Corporate Strategy: Red China, Greenest of All - Fact or Fiction?

Global Global Strategy Challenges Executable Solutions
Green China 2020
Corporate Strategy: What will a Green China look like in the Future?
France Houdard Managing Director

france.houdard@exolus.com February 2011
Copyright 2011 Exolus. All rights reserved.
Solar Energy Worlds Largest Solar Research Institute

American Corporation sets up Worlds Largest Solar Research Institute in China
President Obama, State of Union Address, January 2011:
Just recently, China became home to the world's largest private solar research facility
yes, but Who made this Private investment? Company: Applied Materials From: United States (AMAT: US) Investment: USD300 million Functions: - R&D, Engineering, Product Demonstration, Testing and Training for Crystalline Silicon and Thin Film Solar Module Manufacturing Equipment and Processes
-
Entire Applied SunFab Thin Film Manufacturing Line Complete Crystalline Silicon Pilot Process Facility: 400,000 square feet
Copyright 2011 Exolus. All rights reserved..
Source: All Publically Available Information , Company Website
China Today Worlds #1 Country for Investment in Green Energy

Investment in China Green Energy nearly Double that of United States
Green Energy Investment (2009)
40 35
34.6 Biofuels Efficiency/Low Carbon Other Renewables Solar Wind
30
25 20 15 10 5 0
18.6
USD billion
11.2
10.8
10.4 7.4 4.3 3.3
2.6
2.3
2.1
1.9
1.6
0.9
Source: Clean Energy Factbook, Who is Winning the Clean Energy Race?, 2009
China Today Worlds #1 Energy Consumer

China Energy Consumption Overtakes the United States
Energy Consumption (United States and China)
2500
US China
2000
Million Tons of Oil Equivalent
1500
1000
500
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: Central News Agency
Table of Contents
China Energy Overview
Today - China Energy Consumption in Global Context
The Future - Chinas Economic Growth To become #1 Economy in 2020

The Future - Forward Trend in Middle Class Growth The Future - Forward Trend in Mass Migration / Urbanization The Future - Chinas Future Country-Sized Mega-Clusters The Future - Chinas Energy Consumption to Grow by another 50% by 2020
Green Technology Trends

- Policy - China Places High Priority on Green Energy
- Cost Structure Subsidies in Place to Drive Green Energy Development - Investment China Investment in Green Energy #1 in World
Corporate Burning Platforms: Innovation, Markets, Cost Reduction

- Innovation Where are Key Nodes for Structuring R&D Platforms? - Solar Energy Projected Market Growth - Solar Energy Where are the Solar Energy Clusters? - Solar Energy Where is Manufacturing taking Place? - Wind Energy Projected Market Growth - Wind Energy Where is Manufacturing Taking Place? - Hydro Energy Projected Market Growth - Hydro Energy Where is Manufacturing Taking Place
Chinas Economic Health and Report Card

- China Investor Confidence: China Ranks #1 as Most Attractive Investment Destination of Future - Financial & Economic Health: China Balance Sheets - Banks, Enterprises, Households
Copyright 2011 Exolus. All rights reserved.. 4
CHINA ENERGY OVERVIEW
Today: China Energy Consumption Very Low on Per Capita Basis

China Per Capita Consumption 1/6th that of United States
Per Capita Energy Consumption (2009)
9 8
Million Tons of Oil Equivalent per Person
7 6 5 4 3 2 1 0
US
China
Russia
Japan
Europe*
India
Europe* refers to OECD Countries
Source: BP Statistical Review and Economist Intelligence Unit
Today: China Remains the Fastest Growing Economy in World

