【正文】 utput is at 1990 constant priceForeigninvestedStateowned*Total industrial outputRMB bnYearEconomic 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)。 2023 Deloitte Consulting 5China’s economic growth in 2023 is estimated to be %, outpacing the government expectationGDP Grows Trend? 2023 GDP % breakdown: % industry, % agriculture and 33% services ? China’s GDP is expected to grow by % in 2023 and % in 2023? The growth is boosted by an upturn in OECD growth and the continued relocation of manufacturing capacity from highercost locations? Exports will continue to grow by more than 15% a year throughout the forecast period. However, this will still represent a slowdown from the unusually high rate of growth achieved in 2023? Investment growth is likely to slow sharply in 202305 as the PBC seeks to tighten the supply of credit and the government begins to rein in its policy of using publicsector infrastructure spending to boost GDP growthActualThe Economist Intelligence Unit estimates and forecastsSource: The Economist Intelligence Unit (EIU) Note: The data of 2023 is estimated by National Bureau of Statistics of ChinaSustained economic growth is foreseeable, and is forecasted to be between 78%World GDP CAGR (9706)Economic Environment GDP169。February 2023Dr. Shane TedjaratiManaging DirectorDeloitte Consulting ChinaChina – An Executive Overview169。 2023 Deloitte Consulting 4China has expedited economic reform in the past decade, fueling increase in GDP per capital at a rate of over 13% between 1978 to 2023From 1978 when China adopted the Open Door policy, Chinese economy has experienced astonishing growthLaunch of China’s Open Door PolicyBees a member of IMEApplies to join GATTEliminated its dual exchange rateAccepted full convertibility for current account transactionAnnounced an overall restructuring of SOE sectorSubmitted new tariff and services offersConcluded bilateral market access agreement with USAConcluded bilateral market access agreement with EUBees a member of WTOWork in GATT Working group is suspended for two yearsCAGR=%YearRMBFor the first time in history, China’s GDP per capita exceeded US$1000 (year 2023)A Brief HistorySource: China the race to market169。 2023 Deloitte Consulting 8As a government priority, SOE reform policy will focus on profit making in preparing SOEs for the inevitable petition against foreign entrants*Limited publicly available data on the nonstate sector 1 As defined by the Chinese government based on a plex classification system 2 Source: State Economic and Trade Commission3 Per the 1999 4th Plenum DecisionState Sector NonState Sector*? Declining state sector but still represent a relatively large % of GDP –34% decline in number of SOEs as a result of privatizations, mergers and bankruptcies between 19972023–Approx 174,000 SOEs at end of 2023 (5% classified as large1 SOEs)? Most of the large SOEs in strategic industries centrally controlled? Decentralized approach – 90% of SOEs administered by local governments ? “State Controlled” panies refer to publicly listed panies (some 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。 China Southern。 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 15RMB is under revaluation pressure, however the probability of RMB revaluation in the near term is rather low. Pegging to a larger basket of currencies is the likely next step Exchange of RMB Is Sticking to US Dollar RMB is under revaluation pressure?Bilateral trade deficit that the US incurs versus China, grew from $30 billion in 1995