Transcript Outlook for China`s Economy

China-LATAM Economic Partnership：
Opportunities and Challenges
by Suhong Ma,CFA
Urban Finance Research Institute, ICBC
FELABAN, Lima
Nov 20, 2012
1
Sluggish Global Economic Recovery

Collaborative slowing down in developed and emerging economies
Growth Outlook of Global Economy （ Oct 2012 ）
%
Real Growth rate of Economy
Forecast Growth rate of
Economy
Compare with Forecast in
July
2010
2011
2012
2013
2012
2013
Global Economy
5.1
3.8
3.3
3.6
-0.2
-0.3
Developed Economy
3.0
1.6
1.3
1.5
-0.1
-0.3
United States
2.4
1.8
2.2
2.1
0.1
-0.1
Euro Zone
2.0
1.4
-0.4
0.2
-0.1
-0.5
Japan
4.5
-0.8
2.2
1.2
-0.2
-0.3
7.4
6.2
5.3
5.6
-0.3
-0.2
China
10.4
9.2
7.8
8.2
-0.2
-0.2
Russia
4.3
4.3
3.7
3.8
-0.3
-0.1
India
10.1
6.8
4.9
6.0
-1.3
-0.6
Brazil
7.5
2.7
1.5
4.0
-1.0
-0.7
Emerging Market and Developing Economy
Source:IMF
2
Main Theme of China’s Economy in 2012：Slowdown
China’s GDP growth
cumulative growth
quarter growth
2012-09
2012-06
2012-03
2011-12
2011-09
2011-06
2010-12
2010-09
2010-06
2010-03
2009-12
2009-09
2009-06
2009-03
2008-12
2008-09
2008-06
2008-03
2007-12
2007-09
2007-06
2011-03
China’s GDP growth has been
slowing down for 7 consecutive
quarters
15
14
13
12
11
10
9
8
7
6
5
2007-03

Source:China’s National Bureau of Statistics，the same below unless otherwise indicated
3
Main Theme of China’s Economy in 2012：Slowdown
Weak external demand leads to export decline
-100
-200
-300
2012-09
20
2012-07
0
2012-05
25
2012-03
100
2012-01
30
2011-11
200
2011-09
35
2011-07
300
2011-05
%
40
2011-03
US$ mn
400
2011-01

-400
15
10
5
0
net export
growth rate of export(y-o-y)
4
Main Theme of China’s Economy in 2012：Slowdown
Industrial production slows down sharply and then maintain a low, steady
growth
Growth of China’s Industrial Value-added Output（y-o-y）
25
Growth of industrial
value-added falling
sharply from the
beginning of the year
and keep its growth
below 10%
%
20
15
10
5
2012-08
2012-05
2012-02
2011-11
2011-08
2011-05
2011-02
2010-11
2010-08
2010-05
0
2010-02

5
Main Theme of China’s Economy in 2012：Slowdown
Consumption growth is stable, and stimulus takes time to come into
effect
Growth of consumer goods’ retail sales（ y-o-y）
%
nominal growth rate
25
real growth rate
Consumption
keeps its
growth
around 15%
20
15
10
5
2012-10
2012-07
2012-04
2012-01
2011-10
2011-07
2011-04
2011-01
2010-10
2010-07
2010-04
2010-01
2009-10
2009-07
2009-04
0
2009-01

