s GDP per capita remains low compared
to other developed and developing countries. In 2016, China’s GDP per capita
was USD 8,113
Nominal GDP Per Capita (USD, 2016)
USD 25,000 or more

USD 10,000-USD 25,000
USD 2,500-USD 10,000
Less than USD 2,500 or no data
Note: Most of the nominal GDP per capita figures from the latest IMF database are from 2014
Within the BRICS economies, China’s GDP per capita has yet to overtake Russia
and Brazil, although it is higher than both India and South Africa
GDP Per Capita Comparison of Selected Economies (USD, 2001-2016E1)
Australia Brazil China Brazil China India

80,000 India Japan Russia 16,000
Russia South Africa
South Africa US EU
70,000 14,000
60,000 12,000
50,000 10,000
40,000 8,000
30,000 6,000
20,000 4,000 In 2016, China’s GDP

per capita surpassed
USD 8000
10,000 2,000
0 0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Note: 1. Estimated by the IMF at April 2017

Relative to other large economies, China’s economy still has a large industry
sector, highlighting the potential for the services sector to further expand and
support growth as the economy transitions
Share of GDP by Industry of Top 30 Global Economies (%, 2016)
Agriculture Industry Services

100%
Industrial sector contributed

80% 72.8% in 2005; in 2016, the
contribution reduced to 40.70%,
showing increasing focus on
60% value added industries
40%
20%
0%
South Korea
Canada
Austria
UAE
Iran
China
Germany
France
Italy
Idonesia
Turkey
Nigeria
Poland
Australia
US
UK
India
Russia
Mexico
Thailand
Brazil
Netherlands
Saudi Arabia
Belgium
Spain
Argentina
Japan
Switzerland
Sweden
Norway
32 - S Africa
Source: CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 168
The contribution of consumption to China’s GDP is much lower than that of
other major economies, highlighting the potential of consumption as an
additional lever of future economic growth
Composition of GDP of Top 30 Global Economies – Expenditure Approach (%, 2015)

Net Exports Final Consumption Expenditure Gross Capital Formation (GCF)
120
100
China’s GCF and exports made
80 up 75.7% of GDP in 2005,
reducing to 70.6% in 2014
60
40
20
-20
Switzerland
UAE
Germany
France
Italy
S. Korea
Turkey
Poland
Nigeria
Iran
Austria
Australia
US
China
UK
India
Russia
Mexico
Indonesia
Thailand
Netherlands
Saudi Arabia
Brazil
Canada
Belgium
Spain
Argentina
Sweden
Japan
Norway
Note: Whilst the data comes from 2015, the Top 30 economies have been arranged in order of their GDP rankings for 2016
Agenda
1. Foreword

In 2015, China was the world’s largest exporter, with total exports of USD 2.3
tn, or about 21% of its GDP
Once dependent on its

