【正文】 listed on HK and NYSE), in which the State maintains control ? Private panies primary engine of growth in last two decades–Driven by privatization of SOEs, growth of individually/familyowned and foreign funded enterprises (FFEs)–Estimated to be increasing 15%50% per annum–Approx 2 million+ nonstate owned enterprises at end of 2023 2? Initially foreign panies entered the China market primarily through joint ventures due to legal restrictions? Whollyowned foreign subsidiaries growing due to recent relaxation of foreign ownership laws? SOE reform is a government priority – faced with large portfolio of under performing SOEs –51% of SOEs unprofitable in 2023? Accelerated privatization of locallyadministered, small/medium SOEs–Government mandate to “grasp the large [SOEs] and let go the small [SOEs]” 3–Majority of the lossmakers are inefficient small/medium SOEs ? Continued privatization of large, unprofitable SOEs in nonstrategic industries? Government promotion of the private sector to generate jobs economic growth? Increase in foreign joint ventures in the short term as selected industries slowly open to foreign petition? But longer term shift to whollyowned foreign enterprises (based on recent FDI trends) when selected industries bee fully deregulated ? With liberalization of the banking sector, domestic private panies will be able to access much needed funds for growth? Potential difficult listing in near future due to recently announced domestic IPO restrictions and lack of sound regulatory system to improve corporate governance measuresCurrent ViewKey Shift in StructureEconomic Environment SOE Reform169。 2023 Deloitte Consulting 9SOE reform will bring out stronger domestic players, yet the pace of the reform needs to be managed carefullySOEs Are Restructuring To Be Stronger Players?Automotive: 100 car makers to be consolidated into three: First Automotive Works (FAW)。 Dongfeng (DF)。 Shanghai Automotive (SAIC)?Airline: Airlines to be merged into 3 groups: Air China。 China Southern。 China Eastern?Tele: China Tele China Net (CNC) exchange assets and divided into north and south operator?Utility: State Power Corporation (SPC) was broken into 11 panies, including five independent nationwide power generation groups, two power grid panies, and four ancillary service paniesChallenges Facing SOE Reform?Increasing Small Middle SOE Will Bankrupt ? 3050 large and strong enterprise groups will lead markets and participate in international petition? Elimination of different policies between SOEs and other enterprises will remove previous protections?So far, SOE has laid off more than 45 million people, most of this unemployment labor force has difficulty to find new job and result in instability in certain areasSOE Is The Dominating Component in Chinese Industry, while FIE Grows FasterSource: The Economic Intelligence Unit (EIU), National Bureau of Statistics of China Note: The industrial output is at 1990 constant priceForeigninvestedStateowned*Total industrial outputRMB bnYearEconomic Environment SOE Reform169。 2023 Deloitte Consulting 10Foreign Direct Investment will continue to be an important driver of economic growthLess Control of FDI After WTO?A gradual opening of previously protected area of the economy in line with WTO mitments will take place?Estimates are that entry into the WTO could bring China $100 billion of new investment annually, pared to $45 billion last year, and add one percentage point to its economic growth?Keep aggressive investment in western regionGovernment Will Still Put Its Hand On?Government state bond refund?Control over important sectors of China economy?New rules and provisions for foreign investment since China entered WTOEconomy Growth Is Acpanied By Increased FDISource: Oxford University Press, EIUNote: Figures for 2023 are forecast by Oxford University Press,0406 are forecasted by EIUEconomic Environment FDI169。 2023 Deloitte Consulting 11Foreign investments have been concentrated along the coastal regions of China, particularly in the economic zones of the Yangtze River Delta (YRD) and the Pearl River Delta (PRD)0 – 100100 – 300300 – 500500 – 1,0001,000 – 2,0002,000 – 4,0004,000 – 5,00010,000FDI Total Value(US$ million)Year 2023 Foreign Direct Investment (FDI) by ProvinceHeilongjiangJilinLiaoningHebeiBeijingTianjinInner MongoliaShandongJiangsuShanghaiZhejiangFujianGuangdongGuangxiHainanHunan JiangxiAnhuiHubeiHenanGuizhouYunnanSichuanChongqingGansuNingxiaShaanxiShanxiQinghaiXinjiangTibetEconomic Environment FDI169。 2023 Deloitte Consulting 12Foreign Direct Investment 2023(by industry, Percentage)Foreign Direct Investment 2023 (by country, US$ bn)The investments mainly e from several countries and are directed into several key industriesSource: Ministry of Commerce, PRC Source: Ministry of Commerce, PRCEconomic Environment FDI169。 2023 Deloitte Consulting 13China’s international trade is steadily increasing, with WTO being an important driver for continued growth International Trade Keeps Increasing?China’s international trade volume has grown steadily in the passed 5 years and an annual trade surplus has been achieved in recent years?The surplus of balance of payment has been decreasing?China has shifted and adjusted its trade partner structure。 US and EU turn into bigger partnersImport Will Increase Significantly and A Trade Deficit will Happen in 2023?The import volume will rise with more alignment under WTO?A trade deficit will happen in 2023?China will has a more interactive trade relationship with advanced economies, . US and EUMore Dependence on Global Economy?Problem in Balance Payment of international trade?Face mo