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China 2020

Victor Gao

The Annual Conference of “Promote Iceland”

Reykjavik, Iceland

April 28th, 2014

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How Big Is China’s Economy?

Official GDP in 2013: US$9.31 trillionPPP: US$ 13.37 trillion

China’s GDP as % of US GDP:

• China– Official GDP: 55.68%– PPP: 79.96%

• Greater China (Mainland + HK + Macau + Taiwan)– Official GDP: 60.52%– PPP: 88.07%

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Not a Zero-Sum Game

• Total import & export in 2013: US$4.16 Trillion– Total foreign trade as % of GDP: 45%;

– Total trade with EU: US$559 Billion;– Total trade with USA: US$521 Billion;– Total trade with ASEAN: US$443.6 Billion;– Total trade with Japan: US$312.5 Billion

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Changing Mix of Export

• Export of machinery & electronics products

as % of total export:

= 57.3%

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What Sets China Apart?

• The largest population;• The largest manufacturing nation;• The largest trading nation;• The largest energy user; • (The largest polluter;)• The largest foreign exchange reserve;• The largest creditor to the USA;

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What Sets China Apart (2)?

• Largest mobile phone market (1.2 BN +);• Largest internet market, with 800 MN + mobile

internet users; • Largest automobile makers and buyers (20 MN + );

• High-quality and fast-expanding infrastructure;• Building the fastest and largest high-speed rail

network in the world;• Building more than half of all the new nuclear

power stations in the world;

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What Sets China Apart (3)?

• One single market, with no or minimum internal trade barriers;

• Approximately 7 MN college graduates every year;

• Soft landing? Hard landing? Good landing?• Growth momentum to continue for many

years to come; • The highest growth rate among all the

major economies;

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What Sets China Apart (4)?

• One ruling party– With 87 MN party members, CPC is all-pervasive and

controls all important aspects of China; – Fierce intra-party competition; emphasizing “intra-

party democracy”;– Meritocracy; emphasis on “governance”;

• Distinctively different political system, but with high government efficiency and mobilizing capacity, almost unmatched in the world.

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What Is China Today?• Communism?• Socialism?• Authoritarianism?• Totalitarianism?• Capitalism?• Elite Capitalism?• State Capitalism?• Socialism with Chinese Characteristics?• No pre-existing label captures all the fast-moving changes

of China today;• Maintaining the one-party rule on the one hand, but

embracing changes and innovation and transformation on the other hand.

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OECD re China

OECD announced that:–By 2016, China’s GDP will surpass

USA.

–By 2060, China’s GDP will be 28% of the world.

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What China Cares Most?

• Maintaining stability at home (anti-corruption);• Keeping peace abroad;

– Comprehensive and deepened reforms;– Opening to the world (two-way globalization);– Growth and development as top priority; – Further improving productivity (innovation);– Further improving people’s lives;– War on pollution; – Shifting to green development;– Achieving the Chinese dream.

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Doubling GDP in 5 Years

The Chinese GDP doubled in five years:

– GDP in 2007: Rmb 24.66 Trillion Yuan;

– GDP in 2012: Rmb 51.9 Trillion Yuan

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To Double the GDP in 10 Years

In November 2012, China decided to double its GDP of 2010 by 2020.

– 2010 = Rmb 39.80 Trillion– 2013 = Rmb 56.88 Trillion (US$ 9.31 Trillion)

– 2020 ≈ Rmb 80 Trillion

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Mega Trends

•Industrialization•Modernization•Urbanization•Globalization

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China and the World

In the coming five years (2014 to 2018):– China will import US$10 Trillion+ goods

and commodities;

–And will invest US$500 Billion+ overseas;

–400 to 500 Million Chinese tourists go abroad.

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The New Paramount Leader?

• Xi Jinping as the Trinity Leader– Party Secretary General;– President of the People’s Republic;– Chairman of the Central Military Commission;

• Chairman of the National Security Council;• Chairman of the Leading Group on

Comprehensive and Deepened Reforms;• Chairman of the Cybersecurity Leading Group;• And so on and so forth.• One of the Seven?• One above the Six?

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How Xi Looks at China?

• “China is getting closer and closer to the center of the world stage.”

• As if being the 2nd largest economy is still not at the center of the world stage.

• What should be the reasonable conclusion?

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Mega Trends in Energy in China• Oil: Demand is increasing fast. Need to add 200 to 300 million tons to oil consumption by 2020;• Gas: Government has ordered gas consumption to double in five years;• Coal: Consumption needs to go down: down to 65% in 2014. • Nuclear: Will go up. 26 new nuclear power stations are being built.

