DISCLOSUREAPPENDIXCONTAINSANALYSTCERTIFICATIONSANDTHESTATUSOFNONUSANALYSTS.US
Disclosure:CreditSuissedoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,
investorsshouldbeawarethattheFirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investors
shouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.
CREDITSUISSESECURITIESRESEARCH&ANALYTICSBEYONDINFORMATION?
Client-DrivenSolutions,Insights,andAccess
18November2013
AsiaPacific/China
EquityResearch
Macro
ChinaMarketStrategy
ECONOMICSANDSTRATEGY
Reforminitiativesansweringsomecalls
Figure1:Majorreforminitiatives
ReformagendaDetails
SOEreformEmphasistheco-existencebetweenSOEandprivatesector.
MoreindirectgovernmentcontroloverSOEs.Nomentionof
breakingdownthekeystate-ownedmonopolies
RurallandreformClearlanguageofendorsingtherightsoffarmersintheir
ownershipofland,andencouragemorefreedomoftransaction,
butstillneedimplementationdetails
Marketvs.governmentLessapprovalforprojects,morefree-tradezones
FiscalreformMoreclarificationovertheexpenditurerelationshipbetween
centralandlocalgovernment.Earlywarningsystemfor
governmentdebt
FinancialreformInterestrateliberalisationandRMBinternationalisationstillthe
keydirection.LessergovernmentcontroloverIPOs.
"Hukou"(residentship)reform"Hukou"ofmedium-sizedcitieswillberelaxedwhilethatof
megacitieswillstillbetightlycontrolled.
OnechildpolicyForurbancouples,ifeitherhusbandorwife(insteadofbothas
currently)isasinglechild,theywillbeallowedtohave2children.
LegalsystemReducetheinfluenceoflocalgovernmentonlawcourt''s
judgement.Abolishthelabourcampsystem.
Anti-corruptionReducetheinfluenceoflocalgovernmentonanti-corruption
investigation
Source:CreditSuisse
ChineseCommunistPartyannouncedacomprehensivelistofreforminitiatives:
■Areasonablyfullcup.Thelistofreforminitiativesisrathercomprehensive,
andhopefullymoresuccessfullyimplementedthaninitiativesoverthepast
tenyearswiththecreationofthenewCentralReformLeadingGroup.
Amongreformmeasures,thelanguageofrurallandreformisveryclearand
strongerthanexpected.Fiscalreformmentionedthekeyareasbutwehope
toseemorefollow-updetails.
■SOEreform—betterthannonebutcouldbebetter.Thegoodnewsis
thatSOEreformisintheagenda,unlikewhatweexpected2-3monthsago.
However,themeasuresareverymild,withoutmentioningtheneedtobreak
downthestate-ownedmonopoliesinthekeystrategysectors.
■Positivesupporttothemarket.Wethinkthiscomprehensivelistof
reformswillbepositivetothemarket,particularlytheunder-ownedsectors
suchasbanks.
ResearchAnalysts
VincentChan
85221016568
vincent.chan@credit-suisse.com
18November2013
ChinaMarketStrategy2
FocusChartsandTables
Figure2:Majorreforminitiatives
ReformagendaDetails
SOEreformEmphasistheco-existencebetweenSOEandprivatesector.MoreindirectgovernmentcontroloverSOEs.
Nomentionofbreakingdownthekeystate-ownedmonopolies
RurallandreformClearlanguageofendorsingtherightsoffarmersintheirownershipofland,andencouragemorefreedomof
transaction,butstillneedimplementationdetails
Marketvs.governmentLessapprovalforprojects,morefree-tradezones
FiscalreformMoreclarificationovertheexpenditurerelationshipbetweencentralandlocalgovernment.Earlywarning
systemforgovernmentdebt
FinancialreformInterestrateliberalisationandRMBinternationalisationstillthekeydirection.Lessergovernmentcontrolover
IPOs.
"Hukou"(residentship)reform"Hukou"ofMediumsizecitieswillberelaxedwhilethatofmegacitieswillstillbetightlycontrolled.
OnechildpolicyForurbancouples,ifeitherhusbandorwife(insteadofbothascurrently)isasinglechild,theywillbeallowed
tohave2children.
LegalsystemReducetheinfluenceoflocalgovernmentonlawcourt''sjudgement.Abolishthelabourcampsystem.