World’s Major Exporters (2015) exports, China is seeing a
shift in importance towards
domestic-driven consumption Bubble Size: GDP = USD 2,000 bn
Exports (USD bn)
2,500
China China’s Exports (USD bn)
China overtook
2,000 Germany to become
2002 326
the world’s largest 2007 1,218
exporter in 2010 2015 2,277
1,500 CAGR (2002-2015) 16%
Germany
US
China in 2002
1,000
Japan France
Italy Canada
500 S. Korea Netherlands
UK UAE
Mexico Taiwan Belgium
Australia Spain Russia
0
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Export/GDP (%)
China Developed Asia Others
Source: World Bank; IMF; UN Comtrade; China Customs; The Beijing Axis Analysis The Beijing Axis 171
China is the world’s largest exporter of electrical machinery. In 2015, China
exported over USD 600 bn of electrical machinery, accounting for 29% of the
world’s total
China’s Top 10 Export Commodities 2015 (HS Code) Top 20 Exporters of Electrical Machinery (USD bn,
2015)
Total: USD 2,277 bn
China
85 Electrical machinery and equipment Hong Kong
26%
US
84 Nuclear reactors, machinery and mechanical appliances Germany
Singapore
94 Furniture, lighting, signs, prefabricated buildings
Other Asia
61 Articles of apparel and clothing accessories (knitted)
Japan
16% Mexico
62 Articles of apparel and clothing accessories (not knitted) Malaysia
4% Netherlands
4% France
90 Optical, photo, technical, medical, etc. apparatus
3% China’s share has
3% Thailand
3% UK risen from only 8%
3%
39 Plastics and articles
3% Italy to almost one third
2%
87 Vehicles other than railway, tramway Czech Rep.
Philippines China 2002 2015
73 Iron and steel Poland
Export of Electrical
33% Hungary Machinery (USD bn)
65.1 600.3
64 Footwear Spain
Slovakia % of World Total 7.6 28.9
Other
0 100 200 300 400 500 600
Source: UN Comtrade; China Customs; The Beijing Axis Analysis The Beijing Axis 172
China is the world’s largest exporter of power generation equipment. In 2015,
China exported nearly USD 365 bn, or 20% of the world’s power generation
equipment exports
China’s Top 10 Export Commodities 2015 (HS Code) Top 20 Exporters of Power Generation Equipment
(USD bn, 2015)
Total: USD 2,277 bn
China
85 Electrical machinery and equipment Germany
26%
US
84 Nuclear reactors, machinery and mechanical appliances Japan
Italy
Hong Kong
UK
16% Netherlands
62 Articles of apparel and clothing accessories (not knitted) France
4% Mexico
4% China has surpassed
90 Optical, photo, technical, medical, etc. apparatus Singapore
3% major manufacturing
3% Thailand
3% powerhouses to account
3%
39 Plastics and articles Canada
3% Other Asia for over 20% of exports
2%
87 Vehicles other than railway, tramway Belgium
Czech Rep. China 2002 2015
Export of Power Generation
33% Switzerland Equipment (USD bn)
50.8 364.5
64 Footwear Malaysia
Spain % of World Total 5.8 20.2
Other
0 100 200 300 400 500
China is the world’s largest exporter of furniture and lighting, exceeding the
combined share of the next 5 largest exporting countries. In 2014, China
exported a total of USD 99 bn, or 44% of the world’s furniture and lighting goods
China’s Top 10 Export Commodities 2015 (HS Code) Top 20 Exporters of Furniture and Lightings (USD
bn, 2015)
Total: USD 2,277 bn 98.7
China
85 Electrical machinery and equipment Germany
26%
Italy
84 Nuclear reactors, machinery and mechanical appliances US
Poland
Mexico
Canada
16% Czech Rep.
4% Netherlands
4% UK
3% China accounted
3% Spain
3% Turkey for almost half of
3%
3% Denmark global exports
2%
87 Vehicles other than railway, tramway Malaysia
Sweden China 2002 2015
73 Iron and steel Romania
Export of Furniture &
33% Belgium Lightings (USD bn)
9.9 98.7
64 Footwear Other Asia
Portugal % of World Total 12.1 44.2
Other
0 10 20 30 40
China is by far the world’s largest exporter of knitted articles of apparel and
clothing accessories. In 2015, China exported a total of USD 84 bn, or 47% of
the world’s knitted apparel and clothing accessories
China’s Top 10 Export Commodities 2015 (HS Code) Top 20 Exporters of Knitted Articles of Apparel
(USD bn, 2015)
China
85 Electrical machinery and equipment Hong Kong
26%
Turkey
India
Italy
Belgium
16% Spain
4% Netherlands
4% UK
3% China accounts
3% US
3% Sri Lanka for almost half of
3%
3% Pakistan global exports
2%
87 Vehicles other than railway, tramway Portugal
El Salvador China 2002 2015
Export of Knitted Articles of
33% Thailand Apparel (USD bn)
16.0 83.8
64 Footwear Mexico
Denmark % of World Total 19.1 47.0
Other
0 5 10 15 20
China is the largest exporter of optical and photographic equipment. In 2015,
China exported over USD 78 bn, or 44% of the world’s products in this category
China’s Top 10 Export Commodities 2015 (HS Code) Top 20 Exporters of Optical and Photographic Equipment
(USD bn, 2015)
China
85 Electrical machinery and equipment Italy
26%
India
Hong Kong
Spain
Turkey
16% France
62 Articles of apparel and clothing accessories (not knitted) UK
4% Netherlands
4% Belgium
3% China accounts
3% Mexico
3% US for almost half of
3%
3% Poland global exports
2%
87 Vehicles other than railway, tramway Romania
Pakistan China 2002 2015
73 Iron and steel Denmark
Export of Optical & Photographic
33% Sri Lanka Equipment (USD bn)
10.5 78.5
64 Footwear Tunisia
Portugal % of World Total 24.4 43.8
Other
0 10 20 30 40
Over the last decade, China’s exports of major mining products have grown
rapidly as the country transitions towards manufacturing high-value goods
Analysis of China’s Exports of Top Mining Products (2016)

A bubble of this size represents
Export CAGR for 2012-2016 (%)
total export value of USD 10 mn
14%
12% 19.4 Lubricants
10%
Grinding Media
8%
Electrical equipment
6% Ground equipment
Mining operations tools (GET) 4.1 Cranes and derricks
4% equipment 2.7 40.6
Processing
Mining operations
consumables 2.3 0.8
2% 2.2 consumables
9.1
Spare parts for 3.7
Steel and structural mining equipment 0.9
Graphite electrode Material handling
products 27.6 equipment
0% 10.5
0% 5% 10% 15% 20% 25% 30% 35% 40%
-2%
Fixed Plant & Equipment Material Handling Mining Operations Global Market Share (%)
MRO Consumables Processing Electrical Equipment
Source: UN Comtrade; International Trade Center; The Beijing Axis Analysis The Beijing Axis 177
Over the last decade, China’s exports of major retail products have grown
rapidly as the country has become a global sourcing powerhouse
Analysis of China’s Exports of Retail Products (2016)

