The China Compass - Figures, Forecast and Analysis - January 2014

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The China Compass
Figures, Forecast and Analysis
January 2014

www.thebeijingaxis.com

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Agenda

1.
2.
3.
4.
5.
6.

Foreword
What‟s New: China‟s Ongoing Transformation

China‟s Economic Indicators
International Comparison
Conclusions and Implications
About The Beijing Axis

The Beijing Axis 2

Foreword
In the same manner that a compass highlights the cardinal points of north, south, east, and west, The China Compass is intended to serve
as a navigational instrument for determining China‟s position and direction in the context of the world‟s economic landscape. As such, by
closely examining China‟s relevance, importance and progressive integration with the world economy, The China Compass is a knowledge
tool from The Beijing Axis for executives with a China agenda.
Although developed economies continue to only slowly recover from the after-effects of the financial crisis five years on, the global economic
outlook is more optimistic than it was a year ago. Meanwhile, China‟s fifth generation of leaders must convince an immense bureaucracy to
implement an ambitious economic blueprint for the next decade that was released by the Chinese Communist Party following the Third
Plenum. Led by President Xi Jinping, the government will have to overcome internal resistance from vested interests to carry out economic
and social reforms in order to keep China‟s much more complex and globalised economy on the path of sustainable growth. All this is set
against the backdrop of an ever evolving social structure that may not be as conducive for growth as in the past.
In this January 2014 edition, we provide the latest macroeconomic data available for a wide range of indicators, for China as well as for other
major world economies, and include a new section, „What‟s New: China‟s Ongoing Transformation‟. This section will cover China‟s changing
political, economic and social patterns and the impact of these changes on the country and the rest of the world. We trust that this edition will
be useful for those that are in the midst of planning, and that it will shed light on past developments and future prospects of a uniquely
Chinese story of human development.
As always, we welcome all feedback.
Kobus van der Wath
Founder and Group Managing Director
The Beijing Axis
kobus@thebeijingaxis.com


Emerging economies are outperforming developed economies in terms of
global economic growth. By 2015, Asia-Pacific is expected to account for
one-third of global GDP
Regional GDP Comparison (2012, 2015F)
Average GDP Growth Rate (2012-2015F)

A bubble this size represents a GDP of USD 1,000 bn

10%

8%

Asia-Pacific is
expected to account for
the largest share of the
world‟s GDP by 2015

Rising real incomes and
high commodity prices
will continue to drive
Africa‟s growth
2,450

Africa

6%

25,771

Other Asia
3,627
South America
5,136

Forecast world average GDP
growth until 2015: 3.9%

Asia-Pacific

4%
BRICS

2015F GDP (USD bn)

2012 Growth Rate (%)

China
Brazil

2,800

0.9%

2,544

3.4%

India

0%

7.8%

Russia

2%

11,020

2,308

5.0%

411

2.5%

2012 GDP Per Capita (USD)

South Africa

0%

5%

North America

6,091

20,452

11,340
Developed economies
are expected to
14,037
continue to lose share
1,489
in the world‟s GDP over
the coming years
7,508

10%

Note: Translucent bubbles refer to 2012 data. Solid color bubbles refer to forecasted 2015 data.
Source: IMF; The Beijing Axis Analysis

15%

22,426

Europe
20%

25%

30%

Share of
World’s GDP
35%

As Asia‟s largest and one of the fastest-growing economies, China plays a
crucial role in the region‟s ongoing transformation
Comparison of GDP Size, GDP per Capita and GDP Growth across Asian Economies
GDP per Capita (USD, 2012)
60,000

A bubble this size represents a GDP of USD 200 bn

GDP per capita: USD 67,035
Australia

Japan

Singapore

50,000
World Average: 3.1%
40,000

Brunei

Developed Asia

Hong Kong

30,000
S. Korea

China is the
largest economy
in the region

Taiwan

20,000

Philippines
Malaysia

10,000

Thailand
Nepal

Source: IMF; World Bank; The Beijing Axis Analysis

2

Sri Lanka
Indonesia

PNG

4

Laos

Mongolia
Bhutan

Vietnam

Pakistan

0
0

India

China

Myanmar

Cambodia
Bangladesh

6

Timor-Leste

8

10
12
GDP Growth Rate (2001-2012)

With a GDP of USD 8.2 tn, China now accounts for more than one-tenth of the
world‟s economy and represents 30% of developing markets‟ share of the
global economy
100%
90%

USD 72 tn

60%
50%
40%
30%

Others

Africa
Canada
Italy
Russia
Brazil
U.K.
France
Germany
Japan
China

20%
10%

USD 27 tn

USD 8.2 tn

USD 8.2 tn

USD 8.2 tn

Northwest

80%
70%

USD 72 tn

US

Other
Developed
Countries

Other
Developing
Countries

Govt.
Consumption
Expenditure

Northeast
Others

Southwest

Tertiary
Industry

Private
Consumption
Expenditure

North

Developed
Asia1

Africa
Other
Developing Asia

Indonesia
India

Other
Developing
Countries
Africa

Hunan
Hubei
Sichuan
Liaoning
Hebei
Henan

South

Secondary
Industry

Zhejiang
Shandong

China

Jiangsu

China

China GDP
2012

East

0%

Note (1): Developed Asia includes Japan, South Korea, Taiwan, Singapore and Hong Kong
Source: IMF; National Bureau of Statistics of China; The Beijing Axis Analysis

Gross
Capital
Formation

Primary
Industry

Guangdong

World GDP in 2012 World GDP in 2012 GDP in Developing
Countries 2012

USD 8.2 tn
Net Exports

China GDP
2012

China GDP
2012

China GDP
2012


Snapshot of China‟s key economic indicators from 2012 through to the third
quarter of 2013
Selected Economic Indicators - China (Q1 2012 - Q3 2013)
Economic
Indicator

2012 Y-o-Y Growth (%)

2013 Y-o-Y Growth (%)

2013 Q3

Q1

Q2

Q3

Q4

Q1

Q2

Q3

GDP

12.1

10.1

8.7

9.9

10.1

8.4

9.8

USD 2,252 bn

Exports

7.6

10.5

4.5

9.4

18.4

3.7

3.9

USD 562 bn

Imports

7.2

6.4

1.6

2.7

8.4

5.0

8.4

USD 501 bn

Retail Sales

13.5

14.0

13.8

14.5

12.4

13.1

13.4

USD 942 bn

Monthly Loans

9.0

24.4

23.6

-17.2

11.8

-3.1

17.7

USD 357 bn

Urban Fixed
Asset Investment

21.3

20.9

21.1

20.4

21.4

19.8

20.4

USD 2,076 bn

Real Estate
Investment

23.5

13.1

13.7

18.5

20.2

20.4

18.9

USD 394 bn

Consumer Price
Inflation

3.8

2.9

1.9

2.1

2.4

2.4

2.8

2.5*

Producer Price
Inflation

0.2

-1.4

-3.3

-2.3

-1.7

-2.7

-2.1

-1.7*

Note*: These figures are YTD data through the first three quarters of 2013.
Source: National Bureau of Statistics of China; The People‟s Bank of China; China Customs; The Beijing Axis Analysis


Various factors identify China as one of the world‟s most significant and unique
countries
700,000
30,000
12,000
363
240
160
90
80
79
75
70
55
50
38
30
21
6.8
2
1.1

engineers graduate annually from schools in China
Chinese MBA students graduated in 2012; the number was 0 within China in 1998
USD is the average cost of a license plate in Shanghai
coal-fired power plants were planned to be built in China as of 2012
million vehicles are registered in China; more than half are passenger cars
cities in China have populations that exceed 1 million; there are 9 in the US and just 2 in the UK
percent of PCs in the global market in 2012 were produced in China
percent of the world‟s zippers are produced in the factories of Qiaotou city in Zhejiang Province
Chinese companies are among the Fortune Global 500 in 2012; the number was only 13 in 2002
percent of the world‟s toys are made in more than 10,000 toy factories across China
percent of the world‟s pirated goods come from China
new airports will be built over the next five years in China, helping to bring the total number to 244 by 2020
percent of the world‟s pork is eaten in China
children are born every minute in China; 54,720 are born every day and 19,986,480 are born every year
percent of young Chinese adults depend on their parents financially
nuclear plants were scheduled for construction as of the end of 2012; 9 are currently under construction
million students graduated from Chinese universities in 2012; the number in 1977 was 270,000
percent of China‟s population consumed 1/3 of global luxury goods in 2012
bn mobile phones were in circulation in China in 2012

Source: Various; The Beijing Axis Analysis


Setting the scene

•

Despite a „slowing‟ economy, China remains Asia‟s largest and one of its fastest-growing economies. As the country seeks to maintain
stable growth in the long-term, there are ongoing transformations taking place on the political, social and economic horizons that will
affect the direction, speed and ultimately the realisation of China‟s long-term ambitions

•

On the political front, much is expected of the new leadership led by President Xi Jinping, including the implementation of greater promarket reforms outlined in an ambitious 60-point reform blueprint released by the Chinese Communist Party following the Third
Plenum. The overarching goal is to shift away from an investment-led model of growth to a more stable model driven by domestic
consumption, advanced technology and environmental efficiency

•

On the economic front, the „old‟ China of low-cost labour, low-value, energy-intensive industries and a coastal-based export economy is
fading away

•

With the era of double-digit growth over, the Chinese government has been targeting more moderate growth of 7.5% for 2013, with Q3
2013 growth at 7.8%. We expect this sustainable level of growth to continue into the first half of 2014

•

On the social front, China is coming to terms with past policies that may impede its continued growth such as the impact of the One
Child Policy in the context of an ageing population. Moreover, a rapidly developing middle class with new wealth, social norms, and
consumption patterns is making „selling to China‟ a key growth strategy for many multinational companies

•

China continues to have a solid long-term growth trajectory ahead of it – the fundamentals are conducive for strong growth over a long
period. The only question is whether the ongoing political, social and economic transformations taking place in China will allow it to
realise what the new leadership has termed, „The Chinese Dream‟

Source: The Beijing Axis Analysis


Agenda

1.
2.
3.
4.
5.
6.

