Credit Suisse -China Market Strategy by riteshbhansali

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Growth' and 'Reform': The key words for 2013

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									                                                                                                                                               02 January 2013
                                                                                                                                              Asia Pacific/China
                                                                                                                                              Equity Research
                                                                                                                                                        Strategy




                                               China Market Strategy
                         Research Analysts
                                                ECONOMICS AND STRATEGY
                              Vincent Chan
                             852 2101 6568
              vincent.chan@credit-suisse.com
                                               'Growth' and 'Reform': The key words for 2013
                         Peggy Chan, CFA
                            852 2101 6305      Figure 1: Even post recent rally, China still does not look expensive
               peggy.chan@credit-suisse.com
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                                                                       MSCI China - trailing P/B (x)                  Avg             +1SD             -1SD

                                               Source: MSCI

                                               We update our outlook on the Chinese stock market for 2013:
                                               ■ The macro stabilisation trend continues. The past few months’ data
                                                 indicate that the trend of stabilisation and mild recovery continues in China.
                                                 Among the demand variables, infrastructure investment growth remains
                                                 strong. Property investment and retail sales, on the other hand, have shown
                                                 signs of recovery. However, export growth may bottom out in 1H13, while
                                                 industrial investment growth could slow further.
                                               ■ Reform initiatives. Another factor which could influence the market is the
                                                 government’s decision on more comprehensive economic reforms. If that
                                                 happens, investors could turn more bullish on China’s long-term growth
                                                 outlook, which, in turn, would be positive for the market.
                                               ■ Index targets, model portfolio and top picks. Our 12-month index targets
                                                 for MSCI China, H share and Shanghai A are 70, 14,000 and 2,600,
                                                 respectively, implying potential upsides of 12-23%. In our model portfolio, we
                                                 continue to like beta plays but call a switch from investment-related sectors
                                                 such as materials to consumer discretionary plays. Our top picks are CCB,
                                                 Air China, Brilliance China, China Pacific and Shenhua.



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                                                                                                                                                                                                                                                                                                          02 January 2013




Focus charts and table
Figure 2: Weaker recovery see in 2013 versus 2003                                                                                                                     Figure 3: Property investment is recovering
  GDP grow th (%)                                                                                                                                                      YoY% (3MMA)                                                                                                                               YoY% (3MMA)
                                           10.8                                                                                                                         80                                                                                                                                                           50

                                                            9.6 9.9
                                                                                          9.2 8.9                                                                       60                                                                                                                                                           40
               8.9
                        8.0 8.1 8.1                                                                       8.1                                   8.3 8.3
                                                    7.9                                                            7.6 7.4 7.7 7.8                              7.9     40                                                                                                                                                           30
  7.0
        6.6
                                                                                                                                                                        20                                                                                                                                                           20

                                                                                                                                                                         0                                                                                                                                                           10

                                                                                                                                                                        -20                                                                                                                                                          0

                                                                                                                                                                        -40                                                                                                                                                          -10




                                                                                                                                                                              Mar 97
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  4Q01
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  2Q02
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  1Q03
  2Q03
  3Q03




                                                                                           3Q11
                                                                                           4Q11
                                                                                           1Q12
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  3Q01




  4Q03




                                                                                          4Q12F

                                                                                          2Q13F
                                                                                          3Q13F
                                                                                          4Q13F
                                                                                          1Q13F


                                                                                                                                                                                                                        Floor Space Started                                          FAI (RHS)

Source: CEIC, Credit Suisse estimates                                                                                                                                 Source: CEIC

Figure 4: Retail sales growth should accelerate in 2013                                                                                                               Figure 5: Declining share of bank funding
 30                                                                                                                                                                      % of total                                                                                                                                  Rmb trillion

                                                                                                                                                                       120                                                                                                                                                           1.4
 25
                                                                                                                                                                       100                                                                                                                                                           1.2
                                                                                                                                                                        80                                                                                                                                                           1.0
 20
                                                                                                                                                                        60                                                                                                                                                           0.8
 15                                                                                                                                                                     40                                                                                                                                                           0.6
                                                                                                                                                                        20                                                                                                                                                           0.4
 10                                                                                                                                                                      0                                                                                                                                                           0.2
                                                                                                                                                                       -20                                                                                                                                                           0.0
  5                                                                                                                                                                       Jan 09                Jul 09         Jan 10                Jul 10             Jan 11             Jul 11             Jan 12             Jul 12

                                                                                                                                                                                                                   MLT Corporate Loan                                      Forex Loan
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      Jan 96
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                                                                                                                                                                                                                   Entrusted Loan                                          Trust Loan
                                                                                                                                                                                                                   Corporate Bond                                          Equity
                                                                     Nominal                             Real                                                                                                      Total (RHS)

Source: CEIC, Credit Suisse estimates                                                                                                                                 Source: CEIC

Figure 6: Slight pick-up in total demand seen in 2013
                                                                                                                            2011                                                                                                     YoY (%)
Nominal                                                                                                    Rmb bn                     % of total                      04-08                     09-10                                 11                          12E                            13E              Jan-Nov'12
Retail Sales                                                                                                   18,140                                  29.9            15.6                       17.0                          17.1                              14.5                          15.5                                14.2
Exports (Rmb adjusted)                                                                                         12,257                                  20.2            22.6                        6.4                          14.8                               4.5                           8.0                                 4.8

Urban Fixed Asset Investment                                                                                   30,193                                  49.8            26.3                       27.5                          23.8                              20.9                          19.3                                20.9
 Infrastructure                                                                                                 9,170                                  15.1            19.9                       29.4                           9.9                              16.8                          22.5                                16.4
 Real Estate                                                                                                    7,568                                  12.5            26.0                       26.7                          29.7                              21.4                          19.5                                22.2
 Industrial                                                                                                    11,766                                  19.4            34.2                       26.4                          31.0                              21.9                          15.0                                21.7
 Services                                                                                                       1,689                                   2.8            28.2                       32.1                          38.2                              34.0                          30.0                                34.0

Total Demand                                                                                                   60,590                            100.0                 21.3                       18.2                          19.9                              15.7                          16.1                                15.6
Source: CEIC, Credit Suisse estimates




China Market Strategy                                                                                                                                                                                                                                                                                                                    2
                                                                                                               02 January 2013




'Growth' and 'Reform': The key
words for 2013
Macro stabilisation trend continues
Last few months’ data indicate that the trend of macro stabilisation and mild recovery          Infrastructure investment is
continues in China. Among the demand variables, infrastructure investment continues to          the key growth driver and a
be the key driver of growth. It has been accelerating rapidly since the second quarter of       major concern is industrial
last year. On the other hand, property investment and retail sales have shown signs of          investment
recovery. However, while there are some signs of export recovery, we remain skeptical as
to whether export growth has bottomed out. Moreover, industrial investment is a major
concern, and the slowdown could continue in 2013. Combining all these, we believe that
the overall demand growth in 2013 will be slightly stronger than in 2012.

Reform initiatives
Another factor which could influence the market is whether the government is serious
about undertaking economic and social reform. These would significantly boost market
confidence and investors could turn more bullish regarding China’s long-term growth
outlook. If that is the case, then the second and third ‘Plenary Session’ of the ‘Central
Committee’ expected to take place in February 2013 and October 2013, respectively, will
assume greater significance.
In recent years, the financial system’s source of funding has shifted from bank loans to off-   Funding: A topic to watch in
balance sheet instruments, where some of them have been repackaged into wealth                  2013
management products (WMPs) that are sold to banks’ customers unsure about their credit
risk profile. We believe the government is aware of the issue and any restriction on WMPs
will impact the liquidity supplied to investments. Besides, WMPs increase competition
among equity and insurance products.

Index targets and model portfolio
Our 12-month index targets for MSCI China, H share and Shanghai A are 70, 14,000 and            Our index targets for MSCI
2,600, respectively, implying potential upsides of 12-23%. We are generally conservative        China, H share and
in our assumptions and have applied 5-10% growth rate for the next three years, as we           Shanghai A are 70, 14,000
are concerned about the structural issues that the Chinese economy is facing, and believe       and 2,600, respectively
that we will not see a high growth environment in the near term.
In our model portfolio, we maintain our view of a stabilisation in the macroeconomic            Shift to discretionary
environment in 2013 and continue to like beta plays. However, we recommend investors            consumption from
switch from investment-related sectors like materials to consumer discretionary (biggest        investment-related sectors
OVERWEIGHT). Our top picks are CCB, Air China, Brilliance China, China Pacific and
Shenhua.