Export CAGR for 2006-2016 (%) A bubble of this size represents
T-Shirts total export value of USD 10 bn
27%
17.2
22%
Knitted or Crocheted
Fabrics Blankets and
17% Travelling Rugs
Shawls and
Scarves Shirts and Blouses
12% Cotton Yarns and Other 14.4 3.1 Linen
Woven Fabrics 2.5 Furnishings
16.0 3.4
Coats 8.3
7%
Gloves
15.0 7.6 2.2 Curtains
1.9
Wool Yarns Sweaters 1.6
2.4 17.6 Suits
2% and Textiles
2.1 8.6 Ski-suits and Silk Yarns and
Swimwear
10% 20% 30% 40% Baby 50% Woven Fabrics60% 70% 80%
-3% 0.6
Garments
Textiles and Garments General Merchandise Global Market Share (%)
In 2015, China was the 2nd largest importer after the USA, with imports of USD
1.682 bn, equivalent to 15% of its GDP
World’s Major Importers (2015)
Imports (USD bn)

2,500
USA In 2002, the
USA’s imports China’s Imports (USD bn)
2,000 were six times
greater than 2002 244
China’s imports 2007 956
China China
1,500 2015 1,682
CAGR (2002-2015) 14%
UK
1,000 France Germany
Japan Canada Mexico S. Korea

500 Netherlands
Taiwan UAE
India Belgium
Spain Switzerland
China in 2002 Italy
0
5 15 25 35 45 55 65 75
China Developing Asia Developed Asia Others

Imports/GDP (%)
Source: World Bank; IMF; China Customs; UN Comtrade; The Beijing Axis Analysis The Beijing Axis 179
China is the world’s largest importer of electrical machinery and equipment.
In 2015, China imported a total of USD 432 bn, or 19% of the world’s
electrical machinery and equipment imports
China’s Top 10 Import Commodities 2015 (HS Code) Top 20 Importers of Electrical Machinery (USD bn,
2015)
Total: USD 1,682 bn
China
85 Electrical machinery and equipment US
26%
Hong Kong
27 Mineral fuels, mineral oil and products of their distillation
Germany
Japan
84 Nuclear reactors, machinery and mechanical appliances
Mexico
12% 90 Optical, photographic and cinematographic, equipment Singapore
UK
26 Ores, slag, ash France
9%
Other Asia
6% 87 Vehicles other than railway, tramway Netherlands
4% Malaysia Driven by demand
4% 39 Plastics Canada from China’s
4% Thailand industrial sector
4%
2% 29 Organic chemicals India
3% Italy China 2002 2015
12 Oil seed Poland
Import of Electrical
Spain Machinery (USD bn)
73.2 431.6
26% 74 Copper and articles Czech Rep.
21%
Russia % of World Total 8.3 19.4
Other
0 90 180 270 360 450
China is the world’s 2nd largest importer of mineral fuels. In 2015, China
imported a total of USD 199 bn, or 12% of the world’s mineral fuels imports
China’s Top 10 Import Commodities 2015 (HS Code) Top 20 Importers of Mineral Fuels (USD bn, 2015)
Total: USD 1,682 bn

US
85 Electrical machinery and equipment China
26%
Japan
India
Germany
Netherlands
12% 90 Optical, photographic and cinematographic, equipment France
Singapore
9% 26 Ores, slag, ash Italy
UK
6% 87 Vehicles other than railway, tramway Belgium
4% Spain Driven by both
4% 39 Plastics Turkey industry and growing
4% Other Asia personal consumption
4%
2% 29 Organic chemicals Thailand
3% Canada China 2002 2015
12 Oil seed Mexico
Import of Mineral
Brazil Fuels (USD bn)
19.3 198.7
26% 74 Copper and articles Malaysia
21%
Australia % of World Total 3.2 12.2
Other
0 50 100 150 200 250 300 350
China is the world’s 2nd largest importer of power generation equipment. In
2015, China imported a total of USD 157 bn, or 9% of the world’s power
generation equipment imports
China’s Top 10 Import Commodities 2015 (HS Code) Top 20 Importers of Power Generation Equipment
(USD bn, 2015)
Total: USD 1,682 bn
US
85 Electrical machinery and equipment China
26%
Germany
UK
France
Mexico
12% 90 Optical, photographic and cinematographic, equipment Canada
Hong Kong
26 Ores, slag, ash Japan
9%
Netherlands
6% 87 Vehicles other than railway, tramway Singapore Driven by growing
4% Italy industrial demand
4% 39 Plastics Russia from China
4% India
4%
2% 29 Organic chemicals Australia China 2002 2015
3% Spain
12 Oil seed Import of Power
Belgium
Generation Equipment 52.1 157.2
Other Asia (USD bn)
26% 74 Copper and articles Thailand
21%
Saudi Arabia % of World Total 5.8 9.0
Other
0 70 140 210 280 350
China is the world’s largest importer of optical and photographic equipment.
In 2015, China imported a total of USD 100 bn, or 20% of the world’s total
imports of optical and photographic equipment
China’s Top 10 Import Commodities 2015 (HS Code) Top 20 Importers of Optical and Photographic
Equipment (USD bn, 2015)
China
85 Electrical machinery and equipment US
26%
Germany
Japan
Netherlands
France
12% 90 Optical, photographic and cinematographic, equipment UK
Mexico
26 Ores, slag, ash Hong Kong
9%
Belgium
6% 87 Vehicles other than railway, tramway Canada Driven by the growth of
4% Italy the middle class and
4% 39 Plastics Other Asia evolving consumer tastes
4% Singapore
4%
2% 29 Organic chemicals Australia China 2002 2015
3% Spain
12 Oil seed Switzerland Import of Optical &
Photographic 13.5 99.7
India Equipment (USD bn)
26% 74 Copper and articles Brazil
21%
Thailand % of World Total 7.0 20.4
Other
0 10 20 30 40 50
China is the world’s largest importer of ores, slag and ash. In 2015, China
imported a total of USD 95 bn, or 57% of the world’s total imports of ores,
slag and ash
China’s Top 10 Import Commodities 2015 (HS Code) Top 20 Importers of Ores, Slag and Ash (USD bn,
2015)
China
85 Electrical machinery and equipment Japan
26%
Germany
India
Spain
US
12% 90 Optical, photographic and cinematographic, equipment Belgium
Canada
26 Ores, slag, ash UK
9%
Other Asia
6% 87 Vehicles other than railway, tramway Netherlands
4% Finland Used as inputs
4% 39 Plastics Bulgaria and raw materials
4% France for industry
4%
2% 29 Organic chemicals Malaysia
3% Italy China 2002 2015
12 Oil seed Brazil
Import of Ores, Slag, Ash (USD
Russia bn)
4.3 95.1
26% 74 Copper and articles Poland
21%
Turkey % of World Total 14.3 57.0
Other
0 30 60 90
Agenda
1. Foreword

