Understanding Emerging Markets Group 1

CHINA

HISTORY
ANCIENT CHINA: Xia Dynasty (c. 2100 c. 1600 BC) Shang Dynasty (c. 17001046 BC) Zhou Dynasty (1046256 BC) Spring and Autumn Period (722476 BC) Warring States Period (476221 BC)

History(Cont)
IMPERIAL CHINA: Qin Dynasty (221206 BC) Han Dynasty (202 BCAD 220) EARLY MODERN: Ming Dynasty (AD 13681644) Qing Dynasty (AD 16441911)

MODERN CHINA: Republic of China (19121949) People's Republic of China (1949 present)

GEOGRAPHY

GEOLOGY
Worlds largest producer of antimony, graphite, tungsten and zinc. Largest hydro power potential.

SOCIAL ISSUES
Mass unrest issues have risen from 8,709 in 1993 to 90,000 in 2009. Reasons: a)Increase in migration, b)Unemployment, c)Loss of faith in system, d)Corruption.

The imbalance of wealth Urbanization

CENSORSHIP: a)Freedom of speech b)Freedom press c)Internet Hukou system.

DEMOGRAPHICS
AGE STRUCTURE (present): a)0-14 years: 17.4% b)15-24 years: 16.1% c)25-54 years: 46.5% d)55-64 years: 10.9% e)65 years and over: 9.1% Median age: 35.9 years.

POPULATION GRAPH
Population(in millions)
1600 1400

1200

1000

800
Population, total 600

400

200

0 1975 1980 1990 1995 2000 2005 2010 2011 2012

LIFE EXPECTANCY
Life expectancy at birth, total (years)
76 74

72

70

68
Life expectancy at birth, total (years) 66

64

62

60 1975 1980 1990 1995 2000 2005 2010 2011

DEATH RATE
Death rate, crude (per 1,000 people)
7.4 7.2

6.8

6.6
Death rate, crude (per 1,000 people) 6.4

6.2

5.8 1975 1980 1990 1995 2000 2005 2010 2011

FERTILITY
Total Fertility Rate (children born/woman)
7
6 5 4 3 2 1 0 1940 Total Fertility Rate (children born/woman)

1960

1980

2000

2020

SEX RATIO
108.5 108 107.5 107

106.5
106 105.5 105 1940

Sex Ratio In China

1960

1980

2000

2020

Political System of China

 China is a Communist Country. Communism is an idea of a free society with no division or alienation, where the people are free from oppression and scarcity. Symbol

China adopted communism in 1949. China operates with a ONE PARTY STATE POLICY where Communist party of china is the dominating party.

Political Structure

Communist Party

82.6 million members

State Council
Second major institution of the Chinese political structure. The executive branch. It is the Central Peoples Government & is Chaired by the Premier.

National People's Congress

The legislative branch is the highest state body and the unicameral legislative house Functions: -Electing the President of the People's Republic of China - approving the appointment of the Premier of the State Council - approving the work reports & policies.

Peoples Political Consultative Conference

Perform as democratic supervisor of the Party It acts as a platform for the citizens to make suggestions about the policies. PPCC members are often known as political advisors.

The Peoples Liberation Army

Unified military organization responsible for air, water and land operations. Very Crucial to the party and the government.

Reports to Party Central Military Commission (CMC)

Environmental Conditions In China

Environmental Problems
Water Resources Deforestation Desertification Climate change Pollution

Government Measures
Adjusting industrial structures and altering development modes. Establishment of about 100 specialized environmental courts. "Green Wall of China" project Introduction of Environmental education

Technological Scenario in China

Ancient Era
Pioneer in the field of science and technology Greatest Discoveries includes Paper making Printing Technology Compass Gunpowder

Started to loose its stand but rebounced in 19th century.

Modern Era
Experienced biggest technological transformation Over 1.5 billion cell phones & 570 million Internet users Major achievements BaiDu

Sina Weibo
Manufacturing hub of electronics gadgets.

Culture
Chinese culture is one of the oldest culture in the world. Many festivals are celebrated in china like spring festival, lantern festival. Spring festival is also known as Chinese New year. Important components of Chinese culture include: Literature Music Martial Arts Cuisine

Economic Inequality
Income inequality Gini coefficient is 0.74 Regional Income inequality Rural-Urban income inequality

Causes for Income inequality

Non-Balanced Economic Development Unreasonable economic system Imperfect Tax System Lack of Public Services Low Income transfer Houkou or Chinese household Registration System

Economics in China

GDP Growth
14 12 10

6 China 4 India Brazil 2

0 1975 -2 1980 1990 1995 2000 2005 2010 2011 2012

-4

-6

Main reason for Chinas Growth

Export as a % of GDP
40 35 30 25 China

20
15 10 5 0 1980 1985 1990 1995 2000 2005 2010 2011 2012

Brazil

India

Raise More Debt

Increase the Household Consumption

Household Consumption as a % of GDP

70 60

50

40 China India 30 Brazil

20

10

0 2005 2006 2007 2008 2009 2010 2011 2012 2010 2011 2012

Chinas economy will not fall

Household Saving as a % of GDP
60

50

40

China 30 India Brazil 20

10

0 2005 2006 2007 2008 2009 2010 2011 2012

Increasing Debt is the only option

Before 1990, RMB was pegged at 2.46 per US dollar As Chinese economy opened up, RMB was devalued to 8.62 yuan per dollar. In 2005, peg was lifted but reinstituted again in 2008 due to financial crises in 2008

