Goldman Sachs - In a tough spot_ by riteshbhansali


									May 18, 2012

In a tough spot, but better quarters
lie ahead
                                                                                                                     Portfolio Strategy Research

Slightly lower growth forecasts; but 2H12 outlook should improve
Our economics teamrevised 2012 GDP forecasts slightly to 8.1% from 8.6%.
The much weaker-than-expected April data suggests a sub-8% print for
2Q12, but we would expect more proactive policies (higher lending, RRR
cuts, more fiscal support including to select infra projects, etc) to support
stabilization/recovery in 2H12.

Lower near-term visibility, but a good entry point for medium term
Our top-down earnings forecasts for 2012/13E are trimmed to 6%/12% from
8%/12%. Our year-end target is cut slightly to 12,900 for HSCEI and 70 for
MXCN (from 13,600/70.4), but after the 10.5% correction in the past two
weeks, we still see meaningful upside of 32% / 30%. Re-rating to 10.5x fPER
target for MXCN by year-end (unchanged) should be driven by both China
cyclical and global factors: domestic and global confidence are at low
levels now and should normalize. Valuation is a bigger risk than earnings
and we think global factors are a bigger risk to valuation than domestic
factors. That said, visibility is lower in the next few months as European
politics are fluid, and China’s policy response may take time to filter
through to fundamentals. We expect 5% upside for the next 3 months.

Stay with domestic cyclicals; upgrading healthcare to OW
We remain comfortable favoring domestic cyclicals (retail, cement, banks)
positioned for more supportive policy, and we UW staples and telecom
despite lower earnings risks - the sectors are not attractively valued. We
upgrade healthcare to OW from Neutral – this is not a de-beta call, but
rather because: 1) valuation is at trough levels of 15.8 times after an
underperformance of 22% in the past 12 months; attractive with 25%/21%
consensus EPS growth for 2012E/13E; 2) we think this is one of the few
sectors facing limited earnings risk as price cuts are largely reflected and
raw material margin pressure is easing; 3) regulatory focus may shift from
pure price control over to balancing product quality in time, liquidity
improvement may benefit working capital; 4) investor positioning is low.
                                                                                   Goldman Sachs does and seeks to do business with
Helen Zhu
+852-2978-0048 Goldman Sachs (Asia) L.L.C.                        companies covered in its research reports. As a result,
                                                                                   investors should be aware that the firm may have a conflict of
Timothy Moe, CFA                                                                   interest that could affect the objectivity of this report. Investors
+852-2978-1328 Goldman Sachs (Asia) L.L.C.                      should consider this report as only a single factor in making
                                                                                   their investment decision. For Reg AC certification and other
Hanfeng Wang, Ph.D, CFA                                                            important disclosures, see the Disclosure Appendix, or go to
+86(10)6627-3318 Beijing Gao Hua Securities Company Limited
                                                                          Analysts employed by non-
                                                                                   US affiliates are not registered/qualified as research analysts
Ben Bei
+852-2978-1220 Goldman Sachs (Asia) L.L.C.                          with FINRA in the U.S.

Chenjie Liu
+86(10)6627-3324 Beijing Gao Hua Securities Company Limited

The Goldman Sachs Group, Inc.                                                                 Goldman Sachs Global Economics, Commodities and Strategy Research
May 18, 2012                                                                                                                                                             China

Lower growth more than priced in

Lower GDP translates into lower earnings...
We have updated our earnings models to reflect the slightly lower GDP
forecast from our economics team. While the April macro data was
weaker than expected across the board, impact on full year growth was
not drastic. China’s slowdown has been largely self imposed, and China
exhibits both the capacity and the willingness to normalize policy
from extremely tight levels. We expect to see further moves from both
the monetary (lending, RRR, etc.) and fiscal sides (tax reform, fiscal
subsidies, more infra FAI). Property policies will also continue to finetune,
but policymakers may not necessarily use this as the first line of defense
nor move aggressively beyond the mass market products, given the risk
of a price rebound or loss of policy credibility. For more details on
expected policy measures, please see our economics team’s latest report
of May 18, 2012 titled: Lower growth in China but sequential recovery
coming, little impact on rest of AEJ.

