Enhance Sino-India Cooperation on Infrastructure

1. Enhance Sino-India Cooperation on Infrastructure Nov. 2009

2. China and India Have Developed as Two Important Engines in Global Economic Landscapes 但是近30年来，中印再度迅速成长，成为世界经济亮点 Fastest growing economies in last decade Quick recovery after this financial crisis 1998-2008 GDP CAGR of Top 10 Countries in the Share in the World Economy GDP YoY Growth % Source: IMF, CICC Research Note: the ranking of the share in the world economy is according to the PPP measures by the IMF Source: Bloomberg

3. China and India Have Different Industrial Structures Relatively improved manufacturing industries with higher contribution from secondary industry Relatively better service industry in India with higher contribution from tertiary industry Primary Industry 11.1% Primary Industry 18.1% Personal Service Tertiary Industry 40.4% Agriculture/forestry/fishing Personal Service Agriculture/forestry/fishing Tertiary Industry 52.4% Real Estate & Business Service Mining Real Estate & Business Service Mining Banking & Insurance China GDPUSD 4,327 BN India GDPUSD 1,207BN Industrial Structure Banking & Insurance Transportation & Warehousing Manufacturing Transportation & Warehousing Manufacturing Retail, Dining & Hotels Utility Construction Construction Secondary Industry 48.5% Retail, Dining & Hotels Utility Secondary Industry 29.5% Source: CEIC Source: CEIC

4. Both Face the Pressures for Growth Model Transformation in the Future China: driven mainly by investment and exports, more contribution from consumption is expected India: driven mainly by consumption, more contribution from exports is expected Breakdown for China’s Economic Growth Breakdown for India’s Economic Growth % % 2006-2008 CAGR Net Export Driven Net Export Dragged Investment Driven Net export is the key powerhouse for China’s economic growth, while India records a negative net export - Investment Driven 2006-2008 CAGR + + Consumption Driven Consumption Driven + + Higher Consumption Contribution than China Source: CEIC, CICC Strategic Research Source: CEIC, CICC Strategic Research

5. India’s Focus on Higher Education and Its Expertise on High-end Service Merits China’s Reference India: international competitiveness in high-end service industry, such as, software and medical industry, with support from higher education Focus on Higher Education Development Since the 1950s, India has invested heavily in higher education development, as it established 6 “Indian Institutes of Technology” in India following the MIT pattern, and developed medical colleges with advanced teaching materials and teaching system from the US and Europe Software Industry High-end Medical Industry In 2008, India’s software industry had an output value of USD71 billion, with 2/3 from exports; its software exports accounted for 46% in service exports, 20% in global exports, second only to the US India’s private hospitals have state-of-the-art equipments and quality doctors with world-class generic drug industry Source: CICC Strategic Research

6. China’s Infrastructure-Driven Industrialization and Its Expertise on Exports Merits India’s Reference China: international competitiveness in export-oriented manufacturing based on a developed infrastructure Focus on Infrastructure Development China has improved a series of infrastructure facilities over time, such as, power, transportation, telecommunication, municipal development, etc., and its installed power generating capacity has grown to No. 2 globally Rapid Industrialization Increasing Export Share The share of China’s industrial output in the gross output has grown from less than 20% in the 1950s to 43% in 2008 The share of China’s exports in the world has grown from 2% in 1995 to circa 9% in 2008 Source: CICC Strategic Research

7. Excellent Achievements in China’s Infrastructure Development for the Past 30 Years Large-scale Infrastructure System Takes Shape in China (Taking the traffic facilities as examples) 100 MM Passengers/ annum Airport Throughout Airport Railway Railway Mileage No. 3 globally 10,000 Km No. 2 globally CAGR=2% CAGR=7% 100 MM tons / annum Expressway Expressway Mileage Port Costal Port Throughout 10,000 Km No. 2 globally No. 1 globally CAGR=11% CAGR=25% Source: Asian Development Bank, Ministry of Communications of the PRC

