China, P.R.

: Mainland
SEB MERCHANT BANKING – COUNTRY RISK ANALYSIS February 5, 2009

^å~äóëíW=oçäÑ=a~åáÉäëÉåK=qÉä=W=HQS=U=TSP=UP=VOK=bJã~áä=W=êçäÑKÇ~åáÉäëÉå]ëÉÄKëÉ=
=
China’s development continuous to confound most analysts and the recent surprise is this time 
on the downside. Although the picture is still unclear, recent numbers may point to an outright 
recession in early 2009. The big question is if it will be a V‐shaped or a L‐shaped downturn. =

`çìåíêó=ìéÇ~íÉ==

qÜÉ=ëäçïÇçïå=~ÅÅÉäÉê~íÉëK=qÜÉ=ëçÑíåÉëë=áå=ÇÉã~åÇ=íÜ~í=~ééÉ~êÉÇ=ëÜçêíäó=~ÑíÉê=íÜÉ=
_ÉáàáåÖ=pìããÉê=läóãéáÅë=áå=^ìÖìëí=OMMUI=áåíÉåëáÑáÉÇ=ÇìêáåÖ=íÜÉ=ä~íÉ=é~êí=çÑ=íÜÉ=
óÉ~êK==qÜÉ=Çêçé=áå=ÜçìëÉ=éêáÅÉë=~ÅÅÉäÉê~íÉÇ=~ÑíÉê=Ü~îáåÖ=éÉ~âÉÇ=áå=nN=~åÇ=Å~ê=ë~äÉë=
ÑçääçïÉÇ=ëìáí=ÇêçééáåÖ=ãçêÉ=íÜ~å=NQB=áå=kçîÉãÄÉê=Åçãé~êÉÇ=ïáíÜ=íÜÉ=ë~ãÉ=ãçåíÜ=
OMMTK==qÜ~í=éêçÄ~Ääó=ãìÅÜ=êÉÑäÉÅíÉÇ=íÜÉ=íáÖÜíÉåáåÖ=çÑ=ÅêÉÇáí=ÅçåÇáíáçåë=ïÜáÅÜ=íÜÉ=
~ìíÜçêáíáÉë=Ü~Ç=~ÇãáåáëíÉêÉÇ=áå=íÜÉ=É~êäó=ëéêáåÖ=íç=ëíÉã=íÜÉ=íáÇÉ=çÑ=ëç~êáåÖ=ÅçåëìãÉê=
éêáÅÉë=~í=íÜ~í=íáãÉI=Äìí=íÜÉ=ÅçåíáåìÉÇ=ëíçÅâ=ã~êâÉí=êçìí=ëáåÅÉ=ä~íÉ=OMMT=ï~ë=äáâÉäó=~äëç=
~=ÅìäéêáíK==få=íìêå=íÜÉëÉ=Ñ~Åíçêë=~ÑÑÉÅíÉÇ=éêçÇìÅÉê=ÅçåÑáÇÉåÅÉ=~ë=ëÉÉå=áå=íÜÉ=ëíÉÉé=Çêçé=
çÑ=íÜÉ=mjf=EmìêÅÜ~ëáåÖ=j~å~ÖÉêë=fåÇÉñF=ëáåÅÉ=j~êÅÜI=~åÇ=íÜÉ=“cáñÉÇ=^ëëÉí=
fåîÉëíãÉåíÒ=áåÇáÅ~íçê= China, Consumer Surveys
ïÉ~âÉåÉÇ=Ñêçã=OVB=áå= 100
Why so pessimistic?
pÉéíÉãÄÉê=íç=OQB=áå= After the successes
98 in the Olympics
kçîÉãÄÉê=Ñçê=ìêÄ~å=~êÉ~ëK== China's consumers
Percent

bñéçêíëI=Äó=Åçåíê~ëíI=ëÉÉãÉÇ= have turned

95 increasingly gloomy
åçí=~ë=~=ã~àçê=ÅçåÅÉêå=ìåíáä=
íÜÉ=ä~íÉëí=ãçåíÜë=çÑ=íÜÉ=óÉ~êI= 93
Äìí=íÜÉ=åìãÄÉêë=Ñçê=
kçîÉãÄÉê=~åÇ=aÉÅÉãÄÉê= 90
2005 2006 2007 2008
ëÜçìäÇ=Ü~îÉ=ëÜçí=Ççïå=íÜÉ=
ä~ëí=~ÇîçÅ~íçêë=çÑ=íÜÉ= Consumer confidence index
ÇÉÅçìéäáåÖ=ãóíÜK=^ë=~=êÉëìäíI= Consumer expectation index
ÖêçïíÜ=áå=nQ=ï~ë=Ççïå=íç=QB= Consumer satisfaction index
Source: Reuters EcoWin