Anti-corruptionReducetheinfluenceoflocalgovernmentonanti-corruptioninvestigation
Source:CreditSuisse
Figure3:NominalandrealGDPgrowthFigure4:Credit-to-GDPratio—bank&non-bank
0
5
10
15
20
25
30
35
40
45
50
1986198919921995199820012004200720101H''13
NominalGDPIndustrialSales
Y-Y%
60
80
100
120
140
160
180
200
Mar93Sep95Mar98Sep00Mar03Sep05Mar08Sep10Mar13
Credit-to-GDPLoan-to-GDP
Sizeofshadowbanking
%ofGDP
Source:CEICSource:CEIC
Figure5:PBofMSCIChinaFigure6:PBofIT&consumerstaplesvs.banksinChina
0
1
2
3
4
5
6
Oct-06Jul-07Apr-08Jan-09Oct-09Jul-10Apr-11Jan-12Oct-12Jul-13
P/B(X)
0
1
2
3
4
5
6
7
8
9
Jan09Jul09Jan10Jul10Jan11Jul11Jan12Jul12Jan13Jul13
ConsumerStaplesITBanks
P/B(X)
Source:DataStreamSource:DataStream
18November2013
ChinaMarketStrategy3
Reforminitiativesansweringsome
calls
Inthedocumenttitled,ChineseCommunistPartyCentralCommittee''sDecisionon
KeyQuestionsRegardingtheComprehensiveDeepeningofReforms,(referredas
DecisionDocumentbelow),arathercomprehensivereformprogrammehasbeenlaidout.
Tostudyitsrelevancetothestockmarket,weneedtoknowwhatarethemajorissues
hinderingtheperformanceoftheChinesestockmarketandwhethertheycouldbe
affectedbythereformprogrammesoutlinedintheDecisionDocument.
Figure7:PBofMSCIChina
0
1
2
3
4
5
6
Oct-06Apr-07Oct-07Apr-08Oct-08Apr-09Oct-09Apr-10Oct-10Apr-11Oct-11Apr-12Oct-12Apr-13Oct-13
P/B(X)
Source:DataStream
Overallspeaking,wethinkthede-ratingoftheChinamarketislargelyduetothree
reasons:
1.Structuralslowdownoftheeconomy,withnoendinsight.Indeed,fromtheglobal
financialcrisis(GFC)in2008onwards,therearenocleargrowthdriversfortheChinese
economy.TheRmb4tnstimulusprogrammehastriggeredastrongreboundofthe
economyin2009/10,buttheeffectdidnotlast.AslowdowninnominalGDPismore
severethanrealGDP,indicatingtheinherentdeflationarypressureintheeconomy.
Figure8:NominalandrealGDPgrowth
0
5
10
15
20
25
30
35
40
45
50
19861988199019921994199619982000200220042006200820102012
NominalGDPIndustrialSales
Y-Y%
Source:CEIC
Comprehensivereform
initiativesfromChina
De-ratingreason1:
Structuralslowdown
18November2013
ChinaMarketStrategy4
2.Risingriskoffinancialcrisis,evidencedbythesurgingcredit-to-GDPratio,whichin
turndrivenbyLGFVborrowingaswellasshadowbankingactivities.Indeed,LGFVand
shadowbankingarelargelyoneproblem,asmostofthenon-bankcreditwasforthe
fundingofLGFVs.Inshort,theefficiencyofcreditusageinChinahasdeterioratedalot
overthepastfewyears.
Figure9:Credit-to-GDPratio—bank&non-bank
60
80
100
120
140
160
180
200
Mar93Sep95Mar98Sep00Mar03Sep05Mar08Sep10Mar13
Credit-to-GDPLoan-to-GDP
Sizeofshadow
banking
%ofGDP
Source:CEIC
3.Risingriskofsocialinstability,duetoissueslikeanti-corruption.Comparedtothe
twoconcernsmentionedabove,thisisprobablyasmallerissue,buttheriskofsocial
instabilitystillremainsaconcern.
Fromtheperspectiveoftheabove-mentionedconcernsofthemarket,wecangroupthe
reformsintotherespectivecategory:
Reformstobooststructuralgrowth
1.SOEreformandopeningupofmonopolisedservicesectorforcompetition
Thisisprobablyanareainwhichwecandescribethecurrentreformmeasuresas"half
empty,halffull".Comparedtofewmonthsagoinwhichtherewasseeminglynochanceof
StateOwnedEnterprises(SOE)reformbeingincludedintheagenda,atleastthecurrent
documenthashighlightedtheneedsforamoreindirectformofmanagementby
governmentagenciesoverSOEs,suchastheholdingcompanystructureadoptedbythe
SingaporegovernmentovertheirSOEs,whileallowingtheoperationalSOEstobehave
morelikeanindependentcommercialentity.Also,itisspecifiedthatpartofthe
government''sSOEownershipshouldbesoldinfuturetofundthesocialsecurityburden,
andatleast30%ofretainedearningsofSOEgroups,fromthecurrentlevelof10-15%,
wouldhavetobepaidtothecentralgovernmentbudgetforsocialsecuritypurpose.
