【正文】 2023 Deloitte Consulting 22The rural reform is one of the priorities of the Chinese government Rural Reform Focuses on Unemployment and Rural Welfare SystemIncreasing Rural Problems Jeopardize Urban StabilityThere is a 42% surplus of Rural Labor Force Another 100M+ People Will Move to Cities?The capacity for cities to absorb surplus labor is constrained by rising urban unemployment associated with SOE reform?WTO membership would displace % of the farm labor force, or 21 million workers?Rapid influx into already crowded cities will worsen problems such as crime, unemployment, traffic congestion and environmental degradation?At least 42% of Chinese farmers are in surplus and should be diverted to more productive sectors ?Government’s created 100M+ rural job opportunities since 1980?Huge numbers of rural migrant workers have flooded into cities since the 1980s, in Shanghai alone the number is more than 2 millionSource: Statistical Year Book Required Fulltime Labor Force: 191MSurplus Labor Force: 137MSource: Oxford AnalysisSocial Political Environment Rural Reform169。 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 to more than $100 billion ?Currently China’s foreign currency reserves exceeded $300 billion and is still rising spectacularly?Rising voices within Asia itself, concerning the RMB’s relative undervalue and charges that Chinese exports are unfairly petitive?Attention is increasingly focused on the RMB peg to the USD, especially after the dollar declined considerably vis224。 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。 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 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)。 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