China Market Strategy                                                                                                        3
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Figure 7: Credit Suisse—China model portfolio
                                  Weighting          CS P/E        Consensus
                                     (%)               (x)           P/E (x)
MSCI sector                 CS MSCI vs MSCI 2012E 2013E 2012E 2013E Recommended stocks
Consumer Discretionary     10.0  5.2     4.8 15.5 13.9    16.2 13.2 Anta (2%), Belle (2%), Brilliance (2%), Intime (2%), New
                                                                     Oriental (2%)
Consumer Staples            2.0  5.4    -3.4 19.6 12.8    26.3 22.2 China Modern Dairy (3%)
Energy                     18.0 17.5     0.5   9.4   8.5  10.5   9.9 CNOOC (12%), Shenhua (6%)
Financials                 40.0 39.1     0.9   8.6   8.7   8.2   7.7
  Banks                    26.0 24.8     1.2   6.8   7.4   6.5   6.4 CCB (10%), ICBC (9%), China Merchants Bank (7%)
  Insurance & Div. Fin.    10.0  8.2     1.8 22.0 16.2    24.2 16.1 Ping An (5%), China Pacific (4%), Haitong (2%)
  Property                  4.0  6.1    -2.1 10.7    9.0   9.8   8.7 Vanke A (3%), CR Land (1%)
Health Care                 2.0  0.9     1.1 19.7 16.1    20.6 17.2 Mindray (1%), CMS (1%)
Industrials                 5.0  6.3    -1.3 11.6 10.5    14.0 11.5
   Transportation           3.0  2.1     0.9 14.9 11.1    25.7 14.5 Air China (3%)
   Capital Goods            2.0  4.1    -2.1   8.8   9.8  11.3 10.4 Zoomlion (2%)
Information Technology      6.0  6.2    -0.2 16.9 13.0    26.0 19.9 Asiano (2%), Lenovo (2%), AAC (1%), Tencent (1%)
Materials                   4.0  4.5    -0.5   8.4 12.2   14.7 10.7 Baosteel (2%), Jiangxi Copper (2%)
Telecoms                   10.0 12.2    -2.2 11.7 11.6    12.6 12.0 China Mobile (10%)
Utilities                   3.0  2.8     0.2 16.4 14.1    14.4 12.2 Kunlun (2%), CR Power (1%)
MSCI China                100.0    100.0      0.0   10.3    10.0    10.9    9.9
Consumer sector*           20.0     17.6      2.4   16.7    13.7    23.0   18.5
* We define the Broader Consumer sector as: discretionary, staples, healthcare and tech. Source: MSCI, Credit Suisse estimates




China Market Strategy                                                                                                                         4
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'Growth' and 'Reform': The key
words for 2013
Ten years ago, China’s then “new leaders” took office and 2003 was a very volatile year
for the Chinese market. In the first half of the year, Chinese stocks and Hong Kong
property prices, all were severely impacted by the SARS crisis, and H shares remained at
around the 2,000 level. However, the second half of 2003 was entirely different. With the
SARS crisis over, market sentiment improved significantly. Also, the positives of China’s
entry into the WTO started to filter through to the Chinese economy, as export growth
began to stage a strong rebound and the Chinese property market rallied. H shares, which
was at 1,990 at the beginning of the year (2003), surged to 5,020 by end-2003. The
mooted question now is: Can history repeat itself in 2013? Well, we think that there is a
chance, but the probability is not that high.
What are the similarities and differences between 2013 and 2003?                                                                                     Similarities and differences
                                                                                                                                                     between 2013 and 2003
(1) Similar to late 2002, signs of macroeconomic stabilisation were obvious in late 2012.
    Economic growth in the next few quarters is therefore likely to accelerate. In this sense,
    2013 is similar to 2003. However, while the recovery momentum in 2003 was very
    strong (only the second quarter was disrupted by the SARS crisis), the anticipated
    pace of recovery in 2013 is expected to be much weaker. This is the key. Indeed, the
    weakness in the stock market in 1H12 was also in part due to the anticipated weak
    momentum in the recovery. Once the expectations start to change, market
    performance should get better.

Figure 8: GDP growth momentum—ten years ago and now
                                                                                                                                                     The GDP recovery in 2013
  GDP grow th (%)                                                                                                                                    is expected to be weaker
                                              10.8                                                                                                   than 10 years ago
                                                            9.6 9.9
                                                                          9.2
                  8.9                                                            8.9
                         8.0 8.1 8.1                                                    8.1                                  8.3 8.3
                                                     7.9                                                                                     7.9
                                                                                               7.6 7.4 7.7 7.8
    7.0
           6.6
           4Q01

                  1Q02




                                       4Q02

                                              1Q03



                                                            3Q03

                                                                   4Q03




                                                                          3Q11




                                                                                               2Q12

                                                                                                      3Q12
    3Q01




                         2Q02

                                3Q02




                                                     2Q03




                                                                                 4Q11

                                                                                        1Q12




                                                                                                                     1Q13F

                                                                                                                             2Q13F



                                                                                                                                             4Q13F
                                                                                                             4Q12F




                                                                                                                                     3Q13F




Source: CEIC, Credit Suisse estimates

(2) The stronger-than-expected pick-up in economic growth after 2003 was driven by a                                                                 Economic growth after 2003
    slew of factors:                                                                                                                                 was driven by exports,
                                                                                                                                                     property market and
     a)     Sharp acceleration in export growth, partly due to China’s WTO entry, but mainly
                                                                                                                                                     investments
            due to the massive FDI in the 1990s which allowed China to fully integrated into
            the global production process;




China Market Strategy                                                                                                                                                            5
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Figure 9: 2003-08—golden era of Chinese exports
   YoY%
 60
                                             1993-2002: 15.9%
 50
 40
 30
 20
 10
  0
 -10
 -20                                                                                          2003-1H'08: 29.8%

 -30
                                                                                                                                                                      2H'08-Now : 11.6%
 -40
       Jan 93

                  Jan 94

                           Jan 95

                                    Jan 96

                                             Jan 97

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                                                                                                                                                                     Jan 10

                                                                                                                                                                              Jan 11

                                                                                                                                                                                        Jan 12
Source: CEIC

       b)          Property market boom. Apart from being a consequence of rising household
                   wealth, the housing reform in late 1990s also helped in triggering the boom; and

Figure 10: Property market boom after 2003
  2002 = 100
 450

 400

 350

 300

 250

 200

 150

 100

  50

   0
                1991           1993            1995            1997               1999               2001           2003            2005            2007             2009              2011

                                                                                 Avg Price                     Floor Space Sold

Source: CEIC, Credit Suisse estimates

       c)          Strong private and foreign investment in competitive industries due to
                   improvement in long-term business outlook. Industrial investment (including
                   mining, manufacturing, utilities and construction) growth accelerated from single
                   digit (or declining) between 1997 and 2011 to almost 40% YoY during 2003-05.




China Market Strategy                                                                                                                                                                                         6
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Figure 11: Industrial investment surged after 2002
  YoY%
              44.7
                                                                                               40.5
                                                                                                      38.3 38.4

     30.7
                        28.3                                                                                                   29.0 28.0
                                                                                                                                         26.8                          27.3
                                                                                                                        25.9
                                                                                        24.0                                                                 23.2
                                                                                                                                                                                  21.1
                               16.1
                                      13.2
                                                                              9.0
                                               6.5                    7.1



                                                         -0.5 -0.9


     1992               1994          1996               1998        2000               2002          2004              2006                 2008            2010        Jan-Nov'12

Source: CEIC

         All these conditions are difficult to duplicate now, as all of the above-mentioned factors                                                                                               China needs lots of reforms
         are not particularly favourable. Generally, while most of the necessary reforms were                                                                                                     and growth surprises to
         completed during the 1997-02 period—when Zhu Rongji was the Prime Minister, and a                                                                                                        repeat 2003
         very favourable economic condition was created prior to 2003—this may not be the
         case in 2013. To re-create the dynamism between 2003 and the financial crisis, China
         will need to undertake a lot of reforms, particularly in streamlining its bureaucracy and
         opening up its state-controlled sectors for more competition and investment. However,
         while we tend to believe that the new government has the drive to push through
         reforms, to avoid frustration afterwards, one should not be too optimistic that the
         vested interests can be easily removed.
(3) Similar to 2002, valuation of Chinese stocks is at the low end of the range. This, at
    least, implies that there is limited potential downside in the market even if nothing
    much happens on either the reforms front or on the growth side.

Figure 12: P/B of H Shares                                                                                                 Figure 13: P/E of H Shares
 6                                                                                                                             40

                                                                                                                               35
 5
                                                                                                                               30
 4
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 3                                                                                                                             20

                                                                                                                               15
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 1
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                        HSCEI - P/B (x)                     Avg               +1SD                     -1SD                                              HSCEI - trailing P/E (x)                      Avg                +1SD                -1SD

Source: DataStream                                                                                                         Source: DataStream




China Market Strategy                                                                                                                                                                                                                                   7
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Figure 14: P/B of Shanghai A Shares                                                                             Figure 15: P/E of Shanghai A Shares
 8                                                                                                              50

 7                                                                                                              45
                                                                                                                40
 6
                                                                                                                35
 5                                                                                                              30
 4                                                                                                              25
                                                                                                                20
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                                                                                                                15
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                                                                                                                10
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                        Shanghai A - P/B (x)                Avg              +1SD               -1SD                          Shanghai A - trailing P/E (x)                  Avg                  +1SD                -1SD

Source: DataStream                                                                                              Source: DataStream

Overall, we think the market will continue to play around the theme of macro stabilisation.
It will provide some upside to the market, but for it to repeat 2003, we need either growth
surprising massively on the upside, or government-initiated reforms which can
fundamentally change market and business expectations.