8. 3-Phase Development of China’s Infrastructure China’s infrastructure /GDP increased to nearly 10% Driven by capital market and government funding capability USD BN Infrastructure Investment Driven by foreign and private investment 8.1% in GDP8.1% with a CAGR of 27% Leverage capital market: IPO proceeds for infrastructure companies since 2002 is over RMB200 billion; Gov’t funding: over 20% growth in fiscal revenue and land grant fee In GDP % (RHS) 5.3% in GDP with a CAGR of 18% Some sectors were opened up to foreign investors, such as, port, energy, transportation, etc. and foreign investors enjoyed favorable policy Driven by gov’t investment 3.2% in GDP without significant investment growth Mainly dependent on government funding with over 50% from this source and there is few financing channels Source: Asian Development Bank, World Bank

9. In the 2nd Phase, Introduction of Foreign Investment Played a Key Role Significant increase in foreign investment in China’s infrastructure Installed capacity jumped driven by foreign investment Newly-added Power Generating Installed Capacity in Each Year Growth USD 100 MM 150% Foreign Investment Volume in China’s Infrastructure Average addition of 18.64 million kilowatt annually in 1992-2002 Growth (RHS) 152% 150% CAGR=19% Policy •  In 1986, the State Council approved the Provisional Regulations on Encouraging Development of Power Generation by Funding and Implementing Multiple Tariffs Systems • In order to attract various foreign investors, the government provided a fixed annual return of 15-20% • The tariff is dependent on the return rate • In 1997, foreign investment accounted for 17%, a peak proportion in the power investment • In 1990s, the average annual addition of installed capacity is 3-4 times of that in 1980s Effect Source: ACMR, CICC Strategic Research Estimates Source: ACMR, CICC Strategic Research Estimates

10. Theme of Policy: Return Guarantee and Policy Support China has delivered a reasonable investment return to attract foreign investors China has provided an enabling policy environment for foreign investors 2002-2007 ROE • Reform and open-up: lay down the policy framework for foreign investment into the infrastructure sector • China started to introduce foreign investments into the infrastructure sector in the 1980s, starting from ports • After then, energy, transportation, and city infrastructure sectors were opened up gradually to foreign investors • Reasonable return: develop favorable policies to enable foreign investors to achieve a reasonable return • Volume: secure the procurement volume of goods/services for foreign investors for quite a long time • Price: provide certain pricing flexibility to foreign investors based on applicable regulatory requirements • Subsidy/tax benefit: provide certain discount in terms of land premium/tax rate, and even operating subsidies to foreign investors Return on foreign investments vs, domestic average +9.3pps +4.1pps +3.4pps +4.3pps Higher capital ratio vs. domestic manufacturers and international opportunists Return on foreign investment in infrastructure vs. domestic average -5.2pps +1.2pps +3.4pps Source: ACMR, China City Statistical Yearbook

11. 3rd Stage, Infrastructure Sector Leverages the Capital Market to Realize Higher Growth China capital market has been a major financing platform for infrastructure companies CICC has led a number of infrastructure IPOs RMB100 mn CICC has been engaged as Lead Underwriter for Huadian Power, Baiyun Airport, Daqin Railway and China State Construction Engineering IPOs Infrastructure-related IPO Volume Infrastructure related IPOs since 1992 posted a combined size of RMB222.4 billion, of which deals after 03 accounted for 78.5% RMB222.4 BN raised from infrastructure- related IPOs Source: Wind, 2009 data as of end of October Source: Wind

12. CICC is Willing to Promote Sino-India Cooperation in Infrastructure Construction, to Achieve Win-Win • India has over USD 50 billion demand for infrastructure investment during the “Eleventh Five Year Plan” period • In recent years, China has witnessed surging foreign engineering contract value and emergence of a number of world leading construction companies. And China has built up very strong funding and construction capability after years’ investments in the infrastructure sector. • CICC is willing to leverage our extensive premier customer base in China and solid infrastructure financing experience to promote Sino-India cooperation in the infrastructure sector, to create a “win-win” situation for all parties