China has been moved up from the 3rd largest provider of global FDI to the 2nd
in 2016
Top 20 World FDI Outflows (USD bn, 2014-2016)

2014 2015 2016
0 50 100 150 200 0 50 100 150 200 0 50 100 150 200
US 337 US 300 US 300
Hong Kong Japan China 183
China 116 China 128 Netherlands
Japan Netherlands Japan
Germany In 2014, China In 2015, China Canada In 2016, China
Ireland
Russia ranked 3rd ranked 3 rd Hong Kong ranked 2nd
Germany
Canada Switzerland France
France Canada Ireland
Netherlands Hong Kong Spain
Singapore Luxembourg Germany
Ireland Belgium Luxembourg
Spain Singapore Switzerland
Korea France Republic of Korea
Italy Spain Russia
Norway Republic of Korea Singapore
Switzerland Italy Sweden
Malaysia Russia Italy
Kuwait Sweden Belgium
Chile Norway Norway
Taiwan Chile Chile
Note: 1. British Virgin Islands is not included in the ranking because of its nature as an offshore financial centre (most FDI is in transit)
2. To make international comparisons, this section utilizes China’s FDI and OFDI figures from the WIR 2013/14/15 instead of figures from MOFCOM
Source: WIR 2016; The Beijing Axis Analysis The Beijing Axis 186
In 2016, China remained a key player in FDI inflows and outflows, ranking 2nd in
the world on both fronts
Top 20 World FDI Inflows (USD bn, 2016) Top 20 World FDI Outflows (USD bn, 2016)
0 20 40 60 80 100 120 140 160 180 200 0 50 100 150 200
US 380 US 300
China 134 China 183
United Kingdom Netherlands
Hong Kong In 2016, China Japan
Netherlands ranked 2nd Canada In 2016, China
Brazil Hong Kong ranked 2nd
Singapore France
British Virgin… Ireland
Australia Spain
Cayman… Germany
India Luxembourg
Russia Switzerland
Canada Republic of Korea
Belgium Russia
Italy Singapore
France Sweden
Luxembourg Italy
Mexico Belgium
Ireland Norway
Sweden Chile
In 2016, China ranked 3rd overall and 2nd in Asia for FDI inward stock with USD
1,354 bn. For OFDI, it ranked 6th with USD 1,281 bn
Top 20 World FDI Inward Stock (USD bn, 2016) Top 20 World FDI Outward Stock (USD bn, 2016)
0 1,000 2,000 3,000 4,000 0 1,000 2,000 3,000 4,000

