1. Client Logo How to Invest in China Kevin Liu

2. Client Logo Key Judgment: The primary risks are political and civil unrest, caused by rising external challenges to the regime. China Risks Overview Full-blown military conflict is unlikely unless Taiwan moves towards independence The threat of Uyghur separatism has declined due to effective counterterrorism measures Widening social and economic inequality is at the root of unrest, which is greatest in the central and coastal provinces The internal struggle for control of the Communist Party is unlikely to undermine its authority before 2012

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4. Key Judgment: The Fifth Generation of Chinese leaders will be even more pro-business than their predecessors. Fifth Generation of Chinese Leadership The ‘Harmonious Society’ – China’s peaceful rise based on economic growth Promote growth in the western and north-eastern provinces Accelerate growth and competitiveness of Chinese multinationals Ideologically conservative – hard-line policy on Taiwan and Tibet

5. Client Logo Key Judgment: Chinese multinationals face problems of skills shortages and an unfavourable Western perception. Chinese Overseas Investment Overseas expansion of consumer brands is a growth priority Chinese overseas investment is dominated by state-owned companies Short of skills in brand marketing and overseas management Persistent foreign perception of China as producer of cheap goods

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7. Key Judgment: Moderate resurgence of bad loans & bankruptcies in the 5-yr outlook is unlikely to cause a full-blown financial crisis. China’s Financial Landscape Growing number of experienced professional managers in the financial sector Consolidation of small and regional commercial banks Asset management companies absorbing non-performing loans Strong state support for Big Five banks BUT Likely bankruptcies in industries serving the construction & auto sectors; conflict between Beijing & local governments over fiscal policy likely to increase

8. Client Logo Key Judgment: China’s primary energy concerns are promoting energy efficiency and security of supply. Power and Environmental Issues China will become a major market for the carbon emissions credits scheme Opportunities in clean energy development Tougher environmental laws will target foreign companies Security of supply: South Asia and South Pacific

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