1

Enhance Sino-India Cooperation on Infrastructure

Nov. 2009

2

3.1%

10.6%

1.1%

7.8%

1.7%

6.3%

3.0%

2.4%

3.3%

1.3%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

United States

China

Japan

India

Germany

Russia

United Kingdom

France

Brazil

Italy

China and India Have Developed as Two Important Engines in Global Economic Landscapes但是近 30年来，中印再度迅速成长，成为世界经济亮点

Source: IMF, CICC Research Note: the ranking of the share in the world economy is according to the PPP measures by the IMF

Fastest growing economies in last decade

1998-2008 GDP CAGR of Top 10 Countries in the Share in the World Economy

Quick recovery after this financial crisis

13.014.0

13.012.0

10.610.1

9.0

6.86.1

7.98.9

9.79.2 9.0 9.3

8.67.8 7.7

5.8 6.15.8

-2.3

-4.8

-10

-5

0

5

10

15

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09

China India U.S. Euro Area

GDP YoY Growth %

Source: Bloomberg

3

采掘业3%

制造业16%

公用事业2%

建筑业9%

批零餐饮及酒店

17%

交运仓储9%

银行保险6%

房地产及商业服务8%

社会个人服务13%

农林牧渔18%

农林牧渔11%

采掘业5%

制造业34%

建筑业6% 公用事业

4%

批零餐饮及酒店9%

交运仓储6%

银行保险5%

房地产及商业服务10%

个人服务10%

China and India Have Different Industrial Structures

Relatively improved manufacturing industries with higher contribution from secondary industry

Relatively better service industry in India with higher contribution from tertiary industry

Industrial StructureChina GDP

USD 4,327 BN

India GDPUSD 1,207

BN

Primary Industry

11.1%

Secondary Industry 48.5%

Tertiary Industry

40.4%

Primary Industry 18.1%

Secondary Industry

29.5%

Tertiary Industry 52.4%

Source: CEICSource: CEIC

Mining

Mining

Manufacturing

Manufacturing

Utility

Utility

ConstructionConstruction

Banking & Insurance

Banking & Insurance

Transportation & Warehousing

Transportation & Warehousing

Retail, Dining & Hotels

Retail, Dining & Hotels

Real Estate & Business Service

Real Estate & Business Service

Personal Service

Personal ServiceAgriculture/forestry/fishingAgriculture/forestry/fishing

4

5.8

5.1

2.1

8.8

0

2

4

6

8

10

12

Consumption Investment Net Export Economic Grow th

Both Face the Pressures for Growth Model Transformation in the Future

China: driven mainly by investment and exports, more contribution from consumption is expected

4.6

4.7

1.9

11.2

0

2

4

6

8

10

12

Consumption Investment Net Export Economic Grow th

%

India: driven mainly by consumption, more contribution from exports is expected

%

2006-2008 CAGR

Source: CEIC, CICC Strategic Research Source: CEIC, CICC Strategic Research

Breakdown for China’s Economic Growth

+

+

+

+

Net Export Driven

Investment Driven

Consumption Driven

2006-2008 CAGR

Net Export DraggedInvestment Driven

Consumption Driven

Breakdown for India’s Economic Growth

-

Higher Consumption Contribution than China

Net export is the key powerhouse for China’s economic growth, while India

records a negative net export

5

India’s Focus on Higher Education and Its Expertise on High-end Service Merits China’s Reference

India: international competitiveness in high-end service industry, such as, software and medical industry, with support from higher education

Software Industry

In 2008, India’s software industry had an output value of USD71 billion, with 2/3 from exports; its software exports accounted for 46% in service exports, 20% in global exports, second only to the US

Focus on Higher Education Development

Since the 1950s, India has invested heavily in higher education development, as it established 6 “Indian Institutes of Technology” in India following the MIT pattern, and developed medical colleges with advanced teaching materials and teaching system from the US and Europe

High-end Medical Industry

India’s private hospitals have state-of-the-art equipments and quality doctors with world-class generic drug industry

Source: CICC Strategic Research

6

Rapid Industrialization

The share of China’s industrial output in the gross output has grown from less than 20% in the 1950s to 43% in 2008

Focus on Infrastructure Development

China has improved a series of infrastructure facilities over time, such as, power, transportation, telecommunication, municipal development, etc., and its installed power generating capacity has grown to No. 2 globally

Increasing Export Share

The share of China’s exports in the world has grown from 2% in 1995 to circa 9% in 2008

Source: CICC Strategic Research

China: international competitiveness in export-oriented manufacturing based on a developed infrastructure

China’s Infrastructure-Driven Industrialization and Its Expertise on Exports Merits India’s Reference

7

0.7

1.3

3.2

5.0

0

2

4

6

1980 1990 2000 2008

Excellent Achievements in China’s Infrastructure Development for the Past 30 Years

Source: Asian Development Bank, Ministry of Communications of the PRC

AirportAirport Throughout100 MM

Passengers/ annum

2.25.7

24.0

39.0

0

10

20

30

40

50

1980 1990 2000 2008

0.0 0.1

1.6

6.0

0

2

4

6

8

1980 1990 2000 2008

5.35.8

6.9

8.0

0

2

4

6

8

10

1980 1990 2000 2008

Railway

Expressway PortExpressway Mileage

Railway Mileage

Costal Port Throughout

10,000 Km

10,000 Km

100 MM tons / annum

Large-scale Infrastructure System Takes Shape in China (Taking the traffic facilities as examples)