6
Main Theme of China’s Economy in 2012：Slowdown
%
6
4
2
2012-08
2012-02
2011-08
2011-02
2010-08
2010-02
2009-08
(4)
2009-02
(2)
2008-08
0
2008-02
Average CPI of the year is
expected to below 3.0%
CPI(m-o-m)
8
2007-08
CPI inflation (YoY) falls to
1.7% in Oct from 4.5% of the
first month of the year
CPI（y-o-y）
2007-02
Inflation pressure easing
10
%
15
PPI（y-o-y）
10
PPI(m-o-m)
5
2012-08
2012-02
2011-08
2011-02
2010-08
2010-02
2009-08
2009-02
2008-08
2008-02
(5)
2007-08
0
2007-02
Policy focus has shifted
from “control inflation” to
“support growth”
(10)
7
Main Theme of China’s Economy in 2012：Slowdown
Contributors to China’s Growth (%)
2009
2010
2011
3Q2012
GDP
9.2
10.4
9.2
7.7
Consumption
4.4
3.8
4.8
4.2
Capital Formation
8.4
5.6
5.0
3.9
Net Export
-3.6
1.0
-0.5
-0.4
8
Outlook for China’s Economy: Downside Risks
Exports
 Due to fiscal austerity and weakening growth, global demand is expected to remain
weak for a time.
 China’s export growth will fall to 8% in 2012 from 20.4% in 2011.
 Net export’s contribution to China’s GDP growth in 2012 wil be negative
Accumulated growth of China’s exports to
Developed countries
%
100
80
60
40
United States
European Union
Japan
ASEAN countries
India
South Africa
Russia
2012/05
2012/03
2012/01
2011/11
2011/09
2011/07
2011/05
2011/03
2011/01
2010/11
2010/09
2010/07
2010/05
(20)
2010/03
0
2010/01
2012/05
2012/03
2012/01
2011/11
2011/09
2011/07
2011/05
2011/03
2011/01
2010/11
2010/09
2010/07
2010/05
2010/03
20
2010/01
40
30
20
10
0
(10)
%
120
Accumulated growth of China’s exports to
Emerging countries
Brazil
9
Outlook for China’s Economy: Downside Risks
Property Markets
 Property tightening to continue, especially to control speculative demand
 Investment growth in property development falls sharply since 4Q2011
 Property market collapse unlikely to occur:
Huge rigid demand in housing due to urbanization
Low leverage in housing market
Flexibility of government’s policy
10
Outlook for China’s Economy: Policies
China: benchmark lending and deposit rates
 Loose Monetary Policy
1-year lending rate
8
 Interest rate cuts in June and
July ,totally 50 percentage
points
1-year deposit rate
%
7
6
5
4
3
2012-10
2012-04
2011-10
2011-04
2010-10
2010-04
2009-10
2009-04
2008-10
2008-04
2007-10
2007-04
2006-10
2006-04
2005-10
2005-04
 Requirements of depositreserve ratio cut twice, totally
1 percentage
1
2004-10
2
China： reserve requirements ratios for
% per annum
financial institutions
25
23
21
19
17
RRR for large banks
15
13
2011-04
2010-04
2009-04
RRR for medium and
small banks
2008-04
2007-04
2006-04
2005-04
7
5
2012-04
11
9
2004-04
 China Central Bank declares to
continue prudent monetary policy,
make it more targeted, flexible
and forward-looking, while finetuning it according to the
economic situation development
11
Outlook for China’s Economy: Policies
Proactive Fiscal Policy to support growth and economic restructuring
 Increasing government spending (project of people’s livelihood,) while
carrying out structural tax reduction (SMEs, Service Industry, Strategic
Emerging Industries, etc.)
 Moves since May 2012：
• Accelerating major projects approval and implementation
• Subsidy for energy saving and emission reducing
 Probability of launching massive stimulus policies has been largely
decreased
12
Outlook for China’s Economy: Soft Landing In The Near Future
Due to policy easing, there’re some new signals indicating that China’s economy
may moderately rebound in the fourth quarter this year, and continue steady
growth in 2013.In other words, a soft landing is expected in the near term.
Outlook for China’s Economy
Main Economic Indicators
2011
The first 3Qs of
2012
2012（F）
2013（F）
GDP（%）
9.2
7.7
7.8
8.0
Urban Investment in Fixed Assets(%)
23.8
20.5
21.0
21.5
Total Retail Sales of Consumer Goods (%)
17.1
14.1
14.5
15.0
Export(%)
20.3
7.4
7.8
8.5
Industrial Added Value（%）
13.9
10.0
10.5
11.0
CPI（%）
5.4
2.8
2.8
3.0
PPI（%）
6
-1.5
-1.8
0.3
M2（%）
13.6
14.8
15.0
14.5
New Loans（Trillion Yuan）
7.47
6.72