Exhibit 1: China GDP growth path and forecast – slower                                                 Exhibit 2: China CPI growth path and forecast
growth expected, but sequential recovery expected in

 % chg                            China GDP Growth Path                                                 % chg                      China Quarterly CPI Path
                                                                                           Forecasts   12
                                                                                                                                                                         GS Forecasts
                                                                                                                    qoq sa ann

  14                                                                                                    6


                                          yoy     qoq sa ann

   0                                                                                                    -6
   2001    2002   2003   2004   2005   2006     2007   2008    2009   2010   2011   2012                  2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Source: CEIC, GS Global ECS Research estimates.                                                        Source: CEIC, GS Global ECS Research estimates.

We lowered our 2012E/13E earnings growth assumptions slightly to
6%/12% respectively. While we could continue to see weak earnings
trends in 2Q12, we expect our full year estimates to be achievable due to:

           Stronger GDP growth in 2H12 due to policy response

           Easier base effects as we move through the year

           The areas with the most meaningful earnings weakness may be
            relatively smaller in index weighting

           1Q12 earnings were >25% of GS 2012E top down EPS estimates
            already (24% of consensus 2012E)

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                 2
May 18, 2012                                                                                                                                China

Exhibit 3: We have modestly lowered our 2012E earnings forecasts to 6%
from 8%

                                          EPS growth                   EPS integer
                                          MSCI China                   MSCI China
                                         2012E   2013E                2012E 2013E
 GS Top down forecasts                   6.0%    12.3%                 5.94    6.67
 GS Previous forecasts                   8.4%       -
 Consensus forecasts                     11.5%   12.4%

Source: MSCI, Bloomberg, GS Global ECS Research estimates

Exhibit 4: Our 2012E earnings estimate is below                               Exhibit 5: 1Q12 earnings growth rebounded vs. 4Q11

                                                                                                        MSCI China        CSI300
                         MSCI China earnings
  40%                                                                          30%

                                                                               25%                            Quarterly earnings growth (yoy)

  10%                                                                          10%

   0%                                                                           5%

                                                                                        1Q11A        2Q11A       3Q11A        4Q11A     1Q12A

Source: MSCI, I/B/E/S, Factset, Bloomberg, GS Global ECS Research estimates   Source: MSCI, Wind, Bloomberg, GS Global ECS Research

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                               3
May 18, 2012                                                                                                                                                                                                                                                                                    China

Exhibit 6: Consensus earnings forecasts tend to lag GDP                                                                       Exhibit 7: We continue to forecast earnings cuts, but the
revisions by a few months                                                                                                     trough of the revision sentiment appears to have been in

 14                                                                                                                15
                                                                                                                               60%               Number of analysts' upgrades minus downgrades / total number of estimates                                                                                 120
               Consensus GDP growth (%)                 Consensus MSCI China EPS integer (RHS)
                                                                                                                                                                                                                             China 1-wk rev                  MSCI China (Right)
                                                                                                                   13          40%
 12                                                  2007
                                          2006                                                  2010
 10                          2005                              2008
                                                                                                       2011                                                                                                                                                                                                80
                                                                                                              2013 9
  8                                                                           2009
                                                                                                          2013                 -20%                                                                                                                                                                        60

  6                                                                                                                            -40%
                                                        2007                      2009                            3
                  2005                                                2008                                                                                                                                                                                                                                 20
       2004                                  2006                                                                              -80%

                                                                                                                              -100%                                                                                                                                                                        0















  0                                                                                                               -1

Source: MSCI, I/B/E/S, NBS, Consensus Economics, GS Global ECS Research.                                                      Source: MSCI, I/B/E/S, NBS, Consensus Economics, GS Global ECS Research.

...but we still see significant room in valuation
We revise our year-end 2012E MXCN and HSCEI index targets down
slightly to reflect the lower earnings growth. However, we still see
significant upside to our targets given that markets have already more
than priced this in after the 10.5% pullback in the past two weeks.