Macro stabilisation trend continues
The trend of macro-stabilisation continues, as indicated in “China Market Strategy: The                                                                                 Infrastructure investment
worst is probably over” (published on 16 October 2012). Infrastructure investment still                                                                                 remains the key growth
happens to be the key driver of growth at this stage. It has been accelerating rapidly from                                                                             driver
around the second quarter of last year. Key infrastructure sectors have been doing well in
recent months.

Figure 16: Infrastructure investment accelerated from                                                           Figure 17: Key infrastructure sectors see growth picking
mid-2012 onwards                                                                                                up

                                                                                                                100
 60
                                                                                                                 80
 50                                                                                                              60

                                                                                                                 40
 40
                                                                                                                 20

 30                                                                                                                  0

                                                                                                                 -20
 20                                                                                                              -40

                                                                                                                 -60
 10                                                                                                                Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
                                                                                                                                                Railway                            Highway
 0
                                                                                                                                                Utility Management                 Electricity & Heat
  Jan 04 Jan 05 Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 Jan 12
Source: CEIC                                                                                                    Source: CEIC

In recent months, property investment have also shown signs of recovery, after
decelerating from mid-2010 onwards, which is consistent with the trend of bottoming out of
new housing starts in recent months. The continuation of this recovery trend will depend
largely on the sustained strength in property sales, which started from the second quarter




China Market Strategy                                                                                                                                                                                                     8
                                                                                                                                                                                                                                                            02 January 2013


of 2012. If sales momentum holds up, then property construction activities in China will
continue to accelerate, despite the declining inventory-to-sales ratio of developers.

Figure 18: Property investment and new housing starts                                                                                                                           Figure 19: Property sales by volume
 YoY% (3MMA)                                                                                                                                YoY% (3MMA)                         YoY% (3MMA)
  80                                                                                                                                                              50            100

  60                                                                                                                                                              40             80

  40                                                                                                                                                              30             60

  20                                                                                                                                                              20             40


   0                                                                                                                                                              10             20


 -20                                                                                                                                                              0                0

                                                                                                                                                                                -20
 -40                                                                                                                                                              -10
       Mar 97
                Mar 98
                         Mar 99
                                  Mar 00
                                            Mar 01
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                                                                                                                                                     Mar 12
                                                                                                                                                                                -40


                                                 Floor Space Started                                             FAI (RHS)                                                      -60
                                                                                                                                                                                  Mar 97          Mar 99     Mar 01           Mar 03   Mar 05   Mar 07   Mar 09   Mar 11
Source: CEIC                                                                                                                                                                    Source: CEIC

Along with the stabilising economy, retail sales have also shown signs of improvement in
recent months. Therefore, if overall economic growth continues to improve in the next few
quarters, retail consumption should follow the trend.

Figure 20: Bottoming out of retail sales
 30


 25


 20


 15


 10


  5


  0
       Jan 96




                                   Jan 98




                                                                 Jan 00




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                     Jan 97




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                                                                                                                                                                                                            Jan 11




                                                                                                                     Nominal                            Real

Source: CEIC

There were some signs of export recovery in September and October (before a dip in
November). However, we remain skeptical about whether export growth has really
bottomed out. Most notably, the acceleration in exports has been largely driven by one
market—Hong Kong. In the three months from September to November 2012, Chinese
exports were up 8% YoY. However, if we exclude Hong Kong (which surged 35% YoY)
from the equation, Chinese exports to other markets were up only 4% YoY during this
three-month period. Indeed, Chinese exports to its three key markets, i.e., the US, the EU
and Japan, are only showing very feeble signs of recovery at this stage. On the other hand,
Chinese exports data to Hong Kong is always very questionable. Most importantly, while
the momentum of Chinese exports to the US, the EU and Japan is usually very consistent
with the imports from the corresponding economies, growth in exports to Hong Kong has



China Market Strategy                                                                                                                                                                                                                                                      9
                                                                                                                                                  02 January 2013


always been very different from growth in imports from China, as data released by the
Hong Kong authorities suggest. In the last few months, this gap has widened. Between
August and October 2012, Chinese exports to Hong Kong were up 32% YoY, but Hong
Kong imports from China were up only 12% YoY. Historically, trade with Hong Kong has
been used by businessmen in China to bypass the foreign exchange control. The strength
of Chinese exports to Hong Kong in recent months could be due to similar window-
dressing activities instead of genuine exports.

Figure 21: Chinese exports still weak for key markets                                   Figure 22: Trade data with Hong Kong difficult to reconcile
  Y-Y% (3MMA)                                                                           Y-Y% (3MMA)
 70                                                                                     60
 60
 50                                                                                     40
 40
 30                                                                                     20
 20
 10                                                                                      0

  0
                                                                                        -20
-10
-20
                                                                                        -40
-30
-40                                                                                     -60
  Jan 96       Jan 98   Jan 00    Jan 02   Jan 04   Jan 06   Jan 08   Jan 10   Jan 12     Jan 94 Jan 96 Jan 98 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jan 12
                   Total (X HK)             EU               Japan             US                              CN Ex to HK        HK Im from CN

Source: CEIC                                                                            Source: CEIC

Industrial investment, however, is a major concern, and the slowdown in growth                                               Industrial profitability is
momentum could continue in 2013. In the few years after the global financial crisis, China                                   deteriorating
was probably the only country in the world to witness a 25%-plus industrial investment
growth. This massive build-up in industrial capacity has led to excess capacity problems in
many sectors, including solar panel, wind turbine, cement and steel, etc. Overall
profitability of China’s industrial sector is deteriorating, while long-term economic growth
outlook is being revised downwards (sales growth will be weakened as well). In such
circumstances, industrial capex will be very subdued.

Figure 23: Industrial investment outlook not encouraging                                Figure 24: Profitability affected by sales slowdown
                                                                                         %                                                                YoY%
 60                                                                                     25                                                                    50
                                                                                                                                                              45
                                                                                        20                                                                    40
 50
                                                                                                                                                              35
                                                                                        15                                                                    30
 40
                                                                                                                                                              25
                                                                                        10                                                                    20
 30                                                                                                                                                           15
                                                                                         5                                                                    10
                                                                                                                                                              5
 20
                                                                                         0                                                                    0
                                                                                              1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
 10                                                                                                          Pre-tax ROE         Sales growth (RHS)
      Jul 04   Jul 05   Jul 06    Jul 07   Jul 08   Jul 09   Jul 10   Jul 11   Jul 12
Source: CEIC                                                                            Source: CEIC, Credit Suisse estimates

Combining all these demand variables, we believe that the overall demand growth in 2013
will be slightly stronger than in 2012.



China Market Strategy                                                                                                                                         10
                                                                                                    02 January 2013



Figure 25: Slight pick-up in total demand in 2013
                                             2011                               YoY (%)
Nominal                                 Rmb bn    % of total   04-08   09-10    11        12E    13E    Jan-Nov'12
Retail Sales                             18,140        29.9     15.6    17.0   17.1       14.5   15.5         14.2
Exports (Rmb adjusted)                   12,257        20.2     22.6     6.4   14.8        4.5    8.0          4.8

Urban Fixed Asset Investment             30,193        49.8     26.3    27.5   23.8       20.9   19.3         20.9
 Infrastructure                           9,170        15.1     19.9    29.4    9.9       16.8   22.5         16.4
 Real Estate                              7,568        12.5     26.0    26.7   29.7       21.4   19.5         22.2
 Industrial                              11,766        19.4     34.2    26.4   31.0       21.9   15.0         21.7
 Services                                 1,689         2.8     28.2    32.1   38.2       34.0   30.0         34.0

Total Demand                             60,590       100.0     21.3    18.2   19.9       15.7   16.1         15.6
Source: CEIC, Credit Suisse estimates




China Market Strategy                                                                                           11
                                                                                                                            02 January 2013




Economic policies and social/
economic reforms
As expected, the recently finished Central Economic Work Conference (CEWC) has                           We expect GDP growth to
maintained the stance of fiscal policy (expansionary) and monetary policy (stable)                       remain at 7.5% for 2013
consistent with the last two years. Indeed, in the last 14 years – from 1999 onwards (after
the Asian Financial Crisis), this policy combination was in place for eight years—more than
half of the entire period. The conference has not announced the GDP growth target for
2013, which is usual as it will be left to the Government Work Report during the National
People’s Congress next March, but with effectively no change in the near-term economic
policy, we expect the GDP growth to remain at 7.5% for 2013.

