This document provides an overview of China's economy and business environment. It discusses China's high GDP growth rates over recent decades and its transformation from a primarily agricultural economy to an industrial and urbanized one. It also examines China's large foreign exchange reserves, the development of its stock markets, and its growing trade and investment relationships with other countries around the world. The document analyzes China's changing role from a low-cost manufacturing destination to one that is moving up the value chain in terms of technology and services.

1. China Business and Economy George ILIEV george.iliev@alumni.lse.ac.uk American University in Bulgaria Nov 28, 2010

2. 1. China’s economy: GDP and growth 2. Exchange rate & forex reserves 3. Foreign trade 4. Investment flows & stock market 5. China’s relationship with the West 2 Contents

3. 1) China Business Development Manager at VC network Merar 2) Three years of teaching Economy of China at Sofia University 3) Four years of editing Chinese and Japanese business news for publications on Dow Jones Factiva and Reuters Business Briefing 4) Author of a series of articles on the Chinese economy and business for Bulgaria's main business weekly Kapital 5) Six-month advertising internship in China 6) BA in Chinese Studies from Sofia University, 2002 7) MSc on China from the London School of Economics, 2008 8) One-year exchange at Anhui University in China, 2000-2001 9) One-semester at the Hong Kong University of Science and Technology(2009), part of an MBA at Emory University 3 My China Background

4. 4 1. GDP and GDP growth

5. 5 Source: The Economist

6. Source: World Bank

7. Nov 20, 2007 Privatisation & Globalisation. WTO & China’s Trading Blocks Flying Geese Model:International Division of Labour

8. 8 Flying Geese Model within China Source: The Economist

10. 2008 Beijing Olympics showcased a high-tech China with growing R&D spending

11. Chinese tourists abroad buy more per head (since 2005) than any other nation

12. Large luxury goods market:

14. Growth below 7-8% poses social problems Growth above 10% leads to overheating and formation of bubbles (in stocks, real estate, industrial capacity, infrastructure) 10 China’s breakneck growth Source: The Economist

15. 11

16. 12 China Stock MarketRoller Coaster

17. 2. Forex Reserves & Exchange Rate 13

18. Accumulation of reserves in Asia & easy credit precipitated 2007/8 financial crisis 14 China Forex Reserves Source: The Economist

21. The option of going to the countryside means there are no ghettos in ChinaSource: The Economist

22. 17 China’s high savings rate Source: IMF

23. 18 China demography 2050 2000 Source: prb.org

24. 19 3. China exports & imports

26. Transformation from public ownership (blue) to private ownership (purple) late 1970s mid-1980s early 1990s 2009

27. Source: 中国统计年鉴

28. Discrepancy between Chinese and foreign trade surplus statistics results from: 1. Re-exports via Hong Kong not counted 2. Exports at FOB, Imports at CIF 3. Disguised capital inflows 23 China’s trade surplus conundrum Source: The Economist

29. Source: 中国统计年鉴

30. 25 Domestic Value Added Exports Source: McKinsey Quarterly

32. 27 4. Investment flows & stock market

33. FDI in China (scale up to $100 B.) Note: Figures from 2006 onward include investment in capital markets & financial institutions. Source: 中國統計年鑑

34. In some years China is the biggest FDI destination in the world IPOs of Chinese companies in Hong Kong, London, New York, Singapore Foreign investments in China 29 Source: The Economist

35. Source: 中国证券期货统计年

36. Combined: second biggest in the world (A+H shares): USD 3.3 trillion market cap at end-2009 Mainland China only: third largest market cap ninth highest free float second highest daily trading volume (churn) A shares & H shares: arbitrage opportunities 31 China and Hong Kong stock markets

37. Hong Kong Stock Exchange 32 156 H-share companies & 97 red chip companies listed in Hong Kong as of June 2010

38. China ranked the world's fifth largest outbound direct investor in 2009, up from 12th place in 2008 China’s FDI abroad was $56.5 billion in 2009 China Investment Corporation (sovereign wealth fund), created in 2007 with $200 billion of China’s forex reserves. (Now $300 billion) Provincial sovereign wealth funds, like Guangdong Rising Asset Management, have also been launched 33 Chinese investments abroad

39. 34 Source: The Economist, Nov 11, 2010

40. 35 Source: The Economist, Nov 11, 2010

41. 1. To reduce inflationary pressure and RMB revaluation (appreciation) pressure 2. To make use of the USD in its currency reserve while the dollar is still valuable 3. To buy up assets before other emerging powers like India and Brazil have started buying 36 Reasons for China’s shopping spree

42. Resources: oil, metals, agricultural products (Rio Tinto; assets in Australia, Canada, Kazakhstan, Africa) Financial investments (Blackstone, Morgan Stanley, Fortis, Standard Bank, Barclays, Rothschild, AIA) Technology & telecoms (Volvo, Hummer, Saab, Rover) 37 What China invests in

43. well-known Chinese brands

45. China no longer takes its cues from the West (nor from Russia) WTO member since 2001 (though lacking market economy status till 2016) $2.6 trillion of forex reserves (mostly treasuries) Huge government purchases in friendly countries Own technological standards (3G, RFID); R&D in GMOs, nuclear fusion Only a US/EU weapons embargo remains (since 1989) 40 5. China’s relationship with West

46. 41 Yin & Yang

47. Thank yougeorge.iliev@alumni.lse.ac.uk