Continued Rapid Growth and the Turning Point in China’s Development

1. Continued Rapid Growth and the Turning Point in China’s Development Ross Garnaut and Yiping Huang ANU China Update 29 August 2006, Canberra

2. Continued Rapid Economic Growth • The Turning Point in China’s Development

3. Quarterly GDP Growth and Inflation Source: CEIC Data Company Limited and Citigroup estimates.

4. Fixed Asset Investment and Retail Sales Source: CEIC Data Company Limited and Citigroup estimates.

5. Value-Added of Industrial Production Source: CEIC Data Company Limited and Citigroup estimates.

6. Exports, Imports and Trade Balance Source: CEIC Data Company Limited and Citigroup estimates.

7. Citigroup China Leading Indicator Note: The composite leading indicator consists of consumer and entrepreneur confidence, money supply, stock prices and new project starts. Source: China National Statistics Bureau, CEIC Data Company Limited and Citigroup estimates.

8. Overinvestment or Underconsumption? Source: China National Statistics Bureau, CEIC Data Company Limited and Citigroup estimates.

9. Risks of Deflation Appear to Be Small for Now Faster money supply could lead to lower market interest rates but higher inflation rates Source: CEIC Data Company Limited and Citigroup estimates.

10. Bank Lending Rates and Market Interest Rates Changes in Base and Weighted Average Lending Rates Low Market Interest Rates Source: People’s Bank of China, CEIC Data Company and Citigroup estimates.

11. Beginning of Faster Yuan Appreciation? Expectation of appreciation in 12 months by the non-deliverable forward market Bilateral exchange rates of renminbi Source: CEIC Data Company Limited and Citigroup estimates Source: Reuters, Citigroup

12. 90 90 1995 1955 1975 1995 70 70 1980 Exchange Rate relative to PPP (US=100) 50 50 1960 Korea 1960-1995 Taiwan 1955-1995 1950 30 30 China 1980-2002 Japan 1950-1975 2002 10 10 0 10 20 30 40 50 60 70 80 GDP per capita, percent of U.S. CNY May Appreciate Sharply over the Next 10 Years GDP per capita and exchange rates relative to purchasing power parity Source: Alan Heston, Robert Summers and Bettina Aten, Penn World Table Version 6.1, Center for International Comparisons at the University of Pennsylvania (CICUP), October 2002; and IMF, April 2003 WEO Database.

13. Continued Rapid Economic Growth • The Turning Point in China’s Development

14. Rising Labor Costs in Asian Economies Source: Demographic Asia Limited, Department of Labor Statistics and Citigroup estimates.

15. Growth of Wages and Inflation in China Source: CEIC Data Company Limited and Citigroup estimates.

16. Profit Growth and Profit Margins Source: CEIC Data Company Limited and Citigroup estimates.

17. Changing Profit Margins in Certain Industries Source: CEIC Data Company Limited and Citigroup estimates.

18. China’s Export Prices to the United States Source: CEIC Data Company Limited and Citigroup estimates.

19. Growth of Labor Productivity and Real Wages Source: CEIC Data Company Limited and Citigroup estimates.

20. Share of Employee Compensation in Industrial Value-Added Source: CEIC Data Company Limited and Citigroup estimates.

21. Decline in Agricultural Employment Source: Demographic Asia Limited, Department of Labor Statistics and Citigroup estimates.

22. Changes in China’s Labor Force Source: Demographic Asia Limited, Department of Labor Statistics and Citigroup estimates.

23. Improving Levels of Education Source: Demographic Asia Limited, Department of Labor Statistics and Citigroup estimates.

24. Continued Rapid Growth and the Turning Point in China’s Development Ross Garnaut and Yiping Huang ANU China Update 29 August 2006, Canberra