US 5,588 US 6,384
Hong Kong Hong Kong
China 1,354 UK
UK Japan
Singapore Germany
China ranked 3nd
Canada China 1,281
Ireland France China ranked 6th
Netherlands Netherlands
Switzerland Canada
Germany Switzerland
France Ireland
Brazil Singapore
Australia Spain
Spain Italy
Belgium Belgium
Mexico Australia
Russia Sweden
Italy Russia
India Taiwan
Sweden South Korea
Sovereign wealth funds are playing a key role in overseas investment. China
is home to some of the world’s largest sovereign wealth funds
Locations of World’s Top 20 Sovereign Wealth Funds (USD bn, Apr 2017)
China
1. China Investment Corporation
Norway 2. Hong Kong Monetary Authority
922 Investment Portfolio
Russia 3. SAFE Investment Company
Kazakhstan 72
65 4. National Social Security Fund
Kuwait
524
UAE China China
125 814 441
Saudi Arabia UAE S. Korea
514 201 China 108
UAE Hong Kong
Saudi Arabia 295
UAE 110 457
183
Qatar 828 Singapore
335 350
Libya
Singapore
66
180
Oil Australia
99
Non-Commodity
Oil & Gas
Source: Sovereign Wealth Fund Institute; The Beijing Axis Analysis The Beijing Axis 189
China’s sovereign wealth funds are some of the largest in the world. The
ranking continues to be dominated by Middle East and East Asian countries
Ranking of World’s Top 20 Sovereign Wealth Funds (USD bn, Apr 2017)
Assets under management
Rank Economy Fund Type
(USD bn)
1 Norway Government Pension Fund – Global Oil 922
2 UAE – Abu Dhabi Abu Dhabi Investment Authority Oil 828
3 China China Investment Corporation Non-Commodity 814
4 Kuwait Kuwait Investment Authority Oil 524
5 Saudi Arabia SAMA Foreign Holdings Oil 514
6 China SAFE Investment Company Non-Commodity 474
7 China – Hong Kong Hong Kong Monetary Authority Investment Portfolio Non-Commodity 457
8 Singapore Government of Singapore Investment Corporation Non-Commodity 350
9 Qatar Qatar Investment Authority Oil & Gas 335
10 China National Social Security Fund Non-Commodity 295
11 UAE – Dubai Investment Corporation of Dubai Non-Commodity 201
12 Singapore Temasek Holdings Non-Commodity 180
13 Saudi Arabia Public Investment Fund Oil 183
14 UAE – Abu Dhabi Mabadala Investment Company Oil 125
15 UAE – Abu Dhabi Abu Dhabi Investment Council Oil 110
16 South Korea Korea Investment Corporation Non-Commodity 108
17 Australia Australia Future Fund Non-Commodity 99
18 Russia National Welfare Fund Oil 72
19 Libya Libyan Investment Authority Oil 66
20 Kazakhstan Samruk-Kazyna JSC Oil 65
Source: Sovereign Wealth Fund Institute; The Beijing Axis Analysis The Beijing Axis 190
Agenda
1. Foreword

In 2016, China had the world’s second largest current account surplus at
over USD 271 bn, behind Germany at USD 301 bn
Current Account Balance for Select Countries (USD bn, 2016E1)
Canada -57 bn Germany 301 bn

3 1
2
UK -157 bn
Japan
US -469 bn 176 bn 3
1 2
China
271 bn Korea
4
102 bn
5
5
Taiwan
Saudi -42 bn
78 bn
Australia
Top 5 current account surpluses 4 -44 bn
Top 5 current account deficits
Note: 1. CIA World Factbook Estimates for 2016

Source: World Bank; CIA World Factbook; The Beijing Axis Analysis The Beijing Axis 192
China, the world’s largest foreign exchange reserves holder, has more than
twice the FX reserves of the 2nd largest holder, Japan. Asian countries largely
dominate the top 15
Top 30 Largest Holders of Foreign Exchange and Gold Reserves (USD bn, Q4 2016)
3,092
2,000
1,600 Asia
1,200
800
400
0
Saudi Arabia
Iran
U.K
U.S
France
Algeria
Turkey
UAE
Mexico
China
Russia
Thailand
Germany
Italy
Indonesia
Poland
India
Brazil
Canada
Taiwan
Singapore
Malaysia
Philippines
Denmark
Switzerland
S.Korea
Japan
Hong Kong
Czechia
Note: Estimates are as of 31 December 2016
In 2016, China’s external debt of around USD 950 bn accounted for just over
1% of the world’s total external debt
Top 30 Economies with Largest External Debt (USD bn, 2016E1)

16,000
12,000
8,000 At the end of Q4 2016,

China’s external debt
amounted to USD 984 bn
4,000
984
0
Portugal
China
Ireland
Austria
Mexico
EU
France
Germany
Luxembourg
Italy
Turkey
S. Korea
Australia
Canada
Finland
Greece
US
UK
Netherlands
Belgium
Russia
India
Denmark
Spain
Brazil
Switzerland
Singapore
Japan
Sweden
Norway
Hong Kong
Note: 1. These are CIA World Factbook figures; 2014 estimate has been used for EU because data for 2016 was not available
China’s discount rate is relatively low at 2.25%, which is lower than that of
other large developing economies
Central Bank Discount Rate1 of Select Economies (%, 20162)
China Discount
12 11.5%
High-rate countries Rate (%)
2010 3.25
10 2011 2.25
2012 2.25
2013 2.25
8 Medium-rate countries 2014 2.25
2015 2.25
6
4
Low-rate countries
2.25
2
Canada
Chile
Turkey
EU
China
S. Korea
Russia
India
Indonesia
South Africa
Colombia
Mexico
Australia
Kenya
UK
US
Brazil
Vietnam
Japan
Note: 1. The interest rate charged by a central bank on loans to its member banks. A change in the discount rate is usually followed by similar changes in the interest rates charged by banks and in money markets
2. The central bank discount rate is updated to the latest available month in 2016
3. Data is from CIA World Factbook latest estimates
As of Dec 2016, China’s prime lending rate was 4.40%, which is comparable
to that of its Asia Pacific neighbours Australia, New Zealand and Singapore
Commercial Bank Prime Lending Rate1 of Select Economies (%, 20162) China cut its prime lending rate 4
times in 5 months
China’s Prime Lending Rate (%, May 2015 - Dec 2016)
65 61 7%
High-rate countries 6%
52 5%
4%
39 3%
26
Medium-rate countries
Low-rate countries
13
4.40
0
Yemen
Tajikistan
Madagascar
Australia
Gambia
Eq. Guinea
Barbados
Romania
Greece
China
Italy
US
Israel
Brazil
Uganda
Venezuela
Guatemala
DRC
Guyana
Singapore
S.Korea
Ghana
Georgia
Malawi
Guinea
Timor-Leste
Iceland
Burundi
New Zealand
Note: 1. Prime lending rate is a short-term interest rate quoted by a commercial bank to its best commercial customers. Even though banks frequently charge more and sometimes less than the quoted prime
rate, it is a benchmark against which other rates are measured. For various reasons, a rising prime rate is generally considered detrimental to security prices
2. CIA World Factbook, 31 December 2016 estimates
Agenda
1. Foreword

