Portfolio Investment Opportunities in China Democratic Revolution in China, Was Launched There
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Morgan Stanley Smith Barney Investment Strategy The Great Wall of China In c. 220 BC, under Qin Shihuangdi (first emperor of the Qin dynasty), sections of earlier fortifications were joined together to form a united system to repel invasions from the north. Construction of the Great Wall continued for more than 16 centuries, up to the Ming dynasty (1368–1644), National Emblem of China creating the world's largest defense structure. Source: About.com, travelchinaguide.com. The design of the national emblem of the People's Republic of China shows Tiananmen under the light of five stars, and is framed with ears of grain and a cogwheel. Tiananmen is the symbol of modern China because the May 4th Movement of 1919, which marked the beginning of the new- Portfolio Investment Opportunities in China democratic revolution in China, was launched there. The meaning of the word David M. Darst, CFA Tiananmen is “Gate of Heavenly Succession.” On the emblem, the cogwheel and the ears of grain represent the working June 2011 class and the peasantry, respectively, and the five stars symbolize the solidarity of the various nationalities of China. The Han nationality makes up 92 percent of China’s total population, while the remaining eight percent are represented by over 50 nationalities, including: Mongol, Hui, Tibetan, Uygur, Miao, Yi, Zhuang, Bouyei, Korean, Manchu, Kazak, and Dai. Source: About.com, travelchinaguide.com. Please refer to important information, disclosures, and qualifications at the end of this material. Morgan Stanley Smith Barney Investment Strategy Table of Contents The Chinese Dynasties Section 1 Background Page 3 Length of Period Dynasty (or period) Extent of Period (Years) Section 2 Issues for Consideration Page 65 Xia c. 2070 - c. 1600 BC 470 Shang (Yin) P.8 1600 - 1046 BC 554 Section 3 Investing Background Page 95 Zhou P.9 1046 - 256 BC 790 Xi (Western) Zhou P.9 1046 - 771 BC 275 Section 4 Understanding China’s Investment Potential Page 126 Do (Eastern) Zhou P.9 770 – 256 BC 514 Spring and Autumn 770 – 476 BC 294 Warring States 475 – 221 BC 254 Section 5 Overview of the Investment Landscape Page 147 Qin (Chin) P.10 221 - 207 BC 14 Han P.11 206 BC - 220 AD 427 Section 6 Additional Sources and Disclosures Page 161 Three Kingdoms 220 - 265 AD 45 Jin (Tsin) 265 - 420 AD 155 Southern and Northern 420 - 580 AD 160 The Provinces of China Sui P.12 581 - 618 AD 37 Province or City Population Province or City Population Tang P.13 618 - 907 AD 289 2 2 District Capital Area (Km ) Area (Miles ) (MM) District Capital Area (Km2) Area (Miles2) (MM) Five Dynasties 907 - 960 AD 53 Anhui Hefei 140,000 54,054 61.2 Jiangxi Nanchang 166,600 64,325 43.7 Song (Sung) P.14 960 - 1279 AD 319 Beijing Beijing 16,808 6,490 16.3 Jilin Changchun 187,400 72,356 27.3 Yuan P.15 1280 - 1365 AD 85 Chongqing Chongqing 82,300 31,776 28.2 Liaoning Shenyang 146,000 56,371 43.0 Ming P.16 1368 - 1644 AD 276 Fujian Fujian 121,700 46,989 35.8 Nei Monggol Hohhot 1,200,000 463,322 24.1 Qing (Ching) P.17 1644 - 1912 AD 268 Gansu Lanzhou 454,000 175,290 26.2 Ningxia Yinchuan 66,400 25,637 6.1 Republic of China 1912 – 1949 AD Guangdong Guangzhou 178,000 68,726 94.5 Qinghai Xining 720,000 277,993 5.5 People’s Republic of China 1949 – Present Guangxi Nanning 236,660 91,375 47.7 Shaanxi Xi'an 205,600 79,383 37.5 Key Dynasty Guizhou Guiyang 174,000 67,182 37.6 Shandong Jinan 156,700 60,502 93.7 Hainan Haikou 33,940 13,104 8.5 Source: Encyclopedia Britannica, www.britannica.com, Shanghai Shanghai 6,340 2,448 18.6 www.chinaculture.org, www.artsmia.org. Hebei Shijiazhuang 187,700 72,471 69.4 Shanxi Taiyuan 156,000 60,232 33.9 Heilongjiang Harbin 469,000 181,082 38.2 Sichuan Chengdu 487,700 188,302 81.3 Henan Zhengzhou 167,000 64,479 93.6 Tianjin Tianjin 11,303 4,364 11.2 Hubei Wuhan 185,900 71,776 57.0 Xinjiang Urumqi 1,600,000 617,763 21.0 Hunan Changsha 212,000 81,854 63.6 Xizang [Tibet] Lhasa 1,230,000 474,905 2.8 Jiangsu Nanjing 102,600 39,614 76.3 Yunnan Kunming 394,000 152,124 45.1 Zhejiang Hangzhou 101,800 39,305 50.6 Source: The State of China Atlas, 2009. 