The China Compass - Q2 2019 - Axis Group

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The China Compass

Economic Trends & Analysis

Q2 2019

Axis Group 11

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Global markets. Connected

Other Recent Research & Publications

by Axis Group - Please contact us for

access to i.e.:

1. Asian Export Guide – What to export

to Asian economies and how to

succeed?

2. China Export Guide – What to export

to China and how to succeed?

3. 20 Years of SA-China Diplomatic ties

– Looking ahead at the next phase of

economic and business relations

2

Agenda

1. Foreword

2. Feature: Chinese Engagements and Activities in Africa

3. China Profile, Facts and Figures

4. China in the World

5. Conclusions, Implications and Recommendations

6. About Axis Group

Image Source: Trippest (cover page), Visual China Group (视觉中国) (agenda)

3

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 instrumentfor understanding China's position and its direction in the global economic landscape. By closely examining China's importance to, and progressive integration with, theworld economy, Axis Group presents The China Compass as a knowledge tool for executives with a China agenda.

Following a modest revival in global activity during 2017 and 2018, there are again many headwinds that are framing the international economic context. However, thereare also many prevailing geo-political uncertainties, with the US-China trade war, Brexit and several other political flashpoints having become defining obstacles in aworld of turmoil. Growth in US economic activity seems to have plateaued and the post-election process remains as painful as ever, as Americans continue to grapplewith issues across a deepening divide - the latest US government shutdown a case in point. Meanwhile, European revival remains tentative with Brexit-pains andongoing shifting political sentiments across Europe. These obstacles continue to cast a shadow of uncertainty. Hence, China’s slowdown over 2019 only adds to alreadyrising concerns; both over China’s domestic economic prospects but also for the world economy.

China’s transformation continues to accelerate – and the rate of change is now very rapid. As stated before, this leaves a wake of changes that has been destructive forsome, 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 andevolving nature of the country's social, economic, and financial terrain; and despite mounting challenges, our view remains that Beijing still has enough policy leeway tooffer critical support to offset the pressures in the economy; so, no hard landing on the horizon. But, deep-rooted and often painful reforms must continue as a matter ofurgency 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. Thiswill ensure sustained high GDP growth of above 5.5% - and the ability to overcome many challenges along the way - and the ongoing transition to a consumer-driven,service-oriented and higher-value-add economy.

Meanwhile, China’s global participation and influence are only rising – and is being played out across many dimensions, i.e. geopolitics, international economics, trade,capital flows, and culture. In our feature segment, we investigate China’s activities and engagement in Africa by looking into its role in African trade, capital flows, andinfrastructure. We also delve deeper into the China – South Africa economic relationship following 20 years of diplomatic ties.

In Section 1, we set the scene. Section 2 features 'China’s engagements and activities in Africa’. Sections 3 and 4 provide a more detailed, quantitative look into China'sdomestic economic, social, financial, and geopolitical make-up, and presents a comparison with selected economies in the wider global community. Finally, Section 5offers 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 a China agenda, and that it will shed light on past developments and future prospects ofa uniquely Chinese story of human development.

As always, we welcome all feedback.

Kobus van der WathChief Executive OfficerAxis Group [email protected]

Foreword

Other Recent Research & Publications by Axis Group

Please contact us for access to i.e.:

1. Asian Export Guide – What to export to Asian economies and how to succeed?

2. China Export Guide – What to export to China and how to succeed?

3. 20 Years of SA-China Diplomatic ties – Looking ahead at the next phase of economic and business relations

4

0

4

8

12

16

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20F

China’s GDP growth is expected to continue moderating, making it more sustainable - GDP growth rates in recent years already reflect this ‘new normal’

China’s Real Y-o-Y GDP Growth Rate (%, 1978-2020F)

Source: The World Bank; IMF; Axis Group Analysis

8-10% GDP

growth band Soft landing amid

global uncertainty

Overheating

concerns

7-8% GDP

growth band

More moderate

and stable

growth rate

6-7% GDP

growth band

Past periods of

overheating

5

With a GDP of USD 12tn in 2017, China accounted for 15% of the world’s economy and 40% of all developing economies; whilst China, India and Indonesia accounted for 53% of all developing economies

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

World GDP World GDP GDP of DevelopingEconomies

China GDP(Expenditure)

China GDP(Sectoral)

China GDP(Geographic)

China GDP(Geographic)

Hebei

Others

Africa

Germany

Japan

U.K.

US

China

CanadaBrazilItaly

FranceIndia

Other

Developed

Economies

Developed

Asia1

Other

Developing

Economies

& EITs2

Africa

China

Other

Developing

Economies

Africa

Other

Developing

Asia3

Indonesia

India

China

Net Exports

Gross

Capital

Formation

Final

Consumption

Expenditure

Tertiary

Industry

Secondary

Industry

Primary

Industry

Northwest

Northeast

Southwest

North

Central

South

East

Others

Fujian

Hunan

HubeiSichuan

Henan

Zhejiang

Guangdong

Shandong

Jiangsu

All Data in 2017USD 79.9tn USD 79.9tn USD 29.6tn USD 12tn USD 12tn USD 12tn USD 12tn

1. Developed Asia includes Japan; South Korea; Singapore; Macao SAR, China; and Hong Kong SAR, China

2. EITs denote economies referred to by the UN as “Economies in Transition”, and include Russia among other former Soviet states

3. Other Developing Asia includes Turkey, Saudi Arabia, Taiwan (Taiwan, China), Thailand, Iran, UAE, Israel, Malaysia, Philippines, Pakistan, Bangladesh, Vietnam, Iraq, Qatar, Kuwait, Sri Lanka, Oman,

Myanmar, Lebanon, Bahrain, Nepal, Cambodia, Afghanistan, Lao PDR, Yemen, Brunei, Mongolia, Fiji, Maldives and Bhutan

Source: IMF; National Bureau of Statistics of China; Axis Group Analysis

6

-4

0

4

8

12

16

1991 1995 1999 2003 2007 2011 2015 2019

World China

Developed World Developing Asia

Latin America & Caribbean Africa

GDP Growth Rate (Annual Y-o-Y%, 1991-2019F)

% 1995 2000 2005 2010 2015 2016 2017 2018E 2019F

World GDP (USD tn) 31.00 33.84 47.54 66.01 74.60 75.65 80.05 84.84 88.08

World GDP 100 100 100 100 100 100 100 100 100

Advanced

Economies81 79 76 66 61 61 60 60 60

US 25 30 27 23 24 25 24 24 24

Euro Area 25 19 22 19 16 16 16 16 16

Japan 18 14 10 9 6 7 6 6 6

Other Advanced 13 16 17 15 15 13 14 14 14

Emerging Market

and Developing

Economies19 21 24 34 39 39 40 40 40

China 2 4 5 9 15 15 15 16 16

Latin America &

Caribbean6 7 6 8 7 7 7 6 6

Africa 2 2 2 3 3 3 3 3 3

Other EM&D 9 8 11 14 14 14 15 15 15Note: 2018 and 2019 numbers are based on the IMF’s estimated (E) and forecasted (F) data

Source: IMF; Various; Axis Group Analysis

Global GDP Breakdown (%, 1995-2019F)

China’s rapid economic growth has increased the country’s share of global GDP from 2% in 1995, to 15% in 2015 and 16% in 2018

China

Developing Asia

Africa

Developed WorldLatin America & Caribbean World

7

15, 735 43,050

8,461

2,404

24,044

2,444

6,201

3,662 1,954

12,608 36,745

7,040

2,028

17,491

1,946

5,493

3,190

0

1

2

3

4

5

6

7

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50

Emerging and Developing Asia accounted for around 22% of global GDP in 2017 –set to have its share increase to 24% by 2020

Regional GDP Comparison (%, 2014-2020F)

Note: 1. GDP values are in national currencies converted to U.S. dollars using market exchange rates (yearly average) as given in IMF WEO April 2018

2. France, Germany and Italy have been included both in the Euro Area and Major Advanced Economies (G7) for the purpose of this representation

Source: IMF; Axis Group Analysis

Average GDP Growth Rate (2014-2017, 2017-2020F)

Share of Global GDP (2017- 2020F)

A bubble of this size represents USD 5,000 bn

BRICS2014-17 Avg. GDP

Growth Rate (%)

2017 GDP per

Capita (USD)

2020F GDP per

Capita (USD)

China 6.9 8,643 12,029

Brazil -1.4 9,895 11,141

Russia -0.1 10,608 12,426

India 7.3 1,983 2,539

S. Africa 1.2 6,180 6,815

Other Advanced

Economies

Emerging and

Developing Asia

Forecasted average

global GDP growth

(2017-2020): 3.7%

Note: Refers to 2017 data

Refers to forecasted 2020 data

Sub-Saharan Africa

Euro Area

Major Advanced

Economies (G7)

Commonwealth of

Independent States

Emerging and

Developing Europe

1,531

Emerging and Developing Asia

comprises 30 economies across

Eastern Asia, South Asia and the

Pacific. China accounts for 69% of the

GDP within this group in 2017, and is

projected to account for 70.5% in 2020

MENA

Latin America and

the Caribbean

8

GDP 2018E

(USD bn)

GDP Per-

Capita

2018E

(USD)

Population

2018E (mn)

China 14,170 10,100 1,400

India 2,960 2,190 1,350

Indonesia 1,070 3,970 268

Malaysia 372 11,340 32

Philippines 354 3,250 109

Thailand 524 7,570 69

Vietnam 266 2,790 95

Total 19,716 5,887 3,323

The Asia Pacific region is large and diverse, and home to countries at different stages of development

Note: *Taiwan, China; Hong Kong SAR, China; and Macau SAR, China; will be referred to as Taiwan, Hong Kong, and Macau

2018 estimate is from the IMF World Economic Outlook October 2018 Report

Source: IMF; Various; Axis Group Analysis

GDP 2018E

(USD bn)

GDP Per-

Capita 2018E

(USD)

Population

2018E (mn)

Pakistan 309 1,641 204

Bangladesh 313 1,880 166

Sri Lanka 98 4,470 22

Myanmar 74 1,390 53

Nepal 30 1.010 30

Cambodia 26 1,600 16

Papua New

Guinea21 2,500 8

Lao PDR 20 2,910 7

Brunei 15 34,560 0.44

Mongolia 14 4,470 3

Timor-Leste 3 2,630 1.3

Bhutan 2 3,420 0.8

Total 926 5,206 511

GDP

2018E

(USD bn)

GDP Per-

Capita

2018E (USD)

Population

2018E (mn)

Japan 5,220 41,420 126

South Korea 1,700 32,770 51

Australia 1,460 57,200 25

Taiwan,

China*626 26,520 24

Hong Kong

SAR, China*380 50,570 7

Singapore 359 62,980 6

New Zealand 212 42,010 5

Total 9,957 44,781 244

Tier 1: Emerging Markets Tier 3: Developed MarketsTier 2: Developing Markets

Total Asia Pacific GDP in 2018E – USD 30,599bnAsia Pacific’s Share of World GDP in 2018E – ~34.74%Asia Pacific’s Share of World Population in 2018E – ~54%

India

China

Mongolia

Pakistan

Bangladesh

Bhutan

Myanmar

ThailandLao PDR

Vietnam

Cambodia

Hong Kong, SAR, China

South Korea

Taiwan, China

Japan

Philippines

MalaysiaSingapore

Indonesia

Brunei

Papua New Guinea

Sri Lanka

Timor-Leste

Australia New

Zealand

9

0

10,000

20,000

30,000

40,000

50,000

60,000

-1 0 1 2 3 4 5 6 7 8 9 10

As the largest economy in Asia, China plays a critical role in the region’s ongoing transformation, both as a major market and as a supply base

Note: Timor-Leste and Bhutan’s GDP are too small to appear

Source: World Bank; Axis Group Analysis

Comparison of GDP Size, GDP per Capita and GDP Growth across Selected Asia Pacific Economies (2017)

GDP per Capita (USD, 2017)

Average Annual GDP Growth (%, 2007-2017)

Bubble Size: GDP = USD 2,500bn

China

New Zealand

Australia

Japan

Singapore

Hong Kong SAR, China

South Korea

Taiwan, China

India

Thailand

Pakistan

Nepal

Malaysia

Myanmar Cambodia

Brunei

Sri Lanka

Vietnam

Indonesia

Philippines

Lao PDR

Papua New

Guinea

10Note: Calculation through weighted GDP at purchasing-power parity


-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

China US EU Other BRICS All other countries

Over the last decade, China has been an increasingly important contributor to the world economy, typically accounting for more than 30% of total global GDP growth

Contribution to World GDP Growth (Percentage Points, 1991-2017)

World Total, % increase from 2011-2012

3.77%

In 2017, China contributed 1.22% to

world GDP growth percentage points,

which accounts for 32% of total 3.77%

GDP growth

Contribution to world GDP growth as

percentage points from the different

regions adds up to the world growth rate

in any given year

Financial crisis in the US and some EU

countries led to overall global GDP

decrease in 2009

11

Setting the scene

Source: Axis Group Analysis

• Although China is in a long-term structural adjustment phase towards lower GDP growth, it maintains world-leading growth levelsand currently is still the single largest contributor to global economic growth

• With GDP growth of 6.6% in 2018 and with 2019 forecast at above 6%, the role of China as the growth engine in the globaleconomy will largely remain unchanged but will nevertheless dampen certain sectors’ and countries’ growth prospects – theseexposures and risks must be managed

• Drastic policy measures and reforms are being undertaken to ensure that China’s long-term growth is sustainable; however, evendeeper reforms are needed to sustain the efficiencies and to de-risk the future

• 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 gives it the necessary economic clout to make valuable overseas investments

• The US-China trade war has wide-reaching ramifications for China, the US and other countries – and their respective companies.The impact on global supply chains has already been significant and is likely to intensify. This is a major risk over the next severalquarters

• Increased outward investment – despite the recent curbs on OFDI – and growing domestic demand are hallmarks of China’s neweconomic growth model. We interrogate aspects of these developments with regard to Africa 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 attractiveinvestment destination since the mid-1990s. However, recent years have seen China evolve into a major net global investor

• Executives and managers need to think very differently about China now – numerous risks (and opportunities) must be measuredand managed proactively, and this is particularly true for those that are directly or indirectly exposed to Chinese activity in theirinbound supply chain, outbound supply chain and capital choices



access to i.e.:



succeed?






12

Agenda

1. Foreword


– China-Africa Overview

– China’s Trade with Africa

– China’s Financial Engagement with Africa

– China’s Role in Africa’s Infrastructure Development

– South Africa-China Focus




6. About Axis Group

13Source: China Pictorial

14

The China-Africa relationship is one which has expanded greatly in the past two decades, and this is likely to continue well into the 2020s and 2030s

1: Swaziland is the only African country that maintains diplomatic relations with Taipei

Source: EY; American Enterprise Institute; Axis Group Analysis

Sino-African Relations Timeline

1975 China completes construction of the TAZARA railway linking the port of Dar es

Salaam with Zambia’s Kapiri Mposhi

1996 Jiang Zemin tours Africa, visiting Kenya, Ethiopia, Namibia, Zimbabwe

2000 Forum on China-Africa Cooperation (FOCAC) founded

2006 FOCAC summit held in Beijing, joined by 35 African countries

2007 China-Africa Development Fund established in Beijing

2009 Hu Jintao tours Africa, visiting 8 countries and giving a speech in South Africa

2013 Xi Jinping visits Tanzania, South Africa, and Republic of Congo

2014 Li Keqiang makes a speech at the Africa summit of WEF, pledging financial

support for Africa’s infrastructure development

2015 African Union and China sign an MOU for continental transport development

2015 6th FOCAC summit, held in Johannesburg

2018 Li Zhanshu visits African Union headquarters and pledges China’s support

2018 7th FOCAC summit, 3rd held in Beijing

Sino-African Relationship Overview

• USD 94.4bn in loans to Africa between 2000 and 2015

• USD 94.1bn FDI value in Africa (2016)

• USD 676bn FDI projects in Africa (2016)

• USD 149bn in trade (2016)

• 53/54¹ African countries have formal diplomatic ties with China

• Nearly 50,000 African students are studying in China

• 15% of imports into Africa are sourced from China

15Source: Various; Axis Group Analysis

China-Africa relations have steadily progressed through three distinct phases. The current phase is mainly driven by China's increasing need for resources and Africa's search for a long-term development model

Political Phase

(1950s – mid-1970s)

Dormant Phase

(mid-1970s – late 1990s)

Commercial Phase

(2000s – present)

• Non-aligned movement

• African post-colonialism

• PRC vs. Taiwan recognition

• Recognition by China of newly

independent African states

• Foreign aid by China in return for PRC

(vs. Taiwan) recognition

• Mutually-beneficial UN voting support

Phase

Drivers

Examples

• China focus with post-1978 “Open-Door

Policy” and economic reforms

• Heavy competition for African influence

from US and USSR

• Slowly rising Chinese exports of light

industry production (garments, textiles,

toys, etc.)

• Small, trade-driven deals mainly with

private Chinese firms

• China’s demand for raw materials and

other resources

• China’s quest for new markets for its goods

and services

• China’s quest for international influence

through OFDI, aid, mediation, and UN

votes

• FOCAC, CAD Fund

• Government-to-government resource deals

• Resources for infrastructure

• Long term financing with no strings

attached

• Chinese EPCs in Africa’s infrastructure

build-up

16

China’s Historical GDP at Current Prices (USD bn, 2000-2018E)

Note: 2018 estimate is from the IMF World Economic Outlook October 2018 Report

Source: National Bureau of Statistics of China; IMF; Axis Group Analysis

Africa’s Historical GDP at Current Prices (USD bn, 2000-2018E)

0

500

1,000

1,500

2,000

2,500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

E

Rest of AfricaMoroccoAngolaAlgeriaEgyptSouth AfricaNigeria

Top 6

countries:

62%

0

2,500

5,000

7,500

10,000

12,500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

E

14%

7%

Between 2000 and 2017, Africa’s GDP at current prices increased at an average rate of 7%, while China’s increased at 14% per year. Africa’s growth was, in large part, fueled by China’s rapid growth and resource consumption (correlation and causality)

17-year CAGRCAGR

17

China’s Historical GDP at Constant Prices (USD bn, 2000-2017)

Note: Rest of Africa does not include Swaziland, South Sudan, Sudan and Tanzania as GDP figures for them are unavailable

Source: UNCTAD; Axis Group Analysis

Africa’s Historical GDP at Constant Prices (USD bn, 2000-2017)

0

500

1,000

1,500

2,000

2,500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Rest of AfricaMoroccoAngolaAlgeriaEgyptSouth AfricaNigeria

Top 6

countries:

70%

0

2,500

5,000

7,500

10,000

12,500

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

9%

4%

Between 2000 and 2017, Africa’s GDP at constant prices increased at an average rate of 4% per year; China’s increased at 9% per year. Africa’s growth was, in large part, fueled by China’s rapid growth and resource consumption (correlation and causality)

17-year CAGRCAGR

18

China’s Provincial GDP Spread (2018)


African Countries’ GDP Spread (2018)

Much of China’s economic activity remains concentrated along its coastline. While economic prosperity in Africa is distributed across its different regions, all of its most prosperous areas have access to maritime trade, similar to China

USD 100bn or more

USD 25bn-USD100bn

USD 10bn-USD 25bn

Less than USD 10bn

Nigeria

397bn

Morocco

118bn

Algeria

188bn Egypt

249bn

Angola

114bn

SA

377bn

USD 1,000bn or more

USD 500bn-USD1,000bn

USD 250bn-USD 500bn

Less than USD 250bn

Guangdong

1,439bn

Jiangsu

1,370bn

Shandong

1,131bn

Zhejiang

820bn

Henan

711bn


Multi-lateral and Bi-lateral Membership of both China and African countries

B&R FOCACBRICSAIIB

• The Belt & Road (B&R) initiative opens

considerable potential in economic,

political and cultural areas

• China to expand market reach, foothold

• The large infrastructure requirement in

Asia, coupled with many Asian countries’

inability to meet these requirements, has

driven the emergence of the AIIB

• The importance of the BRICS economies

has grown tremendously – this trend is

being supported by new institutions, such

as the New Development Bank

• FOCAC is a strategic mechanism for

cooperation between China and Africa - it

must be seen strategically in this horizon

and beyond

G20 WTOUNSouth-South

Cooperation

• International forum for some of the world’s

largest and most powerful economies

• South Africa is the only African G20

member

• It is a framework of collaboration among

countries of the global South in the

political, economic, social, cultural,

environmental and technical domains

• The UN is an intergovernmental

organization that seeks to promote

international cooperation and enables

governmental dialogue

• The WTO deals with the global rules of

trade between nations. It is a forum for

governments to negotiate trade

agreements and settle trade disputes

Initiated/led by PRC

20

AIIB BRICS/NDB FOCAC New Silk Road Fund

Year

FoundedMarch 2015 July 2014 October 2000 September 2013

Type of

Organisation

New Asian multilateral

organisation in the ‘Asian century’,

initiated by China, but attracting

most major powers worldwide,

including European nations

The five BRICS governments

(Brazil, Russia, India, China, and

South Africa) have developed an

important platform for cooperation

among emerging markets and

developing countries

Conference established for

strengthening cooperation

between China and African states,

and to seek common economic

development

A suite of joint investment projects

and regional trade blocs with the

potential to bring economic growth

and stability to all countries

involved

Members64 countries worldwide, including

numerous Western nations

Brazil, Russia, India, China, and

South Africa

China, 50 African states and the

Commission of the African UnionState-owned entity

Key

Objectives

- Asian countries seeking funds

for infrastructure development

- China wishes to bridge that

gap by investing its funds

- Constructive agenda for co-

operation (donors & recipients)

- Mobilisation of resources for

infrastructure and other

sustainable development

projects

- Currency pool to combat

currency crises

- Establish a development bank

- Equal consultation

- Enhancing understanding

- Expanding consensus

- Strengthening friendship

- Promoting cooperation

- Policy coordination

- Infrastructure connectivity

- Unimpeded trade

- Financing for B&R-related

energy and transportation

projects across Eurasia

Key Details for AIIB, BRICS/NDB, FOCAC and the New Silk Road Fund

Source: Various; Axis Group Analysis

China is pursuing an ambitious global strategy with various international initiatives. There are various platforms / organisations launched around the world to serve its goals and objectives

21

40%

65%

30%

25%

Duisburg

Beijing

Xi’anLanzhou

Urumqi

KhorgasAlmaty

BishkekSamarkand

DushanbeTehran

Moscow

Istanbul

Rotterdam

Venice

Athens

Nairobi

Colombo

Kolkata

Jakarta

Kuala Lumpur

HanoiBeihai

Haikou

Fuzhou

QuanzhouGuangzhou

Zhanjiang

Source: Reuters; Various; Axis Group Analysis

The Belt and Road Initiative has an impact on social, political and economic relations between Africa and China – with the potential to open up new opportunities in various areas of business

Footprint and Characteristics of Belt and Road Countries

Maritime Silk Road

Silk Road Economic Belt

• Trade between China and NSR to

surpass USD 2.5tn in a decade

• >900 planned cooperation projects

with more than USD 890bn in

investments

• 65% of the world population, 40%

of the world GDP

New Silk Road

China has also announced that the China-

Pakistan Economic Corridor (CPEC) and the

Bangladesh–China–India–Myanmar Forum

for Regional Cooperation (BCIM) will be

closely associated with the New Silk Road

Share of Global GDP

Share of China’s OFDI

Share of Global Population

Share of China’s Trade

22

In recent years, the focus of BRICS has gradually expanded from working towards mutual benefit via financial and ICT cooperation to addressing issues related to global security and international political economy

Source: New Development Bank; Various; Axis Group Analysis

2011

3

2012

4

2018

10

2009

1

2010

2

2013

5

2014 2015 2016 2017

6 7 8 9

• First BRIC summit takes place in

the aftermath of the global

financial crisis, with focus on

improving global economic

situation

• Need for a global reserve

currency is discussed

• SA then-president Jacob Zuma

attends the second BRIC summit

as a guest. SA was in the

process of applying for formal

admission to BRIC at this time

First BRICS summit with SA

• SA joins as a new member. The

group adds ‘S’ at the end for

South Africa, changing the

group’s name to BRICS

The Delhi Declaration

• BRICS members agree on key

focus initiative to establish a

development bank

• BRICS contingent reserve

agreement

• Discussions towards creating the

new multilateral development

bank dominate much of the

discussion in the 5th annual

BRICS summit

NDB Established

• Member countries sign the

agreement outlining the creation

of the New Development Bank,

endowed with USD100bn in

authorized capital

• NDB formally enters into force at

the 7th annual BRICS summit.