China is the most populous country in the world with ~ 1.38 billion people. A
cultural preference for male heirs has left China with one of the highest
male-to-female ratios in the world, alongside Saudi Arabia and India
Population of Top 30 Economies by GDP (mn, 2016E1)
Female Male Ratio

GDP Rank 2015 Total Male/100 Female
US 324 97
China 1,375 106
Japan 127 94
Germany 667 707 81 97
UK 64 99
France 67 96
India 1,267 108
Italy 609 658 62 93
Brazil 206 97
Canada 35 98
Korea 51 100
Russia 142 86
Australia 23 101
Spain 49 98
Mexico 123 96
Indonesia 258 100
Netherlands 17 98
Turkey 80 101
Switzerland 8 97
Saudi Arabia 28 119
Argentina 44 98
Taiwan 23 99
Sweden 10 100
Nigeria 186 104
Poland 39 94
Belgium 11 97
Thailand 68 97
Norway 5 102
Iran 83 103
Austria 9 96
Note: 1. CIA World Factbook estimates are from July 2016

Source: CIA World Factbook; World Bank; The Beijing Axis Analysis The Beijing Axis 198
While China currently has a favourable demographic makeup, its working-
age population (15-64) is expected to enter a shrinking phase from 2015
onward, due to a rapidly ageing population
Child and Elderly Population for Selected Countries (2016E1)

Population under 15 (%)
45 A bubble this size represents a
Nigeria population of 100 mn
36 India UK
Australia
Mexico
China
27 Saudi Arabia Turkey Argentina Belgium
US Norway France
Sweden
18 China
Iran Netherlands Japan
Brazil 2016 Canada
Russia
Indonesia Poland Switzerland Germany
9 China Taiwan Austria
2002 S. Korea Spain Italy
Thailand
0
0 5 10 15 20 25 30
Population aged 65+ (%)
China’s social structure is rapidly evolving – the population is becoming richer,
more urban, more literate and tech-savvy, and its tastes and consumption
patterns are also shifting
China’s Social Demographic Shift (2009, 2015)

Population Distribution (Mn) China’s population is aging Luxury Spending (USD bn)
rapidly, 9% of its population The decline in Luxury Spending
is above 64 years old while 19 17 in 2015 was impacted by the
253 235 the birth rate remains low 10 economic slow down and stock
240
64+ market crash in Q2/Q3
972 1,024 997
15-63 2009 2014 2015
106 126 142
2009 2014 2016 0-14
% Distribution of Internet
Per Capita Disposable Income (USD) Internet Penetration (Mn)
Penetration
29% 48% Year Urban Rural
Urban
26,955
668 2009 43% 15%
754 2,514 8,896
384
Rural 2015 72% 28%
2009 2014
2009 2015Q2
Popn. below Poverty Line (Mn) Mobile Subscriptions (Mn*)
11.8% 5.8% In 2014, 519mn (38% of the
90% of the poor population 56% 86% population) has access to
157 come from rural areas, 99% smartphones – nearly 43% of
if migrant population 747 1,206 mobile phones are smartphones
82
included as rural
2009 2014 2009 2014
% Urbanised Population Literacy Rate (Mn.)
China’s urbanised population 96%
is expected to reach 60% in 95%
55% 56% 2020 and 70% by 2030 1,092
47% 1,058
2009 2014 2015 X% Represents % of popn.

2010 2015
Note: People earning less than USD 1.25 per day are categorised as below poverty line; Mobile penetration is the overall mobile phones in use, does not take into account individual users
China’s level of urbanisation is still much lower than that of other large economies;
however, it has one of the fastest growing urbanisation rates at 3.1%
Urban and Rural Population of Selected Economies (%, 2016)
Annual Rate of Urbanisation Change (%, 2010-2015)

Urban 0.5 1.0 0.6 1.5 0.6 0.8 1.2 0.8 1.1 1.0 0.7 2.1 1.2 0.9 1.4 0.5 1.6 0.2 -0.1 -0.1 1.1 2.0 0.4 2.1 0.4 0.5 1.6 3.1 2.7 2.4
Urban Rural
100 2
43
67
98
57
33
0
Australia
Turkey
Norway
Russia
France
Austria
US
S. Korea
Germany
Poland
Italy
Iran
Greece
China
Indonesia
Canada
UK
India
Mexico
Belgium
Argentina
Denmark
Brazil
Netherlands
S. Arabia
Spain
S. Africa
Japan
Sweden
Switzerland
While the average life expectancy for both men and women in China is
higher than in other large developing economies, it still lags behind more
developed economies
Life Expectancy of Top 30 Economies by GDP (Age, 2016E1)
GDP Rank 2016 Male Female