WhileitisencouragingthatsomestepshavebeentakentoimprovetheSOEefficiency,
however,itisasetbackthatthereiseffectivelynomentionofthestatusofthemonopolyin
thekeyservicesectorindustriessuchasenergy,telecomandbanks,andtheneedto
breakthesemonopolies.Also,actionstoencourageprivatesectorcompetitioninthese
sectorsarenotseeminglytobeverystrong.
2.Rurallandreform
Currently,theownershipofurbanandrurallandisdifferent,withtheurbanlandownedby
thestate(effectivelybylocalgovernments)andrurallandownedbytheruralcollectives
(indirectlybythefarmers).Ingeneral,ifapieceofrurallandistobeconvertedintonon-
De-ratingreason2:Concern
overfinancialsystem
De-ratingreason3:Social
stability
MorecouldbedoneforSOE
reform
Nomentionofbreaking
downthemonopolies
Mostoflandvalue
appreciationwenttolocal
governments
18November2013
ChinaMarketStrategy5
farmingpurposeurbandevelopmentland,itusuallyhastobefirstacquiredbythelocal
governmentandthensoldtothefinalusers,suchasthepropertydevelopers.Underthis
arrangement,mostofthegainsfromlandpriceappreciationwenttolocalgovernments,
andthishasbeenamajorsourceoflocaldiscontentinthelastcoupleofyears.A
significantamountofmoneygainedbylocalgovernmentswasusedininfrastructure
construction.
Thekeyspiritoftherurallandreformistoendorsetheownershiprightofthefarmersover
theirfarmlandandtheirhomesteadland,etc.,andallowthemtheequalopportunitytosell
theirlandtothefinalusers.Thismeansthatthefarmerswillbeabletogetamuchlarger
shareofthelandpriceappreciationgain.Theyprobablywillusethismoneytostarta
smallbusinessorbuyapropertytosettledownintheurbanarea.So,theneteffectofthis
policychangewillprobablybealesseramountofcapitalwouldbeallocatedfor
infrastructureconstruction,butmoreprivatesectorinvestmentaswellasstrongerlong-
termdemandforurbanproperty.Apartfromallowingfarmerstoselltheirlanddirectly,the
governmentalsogivesgreenlightforexperimentofallowingfarmerstomortgagetheir
farmland.
Havingsaidabove,giventhediverginglocalconditions,wethinkthattheimplementation
ofthispolicychangewilltaketimeandtheactualdetailscouldberatherdifferentin
differentregions.
3.Reducingtheroleofgovernment
Akeyphilosophyofthisroundofreformistohighlighttheimportanceofmarketin
allocatingresourcesandreducetheinfluenceofgovernment.Accordingly,thegovernment
isplanningtoremovemostoftheadministrativeapprovalsfornormalinvestmentprojects
(withoutinvolvinggovernmentfundingorkeystrategicresources),aswellasenteringinto
moreinternationalfreetradeagreements–whichcouldinturnaffecthowChinaregulates
domesticindustries.TheShanghaiFreeTradeZone(FTZ)isakeyexperimentforthe
implementationof"negativelist"management,i.e.allbusinessoutsidethe"negativelist"
willnotbesubjectedtogovernmentcontrol,andthereisagoodchancethatinthefuture
the"negativelist"willbecomeshorterandtherewillmoreFTZssimilartoShanghaiFTZ
willbeestablished.Inthelongrun,thiscouldbeapreparationforChinatojoinkey
internationaltradeagreementssuchasTrans-PacificPartnership(TPP).
4."Hukou"reformandurbanization
ItisspecifiedintheDecisionDocumentthatthe"hukou"(urbanresidentship)ofmedium
sizedcitiestobegraduallyrelaxed,determinethe"hukou"requirementoflargecities
rationallyandstrictlycontrolthepopulationsizeofthemegacities.Thereisnotmuch
surpriseinthisstatement,aswellasnotmanydetails.Theactualurbanresidentshipof
individualcitycouldonlybedecidedatthelocallevel,sowedon''tthinkthisreformcan
havetoomuchimpactinnear-term.