• Members discuss opening up

each other’s ICT markets to one

another, in an effort to challenge

the US monopoly in the sector

• Specific priorities of infrastructure

projects for the NDB to provide

funding are discussed.

• Member nations also agreed on

cooperation within IP rights and

the digital economy

Xiamen Declaration

• Member countries agree to

cooperate on issues relating to

terrorism and global security.

This was especially significant for

China-India relations, as it eased

border tensions a bit

• Theme: Collaboration for Inclusive Growth and Shared Prosperity in the 4th Industrial

Revolution

• Key topics: Global Governance and Security, intra-BRICS trade, and shared prosperity

among members with regards to 4th industrial revolution

• The Johannesburg Declaration: Member nations agree to create “broad counter-terrorism

coalition.” In addition, a “Roadmap” on cooperation within ICT sector was signed, citing

security concerns

BRICS refers to the partnership of five nations — Brazil, Russia, India, China, and South

Africa — which have agreed to cooperate on number of issues, ranging from geopolitics,

infrastructure and development finance to national security. The original group (calling

itself ‘BRIC’) did not include South Africa, but recognized South Africa’s membership in

2011. BRICS is known for its New Development Bank (NDB) which provides financing for

a range of infrastructure and energy projects

Background of BRICS (2009 – Present) 2018 BRICS Summit, Johannesburg

Fortaleza XiamenBenaulim JohannesburgDurbanYekaterinburg Brasilia New Delhi UfaSanya

23

The Forum on China-Africa Cooperation (FOCAC) is a strategic mechanism for collaboration between China and Africa – must be seen strategically in this horizon and beyond Key Developments at Past FOCAC Meetings

Source: FOCAC; Axis Group Analysis

2000 (1st Ministerial

Conference)

2003 (2nd Ministerial

Conference)

2006 (3rd Ministerial

Conference)

2009 (4th Ministerial

Conference)


Conference)

Location Key Developments/Planned Agenda

- USD 20bn to assist with infrastructure & agricultural development

- A series of new measures to support Africa's development in investment and financing,

assistance, integration, non-government exchanges and security

- USD 10bn committed towards measures covering agriculture, environmental protection,,

investment, market access expansion, etc.

- Measures to strengthen cooperation to support development in Africa, including increased

assistance, provision of preferential loans, establishment of the China-Africa Development

Fund (CADFund), etc.

- Adoption of Beijing Declaration of the FOCAC

- Exemption of RMB 10bn of debts by China of heavily indebted countries

- Establishment of the Human Resources Development Fund for Africa

- China pledged to train 10,000 African professionals in various fields

- Zero-tariff treatment of selected exports to China by some African countries

Beijing

Addis Ababa

Beijing

Sharm el-Sheikh

Beijing


Conference)

- Infrastructure development from AIIB and New Development Bank

- Improving Africa’s healthcare system – post Ebola

- Increased focus on security, stabilisation and conflict resolution in Africa

Johannesburg


Conference)

- Aid in development of agriculture, water conservation for Africa

- USD 10bn towards industrial capacity cooperation

- China direct investment in Africa to increase to USD 100bn by 2020

Beijing

24

At the 2018 Beijing Summit and the 7th Ministerial Conference of FOCAC, China announced significant efforts in re-branding its relationship with Africa

Source: FOCAC; Axis Group Analysis

President Xi Detailed the 8 Major Initiatives Announced at FOCAC 2018

In trade and investment, and agriculture; building and upgrading selected economic and trade cooperation

zones in AfricaIndustrial Promotion

1

Trade Facilitation3

Green Development4

Capacity Building5

Infrastructure Connectivity2

Health Care6

People-to-people

Exchange

7

Peace and Security8

China will support African countries in making better use of financing resources such as the AIIB, NDB and the

SRF, etc.

Increasing non-resource product imports from Africa; marketing activities for Chinese and African products

etc.

50 exchange and cooperation projects linked to climate change, environment and wildlife protection etc.

Setting up 10 vocational training workshops; providing Africans government scholarships, training

opportunities etc.

Upgrading 50 medical and health aid programs and China-Africa Friendship Hospitals; training medical

specialists

China will establish an Institute of African Studies; the China-Africa Joint Research and Exchange Plan will

be upgraded etc.

Setting up of a China-Africa peace and security fund; China to continue providing military aid to the African

Union etc.

25

35

5

5

5

10

Preferential andconcessional loans

Grants and interest-freeloans

China-AfricaDevelopment Fund

Special loan fordevelopment of AfricanSME's

China-Africa productioncapacity co-operationfund

First USD 60bn Pledged to Africa at FOCAC 2015

15

2010

5

10

Grants, interest-free loansand concessional loans

Credit lines

Special fund fordevelopment financing

Special fund for financingimports from Africa

Investment over next threeyears

Source: Mail & Guardian; Axis Group Analysis

Second USD 60bn Pledged to Africa at FOCAC 2018

At FOCAC 2015, China pledged USD 60bn in financing to Africa. At FOCAC 2018, the Chinese government will be providing an additional USD 50bn, with Chinese companies investing USD 10bn



access to i.e.:



succeed?






26

Agenda

1. Foreword










6. About Axis Group

27

5 8 16

21 29

36

56

43

67

93

113 117 116

70

57

76

7 10 1419

27

37

51 48

60

73

8593

106 108

92 95

120

80

40

0

40

80

120

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

China's Imports from Africa China's Exports to Africa

Total Africa-China Trade in Goods (USD bn, 2002-2017)

19%

19%

Decline in imports primarily due to

drop in crude oil and gold prices,

which are the top two biggest

imports from Africa

Note: 1. Trade data is using China reported data

2. Africa includes 54 African countries based on UN

Source: UN Comtrade; Axis Group Analysis

China’s trade with Africa has grown at an accelerated rate since the turn of the century, reaching its peak in 2014 at USD 221bn. This growth has been in conjunction with burgeoning industrialisation, an export-led growth policy in China, and a rapidly growing African market

CAGR

28

Africa’s Total Exports to China by Sector (USD bn, 2017)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Sou

th A

fric

a

Ang

ola

Rep

ublic

of C

ongo

DR

Con

go

Zam

bia

Gab

on

Gha

na

Nig

eria

Equ

ator

ial G

uine

a

Gui

nea

Liby

a

Egy

pt

Sou

th S

udan

Zim

babw

e

Mau

ritan

ia

Mor

occo

Sud

an

Moz

ambi

que

Cam

eroo

n

Alg

eria

Eth

iopi

a

Sie

rra

Leon

e

Tan

zani

a

Nam

ibia

Cha

d

Mad

agas

car

Tun

isia

Erit

rea

Ken

ya

Côt

e d’

Ivoi

re

Sen

egal

Nig

er

The

Gam

bia

Ben

in

Tog

o

Mal

i

Bot

swan

a

Uga

nda

Libe

ria

Rw

anda

Cen

tral

Afr

ican

Rep

ublic

Mal

awi

Leso

tho

Mau

ritiu

s

Bur

kina

Fas

o

Som

alia

Bur

undi

Sw

azila

nd

Gui

nea-

Bis

sau

Sey

chel

les

Com

oros

Djib

outi

Cab

o V

erde

São

Tom

é an

d P

rínc

ipe

34.8

34.1

5.0

0.9 0.7 0.3

Fuels

Metals & Minerals

Agriculture & Forestry

Textiles, Hides and Skins

Chemicals & Plastics

Machinery & Electronics

Others

Africa’s Total Exports to China by Country (USD mn, 2017)

24,389Top 15 countries’ exports to China

account for approximately 84% of total

African exports to China

20,699

China’s Import Boom:

- China imported USD 1.8tn in total

- China’s imports to increase to USD

8tn in the next 5 years

- African exporters must position

themselves to claim a share of this

growth

Note: Trade data is using China reported data


Africa’s overall exports to China are made up of raw materials (metals & minerals, and fuels), and is led by South Africa and Angola

29

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Sou

th A

fric

a

Nig

eria

Egy

pt

Alg

eria

Ken

ya

Gha

na

Mor

occo

Tan

zani

a

Eth

iopi

a

Ang

ola

Sud

an

Djib

outi

Libe

ria

Sen

egal

Ben

in

Tog

o

Côt

e d’

Ivoi

re

Cam

eroo

n

Tun

isia

Moz

ambi

que

Gui

nea

Liby

a

Mad

agas

car

DR

Con

go

Rep

ublic

of C

ongo

Mau

ritan

ia

Uga

nda

Mau

ritiu

s

Zam

bia

Som

alia

Gab

on

Zim

babw

e

The

Gam

bia

Mal

i

Nam

ibia

Mal

awi

Sie

rra

Leon

e

Bot

swan

a

Bur

kina

Fas

o

Equ

ator

ial G

uine

a

Rw

anda

Cha

d

Nig

er

Cab

o V

erde

Com

oros

Leso

tho

Sou

th S

udan

Sey

chel

les

Bur

undi

Erit

rea

Sw

azila

nd

Gui

nea-

Bis

sau

Cen

tral

Afr

ican

Rep

ublic

São

Tom

é an

d P

rínc

ipe

26.6

20.0

0.9

11.6

7.8

15.6

4.8

12.7Machinery & Electronics


Metals & Minerals


Transportation


Fuels

Others

Africa’s Total Imports from China by Country (USD mn, 2017)

Africa’s Total Imports from China by Sector (USD bn, 2017)14,809

Top 5 countries’ imports from China

account for 51% of total African

imports from China

Top 23 countries’ imports from China

(greater than USD 1bn) account for

90% of total African imports from

China

Note: Trade data is using China reported data


Africa’s overall imports from China are diverse, but are dominated by two major sectors: machinery and textiles. The three top importers are South Africa, Nigeria, and Egypt respectively

12,153

30

20,000

15,000

10,000

5,000

0

5,000

10,000

15,000

20,000

Sou

th A

fric

aA

ngol

aE

gypt

Nig

eria

Alg

eria

Balance of Trade Between African Countries and China (USD mn, 2017)1

1. Figures to the UN reported by each respective country


Africa’s total trade with China was USD 171bn in 2017, 7.8% of its GDP. As a whole, the continent ran a trade deficit of USD 19bn with China

31% of African countries ran a

trade surplus with China in 2017.

Angola was the highest at USD

18.4.bn

Exports to

China

Imports

from China

5,500

4,500

3,500

2,500

1,500

500

500

1,500

2,500

3,500

4,500

Gha

naK

enya

Tan

zani

aE

thio

pia

Mor

occo

DR

Con

goR

epub

lic o

f Con

goZ

ambi

aS

udan

Sen

egal

Djib

outi

Ben

inT

ogo

Cam

eroo

nG

abon

Moz

ambi

que

Gui

nea

Côt

e d’

Ivoi

reLi

beria

Mau

ritan

iaLi

bya

Sou

th S

udan

Tun

isia

Zim

babw

eM

adag

asca

r 1,000

500

0

500

1,000

1,500

2,000

Uga

nda

Equ

ator

ial G

uine

a

Mau

ritiu

s

Sie

rra

Leon

e

Mal

i

Nam

ibia

The

Gam

bia

Som

alia

Bot

swan

a

Mal

awi

Erit

rea

Nig

er

Cha

d

Bur

kina

Fas

o

Rw

anda

80

60

40

20

0

20

40

Leso

tho

Sey

chel

les

Cab

o V

erde

Com

oros

Bur

undi

CA

P

Sw

azila

nd

Gui

nea-

Bis

sau

ST

and

P

24,388

Djibouti’s trade deficit with

China of USD 2.1bn exceeds

its GDP

Some smaller African

nations have little or no

exports to ChinaEquatorial Guinea only traded

USD 1.6 bn worth of goods with

China in 2017, of which it had a

trade surplus of USD 1.3 bn

Trade Balance20,698

31

Value of China-Africa trade has grown significantly over the past two decades, but composition of China’s imports from Africa has remained largely concentrated in primary products, while exports to the continent tend to be value-added products

80

60

40

20

0

20

40

60

80

100

120

2017201620152014201320122011201020092008200720062005200420032002


Metals & Minerals



Transportation

Machinery & Electronics

Fuels

Others

Balance

China’s

Imports from

Africa

China’s

Exports to

Africa

Sectorial Breakdown of Imports and Exports between China and Sub-Saharan Africa1 (USD mn, 2002-2017)

19.7%

19.2%

2015’s decrease in imports was caused mostly

by 99% drop in goods classified by the World

Bank as ‘miscellaneous’

Narrowing of trade in 2009 mirrors

global trend in trade for that year due to

the global financial crisis

1. World Bank trade statistics only has Sub-Saharan Africa as a region, with sectorial trade data breakdown

Source: WITS; Axis Group Analysis

CAGR

32

The results of free trade zones in African countries have been highly varied, with commitment by government and policy consistency cited as core determinants of success

Special Economic Zones (SEZ) in Africa

Country Name of ZoneArea

(ha)Incentives

No. of

Firms1 Success2

Egypt

TEDA Suez

Economic and

Trade Cooperation

Zone

600

Prime location, tax relief, bonded

warehousing and

comprehensive logistics

infrastructure

58 High

EthiopiaEastern Industrial

Zone200

Extensive tax and duty

exemptions, streamlined

government services27 High

Zambia

China-Zambia

Economic and

Trade Cooperation

Zone

1,158Tax exemption on dividends for

five years from the year of first

declaration of dividends; 0%

corporate tax for five years from

the first year profits are made

38Medium/

Low

520 10Medium/

Low

Mauritius

Jinfei Economic and

Trade Cooperation

Zone

352Tax exemptions and raw

material import tariff waiver- Low

NigeriaLekki Free Trade

Zone3,000

Halved corporate and local

income tax rate, inexpensive

land and facility use21 Low

NigeriaOgun-Guangdong

Free Trade Zone250

VAT waiver, customs

streamlining, reduced corporate

and income tax16 Low

DjiboutiDjibouti International

Free Trade Zone4,800

The initial USD 370mn, 240-hectare pilot phase consists of

four industrial clusters which will focus on trade and logistics,

export processing, business and financial support services, as

well as manufacturing and duty-free merchandise retail1. No. of Firms refers to the number of companies that have signed lease agreements in the zone

2. Efficiency is based on whether the zone has been able to generate an abundance of business activity


Tanzania

Kenya

Angola

South

Africa

Democratic

Republic

of Congo

Zambia

Mauritania

Algeria

Ethiopia

Sudan

Nigeria

Chad

Mali

Namibia

Niger

Libya

South

Sudan

Egypt

Botswana

Zimbabwe

Description of African SEZ in Cooperation with China

Senegal

Guinea

Sierra LeoneLiberia

Cote

D’Ivoire

Tunisia

Eritrea

DjiboutiBurkina

Faso

Gha

na

Gabon

Malawi

RwandaBurundi

C.A.R.

Gambia

Guinea-

Bissau

Togo Benin

Lesotho

Swaziland

Equatorial Guinea

Sao Tome

& Principe

Cabo

Verde

Seychelles

Comoros

MauritiusNumber of SEZ in operation

and under development

0

1-5

6-10

More than 10

African SEZ in Cooperation

with China

33

Trade Frameworks / Agreements between China and Africa

Multilateral Frameworks

Bilateral Frameworks

1

2

• Since 2011, the Chinese government has signed Framework Agreements on Economic and Trade Cooperation with

both the East African Community (EAC) and the Economic Community of West African States (ECOWAS)

• The frameworks look to expand cooperation in promoting trade facilitation, direct investment, cross-border

infrastructure construction and development aid

• China had been negotiating the establishment of a free trade agreement with EAC since 2016

• Recently, China and the Southern African Customs Union (SACU) have been negotiating a Free Trade Agreement

• Kenya declined to sign the China-EAC free trade agreement in 2018 on the grounds that this would threaten its fragile

manufacturing sector

• Thus far, there’s no free trade agreements between any African countries or communities / blocs with China. However,

there are some African countries in advanced discussions with China about Free Trade Agreements

• There are several bilateral trade agreements or frameworks existing between China and several African countries, such

as Malawi, Nigeria, and Kenya

• Mauritius looks set to become the first African country to sign an FTA with China after months of negotiations

• At FOCAC 2018, minister-level officials from both sides signed a memorandum of understanding around the conclusion

of FTA negotiations

DevelopmentsSubject




access to i.e.:



succeed?






34

Agenda

1. Foreword










6. About Axis Group

35Source: UNCTAD; MOFCOM; Axis Group Analysis

China’s OFDI Stock in Africa by Industry (USD bn, 2017)

China’s OFDI into Africa has been increasing rapidly over time and is primarily

channeled towards the construction, transport, manufacturing, mining and finance

sectors

2.64.5

7.89.3

13.0

16.2

21.7

26.2

32.434.7

39.9

43.3

0.5 1.65.5 1.4 2.1

3.2 2.5 3.4 3.2 3.0 2.44.1

0

5

10

15

20

25

30

35

40

45

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Stock Flow

China’s OFDI Stock and Flow in Africa (USD bn, 2006-2017)

12.88

9.766.08

5.71

2.31

6.59

Construction Mining

Finance Manufacturing

Leasing and Business Services Others

36

Global and China’s OFDI Flow to Africa (USD bn, 2011-2016)

Source: National Bureau of Statistics; MOFCOM; Axis Group Analysis

In 2016, China’s OFDI flow into Africa accounted for less than 3% of global OFDI flow into Africa. However, its OFDI stock in Africa ranked 4th among all investor economies in Africa

0 20 40 60

United States

United kingdom

France

China

South Africa

Italy

Singapore

India

Hong Kong, China

Switzerland

2016 2011

Top 10 Investor Economies in Africa by OFDI Stock (USD bn, 2011 & 2016)

0

20

40

60

80

100

2011 2012 2013 2014 2015 2016

Global OFDI Flow to Africa China's OFDI Flow to Africa

In 2017, China’s OFDI flow

into Africa increased by

71% from 2016

37

0

100

200

300

400

500

600

700

Ang

ola

Ken

ya

DR

C

Sou

th A

fric

a

Zam

bia

Gui

nea-

Bis

sau

Con

go

Sud

an

Eth

iopi

a

Nig

eria

Source: MOFCOM; Axis Group Analysis

In 2017, China’s total OFDI flow into Africa was USD 4.1bn. As of 2017, South Africa holds the largest amount of China’s OFDI stock in Africa

China’s OFDI Flow to Africa by Country (USD mn, 2017)

China’s OFDI Stock in Africa by Country (USD bn, 2017)

0

1

2

3

4

5

6

7

8

Sou

th A

fric

a

DR

C

Zam

bia

Nig

eria

Ang

ola

Eth

iopi

a

Alg

eria

Zim

babw

e

Gha

na

Ken

ya

China’s OFDI in Africa is concentrated in

a number of resources-rich countries

38

0

5

10

15

20

25

30

35

40

45

50

Ang

ola

Eth

iopi

a

Ken

ya

Rep

. of C

ongo

Sud

an

Zam

bia

Cam

eroo

n

Nig

eria

Sou

th A

fric

a

Gha

na

DR

C

Egy

pt

Uga

nda

Cot

e d'

Ivoi

re

Tan

zani

a

0

5

10

15

20

25

30

35

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Chinese Loans to Africa (USD bn, 2002-2017) Top 15 Destinations of Chinese Loans to Africa (USD bn, 2010-2017)

China’s role in Africa is more of a contractor and builder than a financier. Providing an alternative to loans with rigid conditions, China has promoted development in a diverse range of African countries through the provision of credit

Source: SAIS-CARI; Axis Group Analysis

39

Annual Sum of Chinese Loans to African States (USD bn, 2003-2017)

Source: UN Comtrade; China-Africa Research Initiative (CARI); Axis Group Analysis

Sectorial Composition of Chinese Loans to Africa (USD bn, 2017)

Chinese loans to African countries have progressively risen over the past decade.

The 2017 investment slump relates to efforts to curb the country’s massive build-

up of local-government debt and a slowdown of the Chinese economy

30,068

22,8169,187

6,766

4,276

3,866

3,585

3,257

1,959

1,006805 200

1900

6,460

Transport Power Mining Communication

Other social Water Government Industry

Agriculture Education Health Banking

Business Population Other

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

In 2016, President Xi Jinping pledged USD

60bn to African states over an undefined

timeline

40

Institution Africa Role / Description

EXIM Bank of China

The vast majority of infrastructure financing arrangements done by

China in the African continent are financed by the China EXIM Bank,

which (like any trade bank) is devoted primarily to providing export

sellers’ and buyers’ credits to support the trade of Chinese goods

Industrial and

Commercial Bank of

China

ICBC bought a 20 percent share of South Africa’s Standard Bank for

USD 5.1bn in 2007. Standard Bank’s impressive access to the African

market, backed by Chinese capital is set to transform the continent as

Chinese acquisitions expand and accelerate

Bank of China

Committing itself to providing high-quality bespoke financial services

and actively developing Renminbi Internationalization throughout the

African continent

China Construction

Bank

The business targets clients in the integrated energy, communication,

mining, financial services, trading, logistics, manufacturing and media

industries in 47 countries across the sub-Saharan region

CADFund

Its mission is to support African countries’ agriculture, manufacturing,

and energy sectors development; to expand transportation and

telecommunications networks; and to promote the pace of urban

infrastructure, resource extraction and the establishment of trade

zones, or Chinese business centers, in Africa

China UnionPay

By 2013, UnionPay credit cards were enabled for use with ATMs in

more than 40 African countries, though the cards were all issued in

China

Chinese Financial Institutions with Large African Presences

.


Chinese Financial Institutions with Large African Presences

Chinese financial institutions have established their branches within coastal countries in Africa and provide regional services, with South Africa being a prime choice

EXIM Bank of China

Industrial and Commercial

Bank of China

Bank of China

China Construction Bank

CADFund

China UnionPay

41

The energy sector in Africa is one of the largest recipients of credit from China.

The credit is primarily dispensed through Chinese policy banks. Loans to the

continent are highly concentrated among the top 6 recipients

China’s Main Lenders – Energy Sector

Source: Boston University Global Policy Development Centre; Axis Group Analysis

Regional Distribution of Chinese Energy Sector Lending (USD bn, 2000-2017)

Export-Import Bank of China:

• EXIM Bank is one of China’s primary

policy banks

• Has lent USD 70.3bn in overseas

development finance in the energy

sector since 2000

• Co-financed projects worth USD

28.1bn with the Chinese

Development Bank

Loans since 2000:

USD 70.3bn

Loans since 2000:

USD 127.4bn

• CDB is the main institution responsible

for funding the Chinese national

government’s developmental

objectives

• Has lent USD 127.4bn in overseas

development finance in the energy

sector since 2000

Chinese Development Bank:

8.9

6.6

2.6 2.1 2 1.6

11

0

2

4

6

8

10

12

Angola Nigeria Zambia Uganda SouthAfrica

Sudan Rest ofAfrica

Total: USD 34.8bn

Top 6 loan recipients

receive USD 23.8bn,

almost 70% of the total

Loans to Africa’s Energy Sector (USD bn, 2000-2017)

68.7

61.9

60.3

34.8

Europe/CentralAsiaLatin America

Asia

Africa

Country Loan Value

Russia 42.7

Brazil 39.3

Pakistan 24.8

Angola 8.9

India 7.7

Top 5 Energy Sector Loan

Recipients (USD bn)



access to i.e.:



succeed?






