China: Market Overview 1st Quarter 2010 Fisher Capital Management Korea

Fisher Capital Management Seoul Korea - April is going to set the tone for the world economy
depending on how China is labeled by the US and China’s reaction to it. Our gut feeling is that
apart from the rhetoric — which is in the air with respect to the Yuan-dollar rates, China’s
current account surplus and internet independence — neither of them will rock the boat.

Already five prominent members of the G20 — South Korea, Canada, France, the US and the UK
— have sent a coded warning to China against reneging on economic agreements. Perception
of China and the US in international relations is far apart.

According to China, the main issues are Taiwan and the sale of arms to Tibet and for the US the
issues are the Yuan-dollar rate, trade surplus and Internet freedom.

China: Market Overview 1st Quarter 2010 Fisher Capital Management Seoul Korea - Under the
Omnibus Trade and Competitiveness Act of 1988, the U.S. government is to decide whether to
label China a “currency manipulator.” This has not been done since 1994, but if China is named,
it will give the US Congress new ammunition to press for concrete action. China is asserting
itself in international relations. Beijing has emerged from the global recession with a fresh
confidence about its state-led economy, which has delivered stimulus projects from high-speed
railways to highways and bridges with remarkable efficiency. And it is in no mood to be lectured
by Washington about how to support the world economy or to operate her own economy.

China’s economic growth will be around 10% in 2010 following strong industrial output growth
in coming months. Inflation may rise to 3.5–4% in 2010. The government’s target of inflation is
3%. But, China has hidden debt risk among Chinese local government investment companies.
Official estimates of the total outstanding loan balance for such investment entities exceed Rmb
6,000bn — or roughly 20% of GDP — a figure that may be an underestimate.

China: Market Overview 1st Quarter 2010 Fisher Capital Management Korea - Undervaluation
of the Yuan is taken for granted and is estimated to be in the range of 30–40%. The US
administration believes that the Yuan’s appreciation will not only solve the trade deficit
problem between the US and China but also the US unemployment.

Beijing’s position is that China’s currency policy isn’t the cause of the U.S.’s economic problems,
and that China wouldn’t adjust its currency rate under outside pressure. “The Chinese
government will only make the decision according to the national condition and the country’s
development level,” according the Chinese President Wen. China believes that a surge in the
Yuan could destabilize the global economy, hitting developing nations especially hard and even
perhaps causing the value of the dollar to plunge.

The World Bank forecasts that China’s current-account surplus, the broadest measure of its
trade position, will rise this year to $304 billion, after dropping to $284.1 billion in 2009 from a
record $426.1 billion in 2008.
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