China

China’s road towards more balanced growth and
it’s impact on Hong Kong’s economy
By Rob Rühl
Head of Business Economics ING
Amsterdam, 29 November 2012
Source: InvestHK
Introduction
• Global prospects changed dramatically (incl. Asia)
• China’s fading WTO dividend…
• …will affect China’s growth, interest rates and the currency…
• …and Hong Kong’s economic and financial development
• …and create new business opportunities for Dutch companies
• ING can help companies exploit them
•
With contributions by Tim Condon, ING Chief Economist , Asia and
Mohammed Nassiri, Research Assistant
2
IMPACT GLOBAL DEVELOPMENT
3
The global economy is changing fast
GDP (2008Q1=100)
140
China
130
India
120
Brazil
S-Korea
110
US
100
Eurozone
Japan
90
'07
'08
'09
'10
'11
'12
4
World trade growth is slowing
15%
10%
5%
0%
-5%
-10%
-15%
-20%
'07
'08
'09
'10
'11
'12
World trade
6month change, %
5
A weak US economy needs monetary policy
to be loose
Employed / population ratio 25-54yrs
Ratio werkenden / bevolking 25-54
80%
6 mn
jobs
78%
76%
74%
'07
'08
'09
'10
'11
'12
6
Eurozone presents a divergent growth
picture
GE
100
FR
NL
ES
95
PT
IT
IE
90
85
GDP (2008Q1=100)
'07
'08
'09
GR
'10
'11
'12
7
GROWTH IN CHINA WILL NEVER BE
THE SAME
8
Cleaning up the excesses from the 2009-10
stimulus is the priority for 2012
•
The 2009-10 monetary stimulus caused a significant increase in local
government indebtedness and property market overheating.
•
PM Wen was determined to reverse the excesses…
•
…and was willing to sacrifice GDP growth to do it.
•
ING forecasts GDP growth of 7.7% in 2012…
•
…accelerating to 9% in 2013 when the new leadership eases policies…
•
…then settling at 8.4%, the new trend growth rate, beyond 2013.
9
Stabilizing home prices suggest “reasonable”
house prices are near.
China: 70-Cities Home Price Index*
15
2.0
12
1.5
9
1.0
6
0.5
3
0.0
0
-0.5
-1.0
-3
Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12
%YoY
* Urban property price index prior to 2011. The average changes in the 70-Cities
Index are calculated by Reuters.
Source: ING FM research
10
The fading of the WTO dividend means the
days of double-digit GDP growth are over.
China: Real GDP
2500
Actual
1Q92-4Q01 Trend (9.6% p.a. growth)
Billions of 1992 Yuan
2000
1Q02-4Q07 Trend (11.3% p.a. growth)
Forecast (8.4% p.a. growth)
1500
1000
500
0
Source: ING FM research
11
Rebalancing will be the theme for the next
few years
China: Current Account Balance
Terms of trade worsening
12%
Limited increase consumption
% of GDP
10%
8%
6%
4%
2%
Boosting service sector
0%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Source: ING FM research
12
Unit labour costs have increased rapidly…
Index 2000=100
Labour costs in manufacturing ind. per unit compared
with gobal wage costs
300
China
250
200
India
150
NL
Germany
100
US
50
HK
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
13
…reducing China’s cost advantage…
Total annual costs
140
US
Germany
Brazil
China
India
140
120
120
NL = 100 100
100
80
80
60
60
40
40
20
20
-
-
Source: Survey KPMG Competitive Alternatives, 2012
14
…however wage costs are still competitive.
