This document summarizes a presentation on Chinese outbound investment given to the UConn China Study Group. It provides historical context on China's "Go Out" policy beginning in 2002 to create national champions through outbound investment. Key points covered include the role of the Chinese government in regulating and facilitating outbound investment through entities like CIC and constraints faced in countries like the US, Australia, and Canada due to national security and economic concerns. Recent outbound investment trends in 2010 that saw a rise in deal activity focused on resources and other industries are also highlighted.

1. August 27, 2010 Presentation to UConn China Study Group on Chinese Outbound Investment Kevin D. Cramer

2. AGENDA 2 Historical Overview of Chinese Outbound Investment Role of Chinese Government Key Drivers of Outbound Investment Constraints on Chinese Outbound Investments Outbound Activities in 2010

4. Goal: Create 30-50 “National Champions” from most promising or strategic State-Owned Enterprises by 2010

5. Companies benefitted from Information Sharing Networks; Domestic Tax Breaks; Inexpensive Land; and Low-Interest Funding From State-Owned Banks

6. Between 2004 and 2009, 81% of Chinese outbound M&A transactions worth more than $50 million were done by SOEs.3

8. FDI outflows totalled US$5.5 Billion in 2004; by 2008 FDI soared to $52 Billion annually.4

9. 5 HISTORICAL OVERVIEW OF CHINESE OUTBOUND INVESTMENT (cont’d) Figures are in billions of dollars;

11. Finance and Real Estate: $33.4 Billion

12. Metals: $62.5 Billion

13. Transport: $3.2 Billion

14. Other: $2.9 Billion6

16. Investments where applicant establishes a Special Purpose Vehicle outside of China7

17. Role of Chinese Government (cont’d) China Investment Corporation – a wholly state-owned company created in 2007 Created to diversify China’s foreign exchange holdings and improve risk-adjusted returns Initially capitalized with $200 Billion in reserves purchased from People’s Bank of China in exchange for RMB 1,550 Billion bonds issued by PRC’s Ministry of Finance; slightly over 50% of capital allocated to global investment As of December 31, 2009 CIC had an invested global portfolio of approximately $81.1 Billion 8

18. Role of Chinese Government (cont’d) CIC’s Four Basic Investment Principles Invest on a commerical basis to obtain long-term, sustainable and risk-adjusted returns Be a financial investor; Do not seek control Be a responsible investor; abide by local laws and regulations; Exercise its corporate social responsibility consciously Investments are research-driven to provide sound, prudent investment decisions and allocation-driven to assure disciplined approach to Investing. 9

21. As of December 31, 2009, total assets were RMB 776.5 Billion ($113.7 Billion), with Global Stocks representing 6.54% of its assets

22. Fund’s Chairman Dai Xianglong recently publicly stated that the Fund will be investing more in U.S. and European markets as part of a plan to triple funds devoted to International Investments11

25. Economist Intelligence Unit 2010 report states that in survey of 110 Chinese executives, 82% identified lack of management expertise in handling outbound investment as biggest challenge

26. Corporate Governance Framework Underdeveloped

27. State Influence May Result in Pursuit of Goals Other Than Profit Maximization

28. Adverse Publicity Arising From Willingness to Invest in Politically Sensitive Countries

29. Democratic Republic of Congo

30. Sudan13

32. National Security

33. Political Environment14

35. U.S. law permits President of United States to suspend or prohibit certain transactions based on credible evidence that a foreign person exercising control over a U.S. business might take actions to impair U.S. national security

36. No authoritative list of sectors that would trigger CFIUS review15

38. Encryption;

39. Telecommunications; and

40. Critical Infrastructure (e.g., Ports).16

42. Use of preferential loans from state-owned banks and CNOOC’s state- owned parent put U.S. bidders at competitive disadvantage

43. Transfer of sensitive technologies17

45. Various action by U.S. Congress, including passage of legislation prohibiting CFIUS from completing review of transaction for 141 days -- 51 days longer than maximum of 90 days established by Exon-Florio Amendment18

48. Foreign Investment Review Board (“FIRB”)

49. Any foreign investor acquiring more than 14.9% of an Australian company must obtain clearance from FIRB

50. Initial 30-Day Review Period; can be extended for 90 days

52. $12.3 billion for stakes in Rio Tinto’s iron ore, copper and aluminum assets; $7.2 Billion for Convertible Notes that could have resulted in Chinalco owning 18% of Rio Tinto (Chinalco already owned 12% of Rio Tinto at time of bid)

53. Chinalco sought 2 of 17 Board Seats

54. Concern that Chinalco would have far too much control over future production of iron ore and other Australian commodities 20

57. Investment Canada Act

58. Acquisition generally of one-third or more of voting shares of Canadian Business by Non-Canadian triggers review; Direct investment reviewable if book value of assets of Canadian business exceeds $299 million as of end of most recent fiscal year

59. Parties cannot close transaction until approval granted by Minister of Industry (or Minister of Canadian Heritage where business is engaged in a cultural business)

60. Review period: Up to 45 days; additional 30 days possible or longer22

63. China as Colonizer and Canada as Colony argument by Canadian Auto Workers24

65. PriceWaterhouseCoopers issued report that outbound M&A activity rose 50% in first six months of 2010 compared to first six months of 2009, with 99 deals announced

66. Overall value of M&A deals was $23.1 billion, with 7 deals each exceeding $1 BillionSinopec’s $4.6 Billion acquisition of 9.03% interest in Syncrude, Canada’s largest oil sands project, from ConocoPhillips China Investment Corporation’s $1.2 Billion investment in PennWest Energy Trust (oil & gas; oil sands project) 25

67. OUTBOUND ACTIVITIES IN 2010 (cont’d) Resources sector continues to attract majority of transactions (14 deals), but increasing number of deals in High Tech; Manufacturing; and Service Industries Key Markets include: Australia United States Canada Africa 26

68. OUTBOUND ACTIVITIES IN 2010 (cont’d) “The appetite for Chinese enterprises to invest overseas is showing no signs of slowing, and with Chinese enterprises’ increasing interest in global markets, technical capability, production and service expertise, as well as stable financial returns in mature asset markets, we can look forward to the announcement of many more outbound transactions”. 27 PricewaterhouseCoopers August 16, 2010 News Release “China Outbound M&A deal activity up by more than 50%”

69. Thank You 28