Foreword
What’s New: China’s Ongoing Transformation
- Political Transformation
- Economic Transformation
- Social Transformation



After the once-in-a-decade leadership change, China‟s new government is
being led by President Xi Jinping and Premier Li Keqiang
Current Composition of the Chinese Government (2013)
Communist Party of China Central Committee
General Secretary: Xi Jinping
Political Bureau of CPC Central Committee
Members of Standing Committee
Xi Jinping
Liu Yunshan
Li Keqiang
Wang Qishan
Yu Zhengsheng
Zhang Dejiang
Zhang Gaoli

The highest
political body
in China

President: Xi Jinping
Vice President: Li Yuanchao

The NPC is the de facto
legislative body, but it also
interprets the law

Chinese People’s Political Consultative
Conference (CPPCC)
Chairman: Yu Zhengsheng

National People’s Congress
Standing Committee
Chairman: Zhang Dejiang
Supreme
People’s Court
Zhou Qiang

The State
Council

The main political
advisory body for
the government

Supreme People’s
Procuratorate
Cao Jianming

Central Military Commission
Chairman: Xi Jinping

The command
and control of
the Chinese
armed forces

Vice Premiers

Zhao Gaoli
Vice Premier

Liu Yandong
Vice Premier

Li Keqiang
Premier

Wang Yang
Vice Premier

Ma Kai
Vice Premier

The State Council
is the chief
administrative
authority

State Councillors
Chang Wanquan

Yang Jiechi

Yang Jing*

Guo Shengkun

Wang Yong

* Holds the concurrent position of Secretary-General of the State Council
25 Ministries and Commissions Under the State Council

Details on next page
Source: PRC government website; US-China Business Council; People‟s Daily Online; The Beijing Axis Analysis


China‟s highest political body, the Standing Committee of the Politburo, has
been reduced from 9 members to 7 in order to streamline decision making
President

Premier

Xi Jinping

Li Keqiang

General Secretary of the CPC Central
Committee; Chairman of the CPC
Central Military Commission; President
of the People‟s Republic of China

Member of the Standing Committee
of the Political Bureau of the CPC
Central Committee; Premier of the
State Council and Secretary of its
Leading Party Members‟ Group

NPC Chairman

CPPCC Chairman

Secretary of
CCCPC Secretariat

Zhang Dejiang

Yu Zhengsheng

Liu Yunshan

Wang Qishan

Zhang Gaoli

Member of the Standing
Committee of the Political
Bureau of the CPC Central
Committee; Chairman of the
NPC Standing Committee

Committee; Chairman of the
CPPCC National Committee

Committee; First Secretary of
the Secretariat of the CPC
Central Committee

Committee; Secretary of
Central Commission for
Discipline Inspection

Committee; Vice Premier of
the State Council

Discipline Chief

Executive
Vice Premier

Note*: CPC - Communist Party of China; NPC - National People's Congress; CPPCC - Chinese People's Political Consultative Conference; CCCPC - Central Committee of the Communist Party of China
The Beijing Axis

13

At the highest level, China‟s new leadership will continue to implement the
12th Five-Year Plan
Major Pillars of 12th Five-Year Plan (2011-2015F)
1

2

3

4

Encourage
domestic
consumption

Balance social
equity/ improve
social safety net

Industrial
consolidation/
upgrading

• Change mode of
economic growth from
investment- and exportdriven to consumptiondriven

• Improve medical security,
social insurance,
education and housing
security

• Improve structure of key
industries (equipment
manufacturing, shipping
manufacturing,
automobiles, metallurgy,
building materials, petrochemical products)

• Automobiles, household
appliances, consumer
electronics, fast food
sectors will develop
rapidly
• Encourage private
investment

• Increase household
income and reduce
wage inequality

• Adjust income distribution

• Develop emerging
industries (next-generation
IT, high-end
manufacturing, pharma &
biotech, energy efficiency
& environmental
protection, new energy,
new materials, new energy
automotive)
• Develop services
• Promote the marine sector


5

Sustainable
development
and energy
efficiency

Sustainable
urbanisation/
modernisation of
rural
infrastructure
and agriculture

• Develop a circular
economy

• Promote small cities‟
development

• Control environmental
pollution

• Transfer the rural
population to urban
areas

• Improve the ecological
environment
• Improve water
conservancy and
disaster prevention
• Shut down lower-end
polluting producers
• Supportive policies for
alternative energy

• Strengthen infrastructure
construction
(transportation,
communication, power,
heating power, gas,
water supply and
drainage)

6

Balance regional
development

• Re-balance regional
development and
support economic
growth
• Revitalise northeast
regions
• Cultivate central region
• Develop western regions
by expanding
infrastructure
construction and
promoting the ChengduChongqing Economic
Zone as the region‟s key
economic centre

• Emphasis on workrelated safety


There are high expectations of the new government as several leaders have
hinted at greater economic liberalisation and pro-market policy reforms
Overview of the Changing Policy Agenda Under China’s New Leadership

Maintaining Growth
Previous
Leadership
(2002-2012)

New
Leadership
(2013-Present)





Structural Reforms

Avoid hard-landing, baseline of
acceptable GDP growth was set at 8%

• More attention to income disparity

Investment regarded as the main
approach to stimulate the economy

• Shift from double-digit growth

• More amenable to slowdown, with GDP
growth of about 7%
• Investment still an important tool of
growth, but desire to reduce reliance

• Attempts to control high property prices





Pursuing a more market-oriented
economy

The new leadership is
expected to be more
liberal than the last in
this area

More emphasis on sustainable
development

Key Focus of Leadership


The new leadership has already put into place policies aimed at reducing
government intervention in the market and reducing bureaucracy
Selected Policy Outputs
from Previous Leadership

Policy Shift by New Leadership
to Reduce Gov’t Intervention

Gov’t
Departments

Limited consolidation of
gov‟t departments

vs.

Increasing consolidation of
departments and reduction
of regulatory overlaps

• Reduction in the number of members in the Standing Committee
• Merger of Ministry of Railways & Ministry of Communications; the State
Electricity Regulatory Commission & National Energy Administration
• China‟s Administration of Press, Broadcasting Stations and Radio was
set up as a merger of two previous ministries

Approval
Process

Long, centralised and
cumbersome approval
processes

vs.

Reduction of approval times
and decentralised decisionmaking

• Ongoing streamlining and localisation of various administrative
procedures
• By September 2013, 242 administrative approval authorities had been
abolished or decentralised to local authorities

Elements

1

2

3

Level of Gov’t
Market
Intervention


Intensive government
involvement in the
economy

vs.

Increasing role of private
companies in various
sectors

Despite greater liberalisation, some
industries such as aviation have
seen a retreat by the private sector
and increased dominance by SOEs

Selected Examples

• Banks will be allowed to price loans according to the market
• Various structural tax reforms have been launched
• A pilot Free Trade Zone in Shanghai has been approved with
expectations of greater convertibility of the RMB, liberalised interest
rates etc. inside the zone
• Liberalisation of some previously closed sectors under discussion e.g.
private companies such as Suning and Tencent may be allowed to set
up their own private banks

The new leadership is placing a greater emphasis on China‟s sustainable
economic development in the long-term, including a reduced focus on rapid
GDP growth and a reduction of overcapacity in some sectors
Elements
1

Selected Policy Outputs
from Previous Leadership

Environmental
Protection

Focus on penalties and
restrictions to curb
pollution

Overcapacity

Focus on penalties
including shutdowns of
companies with
overcapacity

Growth
Stimulation

Focus on investment to
stimulate economy

Local Gov’t
Debt

Investigations were
undertaken but limited
action taken

2

Policy Shift by New Leadership
to Increase Sustainability

vs.

Increase expenditure on
curbing environmental
pollution

vs.

More market-oriented
approach

vs.

Less reliant on large capital
investments to spur growth

3

4


Hints of stricter investigation
vs.
procedures and specific
actions are outlined

Selected Examples
• The government is planning to invest USD 275 bn across all levels of
government to reduce atmospheric pollution
• Nearly USD 1 bn incentive scheme announced to fight air pollution in
six of the worst-polluting provinces and municipalities in northern China
• By the end of 2013, China will have launched four carbon emissions
trading platforms covering 1,500 companies
• Instead of shutting down companies, consolidation is encouraged
• Regional/partial overcapacity will be treated differently by focusing on
removing local protection and encouraging shifts to other provinces

• No stimulus policy was released after leadership transition
• More focus on policies that increase income distribution and social
welfare, including those aimed at migrant workers in urban areas
• Both the National Audit Office and China Banking Regulatory
Commission are strictly investigating local government debts
• The central government is setting up a warning system to prevent local
government debts from defaulting and causing collateral damage
• Anti-corruption measures are also being implemented to reduce
government waste

China‟s blueprint for the next decade includes a 60-point reform agenda
outlined in the policy document „Decision on the Comprehensive Deepening
of Reform‟ released following the Third Plenum
Overview of the ‘Decision on Certain Major Issues Concerning the Comprehensive Deepening of Reform’ (I)
Guiding thoughts for reform
Basic economic system

Reaffirm President‟s Xi Jinping‟s “Chinese Dream” theme

Modern market system

Unify the urban and rural construction markets; reduce red tape for businesses; carry out price and land reform; further
open up the financial system and capital account

Government functions

Improve coordination of China's fiscal, monetary, and industrial policy to avoid wasteful investment and guard against
cyclical volatility; delegate more power to lower levels of government; minimise government management of business
by removing unnecessary administrative approvals; better define the roles of different party, government, and mass
organisations; reduce the number of personnel in government agencies; work toward direct provincial administration of
counties to simplify local administration procedures

Fiscal and taxation system

Improve budget transparency; clarify which types of spending are central and which fall are under local authority; restrict
transfer payments to the poorest regions only; increase personal income, real estate, and resource taxes; provide tax
incentives to ensure an equitable tax burden

Urban-rural integration

Retain collective land ownership system but provide farmers with broader land-use rights beyond farming, including
property-style income; let farmers become shareholders in industrial operations; allow more private investment into rural
areas; narrow the gap between urban and rural basic public services

Opening up

Relax investment access for foreign enterprises, using the Shanghai Free Trade Zone as a pilot; speed up the
establishment of free trade zones; expand the opening up of inland regions by expanding trade, investment and
shipping routes

Political system

Modernise the People's Congress as a supervisory body for examining/supervising fiscal budgets and state-owned
assets, and as a ratifying body for any major government decision; encourage more interaction with grassroots
organisations

Develop a "mixed ownership" economy by reducing and marketising the public sector; encourage the development of
the private sector by ensuring better property rights, reducing market entry barriers and letting private investors take
larger stakes in SOEs

Source: Xinhua; U.S.-China Economic and Security Review Commission; The Beijing Axis Analysis


China‟s blueprint for the next decade includes a 60-point reform agenda
outlined in the policy document „Decision on the Comprehensive Deepening
of Reform‟ released following the Third Plenum
Overview of the ‘Decision on Certain Major Issues Concerning the Comprehensive Deepening of Reform’ (II)
Rule of law

Offer more legal advisory services to inform people of their rights; set up judicial courts that are separate from local
administrative zones; toughen enforcement of food, drug, and product safety standards, environmental protection
measures, and labor and social security laws; reduce the number of crimes for which the death penalty is applicable;
prohibit the abuse of torture and corporal punishment

Restraining the use of
power
Cultural system
Social services

Tackle corruption by reporting cases to higher-level discipline inspection commissions and stationing the Central
Discipline Inspection Commission at all central organisations

Social management

Encourage the development of more social organisations; separate trade associations from administrative
organisations; reform the letters and calls system; improve public safety, especially product safety

Environmental regulation

Strengthen natural resource property right systems; make GDP assessment irrelevant for regions with weak
ecosystems; implement paid-for resource use systems; develop environmental protection markets

Defense and military

Increase integration among military units; promote military-civilian integration, especially with regards to allowing private
enterprises to participate in research and innovation programs

Build up a modern public cultural service system; reform SOEs in the cultural sector
Reform the education system to narrow opportunity gaps through vocational schools and more diverse aptitude testing
methods; support business startups, especially ones started by college graduates; loosen the One Child Policy

Party leadership over reform Establish a Leading Small Group for Comprehensive Deepening of Reform; get Party members in line with the new
reform agenda

Source: Xinhua; U.S.-China Economic and Security Review Commission; The Beijing Axis Analysis


Agenda

1.
2.
3.
4.
5.
6.