Chinas Economy: Doubles every 7 Years Tripled most Recently
China GDP (USD trillion)
Hosts OLYMPIC games
5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0
China Opens to the World Applied to join GATT
USD (Real Market Rates)
3x
Accepted full convertibility for current account transaction Eliminated its dual exchange rate
Admitted to WTO
2x 2x
1994 1996
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1995
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: IMF
2009
7
The Future: World Bank Projects China as #1 Economy in World by 2020
2020 GDP*
GDP* PPP-adjusted
France
UK
EU-27 China US
Germany
India Japan
$29.6 tr
$28.8 tr
$13.4 tr
$6.8 tr
$30.0 tr
GDP* PPP-adjusted
2009 GDP*
France
EU-27 US
UK
6,4 trillions China de $
3,6 trillions Japan de $ Japan
India
Germany
$14.1 tr
$9.1 tr
$4.1 tr
$3.8 tr
$14.2 tr
Source: World Bank 8
The Future: Forward Trend in Exploding Middle Class

Chinas Middle Class: 400 million (2010) 500 million (2015)
Upper Middle Class Lower Middle Class
Middle Class Income Bands for Urban Population
900 822 800 Urban Population (millions) 700 607 600 500 531 684
Urban Household Income (US$ PPP-Adjusted)

Global > US$107,800 Affluent US$3,800 - 107,800
756
99
90
53
400 300 200
170
355 461 525
Upper Middle US$21,501 53,900
239 255 157
100
0
106
73 35
2025F
Lower Middle US$13,500 21,500
Poor < US$13,500
2005
2010F
2015F
2020F
Sources: Urbanization Rates, Population based on UN, World Urbanization Prospects 2007 ; MGI Consumer Demand 2008
The Future: Forward Trend in Mass Migration into Cities

Chinas Urban Population: 600 million (2010) 700 million (2015)
Chinas Urban Population versus Rural Population

1,600
1.45 billion
1,400
1.2 billion
1.4 billion 1.3 billion
1,200 Population (million)

1 billion
624 705 782
Rural Population (million)
1,000 800 600 400 200 0
833 822 684 531 381 245

23% 31% 40% 49% 57% Urbanization
822
Urban Population (million)
1985
1995
2005
2015
2025
Source: World Urbanization Prospects 2007 10
The Future: Emergence of 10+ Mega-Cities the Size of Countries

Mega-City Profile:
Mega-Cities Mega-Corridors
Heilongjiang
60 Million Population + World-Class Infrastructure

Chinas Emerging MEGA-CITIES
Jilin Xinjiang Gansu Liaoning
Inner Mongolia
Hebei Ningxia Shanxi
Beijing Tianjin Shandong
Qinghai
Mountains
Tibet Sichuan Guizhou
Shaanxi
Henan Hubei Anhui
Jiangsu
Shanghai Zhejiang
Chongqing
Hunan Jiangxi Fujian
Yunnan
Guangxi Guangdong
11
The Future: China Energy Consumption to Increase by 50% by 2020

Energy Consumption Doubled last Decade 50% Increase this Decade
China Project 2020 Energy Consumption (Million Tons of Oil Equivalent)
4,000 3,500
Million Tons of Oil Equivalent
3,000 2,500 2,000 1,500 1,000 500 100% Increase
49% Increase
Source: Central News Agency 12
GREEN TECHNOLOGY TRENDS
13
Policy: China Places High Priority on Green Energy

Significant Growth Planned for Green Energy Development
Green Energy as a Percentage of Total Energy Consumption (2010 2050)
100% 90% Percentage Green Energy 80% 70% 60% 50% 40% 32.5% 25% 15%
40%
30%
20% 10% 0% 2010 2020
2030
2040
2050
Source: State Council, New Energy Development Plan for China, 2009 14
Policy: China Places High Priority on Green Energy

Significant Growth Planned for Green Energy Development
Installed and Targeted Capacities (2010, 2020)
350
Targeted Capacity 20 Installed Capacity 10
300
250
Gigawatts
200
150
100
50
0
Hydro Wind Nuclear Solar Biomass
Source: State Council, New Energy Industry Development Plan 2011 -2020 15
Cost Structure: China Places High Priority on Green Energy

