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INTERNATIONAL BUSINESS BRIEFING SERIES DOING BUSINESS WITH CHINA International Business Briefing Series
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DOING BUSINESS WITH CHINAInternational Business Briefing Series
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Deloitte J.P Morgan Chase US-China Business Council Business Development Asia Franklin Electric Waterfurance Renewable Energy Vertellus, Inc.
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Extensive experience advising U.S., European and Asian clients
on entering the China business environment, including investment,
trade and commercial matters.
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INDIANAPOLIS
WelcomeJeff Brown, Faegre Baker Daniels
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INDIANAPOLIS
China’s Economic, Political and Investment Environment: An UpdateKok-Chi Tsim, J.P. Morgan Chase
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
The material contained herein is intended as a general market commentary. Opinions expressed herein are those of Kok-Chi Tsim and may differ from those of other J.P. Morgan employees and affiliates. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.
This presentation was prepared exclusively for the benefit and internal use of the Chase customer or potential customer to whom it is directly delivered and/or addressed (the “Company”) and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, any oral briefing provided by or other discussions with Chase. Neither this presentation nor any of its contents may be duplicated, published or disclosed (in whole or in part) or used for any other purpose without the prior written consent of Chase, which may be withheld in its sole discretion.
(c) 2013 JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”) and if and as used herein may include as applicable employees or officers of any or all of such entities irrespective of the marketing name used. Products and services may be provided by commercial bank affiliates, securities affiliates or other JPMC affiliates or entities. In particular, securities brokerage services other than those which can be provided by commercial bank affiliates under applicable law will be provided by registered broker/dealer affiliates such as J.P. Morgan Securities LLC, J.P. Morgan Institutional Investments Inc. or by such other affiliates as may be appropriate to provide such services under applicable law. Such securities are not deposits or other obligations of any such commercial bank, are not guaranteed by any such commercial bank and are not insured by the Federal Deposit Insurance Corporation.
This presentation does not constitute a commitment by any JPMC entity to extend or arrange credit or to provide any other products or services.
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
12th five-year plan turns focus to sustainable growth
Source: JPMorgan Economic Research, June 2013
Growth target remains at 7.5% for 2013
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
Private consumption expected to become larger contributor to China’s growth
Real GDP growth components %
1 Others includes government consumption and inventorySource: McKinsey & Company “What’s next for China” December 2012
1517 16
2741 51
5342 34
2000-10 2010-20E 2020E-30E
Private consumption
Investment
Others1
Net trade 0 -1
+ 52%
+ 24%
5
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
Politics will continue to influence policy making in 2013
Political sensitivity still biased towards controlling goods & asset prices; measured fiscal policy to support growth
China transition key:
18th Congress of the Communist Party of China largely in line with expectations…
…as was the March12th National People‘s Congress
General Secretary of CPC and PRC President
“Chairman” role -- Macro perspective– People-centric and focused on
common prosperity– Understands market economy and
enthusiastic about liberalization– Military tie and influence– Looking to foster sustainable
development– Supports international economic
engagement and cooperation
Premier of the State Council
“CEO” role – Micro- and implementation-focused– Experienced in planned economy– Rule-of-law mindset– Tasked with:
• Boosting domestic demand• Expanding affordable housing• Reducing unemployment• Building a social welfare system• RMB internationalization• Financial reform
Source: JPMorgan Economic Research, June 2013
LI Keqiang(b. 1955)
XI Jinping(b. 1953)
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
Expansion of smaller cities is projected to account for the largest share of urban GDP growth through 2030
China’s city landscape by population size in 2012
China’s city landscape by population size in 2030
Source: McKinsey & Company “What’s next for China” December 2012
City by urban population size, million City by urban population size, million
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
New leadership focus on creating social insurance and environmental protection
