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Enhance Sino-India Cooperation on
Infrastructure
Nov. 2009
0
China and India Have Developed as Two Important Engines in Global
Economic Landscapes
但是近30年来，中印再度迅速成长，成为世界经济亮点
Fastest growing economies in last decade
Quick recovery after this financial crisis
1998-2008 GDP CAGR of Top 10 Countries in the Share in the
World Economy
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
GDP YoY Growth %
12.0%
China
15
United States
India
U.S.
Euro Area
14.0
3.1%
13.0
13.0
12.0
China
10.6%
10
Japan
1.1%
9.2
9.0
9.3
10.1
9.0
8.6
7.8
India
Germany
10.6
9.7
7.8%
8.9
7.9
7.7
6.8
5.8
5
6.1
5.8
6.1
1.7%
Russia
6.3%
United Kingdom
0
-2.3
3.0%
France
Brazil
-4.8
-5
2.4%
3.3%
-10
Italy
1.3%
Source: IMF, CICC Research Note: the ranking of the share in the world economy is
according to the PPP measures by the IMF
1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09
Source: Bloomberg
1
China and India Have Different Industrial Structures
Relatively improved manufacturing industries with higher contribution from
secondary industry
Relatively better service industry in India with higher contribution from
tertiary industry
Primary
Industry
11.1%
Tertiary
Industry
40.4%
Primary
Industry
18.1%
Personal Service
个人服务
10%
Agriculture/forestry/fishing
农林牧渔
11%
房地产及商业
Real Estate &
Business
Service
服务
10%
Tertiary
Industry
52.4%
Mining
采掘业
5%
Personal Service
社会个人服务
13%
Agriculture/forestry/fishing
农林牧渔
18%
房地产及商业
Real Estate &
Business服务
Service
Mining
采掘业
3%
8%
Banking &
Insurance
银行保险
Industrial
Structure
China GDP
USD 4,327
BN
5%
Transportation &
Warehousing
交运仓储
Banking &
Insurance
银行保险
6%
India GDP
USD 1,207
BN
Manufacturing
制造业
Transportation &
Warehousing
6%
Manufacturing
制造业
16%
交运仓储
9%
34%
Retail,
Dining &
批零餐饮及酒
Hotels
Utility
公用事业
2%
店
9%
Construction
建筑业
6%
Source: CEIC
Utility
公用事业
4%
Retail, Dining &
批零餐饮及酒
Hotels
店
17%
Secondary
Industry
48.5%
Construction
建筑业
9%
Secondary
Industry
29.5%
Source: CEIC
2
Both Face the Pressures for Growth Model Transformation in the
Future
China: driven mainly by investment and exports, more
contribution from consumption is expected
%
Breakdown for China’s Economic Growth
12
India: driven mainly by consumption, more contribution
from exports is expected
%
Breakdown for India’s Economic Growth
12
Net Export Driven 2006-2008 CAGR
1.9
10
Investment Driven
Net Export Dragged
Investment Driven
Net export is the key powerhouse for
China’s economic growth, while India
10
records a negative
net export
- 2.1
2006-2008 CAGR
5.1
8
8
4.7
+
+
6Consumption Driven
6
11.2
Consumption Driven
8.8
+
4
+
4
5.8
4.6
2
Higher Consumption
Contribution than China
2
0
0
Consumption
Investment
Source: CEIC, CICC Strategic Research
Net Export
Economic Grow th
Consumption
Investment
Net Export
Economic Grow th
Source: CEIC, CICC Strategic Research
3
India’s Focus on Higher Education and Its Expertise on High-end
Service Merits China’s Reference
India: international competitiveness in high-end service industry, such as, software and medical industry, with support
from higher education
Focus on Higher Education Development
Since the 1950s, India has invested heavily in higher education
development, as it established 6 “Indian Institutes of Technology” in India
following the MIT pattern, and developed medical colleges with advanced
teaching materials and teaching system from the US and Europe
Software Industry
In 2008, India’s software industry had an
output value of USD71 billion, with 2/3 from
exports; its software exports accounted for
46% in service exports, 20% in global exports,
second only to the US