We maintain our fPER target of 10.5x by year-end, unchanged– this
was premised on a 1 PER point of valuation re-rating (11%) for China
cyclical normalization and a 1 PER point of re-rating (11%) for global
macro improvements (our year-end MXAPJ, Stoxx index targets assume
16%/19% valuation re-rating from beginning to end of 2012). While
China’s total re-rating assumption of 22% is higher than that for the
MXAPJ and the Stoxx, for example, we notice that China’s relative
valuation to other major indices fell by well over 20% since 4Q10. This
was largely due to cyclical tightening concerns while relative growth rates
were not similarly reduced. The reversal of macro policy direction should
be able to warrant some relative re-rating in our view (although we do not
expect a full relative re-rating given still outstanding structural/reform

Exhibit 8: Our new HSCEI year-end target is 12,900

 MSCI China at 5/16/2012               53.9
     HSCEI at 5/16/2012               9,742
                                                                                                                        Implied forward
                                                 EPS growth                                                               valuations
                                                          11E-13E implied Implied
                                    2012E           2013E CAGR      level  +/- (%)                                      P/E (X)         P/B (X)
MSCI China Bull Case                 12%             18%    15%       80.2   49%                                           11.0              1.8
MSCI China                           6%              12%     9%       70.0   30%                                           10.5              1.6
MSCI China Bear Case                 2%               6%     4%       47.7  -11%                                             8.0             1.1
HSCEI                                6%              13%     9%     12,900   32%                                             9.4             1.3

Source: MSCI, Bloomberg, GS Global ECS Research estimates.

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                                                                                          4
May 18, 2012                                                                                                                                                                                                                                                                              China

Exhibit 9: MXCN valuation relative to key global indices                                                                    Exhibit 10: Meanwhile, relative growth rate has not
weakened by 20%+ since late 2011                                                                                            varied meaningfully since late 2010

 (%)         12m P/E difference- MXCN vs MXAPJ, MXWD, MXWO and MXEF                                                                            12m growth difference: MXCN vs MXAPJ, MXWD, MXWO
              MXCN vs MXAPJ           MXCN vs MXWD                   MXCN vs MXWO                  MXCN vs MXEF                                                       and MXEF
                                                                                                                              (%)                MXCN vs MXAPJ                    MXCN vs MXWD                         MXCN vs MXWO                                MXCN vs MXEF







 (40)                                                                                                                         -15

                                                                                                                                 Jan-03               Jan-04      Jan-05         Jan-06               Jan-07       Jan-08        Jan-09                   Jan-10            Jan-11         Jan-12
    Jan-03    Jan-04   Jan-05        Jan-06        Jan-07        Jan-08      Jan-09       Jan-10      Jan-11   Jan-12

Source: MSCI, I/B/E/S, NBS, Factset, Bloomberg, GS Global ECS Research                                                      Source: MSCI, I/B/E/S, NBS, Factset, Bloomberg, GS Global ECS Research

Exhibit 11: China remains on the attractive side of our                                                                     Exhibit 12: Implied ERP is highest in Asia and at peak
regional P/B vs. ROE comparison                                                                                             levels

 P/B (X)
                                                                                                                            Equity risk premium (%)                                                                   +/- 1 S.D.                Current                      High / Low
 3.0                                                                                                                        16
                                                                                                                             14                                   More attractively valued
                                                       Philippines                                                           12
                                                                                                                             10                          11.6
                                                                          Thailand                                            8                                                                                                               9.0                                         9.1
                                                             U.S                                                                                                  8.8                                     8.3                                                                 8.8
                                          Malaysia                                                                                        8.2                                                                       8.0
 2.0                                                                                                                          6                                                           6.9
                                              India                                                                           4                                                                                                 5.6
                                Taiwan                                                                                                                                         4.5
 1.5                       Singapore                         China
                                        Europe                                                                                0
               Hong Kong                                                                                                     (2)
 1.0         Japan                                 Korea                                                                     (4)






                                                                                                                                                                   Hong Kong


 0.5                                                                                                                 ROE
        5      7       9        11            13            15        17        19          21         23      25    (%)

Source: MSCI, I/B/E/S, NBS, Factset, Bloomberg, GS Global ECS Research                                                      Source: MSCI, I/B/E/S, NBS, Factset, Bloomberg, GS Global ECS Research

Confidence will rebuild, but it may take some time
1Q12 market performance was strong as a result of a confluence of
positive factors – strong US macro momentum, relief in Europe on the
aftermath of LTRO, and still resilient data from China. All three of these
factors have started to reverse in the past weeks, and the European
situation appears particularly difficult.