Salaries & Wages in 2011
140
NL = 100
US
Germany
Brazil
China
India
140
120
120
100
100
80
80
60
60
40
40
20
20
-
0
Source: Survey KPMG Competitive Alternatives, 2012
15
Interest rate developments CNY and HKD
3 months rates
Government bond 10 yr
3.5
3.5
3
3.0
2.5
2.5
2
2.0
1.5
1.5
1
1.0
0.5
0.5
0
12-Nov-12
China
4Q 12
1Q13
Hong Kong
2Q13
3Q13
US
4Q13
Euro
0.0
12-Nov-12
US
4Q 12
1Q13
China 5yr
2Q13
Euro
3Q13
4Q13
Hong Kong
Source: ING F
16
Asian currencies move with major
currencies against the USD
Asia ex-Japan Exchange Rate Index (ADXY) vs. US Dollar Index (DXY)
125
60
120
70
115
80
110
90
105
100
100
110
95
120
90
130
ADXY Index
DXY Index - right (reverse scale)
17
CNY and HKD stability against USD
CNY
13.0
12.0
7.8
ING Forecast
7.1
11.0
10.5
6.9
10.0
6.7
9.5
11.0
7.7
10.0
9.0
7.6
8.0
7.0
7.5
6.5
9.0
8.5
6.3
8.0
6.1
7.5
6.0
USD/HKD
EUR/HKD (RHS)
7.0
USD/CNY
1/7/14
1/1/14
1/7/13
1/1/13
1/7/12
1/1/12
1/7/11
1/1/11
1/7/10
1/1/10
1/7/09
5.9
1/1/09
1/7/14
1/1/14
1/7/13
1/1/13
1/7/12
1/1/12
1/7/11
1/1/11
1/7/10
1/1/10
1/7/09
1/1/09
5.0
1/7/08
7.4
EUR/CNY
14.0
7.9
USD/CNY
15.0
EUR/HKD
ING Forecast
8.0
1/7/08
USD/HKD
HKD
EUR/CNY (RHS)
Source: EcoWin, ING calculations
18
Costs are not the only things that need to
adjust
Position paper (2012- 2013) European Chamber Sept. 2012, issues to address
Markets
• Equal access to markets would bring healthy competition
and ease growing asymmetries
Public Procurement
• Equal access to public procurement would bring greater
returns on equity and private capital
Treatment Under the
Law
• Equal access to treatment under the law is needed in a
sophisticated, high value-added economy
Finance and
Subsidies
Technology
Innovation
• Equal access to finance and subsidies is needed to address
market distortions and optimise capital allocation
• Equal access to technology innovation is needed to move
up the value chain and stimulate innovation
19
Bottom line on China
• 2012 is a write-off – the Shanghai composite stock index is down
9.5% year-to-date – due to the authorities’ focus on macro
stabilization
• The incoming administration takes office in March 2013 and will have
scope to ease financial policies…
• …which ING sees boosting GDP growth to 9.0% in 2013.
• The fading WTO dividend means slower medium-term growth (INGF
8.4% from 11.3% in 2002-07).
• Economic “unbalancing” took almost decade; so will rebalancing.
• High Chinese interest rates reflect of imperfect markets.
• The RMB is no longer a one-way bet…
• …and it will behave like other Asian currencies.
20
LINK CHINA AND HONG KONG
21
Strengthening link mainland - Hong Kong
•
Based on Basic law mini-constitution
1997 Hong Kong authorities retain full
authority over economic and financial
affairs except, foreign affairs and
defence
•
Role as premier offshore RMB clearing
market plus increased lending to
mainland corporates and deposit taking
•
Rapidly growing share lending of
corporates mainland (24% in 2012 was
10% in 2008
•
Manufacturing moved out to mainland
•
Services is > 90% of GDP
•
Growing importance Dim Sum market
•
Small and very open economy (Export
and Import of G+S over 400% GDP)
•
•
98% of export goods is re exports
As of 2010 mainland Chinese
companies can be listed on HK Stock
exchange based on Chinese accounting
standards
•
50% trade in goods is with mainland
•
•
China will continue to grant HK
preferential access to mainland markets
in terms of trade (Closer Economic
Partnership Arrangement)
HKD peg (to USD) implies greater twoway CNY/USD risk translates into
greater two-way CNY/HKD risk
22
HONG KONG BUSINESS
OPPORTUNITIES
23
BASIC FACTS
24
Outlook
•
Recovery lags behind, GDP growth 2012 •
1.8% recovers to 4.5% in 2013/2014
•
Main drivers are private consumption,
investment and exports (though weak)
•
Government welfare expenditures will
reduce fiscal surplus to 0.2% in 2013
•
Government need to broaden tax base
and reform health care system to keep
government finances sustainable
•
CA surplus will remain substantial (4%
of GDP). A trade deficit is offset by
surpluses in the services and income
accounts
Low US interest rates fuel asset price
inflation. Macro prudential measures
have been employed to cool
overheating
•
Asset price inflation feeds CPI inflation
expectations. HK (and Singapore, Asia’s
richest economies) is one of Asia’s
high-inflation economies (3.8% in
October 2012)
•
Interest rates will not increase until they
start rising in the US, likely in 2015
•
The USD depreciation ahead of QE3
drove the HKD to the limit set by the
peg, forcing the HKMA to intervene.