Subsidies in Place to Drive Green Energy
Cost of Electricity
1.4
Subsidy
Net Cost
1.2
RMB / kWh
0.8
0.6
0.4
0.2
0
Hydro Wind Nuclear Solar Biomass
Source: Wind Energy Information Center, 16
Investment: High Investment Levels in Green Energy

Significant Investment in Wind and Solar Green Energies
New Investment in China Green Energy (2009)
30
25
20
USD billion
15
10
0 Wind Solar Biomass & w-t-e Other renewables Energy smart technologies
Source: Bloomberg
17
Investment: China Investment in Green Energy #1 in World

Major Investment in Green Energy - Wind, Solar, Renewables
Green Energy Investment (2009)
40 35
34.6 Biofuels Efficiency/Low Carbon Other Renewables Solar Wind
30
25 20 15 10 5 0
18.6
USD billion
11.2
10.8
10.4 7.4 4.3 3.3
2.6
2.3
2.1
1.9
1.6
0.9
Source: Clean Energy Factbook, Who is Winning The Clean Energy Race?, 2009 18
BURNING PLATFORMS: Next Generation Strategic Optimization
19
Todays Burning Platform: Markets and Innovation

Global Structural Cost Reduction Revenue Growth
Revenue Growth
Sales
Innovation
Development
Marketing
IT
HR
Shared Services
Research
CONTRACTS, PARTNERSHIPS SHARED SERVICE CENTERS (SSC) RESEARCH & DEVELOPMENT

SALES & MARKETING
F&A Distribution
Procure Sourcing
Production
RESOURCES PRODUCTION / SOURCING
Cost Reduction
Shareholder Value
DRIVING
20
Innovation: Where are Key Nodes for Structuring R&D Platforms?

R of R&D Seeks Universities D Seeks Markets & Production
R&D Centers (# Operations) > 10 > 50 > 150 Wage Bands Mega-Cluster Mega-Corridors
Gansu Xinjiang Liaoning Jilin
Research & Development Centers

(Number of Operations in Select Cities)
Heilongjiang
Inner Mongolia
Hebei Ningxia Shanxi
Beijing Tianjin
Qinghai
Shandong
Mountains
Tibet Sichuan Guizhou
Shaanxi
Henan Hubei Anhui
Jiangsu
1
Zhejiang
Shanghai
Chongqing
Hunan Jiangxi Fujian
Yunnan
Guangxi Guangdong
Source: UNCTAD, WIR 21
Innovation: China Mobilizes all Resources to Develop Talent

China Science and Engineering: 1.6 Million Graduates per Year
University Natural Sciences Degrees

200 180
United States China
(1985 2005)
United Kingdom Japan
USA China
160 140 120

100 80
South Korea
Germany
Thousands
60 40 20
0
Sources: National Science Board, Science & Engineering Indicators 2008
22
Energy Market: Where are Designated Provinces for Green Energies?

Solar > West Wind > North Hydro > S West Nuclear -> East
Legend Insolation > 5,000 MJ/m2/yr Provinces with Nuclear Plants Designated for Wind Power Top Provinces for Hydro
Xinjiang Liaoning Jilin Heilongjiang
Green Energy Geographic Focus
Inner Mongolia
Hebei Ningxia Qinghai Gansu Shanxi
Beijing Tianjin Shandong
Shaanxi Tibet Sichuan
Henan Hubei Anhui
Jiangsu
Shanghai Zhejiang
Chongqing
Hunan Guizhou Jiangxi Fujian
Yunnan
Guangxi Guangdong
Source: National Development Reform Commission (NRDC); World Nuclear Association; Gao Hua Securities 23
Solar Energy Worlds Largest Solar Research Institute