8.1
8.9
13
Outlook for China’s Economy: Potentials In The Long Run
In the long run, China is still in the process of industrialization, marketization,
urbanization and internationalization, which will provide long-term source for
resilient economic growth.In the next coming years, China’s economy will
grow at a comparatively low rate, but still around 7%.
China’s increasing integration
into global economy
Political and social stability
China’s economy
still enjoys middle and
long term potential
Enormous social demand generated
from urbanization and industrialization
Upgrading of household consumption
14
China to deepen financial reform in support of sustainable growth
Financial Reforms will be further advanced, so that financial sectors can play a
role in optimizing resource allocation and supporting real sector growth.
Financial Reform
Interest Rate
Liberalization
RMB Exchange
Rate Regime
Reform
Capital Account
Opening
Expanding
Cross-border
Use of RMB
15
China to deepen financial reform in support of sustainable growth
Interest Rate Liberalization
Asymmetric interest rate cuts
Expanding the scope of interest rate fluctuations
Financial Institutions will be given more pricing power, and there’ll be
differentiated interest rates in the market
More intensive competition, and narrowed NIM.
China: benchmark lending and deposit rates
1-year lending rate
8
1-year deposit rate
%
7
6
5
4
3
2012-10
2012-04
2011-10
2011-04
2010-10
2010-04
2009-10
2009-04
2008-10
2008-04
2007-10
2007-04
2006-10
2006-04
2005-10
2005-04
1
2004-10
2
16
China to deepen financial reform in support of sustainable growth
Reform of RMB Exchange Rate Regime
Since the fluctuation range of exchange rate was widened from 0.5% to 1% on
April 6th, exchange rate of RMB against US dollar had terminated its one
way appreciation trend, and start its two-way fluctuation
CNY
CNH
NDF
2012/10
2012/09
2012/08
2012/07
2012/06
2012/05
2012/04
2012/03
2012/02
2012/01
2011/12
2011/11
2011/10
2011/09
2011/08
2011/07
2011/06
2011/05
2011/04
2011/03
2011/02
2011/01
6.70
6.65
6.60
6.55
6.50
6.45
6.40
6.35
6.30
6.25
6.20
17
China to deepen financial reform in support of sustainable growth
Capital Account Opening
Expanding cross-border RMB direct investment
RQFII
Personal overseas direct investment pilot program
 Steady Progress of Capital Account Convertibility
Capital Account Opening Progress of China
Full
Opening
Partial
Opening
8
18
Restricted
Not Opening
Opening
11
6
Total
Number
43
source：IMF
unit：number of capital account
18
- 18 -
China to deepen financial reform in support of sustainable growth
RMB Cross Border Use
￥bn
3000
Cross-border trade settled in RMB
2500
2500
RMB cross-border trade
settlement
2100
2000
1500
1000
500
500
RMB offshore market
0
3.6
2009
China has signed currency swap
agreements with 18 monetary
authorities, the total size amounts
to RMB1.7trillion.
￥bn
800
2010
2011
RMB offshore deposits
2012(F)
727
680
700
600
500
400
320
300
200
100
63
0
2009
- 19 -
source：PBC
2010
2011
1H2012
19
China’s Economy Outlook: Middle and long term potentials
Long
term: China is still in the process of industrialization,
marketization, urbanization and internationalization, which will
provide long-term source for resilient economic growth.
Middle-term:
The probability of
property market’s hard-landing is very
small
Impetus
Short
term: Policy easing to support
economic growth
20
China is expected to become the largest economy in the world
China:
China and US Nominal GDP
Real GDP Growth:
2012-15: 8%
US$trillion
40
36.9
35
China
30
30.9
USA
19
15
10
10
5
12.6
14.5
13.2
US:
5.9
1.2
2.3
Real GDP Growth:
0
2000
2005
Inflation:4%
2012-2015 RMB
appreciation: 10%
25
20
2016-25:6.5%
2010
2015f
2025f
3%
Inflation:2%
21
Outlook for China-LATAM Co-operation
 China and LATAM economies are highly complementary
 China’s demand has become a key driving force in economic growth in Latin
American economies.
China's GDP% of global GDP
China's foreign trade% global trade
%
12
10.4
10