At the current juncture, we feel that investor confidence in both China and
global fundamentals have reverted to a recent trough. We see significant
room for improvement in the coming quarters. That said, near-term
visibility remains low as:

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                                                                                  5
May 18, 2012                                                                           China

         The next couple of months are very crowded in terms of the
          European events calendar – for example the Greek election in
          mid June, and the upcoming German elections as well as more
          sovereign maturities

         It may take time for the impact of various China policy
          adjustments to filter through into fundamentals. In the
          meantime, investors might continue to question whether policies
          are ‘too little too late’

As such, we feel that room for meaningful re-rating in the coming 3
months may be more limited and we assume less absolute returns near

Exhibit 13: 2012E returns will be a combination of earnings growth and
valuation expansion

-10%               Earnings change
-20%               Valuation change
                   Price performance







Source: MSCI, Bloomberg, I/B/E/S, GS Global ECS Research estimates.

Goldman Sachs Global Economics, Commodities and Strategy Research                         6
May 18, 2012                                                                                                                             China

Exhibit 14: Near-term returns may be muted but ample potential later on


                  HSCEI                                                                                                         12m:
    14,000                                                                                                                     13,300

                                                                                                                  Year end:
    12,000                                                                                                         12,900

    10,000                                                                                                     3m:


                                HSCEI 3m, 2012 year end and 12m index forecast

         Jan-10    Apr-10   Jul-10   Oct-10   Jan-11   Apr-11   Jul-11   Oct-11   Jan-12   Apr-12   Jul-12   Oct-12   Jan-13    Apr-13

Source: MSCI, Bloomberg, I/B/E/S, GS Global ECS Research estimates.

Greater uncertainty from external factors vs. domestic,
and on valuation vs. earnings
Overall we feel that downside risks are likely to be:

-            More external than domestic: We believe the willingness and ability
             of Chinese policymakers to overcome the cyclical volatility are high
             (willingness was particularly underscored with the recent RRR cut and
             white goods/auto energy efficient products subsidies, which should
             boost confidence/reduce downside risks). In contrast, global
             uncertainties are much higher, particularly regarding the Eurozone
             political scene.

-            Higher risk on valuation than on earnings: Global risk-off is a more
             likely downside risk and this will impact China equities more directly
             through valuations rather than corporate fundamentals.

The potential exception to the above view would be if further political
volatility emerges in the coming months ahead of the leadership
transition. While changes could well be medium to longer-term positive,
the perception of instability around such changes could pose a risk to
valuation near-term on both a relative and absolute basis for China

Sector positioning – domestic is the word... Healthcare now to OW
We have reviewed our sector positioning choices and our criteria for
sectoral outperformance in the coming months are:
                  Low earnings risks

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                           7
May 18, 2012                                                                     China

        Relatively weak performance YTD and light investor positioning -
         to avoid profit taking pressure in case of further global risk-off or
         fund outflows

        Policy alignment – sectors that may benefit from adjustments to
         domestic policies

In this context, we remain overweight on several macro-sensitive
domestic-facing sectors:
        Banks: Low earnings risks, light positioning, and likely to benefit
         from l improvements in liquidity and corporate fundamentals.
         The sector is also relatively more defensive in the case of more
         globally-induced volatility.

        Retail: The sector has pulled back to very inexpensive valuation
         levels and while there are more consensus cuts likely, the bulk
         should be behind us. Policies to enhance social safety nets (fiscal
         spend, tax breaks) and support consumption (like the recent
         energy efficient white goods subsidy) could be positive as well.

        Cement: Slower and less than expected easing is likely to result
         in weak price recovery trends vs. the market’s previous
         expectations. That said, the sector’s recent performance has
         already reflected such concerns, and positioning has lightened up
         meaningfully in the past month. Cement remains our preferred
         sector within the commodities space. Compared to other
         commodities like steel and aluminum that are struggling with
         industry-wide losses, cement should still realize above mid- cycle
         margins and returns. Furthermore, as a pure domestic cyclical
         play with low inventory, we believe it is the first and most direct
         beneficiary of a potential pickup in infrastructure investments off
         a very low base in 1Q12 (particularly water, rural, environmental

We also move healthcare to OW from Neutral:
-   Good entry point: The healthcare sector has underperformed MXCN
    by 22% over the past twelve months. This was largely driven by
    concerns over mandated price cuts, raw material pressure on
    margins, and a high starting point in terms of sector valuations (23.7
    times fPER 12 months ago) after an impressive performance in 2010.
    Investor positioning has lightened up meaningfully .

