Julian Chang November 28, 2012

What to look for in Chinas next five years

Key Priorities from the 18th Party Congress 1. Combat rampant corruption; 2. Address the environmental degradation and consequent social dissatisfaction; 3. Transition to domestic and consumptiondriven growth.

Domestic Trends
Geographical and industrial transformation:
east and mfg to west/lower tier and services/retail

Chinas demographics
an aging population will cause the proportion of non-earners to soar in the coming years combined with gender imbalance:

Economic Development Regions

State Council 2003/09

Premier Zhu, 2000

Where it all started

Premier Wen 3.5.04

Rise of the cities

In the next two decades, Chinas urbanization is expected to boost domestic demand by $4.5 trillion.

Where have all the girls gone?

Pink is bad; red is worse and dark red is worst.

Demographic implications
unmarried men appear to suffer greater health risks than their married counterparts; old-age support for that rising cohort?

BUT,

Future Confidence
Life will be better for my children, 83% vs. 65% in India, 21% in US, 13 in Germany (from a BCG survey 2012) Household Consumption spending will be 35% of GDP

Chinese Consumers are even more confident in first tier cities.

33%/43% for
discretionary spending

37%/37%

Necessity is the Mother of Invention

Innovation target 3.3 per 10,000 people in 12th Five Year Plan

R & D 2.2% of GDP by 2015 (would equal US$160 B in 2011)

Booz & Co. Global Innovation 1000 list 2011 47 Chinese companies 40 in 2010 23 in 2009 15 in 2008

Opportunities in Challenges
Green technologies Elder Care Services: hospitality and travel Food safety Education Financing

Outward Investment

Why CODI ?
Annual surpluses Diversify foreign-exchange reserves; increasingly uncertain market at home, where profit growth has slowed; Beijing's ongoing banking overhauls shrinking lending margins.

Global CODI today

US deals a/o Q3 2012

Investment by Type
(in $millions) Greenfield: 389 deals / $3,575 Acquisitions: 204 deals / $19,050

Investment by Ownership
Government: 149 deals / $12,609 Private: 444 deals / $10,016

Industry
Aero, Auto & Transport Consumer Products Electronics and IT Finance & Bus. Services Fossil Fuels & Chemicals Health, Bio & Pharma Hospitality & Real Estate Industrial Machinery Logistics Metals and Minerals Renewable Energy

Number of Deals
60 deals 80 142 55 45 38 21 67 18 22 45

USD millions
$1,541 $441 $3,357 $348 $8,277 $591 $3,849 $3,051 $23 $419 $729

The other big headline

Canaries
How to keep on top of it all, besides usuals, like data on electricity demand, monthly inventories, trade figures, etc. Provincial leadership (6th Gen)