8
9.3
6
4
2
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
0
22
China-LATAM：Closer Economic Partnership
China-LATAM trade maintain
steady growth in recent years:
LATAM’s share of China’s foreign
trade rose to 6.9% in 3Q2012，
from 4.7% in 2007.
China's exports and imports
US$bn
4500
4000
3500
3000
2500
2000
1500
1000
500
0
China-LATAM trade has been
growing more rapidly than that of
China’s total foreign trade.
Trade structure:China mainly
imports natural resources (such as
minerals) and agricultural produce
from LATAM，and exports
manufactured goods in return.
China-LatinAM trade
241
183
103
2175
2007
60
40
30
20
2563
2008
197
122
2208
2009
2974
2010
3642
2011
46.1
23.5
39.7
34.7
17.9
31.5
22.5
12.0
6.2
0
(20)
3Q2012
50.2
10
(10)
2842
China's foreign trade growth yoy
China-LatinAM trade growth yoy
%
50
143
2007
2008
2009
2010
(13.9)
(15.2)
2011
3Q2012
23
China-LATAM：closer economic partnership
$mn
China’s FDI in LATAM has
witnessed a dramatic growth since
global financial crisis:
China’s FDI to LATAM in 2011
amounts to $12 billion.As of
2011,China’s FDI to LATAM
accumulates to $55 billion.
FDI(China)
100,000
90,000
10,538
80,000
70,000
3,677
60,000
Tax havens is the main driving
force for China’s FDI in LATAM,the
Cayman Islands and the English
Virgin Islands accounts for more
than 90% of China’s FDI in LATAM.
11,936
7,328
50,000
40,000
8,469
30,000
20,000
4,902
55,907 56,529
68,811 74,654
21,164 26,506
10,000
0
2006
Since 2009,LATAM has become
the second largest target region
with regards to China’s FDI.
FDI:LatinAM(China)
2007
FDI(China,accumulated)
$mn
600,000
2008
2009
2010
FDI:LatinAM (China,accumulated)
55,172
500,000
400,000
43,876
300,000
200,000
100,000
0
2011
30,595
19,694
24,701
32,240
183,971
90,631 117,911
2006
2007
2008
424,781
317,211
245,755
2009
Source: Ministry of Commerce (China)
2010
2011
24
Outlook for China-LATAM Co-operation
Opportunities:
 Trade:
•
Slumping growth from the United States and economic recession in Euro Area
China’s domestic demand is expected to be further released (National Income
Double-growth Plan,18th National Congress of CCP )
LATAM’s exports to China is expected to gain speed and be more diversified
 FDI:
To implement the strategy of “Going Out”, China will accelerate its investments
overseas, LATAM is one of the most important target region
LATAM requires significant capital with regards to infrastructure construction, mining
and manufacturing industry
 RMB cross border settlement :
RMB settlement in trade and investment will both be enlarged
LATAM region can introduce RMB settlement to make the monetary system more
diversified, so as to reduce exchange rate volatility risk
25
Outlook for China-LATAM Co-operation
Challenges:
 Trade frictions between China and LATAM economies are on the rise

China’s FDI in LATAM be faced with more political risks
 M&A in LATAM become more difficult and complex
26
Outlook for China-LATAM Co-operation
How to take advantage of the opportunities?
How to meet the challenges?
 Focus on interests and benefits for both sides
 Enhance Communications
 Win-win cooperation
27
Enhance Financial Service to Facilitate China-LatinAM
Cooperation
ICBC_the largest bank in China and also in the world





400,000 employees
17,000 domestic outlets
260 overseas branches and sub-branches
4.1 million corporate customers
280 million individual consumers
ICBC Ranks first in the world’s banks with regards to:
 Market Capitalization:$240 billion(2012)
 Profit: USD40 billion( 2012, forecast )
28
Enhance Financial Service to Facilitate China-LatAM
Cooperation
•
ICBC Argentina:ICBC got approval from Central Bank of Argentina to take
over 80% stake in the Standard Bank Argentina. After the takeover, ICBC
Argentina Branch will become the largest Chinese bank in Latin America
with the most extensive branch network and biggest business scale.
•
•
ICBC Peru:subsidiary opening soon in the 1Q2013
ICBC Brazil:waiting for approval of Brazil authorities
29
Thank you!
30