-   Earnings outlook now more resilient: Although more government-
    mandated price cuts are certainly likely to be forthcoming in the
    coming months, our sector analysts believe it is now well-expected
    by the market and thus already in consensus. Raw material cost
    pressures are also easing together with inflation. There are no major
    reasons to expect upward revisions near term, but we believe ‘less
    downside’ is already positive in the current environment and
    positions the sector well on a relative basis.

-   Valuation has made new troughs: Sector valuation is now at 15.8
    times fPER, a historical trough, and very reasonable given the sector’s
    20%+ earnings CAGR. Other sectors with low earnings risks (like
    staples and telcos) are all trading at higher valuations versus

-   Potential catalyst if price cut pressures start to abate: Persistent
    rounds of price cuts have started to result in drug quality problems

Goldman Sachs Global Economics, Commodities and Strategy Research                   8
May 18, 2012                                                                                                                                                                                                    China

                  and discouragement of R&D and higher tier products. While we do
                  not expect any immediate policy changes, in the coming quarters
                  (particularly after the leadership handover), we may see potential
                  policy reviews and changes in approach.

-                 Liquidity improvement may also benefit certain names: Although
                  healthcare is usually viewed as a less macro sensitive sector, we do
                  think that improving liquidity can significantly enhance fundamentals
                  for some of the listcos. In particular, the distributors’ working capital
                  issues could be meaningfully alleviated.

-                 Our sector teams’ preferred names are Sino Biopharm, Sihuan and

Exhibit 15: Our favored sectors have limited earnings risks, low positioning, and policy alignment

                                                                                                             Consensus 12E       Sector CAGR           Sector       Sector 12E     Relative perf      Perceived
                                       GS            MXCN             P/E      EPS Growth (%) Ytd revision     EPS revision      vs. MXCN (%)        12m fP/E       P/E vs APJ       vs MXCN           investor
Sectors                              Rating       weighting       2012E 2013E 2012E 2013E 2012E EPS              direction            2011-13E        Z-score            sector 6 months ytd 2012 positioning
MSCI China                            OW                            9.1    8.1   11.7    12.3       -2.8%       Downward                                 -1.3             -19%                           UW
Banks                                 OW             22.5%          5.8    5.3   12.2    10.4        2.9%           Flat                      -0.7       -1.5             -36%         1%        -2%     UW
Retail                                OW              3.6%         13.0   11.1   22.0    17.3       -9.1%    Flat/downward                     7.6       -1.6              -6%      -12%         -8%    Neutral
Building materials                    OW              2.1%          7.3    6.1    -4.8   19.0      -19.9%       Downward                      -5.6       -1.3             -38%      -11%         -3%     UW
Health care                           OW              0.8%         17.5   14.5   25.4    20.5       -3.6%           Flat                      10.9       -1.3              -5%        -6%        -3% Slight UW
Property                             Neutral          5.3%          7.2    6.2     2.5   15.8       -8.2%       Downward                      -3.1       -1.0             -39%       18%        13%      UW
Metals/mining                        Neutral          1.3%          7.1    6.8     3.0    5.1      -10.1%       Downward                      -8.0       -1.2             -24%      -21%       -14%      UW
Industrials                          Neutral          4.3%          8.5    7.5     0.2   12.4       -5.2%       Downward                      -5.9       -1.0             -23%        -4%        -3%     UW
Autos and components                 Neutral          2.2%          9.6    8.4   12.7    15.2       -5.9%       Downward                       2.0       -1.2              17%         5%         2%    Neutral
Insurance                            Neutral          7.3%         14.2   11.7   42.2    21.1       -7.3%       Downward                      19.2       -1.3               7%        -7%         0%    Neutral
Tech hardware                        Neutral          1.8%         11.9   10.0   30.3    18.8      -12.2%       Downward                      12.4       -0.7             -15%         6%         4%    Neutral
Software and services                Neutral          5.1%         26.3   21.2   27.8    24.2        0.0%        Upward                       14.0       -0.7              38%       40%        39%      OW
Chemicals                            Neutral          0.8%          7.8    6.6   16.8    17.7      -10.8%    Flat/downward                     5.2       -1.8             -31%      -16%       -12%     Neutral
Steel, aluminium                     Neutral          0.6%         22.3   15.0   21.2    49.1      -39.5%       Downward                      22.4        0.3              93%      -11%         -6%     UW
Oil and gas                          Neutral         17.9%          8.4    7.9   10.0     7.2       -0.7%    Flat/downward                    -3.4       -1.6             -14%        -7%        -4% Slightly OW
Transportation                       Neutral          2.3%         13.9   10.3   53.5    35.5      -10.8%       Downward                      32.2       -0.7             -23%         5%        -1%     UW
Utilities                            Neutral          2.4%         12.5   10.7   39.6    16.7        6.1%        Upward                       15.6       -1.0             -15%         7%         1%    Neutral
Consumer staples                      UW              5.9%         23.1   18.6   15.9    24.4      -13.9%           Flat                       8.1        1.6              35%         4%         0%     OW
Telecom                               UW             13.9%         12.3   11.4     6.7    7.2       -2.8%           Flat                      -5.1       -0.3              -8%         4%         0%     OW