Central government fiscal expenditure for social welfare
12th FYP investments on Environmental Protection
2012 Actual (RMB bn) 2013 Budget (RMB bn) 2012-2013 YoY % of total fiscal budget Education 2116.5 2349.5 11.1% 16.8% Social welfare 1254.2 1456.7 16.1% 10.0% Rural subsidies 1190.3 1355.5 13.9% 9.5% Healthcare 719.9 830.9 15.4% 6.5% Social housing 444.6 477.8 7.5% 3.5% Environmental protection
293.2 335.2 14.3% 2.3%
Source: CEIC
Growth in government spending in all categories of social welfare are more than 7.5%
Spending on environmental protection in the 12th five year plan is projected to be more than twice as much as the 11th five year plan
Source: JPMorgan Economic Research (5/29/13)
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
The financial system continues to exhibit symptoms of under-regulation
China banks’ Net Interest Margin (NIM)
China banks’ NPL balance QoQ growth (%)China banks’ NPL balance QoQ growth (%)
Source: JPMorgan Economic Research (5/29/13)
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
Increasing proportion of China’s employment is focused on services
Share of GDP by sector Employment by sector
The 12th FYP calls for the service sector’s share of total GDP to increase by 4 percentage points between 2011 and 2015 Services output has exceeded output from the industrial sector for the last three quarters
Source: JPMorgan Economic Research (5/29/13)
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
Continued growth in personal incomes, growing health awareness and government policies are boosting demand for healthcare services
Growth rate of per capita healthcare expenditure (%) Total healthcare expenditure breakdown
Total healthcare expenditure per capita has accelerated due to the reform efforts, especially for rural residents: +17.5% YoY in 2012
The 12th five year plan set out specific guidelines to increase enrollment in medical insurance coverage by an average of 3% a year For those with coverage, guidelines decrease individual out-of-pocket expense to under 30% of total
health expenditure by 2015
Source: JPMorgan Economic Research (5/29/13)
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
Canada and Mexico are among Indiana’s largest export markets
Source: International Trade Administration, U.S. Department of Commerce, 2013
China 4%
Indiana Mexico 11% Japan 5%
+19%
Germany 6%+11%
+36%
+11%France 5%+44%
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
2005 2006 2007 2008 2009 2010 2011 2012
Indiana continues to increase exports to China
Source: International Trade Administration, U.S. Department of Commerce, 2013
Indiana exports to China by industry ($MM)Indiana exports to China by industry ($MM)
Other goods
Computer and electronic products
Miscellaneous manufactured commodities
Machinery, except electrical
Transportation equipment
Chemicals
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
Foreign direct investment in Indiana
Region Total Deals Foreign Deals
Foreign Deals:Value (in Millions)
Foreign Deals:Jobs
U.S. 15,537 4,347 $170,930 365,271
Midwest 3,077 871 $29,848 85,295
Illinois 491 152 $3,943 13,049
Ohio 535 148 $4,910 13,526
Indiana* 497 143 $4,743 12,429
Foreign direct investment by region, 2010 to 2012Foreign direct investment by region, 2010 to 2012
Source: “Capturing the Flag: Foreign Direct Investment in Indiana” – Indiana University’s Indiana Business Research Center, fDi Markets
*Indiana’s data have been verified by the IBRC, yielding more conservative estimates, where as the other states’ data represent unverified figures reported by fDi Markets . This is also reflected in the Midwest and the U.S. totals.
Indiana FDI announcements, 2010 - 2012Indiana FDI announcements, 2010 - 2012
16% of FDI within Midwest earmarked for Indiana, with an estimated value of $4.7 billion and
anticipated creation of 12,429 jobs
Japan is the top source country for FDI into Indiana
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
Cumulative Chinese direct investment in Indiana (2003 – 2011)Cumulative Chinese direct investment in Indiana (2003 – 2011)
Chinese direct investment in Indiana
Source: Rhodium Group: China Investment Monitor
Georgia
China
Wisconsin
Investment by IndustryAgriculture & Food 1 deal $ 15,000,000 Automotive & Aviation 2 deals $ 7,000,000 Basic Materials 2 deals $ 100,000,000 Consumer Products & Services 1 deal $ 10,000,000 Energy 1 deal $ 1,000,000 Industrial and Electronic Equipment 2 deals $ 4,000,000 Total 9 deals $ 137,000,000
Investment by Type
Greenfield 8 deals $ 132,000,000 Acquisitions 1 deal $ 5,000,000
Investment by Ownership
Government 4 deals $ 106,000,000 Private 5 deals $ 31,000,000
Indiana
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China M&A and Multi-Jurisdictional AcquisitionsModerator: George Martin, Faegre Baker DanielsPanelist: Yiqiang (Lee) Li, Faegre Baker DanielsPanelist: Justine Mannering, Business Development Asia LLCPanelist: Melanie Wadsworth, Faegre Baker Daniels
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