High-end Medical Industry
India’s private hospitals have state-of-the-art
equipments and quality doctors with world-class
generic drug industry
Source: CICC Strategic Research
4
China’s Infrastructure-Driven Industrialization and Its Expertise on
Exports Merits India’s Reference
China: international competitiveness in export-oriented manufacturing based on a developed infrastructure
Focus on Infrastructure Development
China has improved a series of infrastructure facilities over time, such as,
power, transportation, telecommunication, municipal development, etc., and
its installed power generating capacity has grown to No. 2 globally
Rapid Industrialization
The share of China’s industrial output in the
gross output has grown from less than 20% in
the 1950s to 43% in 2008
Increasing Export Share
The share of China’s exports in the world has
grown from 2% in 1995 to circa 9% in 2008
Source: CICC Strategic Research
5
Excellent Achievements in China’s Infrastructure Development for the
Past 30 Years
Large-scale Infrastructure System Takes Shape in China (Taking the traffic facilities as examples)
Railway
Airport
Railway Mileage
10,000
Km
No. 2
globally
10
100 MM
Passengers/
annum
Airport Throughout
No. 3
globally
6
5.0
CAGR=2%
CAGR=7%
8.0
8
6.9
5.3
6
4
5.8
4
3.2
2
1.3
0.7
2
0
0
1980
Expressway
1990
2000
Expressway Mileage
10,000
Km
1980
2008
Port
No. 2
globally
8
100 MM
tons /
annum
1990
2000
Costal Port Throughout
No. 1
globally
50
6.0
39.0
40
6
2008
CAGR=11%
CAGR=25%
30
24.0
4
20
1.6
2
10
0.0
0.1
1980
1990
5.7
2.2
0
0
2000
2008
1980
1990
2000
2008
Source: Asian Development Bank, Ministry of Communications of the PRC
6
3-Phase Development of China’s Infrastructure
China’s infrastructure /GDP increased to nearly 10%
Driven by capital market and
government funding
capability
USD BN
300
基础设施投资额
Infrastructure Investment
Driven by foreign and private
investment
In GDP % (RHS)
占GDP（右轴）
8.1% in GDP8.1% with a CAGR of
27%
5.3% in GDP with a CAGR of 18%
250
3.2% in GDP without significant
investment growth
200
Leverage capital market: IPO proceeds
for infrastructure companies since
2002 is over RMB200 billion;
Some sectors were opened up to
foreign investors, such as, port, energy,
transportation, etc. and foreign
investors enjoyed favorable policy
Driven by gov’t investment
7.5%
6.3%
4.8%
4.7%
257
0.08
209
161
5.3%
5.3%
9.3%
0.06
6.2%
5.8%
150
9.8%
8.4%
Gov’t funding: over 20% growth in
fiscal revenue and land grant fee
Mainly dependent on government
funding with over 50% from this source
and there is few financing channels
6.4%
0.1
5.7%
123
4.8%
0.04
3.8%
100
3.5%
3.2%
65
2.8%
68
74
77
82
50
50
29
12
12
14
29
34
0.02
41
19
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
1989
0
Source: Asian Development Bank, World Bank
7
In the 2nd Phase, Introduction of Foreign Investment Played a Key Role
Significant increase in foreign investment in China’s
infrastructure
Installed capacity jumped driven by foreign investment
Growth
USD 100 MM
60
Average addition of 18.64 million
kilowatt annually in 1992-2002
2,500
Growth (RHS)
增速(右轴)
150%
历年新增发电装机容量
150%
60%
Foreign Investment Volume in
外商对中国基础设施投资额
China’s Infrastructure
152%
Newly-added Power Generating Installed
Capacity in Each Year
3,000
53
50%
2,000
50
1,500
43
40%
CAGR=19%
1,000
40
35 35
36
30%
30 31
10%
19
0%
Policy
16
6
-10%
0
-20%
95
97
99
01
Source: ACMR, CICC Strategic Research Estimates
03
05
07
Effect
3
93
2002
2001
2000
1999
1998
1997
1996
1995
In 1986, the State Council approved the Provisional
Regulations on Encouraging Development of Power
Generation by Funding and Implementing Multiple Tariffs
Systems