EóçóF=áå=åçãáå~ä=Ççää~ê=íÉêãëI=
Ñêçã=OPB=áå=nPI=éêçÄ~Ääó=áåÇáÅ~íáåÖ=ÅäçëÉ=íç=~=ëí~åÇëíáää=áå=êÉ~ä=íÉêãëK==qÜÉêÉ=~êÉ=
êÉéçêíë=çÑ=íÜçìë~åÇë==ëã~ää=~åÇ=ãÉÇáìã=ëáòÉÇ=Éñéçêí=Åçãé~åáÉë=ÑçäÇáåÖ=áå=êÉÅÉåí=
ãçåíÜë=é~êíáÅìä~êäó=áå=`Üáå~Ûë=Éñéçêí=ÜìÄ=áå=íÜÉ=mÉ~êä=oáîÉê=ÇÉäí~J~êÉ~K===eçïÉîÉêI=
~ë=áãéçêíë=Ü~îÉ=Ñ~ääÉå=áå=í~åÇÉãI=íÜÉ=íê~ÇÉ=Ä~ä~åÅÉ=Ü~ë=ÄÉÉå=äáííäÉ=~ÑÑÉÅíÉÇK==qÜÉ=
ëÜ~êé=Çêçé=áå=çáä=éêáÅÉë=Ü~ë=éä~óÉÇ=áíë=é~êí=áå=íÜÉ=êÉÇìÅíáçå=çÑ=íÜÉ=íçí~ä=áãéçêí=ÄáääI=
Äìí=ëç=Ü~ë=íÜÉ=ëíÉÉé=Ñ~ää=áå=ÇÉäáîÉêáÉë=çÑ=áåíÉêãÉÇá~íÉ=éêçÇìÅíë=ã~áåäó=Ñçê=íÜÉ=
éêçÅÉëëáåÖ=áåÇìëíêó=ïÜáÅÜ=ã~âÉë=ìé=Ü~äÑ=çÑ=íçí~ä=ÉñéçêíëK=qÜ~í=ã~ó=éçáåí=íç=
ÅçåíáåìÉÇ=Éñéçêí=êÉÇìÅíáçå=ëçãÉ=ãçåíÜë=ÑìêíÜÉê=Ççïå=íÜÉ=êç~ÇK==

fë=`Üáå~=áå=íÉÅÜåáÅ~ä=êÉÅÉëëáçå\==bîÉå=êÉåçïåÉÇ=éÉëëáãáëíëI=áåÅäìÇáåÖ=mêçÑÉëëçê=
oçìÄáåá=çÑ=kvrI=Ü~îÉ=ëç=Ñ~ê=äáãáíÉÇ=íÜÉáê=ÇçïåëáÇÉ=éêÉÇáÅíáçåë=íç=“ÖêçïíÜ=
êÉÅÉëëáçåÒJíÉêãëK==eçïÉîÉêI=~ë=íÜÉ=nQ=êÉ~ä=dam=ÖêçïíÜ=íáÅâÉÇ=áå=~í=çåäó=SIUB=

important your attention is drawn to the statement on the back cover of this report which affects your rights.
SEB Merchant Banking Country Risk Analysis February 5, 2009

ÖêçïíÜI=íÜÉ=èìÉëíáçå=~êçëÉ=áÑ=`Üáå~=ëí~íáëíáÅ~ääó=ëéÉ~âáåÖ=~äêÉ~Çó=áë=áå=~=íÉÅÜåáÅ~ä=
êÉÅÉëëáçåI=åçêã~ääó=ÇÉÑáåÉÇ=~ë=íïç=ëìÄëÉèìÉåí=èì~êíÉêë=çÑ=åÉÖ~íáîÉ=ÖêçïíÜ=èì~êíÉêJ
çåJ=èì~êíÉê=EèçèFK==qÜÉ=éìÄäáëÜÉÇ=SIUB=êÉëìäí=áë=áå=óÉ~êJçåJóÉ~ê=EóçóF=íÉêãëK=^ë=íÜÉ=
~ìíÜçêáíáÉë=Çç=åçí=éìÄäáëÜ=ãçêÉ=ÇÉí~áäëI=áåÇÉéÉåÇÉåí=ÉÅçåçãáëíë=Ü~îÉ=Å~äÅìä~íÉÇ=íÜÉ=
èçè=åìãÄÉê=çå=íÜÉáê=çïåK==^éé~êÉåíäóI=íÜáë=ÅçãÉë=ÅäçëÉ=íç=òÉêçK==^äíÜçìÖÜ=ëçãÉ=
áåÇáÅ~íçêë=áå=g~åì~êó=OMMV=ÄÉÖ~å=íç=éçáåí=ìéï~êÇI=áåÅäìÇáåÖ=íÜÉ=mjf=ëìêîÉóI=íÜÉ=
äáâÉäáÜççÇ=áë=Ñçê=dam=ÖêçïíÜ=åçí=íç=áãéêçîÉ=ãìÅÜ=áå=íÜÉ=åÉñí=ÑÉï=ãçåíÜëI=
ëìÖÖÉëíáåÖ=íÜ~í=nN=ïçìäÇ=ÄÉ=ê~íÜÉê=Ñä~í=Åçãé~êÉÇ=ïáíÜ=íÜÉ=éêÉîáçìë=èì~êíÉê=~åÇ=íÜ~í=
~=íÉÅÜåáÅ~ä=êÉÅÉëëáçå=ÅçìäÇ=ÄÉ=áå=íÜÉ=ã~âáåÖK==

