China’s Business Environment in the Coming Years

1. China’s Business Environment in the Coming Years Dr. Qiwei Chen Asia Business Consulting Co., Ltd Oct,2004

2. Key Points • The growth momentum could be kept • Restructuring of the economy is bringing an unique huge business opportunity • WTO entrance rushes the changes of and challenges to the whole society • A stable and strong RMB means a rather reliable business environment

3. 1、The growth momentum could be kept at an almost same pace in the years ahead

4. Some Economic Data • From Jan. to Sep., GDP totaled 1.13 trillion US dollars, a 9.5% rise year-on-year, 0.6% higher than last year • Agricultural added value reached 152.4 billion US dollars, up 5.5%, industrial added value rose 10.9% to 623.9 billion dollars, and that of the service sector jumped 8.5% to 350.7 billion dollars.

5. Quarterly GDP (Adjusted by SARS) Growth rate % Quarterly GDP (Not Adjusted )

6. Growth rate % Industrial added value (monthly)

7. Macro-adjustment policy is working • The fixed-asset(capital goods) investment has lessened but some problems still exist and the curbs on lending and investment may not be relaxed in the near future. Fixed-asset investment %

8. The growth momentum • The past two decades’ reform in China injects huge vigor to the economy. • Domestic consumption demand is going up. • Overseas direct investments keep on rising. • Private sector is playing a more and more important role in the economy. • 2008 Olympic Games and 2010 World Expo are keeping forces driving forward China's economy.

9. More potentials • "Great Development in the Western Areas of China" and "Reinvigorating the Old Industrial Base“. • The rising farmers' income will be favorable to spur the domestic demand as a whole. • Stressing the need to develop science and technology will spur innovation and growth. • As a more important participant, China will be a more positive player in the growth of the world economy.

10. 2、Restructure of the economy and the opportunities

11. Tremendous support on agriculture • To balance the economy, the government carried out a series of policies to support agriculture and raise farmers’ income. • The so called “shortage of migrant workers" reflects shrinking labor supply. This is partly caused by the central government's policy effect to increase farmers' income which gives incentives to farms to stay at the land instead of working at sweatshops in urban areas.

12. Shifting to market-based systems • Focus on the improvement of corporate governance, the promotion of the non-state sector and the protection of property rights. • Building up further a market oriented behavior and credit system by regulation and law. • Private ownership will be or is becoming a fundamental building block of the economy.

13. SOEs’ strategic adjustments • The diversification of the ownership structure. • Focusing on core competency, restructure the SOE sector through spin-off,mergers and acquisitions with market power and administrative means, which bring in huge M&A opportunities.

14. 3. WTO Entrance Effects

15. Enjoying and suffering • Since entering WTO, China has been increasingly involved in the world economy and society. • To meet the commitments in WTO, China has speeded up reforms in a lots of fields such as finance and services.

16. Finance System • Access to WTO has led to a significant opening of industies to foreign participation. For example, in some major cities, foreign funded insurers have more than 30% market share. • Foreign investors have been already participating in some Chinese major banks. • China has pledged to expand the scope of RMB loan business gradually and to eliminate all geographical restrictions at the end of this year.

17. Manufacture • Chinese businesses are adjusting to the game rules in the world markets. • Chinese color TVs are a typical example. They are the focus of anti-dumping cases. Chinese manufacturers begin to learn to make and promote products with high quality, high technology content and high value added. And this proves to be right and successful. In China market, digital TVs have a promising prospect as digital TV programs will dominant the screen by 2010

18. Retail and tourism • Competition among foreign retailers in China has heated up. Foreign-funded firms now account for about 30 percent of the large-sized supermarkets. Such multi-national retailers as Wal-Mart and Carrefour have already earned a solid market and growth potential in China. • New channels of distribution and sales such as licensing, franchising and direct selling have been introducing in or releasing in China. • With fast growth in international tourism, China has an ambitions to become, by 2020, the fourth largest source of tourists in the world and the top tourist destination.

