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2009 China Business Outlook January 29, 2009 by Andrew M. Pan

2009 China Business Outlook January 29, 2009 by Andrew M. Pan. China’s Market Under Global Economic Slowdown - Opportunities and Challenges. Outline. China Under Global Economic Slowdown Opportunities - Central Government Stimulus Package - Opportunities by Industry Sectors

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2009 China Business Outlook January 29, 2009 by Andrew M. Pan

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  1. 2009 China Business OutlookJanuary 29, 2009by Andrew M. Pan China’s Market Under Global Economic Slowdown-Opportunities and Challenges

  2. Outline • China Under Global Economic Slowdown • Opportunities - Central Government Stimulus Package - Opportunities by Industry Sectors • Challenges • Prediction

  3. China Under Global Economic Slowdown • GDP growth statistics • 9% in 2008 • 2008 Quarters • 10.6% (Q1) • 10.1% (Q2) • 9.0% (Q3) • 6.8% (Q4) • 2009 target: 8% Source: National Bureau of Statistics of China

  4. China Under Global Economic Slowdown • Export/import decline • Factories close • Unemployment increase • Registered unemployed labor in cities • Raised 2009 target to 4.6%, the highest since 1980 • Foreign direct investment decline • FDI flows weakened, with a 5.7% decline in Dec. 2008

  5. China Under Global Economic Slowdown • Foreign exchange reserves fluctuation, capital outflow? • Oct. 2008, foreign exchange reserves fell below US $1,890 billion • 1st month by month decline since 2003

  6. China Under Global Economic Slowdown • Stock market • Housing market • Auto market

  7. Opportunities:China’s Stimulus Package • 4 trillion RMB ($586 billion USD) stimulus package for government investment in infrastructure, tax deductions and subsidies, to stimulate domestic spending • Announced Nov. 9, 2008, projects and spending already started in 2008 • 2 years, 10 major areas: • Finance, housing, rural infrastructure, transportation, industry, health and education, disaster rebuilding, environmental protection, technological innovation, and tax reform

  8. Opportunities:China’s Stimulus Package • Value Added Tax (VAT) reform • RMB 120 billion tax reduction from January 1st, 2009 • Export VAT refund rate increase to help exporters • Applicable to 3,770 goods • Spending already began in the last quarter of 2008, government aims to create jobs now

  9. Opportunities: Industry Sectors • Finance • Removing lending quota on commercial banks • Increasing the lending scale • Credit support to M&A • Credit support to rural areas • Credit support to small and medium enterprises

  10. Opportunities: Industry Sectors • Housing • Tax reduction to boost real estate market • Affordable and low-rent housing • Expanding the pilot program to rebuild rural housing • Increasing senior housing

  11. Opportunities: Industry Sectors • Rural infrastructure/modernization • Improving countryside roads and power grids • Methane to replace coal and wood • Ensuring drinking water safety • Expediting the North-South water diversion project and country-wide reservoirs • Rural Home Appliance Subsidies Program

  12. Opportunities: Industry Sectors • Transportation • Building more airports in the western areas • Expanding highway system • Building more dedicated passenger rail links and coal routes

  13. Opportunities: Industry Sectors Automobile Tax reduction for purchasing economic cars less than 1.6L Subsidies to farmers for purchasing light trucks and minivans RMB 10 billion fund to subsidize auto industry technological innovation and new energy vehicles Encouraging M&A and brand name development to tap overseas market Expanding auto financing

  14. Opportunities: Industry Sectors Telecom Long awaited 3G licenses issued to China Mobile (TD-SCDMA), China Telecom (CDMA2000) and China Unicom (WCDMA) Will spend RMB 170 billion in 2009, and 400 billion by 2011 on 3G network Could lead to US $290 billion in private-sector investment by 2011 Target: 50 million subscribers by 2011, covering all cities and bigger townships

  15. Opportunities: Industry Sectors • Health and Education • Improving health and medical systems in rural areas • Restructuring the healthcare system • Building more joint-venture hospitals • Expanding health insurance, especially to rural areas • Developing cultural and educational sectors in rural areas • Building more schools in rural western and central areas

  16. Opportunities: Industry Sectors • Energy and environment • Technology upgrade of coal-burning power plants to reduce pollution • Encouraging investment in renewable energy such as nuclear, wind, solar, and biomass • Encouraging energy conservation, and improving energy efficiency • Clean Development Mechanism (CDM) projects – greenhouse gases reduction projects • Waste management • Eco-city plan

  17. Opportunities: Industry Sectors • Other opportunities • Luxury goods and brands • Fashion • Hotels and hospitality • E-commerce • Media and advertising • Professional services

  18. Challenges • Consumer Skepticism • 60% of middle class consumers in key Chinese cities have cut their spending, or plan to this year • Their major concern is unemployment Source: DDMA China Household Grocery Spending - 2009

  19. Challenges • Global economic slowdown lasting can cause China’s economic growth sluggish and market (most sectors) downsize dramatically • GDP growth rate lowering than 8% may cause high unemployment, and further cause social instability • Boosting domestic consumption may cause imports down • Trade protectionism by the new administration? • Trade and other disputes between U.S. and China • Banking trouble again: Non-performing loans rising?

  20. Prediction • China – First to Recover? • Premier Wen Jiabao said yesterday he saw some signs of recovery in Dec. 2008 • China aims to be the first to recover • Start to recover in the 2nd half of 2009, and gain full steam in 2011 • Sectors to Recover First • Real estate, infrastructure, steel and other construction materials, telecom, home appliance, retail, and energy • Transformation of Growth Pattern • Now: excess consumption of natural resources; environmental pollution; too much investment; insufficient domestic consumption • Aim: more sustainable and steady growth with a better skilled work force and technological innovation; boost domestic consumption

  21. Contact North American Representative Office of Shenzhen, P.R. China (NAROS) Andrew Pan Chief Representative & Managing Director 350 S. Figueroa Street, Suite 288 Los Angeles, CA 90071 Tel: (213) 628-9888 Fax: (213) 628-8383 andrewpan@shenzhenoffice.org www.shenzhenoffice.org

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