Increase to 5%, or even to 10%?• Hydro: How much more can it grow?• New & Renewable: We have to keep faith and spare no efforts. But, alas,

how much can they really contribute to China’s staggering energy demand?

• The great variables: – Shale gas: When and how can they be developed en masse?

• Shale gas as a bonus and an insurance policy.– Improving energy efficiency: How to improve? How much to improve?

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Achilles’ Heel: Oil Import

• China’s oil consumption:– 500 million tons in 2013; – Oil import at 300 million tons; – Total oil consumption to increase to above 700 million tons by

2020.• Dependence on oil import has reached 58%+ in 2013.• Dependence on oil import expected to go up to above 70% by 2020.• Potential dangers:

– Maritime security for oil shipping;– Safety and security of cross-border oil & gas pipelines;– Major jump in imported oil & gas price;– Insufficient strategic reserves.

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New Achilles’ Heel: Gas Import

• China’s gas consumption:– 2013: 167.6 Billion cm (an increase of 13.8% over 2012);– 2020: ≈ 350 Billion cm.– At present

• Natural gas = 5.9% of China’s energy production in 2013.• Only about 14% of China’s populations use natural gas.

• Dependence on gas import:– Import @ 31.6% of total gas consumption in 2013.– Total import in 2013 @ 53 trillion cm.

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The Known Known Factor

• Regardless of many unknowns and uncertainties in the O&G sector in the world, the most important known known factor is China’s continued demand for O&G, and its continued dependence on O&G imports.

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America’s Energy Independence

• China will benefit from America’s EI;

• With America achieving EI, China will attract the O&G that America will no longer import from the rest of the world, including the Middle East, Africa and Latin America.

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More Russian O&G Going East?

• The recent developments in Ukraine and Crimea may cause repercussions for years to come.

• The sanctions imposed on Russia by the western countries may create dynamics for more Russian oil and gas to go east.

• This may further strengthen the energy cooperation between China and Russia for the long term.

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China’s Ultimate Goals• 20% of global economy

– 12.6% in 2013 (official exchange rate).– 15.3% in 2013 (ppp).

• 20% of global trade– Total foreign trade in goods in 2013 @ US$4.14 trillion; about 11%

of global trade.

• 20% of IPR – China surpassed USA in 2011 as the largest country in the world in

new patent applications.

• 20% of Fortune 500 companies– 95 in 2013 (Mainland China, Hong Kong and Taiwan).

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China in the Coming Decade• Xi Jinping will emerge increasingly as a strong leader, eventually

becoming a paramount leader. • • China will be the largest economy in the world, with about 20% of the

global economy; and about 20% of global trade.

• China will be the largest importer of O&G, and will continue to invest in mega deals in O&G throughout the world.

• Rmb will become a major reserve currency. China will settle major imports and export in Rmb.

• China will have greater democracy and transparency and better governance and rule of law than today.

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Ukraine As the Watershed?

• The dust raised by the Ukraine crisis may take years to settle;

• The prospect of a confrontation between Russia and USA / the West is increasingly real;

• USA / the West cannot afford to confront both Russia and China at the same time for the long term;

• Washington may not like China that much, but it may have to dislike Russia more, at least for a few years;

• The realities on the ground seem to maximize China’s geopolitical leverage and are increasing the prospect that China will be able to surpass the USA by “abstention”, not by “confrontation”;

• Be friends with all (almost)! Be enemies with none (almost)!

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China and Iceland

• Iceland in the Chinese = Ice Island;• China’s FTA with Iceland: the first with an

European nation;• The currency swap agreement;• Of great attraction to China: Iceland’s fishery;

geothermal; glaciers; fjords; white night in the summer; clean air; clear water; volcanic sceneries;

• CNOOC in Icelandic offshore;• Mr. Huang Nubo and the 99-year lease;• Gateway to the Arctic region.

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What If?

• Attracting 100,000 Chinese tourists or more (currently at 10,000) to Iceland?

• Attracting Chinese wealth to Iceland?• Selling Icelandic water to China?• Selling more Icelandic fish to China?• Direct flight between China and Iceland?• Becoming a globalization center for China

(covering both sides of the Atlantic): training; R&R; logistics; search & rescue; etc.

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China Can Learn From Iceland

• Environmental protection;• High quality of life;• Transparency;• Stability;• Social harmony;• Green development (hydro; geothermal);• Etc.

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Thank you!

Victor Z. Gao, Esq.

gaovictor@hotmail.com

(86) 1390 136 1250