Foreword



China‟s economic landscape remains one of the most dynamic in the world.
Some of the major economic drivers of the past are becoming less
prominent while new drivers are beginning to emerge
Overview of the Ongoing Economic Transformation Under China’s New Leadership
Stable Drivers
• Elements that are key drivers in China‟s economy in the
past and will retain a prominent role with the new
leadership going forward

Stable
Drivers

• Ongoing urbanisation / infrastructure
development
• Global exports
• Regulatory reform

Fading
Drivers

• Reliance on capital investment for growth
• Low-cost labour
• Prominence of low-value added, energyintensive industries
• Strong manufacturing in coastal regions

Fading Drivers
• Drivers that were key to China‟s economic growth in the
past but due to economic transformation and government
policy, are now less pronounced in the new economy

•
•
•
•

Emerging Drivers
• Drivers that are increasingly prominent in China‟s current
economy and will become even more important to the
country‟s economy going forward

Emerging
Drivers

Growth via increasing private consumption
Growing service sector
Value-added manufacturing and innovation
Growth in China‟s inland provinces

Details on next slides



Stable Driver

Current regulatory reforms stem from Deng Xiaoping‟s reforms and the
„opening up‟ era. These reforms have been expanded under his successors
and will continue to be expanded under the new leadership
Selected Economic and Political Reforms in China (1978-2013)

1982: China implemented
economic reform in rural
areas
1978: Reform
and opening up
initiated by
Deng Xiaoping

1978

1979: Established
SEZs in Shenzhen,
Zhuhai, Xiamen
and Shantou

1986: Started stateowned enterprise reform

1983

1988

1984: Proposed
planned economy

1987: Raised „one central task,
two basic points‟. Economic
development as the central
task supported by reform and
opening up

1996: Achieved
significant
progress in
foreign exchange
management
system reform

1992: Deng Xiaoping's
southern tour speech.
Established goals on
socialist market
economic system reform

1993
1993: Tax-sharing
reform. Raised
goals on financial
reform

2012: Hu Jintao raised points
on deepening economic
reform to accelerate the
transformation of development
mode
2001:
China joins
the WTO

1998
1999: Raised western
development strategy

1994: Unification of
exchange rates. Started
commercialisation of urban
housing

Note: SAR - Special Administrative Region; SEZ - Special Economic Zone; FTA - Free Trade Area

2002: Established the
goal of building a
moderately prosperous
society at 16th Party
Congress

2005: Adoption of a
flexible RMB exchange
rate

2003
2004: Abolition
of agricultural
tax regulations

2013: Blueprint for
social and
economic change
over the next
decade released

2008: China‟s
four trillion
bailout plan
during US
financial crisis

2008

2013

2010: „New Ten Terms‟ was
published by State Council notice about resolutely
curbing housing prices in
some cities

2007: Promulgated
Property Law

2013: The State
Council approved the
establishment of the
China (Shanghai) Pilot
Free Trade Zone


Stable Driver

One of Premier Li Keqiang‟s central goals is moving more of China‟s
population into cities in order to streamline productivity gains and ultimately
raise private consumption
China’s Urbanisation Rate (%, 2002-2020F)
60

2012 world average urbanisation
rate was estimated at 55%

60

50

53
China‟s urbanisation rate
exceeded 50% for the first
time in 2011

40
30

A 7% increase in urbanisation is expected
to see more than 70 million rural residents
absorbed into cities and boost private
consumption by USD 15.9 bn

20
10
0
02

03

04

05

Source: National Bureau of Statistics of China; The Beijing Axis Analysis

06

07

08

09

10

11

12

20F

Stable Driver

China‟s global importance is illustrated by its position as the world‟s largest
exporter. While China will retain this position for the foreseeable future, its
dependence on export growth as a main economic driver will continue to diminish
World’s Major Exporters (2012)

Exports (USD bn)
2,500
China overtook

Bubble Size: GDP = USD 1,000 bn

Germany to become
the world‟s largest
exporter in 2010

2,000

A large economy, large exports
and high exports to GDP ratio –
however, the future growth
model will not depend on exports

China

Germany

US

1,500

China in 2002

1,000

Japan
India

500

Brazil
0

France

10

China in 2007

2002

2007

2012

Total Exports
(2012, USD bn)

1
2
3
4
5
6
7
8
9
10

United States
Germany
Japan
China
France
UK
Italy
Canada
Netherlands
Belgium

Germany
China
United States
Japan
France
Italy
Netherlands
UK
Belgium
Canada

China
United States
Germany
Japan
France
Netherlands
South Korea
Russia
UK
Canada

2,049
1,546
1,416
799
557
555
548
525
481
453

South Korea

Russia

UK

Netherlands

Mexico

Australia Spain

0

Rank

20

(500)
Source: World Bank; IMF; UN Comtrade; The Beijing Axis Analysis

Canada
30

Switzerland
40

Thailand
50

60

Malaysia
70

80
90
Export/GDP (%)

Fading Driver

Consumption has replaced capital formation as the largest contributor to
GDP growth while the growth of net exports has remained low
Breakdown of China’s GDP Growth (%, 2002-2012)
16

In 2011, consumption surpassed
investment for the first time in 10 years,
once again becoming the largest
contributor to China's GDP growth

12
8

4
0

-4
02

03

04

Final Consumption Expenditure


05

06

07

Gross Capital Formaton

08

09

10

Net Exports of Goods and Services

11

12

GDP Growth


Fading Driver

While China is becoming less competitive in terms of labour cost, other
competitive advantages such as integrated supplier bases, high product
integration capabilities and robust infrastructure remain intact
Average Annual Wage of Urban Workers in China
(USD, 2002-2012)
8,000

Average Annual Growth Rate of Hourly Manufacturing
Wage Across China (2000-2012)

7,424

6,000

Henan
(18%)

4,000

17.4%

Shanghai
(18%)

10-15% per annum
15-17% per annum
Guangdong
(14%)

>17% per annum

2,000 1,499

Labour Cost in China (2000 vs. 2012)
Province

Hourly Cost Hourly Cost Annual Cost* for 1,000
(USD, 2000) (USD, 2012) Workers (USD mn, 2000)

Annual Cost* for 1,000
Workers (USD mn, 2012)

Shanghai

0
02 03 04 05 06 07 08 09 10 11 12
X%

The overall impact
on suppliers‟
manufacturing
cost is substantial

Represents CAGR for the period 2002-2012

Note*: Annual cost is based on a workload of 2,000 hours per year for each worker.

1.03

4.74

2.1

9.5

Guangdong

0.75

2.76

1.5

5.5

Henan

0.37

2.32

0.74

4.6


Fading Driver

In the past decade, growth in fixed asset investment outstripped private
consumption. The story has now changed with the growth rate of private
consumption surpassing investment in 2011
Growth of Private Consumption Expenditure and Gross Fixed Capital Formation (y-o-y %, 2002-2012)
Private Consumption Expenditure

Gross Fixed Capital Formation

30

Capital formation is no longer
the largest driver of China‟s
economic growth

25
20
15
10
5

0
02

03

04

Note: Data is calculated at current prices.

05

06

07

08

09

10

11

12

Fading Driver

As wage inflation continues to rise in coastal regions, manufacturers are shifting
production to emerging inland industrial clusters
China’s Manufacturing Clusters (2012)
Central
Industry Clusters: Automotive, Industrial
Machinery, Textiles, Electronics, Chemicals
Important Cities: Changsha, Wuhan,
Zhengzhou
Total Exports (2012): USD 37 bn

South-West
Industry Clusters: Automotive, Industrial
Machinery, Pharmaceuticals, Medical Products,
Chemicals
Important Cities: Chongqing, Chengdu

Bohai Bay Economic Rim
Industry Clusters: Automobiles, Aeronautics,
Consumer Electronics, Textiles, Industrial Machinery,
Electrical Equipment, Chemicals
Important Cities: Beijing, Tianjin, Dalian, Shenyang

Yangtze River Delta
Pearl River Delta
Industry Clusters: Textiles, Automobiles, Apparel,
Foodstuff, Consumer Electronics, Petrochemicals,
Industrial Equipment, Electrical Equipment
Important Cities: Shenzhen, Zhuhai, Jiangmen, Foshan,
Dongguan, Guangzhou
Note: The dots on the map represent key industrial cities in each cluster. The arrows represent the shift towards inland industrial clusters.
Source: The Economist; National Bureau of Statistics of China; The Beijing Axis Analysis

Industry Clusters: Automobiles, Shipping, Aeronautics,
Consumer Electronics, Textiles, Pharmaceuticals,
Chemicals, Industrial Machinery, Electrical Equipment
Important Cities: Shanghai, Nanjing, Yangzhou, Suzhou,
Hangzhou, Ningbo, Shaoxing, Wenzhou


Emerging Driver

China‟s inland provinces have been growing faster than coastal areas and
will continue to be important engines of China‟s growth
Nominal GDP Per Capita (USD ’000, 1982-2012)

Annual Nominal GDP Growth (%, 1982-2012)

Coastal and Developed Eastern Provinces
Inland Provinces

Coastal and Developed Eastern Provinces
Inland Provinces

10

30

8
6

Inland now outgrowing coastal

25

Inland provinces are about five
years behind coastal provinces,
meaning there is still plenty of
room to grow

40%
gap

20
15

4

10

2

5

0

Coastal outgrew inland

0
1982

1987

1992

1997

2002

2007

2012

1982

1987

1992

1997

2002

2007

2012

Note: Coastal and developed eastern provinces include Beijing, Tianjin, Hebei, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, Guangdong and Hainan. All other provinces are grouped under inland provinces.
The Beijing Axis

30

Emerging Driver

Service sector companies now employ more people in China than
manufacturers as the country evolves from a manufacturing to a service-based
economy
China’s GDP by Sector (%, 2000-2013E)

China’s Employment by Sector (%, 2000-2012)

100%

Primary

Secondary

Tertiary

60%
80%

50%
60%

Service sector companies now
employ more people in China than
manufacturers

40%

40%

30%

20%

Ten year 20%
CAGR:
1.2%
10%

0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13E
Service sector

Industrial sector

Agricultural sector

Source: National Bureau of Statistics of China; China Statistical Yearbook; The Beijing Axis Analysis

0%
00 01 02 03 04 05 06 07 08 09 10 11 12


Emerging Driver

The number of patents granted to Chinese firms and inventors has grown
exponentially over the last decade, propelling China‟s move towards
innovation and high-value sectors
Total Number of Patents Awarded to Selected
Economies (’000, 2002 vs. 2012)

CAGR (%)

Share of Patents Held Globally by China for
Selected Items (%, 2012)

% of China’s
Total Patents

Digital Communication

26

2

Telecom

11

6

Electrical Machinery

5

1

Computer Technology

5

2

Environmental Technology

1

35

China
Chinese government has
set a goal of achieving
200,000 patents per year
by 2015

US
Japan
Germany

Majority of patents
owned by domestic
Chinese parties are
utility model patents and
industrial design patents