42

Agenda

1. Foreword










6. About Axis Group

43

23.7

13.9

7.66.96.3

5.3

4.8

3.9

27.6

China

Spain

France

US

Germany

South Korea

Turkey

Italy

Others

48

11

11

13

14

43

46

64

0 10 20 30 40 50 60 70 80

All Others

Spain

South Korea

Japan

Italy

US

Turkey

China

International Revenue Percentage Share (%, 2017)

Note: *ENR’s list of top 250 international contractors is based on contractor’s total overseas revenue collected in the previous year (2016)

Source: ENR; Axis Group Analysis

Although revenues generated by the top 250 international contractors outside their home countries decreased between 2015 and 2017, Chinese companies continue to dominate this market, when compared with other major global players

Number of Contractors

Nationality of Top 250 International Contractors* (2018)

44

China has become the top international contractor in Africa with Chinese contractors claiming a 52% share of the USD 74.5bn in revenues from these activities. China’s ‘Going out Policy’ has underpinned a rapidly increased Chinese presence in Africa over the last decadeInternational Contracted Revenue in Africa1 (USD mn, 2007-2018)

1. The revenue figures are for the previous calendar year

Source: ENR; Axis Group Analysis

Africa Total

56,812

50,885

28,595

17,911

60,592

0 10 20 30 40 50 60 70 80

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

China

Italy

France

US

Other

38.7%

45.2%

38.7%

39.0%

29.1%

48.7%

40.1%

49.4%

29.3%

60,590

58,149

62,236

70,950

54.8%64,515

12.9% CAGR

52.2%

52.2%74,450

70,410

45

Chinese contractor activity in Africa is highly concentrated in a few resource-rich economies as well as geo-strategic partners of China

Revenue of Chinese Contractors in Africa, Top 30 Countries (USD mn, 2014)

Source: China Statistical Yearbook 2015; Axis Group Analysis

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Eth

iopi

a

Ang

ola

Alg

eria

Nig

eria

Rep

. of C

ongo

Eq.

Gui

nea

Tan

zani

a

Zam

bia

Sud

an

Ken

ya

Gha

na

DR

C

Cam

eroo

n

Uga

nda

Cha

d

Egy

pt

Nig

er

Moz

ambi

que

Gab

on

Mor

occo

Sou

th A

fric

a

Djib

outi

Nam

ibia

Sen

egal

Cot

e d'

lvoi

re

Mal

i

Zim

babw

e

Mau

ritan

ia

Bot

swan

a

Top 6: Mostly oil and gas-related

economies; USD 28.7bn or 40% of total

Rank 7 to 17: Oil and minerals-related

economies; USD 15.9bn or 22% of total

Rank 18 to 30: Diverse minor players;

USD 5.3bn or 7.5% of total


Chinese companies have invested in infrastructure projects across the African continent and in diverse areas – cities, ports, railways, power, etc. (1/2)

No. Project Company Years StatusValue

(USD)Location Financiers Notes

1

Algeria East-

West

Highway

China Railway

Construction

Corporation,

CITIC

2009- Ongoing 6.0bn AlgeriaGovt. of

Algeria

Chinese

companies are

building the

central &

western sections

2

Central

Business

District of

Egypt’s new

capital

China State

Construction

Engineering

Corporation

2018- Ongoing 3.0bn Egypt

Chinese

banks

(85%)

The new capital

is a mega

project worth

USD 45bn

3

Mambila

Hydroelectric

Power Project

JV of China

Civil

Engineering

Construction

Corporation

2017- Approved 5.8bn Nigeria

EXIM Bank

of China

(85%)

Will help Nigeria

fulfil its

commitment

under the Paris

Agreement

4

Lagos-

Calabar

Coastal

Railway

China Civil

Engineering

Construction

Corporation

2018- Proposed 11.0bn Nigeria

EXIM Bank

of China

(85%)

Financing is yet

to be approved

in the National

Assembly

5

Addis Ababa-

Djibouti

Railway

China Railway

Group, CRCC

2011-

2017Opened 4.5bn

Ethiopia,

Djibouti

EXIM Bank

of China,

CDB, ICBC

90% of

Ethiopia’s trade

passes through

Djibouti

10 Significant Chinese Infrastructure Projects in Africa and their Locations

Highlights of these 10 Significant Chinese Infrastructure Projects in Africa (1/2)

12

53

4

Algeria

Egypt

Ethiopia

Djibouti

Nigeria


No. Project Company Years StatusValue

(USD)Location Financiers Notes

6Garissa Solar

Power StationChina Jiangxi 2016- Ongoing 135mn Kenya

EXIM Bank

of China

Will power

about 625,000

homes on

completion

7

Mombasa-

Nairobi

Standard

Gauge Railway

China Road

and Bridge

Corporation

2014-

2017Opened 3.6bn Kenya

EXIM Bank

of China

(90%)

Largest

infrastructure

project in Kenya

since its

independence

8 Bagamoyo Port

China

Merchants

Group

2018- Approved 11.0bn Tanzania

CMPHC,

Sovereign

Wealth fund

of Oman

Will become the

largest port in

East Africa on

completion

9 Lobito-Luau

Railway

China Railway

Construction

Corporation

2006-

2014Opened 1.8bn Angola

China

International

Fund

Part of an

ambitious plan

to connect the

Atlantic & Indian

oceans by rail

10Modderfontein

New CityZendai Group 2015- Ongoing 8.0bn

South

Africa

Zendai

Group

A new urban

district located

20 km from

Johannesburg

10 Significant Chinese Infrastructure Projects in Africa and their Locations

Chinese companies have invested in infrastructure projects across the African continent and in diverse areas – cities, ports, railways, power, etc. (2/2)

6

8

9

10

7

Highlights of these 10 Significant Chinese Infrastructure Projects in Africa (2/2)

South Africa

Angola

Kenya

Tanzania

48

Uganda

Mozambique

Liberia

Mali

Cote

D’Ivoire

Sudan

Ethiopia

Kenya

Tanzania

Angola

Republic of

Congo

GhanaNigeria

Zambia

Zimbabwe Madagascar

Democratic

Republic

of Congo

Cameroon

Power Generation Capacity

Hydro Solar Wind

Biomass Gas-fired Waste

Oil-firedGeo-

thermal

Coal-

fired

Transmission and Distribution

Cross-border

lines

National and

local networks

Greenfield Power Projects Contracted to Chinese Companies in Sub-Saharan Africa (2010 - 2020)

Source: OECD/IEA; Axis Group Analysis

Niger

ChadEritrea

Djibouti

South

Africa

NamibiaBotswana

Malawi

Rwanda

Central

African

Republic

Senegal

Sierra Leone

Togo

Equatorial Guinea

At present, a large spectrum of power generation projects are contracted to Chinese companies across Sub-Saharan Africa



access to i.e.:



succeed?






49

Agenda

1. Foreword










6. About Axis Group


by Axis Group International / Axis

Group

Please contact us for access to i.e.:



succeed?






50

The political relationship between South Africa and China has progressed through four distinct phases

From Taipei to Beijing: Establishment of Diplomatic

Relations (1998 – 2004)- South African government of national unity looked to allow new

leadership to forge a strategic relationship without being

encumbered by the past

- Establishment of bi-national commission under the Pretoria

Declaration of 2000

- Pretoria Declaration entrenched commitment to building economic

prosperity in the relationship

- Bilateral relations seen as a vehicle for cooperation on continental

issues in Africa like security and development

Strategic Partnership (2004 – 2010)- Growing convergence between South Africa and China on global

outlook and developmental concerns

- Second bi-national commission elevated bilateral relations to

‘Strategic Partnership’ status

- South Africa grants China ‘market status’

- Zuma administration promotes a more Asian-style development

approach

Comprehensive Strategic Partnership (2010 – present)- Concrete pivot to China by South Africa and indication that SA features

more centrally in China’s African and international endeavours

- Beijing Declaration elevates relations to ‘Comprehensive Strategic

Partnership’ status

- Mutual commitment to restructuring trade relations to grow value-added

exports from South Africa to China

2018 Outcomes:

- Agreements were signed to strengthen high-level exchanges, deepen

mutual trust, align development strategies, promote practical

cooperation and increase people-to-people exchanges

- Both countries pledged to carry forward their traditional friendly relations

and advance their comprehensive strategic partnership in the new era

Pre-1998: Limited Contact and Hostility- During the 19th century, the first Chinese community, comprising

labourers taken to work in the gold mines, settled in South Africa

- Largely non-existent/hostile relationship - South Africa’s Air Force

fought with the United Nations against PRC’s People’s Liberation Army

during the Korean War

- South Africa’s growing isolation during the Apartheid era led PW Botha

to establish official relations with ROC in 1980

- Following hostilities, resulting from the Sino-Soviet split, a 1982

meeting between OR Tambo and PRC Premier Zhao Ziyang

normalised ties between PRC and ANC/SACP

- Mandela administration resolves to shift diplomatic relations from ROC

to PRC


51

20

10

0

10

20

30

40

50

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

China's Imports from South Africa China's Exports to South Africa Trade Balance

Jacob Zuma assumes

presidency and begins to foster

a closer relationship with China

According to official Chinese sources, the size of South African exports to China is fundamentally determined by gold prices. Whilst Chinese imports have risen significantly in the last decade, its exports have remained relatively constant

Precious metals being SA’s main exports

to China, trade between the two countries

grew significantly from 2009 to 2012 owing

to gold prices rising by 93% in that period

Global gold prices decreased by

37% from 2013 to 2016. The overall

decrease in South African exports to

China during this period is

attributable to this change

Trade balance line contradicts SA’s perspective.

For further information, please see page 51 & 52 18%

15%

Total SA-China Trade in Goods (USD bn, 1998-2017)

Trade declined in 2009 due to the effects

of the global financial crisis

Official Chinese perspective

CAGR

Bilateral trade volumes

begin to grow in 2017 as

commodity prices

recover. Trade growth

expected to continue as

China seeks to grow

imports, as indicated with

the CIIE held in 2018

where SA was a ‘Guest

of Honour’ country

Note: Whilst UN Comtrade was the primary source used, National Bureau of Statistics of China data was also referenced

Source: National Bureau of Statistics; UN Comtrade; Axis Group Analysis

52

16

12

8

4

0

4

8

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

South Africa's Exports to China South Africa's Imports from China Trade Balance CAGR

According to the official South African reports¹, SA-China trade has grown substantially since the establishment of relations. Reaching its peak in 2013, the total value of trade gradually declined over the next three years

Following a peak in 2013, lower

commodity prices contributed to

lower trade values

Total SA-China Trade in Goods (USD bn, 2000-2017)

Official South African perspective

Trade declined in 2009

due to the effects of the

global financial crisisSA did not report gold numbers. For further

information, please see page 51 & 52

21%

17%Beijing Declaration signed

in 2010 with the goal of

increasing bilateral trade

President Zuma remarks on

the unsustainability of an

unequal trade relationship

with China

Jacob Zuma assumed the

presidency and began to foster

a closer relationship with China

Note: Whilst UN Comtrade was the primary source used, South African Revenue Services data was also referenced

Source: South African Revenue Services; UN Comtrade; Axis Group Analysis

53Source: UN Comtrade; World Bank; UNCTAD; Axis Group Analysis

0

10

20

30

40

50

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Reported bySouth Africa

Reported byChina

Major Discrepancy

Since 2008, the difference in bilateral trade data as reported by official Chinese and South African sources grew substantially. There tend to be various reasons for discrepancies, including misinvoicing and indirect trade

Comparison of Total Flow of Goods from China to South Africa as Reported by South Africa and China (USD bn, 1998-2017)

Growth in discrepancy

mirrors changes in gold

prices

0

5

10

15

20

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Reported bySouth Africa

Reported byChina

Minimal Discrepancy

Comparison of Total Flow of Goods from South Africa to China as Reported by South Africa and China (USD bn, 1998-2017)

Size of Discrepancy:

2013 (Peak): USD 36bn

2017: USD 15.7bn

-10

10

30

50

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Reported by China Reported by SA

SA Total Flow of Goods to China - Significant Discrepancy (USD bn, 2000-2017)

Peak of discrepancy – USD 36bn

Main Causes of Discrepancies in Trade Data- Misinvoicing: Falsification of the value or volume of an international commercial

transaction of goods or services by at least one party to the transaction. Often traders do

this to avoid taxes and tariffs, this is particularly the case with products that have an export

levy

- Indirect Trade: Goods are not shipped directly to their final destination, but through

another country first

- Categorisation: Differing classifications of goods between two parties to bilateral trade

flows

- Lack of Data Specificity: Trade partners are sometimes not disclosed for specific product

groups

- Freight and Insurance: Often exporters report trade value exclusive of insurance and

transport, whereas importers report values that include these

- Reporting Lag: Imports may be recorded with lags, creating mismatches in mirror values

of bilateral imports and exports

USD15.7bn

54Source: UN Comtrade; World Bank; UNCTAD; Axis Group Analysis

15.5

0.2

0

4

8

12

16

20

2017

Others Metals and Minerals

One of the primary causes of the discrepancies in trade statistics between South Africa and China is that South Africa did not attribute its gold exports to specific partners; but this misreporting only partially explains the discrepancy

Comparison of Major Importers of South African Gold by Size of Imports as Reported by Importer (USD bn, 2017)

0 2 4 6

China

United Kingdom

India

Hong Kong

Switzerland

Turkey

Italy

Canada

USA

Size of goldImportsFrom SA

Total Trade Data Discrepancy Composition (USD bn, 2017)

725297 351 300

17 40 11

506 334 162451

50 14 8

224 (37) 188 (151) (33) 26 2

Agricultureand Forestry

Textiles,Hides and

Skins

Chemicalsand Plastics

Fuels Machineryand Electrical

Equipment

TransportManufactures

Others

China's importsfrom SA

South Africa'sexport's to China

Discrepancy

Sectorial Composition of Discrepancy, Excluding Metals and Minerals (USD mn, 2017)

7.07

3.952.28

1.30

0.90

2017

Others

Platinum

Minerals

Diamonds

Gold

Composition of Discrepancy by Product Category in Metals and Minerals (USD bn, 2017)

USD15.7 bn

The South

African

Revenue

Service does

not specify

gold export

destinations

Gold imports from South Africa as reported by

other countries is just over USD 16bn, while

the total global exports of gold reported by

South Africa is only USD 4.96bn

55

10 12

42

16

93

5 4

14

95 5

12

62 2

12

1443

33

8

34

9

12

8

1213

17

2213 16

27

0

20

40

60

80

100

China's GlobalExports

China's Exports toSA

SA's Global Exports China's GlobalImports

China's Imports fromSA

Others


Chemicals and Plastics

Machinery and Electrical Equipment

Fuels

Transport Manufactures

Agriculture and Forestry

Metals and Minerals

Note: 1. Trade data reported by South Africa

2. Trade data reported by China

3. This representation is based on Chinese-reported trade data as South African sources omit certain major goods categories from their reports


While South Africa’s overall exports and China’s total imports are fairly diversified, Chinese imports from South Africa are highly concentrated around metals and minerals. The bulk of the flow of goods from South Africa to China is composed of primary commodities

Sectorial Composition and Comparison of China’s Global Exports and Exports to SA, SA’s Global Exports, China’s Global Imports and China’s Imports from SA (%, 2017)

7

USD 88bn USD 24.4bnUSD 1.8tn

3

1

2 2 2

USD 2.3tn USD 14.8bn

56

0 3,000 6,000 9,000

Metal mountings

Flat-rolled steel

Mattresses

Containers

Plastic Closures

Knit t-shirts

Plastic houseware

House linens

Electrical control boards

Articles of iron or steel

Woven fabrics of cotton

Machinery parts

Heterocyclic compounds

Cars

Pumps

Transmissions

Motorcycles

Centrifuges

Iron houseware

Other steel bars

Raw plastic sheeting

Medical instruments

Non-Knit male overcoats

Knit men's suits

Other cloth articles

Knit socks and hosiery

Electro-mechanical domestic appliances

Entertainment articles

Parts of vehicles

Porcelain or china

Machinery having individual functions

Engine parts

Unspecified

Polyacetals

Stainless steel

Aluminium plates, sheets and strip

Knit women's undergarments

Plasic coated textile fabric

Plywood

Ball bearings

Iron fasteners

Insecticides (retail)

Building stone

Other heating machinery

Electric Filament

Ceramic paving and tiles

Radio receivers

Iron pipes

Fish Fillets

Vacuum cleaners

China's Global Exports

SA's Imports from China

0 25,000 50,000

Telephone

Data processing machines

Integrated circuits

Machinery parts

Monitors and projectors

Vehicle parts

Light fixtures

LCD's

Trunks and cases

Semiconductor Devices

Furniture

Refined petroleum

Electrical Transformers

Non-Knit women's suits

Models and stuffed animals

Seats

Insulated Wire

Rubber footwear

Electric heaters

Industrial printers

Passenger and cargo ships

Other plastic products

Knit sweaters

Microphones and headphones

Knit women's suits

Elec. Protection Equip.

Air conditioners

Valves

Pneumatic tyres

Printed Circuit Boards

Video and card games

Air pumps

Textile footwear

Broadcasting accessories

Flat-rolled Iron

Synthetic filament yarn

Non-Knit men's suits

Electric batteries

Jewellery

Other electrical machinery

Electric motors

Structures of iron or steel

Motor-working tools

Sports equipment

Electric filament

Computers

Leather footwear

Other knitted fabrics

Non-Knit women's coats

Refrigerators

China's Global Exports

SA's Imports from China

China’s Top 100 Global Exports and Respective Exports to South Africa (USD mn, 2017)

141,971219,1611

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

35

36

37

38

39

40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

75

76

77

78

79

80

81

82

83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

100

South Africa is a market for most of China’s top exports, but exports to South Africa account for a marginal proportion of China’s total exports. These exports consist primarily of electronics, machinery and household items

China’s total exports:

USD 2.26tn

Top 100

Shown:

USD 1.54tn

68%

67,201

China’s total exports:

USD 2.26tn

Top 50 Shown:

USD 1.24tn

54.8%

Size of top 50

exports to SA:

USD 7.5bn

Size of top 100

exports to SA:

USD 9.4bn


57

Positive Aspects Possible Drawbacks

Increase the volume of trade

between the two parties

No significant increase in production

or employment

Greater Chinese market access for

SACU exports

Cost of Chinese imports will cripple

respective SACU industries

Negate prospects of new

industrialisation in specific sectors

Positive Aspects Possible Drawbacks

Help South Africa to correct the

trade imbalance

Scepticism from trade unions

(aligned with the ANC)

Improve employment opportunities

in South Africa

Disadvantage to other SACU

countries, some of whom already

have duty-free exports to China

Draw new sources of investment to

South Africa

More competition between/within

sectors

Give mutual assignment of Most

Favoured Nation (MFN) status

Both countries have sizeable

domestic markets

Positions SA and China as regional

access points for one another

A South Africa-China Free Trade Agreement

Source: SAIIA; Various; Axis Group Analysis

A SACU-China Free Trade Agreement

• Southern African Customs Union (SACU) is a customs union between

the Southern African countries of Botswana, Lesotho, Namibia, South

Africa and Swaziland

• Recently, FTA between SACU and China has resurfaced on the

trade agenda

China-Mauritius FTAAfter the third round of talks, negotiations on a China-

Mauritius FTA were concluded. This will be the first

FTA between China and an African country

African Continental Free Trade Agreement (CFTA)

• Adopted in March 2018, it is the largest trade agreement since the creation of the WTO

• Is expected to facilitate increased intra-continental trade in goods and services

• Will enhance market access for Chinese goods with lower barriers between different

African markets

There are currently no ongoing Free Trade Agreement negotiations between South Africa and China. Official discussions on an FTA were initiated in 2005, but subsequently abandoned primarily due to concerns among South African and other regional stakeholders. There are active efforts to enhance bilateral trade relations

58

China’s FDI stock in SA has more than doubled in the last 8 years, a result of China’s ‘going out’ strategy among other factors; this is indicative of growing confidence in South Africa as a destination for capital

Source: MOFCOM; Fdi Markets; SAIIA; Axis Group Analysis

-1

0

1

2

3

4

5

6

7

8

06 07 08 09 10 11 12 13 14 15 16 17

FDI Flow FDI Stock

China’s FDI Flow and FDI stock in South Africa (USD bn, 2006-2017)

Sector Distribution of China’s OFDI Stock in South Africa (%, 2005-2016)

27.5

27.413.3

9.9

4.2

17.7 Mining

Construction

Manufacturing

Finance

Science andTechnology Service37%

96 96

67 64 62 5643 35

24 2314

138

0

40

80

120

160

Sou

th A

fric

a

Mor

occo

Ken

ya

Nig

eria

Eth

iopi

a

Egy

pt

Gha

na

Tan

zani

a

Alg

eria

Cot

e d'

Ivoi

re

Uga

nda

Oth

er

Number of Inbound FDI Projects in Africa (2017)

The 2008 jump in FDI is mainly

attributed to ICBC’s purchase of

a 20% stake in Standard Bank

The bulk of investment has

been within the mining

sector, which is consistent

with the Pretoria Declaration

(2000)’s focus on expanding

trade and investment.