US
China
Japan
Germany
UK
France
India
Italy
Brazil
Canada
Korea
Russia
Spain
Australia
Mexico
Indonesia
Turkey
Netherlands
Switzerland
Saudi Arabia
Argentina
Taiwan
Sweden
Poland
Belgium
Thailand
Nigeria
Norway
Iran
Austria
90 70 50 30 10 10 30 50 70 90

China’s economic activity rate is comparatively larger than those of major
developed economies. China has the 2nd highest female economic activity
rate among the world’s top economies
Adult (15 and Older) Labour Participation Rate (%, 2016)
GDP Rank 2016 Male Female Total Labour Participation Rate*
US 62
China 70.8
Japan 59.1
Germany 60.3
UK 62.7
France 54.9
India 53.8
Italy 48.3
Brazil 67
Canada 65.4
South Korea 60.8
Russia 63.3
Spain 58.2
Australia 64.6
Mexico 62.2
Indonesia 67.3
Turkey 50.3
Netherlands 63.6
Switzerland 68.5
Saudi Arabia 54.5
Argentina 61
Sweden 64.5
Poland 56.8
Belgium 53.5
Thailand 71.2
Nigeria 56.4
Iran 44.7
Austria 60.2
Norway 64.8
UAE 79.5
Egypt 49.6
100 80 60 40 20 0 20 40 60 80 100
Source: International Labour Organization; The Beijing Axis Analysis The Beijing Axis 203
Agenda
1. Foreword

Executive Summary – at the Highest Level
Analysis and Key Findings Conclusions & Implications Recommendations
1. China set to maintain GDP growth of above 6% over short 1. China remains the top driver for global growth and a key 1. Recalibrate China procurement and inbound supply
to medium term; well above world average; over the next player for companies worldwide in both inbound & chains as China shifts to higher cost and higher value-add
1-2 years GDP growth around 6.5-7% outbound supply chains manufacturing and supply; adapt supply focus i.e.
2. Opportunities emerge in new sectors due to broad-based potentially shift to tier-2 suppliers in China and tier-1
2. Transformation of China’s economy already more broad-
transformation; many challenges for traditional sectors - suppliers in lower cost Asia
based, yielding different winners and losers; many
challenges and reform needs are pressing previous winners must re-invent and adapt, or die 2. Businesses with complex supply chains must develop a
portfolio approach where China is still prominent (even
3. Innovation, increased investment in R&D and technology 3. China emerging as a leader in high–value added manu-
dominant) but new supply clusters in other lower cost
leadership in many areas are becoming pervasive facturing and exporting more high-end products; in this,
areas must be cultivated. A shift from China (2005), to
increasingly competing with Japan, US, Germany, etc.
4. Financial, structural and socio economic risks are China+1 or +2 (2015), to true international sourcing (2020)
4. China’s competitive model changes dramatically – takes or even full-scale global sourcing (2025)
numerous and serious, but we do not see growth
most of the world by surprise as it shifts from low cost to
faltering; debt situation is acute but will be managed 3. Look to China for higher-end solutions and technology in
high-end technology; but cost increases opens door for
industries where it has gained an advantage; be open to
5. There is a significant change in China’s manufacturing lower-cost countries and players in India, SE-Asia, etc.
sourcing services, turnkey project solutions and more
base, export profile and trade composition, i.e. less 5. Becoming more difficult to project in which sectors & how design and engineering solutions from China
growth in certain low-cost segments but new strength in China will compete in 2-5 years, let alone over the long 4. Supplier health checks now crucial; use strong risk radar
high-end segments term; and where/how other nations will be able to defend / to target relevant industry clusters and anticipate change
6. There is also a rapid change in the composition and win market share – need for solid strategic intelligence
5. Tap the Chinese industrial and household consumer
growth rates of imports as the transformation to middle 6. China’s growing demand for agri-processing, high-end market - develop modern China sales strategies and
and higher income continues; consumerism rampant and products, tech and services, makes it the fastest-growing, implement online & offline channels; success requires
large opportunities are developing for exporters to China large market; but selling to China has many challenges good implementation and astute management & teams
7. New dynamism and complexity as the country embraces 7. Increased e-commerce, fintech, digitalisation and 6. Confirm the relevant ‘hot sectors’ for your business i.e.
digitalisation, online trends and the adoption/diffusion of emergence of the shared economy yield new and vast agri, agri-processing, food products, advanced machinery,
new business models – an accelerating rate of change opportunities; but must be understood healthcare are some of the key areas for international
8. Deeper reforms are set to continue resulting in losers that brands; develop RTM with right partners that add value -
8. Shifting geopolitical and geostrategic landscape in a more
exit the market; and new winners & champions emerging identify the right partners in all dealings via solid DD
competitive world; China is now fully emerging as an
equal power to the US despite some views to the contrary 9. China’s influence rising; more assertive & confident China 7. Leverage China’s new outbound capital and pursue China
assumes new international & diplomatic stance that may as a capital partner; recognize the changing dynamics in
9. A new comprehensive global engagement and increased sector/regional focus, deal structures and regulation
challenge incumbents and existing arrangements via fora,
influence worldwide characterizes China’s external game 8. Three keys to China capital: adopt appropriate process to
initiatives and institutions such as BRI, FOCAC and AIIB
10. China’s integration in the world plays out in many areas 10. Change requires effective and comprehensive (and multi- articulate investment opportunity to correct targets
and has wide impact, i.e. in regional and global politics, dimensional) view of China and engagement as a partner, 9. Tap into high-quality strategic intelligence for strategy
trade, investment flows and various fora financier, competitor, producer, influencer, leader, etc. processes; deploy stellar implementation team

