The Impact of the Global Financial Crisis
on Emerging Markets
- The Case of China
Hua YU
Vice Chairman, Fund Industry Committee, Securities Association of China
CEO, Morgan Stanley and Huaxin Funds Management Company
IOSCO 34th Annual Conference June 2009, Tel Aviv
IOSCO 34th Annual Conference, June 2009, Tel Aviv
• A Rapid Growing Economy with High Saving Rates
• GDP Growth Drivers
• Increasing Dependence on External Demand
China: An Emerging Transitional Economy
The Impact of the Global Financial Crisis on Emerging Markets
- The Case of China
IOSCO 34th Annual Conference, June 2009, Tel Aviv
0
1,000
2,000
3,000
4,000
USD bn
0
5
10
15
20
25
30
%
Deposits Growth Rate(%)
0
4
8
12
%GDP Growth Rate
2
China: An Emerging Transitional Economy
China: A Rapid Growing Economy
Source: Wind, Morgan Stanley Huaxin,
Savings Kept Increasing at a High Speed
Source: Wind, Morgan Stanley Huaxin,
The economy of China has been
growing at 9% on average for the
past decade
2008 GDP of RMB 30 trillion (USD
4.4 trillion), US$3380 per capita
The growth has been financed mainly
by domestic savings which increased
at a high speed
Growth Has Been Financed by Savings
2000 2004 2008
2000 2004 1Q2009
IOSCO 34th Annual Conference, June 2009, Tel Aviv
-25%
0%
25%
50%
75%
100%
Consumption Investment Export(net)
3
GDP Growth Driver Composition
Source: Wind, Morgan Stanley Huaxin,
An Increasingly Opened Economy
Source: Wind, Morgan Stanley Huaxin,
2000 2004 2008
2000 2004 1Q2009
38%
67%
20%
40%
60%
80%
Major Drivers of GDP Growth
• The investment has been the main
driver for the GDP growth
• Consumptions and Exports have
increased contributions to GDP growth
Increasing Dependence on External
Demand
Around two-thirds of China’s
economy is linked to global business
China: An Emerging Transitional Economy
IOSCO 34th Annual Conference, June 2009, Tel Aviv
• Banking Sector Has Been Sound and Stable
• Huge Reserves Ensure Supply of Liquidity
• A-Share Market: Relying on Domestic Fund Flows
Banking, Finance and Capital Market
The Impact of the Global Financial Crisis on Emerging Markets
- The Case of China
IOSCO 34th Annual Conference, June 2009, Tel Aviv
0%
10%
20%
30%GDP Growth Rate(%)
Deposit Growth Rate(%)
0%
6%
12%
18%
24%
5
Deposits Have Grown with GDP
Source: Wind, Morgan Stanley Huaxin,
Banks Business Has Been Profitable
Source: Wind, Morgan Stanley Huaxin,
2004 2006 2008
2004 2006 1Q2009
Banking Sector Sound and Stable
Bank deposits grow rapidly, with an
even higher growth rate than GDP
Bank capital is growing and kept
sufficiently high
As results of banking reform, NPLs
ratio dropped from 17% in 2003 to
below 5% recently
Average ROE of listed banks
remains above 10%
Banking, Finance and Capital Market
IOSCO 34th Annual Conference, June 2009, Tel Aviv
610
1,954
105
0
500
1,000
1,500
2,000 Foreign Exchange Reserves (USD Bn)
6
Foreign Revenue/Capital Accumulates Over Time
Source: Wind, Morgan Stanley Huaxin,
1996 2004 03/2009
Huge Reserves Ensure Liquidity
• FDI and surplus of Current Accounts
make China a net receiver of offshore
capital
• There is no access for portfolio
investment of foreign capital with
exception of QFII
• The economy and financial system
does not rely on short term flows of
offshore money
• Foreign Exchange Reserves have
increased to nearly USD 2 trillion
Banking, Finance and Capital Market
IOSCO 34th Annual Conference, June 2009, Tel Aviv 7
A-Share Market: Growth Based on Domestic Fund Flows
Source: Wind, Morgan Stanley Huaxin,
Limited offshore IPO financing
Market with limited international
exposure
Almost no fund-raising by foreign
borrowers and IPOs in China
Limited access of foreign
investors to A shares (QFII)QDII are the only way to invest
directly in securities overseas
A share market—3rd largest
market in the world
Conversion of State Shares
made the market more
efficient and transparent
In 2007, domestic
