Worldwide Outsourcing Trend and China’s Electronics Industry Presented by: Dr. Chan Kei Biu Chairman Hong Kong Electronic Industries Association 22 September 2004

Worldwide Electronics Manufacturing and Outsourcing Overview TABLE OF CONTENT Worldwide Electronics Manufacturing and Outsourcing Overview Electronics Industry in China The Pan-Pearl River Delta in China Competitiveness of the Pearl River Delta

WORLDWIDE ELECTRONICS ASSEMBLY INDUSRY Source: Electronic Trend Publication, published in Manufacturing Market Insider, July 2004

ELECTRONICS INDUSTRY’S GROWTH 2004 2005 2006 2007 2008 CAGR EMS+ODM 12.5% 11.7% 12.0% 11.2% 11.8% Electronics Assembly total 10.8% -2.3% 6.5% 8.3% 8.1% 6.2% Source: Electronic Trend Publication, published in Manufacturing Market Insider, July 2004

OUTSOURCING PENETRATION EMS Penetration ODM Penetration Combined Penetration 2002 2007 Peripherals 21% 17% 13% 23% 41% Wired Telecom 18% 36% 2% 5% Wireless Telecom 8% Computer Systems 10% 11% 32% Automotive 9% Consumer Electronics 4% 6% 3% 12% Source: Technology Forecasters, Q4 2003

REASONS FOR INCREASE IN OUTSOURCING More cost effective Efficiency and flexibility Better risk management model – able to cope with volatility Less capital investment EMS – more advanced technology and equipment OEM adaptation of HP and Dell model

OBSERVATIONS – THE GLOBAL TREND More ODM More outsourcing moving to China More Box Build Technology towards Chip-scale packaging

CHINA LEADS IN EMS Source: iSuppli, June 2003

WHY CHINA? Lower cost structure – land, workers and engineers Already attained world class quality Local component supply chain Flexibility Opportunities in huge domestic market

Electronics Industry in China

CHINA’S ELECTRONICS INDUSTRY IN 2003 US$ billion Growth Sales Volume 226.5 34% Electronics Production　 Million Unit Mobile Phone 186 55% Color TV set 65 39% Micro-computer 32 98% Computer Monitor 73 56% Color Tube 91 16% Source: Ministry of Information Industry of China

CHINA THE PAN-PEARL RIVER DELTA (PPRD) AND OTHER VITAL ECONOMIC AREAS Boahai Economic Zone Yangtze River Delta CHINA Pan-Pearl River Delta

2003 GDP OF THE PAN-PEARL RIVER DELTA GDP (US$B) Annual GDP growth Population (M) Guangdong 廣東 162.0 13.6% 75.9 Hong Kong 香港 158.3 -2% 6.8 Other 8 provinces + Macau 313.9 11.3% 326.2 Total 634.2 7.6% 408.9 Korea 605.3 6.2% 47.9 Taiwan 528.6 3.5% 21.5 Source: China Statistics Bureau, Hong Kong Census & Statistics Dept, Macau Statistics and Census Service, World Bank, CIA World Factbook

INDUSTRIAL STRUCTURE OF THE PEARL RIVER DELTA IN 2002 * Rounded figures Source: Guangdong Statistical Yearbook Electronics and electric equipment manufacturing shared 40% of the total industrial output!

Competitiveness of the Pearl River Delta

COMPETIVENESS OF THE PRD Efficient and established infrastructure – transportation and communication Full range of component manufacturers and technical support Clustering of suppliers – JIT operation High concentration of OEM customers High quality, flexibility and fast response 24/7/365 operation On-demand mode

HONG KONG-PLUS MODEL Gateway to China: Sound tax and legal systems Sizeable equity market Efficient government with no corruption Understand both international and Chinese cultures Fast response Strong business integrity

China is now factory of the world! SUMMARY China is now factory of the world!