Figure 26: Central Economic Work Conference from 1994 onwards
                        Fiscal Policy    Monetary Policy Key themes
15-16 Dec 2012          Expansionary     Stable           Improve the quality and efficiency of growth. Growth amid stability
12-14 Dec 2011          Expansionary     Stable           Growth amid stability. Balance the relationship between growth, structural
                                                          adjustment and inflation
10-12 Dec 2010          Expansionary     Stable           Stabilise growth, adjust economic structure, control inflation
5-7 Dec 2009            Expansionary     Loose            Ensure sustainable and stable macro policy
8-10 Dec 2008           Expansionary     Loose            Promote growth, expand domestic demand, adjust economic structure
3-5 Dec 2007            Stable           Tight            Contract total demand, stabilise inflation, adjust economic structure, facilitate
                                                          economic balance
5-7 Dec 2006            Stable           Stable           Intensify and improve macro adjustment
29 Nov-1 Dec 2005       Stable           Stable           Ensure sustainable and stable macro policy
3-5 Dec 2004            Stable           Stable           Intensify and improve macro adjustment
27-29 Nov 2003          Expansionary     Stable           Sustainable macro policy
9-10 Dec 2002           Expansionary     Stable           Expand domestic demand
27-29 Nov 2001          Expansionary     Stable           Expand domestic demand, structural adjustment
28-30 Nov 2000          Expansionary     Stable           Intensify and improve macro adjustment
15-17 Nov 1999          Expansionary     Stable           SOE reform
7-9 Dec 1998            Expansionary     N/A              Expansionary fiscal policy
9-11 Dec 1997           Tight            Tight            Growth amid stability
21-24 Nov 1996          Tight            Tight            Growth amid stability
5-7 Dec 1995            Tight            Tight            Fight inflation
28 Nov- 1Dec 1994       Tight            Tight            Fight inflation
Source: www.xinhuanet.com

However, there was something different in this conference. First, the government has said
that it needs “stronger political courage” to push ahead with economic reforms. Also, it is
the first time the government has made clear that China’s economic reforms need a
“comprehensive plan, road map and time table”. This is a major deviation from China’s
long-held reforms experience of “Crossing the river by feeling the stones” (摸著石頭過河),
in last 30-plus years. Throughout the last decade, it is increasingly clear that the piecemeal
reforms in China are insufficient to deal with inter-twined issues like the dominance of the
state sector in key industries, lack of innovation in the economy, income inequality and
difficulties facing the private sector, etc. However, it is easy to imagine how difficult it is
going to be for a new leader to change the formula widely seen to have been successful in
the last three decades. So from this episode, one has to acknowledge the courage of the
new leadership. Having said that, we should not underestimate the difficulty of carrying out
such reforms in view of the deep vested interests, but at least the new leadership is willing
to try.
Second, the government announcement has a separate section on urbanisation, which
was uncommon in previous years. This basically means that the government is seeing
urbanisation being the major structural driver of the Chinese economy. It remains to be
seen what kind of urbanisation program the government is planning, or whether it will turn



China Market Strategy                                                                                                                    12
                                                                                                                                02 January 2013


into another distorted version of wasteful investment by local governments (as it has
always happened in the past).
If the government is serious about its economic and social reform programs, then the
second and third Plenary Session of the Central Committee (referred to as second and
third Central Committee Meeting below), expected to be held in February 2013 and
October 2013, respectively, will assume greater importance.

Figure 27: Political cycle of the last four ‘Party Congress’
                                                       14th                        15th                         16th                      17th
National Party Congress                         12-18 Oct'92              12-18 Sep'97                  8-14 Nov'02               15-21 Oct'07
                                 "Socialist Market Economy" "Primary Stage of Socialism"      "Three Representative" "Scientific Development"
First Plenary Session of                          19 Oct'92                   19 Sep'97                    15 Nov'02                 22 Oct'07
Central Committee (CC)
Second Plenary Session of                        5-7 Mar'93               25-26 Feb'98                  24-26 Feb'03             25-27 Feb'08
CC (Govt restructuring)
Third Plenary Session of CC                   11-14 Nov'93                 12-14 Oct'98                 11-14 Oct'03               9-12 Oct'08
                                       Major reform on tax,                Rural reform    Shareholding company the               Rural reform
                                    exchange rate and SOE                                        major form of public
                                                                                                           enterprise
Fourth Plenary Session of CC                  25-28 Sep'94                19-22 Sep'99                 16-19 Sep'04              15-18 Sep'09
                                          Party construction               SOE reform              Party construction       Party Construction
Fifth Plenary Session of CC                   25-28 Sep'95                  9-11 Oct'00                  8-11 Oct'05             15-18 Oct'10
                                         9th Five-Year Plan         10th Five-Year Plan          11th Five Year Plan      12th Five Year Plan
Sixth Plenary Session of CC                     7-10 Oct'96                24-26 Sep'01                   8-11 Oct'06             15-18 Oct'11
                                          Culture & Spiritual Party Culture Construction       "Socialist Harmonious     Cultural Development
                                               Development                                                   Society"             with Chinese
                                                                                                                                characteristics
Seventh Plenary Session of                       6-9 Sep'97                  3-5 Nov'02                  9-12 Oct'07                1-4 Nov'12
CC (amendment of Party
Constitution)
Source: People's Daily website

Government restructuring
In line with previous years’ practice, the second Central Committee Meeting will likely be
focused on government restructuring, before it is submitted to the National People’s
Congress in March for final approval.




China Market Strategy                                                                                                                       13
                                                                                                                                                          02 January 2013


Figure 28: Ministries and commissions under the State Council (国务院所属部委)
              1988                              1993                               1998                                2003                              2008
                                  General Office of the State        General Office of the State        General Office of the State        General Office of the State
                                  Council (GOSC)                     Council                            Council                            Council
Ministry of Foreign Affairs       Ministry of Foreign Affairs        Ministry of Foreign Affairs        Ministry of Foreign Affairs        Ministry of Foreign Affairs
Ministry of Defense               Ministry of Defense                Ministry of Defense                Ministry of Defense                Ministry of Defense
                                                                     State Development Planning
State Planning Commission         State Planning Commission
                                                                     Commission                         National Development and Reform National Development and
                                  State Economic and Trade           State Economic and Trade           Commission                      Reform Commission
                                  Commission                         Commission (SETC)
State Commission of               State Commission of
Economic System Reform            Economic System Reform
State Education Commission        State Education Commission         Ministry of Education              Ministry of Education              Ministry of Education
State Commission of Science       State Commission of Science        Ministry of Science and            Ministry of Science and            Ministry of Science and
Technology                        Technology                         Technology                         Technology                         Technology
Commission of Science             Commission of Science              Commission of Science              Commission of Science
Technology and Industry for       Technology and Industry for        Technology and Industry for        Technology and Industry for        Ministry of Industry and
National Defense                  National Defense                   National Defense                   National Defense                   Information
                                                                     Ministry of Information Industry   Ministry of Information Industry
State Ethnic Affairs              State Ethnic Affairs               State Ethnic Affairs                                                  State Ethnic Affairs
                                                                                                        State Ethnic Affairs Commission
Commission                        Commission                         Commission                                                            Commission
Ministry of Public Security       Ministry of Public Security        Ministry of Public Security        Ministry   of Public Security      Ministry of Public Security
Ministry of State Security        Ministry of State Security         Ministry of State Security         Ministry   of State Security       Ministry of State Security
Ministry of Supervision           Ministry of Supervision            Ministry of Supervision            Ministry   of Supervision          Ministry of Supervision
Ministry of Civil Affairs         Ministry of Civil Affairs          Ministry of Civil Affairs          Ministry   of Civil Affairs        Ministry of Civil Affairs
Ministry of Justice               Ministry of Justice                Ministry of Justice                Ministry   of Justice              Ministry of Justice
Ministry of Finance               Ministry of Finance                Ministry of Finance                Ministry   of Finance              Ministry of Finance
Ministry of Personnel             Ministry of Personnel              Ministry of Personnel              Ministry   of Personnel
Ministry of Labour                Ministry of Labour
Ministry of Geology and           Ministry of Geology and                                                                                  Ministry of Human Resources
Minerals                          Minerals                                                                                                 and Social Security
                                                                     Ministry of Labour and Social      Ministry of Labour and Social
                                                                     Security                           Security
                                                                     Ministry of Land and                                                  Ministry of Land and
                                                                                                        Ministry of Land and Resources
                                                                     Resources                                                             Resources
                                                                                                                                           Ministry of Environmental
                                                                                                                                           Protection
                                                                                                                                           Ministry of Housing and Urban and
Ministry of Construction          Ministry of Construction           Ministry of Construction           Ministry of Construction
                                                                                                                                           Rural Construction
                                  Ministry of Electric Power
Ministry of Energy                Industry
                                  Ministry of Coal Industry
Ministry of Railway               Ministry of Railway                Ministry of Railway                Ministry of Railway                Ministry of Railway
                                                                                                                                           Ministry of Communications and
Ministry of Communication         Ministry of Communications         Ministry of Communications         Ministry of Communications
                                                                                                                                           Transportation
Ministry of Machine Building      Ministry of Machine Industry
and Electronics Industry          Ministry of Electronics Industry
Ministry of Aeronautics and
Astronautics Industry
Ministry of Metallurgy Industry   Ministry of Metallurgy Industry
Ministry of Chemistry Industry    Ministry of Chemistry Industry
Ministry of Light Industry
Ministry of Textile Industry
Ministry of Post                  Ministry   of Post
Ministry of Water Resources       Ministry   of Water Resources      Ministry of Water Resources        Ministry of Water Resources        Ministry of Water Resources
Ministry of Agriculture           Ministry   of Agriculture          Ministry of Agriculture            Ministry of Agriculture            Ministry of Agriculture
Ministry of Forestry              Ministry   of Forestry
Ministry of Commerce
Ministry of Foreign Trade and     Ministry of Foreign Trade and      Ministry of Foreign Trade and
                                                                                                        Ministry of Commerce               Ministry of Commerce
Economics                         Economic Cooperation               Economic Cooperation
                                  Ministry of Domestic Trades
Ministry of Materials
Ministry of Culture               Ministry of Culture                Ministry of Culture                Ministry of Culture                Ministry of Culture
Ministry of Radio Film and        Ministry of Radio Film and
Television                        Television
Ministry of Health                Ministry of Health                 Ministry of Health                 Ministry of Health                 Ministry of Health
State Physical Culture and        State Physical Culture and
Sports Commission                 Sports Commission
State Family Planning             State Family Planning              State Family Planning              National Population and Family     National Population and Family
Commission                        Commission                         Commission                         Planning Commission                Planning Commission
The People's Bank of China        The People's Bank of China         The People's Bank of China         The People's Bank of China         The People's Bank of China
National Audit Office             National Audit Office              National Audit Office              National Audit Office              National Audit Office
Source: Chinese government website, Wikipedia