Specific areas of interest

were natural resources,

mining, and manufacturing

The ICBC investment in Standard Bank, coupled with

the CAD Fund office opening in Johannesburg, has

played a significant role in increasing Chinese

awareness of investment opportunities in SA

CAGR

59

As South Africa seeks to diversify its exports to China, expanding agricultural exports will be crucial. Access to China for South Africa’s exports has increased over time, but many strong exports remain without access as negotiations are slow

Citrus (orange, lemon,

grapefruit and mandarin)

2006 2007 2008 2009

Grapes

2010 2011

Apples

2012

Beef

Market AccessGeneral:

- Market access in fresh agricultural

produce (fruit and meat) requires a

phytosanitary/veterinary protocol to be in

place between the two countries,

signalling compliance with International

Standards for Phytosanitary Measures

(ISPMs)

- Without this there is no access for these

goods to either market

- Bilateral protocol on export of frozen

beef from South Africa to China is

signed – access gained

- Entry-exit animal inspection and

quarantine MoU signed

- Phytosanitary protocol on

grapes signed – access gained


apples signed


apples signed – access gained

Major Access Challenges:1. Shortage of information on China’s market and regulatory conditions among SA exporters

2. China only negotiates access for one fruit/vegetable category at a time. Generally, lower

pest carrying risk leads to faster negotiations

3. Language barrier

4. Shipment of fresh produce to China lengthy; maintaining freshness and quality complex

2013 2014 2015 2016 2017

Poultry - Protocol on sanitary requirements of

inspection and quarantine for heat treated

poultry meat

Pears

- Phytosanitary protocol

on pears signed

5. Natural disaster - the drought

6. Slow import administration process and other inefficiencies

7. Competition from other markets, especially Australia and Chile

8. Challenging labeling requirements for China jurisdiction

9. China's agriculture self-sufficiency policy

10. WTO rules and regulations

Apples


apples signed

Tobacco

- Phytosanitary protocol

on tobacco signedSouth

Africa

to China

China to

South

Africa

Dates


dates signed

South African Access to China:

- Agricultural goods are a core component

and growth driver for SA exports to China

- Gaining access to China for agricultural

goods is a priority but a slow process

Chinese Access to South Africa:

- China’s exports to South Africa have

been mainly machinery and electronics

as well as textiles

- Other than tariff barriers, no special

barriers apply to these goods

2018

- Relaxed health restrictions on

South African beef imports

- Bilateral protocol on export of

frozen beef from SA to China is

signed – access gained


60

Key Facts about the New Development Bank (NDB)

41%

18%

18%

18%

5%

China

Brazil

Russia

India

South Africa

NDB Currency Reserve Pool Contribution (%, 2015)

The New Development Bank is an important tool for economic stabilisation and to make infrastructure funding available to BRICS countries

Total = USD 100bn

The NDB currency reserve

pool, known as the

Contingent Reserve

Arrangement (CRA), will

provide liquidity to members

in the event of crises

• USD 50bn in initial capital – equally funded by all members

• Long-term goal of fostering the growth potential of member countries via infrastructure projects

• Further reflection of the need for an alternative to the IMF and World Bank

Putian Pinghai Bay Wind Project

USD 298mn

Loans to SA

Loans to China

Total: USD 1,179mn

5 projects

financed by NDB

Eskom renewable energy project

USD 180mn

Transnet Durban Port Upgrade

USD 200mn

Total: USD 680mn

3 projects

financed by NDB

Greenhouse Gas Emissions Reduction

USD 300mn

Luoyang Metro Project

USD 300mn

Lingang Solar Power Project 200mn


61

Upshot

• Since 2002, both the Chinese and the African continental GDP have markedly outgrown average global growth. During this periodof unprecedented growth, trade between China and Africa has grown at a CAGR of over 19%. Chinese investment, construction,and financing in Africa have increased dramatically

• Formal diplomatic ties between China and African countries have formed and been expanded over the past decade. In severalmultilateral institutions such as BRICS and FOCAC, China cooperates closely with African member states to build towards sharedgoals of infrastructure development

• China’s rapid industrialization and export-led expansion have resulted in significant trading relationships with major Africaneconomies like South Africa, Angola, and Nigeria. Many African nations run large trade deficits with China, and their composition ofexports to China remains concentrated in primary products. China and Africa continue to actively pursue policies that expand trade

• China has grown its ties to Africa through large growth in financing engagement. China’s FDI stock in Africa grew at a CAGR of28% since 2006, with over half of FDI in mining or construction. Similarly, China’s loans to Africa grew at a CAGR of 32% between2000 and 2015, concentrating heavily in transportation and agriculture. Chinese banks, which facilitate financing, have sprung up allover Africa

• China has taken its expertise in large-scale urbanization and infrastructure development to Africa. Since late 2015, China hascaptured over half the market for contracting in Africa, building some of the largest infrastructure projects that Africa has ever seen,which include ambitious energy, transportation, and urbanization projects

• In addition to being a large recipient of Chinese FDI, South Africa has emerged as China’s largest trading partner in Africa. SouthAfrica and China have worked together to bring about more open trade. Like many African nations however, there remains animbalance of composition in goods traded between China and South Africa, as most of South Africa’s exports to China are metalsand minerals

Source: Axis Group Analysis



access to i.e.:



succeed?






62

Agenda

1. Foreword



– Selected Macroeconomic Indicators

– Domestic Consumption and Foreign Trade

– Domestic and Foreign Investment

– Financial Indicators

– Social Indicators



6. About Axis Group

63Source: Finance Monthly

64

0

4

8

12

16

78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20F

China’s GDP growth is expected to continue moderating, making it more sustainable - GDP growth rates in recent years already reflect this ‘new normal’

China’s Real Y-o-Y GDP Growth Rate (%, 1978-2020F)

Source: The World Bank; IMF; Axis Group Analysis

8-10% GDP

growth band Soft landing amid

global uncertainty

Overheating

concerns

7-8% GDP

growth band

More moderate

and stable

growth rate

6-7% GDP

growth band

Past periods of

overheating

65

Growth rates in China’s east and northeast provinces have trended lower in recent years to below the national average. Growth rates in China’s western provinces remain some of the highest in the state

-3

2

7

12

17

22

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

Beijing

Tianjin

Hebei

Shanxi

InnerMongoliaLiaoning

Jilin

Heilongjiang

NationalAverage

6

8

10

12

14

16

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

Shanghai

Jiangsu

Zhejiang

Anhui

Fujian

Jiangxi

Shandong

NationalAverage

6

8

10

12

14

16

18

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

Chongqing

Sichuan

Guizhou

Yunnan

Tibet

Shaanxi

Gansu

Qinghai

Ningxia

Xinjiang

National Average6

8

10

12

14

16

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

E

Henan

Hubei

Hunan

Guangdong

Guangxi

Hainan

National Average

North/Northeast Provinces GRP (Y-o-Y % change, 1997 – 2017E)

East Provinces GRP (Y-o-Y % change, 1997 –2017E)

Central South Provinces GRP (Y-o-Y % change, 1997 – 2017E)

West Provinces GRP (Y-o-Y % change, 1997 –2017E)

Source: National Bureau of Statistics of China; Axis Group Analysis

66

China’s Provincial GRP (Q3 2018, Y-o-Y % change)

North & Northeast East Central South West

Province GRP % Province GRP % Province GRP % Province GRP %

Beijing 6.7 Shanghai 6.6 Henan 7.4 Chongqing 6.3

Tianjin 3.5* Jiangsu 6.7 Hubei 7.9 Sichuan 8.1

Hebei 6.6 Zhejiang 7.5 Hunan 7.8 Guizhou 9.0

` 6.1 Anhui 8.2 Guangdong 6.9 Yunnan 9.1

Inner Mongolia 5.1 Fujian 8.3 Guangxi 7.0 Tibet 9.0

Liaoning 5.4 Jiangxi 8.8 Hainan 5.4 Shaanxi 8.4

Jilin 4.0 Shandong 6.5 Gansu 6.3

Heilongjiang 5.1 Qinghai 6.8

Ningxia 7.0

Xinjiang 5.3

Most of the provinces have kept a growth rate higher than 5%, with the exception of Tianjin and Jilin. Overall, western and central south provinces have relatively greater growth potential

Note: GRP=Gross Regional Product, defined as a monetary measure of the market value of all final goods and services produced in a region or subdivision of a country in a period of time


*Tianjin’s GRP is the lowest with only 3.5% in

2018 Q3, which could be the lag effect of the

massive explosion at Tianjin port in 2015

67

4.85.8 6.4

0

2

4

6

8

2013 2015 2017

3.64.5

5.8

0

2

4

6

8

2013 2015 2017

Consumption (USD tn)

China continues to see slower growth – a ‘new’ growth trajectory is unfolding, but does this represent ‘better’ growth?

Major Economic Indicators for China


Source: World Bank; IMF; National Bureau of Statistics China; Axis Group Analysis

7.8 6.9 6.9

0

2

4

6

8

2014 2016 2018E

GDP Growth Rate (%)

7,683 8,11710,100

0

4,000

8,000

12,000

2014 2016 2018E

GDP per Capita (USD)

260

591422

0

200

400

600

800

2013 2015 2017

4.6 5.0 5.3

0

2

4

6

8

2013 2015 2017

Net Exports (USD bn)

Gross Investment (USD tn) Govt. Debt (USD tn)

10.5 11.2 14.1

X Represents GDP in USD tn X Represents Population in bn X% Net Exports as a % of GDP

2.7% 5.3% 3.4%

50% 53% 53% 47% 45% 44%

X% Consumption as a % of GDP X% Investment as a % of GDP X% Govt. Debt as a % of GDP

41% 47%37%

1.36 1.38 1.4

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 (%, 2002-2018E)


-20

-10

0

10

20

30

40

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

GDP Y-o-Y % Export Y-o-Y %Import Y-o-Y % Fixed Asset Investment Y-o-Y %Household Consumption Expenditure Y-o-Y % Industrial Production Y-o-Y %

Decline in global trade

during financial crisis

China’s major economic

indicators are beginning

to moderate

69

9.4

Contribution to GDP Growth (%, 1998-2017)

China is slowing and the growth levers are changing - household consumption growth is accelerating, while government consumption and capital formation growth are slowing down

-6

-4

-2

0

2

4

6

8

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Net Exports of Goods and Services

Gross Capital Formation

Household Consumption Expenditure

Government Consumption Expenditure

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; Axis Group Analysis

Government stimulating

household consumption as a

means of driving GDP growth

8.3 9.18.5 10.0 10.1 11.4 12.7 14.2 9.7 10.6 9.5 7.9 7.8 7.37.77.8 6.9 6.7

Annual GDP growth rate (%)X

6.9

China revised its

2017 GDP to 6.8

70

0

5

10

15

20

25

30

35

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Wholesale & Retail TransportationHotels Financial IntermediationReal Estate Software & ITLeasing & Business Services Others

5

6

7

8

9

10

0

20

40

60

80

100

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Agriculture Industry Services Y-o-Y GDP Growth (RHS)

China’s Share of GDP Growth by Sector (%, 2013-2018)


China’s Service Sector GDP Growth Rates (Y-o-Y %, 2015-2018)

High-value services such as IT & software and leasing & business services are replacing industry and manufacturing as the primary drivers of China’s economy

Policies to control the growth of credit and local government

debt have reduced the contribution of industry – services are

increasingly driving GDP growth

2015 2016 20182013 2014 2015 2016 2017

7.8% 7.3% 6.9% 6.7%

2018

6.9%

Annual GDP growth rateX%

2017

6.6%

71

China’s Fastest Growing Provinces (GDP CAGR, 2007-2012)


China’s Fastest Growing Provinces (GDP CAGR, 2012-2017)

China’s focus is shifting inward, away from the coast – western provinces are increasingly becoming major drivers of GDP growth

5

1069

7

8

4

Inner Mongolia

15.4%

Shaanxi

15.7%

Guizhou

14.4%

Ningxia

15.6%

Jiangxi

13.0%

Tianjin

14.9%

Chongqing

16.8%

3

Hubei

13.6%

Qinghai

13.6%1

2

Hunan

13.6%

1

2

3 4

5

6

7

8

9

10

Tibet

11.5%

Yunnan

8.1%

Guangdong

7.7%

Fujian

8.6%

Jiangxi

8.2%

Guizhou

12.7%

Chongqing

9.5%

Hubei

8.6%

Jiangsu

7.9%

Anhui

8.0%Westward Shift

72

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

Population and Density of Chinese Megacities (2016)

Note: A ‘megacity’ is defined as a city with a population greater than 10 mn

Source: OECD; Axis Group Analysis

Tianjin

Shanghai

Beijing

Chengdu

Shenzhen

Guangzhou

Population mn

10

15

20

25

10.9

mn

10.4

mn

12.1

mn

Region No. of Megacities

China 15

Rest of Asia 16

Africa 1

Latin America 4

North America 2

Europe 2

Middle East 1

Total 41

10.5

mn

Harbin

11 mn

Jinan

19 mn Wuhan

Chongqing

13.4

mn

Hangzhou

Xi’an

12.4

mn24.3 mn

Changzhou

12

mn

Shantou

11.7

mn

Nanjing

12.9

mn

21.7 mnIn terms of global megacities, China dominates – with

increasing urbanisation, this trend of the development of

megacities is set to continue

Major metropolises and large Tier 1 cities

are still concentrated along coastal areas

in Eastern China – expect this to shift

westward

29.7 mn

17 mn

73

0

1

2

3

4

5

6

7

8

9

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

59

32

9

-40

-20

0

20

40

60

80

100

120

140

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Net Exports of Goods and ServicesGross Capital Formation (GCF)Final Consumption Expenditure (FCE)

China’s Quarterly Y-o-Y GDP Growth Rate (%, 2012-2018)


Contribution to China’s GDP (% of Total, 1999-2017)

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

Falling net exports

contribution

Effect from stimulus

package in 2009

Policy easing to

provide room for

growth moderation

2012 Y-o-Y

GDP: 7.9%

2018 Q4 Y-o-Y

GDP growth

rate was 6.4%

2012 2013 2014 2015 2016 2017 2018

2013 Y-o-Y

GDP: 7.8%

2014 Y-o-Y

GDP: 7.3%

2015 Y-o-Y

GDP: 6.9%

2016 Y-o-Y

GDP: 6.7%2017 Y-o-Y

GDP: 6.9%

2018 Y-o-Y

GDP: 6.6%

74

0 200 400 600 800 1,000 1,200 1,400

GuangdongJiangsu

ShandongZhejiang

HenanSichuan

HubeiHebei

HunanFujian

ShanghaiBeijingAnhui

LiaoningShaanxiJiangxi

GuangxiChongqing

TianjinYunnan

HeilongjiangInner Mongolia

JilinShanxi

GuizhouXinjiang

GansuHainanNingxiaQinghai

Tibet

China’s GDP by Province (USD bn, 2017)

Note: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and Shanghai


Geographical Distribution of China’s GDP (USD bn, 2017)

3

4

2

5

1

Henan

666

Zhejiang

766

Shandong

1,075

Guangdong

1,330

Jiangsu

1,271

3029

28

27Gansu

114

Hainan

66

Ningxia

51

Top 5 provinces share of

GDP amounts to 40.4% of

total GDP

Top 5 Provinces by GDP

Bottom 5 Provinces by GDPHighlighted on the map on right

123456789

10111213141516171819202122232425262728293031

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

Qinghai

39Tibet

19 31

75

Yunnan

5.1

0 5 10 15 20

BeijingShanghai

TianjinJiangsu

ZhejiangFujian

GuangdongShandong

Inner MongoliaChongqing

HubeiShaanxi

JilinLiaoningNingxiaHunanHainan

HebeiHenanJiangxi

XinjiangSichuanQinghai

AnhuiHeilongjiang

GuangxiShanxi

TibetGuizhouYunnanGansu

Thousands

China’s GDP Per Capita by Province (USD ‘000, 2017)

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

4

5

1

27

29

Geographical Distribution of China’s GDP Per Capita (USD ‘000, 2017)

Top 5 Provinces by GDP per capita

Bottom 5 Provinces by GDP per capitaHighlighted on the map on right

China’s GDP per capita reached

USD 8,836 in 2017

3

123456789

1011

1213141516171819202122232425262728293031

2

Beijing

19.1

Zhejiang

13.6

Shanghai

18.5

Jiangsu

15.9

Tianjin

17.7Gansu

4.3Shanxi

6.0

Tibet

5.8

Guizhou

5.6

28

30

31

76Note: Also includes the centrally-administered municipalities of Beijing, Tianjin, Chongqing and Shanghai


Tianjin aside, the coastal regions are no longer China’s fastest growing regions –reflective of the government’s growing emphasis on developing inland provinces

0% 2% 4% 6% 8% 10%

GuizhouTibet

YunnanChongqing

JiangxiAnhui

SichuanFujianHunan

ShaanxiZhejiang

HenanHubei

NingxiaXinjiang

GuangdongShandong

GuangxiQinghaiJiangsuShanxiHainan

ShanghaiHebei

BeijingHeilongjiang

JilinLiaoning

Inner MongoliaTianjinGansu

China’s GDP Growth Rate by Province (%, 2017) Geographical Distribution of China’s GDP Growth Rate (%, 2017)

123456789

10111213141516171819202122232425262728293031

5

30

28

27

Top 5 Provinces by GDP growth

Bottom 5 Provinces by GDP growthHighlighted on the map on right

1

4

Yunnan

9.5% 3

Tibet

10.0%

2

Guizhou

10.2%

Chongqing

9.3%

Jiangxi

8.9%

Inner Mongolia

4.0%

Tianjin

3.6%

Liaoning

4.2%

Jilin

5.3%

Gansu

3.6% 31

29

77

0

3

6

9

12

15

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

13.5%

The tertiary sector has been the fastest growing sector in recent years and constituted 52% of China’s GDP in 2018

Composition of GDP by Sector (USD tn, 1997-2018)

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


Primary Sector Secondary Sector Tertiary Sector

52%

41%

7% 8.6%

12.7%

15.8%

CAGR (1997-2018)X%

78Note: Others include sectors such as Tourism, Education, Science and Technology, Telecom, Media, Public Health etc.


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 bn, 1998-2017)

Value-added Breakdown of Tertiary Sector (USD bn, 1998-2017)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Transport, Storage and Post

Wholesale and Retail Trades

Hotels and Catering Services

Financial Intermediation

Real Estate

Others

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

Construction Sector

Industrial Sector

13.2%

CAGRX%

16.1%

79

25

45

65

85

105

125

145

0 50 100 150 200 250 300 350 400 450 500 550 600

Capital formation, which is primarily concentrated in China’s larger coastal provinces, remains a large contributor to the economy - far surpassing the world average

Total Capital Formation (USD bn)

% of Provincial GDPA bubble this size represents 1% of national

total GCF


China’s Gross Capital Formation (2017)

Northern

Northeastern

Eastern

Southwestern

Northwestern

Southern Central

Ningxia

Shandong Jiangsu

Guangdong

Henan

Zhejiang

Liaoning

HebeiFujian

GuangxiTianjin

Yunnan

Shaanxi

Shanxi

Anhui

Heilongjiang

Jiangxi

Chongqing

Guizhou

Gansu

Hainan

Qinghai

Hubei

Inner Mongolia

Shanghai

Tibet

Jilin

Xinjiang

Hunan

Sichuan

Beijing

Provinces in central and western China are very

dependent on capital formation

National average = 54.74%

80

30

40

50

60

70

80

0 50 100 150 200 250 300 350 400 450 500 550 600 650

35% of final consumption in China is focused in just four coastal provinces, with Guangdong as the outright leader

China’s Final Consumption (2018E)

Note: Final consumption includes both household consumption expenditure and government consumption expenditure


Provincial Final Consumption (USD bn)

A bubble this size represents 1% of total

final consumption% of Provincial GDP

Guangdong

Jiangsu

Shandong

Zhejiang

Henan

Sichuan

Shanghai

Beijing

Hunan

Hubei

Liaoning

Hebei

Anhui

Fujian

YunnanHeilongjiang

Jilin

Guangxi

Jiangxi

Shaanxi

Shanxi

Chongqing

Tianjin

Inner Mongolia

Guizhou

Xinjiang

Gansu

Hainan

Tibet

Qinghai

Ningxia

Northern

Northeastern

Eastern

Southwestern

Northwestern

Southern Central

81

During the last decade, China’s industrial value-added output growth has averaged 20% per year. However, this growth has been affected by weak overseas demand in recent years

Industrial Value Added Output (2000-2018)


-10%

0%

10%

20%

30%

0

1,000

2,000

3,000

4,000

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Industrial Value Added Output Y-o-Y Growth Rate (RHS)

WTO accession on

11 December 2001

USD bn

13.4%

CAGRX%

82

104

105

100

103

104

99

98

99

101

106

105

104

105

108

103

104

99

97 97 98

100

103

99

102

101

103

108

105

102

105

104 104

105

103

106 106

106

110

107 108

110

106 104

104

106

104

104

104

104 104

100

101

100

103

107

106 105

107

109

108 109

113

111

113

112113

115

115

119

124

121

123

122

124

122

123

123

118

120

119 119

119122

123

90

95

100

105

110

115

120

125

Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov

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 (2012-2018)

Note: The consumer confidence index measures the level of optimism that consumers have about the performance of the economy


CCI over 100 indicates that

consumers are optimistic

2013 20152012 2014 2016 2017

The calculation of the CCI combines the level of

optimism that consumers have about their

consumption intentions with their expectations of

living standards

2018

83

China’s annual inflation rate stood at 2.1% in 2018. It is expected to continue at a mild rate in 2019, allowing room for policy maneuvers for high-quality development

China’s Consumer Price Inflation (%, 2013-2018)

0

1

2

3

4

5

Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov

General Rural Urban

2014 20162013 2015 2017

2.6% 2.0% 1.4% 2.0% 1.6%

X%Represents average annual consumer price inflation for the year

2018

Designated inflation target of 3% was set by

the Chinese government for 2018

2.1%


84

-4

-2

0

2

4

6

8

10

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D

General Food* Tobacco*, Liquor and Articles

Clothing Household Facilities and Articles Healthcare & Personal Articles

Transportation & Communication Recreation, Education, Culture Articles Residence

2014

China’s CPI hit a two-year low in February 2017 but subsequently increased throughout the latter part of 2017. Actual inflation rates for 2017 were lower than the year’s target of 3%

China’s Consumer Price Inflation Breakdown (%, 2014-2018)

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


Seasonal peaks due to Chinese New Year holiday

Food is an important driver, with a

weight of over 30% of the total CPI

*As of 2016, the NBS has

merged Food and Tobacco

2015 2016 2017 2018

85

-2

0

2

4

6

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

China’s Annual Consumer Price Inflation (%, 1997-2018)


Geographical Distribution of China’s Consumer Inflation (% Y-o-Y, Dec 2018)

Controlling inflation is no longer a key 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

Commodity and

food price pressure

Overheating and

overinvestment

Deflation and

overcapacity

Doubling of M2

money supply

28

1

Provinces with Lowest Inflation

Provinces with Highest Inflation

4

31

27

29

2

30

Xinjiang

0.9% Liaoning

1.3%

Heilongjiang

1.2%

Qinghai

2.6%

Fujian

1.2%

Guangxi

2.3%

Jiangsu

2.2%

3

5

Chongqing

2.2%

Guangdong

2.1%

Shanghai

1.2%

86

-8

-6

-4

-2

0

2

4

6

8

10

Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov

Producer prices in China experienced slower growth last year compared to 2017, with the PPI for December 2018 being 0.9%

China’s Producer Price Inflation (%, 2012-2018)


2012 20152013 2014

Avg. Producer

Price Inflation

2016

-1.7%

Represents average annual producer price inflation for the year

2017 2018

-1.9% -1.9% -4.6% -1.3% 6.3%

X%

Deflation due to depressed

overseas market demand

and sluggish domestic

manufacturing activity

3.5%

87

Since 2017, China’s PPI for mining and quarrying has moderated 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 (%, 2012-2018)


-25

-15

-5

5

15

25

35

45

Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov

Mining & Quarrying Raw Materials Manufacturing Food Clothing Articles for Daily Use Durable Consumer Goods

2017 20182012 20142013 2015 2016

0

88

-8

-6

-4

-2

0

2

4

6

8

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

China’s Annual Producer Price Inflation (%, 1997-2017)


Geographical Distribution of China’s Producer Price Inflation (% Y-o-Y, Dec 2018)

China’s PPI has been making a recovery since September 2016, after 5 years of continuous decline

Provinces with Lowest Producer Inflation

Provinces with Highest Producer Inflation

29

27

5

1

4

30

31

2

3

28

Xinjiang

2.7%

Shanxi

4.5%

Heilongjiang

2.4%

Beijing

-0.5%

Tibet

-1.4%

Qinghai

-1.9%

Tianjin

-0.3%

Guangxi

-0.5%

Fujian

2.4%

Shanxi

2.9%

89

China’s manufacturing sector has begun to expand over the last few years. 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 (2014-2018)

45

50

55

Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov Jan

Mar

May Ju

l

Sep

Nov

PMI

3-month moving average


A reading above 50 reflects expansion; below

50 reflects contraction

2014 2015 2016 2017 2018

90

J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N80

90

100

110

120

130

140

150

160

170

Beijing Tianjin Shanghai

Chongqing Guangzhou Shenzhen

Sales Price Index of Residential1 Buildings in Selected Cities (Y-o-Y, 2013-2018)

98

99

100

101

102

103

104

105

106

107

108

J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N

Beijing Tianjin Shanghai

Chongqing Guangzhou Shenzhen

1. Starting from Jan 2018, data is for Commercialized Buildings as the data for Residential Buildings was no longer released by government authority


Sales Price Index of Residential1 Buildings in Selected Cities (M-o-M, 2013-2018)

House prices in China’s major cities have adjusted through 2017. Policymakers have set restrictions on purchases in tier 1 cities to keep the prices stable

2013 2014 2015 2016 2017

Shenzhen has the least

restriction among the six

Tier-1 cities

2013 2014 2015 2016 2017

Shenzhen has the least

restriction among the six

Tier-1 cities

2018 2018

91

Internet Penetration in China (%, 2016)

Note: *Internet penetration rate as of 31 December 2016

Source: China Internet Watch; China Internet Network Information Center; Various; Axis Group Analysis

Internet penetration in China is rapidly rising, but is still very unevenly distributed

1 Beijing 77.8%

2 Shanghai 74.1%

Guangdong 74.0%

Fujian 69.7%

Tianjin 64.6%

Zhejiang 65.6%

Liaoning 62.6%

Jiangsu 56.6%

Xinjiang 54.9%

Shanxi 55.5%Qinghai 54.5% Hebei 53.3%

Hainan 51.6%

Shaanxi

52.4%

Shandong 52.9%

Chongqing

51.6%

Ningxia 50.7%

Hubei 51.4%

Jilin 50.9%

Heilongjiang 48.1%

Guangxi

46.1%

Tibet 46.1%

Hunan

44.4%

Anhui

44.3%Sichuan 43.6%

Henan

43.4%

Guizhou 43.2%

Yunnan 39.9%

Jiangxi

44.6%

6

13

8

5

4

3

2325

24

26

17

31 29

15

7

19

21

10

11

30

22

27

14

20 9

18

28

16

Provinces with internet penetration above 50%

Provinces with internet penetration between 40-50%

Provinces with internet penetration below 40%

China’s overall internet

penetration was at 53.1% as

of Dec 2016

With the increasing popularity of smartphones and the

further implementation of broadband networks, regional

differences in internet development in China will be

further reduced

12

Selected Countries’ Internet

Penetration (%, 2016*)

89 8553

3520

Despite significantly lower

internet penetration levels,

both China and India have more

internet users than the US does



access to i.e.:



succeed?