UK

Brazil

19

0

50

100

2002

150

200

Pharmaceuticals

22

India

Chinese inventors filed
18,627 applications
internationally in 2012, just
228 applications fewer than
third-placed Germany, and
behind the US and Japan

Optics

250

2012

Source: World Intellectual Property Organisation; China State Intellectual Property Office; SIPO; MH&M; The Beijing Axis Analysis

0

5

10

15

5

2
20


Emerging Driver

Consequently, China‟s manufacturing export structure has shifted from labourintensive goods to high-value manufactured goods
Composition of China’s Exports* (USD bn, 2001 vs. 2012) China’s Share of Global Exports for Select Products
(%, 2002 vs. 2011)
CAGR

2,000

23.5%
13.6%
21.0%
20.3%
12.6%
21.5%
9.9%

Machinery and Electrical Equipment
Foodstuffs
Miscellaneous Manufactured Articles
Products Classified by Material
Mineral Items
Chemical Products
Others

1,500

Textiles and garments exports
grew from 46.1 bn to 246 bn,
representing a CAGR of 16.4%

26%

500

2001
X%

2012

Represents CAGR for the period 2001-2012

Note*: SITC Classification System
Source: UN Comtrade; EIU; ITC; The Beijing Axis Analysis

Derricks and
Cranes
Cruise/Cargo
Ships, Barges
Refrigerators,
Freezers

12

15
22

22
13

Construction and
Mining Parts
Transmission
Shafts/Cranks

China‟s global exports presence in
mid- and high-value products is
considerably larger today than it
was a decade ago

Centrifuges

36%
33%

0

Increasing
exports share

15

Silicon Wafers

20.4%

Motorcycles

Optical Fibres

47%

1,000

CAGR (%)

14
13
22

0

10

20

2002

30

40

50

2011


Emerging Driver

Indeed, current government policies are moving China towards becoming a
high-tech economy. As a result, more R&D centres and high-tech industrial
zones are being established throughout China
Relocation Trends of Regional Economic Structures
West / Central China
In the past, five of the seven fastest
growing regions were located in
western/central China
• Shift of governmental investment
from coastal areas to inland regions
• Over 1995-2010, the number of
economic zones in western/central
China increased from 6 to 776
• Industrial focus (only central China)
– Automotive
– Motorcycle production
– Construction
– Furniture industry
– Metal processing / fabrication
•

6

R&D/innovation center

No. of Econ. Zones:
West China
1995

9

2010
158

13

1

No. of Econ. Zones:
Central China
1995

2010
618

5
Central China
Source: BrainNet EAC; The Beijing Axis Analysis

11

Industrial focus:
• Steel
• Automotive
• Ship building
• Chemicals
• Machine building
• Aerospace
East China

West China

No. of high-tech industrial zones

North China

By Aug 2013, the number of
Economic Zones at the national
level increased to 192; top 3
provinces are Jiangsu (23),
Zhejiang (17) and Shandong (13)

Industrial focus:
• Automotive
• Chemicals
• Plastic processing
No. of Econ. Zones:
Coastal area

15

1995

South China
Industrial focus
• Automotive
• Plastic processing
• Electrical industry

2010
808

27
Coastal Area


Agenda

1.
2.
3.
4.
5.
6.

Foreword



China‟s changing demographics present a challenge to the economy due to a
changing age structure and declining work force. At the same time, they
present a large opportunity to shift to a consumption-based economy
Selected Components Highlighting China’s Social Transformation
1

2

Changing Family Structure

• The One Child Policy has led to
the „1-2-4‟ phenomenon, with 1
child having to support 2
parents and 4 grandparents

Low Birth Rate and
Low Death Rate
Future
Decline in workforce
4

Urbanisation
Past

Other Social Changes

Large Rural and
Agricultural Population

Future

Increased Urban and
Non-farm Population

Consumption

Demographic
Dividend

Past

• Cultural preference for sons
will result in a pool of 24 million
unmarried men by 2020
3

Declining Working Age Population

Tertiary Education

Internet Usage/
Online Shopping

Faced with declining birth and death rates, China‟s population is rapidly ageing.
China recently amended its One Child Policy to help prevent the country from
„growing old before getting rich‟
Breakdown of China’s Population by Age (mn, 2013 vs. 2050)
2013
Age

Male

2050
Female

Age

80+

75-79

70-74

70-74

65-69

65-69

60-64

60-64

55-59

55-59

50-54

50-54

45-49

45-49

40-44

40-44

35-39

35-39

30-34

30-34

25-29

25-29

20-24

20-24

15-19

15-19

10-14

10-14

5-9

5-9

0-4

Female

80+

75-79

Male

0-4

60m 50m 40m 30m 20m 10m
Source: UN Population Division; The Beijing Axis Analysis

0

10m 20m 30m 40m 50m 60m

The largest part of
the population will
be between 60 –
64 years old

The number of
youth will drop
significantly by
2050

60m 50m 40m 30m 20m 10m

0

10m 20m 30m 40m 50m 60m


China‟s population is ageing rapidly and the working-age population is
expected to peak by 2016 – this will have profound economic and social
consequences

70
60
50

20

10.5

10

Projected decline due to China‟s
One Child Policy – can potentially
be reversed with recent easing of
the One Child Policy

-10

Proposed Working Population (15-62)

Note*: Data from 2012 onwards is projected. Dependency Ratio is the ratio of people younger than 15 or older than 64 to the working-age population (ages 15-64)
Source: UN; McKinsey Quarterly; The Beijing Axis Analysis

-16.6
Russia

UK

Current Working Population (15-59)

-8.7

-30
India

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015F2020F2025F2030F

2.7

0

-20
450

5.9

Canada

Such a demographic dividend
has kept wage rates low and
saving rates high

7.7

Dependency ratio is currently
low for China due to a large
working-age population. This
will increase rapidly as the
population ages

-20.1 -21.0
Germany

24.4

US

750

29.0

Japan

30

550

36

40

850

650

Dependency Ratio
(2012)*

Brazil

950

The retirement age in China
currently is 60 for men and 55
for female - expected to be
pushed up by at least 3 years

Mexico

China‟s Working-age Population (mn)

1,050

Projected Working-age Population Growth Across
Selected Countries (%, 2013F-2038F)

China

China’s Projected Working-age Population (mn,
1970-2030F)


China‟s growing urban population will be the fundamental pillar of a
consumption-driven economy. A higher proportion of urban residents will
also result in a greater concentration of buying power
China’s Proportion of Urban Residents at Year-end
(%, 2002-2050F)
100

60

40

3,500

China‟s urban population
will exceed 1 bn residents

80
Ranked 1st with
17% of world‟s
urban population

Urban population was
greater than rural for the
first time

China’s Annual Retail Sales (USD bn, 2000-2012)

80
68
61

51 53
48 50
46 47
42 43 44
39 41

Retail Sales (Urban)

Retail Sales (Rural)
In 2012, urban retail sales
accounted for 87% of
China‟s total

3,000

2,500
2,000
1,500

1,000
20

In 2003, urban retail
sales accounted for
74% of China‟s total

500
0
02 03 04 05 06 07 08 09 10* 11 12 20F30F50F

0
00 01 02 03 04 05 06 07 08 09 10 11 12

Note*: In 2010, proportion of urban population was 49.95%.
Source: National Bureau of Statistics of China; Institute for Urban and Environmental Studies Chinese Academy of Social Sciences; The Beijing Axis Analysis


In urban areas, the middle class has rapidly expanded in the last decade. The
upper middle class is now growing faster than the mass middle class - a trend
expected to continue for the next decade
Breakdown of China’s Urban Households by Economic Class* (%, 2002-2022F)
Poor
100% 1 2
90% 7
90
80%

Mass Middle Class

Upper Middle Class
3
14

Affluent
9
53

54

70%
60%
50%
40%
30%
20%

22

29
16

10%
0%
2002
Total Households: 165 mn

2012

2022F

256 mn

357 mn

Note*: Classes are defined by annual disposable income per urban household, in 2010 real terms. For affluent urban households, annual disposable income is > USD 34,000; upper middle class, USD
16,000 to USD 34,000; mass middle class, USD 9,000 to USD 16,000; poor, < USD 9,000.
The Beijing Axis

41

The expanding middle class will not be limited to big cities. Lower tier cities
and cities in inland China will witness the fastest increases
Share of Middle Class by Geographical Location (%,
2002 vs. 2022F)

Share of Middle Class by Type of City* (%, 2002 vs. 2022F)

100%

100%

80%

3
15

8

80%

31

61
60%

60%

87

40%
20%
0%

39
13

2002
Inland China

While the majority of
China‟s middle class
will reside along the
coast, inland areas
will witness the
fastest growth rates

42

40%
20%

Middle-class growth
rates will be far higher
in China‟s smaller Tier
3 and Tier 4 cities

45
40
16

0%

2022F
Coastal China

2002
Tier 1

2022F
Tier 2

Tier 3

Tier 4

Note*: Cities in China are grouped into 4 tiers based on their economic development and political importance. Tier-1 cities, nominal urban GDP is > USD 138 billion; for Tier-2 cities, USD 18 billion –USD
138 billion; for Tier-3 cities, USD 3 billion – USD 18 billion; for Tier-4 cities, < USD 3 billion.
The Beijing Axis

42

The large number of university graduates in China is a double-edged sword –
new skills add to an increasing high-value added economy, but a shortage of
jobs for new graduates also threatens social stability
Number of Newly Enrolled and Successfully Graduated
Students of Higher Education (mn persons, 2000-2012)
Newly Enrolled

Number of Newly Enrolled and Successfully Graduated
Postgraduate Students (’000 persons, 2000-2012)
Newly Enrolled

Successfully Graduated

8

Successfully Graduated

700
7

7

6

6

590

600

486

500

5

400

4
3

300
2

200

2
1

1

100

0

128
59

0
00

01

02

03

04

05

06

07

08


09

10

11

12

00 01 02 03 04 05 06 07 08 09 10 11 12


China‟s middle class is increasingly using the Internet not only for leisure,
but also for shopping. The ability to spend online is also allowing Chinese
consumers to spend more on a greater range of products
Number of Internet Users and Online Shopers1 (mn
persons, 2002-2012)
Internet Users

Online Shopers

600

500
400
300
200
100
0
02 03 04 05 06 07 08 09 10 11 12
Note: (1) Data for online shopping users before 2007 is not available in reports of CNNIC
(2) Some items are new in 2012 statistics compared to 2007
Source: CNNIC; The Beijing Axis Analysis

Utilisation Rates of China’s Internet Users towards
Different Network Applications2 (%, 2007 vs. 2012)
0
Instant Messaging
Search Engines
Online News
Online Music
Blog/Personal Space
Online Video
Online Game
Weibo
Social Networking Sites
Online Shopping
Online Literature
E-mail
Online Payment
Online Banking
Forum/BBS
Travel Reservation
Group Buying
Online Stock

20

40

60

80

2012

100

2007


Agenda

1.
2.
3.

4.
5.
6.