•
HK dollar peg to remain
25
Hong Kong offering new business
opportunities…
GDP Index 2000=100
400
China
350
300
India
250
200
HK
150
US
100
EURO
50
0
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
Source: IMF, ING F
26
…with a favourable business climate…
6%
Easy to do business in a high
growth market
5%
GDP growth 2013 F
Hong Kong
4%
Singapore
Taiwan
South Africa
South Korea
3%
Iceland
2%
Ireland
Germany
United States
New Zealand
Norway
Denmark
1%
Netherlands
0%
35
30
Belgium
25
Japan
20
United Kingdom
15
10
5
0
Ease of doing business rank 2012
Source: WorldBank, IMF, ING
27
… and growth mainly in services.
Top 10 fastest growing mf industries
Growth in value 2011-2016
growth %
Value 2011*
(bn LC)
5
1.98
Pulp & paper
4.9
0.26
Ceramic, clay & refractory
4.8
0.08
Ships, rolling stock
4.7
1.21
Cement, plaster
4.5
0.35
Glass
4.4
0.17
Coke & refined petroleum
4.4
1.45
Rubber & plastics
4.2
0.93
Pharmaceuticals
3.8
3.33
Consumer electronics
3.4
0.35
Retail & wholesale distribution
Aerospace
Financial services
Real estate activities
Transport & storage
Public admin, defence &
social security
Other business services
Other services
Information & communications
Accommodation & catering
* 2005 prices
Healthcare & socialwork
0
20
40
60
80
100
120
140
160
2005 prices local currency
Source: Oxford Economics, ING calculations
28
Exports 54% China!
Top 10 destination countries 2011-2017
bn $
2011
450
2017
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0
0
Hong Kong
CAGR 2012-2017
Value 2011
Export product
Export partner
mln $
Office, telecom and electrical equipment
China
|||||||||| 11%
Other products
China
||||||||| 9%
|||||||||||||||||| 18436
Office, telecom and electrical equipment
United States
|||| 5%
||||||||||||||| 15749
Chemicals
China
|||||||| 9%
|||||||||||||| 14615
|||| 5%
||||||||||||| 13766
||||||||||||||||||||||||||||||||||||||| 150855
Other products
United States
Industrial machinery
China
|||||||| 8%
|||||||||| 10652
Other manufactures
China
||||||||| 9%
||||||||| 9177
Textiles
China
||||| 6%
||||||||| 9020
Office, telecom and electrical equipment
Japan
|||||| 7%
|||||||| 8893
Textiles
United States
|| 3%
|||||||| 8749
95 %
re-exports
29
Imports 43% China!
Top 10 origin countries 2011-2017
bn $
2011
600
2017
600
500
500
400
400
300
300
200
200
100
100
0
0
Hong Kong
Import product
CAGR 2012-2017
O rigin
Value 2011
mln $
Office, telecom and electrical equipment
China
|||||||||| 10%
Other products
China
|||||||||| 11%
Office, telecom and electrical equipment
Singapore
||||||||||||||||||||||||||||||||||||||| 155130
||||||||||||||||||||||||||||||||||||||| 46700
||||| 6%
|||||||||||||||||||||||||| 26890
|||||||||||||||||||||| 22248
Office, telecom and electrical equipment
Taiwan
|| 2%
Office, telecom and electrical equipment
South Korea
|| 2%
|||||||||||||||| 16464
Textiles
China
|||||| 7%
||||||||||||||| 15590
Office, telecom and electrical equipment
Japan
|| 2%
|||||||||||||| 14709
Road vehicles & transport equipment
China
Other manufactures
India
Office, telecom and electrical equipment
United States
|||||||||||||||||| 19%
|||||||||||||| 14430
|||||||| 8%
|||||||| 8939
|| 2%
|||||||| 8906
30
Bottom line on Hong Kong
•
Hong Kong’s economy depends on China.
• Steady 8%-plus growth in China supports 4-5% growth in Hong
Kong…
• …but the close economic integration makes Hong Kong the most
exposed in Asia to a hard landing in China.
• Hong Kong people worry about the same things – wealth gap,
environment, aging society – people in other rich countries worry
about…
• …and also about what many see as Beijing infringing on Hong
Kong’s autonomy.
• => Managing relations under one-country, two-systems takes effort.
31
CNH – What can ING offer to its clients?
Payments and cash
management
Debt capital markets
Lending
Trade finance
Financial markets
•
CNH and CNY payments from Hong Kong are possible.
•
CNH payments from Europe to HK and China is in a pilot phase.
•
CNH and CNY are included in BMG’s global offering.
•
ING can help its clients if they want to issue CNH Bonds in HK.
•
Proceeds of the fund can be used in China subject to approval or can be swapped to
other currency (e.g. euro) and repatriated in Europe.