92

Agenda

1. Foreword










6. About Axis Group

93

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. However, rural retail sales are now growing at a faster rate

China’s Annual Retail Sales and Growth Rate by Administrative Level (1978-2017)

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

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 17

Retail Sales (Urban) Retail Sales (Suburban) Retail Sales (Rural)

Urban Growth (RHS) Suburban Growth (RHS) Rural Growth (RHS)USD bn¹

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


94

0

100

200

300

400

500

600

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

Jan-

16

Jan-

17

Jan-

18

China’s Annual Retail Sales (USD bn, 1979-2017)


China’s Monthly Retail Sales (USD bn, 2006-2018)

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

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

79 82 85 88 91 94 97 00 03 06 09 12 15

Annual retail sales reached

USD 5,419bn in 2017

95

0 100 200 300 400 500 600

GuangdongShandong

JiangsuZhejiang

HenanSichuan

HubeiHebei

HunanLiaoning

FujianShanghai

BeijingAnhui

HeilongjiangShaanxi

ChongqingJilin

GuangxiJiangxi

Inner MongoliaShanxi

YunnanTianjin

GuizhouGansu

XinjiangHainanNingxiaQinghai

Tibet

China’s Retail Sales by Province (USD bn, 2017)


China’s eastern, coastal provinces have the highest retail sales due to a large population, high employment, and high disposable income

123456789

10111213141516171819202122232425262728293031

Highlighted on the map on right

China’s total retail

sales in 2017 was

USD 5.4tn

Total retail sales of

United States in 2017

was USD 5.7tn

Hainan

24

27

29

5

28

1

31

Tibet

8

Qinghai

12

Ningxia

14

Geographical Distribution of China’s Retail Sales (USD bn, 2017)

Bottom 5 Provinces by Retail Sales

Top 5 Provinces by Retail Sales

30 2

3

4

Xinjiang

45Shandong

498

Jiangsu

470

Zhejiang

360Henan

291

Guangdong

565

96

-25

-15

-5

5

15

25

35

45

55

65

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 N200

100

0

100

200

300

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

Series2 Series1

China’s Monthly Exports and Imports (USD bn, 2013-2018)

Source: China Customs; Axis Group Analysis

China’s Monthly Trade Balance (USD bn, 2013-2018)

Overall, China has a trade surplus each month; however, its trade value diminishes during the Spring Festival season

2013 2014 2015

2,209 2,342 2,273 2,098

1,950 1,959 1,680

2,263

1,843

2016

Yearly Total:

Yearly Total:

2017 2018

Trade reaches its nadirs during

Chinese New Year holiday

2013 2014 2015 2016 2017 2018

1,588

97

-60%

-40%

-20%

0%

20%

40%

60%

0

50

100

150

200

250

JMMJ SN JMMJ SNJMMJ SN JMMJ SNJMMJ SN JMMJ SN

ExportsExports' Monthly Growth Rate (M-o-M, RHS)

2,277

-20%

-10%

0%

10%

20%

30%

40%

50%

0

500

1,000

1,500

2,000

2,500

3,000

97 99 01 03 05 07 09 11 13 15 17

Exports Exports' Growth Rate (RHS)

China’s Annual Exports (USD bn, 1997-2018)

Source: China Customs; China Monthly Economic Indicators; Axis Group Analysis

China’s Monthly Exports (USD bn, 2013-2018)

The growth rate of Chinese exports had been slowing since 2010; however, exports rebounded in 2017

China’s entry into

the WTO in 2002,

increased its export

growth rate

Seasonal drop due to Chinese New Year holiday

X Total Annual Exports (USD bn)

2,217 2,343 2,098 2,263

2013 2014 2015 2016 2017 2018

2,485

98

430279

137103

72716867

574544434241393635323129

USHK

JapanKorea

VietnamGermany

IndiaNetherlands

UKSingapore

Taiwan, PRCRussia

MalaysiaAustraliaThailand

MexicoIndonesia

PhilippinesCanada

Italy


Top exported commodities:

• Electrical machinery, equipment and parts

• Telecommunication, sound recording equipment

and reproducing apparatus

• Automatic data processing machines and parts

Vietnam

3.2%

Hong Kong

12.34%

Japan

6.1%

Germany

3.1%

US

19.0%

South Korea

4.5%

Netherlands

3.0%

UK

2.5%

Singapore

2.0%

India

3.0%

1

2

3

45

89

6

10

7

Over 68% of

China’s total

exports went to

the top 15 export

partners

Hong Kong is a

trading hub for

China and the

rest of Asia

In 2017, 45% of China’s total exports went to its top 5 export partners, the US, Hong Kong, Japan, South Korea and Vietnam. Export growth to the EU, US and especially Japan has been sluggish amidst weaker demand

Total Exports = USD 2, 263 tn

China’s Top Export Destinations (USD bn, 2017)

99

CAGR 2001-2017 2017 Growth Category

9% -2.1%

9% 31.7%

11% 2.4%

16% 15.9%

14% 4.8%

12% 3.4%

16% 10%

14% 7.7%

0

600

1,200

1,800

2,400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Others

Mineral Items

Foodstuffs

Chemicals and Related Products

Products Classified by Material

Miscellaneous Manufactured Articles

Machinery and Equipment

As China shifts towards high value-added exports, machinery and equipment are accounting for an ever larger portion of its exports – close to 50% of exports in 2017

Composition of China’s Exports (USD bn, 2001-2017)

Note: Composition is according to the SITC Classification System

Source: MOFCOM; China Customs; Axis Group Analysis

Total

2017 records a growth rate

of 7.7% from 2016

100

-20%

-10%

0%

10%

20%

30%

40%

50%

0

500

1,000

1,500

2,000

2,500

97 99 01 03 05 07 09 11 13 15 17

Imports Imports' Growth Rate (RHS)

China’s Annual Imports (USD bn, 1997-2018)


China’s Monthly Imports (USD bn, 2013-2018)

After experiencing consecutive negative growth rates for 2 years since 2015, the Chinese economy’s import growth rate increased by 15.8% in 2018

China’s entry

into the WTO

USD bn

-40%

-20%

0%

20%

40%

60%

0

50

100

150

200

250

JMMJ SNJMMJ SN JMMJ SNJMMJ SNJMMJ SN JMMJ SN

Imports

Imports' Monthly Growth Rate (M-o-M, RHS)

2013 2014

USD bn

2015

Total Annual Imports (USD bn)

1,950 1,959 1,680 1,8431,588

2016 2017 2018

X

101

In 2017, South Korea, Japan, Taiwan, the US, and Germany were China’s top sources of imports, accounting for about 41% of China’s total imports

Top Countries of Origin for China’s Imports (%, 2017)


Machinery, vehicles,

electronics

Top imported commodities:

• Electrical machinery, equipment and parts

• Mineral fuels, mineral oils and products of their distillation

• Metalliferrous ores and metal scrap

Total Imports = USD 1,841bn

178

166

155

154

97

95

59

54

50

42

South Korea

Japan

Taiwan

US

Germany

Australia

Brazil

Malaysia

Vietnam

Thailand

Taiwan 8.4%

South Korea 9.6%

Germany

5.3%US

8.4%

Japan

9.0%

Australia

5.2%

Malaysia 2.9%

Vietnam

2.7%

Thailand

2.3%

Brazil

3.2%

12

3

4

5

6

7

8

910

Machinery, technology,

consumer goods

Vehicles,

Machinery

Iron ore, soybean,

petroleum

Petroleum, soft

commodities Iron ore,

coal

Machinery,

electronics

102

CAGR 2001-2017 2017 Growth Category

23% -44.3%

28% 404.4%

8% -56.9%

10% 59%

9% -17.6%

12% -23.9%

18% 28.9%

13% 11.7%

13% 12.1%

As a manufacturing powerhouse, China relies heavily on imported products such as machinery, chemicals and minerals; imports of foodstuffs grew a remarkable 404.4% from 2016-17

Composition of China’s Imports (USD bn, 2001-2017)

Note: SITC Classification System; Crude material: inedible, except fuels

Source: MOFCOM; China Customs; Axis Group Analysis

Total

0

600

1,200

1,800

2,400

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Others

Foodstuffs

Miscellaneous Manufactured Articles

Products Classified by Material

Chemicals and Related Products

Mineral Items

Crude Materials

Machinery and Equipment

2017 records a growth rate

of 12.1% from 2016

103

Almost 42% of China’s total trade is with the US, Hong Kong, Japan, and South Korea. The US, China’s largest trading partner, accounted for USD 700bn, or 19% of China’s total trade, in 2017

China’s Largest Trading Partners (%, 2017)

Source: UN Comtrade; China Customs; Axis Group Analysis

Hong Kong 12.3%

Japan 6.1%US

19.0%South Korea 4.5%

430

279

137

103

71

71

68

67

57

45

US

Hong Kong

Japan

South Korea

Germany

Vietnam

India

Netherlands

UK

Singapore

India

3.0%

Vietnam 3.1%

Netherlands

3.0%

1 3

2

4

6

5

7

89

Trade Surplus

Trade Deficit

Germany 3.1%

China’s total trade: USD 4,105bn

Total imports: USD 1,841bn

Total exports: USD 2,264bn

10

Total Exports = USD 2,097bn

Singapore 2.0%

UK

2.5%

104

Taiwan

276

272

56

52

34

-28

-30

-53

-75

-111

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, 2017)


USA

Hong Kong

South Korea

Australia

Netherlands

China’s world trade surplus = USD 423bnIndia

UK

Brazil

US

Hong Kong

Netherlands

India

UK

Japan

Brazil

Australia

South Korea

Taiwan

Trade Surplus

Trade Deficit

Japan

105

-50%

-25%

0%

25%

50%

75%

100%

-40

-20

0

20

40

60

80

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 MM J S N J MM J S N

Trade Balance Exports, % change Y-o-Y (RHS) Imports, % change Y-o-Y (RHS)

China’s trade balance has been decreasing since a high in 2015, as its exports decrease and its import demand stagnates

China’s Monthly Trade Balance (USD bn, 2007-2018)


2012 2013 20142009 2010 20112007 2008 2015

21.9 24.6 16.4 15.4

X Average Monthly Trade Balance

13.2 19.4 22.1 31.7 45.2

2016

45.9

2017 2018

35.2

USD bn29.5

106

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

1. Net Exports here do not include service trade

Source: National Bureau of Statistics of China; China Customs; Axis Group Analysis

Share of Net Exports1 in China’s Quarterly GDP (%, Q1 2008-Q3 2018)

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 Exports1 in China’s Annual GDP (%, 2000-2017)

0

2

4

6

8

10

Q1-08

Q1-09

Q1-10

Q1-11

Q1-12

Q1-13

Q1-14

Q1-15

Q1-16

Q1-17

Q1-18

107

Jiangsu 16%

About 75% 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 (%, 2017)


Percentage of China’s total trade value:

Top 60%

Next 30%

Next 10%

Total Trade: USD 4,105bn

Imports: USD 1,841bn

Exports: USD 2,264bn

Shaanxi Henan2%

Hunan

Fujian 4% Taiwan

Guangdong27%

Guangxi1%

Guizhou

Yunnan

Heilongjiang

Jilin

Liaoning3%

Hebei2%

Shanghai 11%

Zhejiang9%

Jiangxi

Tibet

Hubei

Inner Mongolia

Ningxia

Sichuan2%

Qinghai

Xinjiang

Gansu

Shanxi

Chongqing1%

Beijing3%

Hainan

Tianjin3%

Shandong 8%

Anhui2%

China’s total trade in 2017

reported from China Customs

was different from UN Comtrade

system

108

0.24

6.40

0

2

4

6

8

10

1997 2002 2007 2012 2017

China’s Annual Meat, Fish, Fruit, and Vegetable Imports (USD bn, 1997-2017)

USD bn

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


0.07

2.02

0

2

4

6

8

10

1997 2002 2007 2012 2017

USD bn

Greater demand and better access for foreign producers have underpinned further growth in China’s meat, fish, fruit and vegetable imports in recent years

0.54

8.07

0

2

4

6

8

10

1997 2002 2007 2012 2017

0.15

9.49

0

2

4

6

8

10

1997 2002 2007 2012 2017

Meat Fish

VegetablesFruits

24%15%

19%

19%

CAGRX%



access to i.e.:



succeed?






109

Agenda

1. Foreword










6. About Axis Group

110

9,346

141

0%

8%

16%

24%

32%

40%

0

1,500

3,000

4,500

6,000

7,500

9,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Urban Areas Rural Areas Growth of Total FAI (RHS)

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 (1997-2017)

USD bn

Stimulus-induced rise during the

global financial crisis

FAI was USD

9.49tn in 2017

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


111

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 1,258bn in June 2018

Monthly Urban Fixed Asset Investment (USD bn, 2012-2018)

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)’


1,258

0

300

600

900

1,200

1,500

J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N

Urban Fixed Asset Investment 3-month Moving Average

2012 2013 2014 2015 2016 2017 2018

Investments gaining strength

from favourable policies

The RMB’s depreciation against the USD

distorts the RMB value of the urban fixed

asset investment

112

0 200 400 600 800

ShandongJiangsuHenan

GuangdongHebeiHubei

HunanSichuanZhejiang

AnhuiFujian

ShaanxiJiangxi

GuangxiYunnan

ChongqingGuizhou

Inner MongoliaJilin

XinjiangTianjin

HeilongjiangBeijing

ShanghaiLiaoning

ShanxiGansuHainanQinghaiNingxia

Tibet

China’s Fixed Asset Investment by Province (USD bn, 2017)


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

12345678910111213141516171819202122232425262728293031

Top five provinces

account for 35.25% of

total FAI

1

3

4

2

5

Jiangsu

784Henan

649

Shandong

802

Hebei

472

Geographical Distribution of China’s Fixed Asset Investment (USD bn, 2017)

31

Tibet

29

Top 5 Provinces by FAI

Bottom 5 Provinces by FAI

Qinghai

5729

Ningxia

54

30

28

Hainan

61

27


Guangdong

553

Provinces in the west that are less developed

received less investments while Hainan, as

the new free trade zone set stricter

investment policies

Gansu

84

113

CAGRAnnual Growth

RateCategory

20% -26%

13% -12%

15% -2%

26% 18%

19% 12%

20% 34%

21% 1%

20% 2%

2,865

2,067

905

1,215

441

1,717

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Others

Mining

Utilities

Environmental Protection and Public Facilities


Real Estate

Manufacturing

Manufacturing and real estate attracts the majority of fixed asset investment in China, accounting for almost 53% of China’s total FAI, reflective of ongoing industrialisation and urbanisation trends


Total

China’s Fixed Asset Investment by Sector (USD bn, 2004-2017)

Real estate and

manufacturing account

for 53% of the total FAI

136

114

China's low-cost production base has been a key driver of past FDI1 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, 1997-2017)

1. FDI: Foreign Direct Investment


-20%

-10%

0%

10%

20%

30%

0

20

40

60

80

100

120

140

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

FDI Inflow FDI Growth (RHS)USD bn

FDI growth has been

moderating over the last

5 years

115

In 2017, 95% 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 SAR1

China’s FDI Inflow by Source Region (% of Total FDI Inflow, 2017)

1. SAR: Special Administrative Region of Hong Kong


Hong Kong

Singapore

BVI

South Korea

Japan

US

Cayman Islands

Netherlands

Taiwan

Germany

1

4

2

5

10

93

7

8

6US 1.9%

Hong Kong 69.3%

Japan 2.4%

BVI 2.9%Taiwan 1.3%

Netherlands 1.6%

Cayman Island 1.6%

South Korea 2.7%

Germany 1.1%

Singapore 3.5%

USD bn

94.5

4.8

4.0

3.7

3.3

2.6

2.2

2.2

1.8

1.5 China’s total FDI inflow for 2017 amounted to USD 136bn

116

0 40 80 120 160 200

Beijing Shanghai

Guangdong Jiangsu

Anhui Tianjin

Zhejiang Fujian

Shandong Hubei Hebei

Chongqing Henan

Inner Mongolia Liaoning Yunnan Shanxi Hunan

Sichuan Jiangxi

Qinghai Guangxi Ningxia Hainan

Guizhou Shaanxi

Jilin Xinjiang

Gansu Tibet

Heilongjiang

China’s FDI Inflow by Province (USD bn, 2017)


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

12345678910111213141516171819202122232425262728293031

1

2

3

45 Shanghai 18%

Anhui 6%

Jiangsu 7%

Guangdong 11%

Beijing 26%

Top 5 provinces

account for 70% of

total FDI inflows

Top 5 Provinces by FDI Inflow

Bottom 5 Provinces by FDI Inflow

27 Jilin 0.26%

Tibet 0.08%30

Gansu 0.1%29

28 Xinjiang 0.1%


Geographical Distribution of China’s FDI Inflow (%, 2017)

Heilongjiang -0.19%31

117

CAGRAnnual

Growth RateCategory

29% 38%

12% 10%

5% -27%

15% 4%

8% -14%

-2% -6%

6% 4%

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, 2004-2017E)

Source: National Bureau of Statistics; Axis Group Analysis

34

17

17

12

6

47

0

20

40

60

80

100

120

140

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E

Others



Leasing and Business Services

Real Estate

Manufacturing

Total

118

China’s OFDI flow grew continuously until 2016, largely driven by Chinese companies’ growing need to access new markets, technology and resources. However, it dramatically decreased in 2017 due to stricter overseas investment regulationsChina’s OFDI Flow (2002-2017)

1. SAFE: State Administration of Foreign Exchange

Source: UNCTAD World Investment Report; Axis Group Analysis

-60%

-40%

-20%

0%

20%

40%

60%

80%

100%

120%

140%

0

20

40

60

80

100

120

140

160

180

200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

OFDI Flow OFDI Growth Rate (RHS)

In 2005, SAFE1 eased restrictions on

overseas investments made by Chinese

companies

USD bn

Chinese companies increased

acquisition of overseas depressed

assets

119

While China’s OFDI extends to all continents, international financial centres such as Hong Kong and British Virgin Islands receive the bulk of OFDI flow

China’s OFDI Flow by Destination (%, 2017)


Hong Kong 57.6%1

3

BVI 12.2%

Australia 2.7%

7

2

Singapore 4.0%

6

10

4

Malaysia 1.1%

MOFCOM China’s total OFDI flow for 2017 amounted to USD 158.29bn; UNCTAD World Investment Report value is USD 124.6bn 1.7

2.1

2.1

2.7

4.2

6.3

6.4

7.5

19.3

91.2

Malaysia

UK

Kazakhstan

Germany

Australia

Singapore

USA

Switzerland

BVI

Hong Kong

Germany 1.7%

US 4.0%

5

USD bn

UK 1.3%

Switzerland 4.7%8

Kazakhstan 1.3%9

120

0 1 2 3 4 5 6 7 8 9 10 11 12 13

ShanghaiGuangdong

ZhejiangShandong

BeijingChongqing

JiangsuHainanFujian

TianjianAnhui

HenanSichuan

HebeiHunan

YunnanHubei

ShaanxiLiaoningXinjiangGuangxi

JiangxiInner Mongolia

HeilongjiangGansuShanxi

JilinTibet

NingxiaGuizhouQinghai

China’s OFDI Flow by Province (USD bn, 2017)

Note: OFDI figures include non-financial OFDI and exclude investments made by central enterprises


In 2017, more than half of China’s non-financial OFDI came from just five provinces, all located along the east coast, except for Beijing

12345678910111213141516171819202122232425262728293031

4

1

Guangdong 14%

Shandong 9%

3

2

Beijing 8%

Zhejiang 12%

5

Shanghai 15%

Top 5 provinces’ OFDI

accounts for 58% of

the total

China’s OFDI Flow by Province (%, 2017)

Top 5 Provinces by OFDI

Bottom 5 Provinces by OFDI

27

Tibet 0.27%


28

31

30

29Qinghai 0.01%

Guizhou 0.05%

Shanghai, one of the

major drivers of

China’s ‘going out’

policy, registered the

highest OFDI

Jilin 0.27%

Ningxia 0.12%

121

Outward investments in manufacturing, as well as finance, grew substantially in 2016 - reflective of China’s new OFDI profile but in 2017 dropped for the first time on record following increased scrutiny on cross-border deals, notably by the US

CAGRAnnual

Growth RateCategory

28% -55%

30% 2%

3% 226%

-8% -83%

15% 26%

27% 26%

25% -17%

20% -19%

54

19

26

5

30

28

0

20

40

60

80

100

120

140

160

180

200

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Others

Manufacturing


Mining


Finance

Leasing and Business Services

China’s OFDI Flow by Sector (USD bn, 2007-2017)

Note: 1. In 2017 the outward investment flow in mining decreased to -3.7bn , and is thus not expressed in the CAGR calculation

2. 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 as 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


Total-4



access to i.e.:



succeed?






122

Agenda

1. Foreword










6. About Axis Group

123

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, 1990-1H2018)

1. PBoC: People’s Bank of China

Source: The People’s Bank of China; Federal Reserve Bank of St. Louis; Axis Group Analysis

6.36

4.00

5.00

6.00

7.00

8.00

9.00

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 17 1H 18

In April 2012, China announced that it

would widen the RMB’s daily trade

limit band against the USD from 0.5%

to 1%

In March 2014, China announced

that it will widen RMB’s daily trade

limit band against the USD from 1%

to 2%

On 11 Aug 2015, China devalued

the RMB by 1.9%, triggering the

RMB’s biggest one-day drop since

1994

From 1997 to 2005, China

pegged the RMB to the USD at a

rate of 8.3 to 1, despite

significant criticism

In July 2005, the PBoC1 announced that it would lift the dollar

peg and phase in a flexible exchange rate mechanism.