IPO 489bn RMB (USD
70bn), overseas
IPO USD6.9bn
QFII and QDII as
windows for foreign
investors going to A-
Shares and domestic
investors going offshore
A-Share market the
World’s 3rd largest by
market capitalization
Banking, Finance and Capital Market
IOSCO 34th Annual Conference, June 2009, Tel Aviv
Due to China A-Share market’s limited exposure to the international capital flows and
thanks to China’s stable and strong financial sector with dynamic reform and development:
• The direct impact of global financial crisis on A-Share market
has been limited
• The indirect impact of the crisis through the performance of the
economy, however, has been substantial
Impacts of Financial Crisis
The Impact of the Global Financial Crisis on Emerging Markets
- The Case of China
IOSCO 34th Annual Conference, June 2009, Tel Aviv 9
Source: Wind, Morgan Stanley Huaxin,
Unemployment Rate Soared
-40
-20
0
20
40
60
80
06/2007 12/2007 06/2008 12/2008 03/2009
%
FDI (YTD)
-40
0
40
80
120%
2.5
3.0
3.5
4.0
4.5%
FDI Dropped Over the Past Quarters
Export Went Down Dramatically Earnings Growth Rate Declined Sharply
1998 2003 1Q2009
-50
-25
0
25
50Export
Import
01/2008 09/2008 04/2009
%
03/200901/2000 06/2005
Impacts of Financial Crisis
IOSCO 34th Annual Conference, June 2009, Tel Aviv 10
Source: Wind, Morgan Stanley Huaxin,
0.00
0.20
0.40
0.60
0.80
1.00
Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09
NAV of QDII Funds Dropped Significantly
Investors Confidence Hit by the Crisis
Local securities institutions do not own
stakes of offshore securities players
They cannot trade on offshore securities
and derivatives
Shanghai SE Index lost nearly 70%
from its peak in early 2008
Investors lost their confidence on both
domestic and international markets
QDII funds incurred losses on their
offshore markets investment
• QFII moved funds out of A-Share market
during the last quarter of 2008
• Some local institutions (banks, insurance
companies) suffered losses on their offshore
securities investment
0
200
400
600
800 China A-share (Hushen 300)
Dow Jones
FTSE
Hang Seng
Nikkei225
2005 2007 06/2009
Limited Direct Impacts
Impacts of Financial Crisis
IOSCO 34th Annual Conference, June 2009, Tel Aviv
Government Programs to Stimulate the Economy
Measures by Securities Regulators to stabilize the Market
Focus on investor Education and Protection
Dealing with The Crisis
The Impact of the Global Financial Crisis on Emerging Markets
- The Case of China
IOSCO 34th Annual Conference, June 2009, Tel Aviv
0%
2%
4%
6%
8%
10%
12%
1 Year Deposit Rate
0
5
10
15
20
25
30
35
M2 Growth Rate (MoM)
12
Source: Wind, Morgan Stanley Huaxin,
Monetary Expansion Fiscal Stimulation
A fiscal stimulus total
investment of RMB 4 trillion
(USD 580bn) with more to follow
Tax cuts and fiscal subsidies
on certain products and services
Job creating programs
Programs of promoting certain
industrial sectors
%
35
25
30
25
10
0
1995 2000 2005 03/2009
%
12
10
8
6
4
2
1989 1999 03/2009
Dealing with the Crisis
IOSCO 34th Annual Conference, June 2009, Tel Aviv 13
Measures
Allowing listed companies to buy
back their shares
Encouraging listed companies
to pay dividend to investors
Promoting sustainable financial
innovations
Segregation of clients assets from
securities firms proprietary assets
Promoting KYC rule and reinforcing
information disclosure at points of sales
5
4
2
1
5
4
Effectiveness
Helped to stabilize the market and restore
investors confidence
Leading investors to focus on value
investing
Acceleration of opening a Second-Tier
Market with new investment opportunities
Preventing misappropriation of clients
assets, reducing potential investment
and liquidity risks
A more transparent market with more
confident clients
3
2
1
Dealing with the Crisis
Thank you!
IOSCO 34th Annual Conference June 2009, Tel Aviv
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