Source: MSCI, Bloomberg, I/B/E/S, Factset, Gao Hua Securities Research estimates, GS Global ECS Research estimates.
Note: Blue highlights are favorable while gray highlights are unfavorable

Exhibit 16: Healthcare sector is trading at mid teens PER                                                    Exhibit 17: ... and historical trough PB as well

                                                                                                               12m forward P/B (X)
    12m forward P/E (X)
                                                                                                               8.0            MXCN Health care              Average              Avg + 1sd         Avg - 1sd
    45                         MXCN Health care             Average                 + 1sd            - 1sd

    35                                                                                                         6.0

    30                                                                                                         5.0



    5                                                                                                          1.0

    0                                                                                                          0.0










Source: MSCI, I/B/E/S, Bloomberg, GS Global ECS Research estimates.                                          Source: MSCI, I/B/E/S, Bloomberg, GS Global ECS Research estimates.

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                  9
May 18, 2012                                                                                                                                                                                                                                                                                                                                                                                            China

Exhibit 18: Most macro sensitive sectors are at historical                                                                                                                                                                                             Exhibit 19: Over the past few weeks, higher beta sectors
trough valuations                                                                                                                                                                                                                                      have meaningfully corrected

 12M forward P/E (X)                                                                                                              High/low                               +/- 1                                   Current
  70                                                                                                                                                                                                                                                    25%
                                                                                                                                                                                                                                                                                                                                                              Earnings revision
              5 years historical data used
 60                                                                                                                                                                                                                                                     20%                                                                                                   Valuation change
                                                                                                                                                                                                                                                                                                                                                              Price performance
 50                                                                                                                                                                                                                                                     15%

 40                                                                                                                                                                                                                                                     10%

 30                                                                                                                                                                                23.5                                                                  5%
                                                                          19.4                                                                                                                 17.4
 20                                                                                                                                                                                                                                                      0%
                                                                                                                            12.6                                  11.6                                           11.5 11.5 11.2
       8.4 8.6                                                10.2
                                                                                                              7.8                        7.9
 10                  5.3 6.5 6.8                                                              6.6                                                      6.4                                                                                              -5%

  0                                                                                                                                                                                                                                                    -10%






                             Building materials

                                                                                                                                         Oil and gas








                                                                                                                                                                                                                                                                                                                                                                              Cons. Disc.



                                                                                                                                                                                                                                                                                                                   Health care

                                                                                                                                                                                                                                                                                                                                 Cons. Stap.
Source: MSCI, I/B/E/S, Bloomberg, GS Global ECS Research estimates.                                                                                                                                                                                    Source: MSCI, I/B/E/S, Bloomberg, GS Global ECS Research estimates.

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                                                                                                                                                                                                                                                                          10
May 18, 2012                                                                                                                                      China

Disclosure Appendix

Reg AC
We, Helen Zhu, Timothy Moe, CFA, Hanfeng Wang, Ph.D, CFA, Ben Bei and Chenjie Liu, hereby certify that all of the views expressed in this report
accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our
compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.


Distribution of ratings/investment banking relationships
Goldman Sachs Investment Research global coverage universe
                           Rating Distribution                          Investment Banking Relationships
                   Buy             Hold            Sell                 Buy             Hold            Sell
   Global            31%           54%             15%                  48%           41%            36%
As of April 1, 2012, Goldman Sachs Global Investment Research had investment ratings on 3,507 equity securities. Goldman Sachs assigns stocks
as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell
for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.