American Corporation sets up Worlds Largest Solar Research Institute in China
President Obama, State of Union Address, January 2011:
Just recently, China became home to the world's largest private solar research facility
yes, and who made this private investment? Company: Applied Materials From: United States (AMAT: US) Investment: USD300 million Functions: - R&D, Engineering, Product Demonstration, Testing and Training for Crystalline Silicon and Thin Film Solar Module Manufacturing Equipment and Processes
-
Entire Applied SunFab Thin Film Manufacturing Line Complete Crystalline Silicon Pilot Process Facility: 400,000 square feet
Source: All Publically Available Information , Company Website
24
Solar Energy Projected Market Growth

Projected Photovoltaic Installations in China
Cumulative Installed Photovoltaic Power Capacity (2010 2020)
350,000
298,451
300,000
250,000
221,789
Megawatts
200,000
164,404
150,000
121,949
91,092 69,457 54,122
100,000
43,181
50,000
19,531 23,853
28,854
35,080
Source: China Generating Equipment Market Analysis 25
Solar Energy Growth across Technologies

Solar Energy Cells - Projection in China
Solar Energy Cell Market Projections
CIGS CdTe Silicon-based Thin-film
100% 90% 80% 70% 60% 50% 40% 30% 20% 32% 10% 0% 2005 2010E 2015E 2020E 27% 60% 43% 36% 35% 27%
13%
25% 37% 40%
25%
Source: GTM Research, trimmed by CEBM 26
Solar Energy Where are the Solar Industry Clusters?

Bohai Rim Yangtze River Delta Pearl River Delta Western China
R&D Centers (# Operations) > 10 > 50
Photovoltaic Industry Clusters
> 150
Heilongjiang
Wage Bands Mega-Cluster Mega-Corridors

Xinjiang
Gansu Inner Mongolia Hebei Qinghai Ningxia Shaanxi Shanxi Beijing Tianjin Shandong Jiangsu Liaoning Jilin
Circum-Bohai-Sea Region Monocrvstalline Silicon Wafer Processing
Henan
Central and Western China Photovoltaic upstream Polysilicon Industry
Tibet
Sichuan Chongqing Guizhou Yunnan
Hubei
Anhui
Shanghai Zhejiang
Yangtze River Delta Photovoltaic Cell Module Research and Manufacturers
Hunan
Jiangxi Fujian
Guangxi
Guangdong
Pearl River Delta Photovoltaic Downstream Applicable Industries
Source: UNCTAD, WIR 27
Solar Energy Where is Manufacturing Taking Place?

The Locations of Major PV Manufactures China
Jinneng
Crystalline-Silicon Solar Cells Thin-Film Solar Cells
Harbin Crona China Solar Power
Solar Photo-electricity China Light Solar Soltech Corporation Yingli Solar Jing Ao Solar Solarfilms ENN Solar
Harbin
Polar PV BSTRPV Shunfeng Trina Solar Eoplly QS Solar Suntech Wuxi Shangpin Canadian solar Best Solar Solar Energy S&T Topsola Green Energy Ulica SMIC Suntech Solar Electric Power Cineng PV Sopray Solar Ganneng Huaji Best Solar GS Solar
Beijing
Baoding Langfang
Tianjin Yantai Weihai
Chengdu
Bengbu Nantong Changzhou Wuxi Shanghai Suzhou Jiangxi Shaoxing Ningbo
Dali Fujian
Nuvo Solar Energy
Kunming
Star Solar Yunnan TianDa
Shenzhen
Haikou
Topray Solar Jiawei Hengyang Photovoltaic Trony Hainan Tianju
Source: SEMI 28
Wind Energy Worlds #1 Producer of Wind Technologies

China Worlds Largest Manufacturer of Windmills
29
Wind Energy Projected Market Growth

Wind Turbine Market Projection 2020
Wind Turbine Installation Capacity
16,000 14,000 12,000
10,000
Megawatts
8,000 6,000 4,000 2,000
Source: China Generating Equipment Market Analysis 30
Wind Energy Where is Manufacturing Taking Place?