Stages of Chinas Reforms

1970s-1980s Opening up the country to the foreign investment.
US China Debt loop China competitive advantage in the form of cheap labour

Fixed Rate of Exchange and Money Supply

Money and quasi money (M2) as % of GDP
200 180 160 140 120 100 80 60 40 20 0 19751980199019952000200520102011 20 Money and quasi money (M2) as % of GDP 100 140 120

Consumer price index (2005 = 100)

80 Consumer price index (2005 = 100)

60

40

0 1990 1995 2000 2005 2010 2011 2012

Stages of Chinas Reforms

1980s-1994s Privatization and Contracting
Lifting of Price controls, protectionist policies and regulation Introduction of tax distribution system that reduced the proportion of tax revenues held by local government. Government used debt to finance its expenditure which led to increase in the debt to GDP ratio.

Current Economic Conditions

Fitch has downgraded China from AA- to AA+ Debt to GDP has accelerated from 148% to 205%

IMF has warned China for rising Debt levels

GDP has reached to 7.5% in 3rd Quarter of 2013

History of Banking sector

History of banking sector can be divided into two main periods The Mao Era (1949-1978) The Post-Mao Era or Deng Era (1978 onwards)

Banking Sector Outlook

Current cash reserve ratio for China stands at 20.50 which is one of the highest in the world. POP has taken steps to improve the market sentiments Money Supply and Loans are expected to grow

Banking Sector Outlook(Cont)

Urbanization is growing at a rate of 1.37%, which will increase the demand of financial services Shadow Banking is increasing at 34% Chinas Development Bank and Chinas six largest commercial bank continued to grow internationally. Reintroduction of asset securitization is expected to be a breakthrough for asset and intermediate business innovation for banks. It is expected that that the Banking sector Net profit would increase by 3% for 2013

Stock Markets
In 1990 and 1991, China sets up stock exchanges in Shanghai and Shenzhen Stock Markets in Chine is regulated by China Security Regulatory Commission. SSE composite Index is the most commonly used indicator to reflect SSEs market performance.

Securities sectors outlook

Increase in the stake foreigner could hold. Number of Brokers increased from 11 to 30

Investment Banking to move towards follow on and debt financing.

China stock market could fall because of the property bubble

Growth

Infrastructure
Telephones (1989):
Country X: 107 telephone sets per 1000
persons

Country Y: 10 telephone sets per 1000

persons

Infrastructure
Length of Railways (Electrified Railways) (1980)

Country X: 61,240 kms (5,345 kms)

Country Y: 53,900 kms (1,700 kms)

Chinas Growth
1 Country 2 System
Han Dynasty No Enemies

Chinas GDP Growth

GDP Distribution
60 50 40 30 Agriculture Services Industry

20
10 0 1975 1980 1990 1995 2000 2005 2010

Agriculture
China ranks first in worldwide farm output No. 1 in Wheat Production Contributes 9% to GDP

Great Leap Forward (1958 1961)

Great Chinese Famine(1958 1961) Worlds Largest Importer of Soyabeans

Industry Sector
Industry Contributes 46% to Chinas GDP Worlds leading manufacturer of chemical fertilizers, cement, and steel China ranks second worldwide in industrial output Four Modernizations (1975) o Industry o National Defence o Agriculture o Science and technology Energy industry Manufacturing and Automobiles Steel

Service Sector
Service Sector Contribution - 44 % Quantity Quality Hospitality Aviation Banking Automation

Trade relations
World Trade Organization, G20, BRICS USA

Africa
Russia

Border Problems
Tibet Taiwan (Kuomintang) India Japan Mongolia

Business Opportunities
Education Healthcare Clean-tech/green-tech Software Food

Labour Issues

Fall Of China
Ageing Population Yuan Appreciation Dependence on World MiddleClass Sector

A Deaf Pilot cannot fly an airplane effectively, however good he may be

Will China Become Super Power ?

Military Power

Economic Power
Transnational Power

Market Outlook China

Economy Set to take off again
Increase in spending by state government

Measures taken by Peoples Bank of China

Increase in Demand and supply perception New reforms of rational distribution system

Market Outlook China

Points of Concerns
Chinas economy is at a moderation point from high growth to mid high growth China is loosing out on its competitive advantage
Manufacturing Sector is reaching saturation Shadow Banking is a big concern Property Bubble in China

Appendix
http://www.worldbank.org/en/country/china\ http://www.indexmundi.com/china/ http://en.wikipedia.org/wiki/China http://www.pbc.gov.cn http://www.fitchratings.com/web/en/dynamic/fitch-home.jsp http://www.deloitte.com/view/en_CN/cn/ind/g http://www.businessweek.com/articles/2013-03-26/chinas-stockmarkets-fall-on-fears-of-a-real-estate-crackdown http://www.bloomberg.com/news/china/

Presented by:
Anand KJ
Ankit Vora Malhar Lakdawala Shubham Jain Lakshay Nangia