M&A Trends in AsiaOverview of Asian M&A
Asian M&A activity Asia represents 16% of announced deal volume globally for 2012 North America is still the center of deal making, accounting for 41% of global activity Emerging markets continue to make gains, up 2.3% from last year Cross-border deals account for 40.5% of total target volume
27
Deal flow indicator
North America
-12% QoQ17% YoY20% LTM change
Latin America
-5% QoQ20% YoY14% LTM change
Asia Pacific
29% QoQ15% YoY25% LTM change
EMEA
-9% QoQ12% YoY20% LTM change
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
China M&A and Multi-Jurisdictional AcquisitionsOverview of Asian M&A
China M&A activity – H2– 439 deals worth US$84.6bn in mainland China & Hong Kong, up 12.6%– China & Hong Kong 44.1% of aggregate M&A in Asia– Inbound acquisitions increased by 42.4% in value (US $8.8bn, 74 deals) – Outbound acquisitions increased 70.7% in value (US $37.3bn, 97 deals)
28
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
$21.9
$37.3
05
10152025303540
H1 2012 H1 2013
$6.1$8.8
05
10152025303540
H1 2012 H1 2013
China M&A and Multi-Jurisdictional AcquisitionsOverview of Chinese M&A
29
Inbound acquisitions (US$bn) Outbound acquisitions (US$bn)
42% growth rate
71% growth rate
US$b
n
US$b
n
Outbound acquisitions (# of deals)
7674
70
75
80
85
90
95
100
H1 2012 H1 2013
Inbound acquisitions (# of deals)
83
98
70
75
80
85
90
95
100
H1 2012 H1 2013
# of d
eals
# of d
eals
18% growth rate
3% loss rate
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
China M&A and Multi-Jurisdictional AcquisitionsChina Outbound and Inbound M&A – Global
30
Outbound M&A from China saw record first half
0
20
40
60
80
05
1015202530
Q12005
Q22005
Q32005
Q42005
Q12006
Q22006
Q32006
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Outbound value Outbound # of deals
0
20
40
60
80
05
1015202530
Q12005
Q22005
Q32005
Q42005
Q12006
Q22006
Q32006
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Q12009
Q22009
Q32009
Q42009
Q12010
Q22010
Q32010
Q42010
Q12011
Q22011
Q32011
Q42011
Q12012
Q22012
Q32012
Q42012
Q12013
Inbound value Inbound # of deals
Inbound M&A to China also up on 2012 but down on previous periods
US$b
nUS
$bn
Numb
er of
De
alsNu
mber
of
Deals
20122011201020092008200720062005
20122011201020092008200720062005
2013
2013
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
China M&A and Multi-Jurisdictional AcquisitionsChina Outbound M&A
31
Geographic breakdown (volume)
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
China M&A and Multi-Jurisdictional AcquisitionsChina Outbound M&A
32
China global outbound M&A by sector
9%
32%
25%
14%
13%
7%
2009
Energy & Mining
Industrials & Materials
Consumer
Financial Services
Information Technology
Other
9%
33%
22%
18%
11%7%
2013
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
China M&A and Multi-Jurisdictional AcquisitionsChina Outbound M&A
33
Deal size breakdown (by number of deals)
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
China M&A and Multi-Jurisdictional AcquisitionsChina Inbound M&A
34
China global inbound M&A by sector
7%
27%
41%
8%
10%7%
2009
Energy & Mining
Industrials & Materials
Consumer
Financial Services
InformationTechnology
6%
32%
29%
10%
9%6%
2013
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
China M&A and Multi-Jurisdictional AcquisitionsChina Inbound M&A
35
Deal size breakdown
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
M&A Trends in AsiaChina and U.S. Flows
36
China & U.S. deal flow (US$m)
US$m
01,0002,0003,0004,0005,000
Q12011 Q22011 Q32011 Q42011 Q12012 Q22012 Q32012 Q42012 Q12013 Q22013
US to China Value China to US Value
05
1015202530
Q12011 Q22011 Q32011 Q42011 Q12012 Q22012 Q32012 Q42012 Q12013 Q22013
US to China Volume China to US Volume
China & U.S. deal flow (# of deals)
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
China M&A and Multi-Jurisdictional AcquisitionsChina Outbound M&A
37
China to US by Sector
11%
29%
20%
20%
13%
7%
2008
Energy & Mining
Industrials & Materials
Consumer
Financial Services
InformationTechnologyOther
8%
20%
12%
20%
28%
12%
2013 YTD
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
China inbound deals
China outbound deals
M&A Trends in AsiaRecent Notable Deals
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
M&A Trends in AsiaKey Challenges in China / U.S. Deals
China outbound investors to US Regulatory approval (China and US) PR / Public Timing and process Financing Cultural / Operational
US investors inbound to China Due Diligence Cash management Regulatory and political risk Cultural / Operation control Valuation
I N T E R N A T I O N A L B U S I N E S S B R I E F I N G S E R I E S
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Senior Managing Director
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Director
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Director
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Managing Director, Head of Shanghai office
Mark WebsterManaging Director
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