China Market Strategy                                                                                                                                                       14
                                                                                                                 02 January 2013


Recently, an unconfirmed “report” was circulated on the Internet (for example, among              Consolidation of the
other sites, on www.21ccom.net or edu.offcn.com, and one can find various re-postings of          government organisation
the document by searching through Baidu), that the government was planning to reduce
the number of ministries from 27 to 18. Also, the three commissions related to the financial
sector, i.e., China Securities Regulatory Commission (CSRC), China Banking Regulatory
Commission (CBRC) and China Insurance Regulatory Commission (CIRC), will be merged
into one institution, while the two energy-related bureaus: State Electricity Regulatory
Commission (SERC) and National Energy Administration (NEA) will also be merged into
one institution, the report suggested. Many other bureaus, administrations, offices and
institutions currently under the State Council will be incorporated under the consolidated
ministries. Finally, the report mentioned that in order to boost the independency of
monetary policy, People’s Bank of China (PBOC, the central bank) will be elevated from a
ministry in the State Council to a National Institution level and report directly to the
National People’s Congress, similar to the Supreme People’s Court and Supreme
People’s Procuratorate. If indeed the report doing the rounds has substance, then the
State Council will be significantly streamlined with only 18 ministries and 7 other
institutions under its direct management. In contrast, under the current cabinet, the State
Council has 27 ministries and 37 institutions directly under its supervision. On the other
hand, under the proposed structure, the remaining ministries/ institutions will have a much
wider range of authority.
This proposition is currently considered a ‘feeler’ and has not been directly reported in
major official media or big websites such as Sina. Yet, the government has not blocked
search results, or access to the report, nor officially denied it. If any consolidation of this
magnitude takes place, it will significantly boost market confidence, as the market will see
it as a sign of the government’s determination to carry out difficult reforms. However, to put
things in perspective, five years ago there were high hopes that the government would
undertake a significant consolidation of the ministries in the State Council, similar to the
1998 restructuring in which the ministries under the State Council were reduced from 40 to
29, but, in the end, the net result was that only one ministry was not under the State
Council’s supervision.
Comprehensive economic reform
Post the 14th Party Congress, the third Central Committee Meeting was usually the venue           Most important reform
for the government to lay out its most important reform agenda. The only notable                  agenda is often laid out
exception was the 15th Party Congress, in which the most important topic – SOE reform,            during the third Central
was pushed to the fourth Central Committee Meeting, probably due to the huge amount of            Committee Meeting of the
controversy on this topic during that time. Given the call from the new leadership for a co-      Party Congress
ordinated reform with a road map and time table, the third Central Committee Meeting will
probably be an apt occasion for various political interests to form a consensus on what
needs to be done. A comprehensive reform will necessarily include areas like the role of
state-owned enterprises (particularly in monopoly industries), the role of industrial policy
and local governments’ involvement in economic decision making, and the rural land
ownership, etc. The best summary of what China needs to do in a comprehensive
economic reform is probably the joint report by World Bank and Development Research
Centre of the State Council: “China 2030 – Building a Modern, Harmonious, and
Creative High-Income Society” published in early 2012. It could be a very exciting
development to follow.

Funding: A topic to watch in 2013
One very important development in the last few years has been the marked decline in               Rising share of off-balance
bank loans (particularly RMB loans) in long-term funding of the society, and the rising           sheet loans (trust and
share of off-balance sheet loans (trust and entrusted loans) and corporate bonds. If we           entrusted loans) and
add the medium-to-long term (MLT) loans to corporate, foreign currency loans, trust loans,        corporate bonds
entrusted loans, non-financial corporate bonds net issuance and equity issuance by non-
financial companies as a proxy for long-term funding for corporate and local governments



China Market Strategy                                                                                                        15
                                                                                                                                       02 January 2013


(mostly in industrial, property and infrastructure projects), then the share of MLT corporate
loan will drop from 58% in 2009 to only 23% in Jan-Nov’2012, while total funding during
Jul-Nov’12 (averaged Rmb720 bn per month) was actually similar to that of 2009 (Rmb718
bn per month).

Figure 29: Declining share of bank funding
  % of total                                                                                             Rmb trillion

120                                                                                                             1.4

100                                                                                                             1.2

 80                                                                                                             1.0

 60                                                                                                             0.8

 40                                                                                                             0.6

 20                                                                                                             0.4

  0                                                                                                             0.2

-20                                                                                                             0.0
      Jan 09     Jul 09         Jan 10       Jul 10   Jan 11         Jul 11     Jan 12          Jul 12

               MLT Corporate Loan        Forex Loan            Entrusted Loan            Trust Loan
               Corporate Bond            Equity                Total (RHS)

Source: CEIC

Most of the trust loans and entrusted loans are arranged through the banks and packaged
as some form of wealth management products (WMPs) for their clients. Also, many
corporate bonds are indeed issued by local government financing vehicles (LGFVs),
bought by the banks, and re-packaged as WMPs. The biggest problem in this process is
that when consumers buy these products from the banks, they somehow assume that
(rightly or wrongly) in case the final issuers of these products cannot repay their debt, the
banks will cover the loss. In this process, they will be willing to accept a lower interest rate
than in case they lend directly to the borrower without involving the commercial banks.
This helps in bringing down the borrowing costs of these companies. However, what
Chinese banks are doing in this process is actually quite similar to the CDS (Credit Default
Swap) written by AIG before the financial crisis, and we all know what happened at AIG
when those loans turned sour.
Another consequence of this development is the under-estimation of credit growth if the                                 China’s credit-to-GDP is not
focus is solely on bank loans. From end-2008 until Sep-2012, China’s bank loan-to-GDP                                   low in risk if we include all
ratio increased by 27% to 134%, but if we take into account the off-balance sheet loans                                 the off-balance sheet loans
and corporate debt, China’s credit-to-GDP ratio surged 52 pp to 174%. Indeed, China’s                                   and corporate debt
credit-to-GDP ratio is hovering at a level well ahead of its long-term trend, but this is not
the case for bank loans. Therefore, if we just look at Chinese bank loans, the financial
system is at a rather low risk, but if we look at the total credit, the picture becomes very
different.




China Market Strategy                                                                                                                              16
                                                                                                                                     02 January 2013



Figure 30: China's Credit-to-GDP ratio well ahead of trend                 Figure 31: China's Loan-to-GDP ratio in line of trend
 %                                                                           %
180                                                                        140

160                                                                        130

                                                                           120
140
                                                                           110
120                                                                        100

                                                                            90
100
                                                                            80
 80
                                                                            70

 60                                                                         60
   Mar-93 Mar-95 Mar-97 Mar-99 Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11      Mar 93 Mar 95 Mar 97 Mar 99 Mar 01 Mar 03 Mar 05 Mar 07 Mar 09 Mar 11
                            Credit-to-GDP        Trend                                                 Credit-to-GDP       Trend

Source: BIS, IMF, CEIC                                                     Source: BIS, IMF, CEIC

It seems that senior financial executives/ bankers in China are well aware of this situation.
For example, Mr. Xiao Gang, the current Chairman of Bank of China (BOC) who was
recently elected as a Central Committee member of the Chinese Communist Party and is
likely to be the next head of either the PBOC or a major financial regulatory agency (like
CBRC or CSRC), published an article in the China Daily on 12 October 2012, warning
about the risks that WMPs pose to the integrity of the financial system. Therefore, it is not
a question of whether the government will impose some control on the development of
WMPs (they will), but what form it will take and whether it will affect the liquidity supplied to
the economy. This will have a major impact on whether infrastructure investment, and WM
growth can be sustained. In case WMP sales restriction is tightened, another implication
will be on the domestic stock market as well as the insurance market, as WMP products
are a major competitor of funds for equity and insurance product sales.