Foreword

China’s Economic Indicators
-

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



China will rely on market-based reforms to unleash fresh growth drivers to
support the economy. Long-term trends suggest more moderate and
sustainable growth
China’s Quarterly Y-o-Y GDP Growth Rate (%, 2009Q4 2013F)
15

Contribution to China’s GDP (%, 1998-2012)
Gross Capital Formation
Final Consumption Expenditure

140
2013 y-o-y GDP
growth forecast:
7.6%

3-year (2009-2011)
average: 9.4%

Policy easing to
provide room for
growth moderation

10

Effect from stimulus
package in 2009

120

100
80

Gross capital formation remains
the largest contributor

60

5

40

2012 y-o-y GDP:
7.8%

Government stimulus
package (USD 586 bn)

20
0

2011 y-o-y GDP:
9.3%

0
Q1

2009

Q1

2010

Q1

2011

Falling net exports
contribution

-20
Q1


2012

Q1

-40
2013

98

00

02

04

06

08

10

12


Latest forecasts from the IMF suggest that China‟s annual GDP growth rate in
2013 will be 7.6%, in line with the expectations of China‟s Communist Party
China Real GDP Growth Rate (% y-o-y, 1978-2013F)
16
Past periods of
overheating

12

Overheating
concerns

7-10% GDP
growth band

Soft landing amid
global uncertainty

7-8% GDP
growth band

8

4

0
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F

Source: IMF; The Beijing Axis Analysis


China‟s GDP is highly concentrated in five coastal provinces, which together
account for about 40% of the country‟s total GDP. However, this figure has
dropped over the years as other provinces have increased output
GDP by Province (USD bn, 2012)
0
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

Guangdong
Jiangsu
Shandong
Zhejiang
Henan
Hebei
Liaoning
Sichuan
Hubei
Hunan
Shanghai
Fujian
Beijing
Anhui
Inner Mongolia
Shaanxi
Heilongjiang
Guangxi
Jiangxi
Tianjin
Shanxi
Jilin
Chongqing
Yunnan
Xinjiang
Guizhou
Gansu
Hainan
Ningxia
Qinghai
Tibet

250

Geographical Distribution of China’s GDP (2012)

500

750

1,000

Gansu

Top 5 provinces‟
GDP equate to 39%
of total GDP

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

Ningxia

27
30

Qinghai

29

2
4

31

Shandong
Henan
Jiangsu
Zhejiang

3
5

Tibet

1

Guangdong

28

Top 5 Provinces by GDP
Bottom 5 Provinces by GDP

Hainan

Tianjin, Beijing and Shanghai, three of the centrally-administered municipalities,
each have a per capita income greater than USD 12,000
GDP Per Capita by Province (USD, 2012)
0
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

Tianjin
Beijing
Shanghai
Jiangsu
Inner Mongolia
Zhejiang
Liaoning
Guangdong
Fujian
Shandong
Jilin
Chongqing
Hubei
Shaanxi
Hebei
Ningxia
Heilongjiang
Xinjiang
Shanxi
Hunan
Qinghai
Hainan
Henan
Sichuan
Jiangxi
Anhui
Guangxi
Tibet
Yunnan
Gansu
Guizhou

2,000

4,000

6,000

Provinces With Highest and Lowest GDP Per Capita
in China (2012)

8,000 10,000 12,000 14,000 16,000

Inner Mongolia

5

2

Gansu

China‟s GDP per capita
reached USD 6,091 in
2012


28

Beijing
1

Tianjin

30

Tibet

4
3
31

Yunnan

29

Jiangsu
Shanghai

Guizhou

Guangxi
27

Top 5 Provinces by GDP per capita
Bottom 5 Provinces by GDP per capita

However, apart from Tianjin, the coastal regions are no longer the fastest growing
regions in China. The government has placed a greater emphasis on developing
inland provinces, including the establishment of special economic zones
GDP Growth Rate by Province (%, 2012)
0
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

5

10

China’s Fastest and Slowest Growing Provinces (2012)
15

Tianjin
Chongqing
Guizhou
Yunnan
Shaanxi
Sichuan
Gansu
Qinghai
Anhui
Jilin
Xinjiang
Tibet
Inner Mongolia
Ningxia
Fujian
Hubei
Hunan
Guangxi
Jiangxi
Shanxi
Henan
Jiangsu
Heilongjiang
Shandong
Hebei
Liaoning
Hainan
Guangdong
Zhejiang
Beijing
Shanghai

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

30

Shaanxi

1

5

Chongqing
2

Guizhou

3

Yunnan

Beijing
Tianjin

31
29

Shanghai
Zhejiang

4
28
27

Top 5 Provinces by GDP growth
Bottom 5 Provinces by GDP growth

Guangdong
Hainan


China‟s secondary sector remains the largest contributor to the country‟s
GDP. However, the tertiary sector has been the fastest growing in recent
years and its development is a centerpiece of China‟s 12th Five-Year Plan
Composition of GDP by Sector* (USD tn, 1997-2013F)
Primary Sector
CAGR (1997-2013F) - 11.0%

Secondary Sector
CAGR (1997-2013F) - 15.1%

Tertiary Sector
CAGR (1997-2013F) - 17.5%

11

10
9

0.9

8
7
6

4.3

5
4
3
2

4.3

1
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F
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.
The Beijing Axis

52

While China‟s secondary sector has traditionally played a larger role in China‟s
economy, the tertiary sector is expected to take the lead in the near future
Value-added Breakdown of Secondary Sector (USD
bn, 1997-2012)
4,000

Industrial Sector

Construction Sector

Value-added Breakdown of Tertiary Sector (USD bn,
1997-2012)
4,000

3,500

3,500

3,000

3,000

2,500

2,500

2,000

2,000

1,500

1,500

1,000

1,000

500

500

0

Others
Real Estate
Financial Intermediation
Hostels and Catering Services
Wholesale and Retail Trades
Transport, Storage and Post

0
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12


97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Although capital formation and government consumption are the largest
contributors to GDP, household consumption growth has increased substantially
while the growth of net exports has remained low
Contribution to the Growth of GDP* (percentage points, 1997-H1 2013)

Gross Capital Formation

Final Consumption Expenditure (household + gov't)

10
8
6
4

2
0
-2
-4
97

98

99

00

01

02

03

04

05

06

07

08

09

10

11

12

H1 13

Note: The three 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. For 2009, the 92% gross capital formation, 52% final consumption expenditure and the -44% net exports of goods and services were reduced proportionately to form the bar
representing 100%
The Beijing Axis
Source: China Statistical Yearbook; The Beijing Axis Analysis

54

Capital formation remains a large contributor to China‟s economy, far surpassing
the East Asia & Pacific average. Capital formation remains concentrated in the
larger coastal provinces
China’s Gross Capital Formation (2012)
A bubble this size represents 1% of total
Provinces in central and western China
are very dependent on capital formation

% of Provincial GDP
100 Tibet
Qinghai

Ningxia

Yunnan

80

Xinjiang
Hainan

60

Guangxi
Tianjin
Shaanxi
Hunan
Fujian

Jilin
Shanxi

Guizhou

Gansu

Heilongjiang

Chongqing
Jiangxi
Beijing
Shanghai

40

Inner Mongolia

Hubei
Anhui

Northern
Northeastern
Eastern
Central & Southern
Southwestern
Northwestern

Liaoning

Henan
Shandong

Hebei

Jiangsu

Sichuan
Zhejiang

Guangdong

East Asia & Pacific
(all income levels)
28.1% 2011

20
0

50

100

150

Source: World Bank; China Statistical Yearbook; The Beijing Axis Analysis

200

250

300

350
400
450
Total Capital Formation (USD bn)

Final consumption is slightly more concentrated, with 38% of China‟s total
centered in just four coastal provinces led by Guangdong province
China’s Final Consumption* (2012)
A bubble this size represents 1% of total
% of Provincial GDP
80
70

38% of China‟s total final
consumption is centered in
just four coastal provinces

Tibet
Guizhou

60

Northern
Northeastern
Eastern
Central & Southern
Southwestern
Northwestern

Yunnan

Beijing

Shanghai
Heilongjiang
Guangxi
Xinjiang Jiangxi
Sichuan
Anhui
Hunan
Chongqing
Shanxi
Shaanxi
Jilin
Henan
Tianjin
Hebei
Hubei
Liaoning
Inner Mongolia Fujian

Gansu

Qinghai

50Ningxia

Hainan

40
30

Guangdong

Zhejiang

Shandong

Jiangsu

Total Final Consumption (USD bn)

20
0

50

100

150

200

250

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

300

350

400

450

500


China‟s industrial value output has grown by over 20% in the last decade.
However, growth has slowed since 2008 due to weak overseas demand
Industrial Value Added Output (2000-2012)
USD bn

Industrial Value Added Output

3,500

%

Growth Rate (rhs)

45

2,800

36

2,100

27

1,400

WTO accession on
11 December 2001

18

700

9

0

0
00

02


04

06

08

10

12

In recent years, Chinese consumer confidence has remained high and quite
stable reflecting the overall future positive outlook shared by consumers
China’s Consumer Confidence Index (2010-August 2013)
The calculation of CCI is combined by
the level of optimism that consumers
have about their consumption intention,
and satisfaction on their economic life
quality

120

115
110

107.9 108.0 107.8

104.7
105
100
95
90

107.6

104.4
108.9 107.3
102.9
106.6

104.2

The CCI tends to decrease during the
2nd half of the year and pick up right
before the Chinese New Year holiday

103.8

99.9

100.4
99.6

105.8 105.6
108.1 103.4
106.6
105

103.9 105

104.2
100

97
100.5 100.5

103

CCI over 100 indicates that consumers
are optimistic

98.2

108.2
106.1
105.1 104.5
103.7
103.7
102.6
100.8
99

97

97.8

99.3 99.4
97.2

85

Jan-10
Feb-10
Mar-10
Apr-10
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13

80

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


China‟s annual inflation rate stood at 2.5% through the first three quarters of 2013,
comfortably below the official target of 3.5%. Policymakers are likely to continue
their current neutral monetary policy approach to keep the economy stable
Consumer Price Inflation (%, 2011-September 2013)

General

Rural

Urban

8
7
6
5

China‟s inflation
averaged 2.6%
in 2012

4

Room for
policy easing

3
3.5% is the designated inflation
target set by the Chinese
government for 2013

2
1
0
J

F M A M J

J A S O N D J
2011


F M A M J

J A S O N D J
2012

F M A M J J A S
2013

Despite a recent increase in food prices, which constitute roughly a third of
CPI*, China‟s inflation has been largely stable in 2013
Consumer Price Inflation Breakdown (%, 2011- September 2013)
20
15

General
Tobacco, Liquor and Articles
Household Facilities, Articles and Services
Transportation & Communication
Food is an important driver,
Residence
with a weight of over 30% of
the total CPI

Food
Clothing
Health Cares & Personal Articles
Recreation, Education, Culture Articles and Services
Seasonal peaks due to Chinese New Year holiday

There has been a recent
increase in food prices

10
5
0
-5
J F M A M J

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

2011


2012

J A S

2013

Note*: China‟s rate of inflation based on the consumer price index (CPI), which shows the change in prices of a standard package of goods and services which Chinese households purchase for consumption.
The Beijing Axis

60

Stymying inflation is no longer a key concern for policymakers as it was in
the aftermath of the global financial crisis. Inflation has since steadily fallen
Annual Consumer Price Inflation (%, 1997-H1 2013)
Doubling of M2
money supply