19. 4、RMB will keep stable and strong

20. USD nominal rate (NEER,1973-03-100) (left) RMB/USD RMB 12 month NDF (right)

21. RMB nominal rate (NEER) (left) Growth rate % China CPI (right)

22. Stable system contributed to the economy • China is seeking a gradual and evolutionary reform of China's exchange rate system. • China's exchange rate system is appropriate to the country's financial situation. The stable currency policy enabled China to successfully stabilize the currency (RMB) and withstand the impactof the Asian financial crisis in 1997. • The stability of the exchange rate safeguarded the country's daily financial operations.

23. RMB will keep stable • Chinese financial sectors is still not ready for the risks if RMB floats freely. China is speeding up the establishment of risk management mechanism within the banking system but it takes time. • A stable exchange rate does not necessarily mean a fixed one, but still has no clear timetable of change

24. RMB will keep strong • If RMB would get stronger gradually it would be because of the strong economy and the change of the exchange rate pegging system itself instead of purely outside impacts.

25. 谢谢！ Thank You

26. Attachment： Introduction of ABC Corporate Oct, 2004 2004年5月

27. Asia Business Corporation Profile • Asia Business Corporation has a diversified stakeholder base, distinctive specialties and outstanding competence. As one of the best capital-operating groups, we specialize in strategic operation of industrial & financial capital. Our business scope includes management consulting, private equity, industrial investment and some investment banking business. • The Group consists of several specialized corporations, each has it’s own advantages. The registered capital of the group is 1.07 billion RMB, total asset is about 3 billion and net asset is about 1.8 billion.

28. The core assets and competence of ABC The core assets of ABC: • Excellent employees • Professional teams • Capital Accessibility • The core competence of ABC: high efficiency in resources synergy

29. The advantages of ABC • The capability of professional planning and efficient implementation in the fields of strategy, management and marketing. • Effective communication channels with the government and a wide client network. • Global resources and vision.

30. The companies belonged to the ABC are all managed by excellent professional teams in respective areas under mature models. 盈泰证券有限公司 WINTECH SECURITIES 上海亚创投资发展有限公司 Shanghai Asiabiz Assets Management Co. The companies belonged to the ABC

31. Leading company:Asia Business Consulting Co.,Ltd • As one of the most famous management consulting companies, Asia Business Consulting Co., Ltd. is widely respected for its efficient strategic executive competence. The registered capital is 50 million RMB. Since 1993, the Company has providedconsulting services, including planning and executing of strategy management to more than 200 companies. These companies include private companies, listed companies, large state-owned corporation groups and companies that are directly operated by government. The company has successfully organized the ‘Top 50 Listed Companies’ ranking activity in cooperation with China Securities since 1999. The ranking earned highly attention and helped establish a broad clients meshwork.

32. 上海亚创控股有限公司 Shanghai Asiabiz Assets Management Co. Core company:Shanghai Asiabiz Holdings Co.,Ltd Shanghai Asiabiz Holdings Co., Ltd is a large professional investment corporation, involving in financial asset management, industrial investment and consolidation, industrial park development, infrastructure investment, property development, strategic investment, etc. Based on internationally competitive management structure, Asiabiz has been making outstanding investment performance since it was established. The current registered capital reaches RMB 450 Million. The recent projects Asiabiz involves in are: Chengdu Southwest Automobile Service City, Ningbo Electronic and IT Industrial Park, Shanghai International Lidu Serviced Apartments, Chongqing Sports Centre, etc. The amount of overall investments is more than RMB 3 billions.

33. Main company:PanAsia Strategy Investment Co., Ltd • PanAsia Strategy Investment Co., Ltd. is the first professional private equity investor in China with the current registered capital of RMB 150 Million. PanAsia focuses on the enterprises that have the potential for high-rate growth, helps them promote their value by inputting capital, management capacity and other external resources to optimize corporative ownership structure, industrial value chain, etc., and finally realize the added value through capital market.

