EFTA01385478

3 January 2018 HY Corporate Credit HY Multi Sector.Media. Cable & Satellite The end of property cycle will negatively affect land sales revenue, which comprises 30% of local government revenue. We expect the government to loosen controls on property markets in 02 2018 to offset the impact of property cycle on investment and government finances. New growth engines President Xi ' s Oct speech pointed to a number of sectors that could be developed in the next few years. We highlight two areas that could become renewed engines for China ' s growth: manufacturing industry and consumption upgrade. The advancement in the overall manufacturing sector is likely a long and gradual process. China is still far away from the production frontier; 2016 output per worker in manufacturing is only 20% of the frontier (e.g. Japan), and is comparable to Korea ' s level in 1990 (Figure 51). Robot density in manufacturing is still very low, measured by the number of industrial robots per 10,000 manufacturing workers (Figure 52). There is great potential for China to invest in manufacturing technology and equipment, though the process would likely take many years before China ' s manufacturers can catch up with their peers in developed economies. 'Figure 51: Labor productivity index, manufacturing 46341546 ••••ChM ...Korea (Figure 52: Robot density in manufacturing 3664.166 rebot4 ON 100 700 10300 wareerm 631 CO3 00 30 boo 400 63 309 301 SO 303 40 203 100 74 6. 30 0 INN 10 0 Zhiwei Zhang. Ph.D Chief Economist 4 Xiong: Ph.D. Economist 4MIIIIII MMAttiEtIMERfil O - Inn we .0 ARRRERRR Sccav Deursdw Hair SSW Net* neon dermas 0,t isto, pocially *inn el isli• OECD ~MI Axel,* punt". BaN. 141ND The upgrade in manufacturing will be uneven across industries. The first movers will be the traditionally labor intensive industries, who faces greater pressure from rising wages. Capital substitution for labor is already happening in industries such as textile and cement. As China ' s labor cost rose rapidly, workers are moving out from these traditionally labor intensive manufacturing sectors. Productivity is increasing fast in these industries through both technological improvements and shutdown of lower efficiency producers (Figure 53 and 54). [figure 53. Labor cost and employment. textile 35 0353/14440 Cltens.enneOreee e in 30 —0,64 25 %Lines Sin Oictichf S'* AS Cain.Awesµ ECOrranalt Iftripilar4A* US Cna Dies. Figute 54. Industrial output per worker (2005 = 100) en) SOO 400 300 200 IC* —As .45.60,21 . 'bott44, ••••C•ettent 2005 2006 2007 2006 2005 2010 2011 2312 2013 2014 2015 2016 56364 06/16141661.1460 MVO Ma *(MALI leaf a cdnAmeal m a.,rlyt ISM per vt.O, Deutsche Bank Securities Inc. Page 205 CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0086764 SDNY_GM_00232948 EFTA01385478