cáëÅ~ä=~åÇ=ãçåÉí~êó=ëíáãìäìë=éä~åK==^ë=íÜÉ=ÅçåëìãÉê=éêáÅÉ=áåÑä~íáçå=éÉ~âÉÇ=áå=íÜÉ=
ëìããÉê=~åÇ=áåíÉêå~íáçå~ä=éêáÅÉ=íêÉåÇë=ëÉÉãÉÇ=íç=ÜÉê~äÇ=~=åÉï=~êÉ~=çÑ=ÇÉÑä~íáçå=
ê~íÜÉê=íÜ~å=áåÑä~íáçåI=íÜÉ= Credits and GDP
~ìíÜçêáíáÉë=ïÉêÉ=èìáÅâ=áå=
24
êÉîÉêëáåÖ=íÜÉ=ãçåÉí~êó=
21
íáÖÜíÉåáåÖ=áãéçëÉÇ=ëçãÉ=
19
ãçåíÜë=É~êäáÉêK==`êÉÇáí=ÅÉáäáåÖë=

Percent
16
ïÉêÉ=äáÑíÉÇI=áåíÉêÉëí=ê~íÉë=
14
êÉÇìÅÉÇ=~åÇ=êÉëÉêîÉ= Could this kick
11
êÉèìáêÉãÉåíë=É~ëÉÇK==^äëçI=íÜÉ= start the
economy soon?
9
éêçÅÉëë=çÑ=äÉÖ~äáòáåÖ=íÜÉ=
6
~éé~êÉåíäó=ä~êÖÉ=ÖêÉó=ã~êâÉí=Ñçê= 2003 2004 2005 2006 2007 2008
ÅêÉÇáíë=ï~ë=ëéÉÉÇÉÇ=ìé=áå=ã~åó=
éêçîáåÅÉëK=qÜ~í=ã~êâÉí=áë= Bank Loans
GDP Current prices
áãéçêí~åí=Ñçê=ä~Äçê=áåíÉåëáîÉ= Source: Reuters EcoWin

pjbëI=ïÜáÅÜ=ëç=Ñ~ê=Ü~îÉ=ÄÉÉå=íÜÉ=Ü~êÇÉëí=Üáí=Äó=íÜÉ=éêçÄäÉãë=áå=`Üáå~Ûë=Éñéçêí=
ëÉÅíçêK=cáå~ääó=áå=kçîÉãÄÉêI=íÜÉ=~ìíÜçêáíáÉë=~äëç=ä~ìåÅÜÉÇ=~=ã~àçê=ÑáëÅ~ä=ëíáãìäìë=
é~Åâ~ÖÉ=Ñçê=OMMVJOMNM=ïáíÜ=~=íçí~ä=éêáÅÉ=í~Ö=çÑ=`kv=Q=íêáääáçå=E~Äçìí=ASMM=ÄáääK=çê==
ENPBLdamFK=qÜáë=éêçÖê~ã=~áãë=~í=~ÅÅÉäÉê~íáåÖ=áåÑê~ëíêìÅíìêÉ=éêçàÉÅíëI=áãéêçîáåÖ=
ëÅÜççäë=~åÇ=ãÉÇáÅ~ä=ÜÉ~äíÜ=Å~êÉ=é~êíáÅìä~êäó=áå=íÜÉ=Åçìåíêó=ëáÇÉI=~åÇ=ëéÉÉÇáåÖ=ìé=íÜÉ=
íê~åëÑÉê=çÑ=áåÅçãÉ=íç=êìê~ä=ÇáëíêáÅíëK==qÜÉ=ä~ííÉê=áë=áå=äáåÉ=ïáíÜ=~=äçåÖJëí~åÇáåÖ=~áã=çÑ=
íÜÉ=ÖçîÉêåãÉåí=íç=ÇáëíêáÄìíÉ=íÜÉ=Ñêìáíë=çÑ=ÉÅçåçãáÅ=ÖêçïíÜ=ãçêÉ=ÉîÉåäó=~Åêçëë=íÜÉ=
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íÜ~å=íÜÉáê=éççêÉê=Åçìëáåë=Ñêçã=íÜÉ=ÅçìåíêóK==eçïÉîÉêI=íÜÉ=ÉÑÑÉÅíáîÉ=ëáòÉ=çÑ=íÜÉ=
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Åçìåíêó=ÉñíêÉãÉäó=ïÉääI=~åÇ=áí=ã~ó=åçí=ÄÉ=~=ëáãéäÉ=í~ëâ=íç=ÇáíÅÜ=~å=çäÇ=ëìÅÅÉëëÑìä=
ëíê~íÉÖó=çîÉêJåáÖÜíK==få=íÜÉ=ãÉ~å=íáãÉ=áí=Å~å=éêçé=ìé=ÇçãÉëíáÅ=ÇÉã~åÇ=Äó=
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2
SEB Merchant Banking Country Risk Analysis February 5, 2009