Following the announcement, the RMB to dollar rate was

revaluated to 8.1Depreciation

Appreciation

In the first half of 2018,

escalation of trade

tensions between the

US and China have put

downward pressure on

the USD/RMB rate

124

60

65

70

75

80

85

90

95

100

ICB

C

CC

B

BoC

Hua

xia

Ban

k

CIT

IC

Mer

chan

ts B

ank

Min

shen

g B

ank

Indu

stria

l Ban

k

Chi

na E

verb

right

AB

C

Ban

k of

Sha

ngha

i

Pin

g A

n B

ank

Loans-to-Deposits Ratio (LDR) for Major Chinese Banks (%, 2017)

• The LDR limit was used as a risk management tool

• A slowdown in China’s current account surplus and capital inflows has slowed the growth of deposits

• Consequently, the LDR for many banks was near the 75% limit in 2014

• This constrained banks’ ability to lend, despite a push to boost credit supply to support growth

• As a result, the LDR limit was removed. This is aimed 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

Recent Removal of the LDR Limit

Deregulation of the LDR through a revision of the calculation methodology boosts banks’ ability to lend, further supporting China’s transitioning economy

With effect from 1 October 2015, the

75% LDR upper limit has been removed

Source: Bank Websites; BBVA; Bloomberg; Axis Group Analysis

125

The RMB appreciated against the USD over the last year due to a weaker US

dollar, but the trade war has triggered its depreciation against the USD in 2018

Note: The nominal exchange rate is defined as the actual quote for a currency in relation to another currency

Source: OANDA; Axis Group Analysis

1.18

1.22

1.26

1.30

1.34

1.38

1.42

1.46

1.50

1.54

6.10

6.20

6.30

6.40

6.50

6.60

6.70

6.80

6.90

7.00

Nov

- 1

5Ja

n -

16M

ar -

16

May

- 1

6

Jul -

16

Sep

- 1

6N

ov -

16

Jan

- 17

Mar

- 1

7M

ay -

17

Jul -

17

Sep

- 1

7N

ov -

17

Jan

- 18

Mar

- 1

8M

ay -

18

Jul -

18

Sep

- 1

8N

ov -

18

USD to CNY (LHS) USD to AUD (RHS)

10.00

11.00

12.00

13.00

14.00

15.00

16.00

17.00

6.10

6.20

6.30

6.40

6.50

6.60

6.70

6.80

6.90

7.00

Nov

- 1

5Ja

n -

16M

ar -

16

May

- 1

6Ju

l - 1

6S

ep -

16

Nov

- 1

6Ja

n -

17M

ar -

17

May

- 1

7Ju

l - 1

7S

ep -

17

Nov

- 1

7Ja

n -

18M

ar -

18

May

- 1

8Ju

l - 1

8S

ep -

18

Nov

- 1

8

USD to CNY (LHS) USD to ZAR (RHS)

Nominal Exchange Rates Comparison (Nov 2015-Dec 2018)

126

China’s Benchmark Lending Rates (%, 1998-2018)

Source: Hexun; Axis Group Analysis

4

6

8

10

12

Jan-

98

Jul-9

8

Jan-

99

Jul-9

9

Jan-

00

Jul-0

0

Jan-

01

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Nov

-08

May

-09

Nov

-09

May

-10

Nov

-10

May

-11

Nov

-11

May

-12

Nov

-12

May

-13

Nov

-13

May

-14

Nov

-14

May

-15

Nov

-15

May

-16

Nov

-16

May

-17

Nov

-17

May

-18

Nov

-18

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

First loan interest rate

decrease in six years

First loan interest rate

decrease since the global

financial crisis

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% and it has remained there since then

Four adjustments

in the loan interest

rate since Nov.

2014

In Oct 2008, the lending

rate was adjusted 3 times in

a month

127

3

4

5

6

7

J MM J SN J MM J SN J MM J SN J MM J SN J MM J SN J MM J SN J MM J SN J MM J SN J

China’s Benchmark 1-Year Lending Rate (%, 2011-2018)

• Market-oriented interest rate reforms are also part of a push towards economic reforms

• Banks can now set rates for loans and deposits more autonomously

• After becoming more stable in 2016, capital outflows fell by two thirds in 2017

• China has continued to raise open market rates in recent months in efforts to gradually deleverage

Source: Bloomberg; Pictet; Axis Group Analysis

Key Business Implications of China’s Interest Rate Liberalization

After decreasing the benchmark lending rate to its all-time lowest level, it has been kept at 4.35% for over three years

2011 2012 2014 2015 2016

China’s benchmark lending rate was cut to

4.35% in October 2015 to keep the economy

growing at a reasonable pace

2013 2017 2018

Buoyed by stable fundamentals, China’s benchmark

lending rate stayed at 6% for almost two years

between 2012 and 2014

128

1,000

1,500

2,000

2,500

3,000

3,500

4,000

01-2

016

02-2

016

03-2

016

04-2

016

05-2

016

06-2

016

07-2

016

08-2

016

09-2

016

10-2

016

11-2

016

12-2

016

01-2

017

02-2

017

03-2

017

04-2

017

05-2

017

06-2

017

07-2

017

08-2

017

09-2

017

10-2

017

11-2

017

12-2

017

01-2

018

02-2

018

03-2

018

04-2

018

05-2

018

06-2

018

07-2

018

08-2

018

09-2

018

10-2

018

11-2

018

12-2

018

SSE SZSE

China Stock Market Indices (Index Value, 2016-18)

Source: Yahoo Finance; Bloomberg; Axis Group Analysis

China’s stock markets have become cautiously optimistic in the past year, but have cooled recently over concerns of souring trade relations with the United States

Sudden market fears about

growth slowdown, debt and

capital flight triggered a

massive drop in the

beginning of 2016

SSE falls to its lowest level since

November 2014

SSE reaches two year high due to

bond market crackdowns, jump in

2017 corporate profits, and the

CNY’s 2 year-high against the USD

SSE plunges 4% following

similar selloff in the prior

US market day

Concerns over US-

China trade war sends

stock market downward

129

QFII RQFII

NameQualified Foreign Institution

Investor

RMB Qualified Foreign

Institution Investor

Date

Created2002 2011

Regulator CSRC, SAFE CSRC, SAFE, PBoC

Eligible

Applicants

Commercial banks,

securities companies, asset

mgmt. companies,

insurance companies, etc.

Financial institutions

registered and mainly

operated in Hong Kong

Currency USD RMB

Investment

Scope

Stocks, bonds, funds, warrants, Initial Public Offerings

(IPOs), bond issuance, and other products approved by

CSRC

Investment

Limitations

<30% for QFII shareholding in total, <10% for single QFII

shareholding

Comparison of QFII and RQFII Investors

0

50

100

150

200

250

300

350

0

20

40

60

80

100

120

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

QFII quota RQFII quota

QFII institutions (RHS) RQFII institutions (RHS)

Source: Shenzhen Stock Exchange; SAFE; CSRC; Axis Group Analysis

Approved Quotas and Number of Licensed Institutions (USD bn, 2014-2018)

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

No. of

InstitutionsUSD bn

In June 2018, a 20% ceiling on profit

repatriation was removed for both QFIIs

and RQFIIs. Other restrictions were also

removed, such as lockup periods for

principal and access to domestic currency

hedging schemes. SAFE and PBoC

continue to increase quotas for foreign

financial firms

130

The PBoC’s M2 growth for 2017 fell far below its 12% target. The PBoC tends not to set fixed targets, instead implementing regular revisions of the target based on the needs of the economy

China’s Money Supply (USD tn, 2012-2018)

Source: The People’s Bank of China; Axis Group Analysis

0

5

10

15

20

25

30

J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N

M2 M1 M0

2012 2013 2014 2015 2016 2017 2018

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

China’s Benchmark Deposit Interest Rates (% p.a., Mar 1998-Dec 2018)


0

2

4

6

8

25-M

ar-9

8

1-Ju

l-98

7-D

ec-9

8

10-J

un-9

9

21-F

eb-0

2

29-O

ct-0

4

19-A

ug-0

6

19-A

ug-0

6

18-M

ar-0

7

19-M

ay-0

7

21-J

ul-0

7

22-A

ug-0

7

15-S

ep-0

7

21-D

ec-0

7

9-O

ct-0

8

30-O

ct-0

8

27-N

ov-0

8

23-D

ec-0

8

20-O

ct-1

0

26-D

ec-1

0

9-F

eb-1

1

6-A

pr-1

1

7-Ju

l-11

8-Ju

n-12

6-Ju

l-12

22-N

ov-1

4

1-M

ar-1

5

11-M

ay-1

5

28-J

un-1

5

25-A

ug-1

5

23-O

ct-1

5

21-D

ec-1

6

28-D

ec-1

7

27-D

ec-1

8

5 years 1 year 6 months 3 months

First cut since global

financial crisis

Adjustments in 2012 to widen the range within which banks can set deposit rates mark an

important step towards interest rate liberalisation

The interest rates have

remained unchanged

since October 2015

132

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Loans

Deposits

Chinese banks have funded themselves mainly from deposits at a loan-to-deposit ratio (LDR) of about 75%. Total deposits reached USD 31tn by the end of 2018, while loans amounted to USD 23tn

China’s Total Loans and Deposits1 (USD bn, 2000-2018)

1. Total Loans and Deposits in RMB and Foreign Currency

2. CBRC: China Banking Regulatory Commission


Loans-to-Deposit Ratio (%)

7180 78 77 76 74 68 67 67 65 70 69 70 72 74

X

In 2007, the CBRC² implemented a

75% LDR ratio limit for all banks in

China

In 2015, the LDR ratio reached 75%. In June 2015

the China’s State Council issued a draft proposal to

relax the ratio limit

71

17.8%

71

18.3%

74

CAGR

75

133

15 16 17

Overseas

Non-banking FinancialInstitutionsGovernment

Non-financialEnterprisesHouseholds

25,206 9,647

8,442

4,521

2,271

3250

5,000

10,000

15,000

20,000

25,000

TotalDeposits

Households Non-financialEnterprises

Government Non-bankingFinancial

Institutions

Overseas

China’s Sources of Deposits (USD bn, 2007-2017)

Note: Classification in Sources & Uses of Financial Institution Credit Funds was changed in 2011 and 2015


China’s Sources of Deposits (USD bn, 2017)

China’s high savings rate remained as the main source of funds for Chinese banks. In 2017, household banking deposits accounted for 38% of total deposits, while non-financial companies deposits accounted for 33%

33%

38%

0

5,000

10,000

15,000

20,000

25,000

07 08 09 10

Other Deposits

Trust Deposits

Agricultural Deposits

Fiscal Deposits

Deposits of Gov. Dept. &Org.Company Deposits

Household SavingsDeposits

11 12 13 14

Other Deposits

Designated Deposits

Temporary Deposits

Fiscal Deposits

Personal Deposits

Corporate Deposits

18%

9%

134

Since bottoming out in July 2014, China’s monthly new loans have been steeply increased and decreased in the diverse phases, as a result of several reductions in interest rates and bank deposit-reserve ratios

China’s Monthly New Loans (USD bn, 2011-Nov 2018)


-13%15%

8% 11%14% 4%

9%

-80

-60

-40

-20

0

20

40

60

80

100

120

0

50

100

150

200

250

300

350

400

450

J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N

Monthly Loan Size Y-o-Y Growth Rate (rhs) Yearly Cummulative % Change

2011 2012 2013 2014 20162015 2017 2018

Chinese banks front-load their

balance sheets in anticipation of

support from the Chinese government

due to economic slowdown

135

15 16 17

Overseas

Non-bankingFinancial Institutions

Non-financialEnterprises andGov. Dep. & Org.Households

Note: Classification in Sources & Uses of Credit Funds of Financial Institutions was changed in 2011 and 2015


0

5,000

10,000

15,000

20,000

07 08 09 10

Other Loans

Trust Loans

Short-term Loans

Medium & Long-termLoans

11 12 13 14

Overseas Loans

Advances

Bill Financing

Financial Lease

Medium & Long-termLoansShort-term Loans

18,485 5,914

11,680

388 503

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Total Loans Households Non-financialEnterprises and

Gov. Dep. &Org.

Non-bankingInstitions

Overseas

63%

32%

Composition of China’s New Loans (USD bn, 2007-2017)

Composition of China’s New Loans (USD bn, 2017)

In 2017, new RMB loans reached USD 18,485bn, with ‘non-financial enterprises and government department and organisations’ accounting for 63% of total loans

136

396 1,122 4,302 1,747 3,655 3,926 3,330 3,655 3,732 6,064 4,808 7,310 8,143 5,346

834 842 860 864 864 894 931 954 953 995 1,071 1,284 1,395 1,450

547 592 690 740 830 1,169

1,411 1,540 1,536 1,618 1,729

1,959 2,114 2,134

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Number of companies listed on the Shenzhen Stock Exchange (LHS)

Number of companies listed on the Shanghai Stock Exchange (LHS)

Combined Total Market Capitalisation (USD bn, RHS)

Number of Listed Companies and Total Market Value of China’s Stock Exchanges (2005-2018)

By the end of 2017, the Shanghai and Shenzhen Stock Exchanges were the world’s 5th and 7th largest stock markets respectively, by market capitalisation

Source: Shanghai Stock Exchange; Shenzhen Stock Exchange; Axis Group Analysis

Total Market

Value (USD bn)

137

0

1,000

2,000

3,000

4,000

5,000

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 J O J A J O0

1,000

2,000

3,000

4,000

5,000

Market Value of Tradable Shares

Composite Index (RHS)

Shanghai Stock Exchange Composite Index (2011-2018)

0

3,000

6,000

9,000

12,000

15,000

18,000

21,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

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 J O J A J O

Market Value of Tradable Shares

Component Index (RHS)

Source: Shanghai Stock Exchange; Shenzhen Stock Exchange; Axis Group Analysis

Shenzhen Stock Exchange Component Index (2011-2018)

From 2014, the market value of tradable shares increased significantly, until the drop in mid-2015. Market value then slowly regained value before hitting more significant losses in the first half of 2018

USD bn

2012 2013 20142011 2015 2016 2017 2018

USD bn

2012 2013 20142011 2015 2016 2017 2018

138

0

2,000

4,000

6,000

0

2,000

4,000

6,000

8,000

10,000

12,000

05 06 07 08 09 10 11 12 13 14 15 16 17 18

Trading Volume (LHS)

SH Composite Index (RHS)

AverageP/E Ratio

16.3 33.3 59.2 14.9 28.73 21.61 13.4 10.99 10.99 15.99 17.63 15.91 n.a. 16.37

Total

Turnover

USD bn

235 725 4,017 2,597 6,469 5,893 3,682 8,423 13,309 19,715 40,979 7,375 7,612 7,785

Shanghai Stock Exchange Trading Volume and Composite Index (2005-2018)

Source: EastMoney; Shanghai Stock Exchange; Shenzhen Stock Exchange; Axis Group Analysis

Shenzhen Stock Exchange Trading Volume and Component Index (2005-2018)

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

0

5,000

10,000

15,000

20,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

05 06 07 08 09 10 11 12 13 14 15 16 17 18

bn shares

Average

P/E Ratio16.4 32.7 69.7 16.7 46.01 44.69 23.11 22.02 27.76 34.05 52.75 36.21 33.11

Total

Turnover

USD bn

152 410 2,040 1,248 2,909 3,360 2,095 2,309 3,669 5,642 18,845 11,494 10,593

bn sharesTrading Volume (LHS)

SZSE Composite Index (RHS)

139Note: 1. FX – Foreign Exchange

Source: Bloomberg; The People’s Bank of China; Axis Group Analysis

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

0

600

1,200

1,800

2,400

3,000

3,600

4,200

4,800

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Foreign Exchange Reserves Y-o-Y Growth Rate (RHS)

China’s Foreign Exchange Reserves (USD bn, 1997-2018)

China holds the world’s largest FX1 reserves. The foreign reserve growth rate had been negative since 2014, but rebounded in 2017

USD bn

140

-20%

-10%

0%

10%

20%

30%

40%

2,500

3,000

3,500

4,000

4,500

J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J J A S ON D J F MAM J J A S ON D J

Foreign Exchange Reserves Y-o-Y Growth Rate (RHS)

China’s FX reserves fell below USD 3tn in January 2017, and slowly increased during the year. As the floating band of Chinese Yuan widens and cross-border capital flow stabilises, the FX reserves in China remains steady

China’s Foreign Exchange Reserves (USD bn, 2011-Jan 2019)

Source: The People’s Bank of China; Various; Axis Group Analysis

20182012 20142013 2015 2016 20172011

China’s foreign exchange reserves

experienced its first quarterly drop in more

than a decade in Q4-2011

January 2017 China’s FX reserves

fell just under the USD 3tn mark for

the first time in almost 6 years

USD bn

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 (2001-2018)

40

90

140

190

240

290

340

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

EUR AUD ZAR USD RUB JPY KRW

AUD

EUR

USD ZAR

KRW

JPY

RUB

The higher the rates are, the more the RMB has

depreciated in relation to these currencies. Conversely,

RMB gains weaken Chinese exports to these countries

The USD is the only currency that

appreciated against the RMB

between 2014 and 2015

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; fxtop.com; Axis Group Analysis

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 (2011-2018)

Note: Real effective exchange rates are the geometric weighted averages of bilateral exchange rates, adjusted by relative consumer prices. The assigned weights represent 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

Source: BIS; Axis Group Analysis

40

60

80

100

120

140

160

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Jul-1

5

Oct

-15

Jan-

16

Apr

-16

Jul-1

6

Oct

-16

Jan-

17

Apr

-17

Jul-1

7

Oct

-17

Jan-

18

Apr

-18

Jul-1

8

Oct

-18

China Brazil Germany

Over a 6 year period, the relative

competitiveness of the RMB declined

and made exports more expensive

Currency Pair 2011 2016 2018 Competitive Trend

USD-RMB 6.46 6.64 6.87

AUD-RMB 6.67 4.95 4.85

EUR-RMB 8.99 7.35 7.87

Further expanded in

the next slide

Appreciation

Depreciation

143

…however, the recent relative stabilisation 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

Real Effective Exchange Rate (2015-2018)

Note: The real effective exchange rate on Jan 2015 is assigned a value of 100 to compute the index

Source: BIS; Axis Group Analysis

50

60

70

80

90

100

110

120

Jan-

15

Mar

-15

May

-15

Jul-1

5

Sep

-15

Nov

-15

Jan-

16

Mar

-16

May

-16

Jul-1

6

Sep

-16

Nov

-16

Jan-

17

Mar

-17

May

-17

Jul-1

7

Sep

-17

Nov

-17

Jan-

18

Mar

-18

May

-18

Jul-1

8

Sep

-18

Nov

-18

China Brazil Germany India Indonesia Japan

Australia Mexico South Africa Thailand United States Turkey

Appreciation

Depreciation

The RMB stabilised after a long period of

appreciation, and even weakened, which implies

that the RMB’s negative impact on export

competitiveness is declining



access to i.e.:



succeed?






144

Agenda

1. Foreword










6. About Axis Group

Source: Trippest (cover page), Visual China Group (视觉中国) (agenda)

145

In 2017, China had the world’s largest population with 1.39bn people. However, its population growth has consistently decreased over the past few decades, with current growth stabilising at less than 0.6% per year

China’s Population (mn, 1978-2018E)

Source: IMF; National Bureau of Statistics of China; Axis Group Analysis

0.0%

0.6%

1.2%

1.8%

0

500

1,000

1,500

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 1718E

Population

Natural Growth Rate (RHS)

mn

Population increase in 2016

attributed to the relaxation of

the one-child policy at the

end of 2015

146

China’s Annual Births (%, 1980-2018)


0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

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 17 18

Birth Rate Natural Population Growth Rate (RHS)

Since 1987, China’s birth rate has been declining significantly – as of November 2015, the amended One Child Policy now allows all families to have a second child

Rising costs of living are

discouraging young urban families

from having more than one child

In 2016, among all newly born

children, 45% of them are the

second or more child in the family

147

55%

60%

65%

70%

75%

80%

550

650

750

850

950

1050

1980 1990 2000 2010 2020F 2030F2040F2050F 2060FWorking Age Pop'n (15-64)

Working Age Pop'n as % of Total Population (RHS)

China Population Maturity Forecast (mn, 1980-2060F)

China’s population is ageing rapidly – unlike other developing economies, it will not be able to leverage a young population base to drive growth

-206 mn

(-21%)

2015,

996 mn

2015,

73%

2050F,

61%

2050F,

790 mn

Significant decline in working

population implies China will

lose its demographic dividend

Fertility Rates1 by Country (1971-2017E)

0

1

2

3

4

5

6

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

China India Indonesia Japan South Korea

One Child Policy

enacted in 1980

Fueled by growing urbanisation and incomes, the

fastest decline in China’s fertility rate occurred

before 1980

Note: According to OECD, the fertility rate is defined as the total number of children that would be born to each woman if she were to live to the end of her child-bearing years and give birth to children in

alignment with the prevailing age-specific fertility rates

Source: United Nations; World Bank; CIA Factbook; Axis Group Analysis

• Recent relaxation of One Child Policy – all families are now

entitled to have a second child

• While it is projected that China’s fertility rates will not fall to

the levels of Japan and South Korea, China has lost its

demographic dividend

148

0

100

200

300

400

2010 2013 2020FOthers Chinese Herb MedicinesChinese Patent Drugs OTC DrugsGeneric Precription Drugs Patented Prescription Drugs

26.2%

211

370

105

China’s ageing population is driving the growth of the healthcare and pharma industries, which are also starting to play a key role in exports

China Pharmaceutical Sales (USD bn, 2010–2020F)

8.4%

Western

Medicine

Growth rate is expected to be lower in the next

few years, in line with China’s general

economic development and the gradual

maturing of the market

Traditional

Chinese

Medicine

19.5%

50.7%

7.8%13.8%3.3%

4.9%

14.3%

50%

9.5%

15.2%

3.6%7.4%

Note: Others include disposals (e.g. needles and syringes), chemical agents, glass ware, etc.

Source: MOFCOM; NBS; Axis Group Analysis

130209

330154

288

325

149

201

314

0

200

400

600

800

1,000

2012 2016 2020F

Govt. Health Exp. Social Health Exp. Out of Pocket Health Exp.