Disclosures required by United States laws and regulations
See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager
or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/co-
managed public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs usually makes a
market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities.
The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts,
professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of coverage.
Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues.
Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from
serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S.
analysts may not be associated persons of Goldman, Sachs & Co. and therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions
on communications with subject company, public appearances and trading securities held by the analysts.

Additional disclosures required under the laws and regulations of jurisdictions other than the United
The following disclosures are those required by the jurisdiction indicated, except to the extent already made above pursuant to United States laws
and regulations. Australia: Goldman Sachs Australia Pty Ltd and its affiliates are not authorised deposit-taking institutions (as that term is defined
in the Banking Act 1959 (Cth)) in Australia and do not provide banking services, nor carry on a banking business, in Australia. This research, and any
access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act, unless otherwise agreed by Goldman
Sachs. Brazil: Disclosure information in relation to CVM Instruction 483 is available at
Where applicable, the Brazil-registered analyst primarily responsible for the content of this research report, as defined in Article 16 of CVM
Instruction 483, is the first author named at the beginning of this report, unless indicated otherwise at the end of the text. Canada: Goldman, Sachs
& Co. has approved of, and agreed to take responsibility for, this research in Canada if and to the extent it relates to equity securities of Canadian
issuers. Analysts may conduct site visits but are prohibited from accepting payment or reimbursement by the company of travel expenses for such
visits. Hong Kong: Further information on the securities of covered companies referred to in this research may be obtained on request from
Goldman Sachs (Asia) L.L.C. India: Further information on the subject company or companies referred to in this research may be obtained from
Goldman Sachs (India) Securities Private Limited; Japan: See below. Korea: Further information on the subject company or companies referred to
in this research may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. New Zealand: Goldman Sachs New Zealand Limited and its
affiliates are neither "registered banks" nor "deposit takers" (as defined in the Reserve Bank of New Zealand Act 1989) in New Zealand. This
research, and any access to it, is intended for "wholesale clients" (as defined in the Financial Advisers Act 2008) unless otherwise agreed by
Goldman Sachs. Russia: Research reports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are
information and analysis not having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian
legislation on appraisal activity. Singapore: Further information on the covered companies referred to in this research may be obtained from
Goldman Sachs (Singapore) Pte. (Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted without
permission. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor.
United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial
Services Authority, should read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and
should refer to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these risks warnings, and a glossary of
certain financial terms used in this report, are available from Goldman Sachs International on request.
European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is
available at which states the European Policy for Managing Conflicts of Interest in Connection
with Investment Research.

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                    11
May 18, 2012                                                                                                                                          China

Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer under the Financial Instrument and Exchange Law, registered with the
Kanto Financial Bureau (Registration No. 69), and is a member of Japan Securities Dealers Association (JSDA) and Financial Futures Association of
Japan (FFAJ). Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific
disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese
Securities Finance Company.

Ratings, coverage groups and views and related definitions
Buy (B), Neutral (N), Sell (S) -Analysts recommend stocks as Buys or Sells for inclusion on various regional Investment Lists. Being assigned a Buy
or Sell on an Investment List is determined by a stock's return potential relative to its coverage group as described below. Any stock not assigned
as a Buy or a Sell on an Investment List is deemed Neutral. Each regional Investment Review Committee manages various regional Investment
Lists to a global guideline of 25%-35% of stocks as Buy and 10%-15% of stocks as Sell; however, the distribution of Buys and Sells in any particular
coverage group may vary as determined by the regional Investment Review Committee. Regional Conviction Buy and Sell lists represent
investment recommendations focused on either the size of the potential return or the likelihood of the realization of the return.
Return potential represents the price differential between the current share price and the price target expected during the time horizon associated
with the price target. Price targets are required for all covered stocks. The return potential, price target and associated time horizon are stated in
each report adding or reiterating an Investment List membership.
Coverage groups and views: A list of all stocks in each coverage group is available by primary analyst, stock and coverage group at The analyst assigns one of the following coverage views which represents the analyst's investment
outlook on the coverage group relative to the group's historical fundamentals and/or valuation. Attractive (A). The investment outlook over the
following 12 months is favorable relative to the coverage group's historical fundamentals and/or valuation. Neutral (N). The investment outlook
over the following 12 months is neutral relative to the coverage group's historical fundamentals and/or valuation. Cautious (C). The investment
outlook over the following 12 months is unfavorable relative to the coverage group's historical fundamentals and/or valuation.
Not Rated (NR). The investment rating and target price have been removed pursuant to Goldman Sachs policy when Goldman Sachs is acting in
an advisory capacity in a merger or strategic transaction involving this company and in certain other circumstances. Rating Suspended (RS).
Goldman Sachs Research has suspended the investment rating and price target for this stock, because there is not a sufficient fundamental basis
for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment
rating and price target, if any, are no longer in effect for this stock and should not be relied upon. Coverage Suspended (CS). Goldman Sachs has
suspended coverage of this company. Not Covered (NC). Goldman Sachs does not cover this company. Not Available or Not Applicable (NA).
The information is not available for display or is not applicable. Not Meaningful (NM). The information is not meaningful and is therefore excluded.

