1. Challenges Facing China over the Next Decade" By Marvin Cunningham

2. China Cost Structure 2006-2012 Copyright © 2012 Long-Stanton

3. Skilled Labor Cost 2006-2012 Copyright © 2012 Long-Stanton

4. Questions #1 What % of China’s population is covered by its one-child policy? A. 35% B. 55% C. 73% D. 95% Copyright © 2012 Long-Stanton

5. Demographics: The Key to Everything (China Census Data) Official population is now 1.37B 13.25% of the population is over the age of 60, in 2000 it was 10.3% Nearly 50% now live in urban areas, 2000 it was 36% The population is on track to hit 1.5 B in 2030-35 16.6% of the population is under the age of 14, in 2000 it was 22.9%

8. Question #2 What is the monthly Social Security payment to the average retired worker in China A.$39 B.$87 C.$124 D.$188

9. How Does This Affect Your Business Who will be your customers and where will they live A direct impact on government policies –Social Welfare Programs (reform of Hukou registration system) –Internal Migration (slowing and reversing as elderly move back to the village) –End of one child policy –Guns VS Butter debate (Military 6%/Social 24% of government spending)

10. The Environment Over the Next Decade (7 Key Industries) Clean Energy Vehicles Energy conservation & environmental protection industries Advanced energy New Materials Biotechnology Advanced IT High value added manufacturing

11. Beijing December 2 nd to 5 th 2011

12. Green Energy Playbook

13. Will it be Enough

14. Threats to food supply China is losing 15,000km a year to erosion Between 1996 & 2005 China lost 19.8 million acres of farm land (6%), to development. In 1978 China consumed 8 million tons of meat, in 2012 it consumed 71 million tons. 262 million migrant workers not on the farm.

15. The Pig Picture

16. Buying Water: World Land Grab

17. Water Crisis $62 billion being spent on South-North Water Transfer project. The Great Green Wall By 2030 China is expected to have a shortage of 120 million acre feet (2.6 times municipal use in 2009) 73.8% of water in 8 provinces (including Beijing & Shanghai) is no longer safe for Humans or Fish/Wildlife. 95.6% of China’s energy production relies on water

19. How Does This Affect Your Business Companies that serve the “Green” industries can expect long term government support Water intensive industries will be pushed out of China. China will look to import these products –Paper –Food commodities of all kinds –Energy Intensive industries

20. Question #3 What is China’s true Urbanization rate A.35% B.51% C.60% D.70%

21. Urban to Rural Migration In 2012 China was 51% Urban & 49% Rural (real urbanization rate is 35%) –By 2020 estimates put the Urbanization rate at 60% & by 2050 75% –Government plans to spend $6.5 Trillion to bring 400 million people into Cities over the next decade Migrant work population 262 million, average age 37.2 Will high Urbanization rates really materialize?

22. Assuming Urbanization Occurs Quickly More wage workers, generally means more consumption of goods and services. Fewer people in rural areas would: –Lead to consolidation of land holding and more productive use of farmland. –Higher food prices/farm incomes Gap in age and education levels would rise Higher inflation rates Higher debt loads for urban governments, leading to cuts in urban investment & services

23. Assuming Urbanization Does not Occur Quickly Labor costs in cities increase at a faster rate. More people in rural areas would: –Keep land holdings small –Depress food prices and farm income. Help control inflation rates Lower debt load on urban governments, allow for higher levels of urban services. Widen the economic & social gap between urban and rural areas.

25. How Does This Affect Your Business The rate of urbanization affects the types of products that China will demand. If Urbanized: –Farm equipment, food (especially meat), plywood, paper, customized products and services If Rural –High tech automation, larger homes, more commodity products, & larger transportation networks

26. How China will keep the growth coming Removal of the Hokou Family Registration System, will allow people to access social services where they live. They will spend more and save less. Rebuilding Housing Stock: Average house lasts 25 years. Retooling Factories for Productivity & Customization

27. Challenges Facing China over the Next Decade" By Marvin Cunningham Marvinc@longstanton.com 513-720-3959