China’s Healthcare Spending (USD bn, 2012-2020F)

5.3% 6.2% 6.2%

X%Represents healthcare expenditure as a % of GDP

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

Became the 2nd largest pharma

market globally in 2016

CAGRX%

149

0 20 40 60 80 100 120

GuangdongShandong

HenanSichuanJiangsu

HebeiHunanAnhuiHubei

ZhejiangGuangxiYunnanJiangxi

LiaoningFujian

ShaanxiHeilongjiang

ShanxiGuizhou

ChongqingJilin

GansuInner Mongolia

ShanghaiXinjiangBeijingTianjinHainanNingxiaQinghai

Tibet

Urban Rural

China Provincial Population Breakdown by Urban andRural Residences (mn, 2017)


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

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

2

4

3 5

1

Henan48

Hainan5

Shandong61

Guangdong78

Jiangsu55

Sichuan42

31

Tibet1

30

Qinghai3 29 Ningxia

4

28

27

Tianjin13

Top 5 Provinces by Urban Population

Bottom 5 Provinces by Urban Population


Geographical Distribution of China’s Population (mn, 2017)

Higher wages in more developed areas attract migrant

workers from surrounding provinces

150

Agricultural Sector, 9%

Industry Sector, 40%

Services Sector, 52%

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 (% of Total, 2005-2017)

Source: STATISTA; Axis Group Analysis

0

10

20

30

40

50

60

70

80

90

100

05 07 09 11 13 15 17

Agricultural Sector

Industry Sector

Services Sector

Contribution of Each Sector to GDP (%, 2017)

151

Despite a gradual narrowing of the urban-rural income disparity, income levels in urban households are still almost three times more than those of rural households

Annual Income of Urban and Rural Households in China (1997-2018)

Note: 1. Annual disposable income of urban households and net income of rural households per capita

2. Growth rates are calculated at current prices


5,947

252

2,215

0%

6%

12%

18%

24%

30%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Urban Rural Urban Growth (RHS) Rural Growth (RHS)

USD

662

152

30 10 10 30 50 70

Shanghai Beijing

Zhejiang Jiangsu

Guangdong Tianjin Fujian

Shandong Inner Mongolia

Liaoning Hunan

Chongqing Hubei Anhui

Jiangxi Yunnan Hainan

Shaanxi Xinjiang Sichuan

Tibet Hebei

Guangxi Henan

Ningxia Qinghai Shanxi

Guizhou Jilin

Gansu Heilongjiang

Thousands

Urban Rural

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 Province in China (USD ‘000, 2017)

Note: Represents disposable income of urban households and net income of rural households


Zhejiang

51,261

Guangdong

40,975

Jiangsu

43,622

Beijing

62,406

5

1

3

4

2

29

28

2730

31

Gansu

27,763

Guizhou

29,080

Jilin

28,319

Top 5 Provinces by Urban Household Income

Bottom 5 Provinces by Urban Household Income

Highlighted on

the map on right

Geographical Distribution of China’s Household Income (USD, 2017)

Shanghai

62,596

Shanxi

29,132

Heilongjiang

27,446

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

153

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 (%, 1978-2017)

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. Engel Coefficient has an inverse correlation with the standard of living of a

country

Source: National Bureau of Statistics of China; Hexun; Axis Group Analysis

28.6

31.2

25

35

45

55

65

75

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 17

Urban Areas Rural Areas

57.5

67.7

Temporary increases from high

levels of food inflation

Failed price reforms fueled

inflation, especially in urban

areas

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 (1978-2018)

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


0.474

0.0

0.1

0.2

0.3

0.4

0.5

0.6

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 17 18E

China exceeded 0.4 – the

recognised warning level for

dangerous levels of inequality – in

2000

Official data shows China’s Gini Coefficient peaked in

2008 at 0.491, while non-official data shows it has

already been greater than 0.5 for some time, signaling

severe inequality

0

155

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 (%, 1978-2018)

Source: National Bureau of Statistics of China; Annual Report on Urban Development of China;Axis Group Analysis

0

10

20

30

40

50

60

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 17 18

China’s urbanisation rate

exceeded 50% for the first

time in 2011



access to i.e.:



succeed?






156

Agenda

1. Foreword










6. About Axis Group

157Source: Face 2 Face Africa

158

China’s rapid economic growth has positioned itself as the world’s 2nd largest economy. Furthermore, it is projected to overtake the US in 2026 and become the world’s largest economy

GDP of Top Economies, excl. US (USD bn, 1995-2018F)

Note: Forecast GDP growth based on IMF Economic Outlook as of April 2018. 2026 forecast based on Bloomberg data

Source: IMF; Bloomberg; Axis Group Analysis

China Rank

(excl. US)7 6 6 6 6 5 5 5 5 5 4 3 2 2 1 1 1 1 1 1 1 1 1 1

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18F

ChinaJapanGermanyUKIndiaFranceBrazilItalyCanadaRussiaIndonesiaSouth Africa

2005: China

surpassed France

2007: China

surpassed

Germany

2006: China

surpassed UK

2009: China

surpassed Japan

2000: China

surpassed Italy

1996: China

surpassed

Brazil

1995: China

surpassed

Canada

At current growth rates,

China is projected to

overtake the US in around

2026

Between 2013 and 2014,

China’s GDP growth was

more than Indonesia’s

total nominal GDP

2017 Global Rank

2

3

4

5

6

7

9

10

12

16

8

33

Country

159

1,3301,271

1,075766

666547540533

512478

446414407

354324

308302289

275245240238226222

200162

11466

5139

19

1,3801,314

1,015826

679539539525525

495455

417396

351324309304

277277252250235220218201

161110

67524021

1,600 1,400 1,200 1,000 800 600 400 200 0 200 400 600 800 1,000 1,200 1,400 1,600

GuangdongJiangsuShandongZhejiangHenanSichuanHubeiHebeiHunanFujianShanghaiBeijingAnhuiLiaoningShaanxiInner MongoliaJiangxiGuangxiTianjinChongqingHeilongjiangJilinYunnanShanxiGuizhouXinjiangGansuHainanNingxiaQinghaiTibet

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, 2017)

AustraliaSpainIndonesiaNetherlandsSwitzerlandSwedenSwedenPolandPolandBelgiumThailandAustriaNorwayIsraelSingaporeColombiaPakistanChileChileFinlandBangladeshEgyptVietnamPortugalGreeceKazakhstanMoroccoMyanmarTanzaniaTunisiaAfghanistan

Note: There is a slight discrepancy between IMF and NBS data for overall GDP levels


160

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 Economies (USD , 2017)

19,09518,450

17,66015,876

13,63412,289

12,01010,790

9,4489,433

9,1798,4828,309

8,1087,5417,489

7,1737,1076,980

6,6936,6806,6136,5686,547

6,3246,214

6,0075,814

5,6225,117

4,343

19,84018,637

17,66415,769

13,82312,72712,527

10,6089,6079,3049,304

8,8418,5758,575

7,6477,3757,2717,271

6,7636,7636,6846,6436,5936,5936,2736,1806,180

5,7605,678

5,0884,408

20,000 15,000 10,000 5,000 0 5,000 10,000 15,000 20,000 25,000

BeijingShanghaiTianjinJiangsuZhejiangFujianGuangdongShandongInner MongoliaChongqingHubeiShaanxiJilinLiaoningNingxiaHunanHainanHebeiHenanJiangxiXinjiangSichuanQinghaiAnhuiHeilongjiangGuangxiShanxiTibetGuizhouYunnanGansu

Estonia

Greece

Slovak Republic

Trinidad and Tobago

Poland

Equatorial Guinea

Maldives

Russia

St. Lucia

Mexico

Mexico

Kazakhstan

Nauru

Nauru

Montenegro

Dominican Republic

St. Vincent and the Grenadines

St. Vincent and the Grenadines

Peru

Peru

Venezuela

Turkmenistan

Thailand

Thailand

Colombia

South Africa

South Africa

Belarus

Jordan

Iraq

Angola


161

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18F 19F

China Australia Brazil India Japan Russia South Africa United States EU

China’s economy has shown greater resilience than most other major economies, even during the global financial crisis

GDP Growth Comparison (%, 2000-2019F)

Global financial crisis

China’s economy is

stabilising at sub-7%

growth

Eurozone crisis

Dotcom bubble

Note: Annual GDP growth based on YoY percent change in national GDP measured in local currency units using constant prices


162Note: Annual GDP growth is based on Y-o-Y percent change in national GDP measured in local currency units using constant prices


Since 1980, China’s annual GDP growth rate has consistently exceeded the global average. China is set to 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, 1980-2018F)

-4

0

4

8

12

16

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 17E18F

China US World Average

163

Although China's economic growth slowed to 6.6% in 2018, it still outpaced average global growth by a significant margin

Annual GDP Growth for Asia and Major Economies (% Y-o-Y, 2018)

Note: Annual GDP growth based on Y-o-Y percent change in national GDP measured in local currency units using constant prices


6.60

7.30

6.50

4.70

6.60

5.10

2.70 2.80 2.90

1.40

2.90

3.80

2.20

4.60

1.10

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Chi

na

Indi

a

Phi

lippi

nes

Mal

aysi

a

Vie

tnam

Indo

nesi

a

Tai

wan

Sou

th K

orea

Sin

gapo

re UK

US

Hon

g K

ong

EU

Tha

iland

Japa

n

Developed Markets Developing Markets

Global GDP growth =

3.46%

164

Nominal GDP Per Capita (USD, 2017)

Note: Most of the nominal GDP per capita figures from the latest IMF database are from 2014


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

Despite the size of its economy, China’s GDP per capita remains low compared to other developed and developing countries. In 2017, China’s GDP per capita was USD 8,643

165

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18E

Australia Brazil China

India Japan Russia

South Africa US EU

GDP Per Capita Comparison of Selected Economies (USD, 2001-2018E)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18E

Brazil China India Russia South Africa


Source: World Bank; IMF; Axis Group Analysis

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

In 2015, China’s GDP per

capita surpassed USD 8,000

166

0

20

40

60

80

100

US

Chi

na

Japa

n

Ger

man

y

UK

Indi

a

Fra

nce

Bra

zil

Italy

Can

ada

Sou

th K

orea

Rus

sia

Aus

tral

ia

Spa

in

Mex

ico

Indo

nesi

a

Tur

key

Net

herla

nds

Sau

di A

rabi

a

Sw

itzer

land

Arg

entin

a

Sw

eden

Pol

and

Bel

gium

Tha

iland

Iran

Aus

tria

Nor

way

UA

E

Nig

eria

32 -

Sou

th A

fric

a

Agriculture Industry Services

Relative to other large economies, China’s economy still has a large industrial sector, highlighting the potential opportunity for the services sector to expand as the economy transitions

Share of GDP by Industry of Top 30 Global Economies (%, 2017)

Source: CIA World Factbook; Axis Group Analysis

Industrial sector contributed 72.8% in

2005; in 2017, the contribution reduced

to 39.50%, showing increasing focus

on value added industries

167

-20

0

20

40

60

80

100

120

US

Chi

na

Japa

n

Ger

man

y

UK

Indi

a

Fra

nce

Bra

zil

Italy

Can

ada

Sou

th K

orea

Rus

sia

Aus

tral

ia

Spa

in

Mex

ico

Indo

nesi

a

Tur

key

Net

herla

nds

Sau

di A

rabi

a

Sw

itzer

land

Arg

entin

a

Sw

eden

Pol

and

Bel

gium

Tha

iland

Iran

Aus

tria

Nor

way

UA

E

Nig

eria

32 -

Sou

th A

fric

a

Net Exports Final Consumption Expenditure Gross Capital Formation (GCF)

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 (%, 2017)

Source: CIA World Factbook; IMF World Economic Outlook; Axis Group Analysis

China’s GCF and exports

made up 75.7% of GDP in

2005, reducing to 64.1% in

2017



access to i.e.:



succeed?






168

Agenda

1. Foreword










6. About Axis Group

169

-50

450

950

1,450

1,950

2,450

2,950

-5 15 35 55 75 95 115

China’s Exports (USD bn)

2003 438

2008 1,430

2018 2,399

CAGR (2003-2018) 12%

Asia Pacific’s Major Exporters (2018E)

Exports (USD bn)

South Korea


Singapore

Japan

India

Vietnam*Taiwan*

Export/GDP (%)

Australia

In 2018, China was estimated to have been the largest exporter in the region, with total exports of USD 2.39tn, making up 18% of its GDP

Indonesia

Thailand*Philippines

New Zealand

MalaysiaPakistan

Myanmar

Laos*

Macau*Afghanistan*

Sri Lanka

Not shown here is Hong Kong,

with GDP of USD 360bn. Exports

are 159% of its GDP size

Singapore is a major shipping hub

in SEA region. Its imports and

exports are both very large relative

to its GDP

Note: 1. 2016 data was used for countries marked with an asterisk and 2017 data was used for countries marked in double asterisks.

2. For Bangladesh, Papua New Guinea and Bhutan trade data is not available

Source: IMF; UN Comtrade; China Customs; Axis Group Analysis

Mongolia**

Brunei

Cambodia*

China

Other Oceania Island Economies*Developed MarketsDeveloping MarketsEmerging MarketsChina

170

China’s Top 10 Export Commodities 2017 (HS Code) Top 20 Exporters of Electrical Machinery (USD bn, 2017)

China is the world’s largest exporter of electrical machinery. In 2017, China exported nearly USD 600bn of electrical machinery, accounting for 25% of the world’s total

0 100 200 300 400 500 600 700

ChinaHong Kong

USSouth Korea

GermanyOther Asia, nes

SingaporeJapan

MexicoMalaysia

NetherlandsFrance

PhilippinesCzech Republic

ItalyUK

PolandHungarySlovakia

Spain

Total: USD 2,263bn

Electrical machinery and equipment

Nuclear reactors, machinery and mechanical appliances

Furniture, lighting, signs, prefabricated buildings

Articles of apparel and clothing accessories (not knitted)

Articles of apparel and clothing accessories (knitted)

Optical, photographic, technical, medical, etc. apparatus

Plastics and articles

Vehicles other than railway, tramway

Iron and steel

Toys, games and sports requisites32%

2%3%3%3%3%3%3%4%

17%

26%

85

84

94

62

61

90

39

87

73

95

Other


China 2002 2017

Export of Electrical

Machinery (USD bn)65.1 598.3

% of World Total 7.6 25.1

China’s share has

risen from only 8% to

25%

598

171

0 100 200 300

ChinaGermany

USJapan

ItalyNetherlandsSouth KoreaHong Kong

MexicoUK

FranceSingapore

Czech Rep.CanadaBelgiumPolandAustriaSpain

MalaysiaSwitzerland

Billions


Top 20 Exporters of Power Generation Equipment (USD bn, 2017)

China is the world’s largest exporter of power generating equipment. In 2017, China exported approx. USD 380bn, or 19% of the world’s power generating equipment exports

China 2002 2017

Export of Power Generation

Equipment (USD bn)50.8 383.2


China has surpassed major

manufacturing powerhouses to

account for approx. 20% of

global exports









Iron and steel

Toys, games and sports requisites

China’s Top 10 Export Commodities 2017 (HS Code)

Total: USD 2,263bn 383.2

32%

2%3%3%3%3%3%3%4%

17%

26%

85

84

94

62

61

90

39

87

73

95

Other

172

0 10 20

ChinaGermany

ItalyPoland

USMexico

CanadaCzech Rep.Netherlands

UKFrance

SpainDenmark

TurkeyRomaniaSweden

MalaysiaBelgiumAustria

Portugal

BillionsNote: There’s no data for Vietnam in 2017


Top 20 Exporters of Furniture and Lightings (USD bn, 2017)

China is the world’s largest exporter of furniture and lighting, exceeding the combined share of the next 10 largest exporting countries. In 2017, China exported a total of USD 89bn, or 39% of the world’s furniture and lighting goods

88.9

China 2002 2017

Export of Furniture &

Lightings (USD bn)9.8 88.9


China accounts for

39% of global exports









Iron and steel



Total: USD 2,263bn

32%

2%3%3%3%3%3%3%4%

17%

26%

85

84

94

62

61

90

39

87

73

95

Other

173

0 5 10 15

ChinaItaly

GermanyIndia

SpainHong Kong

FranceTurkey

UKIndonesia

NetherlandsBelgiumPoland

DenmarkUS

MexicoRomaniaSri LankaMyanmar

Tunisia

Billions


Top 20 Exporters of Non-Knitted Articles of Apparel (USD bn, 2017)

China is the largest exporter of non-knitted articles of apparel. In 2017, China exported over USD 73 bn, or 39.1% of the world’s products in this category

China 2002 2017

Export of Non-knitted articles of

Apparel (USD bn)20.6 73.4


73.4

China accounts for

over a third of global

exports









Iron and steel



Total: USD 2,263bn

32%

2%3%3%3%3%3%3%4%

17%

26%

85

84

94

62

61

90

39

87

73

95

Other

174Source: UN Comtrade; China Customs; Axis Group Analysis

Top 20 Exporters of Knitted Articles of Apparel (USD bn, 2017)

China is by far the world’s largest exporter of knitted articles of apparel and clothing accessories. In 2017, China exported a total of USD 71.8 bn, or around 40% of the world’s knitted apparel and clothing accessories

0 5 10 15

ChinaGermany

TurkeyItaly

IndiaHong Kong

SpainBelgiumFrance

NetherlandsIndonesia

UKSri Lanka

USPortugal

PolandEl Salvador

DenmarkMexicoJordan

Billions

China 2002 2017

Export of Knitted Articles of

Apparel (USD bn)16.0 71.8


71.8

China accounts for

over a third of global

exports


Total: USD 2,263bn









Iron and steel

Toys, games and sports requisites32%

2%3%3%3%3%3%3%4%

17%

26%

85

84

94

62

61

90

39

87

73

95

Other

175

-23

-18

-13

-8

-3

2

7

12

4 9 14 19 24 29 34

Over the last decade, China’s exports of major mining products have grown rapidly, as the country transitions towards manufacturing high-value goods

Note: 1. Chemicals are not included since there are too many types of chemicals

2. Bubble is too small to be shown

Source: UN Comtrade; International Trade Center; Axis Group Analysis

Analysis of China’s Exports of Selected Mining Products (2016)

Export CAGR for 2012-2016 (%)

Fixed Plant & Equipment Material Handling Mining Operations

MRO Consumables

Global Market Share (%)

Processing Electrical Equipment

Electrical equipment

Steel and

structural

products

Cranes and derricks

Material handling

equipment

Ground equipment

tools (GET)

Mining

operations

equipment

Mining

operations

consumables2

Processing

consumables1

Graphite electrode

Grinding Media

Lubricants

A bubble of this size represents

total export value of USD 10bn

176

0

500

1,000

1,500

2,000

10 20 30 40 50 60 70 80 90 100

Note: 1. 2016 data used for countries marked with an asterisk.

2. For Bangladesh, Papua New Guinea and Bhutan trade data is not available

Source: IMF; UN Comtrade; China Customs; Axis Group Analysis

China

South Korea


Singapore

Japan

India

Vietnam*Taiwan*

Import/GDP (%)

In China, increasing domestic

consumption has led to growth in

imports

Major shipping hubs in the SEA

region, Singapore and Vietnam’s

imports and exports are both very

large in comparison with GDP

Australia

In 2018, China was the largest importer in the region, with total imports of USD 1.9tn, making up 15% of its GDP

Indonesia Thailand*Philippines

New Zealand

Malaysia

Pakistan

Myanmar

Lao PDR*Macau*

Mongolia*

Other Oceania Island Economies*Sri Lanka

Developed Markets

Afghanistan*

NepalCambodia*

Developing MarketsEmerging MarketsChina

Brunei

Asia Pacific’s Major Importers (2018E)

Imports (USD bn)

2003 413

2008 1,133

2018 1,996

CAGR (2002-2018) 14%

China’s Imports (USD bn)In 2002, the USA’s

imports were six

times greater than

China’s imports

177

China’s Top 10 Import Commodities 2017 (HS Code)


Top 20 Importers of Electrical Machinery (USD bn, 2017)

China is the world’s largest importer of electrical machinery and equipment.In 2017, China imported a total of USD 458bn, or 19% of the world’s electrical machinery and equipment imports

Total: USD 1,844bn

0 100 200 300 400

ChinaUS

Hong KongGermany

JapanSingapore

MexicoSouth Korea

UKMalaysia

FranceNetherlands

IndiaCanada

ItalyCzech Republic

RussiaPoland

SpainPhilippines

Billions

China 2002 2017

Import of Electrical

Machinery (USD bn)73.2 457.6


Driven by demand from

China’s industrial

sector

457.6

23%

2%3%4%4%

4%

5%

7%

9%

14%

25%

85

27

84

26

90

87

39

71

29

12

Other


Mineral fuels, mineral oil and products of their distillation


Ores, slag, ash

Optical, photographic and cinematographic, equipment


Plastics

Pearls and other precious stones

Organic chemicals

Oil seed


Top 20 Importers of Mineral Fuels (USD bn, 2017)

China became the world’s largest importer of mineral fuels. In 2017, China imported a total of USD 250bn, or 13% of the world’s mineral fuels imports

0 50 100 150 200 250 300

ChinaUS

JapanIndia

South KoreaGermany

SingaporeNetherlands

FranceItalyUK

BelgiumSpain

TaiwanTurkeyMexico

CanadaIndonesiaMalaysiaAustralia

China 2002 2017

Import of Mineral

Fuels (USD bn)19.3 250


Driven by both industry and

growing personal

consumption


Total: USD 1,844bn




Ores, slag, ash



Plastics


Organic chemicals

Oil seed

250

23%

2%3%4%4%

4%

5%

7%

9%

14%

25%

85

27

84

26

90

87

39

71

29

12

Other


Top 20 Importers of Power Generation Equipment (USD bn, 2017)

China is the world’s 2nd largest importer of power generating equipment. In 2017, China imported a total of USD 170bn, or nearly 9% of the world’s power generating equipment imports

21%

0 50 100 150 200

USChina

GermanyFrance

UKMexicoJapan

CanadaHong Kong

South KoreaNetherlands

RussiaSingapore

ItalyIndia

TaiwanSpain

BelgiumAustralia

Czech Republic

Billions

Driven by growing

industrial demand

from China


Total: USD 1,844bn 349.0

China 2002 2017

Import of Power

Generation Equipment

(USD bn)

52.1 169.5





Ores, slag, ash



Plastics


Organic chemicals

Oil seed23%

2%3%4%4%

4%

5%

7%

9%

14%

25%

85

27

84

26

90

87

39

71

29

12

Other


Top 20 Importers of Ores, Slag and Ash (USD bn, 2017)

China is the world’s largest importer of ores, slag and ash. In 2017, China imported a total of USD 126.4 bn, or over 55% of the world’s total imports of ores, slag and ash

21%

0 5 10 15 20 25

ChinaJapan

South KoreaGermany

IndiaSpain

BelgiumCanada

USTaiwan

PhilippinesNetherlands

FranceBulgariaFinland

MalaysiaUK

RussiaItaly

Poland

Billions

China 2002 2017

Import of Ores, Slag, Ash (USD

bn)4.3 126.4


Used as inputs and

raw materials for

industry

126.4


Total: USD 1,844bn




Ores, slag, ash



Plastics


Organic chemicals

Oil seed23%

2%3%4%4%

4%

5%

7%

9%

14%

25%

85

27

84

26

90

87

39

71

29

12

Other

181Note: There is no data for Thailand in 2017


Top 20 Importers of Optical and Photographic Equipment (USD bn, 2017)

China is the world’s largest importer of optical and photographic equipment.In 2017, China imported a total of USD 98bn, or nearly 18% of the world’s total imports of optical and photographic equipment

21%

0 25 50 75 100

ChinaUS

GermanyJapan

NetherlandsSouth Korea

FranceUK

Hong KongMexico

BelgiumItaly

CanadaSingapore

TaiwanIndia

SpainAustralia

SwitzerlandRussia

Billions

China 2002 2017

Import of Optical &

Photographic

Equipment (USD bn)

13.5 97.5


Driven by the growth of the

middle class and evolving

consumer tastes


Total: USD 1,844bn




Ores, slag, ash



Plastics


Organic chemicals

Oil seed

97.4

23%

2%3%4%4%

4%

5%

7%

9%

14%

25%

85

27

84

26

90

87

39

71

29

12

Other



access to i.e.:



succeed?