No. 2globally

No. 2 globally

No. 1 globally

No. 3 globally

CAGR=2%

CAGR=25%CAGR=11%

CAGR=7%

8

3-Phase Development of China’s Infrastructure

Source: Asian Development Bank, World Bank

China’s infrastructure /GDP increased to nearly 10%

12 12 14 1929 29 34

4150

65 6874 77 82

123

161

209

257

9.8%

9.3%

8.4%

7.5%

5.7%5.8%

6.2%

2.8%3.2%

3.5%3.8%

4.8%

5.3%

4.7%4.8%

5.3%

6.4% 6.3%

0

50

100

150

200

250

300

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

0

0.02

0.04

0.06

0.08

0.1基础设施投资额

GDP占 （右轴）

USD BN

3.2% in GDP without significant investment growth

Mainly dependent on government funding with over 50% from this source and there is few financing channels

Driven by gov’t investment

Driven by foreign and private investment

Driven by capital market and government funding

capability

5.3% in GDP with a CAGR of 18%

Some sectors were opened up to foreign investors, such as, port, energy, transportation, etc. and foreign investors enjoyed favorable policy

8.1% in GDP8.1% with a CAGR of 27%

Leverage capital market: IPO proceeds for infrastructure companies since 2002 is over RMB200 billion;

Gov’t funding: over 20% growth in fiscal revenue and land grant fee

Infrastructure Investment

In GDP % (RHS)

9

In the 2nd Phase, Introduction of Foreign Investment Played a Key Role

Source: ACMR, CICC Strategic Research Estimates

Significant increase in foreign investment in China’s infrastructure

26 26

23 23

27

30 31

35 3536

43

53

24

2219

16

6

3

0

10

20

30

40

50

60

91 93 95 97 99 01 03 05 07

-20%

-10%

0%

10%

20%

30%

40%

50%

60%外商对中国基础设施投资额

( )增速 右轴

USD 100 MM

150%

152%150%

Growth

CAGR=19%

Source: ACMR, CICC Strategic Research Estimates

Installed capacity jumped driven by foreign investment

历年新增发电装机容量

-

500

1,000

1,500

2,000

2,500

3,000

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

 In 1986, the State Council approved the Provisional Regulations on Encouraging Development of Power Generation by Funding and Implementing Multiple Tariffs Systems

In order to attract various foreign investors, the government provided a fixed annual return of 15-20%

The tariff is dependent on the return rate

Po

licy E

ffect

In 1997, foreign investment accounted for 17%, a peak proportion in the power investment

In 1990s, the average annual addition of installed capacity is 3-4 times of that in 1980s

Average addition of 18.64 million kilowatt annually in 1992-2002

Growth (RHS)

Foreign Investment Volume in China’s Infrastructure

Newly-added Power Generating Installed Capacity in Each Year

10

Theme of Policy: Return Guarantee and Policy Support

10.9%

5.5%

7.0%

15.5%

0.6%

0.4%

3.6%

11.2%

0% 5% 10% 15% 20%

Sewage treatment

Water supply

Gas

P_ower

Domest i c averageForei gn

Source: ACMR, China City Statistical Yearbook

Return on foreign investments vs, domestic avera

ge

+9.3pps

+4.1pps

+3.4pps

+4.3pps

2002-2007 ROE

Higher capital ratio vs. domestic manufacturers and international opportunists

5.0%

8.5%

14.9%

9.7%

0% 5% 10% 15% 20%

International infrastructure

Domestic low-endmanufaturers

Domestic high-endmanufacturers

Domestic infrastructure

Return on foreign

investment in infrastructure vs. domestic

average

-5.2pps

+1.2pps

+3.4pps

China has delivered a reasonable investment return to attract foreign investors

Reform and open-up: lay down the policy framework for foreign investment into the infrastructure sector

China started to introduce foreign investments into the infrastructure sector in the 1980s, starting from ports

After then, energy, transportation, and city infrastructure sectors were opened up gradually to foreign investors

Reasonable return: develop favorable policies to enable foreign investors to achieve a reasonable return

Volume: secure the procurement volume of goods/services for foreign investors for quite a long time

Price: provide certain pricing flexibility to foreign investors based on applicable regulatory requirements

Subsidy/tax benefit: provide certain discount in terms of land premium/tax rate, and even operating subsidies to foreign investors

China has provided an enabling policy environment for foreign investors

11

Others,1,529 , 69%

CICC-led, 694 , 31%

3rd Stage, Infrastructure Sector Leverages the Capital Market to Realize Higher Growth

China capital market has been a major financing platform for infrastructure companies

CICC has led a number of infrastructure IPOs

17 255 6

22

78 71

42

106

6442

179

39 29

309

253

222

713

0

100

200

300

400

500

600

700

800

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

I PO基础设施建设相关 融资额

RMB100 mn

RMB222.4 BN raised from

infrastructure- related IPOs

CICC has been engaged as Lead Underwriter for Huadian Power, Baiyun Airport, Daqin Railway and China State Construction Engineering IPOs

Source: Wind, 2009 data as of end of October Source: Wind

Infrastructure related IPOs since 1992 posted a combined size of RMB222.4 billion, of which deals after 03 accounted for 78.5%

Infrastructure-related IPO Volume

12

CICC is Willing to Promote Sino-India Cooperation in Infrastructure Construction, to Achieve Win-Win

India has over USD 50 billion demand for infrastructure investment during the “Eleventh Five Year Plan” period

In recent years, China has witnessed surging foreign engineering contract value and emergence of a number of world leading construction companies. And China has built up very strong funding and construction capability after years’ investments in the infrastructure sector.

CICC is willing to leverage our extensive premier customer base in China and solid infrastructure financing experience to promote Sino-India cooperation in the infrastructure sector, to create a “win-win” situation for all parties