7
6
5

Provinces with Highest and Lowest Consumer Inflation
(%, August 2013)

2

Overheating and
overinvestment

Xinjiang
4.2

4

2
1

Deflation and
overcapacity

Commodity and food
price pressure

1

4

Hunan
2.0

5

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13*

Note*: First half year of 2013

28

Jiangsu
2.1

30

Guangxi
1.7

-1

Beijing
3.4

3

29

0

-2

Qinghai
4.7

Tibet
3.1

3

Ningxia
3.6

31

27

Fujian
2.1

Zhejiang
2.0

Provinces with Highest Inflation
Provinces with Lowest Inflation

Producer prices in China been in deflationary territory for 19 consecutive
months although the pace of the decrease has been easing for four straight
months
Producer Price Inflation (%, 2011-September 2013)

10

Inflation for
2011 was 106

5
Deflation due to depressed
overseas market demand
and sluggish domestic
manufacturing activity

Details on next slide

0

-5
J F M A M J


2011
Source: China Monthly Economic Indicators; The Beijing Axis Analysis


2012

J A S

2013

The main drivers of declining producer prices are in the mining, raw materials
and manufacturing sectors. Industrial overcapacity, rising costs and sluggish
overseas demand have also contributed to falling prices
Producer Price Inflation Breakdown by Industries (%, 2011-September 2013)

20

Mining & Quarrying Industry
Food
Durable Consumer Goods

Raw Materials Industry
Clothing

Manufacturing Industry
Articles for Daily Use

15
10
5
0
-5
-10
J F M A M J


2011


2012

J A S

2013

Depressed overseas market demand and sluggish domestic manufacturing
activity have lowered producer prices in 2013, although there are signs of a
bottoming out
Annual Producer Price Inflation (%, 1997- H1 2013)

Provinces with Highest and Lowest Producer Inflation
(%, August 2013)
Heilongjiang
-0.7

8
Inner Mongolia
-2.8

6

Qinghai
-3.7

4
2

-2

Jilin
0.0
28
Liaoning
29
Tianjin -0.7
31
Ningxia
Shanxi -2.8
-3.5
-9.7
5

3

-4
-6
-8

2

27

30

0

4

Jiangxi
-0.5

Hainan
0.2
Provinces with Highest Producer Inflation
Provinces with Lowest Producer Inflation
1

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13*

Note*: First half year of 2013
Source: National Bureau of Statistics of China; China Monthly Economic Indicators; The Beijing Axis Analysis


China‟s manufacturing sector has largely remained in expansionary territory in
2013. There have been renewed calls for a more liberal credit policy in the
face of low inflation in order to boost production
China’s Purchasing Managers’ Index of the Manufacturing Industry (2010-September 2013)

PMI

60

2 Month Moving Average
A reading above 50 reflects expansion;
below 50 reflects contraction

50

40


Sep-13

Jul-13

May-13

Mar-13

Jan-13

Nov-12

Sep-12

Jul-12

May-12

Mar-12

Jan-12

Nov-11

Sep-11

Jul-11

May-11

Mar-11

Jan-11

Nov-10

Sep-10

Jul-10

May-10

Mar-10

Jan-10

30


Housing prices in China‟s major cities have been recovering since mid-2012.
With real estate being a key contributor to demand, policymakers have eased
purchase restrictions amidst slower growth
Sales Price Index of Residential Buildings in
Selected Cities (Y-o-Y, 2010-July 2013)
120

Beijing
Tianjin

Shanghai
Chongqing

Sales Price Index of Residential Buildings in
Selected Cities (M-o-M, 2010-July 2013)

Guangzhou
Shenzhen

105

115

99

100

97

95

Guangzhou
Shenzhen

101

105

Shanghai
Chongqing

103

110

Beijing
Tianjin

95
J MM J S N J MM J S N J MM J S N J MM J
2010

2011


2012

2013

J MM J S N J MM J S N J MM J S N J MM J
2010

2011

2012

2013

Agenda

1.
2.
3.

4.
5.
6.

Foreword

-

Social Indicators



China‟s booming retail sector demonstrates consumers‟ confidence in the
economy. Urban areas still make up an overwhelmingly large part of retail
sales, despite a narrowing growth rate between urban and rural areas
China’s Annual Retail Sales and Growth Rate by Administrative Level (1978-2012)

USD bn¹
3,500

Retail Sales (Urban)
Retail Sales (Rural)
Suburban Growth (rhs)

Retail Sales (Suburban)
Urban Growth (rhs)
Rural Growth (rhs)

%
40

3,000

30

2,500
2,000

20

1,500

10

1,000
0

500
0

-10
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Note: (1) 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
(2) Chinese Statistics Bureau has changed the structure of these figures since 2010. In the new category breakdown, urban includes suburban.
Source: China Statistical Yearbook; China Monthly Economic Indicators; The Beijing Axis Analysis


Increased domestic consumption remains in line with the 12th Five-Year Plan.
The dramatic increase in retail sales over the past decade still falls short of
making domestic consumption a key pillar of the Chinese economy
China’s Annual Retail Sales (USD bn, 1980-2012)

China’s Monthly Retail Sales (USD bn, 2006-August
2013)

Annual retail sales
reached USD 3288.37
bn in 2012

3,600

350
300

3,000

Seasonal peaks
due to Chinese
New Year holiday

323

250

2,400

200
1,800
150

1,200

100

600

50

0
80

84

88

92

96

00


04

08

12

0
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13


While wholesale and retail trade continue to dominate retail sales, hotels and
catering services have seen considerable growth, made evident by the
massive rise of five-star hotels in China's first- and second-tier cities
China’s Annual Retail Sales of Consumer Goods by Sub-sector (1978 vs. 2012)
Wholesale and Retail Trade
Hotels and Catering Services
Others

370

11%

4% 9%

87%
89%
2,532

1978
Total: USD120.3 bn


2012
CAGR = 10%

Total: USD 3.3 tn


Provinces with large populations, high employment and high disposable income
also have the highest retail sales. Guangdong, Shandong and Jiangsu have the
highest retail sales
Total Retail Sales of Consumer Goods by Province
(USD bn, 2012)
0
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

50

100

150

200

Guangdong
Shandong
Jiangsu
Zhejiang
Henan
Hubei
Liaoning
Sichuan
Hebei
Hunan
Beijing
Shanghai
Fujian
Anhui
Heilongjiang
Jilin
Inner Mongolia
Guangxi
Shanxi
Shaanxi
Chongqing
Jiangxi
Tianjin
Yunnan
Guizhou
Gansu
Xinjiang
Hainan
Ningxia
Qinghai
Tibet


250

300

350

Provinces With Highest and Lowest Retail Sales (2012)
400

27

Xinjiang
Ningxia
Qinghai

29

2

30
31

Tibet

5

Henan

Shandong
3
4

Jiangsu
Zhejiang

Guangdong
1

Hainan28
Top 5 Provinces by Retail Sales
Bottom 5 Provinces by Retail Sales

Declining exports due to weakened overseas demand, coupled with increasing
imports buoyed by an appreciating RMB, are putting pressure on China to
expedite its move away from an export-oriented growth model
China’s Monthly Exports & Imports (USD bn, 2011September 2013)
250

Exports

Imports

200

China’s Monthly Trade Balance (USD bn, 2011September 2013)
40
30

150
20

100
50

10

0

0

50

10

100

20

150
30

200

Import surge gives
China decade-deep
trade deficit

40

250
J M M J S N J M M J S N J M M J S
2012
2013
2011
Source: China Customs; The Beijing Axis Analysis

2012
2013
2011

After experiencing a prolonged slump during the global downturn, Chinese
exports have now rebounded to pre-crisis levels
China’s Annual Exports (1997-2012)
USD bn

Exports

Exports' Growth Rate (rhs)

China’s Monthly Exports (2011-September 2013)

2,500

50

USD bn
250

2,000

30

200

1,500

10

150

20

-10

100

-10

500

-30

50

-40

0

-50

0

-70

1,000

China‟s
entry into
the WTO

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Source: China Customs; China Monthly Economic Indicators; The Beijing Axis Analysis

%

%
80

Exports
Exports' Monthly Growth Rate (rhs)
Seasonal drop due to Chinese New
Year holiday

50

2011
2012
2013

Half of China‟s total exports are destined for the US, Hong Kong, Japan,
South Korea and Germany. Exports growth to the EU, US, and especially
Japan, has been sluggish amidst weak external demand
China’s Top Export Destinations (USD bn, 2012)
UK
2.3%
US
17.2%
Total Exports = USD 2,049 bn
US
Hong Kong
Japan
South Korea
Germany
Netherlands
India
UK
Russia
Singapore

352
324
152
88
69
59
48
46
44
41

Note: Hong Kong is admittedly used as a gateway to the rest of the world

8

1

Netherlands
2.9%

Russia
2.2%

6
5

9
4

Germany
3.4%
7

India
2.3%

2
10

Singapore
2.0%

South Korea
4.3%
3 Japan
7.4%

Hong Kong
15.8%

Top exported commodities
• Electrical machinery, equipment and parts
• Telecommunication, sound recording equipment
and reproducing apparatus
• Automatic data processing machines and parts

Machinery and equipment not only make up almost half of China‟s export
revenue, but also represent the fastest growing component of China‟s
export profile. This reflects China‟s continuing shift to value-added exports
Composition of China’s Exports (USD bn, 2001-2012)

2,400

2,000
1,600
1,200

CAGR
10%
14%
14%
22%
20%
18%
24%
20%

Others
Mineral Items
Foodstuffs
Chemicals and Related Products
Machinery and Equipment
Total

333
536

800

964

400
0
01

02

03

Note: Composition is according to the SITC Classification System

04

05

06

07

08

09

10

11

12

Imports reached an all-time high of USD 183 bn in March 2013. In general,
imports are expected to increase as domestic consumption becomes a
central part of the economy
China’s Annual Imports (2002-2012)
USD bn
2,000

Imports' Growth Rate (rhs)

China‟s entry
into the WTO

%
40

USD bn
200

20

Imports

1,500

1,000

China’s Monthly Imports (2011-September 2013)

150

30

0

100

10

Imports

Imports' Monthly Growth Rate (rhs)

%
50

500

-20

50

-10

0

-40

0

-30

02 03 04 05 06 07 08 09 10 11 12

Source: China Customs; China Monthly Economic Indicators; The Beijing Axis Analysis

2012
2013
2011

In 2012, Japan, South Korea, the US, Taiwan and Germany were China‟s
top import sources, accounting for about 40% of China‟s total imports
Top Countries of Origin for China’s Imports (USD bn, 2012)
Machinery, technology,
consumer goods

US
7.3%
Total Imports = USD 1,818 bn
Japan
South Korea
US
Taiwan
Germany
Australia
Malaysia
Saudi Arabia
Brazil
South Africa

Germany
5.1%

3

92
85
58
55
52
45


Vehicles,
Machinery

5

2

Petroleum

178
169
133
132

Japan
9.8%

Brazil
2.9%

Saudi Arabia
3.0%

9

Iron ore, soybean,
petroleum

South Africa
2.5%

8

4

10

South Korea
Taiwan 9.3%

Malaysia
3.2%

Petroleum, soft
commodities

Machinery,
electronics

7.3%

7

Minerals,
metals

Machinery, vehicles,
electronics

1

6

Australia
4.7%

Iron ore,
coal

Top imported commodities

• Electrical machinery, equipment and parts
• Mineral fuels, mineral oils and products of their distillation
• Metalliferrous ores and metal scrap