Wind Turbine Manufactures in China
NORDEX
Harbin Electric
Hafei Industry
REPower
GOLDWIND
Harbin
China Creative Wind Energy GE Energy SINOVEL
Beijing Xinjiang
Liaoning
CSR CSIC
Baotou
Tianjin
SUZLON Gamesa
Nanjing Xian Chengdu Hangzhou Xiangtan Shanghai Leqing Nantong
CASC ACCIONA SHANGHAI ELECTRIC
HeWind
Windey
Guangzhou
DEC
XEMC
Zhongshan
ENGGA MINGYANG ELECTRIC
Source: Status of Wind Energy in China, 2008 31
Hydro Energy Worlds #1 Producer of Hydro Technologies

Worlds Largest Dam Three Gorges Dam
Three Gorges Dam Total Capacity: 18,200 MW Total Investment: USD31 billion
32
Hydro Energy Projected Market Growth

Water Turbine Generator Installation Capacity
Water Turbine Installation Capacity
30,000
25,000
20,000
Megawatts
15,000
10,000
5,000
Sources: The 2nd International Conference on Hydropower Technology & Equipment, 2009
33
Hydro Energy Where is Manufacturing Taking Place?

Water Turbine Manufacturers
Harbin Electric
Harbin
ALSTOM Jinan Fadian
Tianjin Lanzhou Jinan Nanjing Hangzhou Chengdu Ganzhou

LANZHOU ELECTRIC NTC STGC
Shanghai
TOSHIBA Resource Hydro ZHEFU
Tonglu
Fujian
DEC TIANBAO HEAVY INDUSTRY Fujian Nandian GANZHOU UNITE
Source: All Publically Available Information , Company Website 34
Chinas Economic Health Report Card
35
Senior Executives Select China as Most Attractive in World

Investor Confidence in China #1 in World
Top 14 Most Attractive Destinations for Future Investment (2009 2011)
%
60
50
Percent of Responses
40
30
20
10
0 China United States Indonesia Germany Australia Vietnam Canada Poland
India
Brazil
Russia
U.K.
Source: World Investment Prospects 2009 - 2011 36
Mexico
France
Healthy Balance Sheets Banks, Enterprises, Households

USD2.85 trillion in Foreign Reserves Insulation of Financial System Clean Balance Sheets
Chinas Financial System Healthy, Benefits from Insulation, Abundant Liquidity

China banks cleaned up in 1990s: Non-performing loans in 1997 averaged 40 50%; only 6% in 2007.
Financial institutions extended approximately USD1.4 tr in new loans in 2009; almost double that of 2008; and USD1.2 tr in 2010, slightly down from 2009.
Forex Reserves Achieve Record High in 2010: USD 2.85 trillion

The Central Bank has accumulated over USD 2.85 trillion in foreign reserves. The accumulation of large external surpluses means financial system enjoys abundant liquidity.
Clean Balance Sheets for Enterprises and Households

State Owned Enterprise net profits as share of GDP has grown from (-1%) in 1997 to (+4.3%) in 2007. Record corporate profit growth over past 5 years (industrial profits rose 38 ppa); liability ratios declined.
Urban incomes have nearly doubled in past 10 years.
Source: Deutsche Bank; Standard Chartered; UBS; IMF; Other
37
Global Consulting & Transaction Advisory

