This report explores different indicators that can be used to gauge China's future demand for raw materials, including China's past, present, and projected GDP, Five-Year Plans for growth, and a comparison of GDP and commodity consumption with the U.S. (Presented on August 8, 2011 at Fuh Hwa Securities Investment Trust, Taipei, Taiwan)

1. Emma 8/8/11 When will China’s hunger for raw materials start to dissipate? 中國對原物料得需求何時開始下降？

3. Addressing this question requires a look at China’s current economic state and a comparison with other developed countries’ development patterns Breakdown Or, in simpler terms…

5. China’s GDP breakdown indicates that tertiary growth is already at near-equal levels to secondary growth; we can thus assume that as China transitions to a mainly service-oriented economy, its demand for raw materials for infrastructure and city developments will continue to remain at high levels but start gradually decreasing with time Sector breakdown Primary sector Secondary sector Tertiary sector agriculture service manufacturing Tertiary growth is catching up to secondary growth As China’s service industry grows, we can expect its manufacturing industry to remain strong for some time to come as factories and low-skilled workers migrate to less-developed inland cities, prompting a demand for raw materials such as iron ore and copper, which are needed to aid infrastructure growth

6. U.S. historical figures indicate a strong correlation between real GDP yoy and domestic consumption growth of iron ore; we can use this data as a benchmark to predict China’s future consumption of these raw materials Great Depression & WWII China is here U.S. comparison 1905-1928: GDP ~4% Consumption ~17% 1985-2008: GDP ~2-3% Consumption ~1% 1947-1985: GDP ~3-4% Consumption ~8%

7. A look at historical figures for raw materials demand and GDP growth reveals volatile, fast growth in the past up until 2007 followed by slow decline in the past couple years; we can expect this downward trend to continue

8. The U.S.’s ratio of iron ore consumption growth over GDP peaked at around 2.3% in 1960 and began declining; China could currently very well be experiencing the same downtrend Extremely volatile, ratio ~4x Ratio ~1.5x Ratio ~0.5x Great Depression & WWII China is here

9. China’s ratio of iron ore demand growth over GDP reveals correlations between the two figures that we can use to compare against the U.S. Currently, the ratio of imports and production growth over GDP averages 2.5x ~2.5 Moving average

10. Comparing the U.S.’s historical GDP per capita with its consumption of iron ore reveals a strong demand for raw materials during early growth stages (when GDP per capita remains low) and declining consumption rates when GDP per capita begins to climb Consumption at very low levels Consumption very volatile Consumption still rather volatile in early phase, then starts to decline slightly China is here GDP per capita at fairly low levels with slow growth GDP per capita soars GDP per capita begins its climb

11. Comparing China’s GDP per capita to a developed nation such as the U.S., we note that China still has much potential for growth and currently its PPP currently appears to be on a fast upward trend; if we compare China’s history with that of the U.S., we can assume that China’s demand for commodities should be on a downward trend Consumption growth very volatile w/ signs of slight decline GDP per capita at low levels with little growth GDP per capita starts to climb gradually, picking up speed GDP per capita soars

12. In addition to GDP growth and GDP per capita levels, we can also look at past and present China’s Five-Year Plans to gauge overall development progress Five-Year Plan

13. Appendix

14. Exports to decrease as domestic consumption increases (2006-2015) Appendix 1