2 Please refer to important information, disclosures, and qualifications at the end of this material. Morgan Stanley Smith Barney Investment Strategy As of early 2011, China had more people, more mega-cities, more skyscrapers, more internet users, more millionaires, and more greenhouse gas emissions than any country in the world. Despite significant differences in history, cultures, mores, and political evolution, China shares much in common with the West. Source: Morgan Stanley Smith Barney Investment Strategy. Section 1 Background Origin of the word “China” Origin of the word “Cathay” Origin of the word “Sino” The origin of the word “China” dates to The word “Cathay,” a literary term for China, The word “Sino” means “Chinese.” This the Qin dynasty (pronounced Ch’in), can be traced to the Khitan ethnic group, an word is derived from the Latin word for which extended for 14 years, from 221 ancient nomadic tribe that lived in Northern China, “Sinae.” through 207 BC. The Qin dynasty China. Khitan, Khitai, and Khitay are all variant Source: www.etymonline.com. established the first centralized imperial spellings for the name of the people of this tribe. government in China. The word “Cathay” evolved as a European Source: www.etymonline.com. naming of Khitay. Source: www.etymonline.com. 3 Please refer to important information, disclosures, and qualifications at the end of this material. Morgan Stanley Smith Barney BACKGROUND Investment Strategy China at a Glance • China has undergone a significant Background transformation since it began moving toward a free market economy in • Since 1976, China’s real GDP growth has averaged 9.5% per year, three times the average of major industrialized 1976-1978. countries. The combination of one of the lowest-cost labor forces in the world, enlightened economic policies, • This transformation has been marked and increasing technological prowess has contributed to China’s economic rise. by substantial growth in China’s real • China’s transition from a centrally planned economy to a free market economy, which began in 1976 after the GDP. death of Mao Zedong, has transformed China into an important force in the global markets for trade and • China’s development has important implications for world trade, economic investment. growth, global prices, capital flows, • While China’s growth path in recent decades resembles Japan’s development from 1950-1990, due to the and geopolitics. country’s large population and geographic size, the global ramifications of China’s growth are especially • Recent developments in China’s profound and include China’s effects on world trade, economic growth, global prices, capital flows, and financial markets may open China further to foreign investment. geopolitics. • Since the 1990s, China has sustained positive trade and current account balances. China is an important Political Leaders of China, 1949 – Present participant in global financial markets through the investment of its substantial foreign reserves. Name Years in Office • China’s total exports exceeded those of the US in July 2006 and have continued to do so through 2010. Chairmen of CPC / General Secretary of the CPC Recent Developments Mao Zedong 1949-1976 Hua Guofeng 1976-1981 • China’s GDP growth rate has decelerated somewhat and may continue to slow as China experiences a soft Hu Yaobang 1981-1987 landing: a gradual, not-sharp decline in GDP growth to more long-term sustainable rates. As of June 2011, Zhao Ziyang 1987-1989 Morgan Stanley & Co. Inc. Research estimated that China’s GDP growth in 2011 and 2012 would be Jiang Zemin 1990-2002 approximately +9.0% and +9.0%, respectively. Hu Jintao 2002-Present • Authorities in China have been asked by other developing countries to strengthen the renminbi. Xi Jinping Next In Line (2013) – On June 19, 2010, China discontinued its fixed exchange rate of 6.83 renminbi per US dollar. From June Premiers through December 2010, the renminbi appreciated +3.3%. As of June 2011, Morgan Stanley Research expected Zhou Enlai 1949-1976 the renminbi to appreciate, with a period-end renminbi per US dollar exchange rate of 6.20 in 2011 and of 5.82 Hua Guofeng 1976-1980 Zhao Ziyang 1980-1987 in 2012. Li Peng 1987-1998 • On October 18, 2010, China appointed Vice President Xi Jinping as Vice-Chairman of the Central Military Zhu Rongji 1998-2003 Commission, indicating that Mr. Xi may be the likely successor to Communist Party President Hu Jintao. Wen Jiabao 2003- Present • As of April 2011, China held the world’s largest foreign exchange reserves, US$3.0 trillion, or 32% of the Source: WorldRover.com. world’s total; Japan was second, with its US$1.0 trillion representing 11% of the world’s total. Source: Bridgewater Associates; Bloomberg, LLC; Morgan Stanley & Co. Inc. Research; Global Insight. 4 Please refer to important information, disclosures, and qualifications at the end of this material. Morgan Stanley Smith Barney BACKGROUND Investment Strategy Country Statistics Top Nations by GDP per Capita General Information Purchasing Power Parity GDP per capita ($US) in 2010 • Language: Mandarin (other important Chinese dialects include: Cantonese, Hakka, Hsiang, Wu, Min, and Kan) 1 Qatar 88,559 • Exchange Rate: Floating; US$1=Rmb 6.67 (as of Dec.