LOGISTICS TRENDS SERIES

The Future of China

Global Business Strategy June 29, 2012

CHINAS TRANSFORMATION OVER LAST DECADES

China has undergone a major transformation in the past decades, emerging as a major powerhouse of the world economy
Economic Facts
China has progressed from being a closed economy to a market oriented one that plays a major global role. In 2010, China became the worlds largest exporter in addition to the stellar growth along all major economic indicators Key Indicators
GDP ($ billion) Per Capita Disposable Income ($) 1980 2010 CAGR

Logistics Facts
Over the past decade, China has invested heavily in developing infrastructure and this has supported the growth of the economy to a large extend
1995 2010 CAGR

Key Indicators
Rail Network (1000 km)

189 280 981 20% 66.9 0.2

5,926 3,000 1,338 45% 73.3 21.9

12.2% 8.2% 1.0% 4% 0.3% 16.6%

62.4 1,157

91.2 4,008

2.6% 8.6%

Highway Network (1000 km)

Navigable Inland Waterways (1000 km) Air Freight (1000 Tons)

Population Total (Million)

Population Urban (%) Life Expectancy (Years) Telephone lines (per 100 people)

110.6

124.2

0.8%

875.5 4,080

5,265 31,279 175 >2,000

12.7% 14.5%

Ocean Freight (1000 TEU)

Number of Airports Number of Seaports

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CHINAS FIVE YEAR PLANS

The government has consistently set and achieved challenging targets in their Five Year Plans focusing on social and economic development initiatives
12th Five Year Plan
2011 - 2015

8th Five Year Plan 4th Five Year Plan

1971 - 1975
Develop foreign trade Achieved - Trade volume reached $1 trillion Improve standard of living Achieved - Per capita income increased to 1,578 Yuan Increase energy, communications and raw material production Achieved - Infrastructure investments well above target

1991 - 1995

GDP growth ~8%

Urbanization to reach 51.5%

Reduce dependence on exports by increasing domestic consumption Moving coastal regions from worlds factory to R&D and services sector 36 million low-cost apartments for people 45,000 km new hi-speed rail network, 83,000 km of new highway network Investment in environment protection industries

Gross output growth of Industry and agriculture to reach 12.5% Achieved and exceeded 130 billion Yuan infrastructure construction Achieved and exceeded Output targets for grain, cotton, steel, coal, electricity and rail freight Achieved and exceeded

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CHINAS 2011-2015 PLAN KEY TASKS

The focus up to 2015 is on turning China into a consumption driven economy, oriented towards innovation and the environment
Key Focus Areas Descriptions
Shift away from an export driven economy based on low wage rates

Shift from export to domestic consumption

Create higher value-added products Increased focus on service sector, which is critical to an urban economy

Expand social safety net and public services

Boost in social welfare spending to reduce Chinese citizens need to save. This increase in disposable income is expected to drive up domestic consumption National medical insurance Urban and Rural pension scheme 36 million homes being built for low-income households Focus on Green Growth

Improve the quality of the environment

Increased investments in clean energy Development of rail network and inland waterways to support green transportation

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EXPECTED CHANGES
More Environmentally Friendly
2,000 1,500 1,000 500 0

More Domestic Demand

2011 Savings Rate (%)
31 17
80 60 40

More Urban Population

Urban Population as % of China Total
46

CO2 Emissions (Million Tons of Carbon)

13

10

20 0

CN

IN

RU

BR

1960

1980

2000

2020

1950

1970

1990

2010

Savings rate in China is one of the highest in the world, showing there is potential to encourage more household spending The government plans to upgrade provision of pension, health insurance, public education and affordable housing, citizens will result in more disposable income to spend on goods and services

Urbanization is expected to increase constantly over the coming years due to many economic projects by the government in large cities (e.g. Chongqing city development program) Urban lifestyle will have impact on the Chinese society

Plans to reduce pollution, increase energy efficiency and ensure stable, reliable and clean energy supply Clean vehicles are seen as a key development technology and it is likely that the transportation and logistics industry will be a source of demand to help stimulate this new focus area

Higher household spending Higher need for services

Changing lifestyle Increasing education

Increasing need for green logistics services

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IMPACT OF CHANGES ON THE ECONOMY & TRADE

Manufacturing and exports are expected to slow down, thereby changing the logistics requirements of the country
Industrial Production Growth (%)
+25% +20% +15% +10% +5% 0%
Forecast

Merchandise Exports Growth (%)

+40% +30% +20% +10% 0% -10% -20%
Forecast

1981

1991

2001

2011

2021

2031

2041

1981

1991

2001

2011

2021

2031

2041

Industrial production growth has remained around 15% on average for China over the past decades However as China moves from Made in China to Designed in China, traditional low cost factories will lose favor against high-value sectors like biotechnology and new energy vehicle industries with plans to develop these industries to compete and succeed on a global scale Thus over the next decades, a slow down in industrial production in China is anticipated

Over the past decade, China has attained the status of the low cost manufacturing hub, exporting its produce to the West However the move to encourage more domestic demand together with the overall economic shift to more design and less manufacturing will all contribute to lower exports Subsidizing public and private investments only in strategic industries, increasing minimum wages and the push for services sector and creating R&D hubs are all expected to limit the growth in merchandise exports

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