For More Information Please Contact Us: URL: Email: www.exolus.com info@exolus.com
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Copyright 2011 Exolus. All rights reserved.. 38
Disclaimer
In writing we benefit from standing on the shoulders of others and, in the process, we strive to make our own contributions to the market of ideas. As well, we are always tremendously grateful for the many, often selfless, contributions that are availed in the process. The opinions represented herein were prepared for information purposes only, at the time of publication. The information represented herein is believed to be reliable, at the time of publication, and was obtained by various public sources also believed to be reliable. The opinions were considered to be accurate at the point of creation, and further, any views, forecasts, or estimates contained herein may be subject to change at anytime without notice. The opinions expressed or implied herein may not be the opinions of the author, also Exolus, or any associated affiliates. This report and the information contained herein collectively, is not offered as, and should not be regarded as, used or relied upon as advice on any matter. It shall not constitute or be construed as a recommendation or solicitation on behalf of the author, and no legal commitment or obligation shall arise by reason of this document. Thus, the reader shall make an independent assessment of opinions stated herein that shall not be considered a substitute for obtaining advise from the readers advisors. The author shall not accept responsibility, express or implied, with regards to the accuracy and completeness of the information herein, and the author shall not be liable whatsoever and howsoever arising in connection to this publication. The author shall not accept, and hereby disclaim, all responsibility and liability to all persons, entities, or organizations for all consequences arising out of any use or reliance on the whole or any part of this publication. This publication should not be reproduced or distributed without the authors consent and is not intended for distribution in any jurisdiction in which this would be prohibited.
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Global Global Strategy Challenges Executable Solutions

Green China 2020

France Houdard Managing Director

Solar Energy Worlds Largest Solar Research Institute

Copyright 2011 Exolus. All rights reserved..

Source: All Publically Available Information , Company Website

China Today Worlds #1 Country for Investment in Green Energy

10.4 7.4 4.3 3.3

Copyright 2011 Exolus. All rights reserved..

China Today Worlds #1 Energy Consumer

Copyright 2011 Exolus. All rights reserved..

Source: Central News Agency

The Future - Chinas Economic Growth To become #1 Economy in 2020

Green Technology Trends

Corporate Burning Platforms: Innovation, Markets, Cost Reduction

Chinas Economic Health and Report Card

CHINA ENERGY OVERVIEW

Copyright 2011 Exolus. All rights reserved..

Today: China Energy Consumption Very Low on Per Capita Basis

Copyright 2011 Exolus. All rights reserved..

Source: BP Statistical Review and Economist Intelligence Unit

Today: China Remains the Fastest Growing Economy in World

USD (Real Market Rates)

Copyright 2011 Exolus. All rights reserved..

The Future: World Bank Projects China as #1 Economy in World by 2020

6,4 trillions China de $

3,6 trillions Japan de $ Japan

The Future: Forward Trend in Exploding Middle Class

Middle Class Income Bands for Urban Population

Urban Household Income (US$ PPP-Adjusted)

239 255 157

Lower Middle US$13,500 21,500

Poor < US$13,500

Copyright 2011 Exolus. All rights reserved..

The Future: Forward Trend in Mass Migration into Cities

Chinas Urban Population versus Rural Population

1.4 billion 1.3 billion

1,200 Population (million)

624 705 782

Rural Population (million)

1,000 800 600 400 200 0

833 822 684 531 381 245

Urban Population (million)

Copyright 2011 Exolus. All rights reserved..

Source: World Urbanization Prospects 2007 10

The Future: Emergence of 10+ Mega-Cities the Size of Countries

60 Million Population + World-Class Infrastructure

Jilin Xinjiang Gansu Liaoning

Beijing Tianjin Shandong

Henan Hubei Anhui

Copyright 2011 Exolus. All rights reserved..

The Future: China Energy Consumption to Increase by 50% by 2020

3,000 2,500 2,000 1,500 1,000 500 100% Increase

Copyright 2011 Exolus. All rights reserved..

Source: Central News Agency 12

GREEN TECHNOLOGY TRENDS

Copyright 2011 Exolus. All rights reserved..

Policy: China Places High Priority on Green Energy

Copyright 2011 Exolus. All rights reserved..

Policy: China Places High Priority on Green Energy

Copyright 2011 Exolus. All rights reserved..

Cost Structure: China Places High Priority on Green Energy

Copyright 2011 Exolus. All rights reserved..