Global product; distributing entities
The Global Investment Research Division of Goldman Sachs produces and distributes research products for clients of Goldman Sachs on a global
basis. Analysts based in Goldman Sachs offices around the world produce equity research on industries and companies, and research on
macroeconomics, currencies, commodities and portfolio strategy. This research is disseminated in Australia by Goldman Sachs Australia Pty Ltd
(ABN 21 006 797 897); in Brazil by Goldman Sachs do Brasil Corretora de Títulos e Valores Mobiliários S.A.; in Canada by Goldman, Sachs & Co.
regarding Canadian equities and by Goldman, Sachs & Co. (all other research); in Hong Kong by Goldman Sachs (Asia) L.L.C.; in India by Goldman
Sachs (India) Securities Private Ltd.; in Japan by Goldman Sachs Japan Co., Ltd.; in the Republic of Korea by Goldman Sachs (Asia) L.L.C., Seoul
Branch; in New Zealand by Goldman Sachs New Zealand Limited; in Russia by OOO Goldman Sachs; in Singapore by Goldman Sachs (Singapore)
Pte. (Company Number: 198602165W); and in the United States of America by Goldman, Sachs & Co. Goldman Sachs International has approved
this research in connection with its distribution in the United Kingdom and European Union.
European Union: Goldman Sachs International, authorized and regulated by the Financial Services Authority, has approved this research in
connection with its distribution in the European Union and United Kingdom; Goldman Sachs AG, regulated by the Bundesanstalt für
Finanzdienstleistungsaufsicht, may also distribute research in Germany.

General disclosures
This research is for our clients only. Other than disclosures relating to Goldman Sachs, this research is based on current public information that we
consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as
appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large
majority of reports are published at irregular intervals as appropriate in the analyst's judgment.
Goldman Sachs conducts a global full-service, integrated investment banking, investment management, and brokerage business. We have
investment banking and other business relationships with a substantial percentage of the companies covered by our Global Investment Research
Division. Goldman, Sachs & Co., the United States broker dealer, is a member of SIPC (
Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our
proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this research. Our asset management area, our
proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views
expressed in this research.
The analysts named in this report may have from time to time discussed with our clients, including Goldman Sachs salespersons and traders, or
may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity
securities discussed in this report, which impact may be directionally counter to the analysts' published price target expectations for such stocks.
Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks, which rating reflects a stock's
return potential relative to its coverage group as described herein.
We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in,
act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.
This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be
illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of
individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and,
if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from
them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may
occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.
Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all
investors. Investors should review current options disclosure documents which are available from Goldman Sachs sales representatives or at

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                        12
May 18, 2012                                                                                                                                         China Transaction costs may be significant in option strategies calling for multiple purchase
and sales of options such as spreads. Supporting documentation will be supplied upon request.
In producing research reports, members of the Global Investment Research Division of Goldman Sachs Australia may attend site visits and other
meetings hosted by the issuers the subject of its research reports. In some instances the costs of such site visits or meetings may be met in part or
in whole by the issuers concerned if Goldman Sachs Australia considers it is appropriate and reasonable in the specific circumstances relating to
the site visit or meeting.
All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client websites. Not
all research content is redistributed to our clients or available to third-party aggregators, nor is Goldman Sachs responsible for the redistribution of
our research by third party aggregators. For all research available on a particular stock, please contact your sales representative or go to
Disclosure information is also available at or from Research Compliance, 200 West Street, New York, NY
© 2012 Goldman Sachs.
No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the
prior written consent of The Goldman Sachs Group, Inc.

Goldman Sachs Global Economics, Commodities and Strategy Research                                                                                          13

To top