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åìãÄÉêë=çÑ=ìåÉãéäçóÉÇK=^ë=~=ÅçåëÉèìÉåÅÉI=áí=ïáää=ÄÉ=ÜáÖÜäó=ãçíáî~íÉÇ=íç=Çç=áíë=
ìííÉêãçëí=íç=âáÅâJëí~êí=íÜÉ=ÉÅçåçãó=íç=~îçáÇ=~=iJëÜ~éÉÇ=äçåÖ=êÉÅÉëëáçåK===

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êÉ~ëçå~Ääó=ëãççíÜ=ã~ååÉêI=áå=é~êíáÅìä~ê=ÅçìåíêáÉë=ïáíÜ=ÉäÉÅíÉÇ=ÖçîÉêåãÉåíëK=qÜÉ=
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ë~óI=Ñçê=íÜÉ=åÉñí=ÑÉï=óÉ~êë=ïÉ=ÑçêÉëÉÉ=íÜÉ=ÖçîÉêåãÉåí=ÄÉáåÖ=~ÄäÉ=íç=ëí~îÉ=çÑÑ=ëçÅáÉí~ä=
ÇáëíìêÄ~åÅÉë=íÜ~í=ÅçìäÇ=íÜêÉ~íÉå=áíë=Åä~áã=íç=éçïÉê=ìåÇÉê=ãçëí=ÅáêÅìãëí~åÅÉë=~åÇ=
íÜ~í=íÜÉ=ÖêÉ~íÉëí=êáëâ=áë=Ñçê=íÜÉ=ÖçîÉêåãÉåí=íç=çîÉêêÉ~Åí=~åÇ=íÜÉêÉÄó=ëÉí=íÜÉ=ÅäçÅâ=
Ä~Åâ=çå=êÉÑçêãëK==eçïÉîÉêI=íÜÉ=~ìíÜçêáíáÉë=ÅçìäÇ=çîÉê=íÜÉ=åÉñí=ÑÉï=óÉ~êë=ãÉÉí=~=íÉëí=
åçí=çåäó=áå=ÉÅçåçãáÅ=Äìí=~äëç=áå=éçäáíáÅ~ä=íÉêãë=åçí=ëÉÉå=Ñçê=~=äçåÖ=íáãÉI=~åÇ=áí=áë=óÉí=
íç=ëÉÉ=Üçï=áí=ïáää=ÅçéÉK==qÜÉ=ê~íáåÖ=~ÖÉåÅáÉë=Ü~îÉ=ëç=Ñ~ê=åçí=áëëìÉÇ=~åó=ê~íáåÖ=
ï~êåáåÖë=çå=`Üáå~I=Äìí=~éé~êÉåíäó=Ü~äíÉÇ=íÜÉ=éêçÅÉëë=çÑ=ìéÖê~ÇáåÖK==

Key ratios 2009 Resilience

15

GDP/capita ($) 3414 10

5,6% Macro balance Liquidity

5
GDP (%chg.)
0

Inflation 0,9%
Trade balance/GDP 8,8%
Absence of Information
Reserves/imports (months) 24 event risk
Budget balance/GDP -1% China
Average EM
Government debt/GDP 8% Saudi Arabia

bñíÉêå~ä=ê~íáåÖëW= mÉÉêëW Graph: China scores above average on macro balance and
cáíÅÜW=^H hçêÉ~ liquidity much like Saudi Arabia, but is weaker than the
p~ìÇá=^ê~Äá~
pCmW==^= average on reliable information. Resilience is about the
`ÜáäÉ average of emerging markets but event risk is weaker like
Saudi Arabia.