In order to attract various foreign investors, the
government provided a fixed annual return of 15-20%

The tariff is dependent on the return rate

In 1997, foreign investment accounted for 17%, a peak
proportion in the power investment

In 1990s, the average annual addition of installed capacity is
3-4 times of that in 1980s
10
91
1994
23 23
22
20
1993
20%
27
26 26
24
-
1992
30
500
Source: ACMR, CICC Strategic Research Estimates
8
Theme of Policy: Return Guarantee and Policy Support
China has delivered a reasonable investment return to
attract foreign investors
China has provided an enabling policy environment for
foreign investors
2002-2007 ROE
P_ower
Sewage treatment

Reform and open-up: lay down the policy
framework for foreign investment into the
infrastructure sector

China started to introduce foreign investments into
the infrastructure sector in the 1980s, starting from
ports

After then, energy, transportation, and city
infrastructure sectors were opened up gradually to
foreign investors

Reasonable return: develop favorable policies to
enable foreign investors to achieve a reasonable
return

Volume: secure the procurement volume of
goods/services for foreign investors for quite a long
time

Price: provide certain pricing flexibility to foreign
investors
based
on
applicable
regulatory
requirements

Subsidy/tax benefit: provide certain discount in terms
of land premium/tax rate, and even operating
subsidies to foreign investors
+9.3pps
15.5%
3.6%
Gas
Water supply
Return on foreign
investments vs, domestic
average
Domestic average
Foreign
11.2%
+4.1pps
7.0%
0.4%
+3.4pps
5.5%
0.6%
+4.3pps
10.9%
0%
5%
10%
15%
20%
Higher capital ratio vs. domestic manufacturers and international
opportunists
9.7%
Domestic infrastructure
Domestic high-end
manufacturers
14.9%
Domestic low-end
manufaturers
International infrastructure
0%
Return on
foreign
investment in
infrastructure
vs. domestic
average
-5.2pps
8.5%
+1.2pps
5.0%
5%
+3.4pps
10%
15%
20%
Source: ACMR, China City Statistical Yearbook
9
3rd Stage, Infrastructure Sector Leverages the Capital Market to
Realize Higher Growth
China capital market has been a major financing platform
for infrastructure companies
CICC has led a number of infrastructure IPOs
RMB100 mn
800
基础设施建设相关IPO融资额
Infrastructure-related IPO Volume
713
700
Infrastructure related IPOs
since 1992 posted a combined
size of RMB222.4 billion, of
which deals after 03 accounted
for 78.5%
600
500
CICC has been engaged as Lead Underwriter
for Huadian Power, Baiyun Airport, Daqin
Railway and China State Construction
Engineering IPOs
CICC-led,
694 , 31%
RMB222.4 BN
raised from
infrastructurerelated IPOs
400
309
300
253
Others,
1,529 , 69%
222
179
200
106
78
5
6
1995
17 25
1994
100
71
64
42
22
42
39 29
Source: Wind, 2009 data as of end of October
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1993
1992
0
Source: Wind
10
CICC is Willing to Promote Sino-India Cooperation in Infrastructure
Construction, to Achieve Win-Win

India has over USD 50 billion demand for infrastructure investment during the
“Eleventh Five Year Plan” period

In recent years, China has witnessed surging foreign engineering contract value and
emergence of a number of world leading construction companies. And China has
built up very strong funding and construction capability after years’ investments in
the infrastructure sector.

CICC is willing to leverage our extensive premier customer base in China and solid
infrastructure financing experience to promote Sino-India cooperation in the
infrastructure sector, to create a “win-win” situation for all parties
11