•
Offshore ST facilities can be granted in CNH in Hong Kong (tenor 90 days).
•
L/C issuance in CNH.
•
L/C & Invoice discounting in CNH or CNY LC & Invoice discounted in USD/EUR.
•
Spot, forward and swap trading.
•
FX option trading (ahead of major US banks).
•
deposit taking up to 6 months.
32
ING Commercial Banking in China
Your local contacts
Key data
Presence since
Employees
Branch
James Poon
1990
Beijing
188
Head Corporate Clients
[email protected]
Shanghai
Shanghai, Hong Kong,
Beijing (rep office)
Hong Kong
Tel: +852 2973 1316
Piter de Jong
Head of International Business
Clients [email protected]
Tel: +86 21 2020 8050
Did you know that:
•
•
Our network is composed of 3 main
commercial bank offices, a minority
stake (13.64%) in Bank of Beijing, and
investment management via our joint
venture China Merchants Fund
Management. This enables us
to provide a full range of products and
services
We have an experienced trade
commodity finance team with a strong
track record in the market, providing
customized multi-product solutions
through a broad range of structured
finance products
That we are recognised for:
•
High quality client portfolio comprising
of top blue-chip & China state-owned
enterprises with recurrent business
•
ING Greater China has a solid track
record with many important
multinationals
•
Capabilities with CNY (on-shore yuan)
and CNH (off-shore yuan) including
helping clients to issue CNH bonds
•
Wide range of FM products for FX risk
hedging, interest rate hedging and
structured deposits
And proud to serve:
See our capabilities tool (www.ingcommercialbanking.com) to find out what we can do for you in China and other countries
33
Disclaimer
This presentation is intended for general information purposes. It does provide basic information concerning individual Commercial Banking products,
insurance products or related services. However none of the information should be interpreted as an offer to sell securities or as investment advice of any
kind. Queries concerning these topics should be addressed to the individual business units and/or companies of ING Groep N.V. ("ING Group"). No
warranty or representation, express or implied, is given as to the accuracy or completeness of that information. In no event will ING Group, nor any of its
directors, employees or advisors accept any liability with regard to the information contained in the individual ING companies', business unit or product
group's presentation.
Certain of the statements contained in this release are statements of future expectations and other forward-looking statements. These expectations are
based on management’s current views and assumptions and involve known and unknown risks and uncertainties. Actual results, performance or events
may differ materially from those in such statements due to, among other things, (i) general economic conditions, in particular economic conditions in ING’s
core markets, (ii) changes in the availability of, and costs associated with, sources of liquidity such as interbank funding, as well as conditions in the credit
markets generally, including changes in borrower and counterparty creditworthiness, (iii) the frequency and severity of insured loss events, (iv) mortality
and morbidity levels and trends, (v) persistency levels, (vi) interest rate levels, (vii) currency exchange rates, (viii) general competitive factors, (ix) changes
in laws and regulations, and (x) changes in the policies of governments and/or regulatory authorities. ING assumes no obligation to update any forwardlooking information contained in this document.
ING Group comprises a broad spectrum of companies (the "ING companies"), many of them operating under their own brand names. Almost every ING
company, business unit or product group, has its own website on the internet where it offers information about its products and services. Reference is made
to those websites for further details and hyperlinks have been provided from this website to those ING companies, business units and product groups, if
available.
It is prohibited to modify, copy, distribute, transmit, display, publish, sell, license, create derivative works or use any content for any other purposes than that
of this presentation, i.e. providing information about ING Group and its lines of business.
No Liability
While ING Group and ING companies use reasonable efforts to include accurate and up-to-date information in this presentation, errors or omissions
sometimes occur. ING Group and ING companies expressly disclaim any liability, whether in contract, tort, strict liability or otherwise, for any direct, indirect,
incidental, consequential, punitive or special damages arising out of or in any way connected with your access to or use of this presentation, and/or any
other ING companies' presentations whether or not ING Group and/or ING companies were aware of the possibility of such damages.
All information in this presentation, including but not limited to graphics, text and links to other communication means, is provided "as is" and is subject to
change without prior notice. Such information is provided, to the fullest extent permissible pursuant to applicable law, without warranty of any kind express
or implied, including but not limited to implied warranties of merchantability, fitness for a particular purpose, non-infringement from disabling devices. ING
Group does not warrant the adequacy, accuracy or completeness of any information in this presentation and expressly disclaim any liability for errors or
omissions therein. Users are responsible for evaluating the accuracy, completeness or usefulness of any information or other content available in this
presentation.
34