China Market Strategy                                                                                                                                 17
                                                                                                                        02 January 2013




Index targets and model portfolio
We derive our index targets using a three-stage DDM (dividend discount model) and                        Our 12-month index targets
assume different growth rates for the next three years (see Figure 32 below). Our 12-                    for MSCI China, H share
month index targets for MSCI China, H share and Shanghai A are 70, 14,000 and 2,600,                     and Shanghai A are 70,
respectively, implying potential upsides of 12%, 23% and 13%, respectively.                              14,000 and 2,600

Figure 32: China market 12-month index targets and EPS growth assumptions
                                  Index      Upside             EPS growth assumptions (%)
                                  target        (%)         2013 (FY1)     2014 (FY2)     2015 (FY3)
MSCI China                         70               12            10.0              5.0          5.0
H share (HSCEI)                14,000               23             5.0              5.0          5.0
Shanghai A                      2,600               13            10.0              5.0          5.0
Source: Credit Suisse estimates

Figure 33: Other assumptions for our three-stage dividend discount model (DDM)
                        Stage 1—FY1 to FY3               Stage 2 (MT)—FY4 to FY12            Terminal—from FY13              Discount
(%)                       Growth           Payout             Growth             Payout        Growth          Payout             rate
MSCI China                    See              33                 5.0                33            4.0             45             8.25
HSCEI                    Figure 32             33                 5.0                35            4.0             45             8.75
Shanghai A                  above              25                 5.0                33            4.0             45             8.00
Source: Credit Suisse estimates

In our assumptions, we are generally more conservative as we are concerned about the
structural issues that the Chinese economy is facing and believe we will not see a high
growth environment in the near term. As a result, we apply 5-10% growth rates for the next
three years (2013-15).
Among the three indices, we apply a constant and lower 5% growth rate to H shares
because of the differences in index sector weightings. As shown in Figure 34, H share has
the highest weighting in financials where we believe the sector’s earnings are less certain,
and therefore it deserves a more conservative growth assumption. In contrast, the other
two indices (MSCI China and A shares) have higher weightings on non-financials, where
their earnings suffered in 2012, which gives a lower comparison base for growth in 2013.
As a result, we apply a 10% growth rate to both the indices in 2013, and – similar to H
share’s – a 5% earnings growth for 2014 and 2015.

Figure 34: Sector weightings in China market indices
% of the Index                               HSCEI                MSCI China                 A shares
Consumer discretionary                         2.8                         5.2                    9.5
Consumer staples                               0.6                         5.3                    6.5
Energy                                        24.8                        17.5                   14.3
Financials                                    56.9                        39.1                   29.4
   Banks                                      40.9                        24.8                   18.0
   Insurance                                  16.0                         7.4                    3.6
   Real estate                                 0.0                         6.0                    4.5
Healthcare                                     1.2                         0.9                    4.2
Industrials                                    4.7                         6.3                   15.9
   Capital goods                               3.7                         4.2                   12.0
   Transportation                              1.0                         2.2                    3.4
Information technology                         0.5                         6.1                    5.0
Materials                                      4.9                         4.6                   11.6
Telecom services                               2.5                        12.3                    0.4
Utilities                                      1.1                         2.8                    3.2
Total                                        100.0                       100.0                  100.0
Source: Wind, MSCI, Bloomberg




China Market Strategy                                                                                                               18
                                                                                                                                 02 January 2013



Shift to discretionary consumption from investment
We maintain our view of a stabilisation in the macroeconomic environment in 2013, and                       We still like beta plays and
therefore we still recommend investors to buy high beta sectors. This has worked well in                    prefer consumer
the last three months, with cyclical sectors such as consumer discretionary, banks, real                    discretionary
estate, capital goods and materials, all up almost 20%. After this rally, we believe that it is
now becoming more difficult to find good value in materials, while the valuation of
consumer discretionary sector looks more interesting. Also, with the economy stabilising
with stronger infrastructure and property investment, we believe consumer discretionary
would also benefit.
As a result, among high beta sectors, we trimmed our weightings in materials and added                      Reduced weightings in
more to the consumer discretionary space. To finance the change, we increase our                            materials and defensives
UNDERWEIGHT on the defensive telecoms and consumer staples sectors. For the                                 like telecoms and staples
consumer staples sector, although it was the worst performing sector in 2012, its valuation
is still inexpensive. On the other hand, we are OVERWEIGHT banks as the sector should
also benefit from a stabilising economy, and it still looks cheap in valuations. We maintain
our UNDERWEIGHT on property within the financial sector as it has been the best
performing sector year-to-date and we are cautious on further tightening measures by the
government in view of rising property prices.
Overall, the consumer discretionary sector is our most OVERWEIGHT sector in the model                       Consumer discretionary is
portfolio, while we are most UNDERWEIGHT consumer staples. Our weighting on the                             our most OVERWEIGHT
broad consumer sector (we defined as discretionary, staples, healthcare and technology)                     sector
is increased to OVERWEIGHT from a small Underweight. Meanwhile, we are also
OVERWEIGHT insurance and diversified financials, followed by banks and transportation.
On the other hand, we are UNDERWEIGHT capital goods, real estate and telecoms; and
MARKET WEIGHT energy, materials and utilities. Our top picks are CCB, Air China,
Brilliance China, China Pacific and Shenhua.

Figure 35: Credit Suisse—China model portfolio
                                  Weighting          CS P/E        Consensus
                                     (%)               (x)           P/E (x)
MSCI sector                 CS MSCI vs MSCI 2012E 2013E 2012E 2013E Recommended stocks
Consumer Discretionary     10.0  5.2     4.8 15.5 13.9    16.2 13.2 Anta (2%), Belle (2%), Brilliance (2%), Intime (2%), New
                                                                     Oriental (2%)
Consumer Staples            2.0  5.4    -3.4 19.6 12.8    26.3 22.2 China Modern Dairy (2%)
Energy                     18.0 17.5     0.5   9.4   8.5  10.5   9.9 CNOOC (12%), Shenhua (6%)
Financials                 40.0 39.1     0.9   8.6   8.7   8.2   7.7
  Banks                    26.0 24.8     1.2   6.8   7.4   6.5   6.4 CCB (10%), ICBC (9%), China Merchants Bank (7%)
  Insurance & Div. Fin.    10.0  8.2     1.8 22.0 16.2    24.2 16.1 Ping An (5%), China Pacific (4%), Haitong (2%)
  Property                  4.0  6.1    -2.1 10.7    9.0   9.8   8.7 Vanke A (3%), CR Land (1%)
Health Care                 2.0  0.9     1.1 19.7 16.1    20.6 17.2 Mindray (1%), CMS (1%)
Industrials                 5.0  6.3    -1.3 11.6 10.5    14.0 11.5
   Transportation           3.0  2.1     0.9 14.9 11.1    25.7 14.5 Air China (3%)
   Capital Goods            2.0  4.1    -2.1   8.8   9.8  11.3 10.4 Zoomlion (2%)
Information Technology      6.0  6.2    -0.2 16.9 13.0    26.0 19.9 Asino (2%), Lenovo (2%), AAC (1%), Tencent (1%)
Materials                   4.0  4.5    -0.5   8.4 12.2   14.7 10.7 Baosteel (2%), Jiangxi Copper (2%)
Telecoms                   10.0 12.2    -2.2 11.7 11.6    12.6 12.0 China Mobile (10%)
Utilities                   3.0  2.8     0.2 16.4 14.1    14.4 12.2 Kunlun (2%), CR Power (1%)
MSCI China                100.0    100.0      0.0   10.3    10.0   10.9     9.9
Consumer sector*           20.0     17.6      2.4   16.7    13.7   23.0    18.5
* We define the Broader Consumer sector as: discretionary, staples, healthcare and tech. Source: MSCI, Credit Suisse estimates




China Market Strategy                                                                                                                        19
                                                                                                 02 January 2013


Changes to Credit Suisse China model portfolio
(1) Cut 1% from New Oriental (2%) and removed China Lodging (1%) and Shenzhou
    (1%). We then added Brilliance China, Intime and Anta by 2% each. Consumer
    discretionary is our most OVERWEIGHT sector in the model portfolio.
(2) Further lower our weighting in Consumer Staples by cutting 1% from China Model
    Dairy (2%). Consumer staples is our most UNDERWEIGHT sector in the model
    portfolio.
(3) Slightly raised our OVERWEIGHT weighting in Banks by adding 1% to ICBC (9%).     Slightly raised our
                                                                                     OVERWEIGHT weighting in
(4) Replaced Lonking (2%) by Zoomlion (2%). Maintain UNDERWEIGHT on the Capital
                                                                                     banks
    Goods sector.
(5) Replaced ZTE (1%) by AAC (1%).
(6) Cut 2% from China Mobile (10%) as we prefer higher beta sectors.
(7) Removed CR Gas, cut 1% from CR Power (1%) and included Kunlun Energy (2%).




