【正文】 n entities as foreign ownership laws are relaxed? Improved corporate governance, transparency of information and a stronger regulatory environment to protect investors and private firms will be requiredStructural Changes of the Economy? Accession to WTO has accelerated market deregulation impacting almost every aspect of the economy across industries, creating new challenges and increasing petition ? Key shifts in structure . less state control requires access to capital creating a liquidity crunch? Banking and other macro level changes will occur? Privatization, restructuring and closure of State Owned Enterprises (SOEs) have recently accelerated in response to both market and government pressures ? As a result, the structure of the economy is changing rapidly with the nonstate sector being a more prominent part of the economyEconomic Environment SOE Reform* SOE = State Owned Enterprises169。 2023 Deloitte Consulting 3Contents1 China Overview Market Trends2 Industry Overview3 Lessons from the Field169。 Shanghai Automotive (SAIC)?Airline: Airlines to be merged into 3 groups: Air China。 2023 Deloitte Consulting 14In the foreseeable future, China is expected to emerge as a trading powerhouse, and being a major demand driver for the rest of AsiaImportsUS$ billionsSource: 5year forecast, EIUChina is forecasted to catch up to Japan in terms of imports volume by the year of 2023yearEconomic Environment International Trade169。 Oxford Analytica Category Current Rate Future RateAgricultural % 17%Car 80% 25% (parts, 10%)Woods / Paper 1218% / 1015% %Chemical N/A %HighTech (Incl. Semiconductor ) N/A 0%Category Barrier ActionsImports? Quota? Licensing? Registration requirements? Commodity inspection ? Quarantine rules ? Ban quotas and other quantitative restriction ? Phase out all quotas on products, by 2023, with an annual reduce rate of 15%? License exemption for exportoriented productionExports ? Rebate ? Average tax rebate rate of %, taking effect at the beginning of 2023China is Expected to Eliminate its Nontariff BarriersChina Will Cut Down its Tariff RateInternal serviceBankingDistribution, retailInsurance SecuritiesEnergyAuto Pharmaceuticals Tele servicesProcessed foods, consumer goodsElectrical equipment, electronics Current degree of protectionism Effects of WTO membership High Low Dramatic Negligible Sector protectionism and effects of WTOEconomic Environment WTOAgriculture agribusinessExcludes liquor and tobacco industries, which have historically been highly controlled and will likely continue to be.Source: United States–China Business Council。s western region is the biggest move aimed at shrinking the affluence gapIne Distribution is Being WiderEastMiddleWestEastern People Make Much More MoneySource: China Statistics Year BookNote: 1US$= yuan (current)Social Political Environment Ine disparity169。 CDI analysis (crossborder transaction only)China MA deals are on the rise, especially with privately held paniesExamples of recent MA dealsBuyer Seller Industry Value (USD m)Huaneng Power Int Shandong Huaneng Power Electric power 1,450Emerson Electric Avansys Power, owned byHuawei TechnologiesPower Systems 750Flextronic Int NatSteel Broadway Manufacturing 364Alcatel Shanghai Bell Tele 300Li Fung Colby Group Holdings Trading 282CCT Multimedia Haier Group Tele 185Source: CDI ChinaCommercial Environment MAGrowth rate of MA value in Mainland China Now is the ideal time for MA in China? China has a vast appetite for capital especially the privately owned panies, where most of MA deals are on the rise–China’s banks continue to primarily allocate funds to the largely inefficient SOEs–The stock markets as an alternative funding source to bank loans are fundamentally unsound–Currently some 500 to 1000 panies are waiting to be listed on the domestic market? The attractiveness for foreign investment is in MA deals especially in the manufacturing industries (semiconductors, home appliances, machinery etc)? By acquiring or merging with a Chinese pany (which produces parably lowtech products with high growth prospects) some foreign investors have acquired capabilities to run multiple product lines.169。 2023 Deloitte Consulting 23Increasing unemployment will bee the burden of local government and may jeopardize social stabilityUnemployment in China Is Expected to Be Severer in The Next Several YearsUnemployment Keeps GrowingThe unemployment rate will increase for 3 reasons? WTO exacerbate the short term unemployment。 2023 Deloitte Consulting 184th Generation of Leaders They have a number of new strengths…? Young and educated? Distrust of dogma? Have tendency to democracy? Have faith in the Reform? Have records of success …they will initiate new reforms…? Continue market liberation? Extend Beijing’s influence? Improve relationship with US? Be more flexible with Taiwan? Speed up political reform…but they face challenges and threats? More plicated international situations and severe internal unrest? Continuous influence from older leaders, and the jostling within the leadership will continue and could possibly trigger political instability? Needs to address discontent among the disadvantaged (. farmers and laidoff workers)。vis the euro and the yenUS$165。 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