182

Agenda

1. Foreword










6. About Axis Group

183

342

125

0 50 100 150 200

US

Japan

China

UK

Hong Kong

Germany

Canada

France

Luxembourg

Spain

Russia

South Korea

Singapore

Sweden

Netherlands

Belgium

Thailand

Ireland

UAE

Taiwan

China has been amongst the top 3 largest providers of global FDI during 2015 -2017

Top 20 World FDI Outflows (USD bn, 2015-2017)

Note: 1. British Virgin Islands and Cayman Islands are not included in the ranking because of their nature as offshore financial centres (most FDI is in transit)

2. To make international comparisons, this section utilizes China’s FDI and OFDI figures from the WIR 2016/17/18 instead of figures from MOFCOM

Source: WIR 2018; Axis Group Analysis

300

128

0 50 100 150 200

US

Japan

China

Netherlands

Ireland

Germany

Switzerland

Canada

Hong Kong

Luxembourg

Belgium

Singapore

France

Spain

South Korea

Italy

Russia

Sweden

Norway

Chile

In 2015, China

ranked 3rd

300183

0 50 100 150 200

US

China

Netherlands

Japan

Canada

Hong Kong

France

Ireland

Spain

Germany

Luxembourg

Switzerland

South Korea

Russia

Singapore

Sweden

Italy

Belgium

Norway

Chile

In 2016, China

ranked 2nd

20172015 2016

In 2017, China

ranked 3rd

184

Top 20 World FDI Inflows (USD bn, 2017)


Top 20 World FDI Outflows (USD bn, 2017)

In 2017, China remained a key player in FDI inflows and outflows, ranking 2nd and 3rd respectively in the world on both fronts

275136

0 50 100 150 200

US

China

Hong Kong

Brazil

Singapore

Netherlands

France

Australia

Switzerland

India

Germany

Mexico

Ireland

Russia

Canada

Indonesia

Spain

Israel

Italy

South Korea

In 2017, China

ranked 2nd

342

125

0 50 100 150 200

USJapanChina

UKHong Kong

GermanyCanadaFrance

LuxembourgSpain

RussiaSouth Korea

SingaporeSweden

NetherlandsBelgiumThailand

IrelandUAE

Taiwan

In 2017, China

ranked 3rd

185

7,807

1,491

0 1000 2000 3000 4000

US

Hong Kong

UK

China

Singapore

Canada

Switzerland

Netherlands

Germany

Ireland

France

Brazil

Australia

Spain

Belgium

Mexico

Russia

Italy

India

Sweden

Top 20 World FDI Outward Stock (USD bn, 2017)


Top 20 World FDI Inward Stock (USD bn, 2017)

In 2017, China ranked 4rd overall and 2nd in Asia for OFDI stock with USD 1,491bn. For FDI inward stock, it ranked 8th with USD 1,482bn

7,799

1,482

0 1000 2000 3000 4000

US

Hong Kong

Germany

Netherlands

UK

Japan

Canada

China

France

Switzerland

Ireland

Singapore

Belgium

Spain

Italy

Australia

Sweden

Russia

Brazil

South Korea

China ranked 4th

China ranked 8th

186

UAE

230

Qatar

320

Source: Sovereign Wealth Fund Institute; Axis Group Analysis

Locations of World’s Top 20 Sovereign Wealth Funds (USD bn, Aug 2018)

China

295

China

1. China Investment Corporation

2. Hong Kong Monetary Authority

Investment Portfolio

3. SAFE Investment Company

4. National Social Security Fund

Oil

Non-Commodity

Oil & Gas

China

441

Australia

108

UAE

226Russia

77

South Korea

134

China

941

Hong Kong

523

Singapore

375

Kuwait

592

Singapore

390

Iran

91

Saudi Arabia

360

Libya

66

UAE

230

Saudi Arabia

516

UAE

683

Norway

1,058

China is home to some of the world’s largest sovereign wealth funds, which are playing key roles in overseas investment

US (Alaska)

66

187

Rank Economy Fund TypeAssets under management

(USD bn)

1 Norway Government Pension Fund – Global Oil 1058.05

2 China China Investment Corporation Non-Commodity 941.40

3 UAE – Abu Dhabi Abu Dhabi Investment Authority Oil 683.00

4 Kuwait Kuwait Investment Authority Oil 592.00

5 China – Hong Kong Hong Kong Monetary Authority Investment Portfolio Non-Commodity 522.60

6 Saudi Arabia SAMA Foreign Holdings Oil 515.60

7 China SAFE Investment Company Non-Commodity 441.00

8 Singapore Government of Singapore Investment Corporation Non-Commodity 390.00

9 Singapore Temasek Holdings Non-Commodity 375.00

10 Saudi Arabia Public Investment Fund Oil 360.00

11 Qatar Qatar investment Authority Oil & Gas 320.00

12 China National Social Security Fund Non-Commodity 295.00

13 UAE – Dubai Investment Corporation of Dubai Non-Commodity 233.80

14 UAE – Abu Dhabi Mabadala Investment Company Oil 226.00

15 South Korea Korea Investment Corporation Non Commodity 134.10

16 Australia Australia Future Fund Non-Commodity 107.70

17 Iran National Development Fund of Iran Oil & Gas 91.00

18 Russia National Welfare Fund Oil 77.20

19 Libya Libyan Investment Authority Oil 66.00

20 US- Alaska Alaska Permanent Fund Oil 65.70

While 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, Nov 2018)

Source: Sovereign Wealth Fund Institute; Axis Group Analysis



access to i.e.:



succeed?






188

Agenda

1. Foreword










6. About Axis Group

189

In 2017, China had the world’s third largest current account surplus at over USD 163bn, behind Japan at USD 175bn and Germany at USD 296bn

Current Account Balance for Select Countries (USD bn, 2017E1)

1. CIA World Factbook estimates for 2017

Source: World Bank; CIA World Factbook; Axis Group Analysis

Top 5 current account surpluses

Top 5 current account deficits

US -462bn

South Korea

85bn

China

163bn

Germany 296bn

UK -91bn

Japan

175bn 2

4

1

3

3

1

2

Canada -56bn

5

India

-34bn

Turkey

-39bn

4

5

Netherlands 82bn

190

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 30

Top 30 Largest Holders of Foreign Exchange and Gold Reserves (USD bn, Q4 2017E)

Note: Estimates are as of 31 December 2017


0

400

800

1,200

1,600

2,000

Chi

na

Japa

n

Sw

itzer

land

Sau

di A

rabi

a

Tai

wan

, PR

C

Rus

sia

Indi

a

Hon

g K

ong

Bra

zil

Sou

th K

orea

Sin

gapo

re

Tha

iland

Mex

ico

Ger

man

y

Cze

ch R

epub

lic

Fra

nce

Italy

UK

Iran

Indo

nesi

a

US

Pol

and

Isra

el

Tur

key

Alg

eria

Mal

aysi

a

UA

E

Can

ada

Phi

lippi

nes

3,194

East Asia

191

In 2017, China’s external debt was around USD 1,649bn and accounted for just over 1% of the world’s total external debt

Top 30 Economies with Largest External Debt (USD bn, 2017E1)

1. These are CIA World Factbook figures; 2014 estimate has been used for EU because data for 2017 was not available


1,64

9

0

4,000

8,000

12,000

16,000

At the end of Q4 2017, China’s external

debt amounted to USD 1,649bn

17,910

192

China’s discount rate is relatively low at 2.25%, which is lower than that of other large developing economies

1. The interest rate is 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 2017

Note: Data is from CIA World Factbook latest estimates


Central Bank Discount Rate1 of Select Economies (%, 20172)

2.25%

0

2

4

6

8

10

12

Bra

zil

Ken

ya

Rus

sia

Vie

tnam

Col

ombi

a

Indo

nesi

a

Indi

a

Mex

ico

Sou

th A

fric

a

Tur

key

Chi

le

Aus

tral

ia

Chi

na

Sou

th K

orea

Can

ada

US

UK

Japa

n

EU

High-rate countries

Medium-rate countries

Low-rate countries

13.75% China Discount

Rate (%)

2010 3.25

2011 2.25

2012 2.25

2013 2.25

2014 2.25

2015 2.25

2016 2.25

2017 2.25

193

64

4.40

0

13

26

39

52

65

Mad

agas

car

Bra

zil

Mal

awi

Gam

bia

Gha

na

Taj

ikis

tan

Yem

en

DR

C

Ven

ezue

la

Gui

nea

Uga

nda

Bur

undi

Eq.

Gui

nea

Tim

or-L

este

Gua

tem

ala

Guy

ana

Geo

rgia

Bar

bado

s

Icel

and

Rom

ania

Gre

ece

Sin

gapo

re

Aus

tral

ia

New

Zea

land

Chi

na US

Sou

th K

orea

Italy

Isra

el

As of December 2018, China’s prime lending rate was 4.4%, which is comparable to that of its Asia Pacific neighbours Australia, Singapore and New Zealand

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 2017 estimates


High-rate countries

Medium-rate countries

Low-rate countries

Commercial Bank Prime Lending Rate1 of Selected Economies (%, 20172)

China’s Prime Lending Rate (%, July 2017 - Dec 2018)

China cut its prime lending rate 4 times

in 5 months from November 2014

0.03

0.04

0.05

0.06

0.07

4291

7

4294

8

4297

9

4300

9

4304

0

4307

0

4310

1

4313

2

4316

0

4319

1

4322

1

4325

2

4328

2

4331

3

4334

4

4337

4

4340

5

4343

5



access to i.e.:



succeed?






194

Agenda

1. Foreword










6. About Axis Group

195

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 India, Saudi Arabia and the UAE

Population of Top 30 Economies by GDP (mn, 2017E1)

1. CIA World Factbook estimates are from July 2017

Source: CIA World Factbook; World Bank; Axis Group Analysis

USChinaJapan

GermanyUK

FranceIndiaItaly

BrazilCanada

South KoreaRussiaSpain

AustraliaMexico

IndonesiaTurkey

NetherlandsSwitzerland

Saudi ArabiaArgentina

SwedenPoland

BelgiumIran

ThailandNigeriaAustriaNorway

UAE

GDP Rank 2016 Total

97 106

94 97 99 96

108 93 97 98

100 86 98

10196

100 101

9897

119 97

1009487

103 96

104 96

101 201

664 703

602 650

Ratio

Male/100 Female321

1,367127

816466

1,25262

2043549

1424823

122256

7917

828431039118266

182959

Female Male

196

0

9

18

27

36

45

0 5 10 15 20 25 30

While China currently has a favourable demographic makeup, its working-age population (15-64) is expected to enter a shrinking phase from 2015 onwards, due to a rapidly ageing population

Child and Elderly Population for Selected Countries (2017E1)

1. CIA World Factbook estimates are from 2017


Population under 15 (%)

Population aged 65+ (%)

India

Saudi Arabia

Poland

South Korea

Nigeria

Australia

Argentina

Japan

China

2017

China

Sweden

Iran

Indonesia

A bubble this size represents a population

of 100mn

Germany

UK

Turkey

Brazil

Mexico

Russia

US Norway

Switzerland

Spain

Netherlands

Belgium

Austria

France

Italy

China

2002

Canada

Taiwan

Thailand

197

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, 2017)

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 and does not take into account individual users


106 126 147

972 1,024 991

240 253 236

2009 2014 2017

64+

15-63

0-14

754 8,8962,514 26,955

2009 2014

Urban

Rural

157

82 46

2009 2014 2016

47% 55% 58%

2009 2014 2017

384668 751

2009 2015Q2 2017Q2

Year Urban Rural

2009 43% 15%

2015 72% 28%

2017Q2 73.3% 26.7%

% Distribution of Internet

Penetration

747 1,206

2009 2014

1,0581,092

2010 2015

Internet Penetration (mn)

29%48%

86%

Mobile Subscriptions (mn*)

56%5.8%

11.8%

Literacy Rate (mn)

Popn. below Poverty Line (mn)

90% of the poor population

comes from rural areas, 99%

of migrant population is

included as rural

In 2014, 519mn (38% of the

population) had access to

smartphones – nearly 43% of

mobile phones were

smartphones

China’s population is aging

rapidly, 10.81% of its

population is above 64 years

old while the birth rate

remains low10 19 17 23

2009 2014 2015 2017

The decline in Luxury

Spending in 2015 was

impacted by the economic

slow down and stock market

crash in Q2/Q3

Chinese consumption

bounced back in 2017, fueled

by consumer confidence and

the rapid emergence of a new

middle class

Luxury Spending (USD bn)Population Distribution (mn)

95%96%

Per Capita Disposable Income (USD)

% Urbanised Population

X% Represents % of population

China’s urbanised population

is expected to reach 60% in

2020 and 70% by 2030

In 2011, China set a

new poverty line at

RMB 2,300

(approximately USD

400)

3.3%

53%

198

98

58

34

2

42

66

Bel

gium

Arg

entin

a

Japa

n

Aus

tral

ia

Den

mar

k

Fra

nce

Bra

zil

Sw

eden

Net

herla

nds

US

Sou

th K

orea

Sau

di A

rabi

a

Can

ada

UK

Nor

way

Spa

in

Mex

ico

Ger

man

y

Rus

sia

Pol

and

Sw

itzer

land

Tur

key

Italy

Iran

Aus

tria

Gre

ece

Sou

th A

fric

a

Chi

na

Indo

nesi

a

Indi

a

Urban Rural

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 2.3%

Urban and Rural Population of Selected Economies (%, 2017)


Annual Rate of Urbanisation Change (%, 2015-2020E)

0

100

Urban0.36 0.93 0.15 1.37 0.58 0.76 0.99 0.86 0.72 0.99 0.55 1.81 1.16 0.82 1.31 0.52 1.37 0.12 -0.15 0.02 1.10 1.54 0.32 1.78 0.51 0.31 1.33 2.30 2.30 2.28

199

90705030101030507090

USChinaJapan

GermanyUK

FranceIndiaItaly

BrazilCanada


AustraliaMexico

IndonesiaTurkey



SwedenPoland

BelgiumIran


UAE

Male Female

While the average life expectancy for both men and women in China is higher than that of other large developing economies, it still lags behind more developed economies

Life Expectancy of Top 30 Economies by GDP (Age, 2017E1)

1. CIA World Factbook estimates are from 2017


GDP Rank 2016

7874

200

10080604020020406080100

USChinaJapan

GermanyUK

FranceIndiaItaly

BrazilCanada


AustraliaMexico

IndonesiaTurkey



SwedenPoland

BelgiumIran


UAE

Male Female

China’s economic activity rate is comparatively larger than those of major developed economies. China has one of the highest female economic activity rate among the world’s top economiesAdult (15 and Older) Labour Participation Rate (%, 20171)

1. Modeled according to ILO estimates of population ages 15+ for 2017

Source: International Labour Organization; Axis Group Analysis

Total Labour Participation Rate

62

70.8

59.1

60.3

62.7

54.9

53.8

48.3

67

65.4

60.8

63.3

58.2

64.6

62.2

67.3

50.3

63.6

68.5

54.5

61

64.5

56.8

53.5

44.7

71.2

56.4

60.2

64.8

79.5

GDP Rank 2016



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201

Agenda

1. Foreword





6. About Axis Group

202Source: Visual China Group (视觉中国)

203

Executive Summary – at the Highest Level

1. China set to maintain GDP growth of above 6% over the

short-to-medium term (2019); over the next 2-3 years GDP

growth of around 5.5-6.5%, well above world average

2. Transformation of China’s economy already more broad-

based, yielding different winners and losers; many challenges

and reform needs are even more pressing

3. Innovation, increased investment in R&D, and technology

leadership in many areas are becoming pervasive

4. Financial, structural, and socio-economic risks are numerous

and serious, but we do not see growth faltering; debt situation

is acute but will still be managed

5. There is significant change in China’s manufacturing base,

export profile, and trade composition, i.e. less growth in

certain low-cost segments but new strength in high-end (but

the higher cost of doing business is very real)

6. There is also a rapid change in the composition and growth

rates of imports, as the transformation to middle and higher

income continues; consumerism is rampant and large

opportunities are developing for exporters to China

7. New dynamism and complexity, as the country embraces

digitalisation, online trends and the adoption/diffusion of new

business models – at an accelerating rate of change

8. Shifting geopolitical and geostrategic landscape in a more

competitive world; China is now fully emerging as an equal

power to the US despite some views to the contrary

9. A new comprehensive and assertive global engagement and

increased influence worldwide characterises China’s external

game – but this is not universally welcomed causing tensions

10. China’s integration in the world plays out in many areas and

has wide impact, i.e. in regional and global politics, trade,

investment flows and various fora

1. China remains top driver for global growth and a key inbound /

outbound supply chain partner for companies worldwide (but

slowdown exposes certain sectors/markets)

2. Opportunities emerge in new sectors due to broad-based

transformation; many challenges for traditional sectors -

previous winners must re-invent and adapt, or die

3. China is emerging as a leader in high–value added

manufacturing and exporting more high-end products,

increasingly competing with Japan, US, Germany, etc.

4. China’s competitive model changes dramatically – takes most

of the world by surprise as it shifts from low-cost to high-end

technology; but cost increases opens the door for lower-cost

countries and players in India, Southeast Asia, etc.

5. Becoming more difficult to project in which sectors and how

China will compete in 2-5 years, let alone over the long term;

and where/how other nations will be able to defend/win market

share – need for solid strategic intelligence

6. China’s growing demand for agri-processing, high-end

products, tech, and services, makes it the fastest-growing,

large market; but selling to China has many challenges

7. Increased e-commerce, fintech, digitalisation, and emergence

of the shared economy yield new and vast opportunities; but

must be understood (and go-to-market implementation costs!)

8. Deeper reforms are set to continue resulting in losers that exit

the market; and new winners & champions are emerging

9. China’s influence is rising; more assertive and confident

China assumes new international and diplomatic stance that

may challenge incumbents and existing arrangements via

fora, initiatives, and institutions such as BRI, FOCAC, and

AIIB

10. Change requires effective and comprehensive (and multi-

dimensional) view of China and engagement as a partner,

financier, competitor, producer, influencer, leader, etc.

1. Recalibrate China procurement and inbound supply chains

as China shifts to higher cost and higher value-add

manufacturing and supply; adapt supply focus i.e. potentially

shift to tier-2 suppliers in China and tier-1 suppliers in lower-

cost Asia – anticipate a dynamic supply environment

2. Businesses with complex supply chains must develop a

supply market portfolio approach where China is still

prominent (even dominant) but new supply clusters in other

lower-cost areas must be cultivated. There is an unfolding shift

from China (2005), to China+1 or +2 (2015), to true

international sourcing (2020) or even full-scale global sourcing

(2025) – China will remain key but with new characteristics

3. Look to China for higher-end solutions and technology in

industries where it has gained an advantage; be open to

sourcing of services, turnkey project solutions, and high-end

‘designed and engineered’ solutions from China

4. Use strong risk radar to target relevant industry clusters &

supply; anticipate change; supplier health checks now crucial

5. Tap demand in the Chinese industrial and household

consumer market - develop modern China sales strategies

and create online & offline channels; success requires good

implementation and astute management & teams

6. Confirm the relevant ‘hot sectors’ for your business i.e.

agri, agri-processing, food products, advanced machinery, and

healthcare are some of the key areas for international brands;

develop RTM with right partners that add value - identify the

right partners in all dealings via solid DD

7. Leverage China’s new outbound capital and pursue China

as a capital partner; recognize the changing dynamics in

sector/regional focus, deal structures, and regulation

8. Three keys to China capital: adopt appropriate process to

articulate investment opportunity to correct targets

9. Tap into high-quality strategic intelligence for strategy

processes; deploy stellar implementation teams

Analysis and Key Findings Conclusions and Implications Recommendations

204

Disclaimer

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



access to i.e.:



succeed?






205

Agenda

1. Foreword





6. About Axis Group

Axis Group 206206

DMCC Business Centre, Level No. 1, Unit No. 939,

Jeweller 3


T +61 (0) 483 386 118 / +86 138 0111 2112

E [email protected]


Axis Group provides market access solutions. For clients that compete in

complex international markets, our deep capabilities, expertise and

commitment translate into business performance and profitability

• Procurement & Supply

• Market Expansion

• Corporate Advisory



207

Axis Group solves complex globally connected supply chains through specialisedcapabilities in Procurement & Supply, Market Expansion and Corporate Advisory

Comprehensive global procurement & supply solutionsthat drive down cost, assure quality, expedite schedulesand mitigate risk

Integrated Sourcing & Supply• Global sourcing• International logistics• Supply to site / delivery / distribution

Global Procurement Services• Procurement advisory• Strategic sourcing• Transactional procurement• Outsourced & managed procurement solutions

Capital Project Procurement Solutions• CAPEX procurement project management• Sourcing & transaction management• Quality management (QA/QC), inspection, testing

& expediting• Project logistics

Professional Resourcing• Skills & resource gap analysis• Talent & skills identification• Placement & on-boarding management• Ongoing management and interaction

Procurement & SupplyWe deliver solutions for selected key markets such as

China: we take products, brands, technologies, services

and raw materials to market, build brand reputation and

accelerate sales & market share

Market Insight, Planning & Decision Support• Market scoping and competitive landscape• Channels to market and key stakeholder

identification• Commercial and regulatory environment • Partner due diligence

Marketing & Brand Management• Marketing strategy & planning, Marketing

communications• Brand activation & management, Events

management• Digital & social marketing services• In-country product / service representation

Business Development & Sales• Client / partner engagement strategy• Route-to-market & channel partner management• Lead development to opportunity management• Sales management including pursuit management• Negotiation, contracting & order management• Proposal management, Client relationship

management (CRM)

On-the-ground Support & Execution• Distribution & logistics • E-commerce solutions and support• Asia team recruitment and training• 3PSP management (legal, registration agency, etc.)

Market ExpansionTrusted niche cross-border transaction and strategicadvice, with implementation support to underpin growthand performance

Strategic AdvisoryStrategy formulation & implementation support to drive decision making, growth and profitability

• Research & analytics• Strategy formulation• Strategy implementation

Transaction AdvisoryIndependent corporate finance advisory & transaction origination services

• Origination services• Financial advisory• Due diligence• Transaction project management

Corporate Advisory

International Inbound

Supply Chain Solved

International Outbound

Supply Chain Solved

International Market

Complexities Solved


208

We leverage deep capabilities across our clients’ value chains – we have developed a unique experience curve

Extensive Supplier Database

More than 7,300 identified suppliers, with over 1,800 pre-qualified

Comprehensive Quality Management

Comprehensive quality planning, Quality Assurance and Quality Control

Enable Cost-down Solutions

Enable cost-down and average savings of approximately 25% for customers (within a savings-range of 5-45%)

CAPEX Projects and OPEX/MRO Supply

Experienced in transacting in over 80 product categories across CAPEX projects and OPEX/MRO

Leader in Global Sourcing & Procurement

Industries include mining and resources, industrial and engineering sectors, chemicals, packaging, healthcare, FMCG and general merchandise

Approaches

Sophisticated methodologies, systems, processes and practices in place with an 18-year experience curve

Global Reach

Integrated, on-the-ground supply-hubs and infrastructure across China, the rest of Asia and Africa

Sourcing & Procurement• Global supply chain strategic

intelligence

• Supplier identification, selection and

management

• Contract terms management

• Quality management and expediting

• Project and risk management

Logistics• Control towers

• Logistics, supply chain and 3rd party

management

• Transportation, warehousing

• Inventory management

• Supply chain finance

Distribution & Supply• Distributor identification, selection and

management

• Order management and processing

• Kitting – product assembly,

repackaging, etc.

• Demand management and

warehousing

• Global market intelligence

• Decision support

• Digital solutions for international supply chain

• Capital advisory

• Team skills and resource augmentation

Suppliers Buyers

International Trading Capabilities

Client Value Chain and Our Capabilities

International Advisory Capabilities

Axis Group International

• Thrives in dynamic and challenging environment, with

focus on emerging and frontier markets

• Emphasizes ‘actions and transactions’ through strategy

implementation

• Collaborates with clients and provides integrated

solutions across their value chain

• Has successfully driven cost down solutions and

mitigated supply chain complexities within several

Chinese and international MNCs across various sectors

and industries i.e. mining and energy, agri and agri-

processing, power & infrastructure, transport, construction,

manufacturing, engineering, packaging and healthcare

www.axisgroupinternational.comwww.axisgroupinternational.com

DMCC Business Centre, Level No. 1, Unit No. 939

Jewellery & Gemplex 3


T +61 (0) 483 386 118 / +86 138 0111 2112

E [email protected]




The China Compass - Q2 2019 - Axis Group

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