As a manufacturing powerhouse, China relies on a variety of imported products
namely machinery, chemicals and increasingly minerals for the purpose of
export and domestic consumption
Composition of China’s Imports (USD bn, 2001-2012)

1,800

CAGR

1,600

36%
20%
22%
12%
17%
27%
28%
18%
20%

1,400
1,200
1,000

800
600

2001-2012

86
35
137
146

Others
Foodstuffs
Chemicals and Related Products
Mineral Items
Crude Materials
Machinery and Equipment
Total

179
313
270

400

653

200
0

107
2001

2002

2003

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

2004

2005

2006

2007

2008

2009

2010

2011

2012

Over 40% of China‟s total trade is with the US, Hong Kong, Japan, South
Korea and Taiwan. The US, China‟s largest trading partner, accounted for
USD 485 bn in 2012
China’s Largest Trading Partners (USD bn, 2012)

9

US
12.5%
US
Hong Kong
Japan
South Korea
Taiwan
Germany
Australia
Malaysia
Russia
Brazil

Germany
4.2%

1


Malaysia
2.5%

10

Brazil
2.2%

Trade Surplus
Trade Deficit

South Korea
6.6%
3 Japan
5 Taiwan 8.5%
2
4.4%
Hong Kong
8.8%
4

6

485

341
329
256
169
161
122
95
88
86

Russia
2.3%

8

Australia
3.2%

7

China‟s total trade with the world = USD 3,867 bn
Total exports = USD 2,049 bn
Total imports = USD 1,818 bn

China has a large trade surplus with both Hong Kong and the US. Meanwhile,
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, 2012)

UK
US
China‟s world trade surplus = USD 231 bn
252
Hong Kong
202
US
50
Netherlands
29
UK
India
29
Angola
-29
Saudi Arabia
-36
Australia
-47
South Korea
-81
Taiwan
-95

Netherlands
Saudi Arabia
India

South Korea
Taiwan
Hong Kong

Angola
Australia


China‟s foreign trade is becoming more balanced. Import growth has consistently
outpaced export growth since H2 2009, narrowing China‟s surplus with the rest of
the world
China’s Monthly Trade Balance (2006-September 2013)
USD bn
40

Trade balance

Exports, % change y-o-y (rhs)

%
80

Imports, % change y-o-y (rhs)

30

60

20

40

10

20

0

0

10

-20

20

-40

30

-60
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
2006

2007

2008

Source: General Administration of Customs of PRC; The Beijing Axis Analysis

2009

2010

2011

2012

2013

Net exports‟ share of GDP is declining, with fixed asset investment and total
consumption now the primary drivers of GDP growth. This is in line with the
government‟s policy of boosting domestic consumption
Share of Net Exports in Annual GDP (%, 1998-2012)

Share of Net Exports in Quarterly GDP (%, 2008-Q2
2013)

10

10

8

8

6

6

4

4

2

2

0

0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Q1-08

Source: National Bureau of Statistics of China; General Administration of Customs of PRC; The Beijing Axis Analysis

Q1-09

Q1-10

Q1-11

Q1-12

Q1-13


80% of China‟s total international trade value is concentrated in just seven
provinces, largely as a result of their access to world class port facilities along
the coast
Trade by Province as A Percentage of China’s Total (2012)

Heilongjiang
Xinjiang
Gansu

Percentage of China‟s total trade value:
Top 60 %
Next 20 %
Next 20 %

Liaoning

Ningxia

Hainan


Jilin

Tianjin
Hebei
Shanxi
Shandong
6.3%
Jiangsu
Shaanxi
Henan
14.1%
Anhui
Sichuan
Shanghai
Hubei
Chongqing
11.3%
Zhejiang
Hunan
Jiangxi
8.1%
Guizhou
Yunnan
Fujian
Guangxi
4.0% Taiwan

Qinghai
Tibet

Inner
Mongolia

Beijing
10.5%

Guangdong
25.4%

Imports: USD 1,818 bn
Exports: USD 2,049 bn
Total Trade: USD 3,867 bn


Agenda

1.
2.
3.

4.
5.
6.

Foreword

-

Social Indicators



In 2012, China‟s total fixed asset investment stood at almost USD 6 tn¹.
Concern over the economic slowdown prompted the government to accelerate
new project approvals in the power, water and railway industries
Total Fixed Asset Investment in Urban and Rural Areas (1997-2012)
USD bn
6,000

Urban Areas

Rural Areas

Growth of Total FAI² (rhs)
156

%
40

4,800

32

3,600

24

2,400

5,791

16

1,200

8

0

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Note: (1) 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,
(2) FAI = Fixed Asset Investment
The Beijing Axis

85

Stressing quality and efficiency to keep local debt levels in check, the central
government is promoting reasonable investment growth in urban infrastructure
projects such as airports, railways and affordable housing
Monthly Urban Fixed Asset Investment* (USD bn, 2011-August 2013)
Urban Fixed Asset Investment

2 Month Moving Average

900
800

Investments gaining strength
from favourable policies

700
600
500
400
300
200

100
0
J-F M

A

M

J

J

A

2011

S

O

N

D J-F M

A

M

J

J

A

S

2012

O

N

D J-F M

A

M

J

J

A

2013

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)‟
The Beijing Axis

86

China‟s fixed asset investment (FAI) continues to be primarily focused in the
more developed coastal provinces. The top five provinces account for over
30% of total FAI
Fixed Asset Investment by Province (USD bn, 2012)
0

100

200

300

1
Shandong
2
Jiangsu
3
Liaoning
4
Henan
5
Hebei
6
Guangdong
7
Zhejiang
8
Sichuan
9
Hubei
10
Anhui
11
Hunan
12
Fujian
13
Shaanxi
14
Inner Mongolia
15
Jiangxi
16
Guangxi
17 Heilongjiang
18
Jilin
19
Shanxi
Chongqing
20
Tianjin
21
Yunnan
22
Xinjiang
23
Beijing
24
Guizhou
25
Gansu
26
Shanghai
27
Hainan
28
Ningxia
29
Qinghai
30
Tibet
31


400

500

Top 5 Provinces by Investment in Fixed Assets (2012)

600

Top five provinces
account for 34% of
total FAI

Hebei

3

Ningxia
Qinghai

1

30

Tibet

Liaoning

5

29
4

31

Henan

2

Shandong
Jiangsu
27

Shanghai

28

Top 5 Provinces by FAI
Bottom 5 Provinces by FAI

Hainan

China‟s manufacturing and real estate sectors attract the most fixed asset
investment due to the country‟s ongoing industrialisation and urbanisation
Fixed Asset Investment by Sector (USD bn, 2003-2012)
CAGR
6,000
5,000

4,000
3,000

24%
29%
21%
28%
23%
29%
31%
27%

Others
Mining
Utilities
Environmental Protection and Public Facilities
Real Estate
Manufacturing
Total

952
211
265
470
499
1,574

2,000

Real estate and
manufacturing account
for 60% of the total FAI 1,977

1,000
0
2003

2004


2005

2006

2007

2008

2009

2010

2011

2012


China's low cost production base has been a key driver of FDI flows in the
past. However, with rising domestic costs, the country's large market size and
liberalisation of various sectors will be a key driver of FDI going forward
FDI Inflow (USD bn, 1997-2012)
USD bn

FDI Inflow

160

%

FDI Growth (rhs)

25

140

20

120

15

100

10

80

5

60

0

40

-5

20

-10

0

-15

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: FDI = Foreign Direct Investment
Source: MOFCOM; The Beijing Axis Analysis


In 2012, 95% of China‟s FDI came from just five regions led by Hong Kong.
Hong Kong remains a crucial gateway for other countries‟ FDI into China as
well as FDI from Chinese firms headquartered in the SAR¹
China’s FDI Inflow by Source Region² (USD bn, 2012)

USD bn
Hong Kong
Japan
Singapore
Taiwan
US
South Korea
Germany
Netherlands
UK
Switzerland

5

US 2.8%

Germany 1.3%
9
UK 0.9% 8 7
Netherlands 1.0%
10
Switzerland 0.8%

71
7
7
6
3
3
1
1
1
1

2 Japan 6.6%
6

Hong Kong 63.7% 1

South Korea
2.7%
4
Taiwan 5.5%

Singapore 3
5.8%

China‟s total FDI inflow for 2012 amounted to USD 112 bn

Note: (1) SAR stands for Special Administrative Region
(2) 2012 data on China‟s FDI Inflow includes these countries‟ investing through Virgin Is., Cayman Is., Samoa, Mauritius and Barbados.


China‟s coastal regions still attract the majority of FDI inflows, but new FDI
guidelines utilise incentivisation schemes to encourage foreign companies
to invest in less-developed central and western regions
FDI Inflow by Province (USD bn, 2012)
0
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

10

20

Jiangsu
Liaoning
Guangdong
Tianjin
Shanghai
Zhejiang
Henan
Shandong
Chongqing
Anhui
Beijing
Jiangxi
Sichuan
Hunan
Fujian
Hebei
Neimenggu
Hubei
Heilongjiang
Shaanxi
Shanxi
Yunnan
Jilin
Hainan
Guangxi
Xinjiang
Guizhou
Ningxia
Qinghai
Tibet
Gansu

Source: China Statistical Yearbook; ACMR ,The Beijing Axis Analysis

30

Top 5 Provinces by FDI Inflow (2012)
40

50

Top 5 provinces
account for 47% of
total FDI inflows

Gansu
31

Qinghai
29

Tibet

2

Ningxia

4

28

30

Liaoning
Tianjin
Jiangsu

1
5

Guizhou

Shanghai

27
3

Guangdong
Top 5 Provinces by FDI Inflow
Bottom 5 Provinces by FDI Inflow

China‟s manufacturing sector receives the bulk of China‟s FDI inflow. New
FDI guidelines provide incentives for foreign companies to invest in China‟s
high-end manufacturing, high-tech and service sectors
China’s FDI Inflow by Sector (USD bn, 2003-2012)
CAGR
120
100
80

12%
17%
27%
11%
19%
3%
8%

2003-2012
Others
Leasing and Business Services
Real Estate
Manufacturing
Total

18
3
10
8
24

60
40

49

20
0
2003

2004


2005

2006

2007

2008

2009

2010

2011

2012

China‟s OFDI flow is expected to grow steadily, largely driven by Chinese
companies‟ increasing need to access new markets, technology and resources.
In 2012, China‟s OFDI reached USD 88 bn
China’s OFDI Flow (2003-2012)
USD bn

OFDI Flow

100

%

OFDI Growth Rate (rhs)

150

In 2005, SAFE* eased restrictions
on overseas investments made by
Chinese companies

75

100
50
50
25

Chinese companies increased
acquisition of overseas
depressed assets

0
03

04

Note*: SAFE - State Administration of Foreign Exchange

05

06

07

08

0
09

10

11

12

While China‟s OFDI extends to all continents, international financial centres
and tax havens such as Hong Kong and BVI receive the bulk of OFDI stock
China’s OFDI Flow by Destination (2012)

