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