3
SEB Merchant Banking Country Risk Analysis February 5, 2009

=
Key data: 2004 2005 2006 2007 2008 2009 2010 2011
GDP (mill.US$) 1 931 660 2 247 790 2 649 280 3 290 920 4 128 040 4 587 940 5 345 190 6 014 140
GDP/capita (US$) 1481 1712 2006 2478 3090 3414 3955 4426
GDP (%chg.) 10,1% 10,4% 11,6% 11,9% 8,8% 5,6% 8,8% 7,7%
Investments/GDP 42% 43% 44% 44% 44% 44% 43% 43%
Budget balance/GDP -1% -1% -1% 1% 1% -1% -1% -1%
Govt debt/GDP 16% 15% 14% 12% 9% 8% 8% 8%
CPI inflation (%chg.) 3,8% 1,8% 1,8% 4,8% 5,8% 0,9% 1,7% 0,9%
Money demand (%chg.) 11,4% 10,1% 12,8% 14,0% 10,4% 10,6% 9,7% 7,7%
Stock prices (%chg.) -1% -21% 59% 144% -42%
Interest rates 5,4% 5,6% 5,9% 6,9% 6,9% 4,5% 4,4% 3,9%
Exch. Rate ($) 8,28 8,19 7,97 7,61 6,95 6,67 6,38 6,22
Trade/GDP (%) 58% 62% 65% 65% 61% 55% 49% 47%
Oil price (Brent) $38 $54 $65 $73 $97 $44 $60 $74
Millions US $
Export of goods 593 393 762 484 969 682 1 220 000 1 423 880 1 444 160 1 509 000 1 596 260
Imports of goods 534 410 628 295 751 936 904 618 1 096 900 1 081 420 1 128 180 1 209 240
Other: 9 676 26 629 32 120 56 451 55 609 42 957 29 034 21 915
Current account ($ mill) 68 659 160 818 249 866 371 833 382 589 405 697 409 854 408 935
(% of GDP) 3,6% 7,2% 9,4% 11,3% 9,3% 8,8% 7,7% 6,8%
FDI 53 132 67 821 56 935 121 418 231 669 65 463 64 450 45 790
Loan repayments -16 289 -20 848 -18 122 -23 829 -29 613 -33 469 -36 898 -39 774
Net other capital flows 40 441 21 929 -61 612 -63 340 -112 495 -77 441 -85 656 -68 300
Balance of payments 145 943 229 720 227 067 406 083 472 150 360 250 351 750 346 650
Reserves 513 260 742 980 970 047 1 376 130 1 848 280 2 208 530 2 560 280 2 906 930
Total debt 232 983 268 896 307 383 335 000 347 156 356 848 365 494 371 962
o/w short term debt 105 391 136 081 163 961 181 753 189 733 196 726 202 807 207 938
Source: OEF (Oxford Economic Forecasting) and SEB estimates.

Rating history

Fitch (eoy) A- A- A- A A
Moody's (eoy) A3 A2 A2 A2 A1
S&P (eoy) BBB BBB+ A- A A
Type of government: Communism rule (experiments with free elections at local levels)
Next elections N/A
Other:
Latest PC deal None
Recent IMF programs None

Spot and forward rates, USD/CNY Shanghai Stock Exchange

8,50 7000
8,25 Spot
6000
8,00
NDF
7,75 5000

7,50 4000
7,25
3000
7,00
6,75 2000

6,50 1000
6,25
05 06 07 08 09 0
96 97 98 99 00 01 02 03 04 05 06 07 08
Spot Rates, USD/CNY., Close Forward Rates, USD/CNY 12 Month Outright, Bid
Source: Reuters EcoWin Source: Reuters EcoWin

)s
Foreign reserves
Investments/GDP il
n
o
2,00
70 li
b
1,75
60 d
n 1,50
percent
50 a
s
u 1,25
40 o
h 1,00
30 (t
s 0,75
20 n
o
il
10 ilr 0,50
T
0 D 0,25
S
2002 2004 2006 2008 U 0,00
2000 2002 2004 2006 2008
Source: OEF
Source: Reuters EcoWin

4
SEB Merchant Banking Country Risk Analysis February 5, 2009

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