China Market Strategy                                                                                        20
                                                                                                                        02 January 2013



CS China model portfolio performance
Our model portfolio is down 2% since its inception in 2008 and up 21% YTD,
outperforming the benchmark MSCI China by 34% and 2%, respectively.

Figure 36: CS China model portfolio performance relative to MSCI China

 140

 135

 130

 125

 120

 115

 110

 105

 100

  95
   Dec 07     Jun 08    Dec 08    Jun 09      Dec 09      Jun 10      Dec 10      Jun 11       Dec 11   Jun 12

                                 Relative performance (CS China portfolio versus MSCI China)

Source: MSCI, Credit Suisse estimates

Figure 37: Credit Suisse China model portfolio performance versus MSCI
Performance (%)                                   CS                             MSCI                       Relative
2008                                            -45.2                             -51.9                          14.1
2009                                             69.6                              58.8                           6.8
2010                                              1.8                               2.3                          -0.6
2011                                            -13.9                             -20.3                           8.1
2012 year-to-date                               20.9                               18.2                           2.3
Since inception                                  -1.5                             -26.5                          34.0
Source: MSCI, Credit Suisse estimates




China Market Strategy                                                                                                               21
                                                                       02 January 2013




Recently published ‘China Market
Strategy’ reports
29-Nov-2012         What to do with A-shares now?

12-Nov-2012         China's political, economic and reform Cycle

06-Nov-2012         3Q12: Further signs of stabilisation

16-Oct-2012         The worst is probably over

11-Sep-2012         1H12 results: Challenging times

04-Sep-2012         Reducing our H share index target to 12,000

28-Aug-2012         Margin calls

04-Jul-2012         Property policy: An emerging dilemma

14-Jun-2012         Adjusting earnings in a lower growth environment

14-May-2012         1Q12 results - deteriorating operating leverage

30-May-2012         The road to recovery

10-Apr-2012         Banks: Better among the worse

29-Feb-2012         Liquidity trumps fundamentals?

14-Feb-2012         Turn the switch on—beta to quality

17-Jan-2012         China Consumer Survey 2012 – The best of youth




China Market Strategy                                                              22
                                                                                                                                      02 January 2013

Companies Mentioned (Price as of 27-Dec-2012)
China Vanke Co Ltd-A (000002.SZ, Rmb10.12)
Kunlun Energy (0135.HK, HK$16.04)
Jiangxi Copper Company Ltd (0358.HK, HK$20.4)
China Shanshui Cement Group Ltd. (0691.HK, HK$5.68)
Tencent Holdings (0700.HK, HK$247.6)
Air China (0753.HK, HK$6.45, OUTPERFORM, TP HK$7.5)
ZTE Corporation (0763.HK, HK$12.86)
China Resources Power Holdings (0836.HK, HK$19.18)
China Medical System Holdings Ltd. (0867.HK, HK$5.78)
CNOOC Ltd (0883.HK, HK$16.74)
China Construction Bank (0939.HK, HK$6.23, OUTPERFORM, TP HK$7.95)
China Mobile Limited (0941.HK, HK$89.95)
Lenovo Group Ltd (0992.HK, HK$7.31)
China Shenhua Energy Company Limited (1088.HK, HK$33.75, OUTPERFORM, TP HK$40.0)
China Resources Land Ltd (1109.HK, HK$20.9)
Brilliance China Automotive Holding (1114.HK, HK$9.28, OUTPERFORM[V], TP HK$11.0)
China Modern Dairy Holdings Ltd (1117.HK, HK$2.02)
Zoomlion Heavy Industry (1157.HK, HK$11.68)
Sino Biopharmaceutical Limited (1177.HK, HK$3.7)
China Resources Gas (1193.HK, HK$15.98)
Industrial & Commercial Bank of China (1398.HK, HK$5.54)
Intime Department Store Group Company Ltd (1833.HK, HK$9.24)
Belle International Holdings Ltd (1880.HK, HK$16.38)
AAC Technologies Holdings Inc (2018.HK, HK$26.4)
Anta Sports Products Limited (2020.HK, HK$6.63)
Shenzhou International (2313.HK, HK$17.92)
Ping An (2318.HK, HK$63.7)
China Pacific (2601.HK, HK$27.8)
Lonking Holdings Ltd. (3339.HK, HK$2.19)
China Merchants Bank - H (3968.HK, HK$16.9)
Baosteel (600019.SS, Rmb4.86)
China Pacific (601601.SS, Rmb21.18, OUTPERFORM, TP Rmb28.0)
Haitong Securities Co.,Ltd (6837.HK, HK$12.18)
American International Group Inc. (AIG.N, $34.97)
New Oriental Education (EDU.N, $19.29)
China Lodging Group (HTHT.OQ, $15.46)
Mindray Medical International Ltd (MR.N, $32.59)
Sina Corporation (SINA.OQ, $47.3)



                                                                      Disclosure Appendix
Important Global Disclosures
Vincent Chan and Peggy Chan, CFA, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed
in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation
was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Price and Rating History for Air China (0753.HK)


0753.HK             Closing Price     Target Price
Date                       (HK$)            (HK$)            Rating
22-Jun-10                   8.44             7.20               N*
16-Aug-10                   8.78             8.00
31-Jan-12                   6.19             5.91
15-Jun-12                   4.50             7.15              O*
22-Aug-12                   5.07             6.70
28-Aug-12                   4.84             6.90
16-Oct-12                   5.13             7.50
* Asterisk signifies initiation or assumption of coverage.

                                                                              N EU T RA L
                                                                        O U T PERFO RM




China Market Strategy                                                                                                                             23
                                                                                       02 January 2013


Price and Rating History for China Construction Bank (0939.HK)


0939.HK             Closing Price     Target Price
Date                       (HK$)            (HK$)            Rating
24-May-10                   6.03             7.74                 O
07-Sep-10                   6.38             9.08
26-Oct-10                   7.27             9.32
01-Nov-10                   7.41                                 R
26-Nov-10                   6.96              9.32               O
02-Dec-10                   7.21                                 R
16-Dec-10                   6.89              9.32               O
05-Jan-11                   7.13              9.06
25-Feb-11                   6.70              8.66
15-Apr-11                   7.40              8.56                    O U T PERFO RM
05-May-11                   7.16              8.99                      REST RICT ED

21-Jun-11                   6.44              7.64
06-Sep-11                   5.59              8.13
11-Oct-11                   5.11              5.70
10-Nov-11                   5.40              6.00
22-Feb-12                   6.59              7.63
10-Apr-12                   5.96              8.06
13-Jun-12                   5.39              7.50
03-Sep-12                   5.10              6.62
16-Oct-12                   5.68              7.95
* Asterisk signifies initiation or assumption of coverage.

Price and Rating History for China Shenhua Energy Company Limited (1088.HK)


1088.HK             Closing Price     Target Price
Date                       (HK$)            (HK$)            Rating
04-Feb-10                  32.90            47.00                 O
19-Apr-10                  34.60            46.50
19-Jul-10                  28.15            46.00
30-Aug-10                  28.70            42.00
21-Oct-10                  34.80            44.00
04-Jan-11                  34.15            40.00
18-Feb-11                  32.50            43.10
28-Mar-11                  34.95            41.00
03-May-11                  35.95            42.40
05-Jul-11                  38.95            43.60                     O U T PERFO RM
29-Aug-11                  35.10            45.00
30-Oct-11                  36.70            50.30
26-Mar-12                  33.05            46.00
27-Apr-12                  33.70            46.40
14-Jun-12                  26.60            39.00
26-Aug-12                  29.50            38.00
06-Dec-12                  31.95            40.00
* Asterisk signifies initiation or assumption of coverage.




China Market Strategy                                                                              24
                                                                                                                                                       02 January 2013


Price and Rating History for Brilliance China Automotive Holding (1114.HK)


1114.HK             Closing Price     Target Price
Date                       (HK$)            (HK$)            Rating
17-Jan-11                   5.51             3.70                 U
29-Mar-11                   7.13             5.60
04-Dec-11                   9.38             7.00
22-Feb-12                   9.49             6.70
19-Jun-12                   7.65                               NR
24-Oct-12                   9.56            11.00              O*
* Asterisk signifies initiation or assumption of coverage.