Disclaimer
This document is issued by The Beijing Axis. While all reasonable care has been taken in the preparation of this document, no
responsibility or liability is accepted for errors or omissions of fact or for any opinions expressed herein. Wherever applicable,
international sources of data have been used, which may have discrepancies from Chinese sources. We acknowledge this and
welcome any feedback highlighting this. Opinions, projections and estimates are subject to change without notice. This document is for
information purposes only, and solely for private circulation. The information contained here has been compiled from sources believed
to be reliable. While every effort has been made to ensure that the information is correct and that the views are accurate, The Beijing
Axis cannot be held responsible for any loss, irrespective of how it may arise. In addition, this document does not constitute any offer,
recommendation or solicitation to any person to enter into any transaction or to adopt any investment strategy, nor does it constitute
any prediction of likely future movements or events in any form. Some investments discussed here may not be suitable for all
investors. Past performance is not necessarily indicative of future performance; the value, price or income from investments may fall as
well as rise. The Beijing Axis, and/or a connected company, may have a position in any of the investments mentioned in this document.
All concerned are advised to form their own independent judgement with respect to any matter contained in this document.

Agenda
1. Foreword

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Economic Trends & Analysis

The Beijing Axis 0

The Beijing Axis is a professional services firm that does

Inbound & Outbound Supply Chain Services Cross-Border Advisory

Beijing Shanghai Singapore Perth Mumbai Valencia Johannesburg

The Beijing Axis 1

6. About The Beijing Axis

The Beijing Axis 2

Kobus van der Wath

The Beijing Axis 3

70% Africa Final North

refers to forecasted 2018 data

GDP Per- GDP Per- GDP Per-

Note: GDP 2016 data is based on IMF estimation

16 % 1990 1995 2000 2005 2010 2015 2016E

US 26% 25% 31% 28% 23% 25% 25%

4 Euro Area 26% 24% 20% 22% 19% 15% 21%

Japan 14% 17% 14% 10% 8% 6% 7%

Note: 2016 numbers are based on the IMF’s estimated data

Contribution to World GDP growth, percentage points

Financial crisis in the US and In 2015, China contributed 1.15

Components of China’s GDP (2010-2016) China GDP Breakdown, Expenditure Approach

Source: The Beijing Axis Analysis The Beijing Axis 11

6. About The Beijing Axis

The Beijing Axis 12

China applied stricter requirements for

Note: LHS refers to left axis, RHS refers to right axis

Source: UNCTAD, The Beijing Axis Analysis The Beijing Axis 15

China’s OFDI Flow to Each Region (USD bn, 2008-2015)

BVI, Cayman Islands and Mexico

Latin America Africa Oceania

26 China Molybdenum 1.50 Anglo American Apr 2016 Brazil Chemicals

27 Shandong Ruyi 1.48 70% SMCP Mar 2016 France Other

28 CIC 1.46 20% Sep 2016 Australia Transport

1979 1992 2000 2010 2013 2015

The Government has started

Source: Various; The Beijing Axis Analysis The Beijing Axis 27

Obstacles for Chinese Investment Going Global

Non-Market Advantages & Subsidies Asymmetry in Market Access

Experience Diminishing Regulatory Standards

Greenfield and M&A Value1 (USD bn, 2005-2016)

North America 3 S. Korea 38

Australia Africa Asia North Anerica South America Europe

25 Trad. Energy 148.4 bn

Source: Bloomberg; The Beijing Axis Analysis The Beijing Axis 32

Source: Bloomberg; The Beijing Axis Analysis The Beijing Axis 33

Note: 1. TMT refers to Technology, Media and Telecommunications

In 2016, the US had a trade

2,000 US OFDI stock

Geo-political Influence Domestic Economic Transformation

Source: Various; The Beijing Axis Analysis The Beijing Axis 38

Source: The Beijing Axis Analysis The Beijing Axis 39

6. About The Beijing Axis

The Beijing Axis 40

World’s Major Exporters (2016)

Note: 2016 export data is based on CIA World Factbook estimations

World’s Major Importers (2016)

Imports (USD bn)

China Developing Asia Developed Asia Others

Note: 2016 import data is based on CIA World Factbook estimations

The source is UN Comtrade,

Rest of Asia 1 New Zealand