UK 3.2%
USD bn
Hong Kong
US
Kazakhstan
UK
Virgin Islands
Australia
Venezuela
Singapore
Indonesia
Luxemburg

US 4.6%


4

10

Luxemburg 1.3%

2

51.2
4.0
3.0
2.8
2.2
2.2
1.5
1.5
1.4
1.1

Kazakhstan 3.4%

5
7

British Virgin Islands
2.5.%
Venezuela 1.8%

3

1
8 9

Hong Kong 58.2%
Indonesia 1.5%

Singapore 1.7%
6

Australia 2.5%
China‟s total cumulative OFDI flow for 2012 amounted to USD 88 bn

In 2012, over half of China‟s non-financial OFDI came from just six provinces,
all located along the east coast. Guangdong province, one of the forerunners
of China‟s „going out‟ policy, registered the highest OFDI
China’s OFDI by Province (USD mn, 2012)
0

China’s OFDI by Province (2012)

1,000 2,000 3,000 4,000 5,000 6,000

Guangdong
1
Shandong
2
Shanghai
3
Jiangsu
4
Liaoning
5
Zhejiang
6
Beijing
7
Gansu
8
Yunnan
9
Hunan
10
Fujian
11
12 Heilongjiang
Anhui
13
Tianjin
14
Shaanxi
15
Sichuan
16
Hebei
17
Chongqing
18
19 Inner Mongolia
Hubei
20
Xinjiang
21
Jiangxi
22
Henan
23
Hainan
24
Shanxi
25
Jilin
26
Guangxi
27
Ningxia
28
Guizhou
29
Qinghai
30
Tibet
31

Top 6 provinces‟
OFDI accounts for
59% of the total

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

Qinghai
30

Tibet

5

Ningxia

Liaoning

28

2

31

Guizhou

Shandong
4 Jiangsu
3
Shanghai

29

Guangxi

27

1

Guangdong
Top 5 Provinces by OFDI
Bottom 5 Provinces by OFDI

China‟s outward investments in finance, wholesale and retail trade grew
substantially in 2012
China’s OFDI Flow by Sector (USD bn, 2004-2012)
CAGR

90

47%
35%
18%
29%
42%
19%
58%
41%

80
70
60
50
40

Others
Manufacturing
Mining
Finance
Leasing and Business Services
Total

13
9
3
14
13
10

30
20

27

10
0
2004

2005

2006

2007

2008

2009

2010

2011

2012

Note*: Business services includes investment in holding companies, regional headquarters and SPVs often established in offshore financial centers from where investments are made in other countries
and sectors; Finance includes investments in the banking industry such bank branch offices, bank affiliated institutions, bank rep. offices and insurance institutions; Wholesale and retailing as well as
transportation, warehousing and postal services are closely linked with China‟s export and import activities
The Beijing Axis

96

Agenda

1.
2.
3.

4.
5.
6.

Foreword

-

Social Indicators



The PBOC* has set an M2 growth target of 13% for 2013, with policymakers
aiming to achieve steady credit growth
Money Supply (USD tn, 2011- Sep 2013)
M2

M1

M0

20
18
16

14
12
10
8

6
4
2
0
J

F M A M J J A S O N D J
2011

Note*: PBOC - The People‟s Bank of China
Source: The People‟s Bank of China; The Beijing Axis Analysis

F M A M J J A S O N D J
2012

F M A M J
2013

J A S

In Q2 of 2012, the PBOC* cut rates to spur economic growth, however, the
rates have since been left constant with no indication of further cuts
Benchmark Lending Rates (%, 1997-2013)
6 months to 1 year (including 1 year)
12.00

1 year to 3 years (including 3 years)

3 years to 5 years (including 5 years)

Longer than 5 years

10.00

First loan interest rate
decrease in six years

First loan interest rate
decrease since the
global financial crisis

8.00
6.00

Oct-97
Mar-98
Aug-98
Jan-99
Jun-99
Nov-99
Apr-00
Sep-00
Feb-01
Jul-01
Dec-01
May-02
Oct-02
Mar-03
Aug-03
Jan-04
Jun-04
Nov-04
Apr-05
Sep-05
Feb-06
Jul-06
Dec-06
May-07
Oct-07
Mar-08
Aug-08
Dec-08
May-09
Oct-09
Mar-10
Aug-10
Jan-11
Jun-11
Nov-11
Apr-12
Sep-12
Feb-13
Jul-13

4.00

Note*: PBOC - The People‟s Bank of China
Source: Hexun; The Beijing Axis Analysis


After initial concerns about a slowing economy that twice led to reductions in
the bank reserve requirement ratio in 2013, the ratio has remained constant
throughout 2013 as the economy has picked up
Bank Deposit-Reserve Ratio (%, March 1998-October 20132)
25
20

Bank Deposit-Reserve Ratio1 (Medium & Small Financial Institutes)
Bank Deposit-Reserve Ratio1 (Large Financial Institutes)
Economic
overheating

Economic
slowdown

Inflationary
pressures

First cut in
two years

20%
16.5%

15
10

Implement
different RRR

5

21-Mar-98
21-Nov-99
21-Sep-03
25-Apr-04
05-Jul-06
15-Aug-06
15-Nov-06
15-Jan-07
25-Feb-07
16-Apr-07
15-May-07
05-Jun-07
15-Aug-07
25-Sep-07
25-Oct-07
26-Nov-07
25-Dec-07
25-Jan-08
25-Mar-08
25-Apr-08
20-May-08
25-Jun-08
15-Sep-08
15-Oct-08
05-Dec-08
25-Dec-08
18-Jan-10
25-Feb-10
10-May-10
16-Nov-10
29-Nov-10
20-Dec-10
20-Jan-11
24-Feb-11
25-Mar-11
21-Apr-11
18-May-11
20-Jun-11
05-Dec-11
24-Feb-12
18-May-12
18-Oct-13

0

Note: (1) The Bank Deposit-Reserve Ratio is a standard determined by a central bank. It governs the relationship between the amount of money that banks must keep on hand and the amount that they
can lend. By raising and lowering the ratio, the central bank can decrease or increase money supply
(2) The date is effective date
The Beijing Axis

100

The PBOC has warned of credit expansion pressure and vowed to maintain a
prudent monetary policy
Deposit Interest Rates (% p.a., March 1998-November 2013)

5 years

8

1 year

6 months

3 months

First cut since
global financial
crisis

6

4

2


29-Nov-13

5-Jul-12

7-Jun-12

7-Jul-11

6-Apr-11

9-Feb-11

26-Dec-10

20-Oct-10

23-Dec-08

30-Oct-08

9-Oct-08

21-Dec-07

15-Sep-07

22-Aug-07

21-Jul-07

19-May-07

18-Mar-07

19-Aug-06

19-Aug-06

29-Oct-04

21-Feb-02

10-Jun-99

7-Dec-98

1-Jul-98

25-Mar-98

0

27-Nov-08

Recent adjustments in 2012 to widen the range at
which banks can set deposit rates mark an
important step towards interest rate liberalisation


Chinese banks have funded themselves mainly from deposits at a loan-todeposit (LTD) ratio of about 70%. Total deposits reached USD 15 tn by the
end of 2012, while loans amounted to USD 10.7 tn
Total Loans and Deposits¹ (USD bn, 1997-2012)
Loans to Deposit
91
Ratio (%)

Loans
90

86

80

78

77

76

Deposits
74

68

67

67

65

70

69

70

71

16,000
In 2007, the CBRC²
implemented a 75% LTD ratio
limit for all banks in China

12,000

8,000

4,000

0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note (1): Total Loans and Deposits in RMB and Foreign Currency
Note (2): CBRC – China Banking Regulatory Commission


China‟s high savings rate remains a main source of funds for Chinese banks. In
2012, household banking deposits accounted for 44% of total deposits, while
company deposits accounted for 51%
Sources of Deposits* (USD bn, 2003-2012)
Other Deposits
Trust Deposits
Agricultural Deposits
Fiscal Deposits
Deposits of Gov. Dept. & Org.
Company Deposits
Household Savings Deposits

15,000

Sources of Deposits (USD bn, 2012)
Other Deposits
Designated Deposits
Temporary Deposits
Fiscal Deposits
Corporate Deposits
Personal Deposits

16,000
14,564

7,283

12,000
50%

7,283

10,000

8,000

5,000

6,524

45%

4,000
6,524

388

26

4

340

0

0
03

04

05

06

07

08

09

10

11

12

Total
Corporate
Deposits Deposits

Personal
Deposits

Fiscal Temporary Designated Other
Deposits Deposits Deposits Deposits

Note*: Since 2011, classification in Sources & Uses of Credit Funds of Financial institutions has been adjusted. Some data are not comparable with that before 2010. In 2011, Deposits by Enterprises
changed to Corporate Deposits; Savings Deposits changed to Personal Deposits
The Beijing Axis

103

After bottoming out in December 2012, lending rates in China have steadily
increased. In 2013, the government enacted a policy to liberalise interest
rates to boost competitiveness in the economy
Monthly Bank Loans (USD bn, 2010-September 2013)

Monthly Loan Size

USD bn
250

Y-o-Y Growth Rate (rhs)

%
100

Fall in lending as
demand for credit
eased in a slowing
economy

200

80
60
40

150

20
0

100

-20
-40

50

-60
0

-80
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
2010

Source: The People Banks of China; The Beijing Axis Analysis

2011

2012

2013

In 2012, medium and long term loans, a key measure of appetite for investment,
made up 56% of total loans. However, recent banks‟ reticence to lend may result
in a slower pick up in domestic investment
Composition of New Loans* (USD bn, 2003-2012)

Overseas Loans
12,000
Advances
Bill Financing
Financial Lease
Short-term Loans
Medium & Long-term Loans

Other Loans

Trust Loans
Short-term Loans
Medium & Long-term Loans

12,000

Composition of New Loans (USD bn, 2012)

9,999

5,602

8,000
56%
8,000

3,941
3,941
4,000

4,000
39%

5,602

94

324

0

0
03

04

05

06

07

08

09

10

11

12

Total
Deposits

Medium & Short-term
Long-term
Loans
Loans

Financial
Lease

Note*: Since 2011, classification in Sources & Uses of Credit Funds of Financial Institutions has been adjusted. Some data are not comparable with that before 2010.

Bill
Financing

9

29

Advances

Overseas
Loans


By the end of 2012, the Shanghai and Shenzhen Stock Exchanges were the
world‟s seventh- and sixteenth-largest stock markets respectively, by market
capitalisation
Number of Listed Companies and Total Market Value of China’s Stock Exchanges (2002-2012)
Total Market Value
(USD bn)

2,500

463

513

448

396

1,122

4,302

Number of companies listed on the Shenzhen Stock
Exchange
Number of companies listed on the Shanghai Stock
Exchange

1,747

3,655

3,926

3,330

3,655

2007 global financial
crisis created stock
market bubble

2,000
1,500

1,169
547

592

690

740

1,411

1,540

830

500

509

507

715

780

837

834

842

860

864

864

894

931

954

2002

1,000

540

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0


The China Compass - Figures, Forecast and Analysis - January 2014

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