                                                                      U N D ERPERFO RM
                                                                            N O T RA T ED
                                                                         O U T PERFO RM



Price and Rating History for China Pacific (601601.SS)


601601.SS           Closing Price     Target Price
Date                       (Rmb)           (Rmb)             Rating
06-May-11                   22.47           34.26                 O
03-Jan-12                   19.21           28.40
13-Jun-12                   22.20           28.00
* Asterisk signifies initiation or assumption of coverage.




                                                                         O U T PERFO RM


The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total
revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
 *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which
consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractiv e, Neutrals the less attractive, and
Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return
relative to the analyst's coverage universe which consists of all companies covered b y the analyst within the relevant sector, with Outperforms representing the most
attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are
based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zeala nd are, and prior to 2nd October
2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total
return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12 -month rolling yield is incorporated in the absolute total return
calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5%
thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a
stock’s total return relative to the average total return of the relevant country or regional benchmark.
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications,
including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other
circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24
months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation
of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.



China Market Strategy                                                                                                                                                 25
                                                                                                                                                     02 January 2013

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cov er multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution
Rating                                                                               Versus universe (%)                                Of which banking clients (%)
Outperform/Buy*                                                                                         42%                                         (54% banking clients)
Neutral/Hold*                                                                                           39%                                         (47% banking clients)
Underperform/Sell*                                                                                      15%                                         (44% banking clients)
Restricted                                                                                                4%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond
to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relati ve basis. (Please refer to definitions
above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and othe r individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the
market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to
Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and
analytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be
used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Air China (0753.HK)
Method: Our 12-month target price of HK$7.50 for Air China is based on 1.7x target EV/CFMV multiple based on an average ROIC of 11.5% over
        2011-13E.
Risk:      Risks to our 12-month target price of HK$7.50 are: Airlines are generally exposed to risks from rising fuel prices, competition, uncertain
           demand and their combined impact on fares, as well as labor unrest and interest rate exposure. CA is rapidly expanding their international
           passenger routes and Air Cargo business through its JV with Cathay Pacific. We perceive CA's greatest unique risks lying in the intense
           competition in transpacific passenger routes and international air cargo markets, in which they do not have obvious advantages over their
           foreign competitors.

Price Target: (12 months) for China Construction Bank (0939.HK)
Method: Our 12-month target price of HK$7.95 is based on Gordon Growth Model. We use mid term ROE of 17.3% as a proxy for medium term
        sustainable ROE, cost of equity (COE) of 12.5% and terminal growth of 5%.

Risk:      Our target price of HK$7.95 for China Construction Bank is sensitive to credit cost and net interest margin (NIM) assumptions. Any
           divergence in credit costs and NIM away from our assumptions could change the fair value significantly. Any deviation to our current
           esitmates could change our target price.

Price Target: (12 months) for China Shenhua Energy Company Limited (1088.HK)
Method: Our target price of HK$40.0/sh for China Shenhua Energy includes HK$28.2/sh on current coal assets based on 6x EV/EBITDA on 2013E,
        HK$8.9 on current power assets based on 10x P/E, and HK$3.0/sh on potential parent and future coal projects.

Risk:      Risks to our HK$40.0/sh target price for China Shenhua Energy is coal prices, which is affected by the industry supply expansion and
           demand growth. Government policy on any imposed tax hike and RMB appreciation would negatively affect the stock.

Price Target: (12 months) for Brilliance China Automotive Holding (1114.HK)
Method: Our 12-month target price of HK$11.00 for Brilliance China Auto is based on 13x 2013E EPS.
Risk:      Risks to our 12-month target price of HK$11.00 for Brilliance China Auto include further capital requirement for capacity expansion, parent's
           motivation to transfer cash surplus, and strong competition from Audi.

Price Target: (12 months) for China Pacific (601601.SS)
Method: Our 12-month target price of RMB 28.00 for CPIC A is based on sum-of-the-parts method. For CPIC Life, the appraisal value is calculated on
        1x embedded value and 12.5x value of new business. We use a discount rate of 11.5% and an investment yield of 5.5%.
Risk:      Risks that might impede achievement of our RMB 28.00 12-month target price include the following: a deteriorating investment environment,
           aggressive China tightening and a slowdown of its insurance business.



China Market Strategy                                                                                                                                              26
                                                                                                                                                                      02 January 2013


Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the
target price method and risk sections.

See the Companies Mentioned section for full company names
The subject company (0691.HK, 0700.HK, 0753.HK, 0763.HK, 0836.HK, 0883.HK, 0939.HK, 0941.HK, 0992.HK, 1088.HK, 1109.HK, 1114.HK,
1157.HK, 1398.HK, 1880.HK, 2313.HK, 2318.HK, 2601.HK, 3339.HK, 3968.HK, 601601.SS, 6837.HK, AIG.N, SINA.OQ) currently is, or was during the
12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (0691.HK, 0700.HK, 0883.HK, 0939.HK, 0941.HK, 0992.HK, 1114.HK,
1157.HK, 1398.HK, 1880.HK, 2313.HK, 2601.HK, 3339.HK, 3968.HK, 601601.SS, 6837.HK, AIG.N) within the past 12 months.
Credit Suisse provided non-investment banking services to the subject company (0691.HK, 0700.HK, 0763.HK, 0939.HK, 0992.HK, 1398.HK, 2318.HK,
3968.HK, AIG.N) within the past 12 months
Credit Suisse has managed or co-managed a public offering of securities for the subject company (0691.HK, 0700.HK, 0883.HK, 0939.HK, 0992.HK,
2313.HK, 2601.HK, 3968.HK, 601601.SS, 6837.HK, AIG.N) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (0691.HK, 0700.HK, 0883.HK, 0939.HK, 0941.HK,
0992.HK, 1114.HK, 1157.HK, 1398.HK, 1880.HK, 2313.HK, 2601.HK, 3339.HK, 3968.HK, 601601.SS, 6837.HK, AIG.N) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (0358.HK, 0691.HK, 0700.HK,
0753.HK, 0836.HK, 0883.HK, 0939.HK, 0941.HK, 0992.HK, 1088.HK, 1109.HK, 1114.HK, 1157.HK, 1177.HK, 1193.HK, 1398.HK, 1880.HK, 2020.HK,
2313.HK, 2318.HK, 2601.HK, 3339.HK, 3968.HK, 601601.SS, 6837.HK, AIG.N, EDU.N, MR.N, SINA.OQ) within the next 3 months.
Credit Suisse has received compensation for products and services other than investment banking services from the subject company (0691.HK,
0700.HK, 0763.HK, 0939.HK, 0992.HK, 1398.HK, 2318.HK, 3968.HK, AIG.N) within the past 12 months
As of the date of this report, Credit Suisse makes a market in the following subject companies (AIG.N, EDU.N, HTHT.OQ, MR.N, SINA.OQ).
As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (0358.HK, 0763.HK,
1088.HK, 1157.HK, 1398.HK, 2318.HK, 2601.HK, 3968.HK).
Credit Suisse has a material conflict of interest with the subject company (000002.SZ). Liping Zhang, an employee of Credit Suisse, is a director of
China Vanke
Credit Suisse has a material conflict of interest with the subject company (0883.HK). Credit Suisse is acting as financial advisor to both CNOOC Ltd.
and SINOPEC on the acquisition of Marathon Oil Corporation's 20% interest in Block 32, offshore Angola.
Credit Suisse has a material conflict of interest with the subject company (AIG.N). Credit Suisse is acting as financial advisor to New China Trust Co.
Ltd., China Aviation Industrial Fund and P3 Investments Ltd. in relation to their announced acquisition of 80.1% of International Lease Finance Corp.
Credit Suisse has a material conflict of interest with the subject company (SINA.OQ). Credit Suisse is acting as financial advisor to E-House's wholly-
owned subsidiary - CRIC Holdings Limited in its merger with SINA Corporation's online real estate business.

Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (000002.SZ, 0135.HK, 0358.HK,
0691.HK, 0700.HK, 0753.HK, 0763.HK, 0836.HK, 0867.HK, 0883.HK, 0939.HK, 0941.HK, 0992.HK, 1088.HK, 1109.HK, 1114.HK, 1117.HK, 1157.HK,
1177.HK, 1193.HK, 1398.HK, 1880.HK, 2018.HK, 2020.HK, 2313.HK, 2318.HK, 2601.HK, 3339.HK, 3968.HK, 600019.SS, 601601.SS, 6837.HK,
AIG.N, EDU.N, HTHT.OQ, MR.N, SINA.OQ) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares;
SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not
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For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit
http://www.csfb.com/legal_terms/canada_research_policy.shtml.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important
disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research
analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the
NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a
research analyst account.
Credit Suisse (Hong Kong) Limited ..................................................................................................................... Vincent Chan ; Peggy Chan, CFA




China Market Strategy                                                                                                                                                                    27
                                                                                                                                02 January 2013


For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-
suisse.com/researchdisclosures or call +1 (877) 291-2683.




China Market Strategy                                                                                                                       28
                                                                                                                                                                                                  02 January 2013
                                                                                                                                                                                                 Asia Pacific/China
                                                                                                                                                                                                 Equity Research




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