34. Main company:Chengdu SunRising Venture Capital Co., Ltd • Chengdu SunRising Venture Capital Co., Ltd., partially owned and managed by PanAsia, is the platform of PanAsia to engage in venture & private equity concentrated on hi-tech enterprises in certain regions. The registered capital of SRVC achieves 100 million. The companies it invested include Chengdu Yaoyou technology、Chengdu Weishitong Software etc. They are all well performed. Two of them are ready for listing, one in Hong Kong Venture Band and the other in domestic main board.

35. 盈泰证券有限公司 WINTECH SECURITIES Overseas leading affiliated enterprise:Hong Kong Wintech Global Holding Co.,Ltd. • The Hong Kong Wintech Global Holding Co.,Ltd,is a powerhouse of oversea financing and industrial investment in mainland China. It owns a HESK member Wintech Securities, which provides listing services for Chinese enterprises in Hong Kong and other oversea markets, as well as investment banking services, such as financial advisory services, underwriting services, for transnational M&A.

36. Important Research center:China Venture Capital Research Center • The CVCRC is a substantial research organization founded by ABC and Shanghai Jiaotong University; focus on research, academic exchange, training and consulting. The advisory committee and academic committee consists of many nationwide well-known economists. The center has strong research capability and keeps close cooperation with several worldwide famous research organizations. Since founded, the center has successfully held several capital research forums and intercommunion activities.

37. The strategic partners • ABC dedicates to elevate our partners’ values in the procedure of resources organization by establishing strategic cooperation.

38. COSCO Development Co., Ltd. Inner Mongolia Yili Industrial Group Co., Ltd. Beijing Tongrentang Co., Ltd. Sichuan Changhong Electric Co., Ltd. Shandong Dong-E-Ejiao Co., Ltd. Fuyao Glass Group Industries Co., Ltd. Qingdao Haier Refrigerator Co., Ltd. Gemdale Corporation Guangzhou Development Industry (Holdings) Co. Ltd. Jiangsu Telecom Co., Ltd. Harbin Pharmaceutical Group Co., Ltd. Shanghai Automotive Co., Ltd. Shanghai Join Buy Co., Ltd. SVA Information Industy Co., Ltd. Oriental Pearl Co., Ltd Kaikai Industrial Co., Ltd. Shanghai Jinfeng Investment Co., Ltd. Shanghai Fortune Industrial Joint-Stock Co., Ltd. Baosteel Group Corporation China United Telecommunications Co., Ltd. VANKE Co., Ltd. Chang Ling (Group) Co., Ltd. China Enterprise Co., Ltd. China National Software & Service Co., Ltd. Bank Of Shanghai Some of our clients

39. Some strategic partners • National Development and Reform Commission, China Society of Economic Reform • Development Research Center of the State Of Council • State Owned Assets Supervision and Administration of the State Council • State Owned Assets Supervision and Administration of Shanghai Municipal Government • Shanxi Provincial Government • Chongqing Municipal Government • Chengdu Municipal Government • The Administrative Committee of Chengdu Hi-Tech Zone • The Administrative Committee of Ningbo Hi-Tech University Park • Shanghai University of Finance & Economics • China International Capital Co., Ltd. • China Overseas Holdings Ltd. • Shanghai Jiaotong University • East China Normal University • University of Southern California • Merrill Lynch Investment Banking Group-Shanghai Branch • Goldman Sachs • Shenyin & Wanguo Securities Co., Ltd. • Guotai Junan Securities Co., Ltd. • China Galaxy Securities Co., Ltd. • Hong Kong & Shanghai Banking Co., Ltd. • Credit Suisse First Boston • China Construction Bank • Bank of Communications

40. Contact Us ADD: NO.8 Building 2558 Yan An Road Shanghai 201103 P.R.China TEL: (8621)-62959001 FAX: (8621)-62958055 Http://www.abc.sh.cn EMAIL:puw@abc.sh.cn William Pu

41. 谢谢！ Thank You