The Future of China

1. LOGISTICS TRENDS SERIES The Future of China Global Business Strategy June 29, 2012

2. CHINA’S TRANSFORMATION OVER LAST DECADES China has undergone a major transformation in the past decades, emerging as a major powerhouse of the world economy Economic Facts Logistics Facts China has progressed from being a closed economy to a market oriented one that plays a major global role. In 2010, China became the worlds largest exporter in addition to the stellar growth along all major economic indicators Over the past decade, China has invested heavily in developing infrastructure and this has supported the growth of the economy to a large extend 1995 2010 CAGR 1980 2010 CAGR Key Indicators Key Indicators Rail Network (1000 km) GDP ($ billion) 62.4 91.2 2.6% 189 5,926 12.2% Highway Network (1000 km) Per Capita Disposable Income ($) 1,157 4,008 8.6% 280 3,000 8.2% Navigable Inland Waterways (1000 km) Population Total (Million) 110.6 124.2 0.8% 981 1,338 1.0% Population Urban (%) 20% 45% 4% Air Freight (1000 Tons) 875.5 5,265 12.7% Life Expectancy (Years) 66.9 73.3 0.3% Ocean Freight (1000 TEU) 4,080 31,279 14.5% Telephone lines (per 100 people) 0.2 21.9 16.6% Number of Airports 175 Number of Seaports >2,000

3. CHINA’S FIVE YEAR PLANS The government has consistently set and achieved challenging targets in their Five Year Plans focusing on social and economic development initiatives 12th Five Year Plan 2011 - 2015 8th Five Year Plan 1991 - 1995 • GDP growth ~8% • Urbanization to reach 51.5% • Reduce dependence on exports by increasing domestic consumption • Moving coastal regions from “world’s factory” to R&D and services sector • 36 million low-cost apartments for people • 45,000 km new hi-speed rail network, 83,000 km of new highway network • Investment in environment protection industries 4th Five Year Plan 1971 - 1975 • Develop foreign trade • Achieved - Trade volume reached $1 trillion • Improve standard of living • Achieved - Per capita income increased to 1,578 Yuan • Increase energy, communications and raw material production • Achieved - Infrastructure investments well above target • Gross output growth of Industry and agriculture to reach 12.5% • Achieved and exceeded • 130 billion Yuan infrastructure construction • Achieved and exceeded • Output targets for grain, cotton, steel, coal, electricity and rail freight • Achieved and exceeded

4. CHINA’S 2011-2015 PLAN – KEY TASKS The focus up to 2015 is on turning China into a consumption driven economy, oriented towards innovation and the environment • Key Focus Areas • Descriptions • Shift from export to domestic consumption • Shift away from an export driven economy based on low wage rates • Create higher value-added products • Increased focus on service sector, which is critical to an urban economy • Expand “social safety net” and public services • Boost in social welfare spending to reduce Chinese citizens’ need to save. This increase in disposable income is expected to drive up domestic consumption • National medical insurance • Urban and Rural pension scheme • 36 million homes being built for low-income households • Improve the quality of the environment • Focus on “Green Growth” • Increased investments in clean energy • Development of rail network and inland waterways to support green transportation

5. EXPECTED CHANGES More Domestic Demand More Urban Population More Environmentally Friendly 2011 Savings Rate (%) Urban Population as % of China Total CO2 Emissions (Million Tons of Carbon) 1950 1970 1990 2010 CN IN RU BR 1960 1980 2000 2020 • Plans to reduce pollution, increase energy efficiency and ensure stable, reliable and clean energy supply • Clean vehicles are seen as a key development technology and it is likely that the transportation and logistics industry will be a source of demand to help stimulate this new focus area • Savings rate in China is one of the highest in the world, showing there is potential to encourage more household spending • The government plans to upgrade provision of pension, health insurance, public education and affordable housing, citizens will result in more disposable income to spend on goods and services • Urbanization is expected to increase constantly over the coming years due to many economic projects by the government in large cities (e.g. Chongqing city development program) • Urban lifestyle will have impact on the Chinese society • Higher household spending • Higher need for services • Changing lifestyle • Increasing education • Increasing need for green logistics services

6. IMPACT OF CHANGES ON THE ECONOMY & TRADE Manufacturing and exports are expected to slow down, thereby changing the logistics requirements of the country Merchandise Exports Growth (%) Industrial Production Growth (%) Forecast Forecast 1981 1991 2001 2011 2021 2031 2041 1981 1991 2001 2011 2021 2031 2041 • Over the past decade, China has attained the status of the low cost manufacturing hub, exporting its produce to the West • However the move to encourage more domestic demand together with the overall economic shift to more design and less manufacturing will all contribute to lower exports • Subsidizing public and private investments only in strategic industries, increasing minimum wages and the push for services sector and creating R&D hubs are all expected to limit the growth in merchandise exports • Industrial production growth has remained around 15% on average for China over the past decades • However as China moves from “Made in China” to “Designed in China”, traditional low cost factories will lose favor against high-value sectors like biotechnology and new energy vehicle industries with plans to develop these industries to compete and succeed on a global scale • Thus over the next decades, a slow down in industrial production in China is anticipated