5.Relaxingtheone-childpolicy
Laboursupplyisakeyvariabledeterminingthelong-termgrowthofacountry.Therefore,
thecurrentrelaxationofOneChildPolicy,byallowinganurbancoupletohavetwo
childrenifeitherthehusbandorwifeisasinglechild,couldhelptoslightlyboostChina''s
long-termpopulationandlaboursupplygrowth.Beforethereform,onlyurbancoupleof
whichbothhusbandandwifearesinglechildcanhavetwochildren.However,giventhe
limitedextentofrelaxationandthegeneraltendencyofurbancouplesnottohavetoo
manychildren,wedon''tthinkthenear-termimpactofthisrelaxationonpopulationgrowth
willbeverysignificant.
Morethanexpectedclarity
inrurallandreform
Reducinggovernment
influence,withFTZan
experiment
"Hukou"controlformid-size
citiesrelaxed
Moreurbancouplescan
havetwochildren
18November2013
ChinaMarketStrategy6
Reformstoreducefinancialsystemrisk
1.Fiscalreformandlocalgovernmentdebtmanagement
Aswewrotein,ChinaMarketStrategy–Fiscalreformcouldbeamajorfocus,
publishedon24September2013,wearguedthatarationalisationbetweenthesplitof
central-localgovernmentrevenueandexpenditure,plusabettermanagementoflocal
governmentdebt,wouldgoalongwaytocontainthefinancialsystemriskinChina.Inthe
DecisionDocument,thedetailsarestillnotenough,butsomehowtheconceptthatcentral
governmentwilltakeupmoreexpenditureitems(includingsomesocialwelfareandcross-
regionmajorinfrastructureprojects)tobetterbalancethegapbetweencentralandlocal
governmentrevenueandexpenditure.Also,thegovernmenthashighlightedthatamong
thefiscaltransferfromcentraltolocalgovernment,theshareofgeneraltransfer(guided
byfixedformula,whichisaminoritynow)shouldbeincreasedattheexpenseofspecial
transfer(veryarbitrary,whichaccountsformajorityoffiscaltransfernow).
Regardingcentralandlocalgovernmentdebt,itismentionedthatan"earlywarning
system"shouldbeestablished.Localgovernmentsareallowedtoissuebondsdirectlyfor
urbanisationrelatedconstructionactivities,buttheywillbeaskedtoproducealocal
governmentbalancesheettobetterrevealtheirfinancialinformation.
Overall,wethinkthatthemeasuresaremovingintherightdirection,butwewouldliketo
seemoredetailsfromrelevantauthorities(probablyMinistryofFinance)onhowthese
initiativesarebeingimplemented.
2.Financialreform
Asexpected,thedirectionofinterestrateliberalisationandRMBinternationalisation
continuedtobeadoptedaskeyreformdirections.Also,smallprivatesectorbanksarealso
beingencouraged.Finally,thestockmarketwilladoptaregistrationsystemforIPO,
implyingCSRCtotakealessactiveroleinscreeningandapprovingIPOs.Toacertain
extent,financialsectorreformshouldalsohelptoreducetherisksofthefinancialsystem,
buttheimportanceislessthanthatofthefiscalreform.
Reformstoaddressthesocialinstability
1.Legalreform
TheDecisionDocumenthashighlightedtheimportanceofruleoflawintheeconomy.Itis
reasonabletotakeamorescepticalandcautiousapproachonsuchsentimentsgiventhe
currentpoliticalcontextinChina.Butatleast,thedecisionoftryingtomakethesub-
provinciallawcourtstobecomemoreindependentfromthelocalgovernments''
interferenceshouldbeviewedpositively,nomatterhowmilditis.
2.Anti-corruptioninvestigations
InChina,thegovernmentagencyresponsibleforanti-corruptioninvestigationisthe
DisciplinaryCommissionofvariouslevelsoftheCommunistParty.Itisdecidedinthe
DecisionDocumentthatinthefuture,corruptioninvestigationofaspecificleveloflocal
governmentshouldbeledbythehigherlevelDisciplinaryCommission,andlocalDisciplinary
CommissionshouldbothreporttothelocalCommunistPartyaswellasthehigherlevel
DisciplinaryCommissionwhentheyareinvestingacase.Thismeansthat,aprovincial
governmentDisciplinaryCommissionshouldreportthedetailsoftheirinvestigationtoboth
theprovincialCommunistPartyCommitteeaswellastheCentralDisciplinaryCommission.
Effectively,allthesemeasuresaretryingtoreducelocalgovernment''sinfluenceontheanti-
corruptioninvestigationofthelocalDisciplinaryCommission.
3.Abolishthelabourcampsystem
TheDecisionDocumentalsodecidestoabolishthelabourcampsystem,inwhichnormal
peoplecouldbearrestedwithoutproperlegalprocedures,whichhasbeenexistingin
Chinaforoverhalfacentury.
Somediscussionover
expendituresplitbetween
centralandlocal
government
Earlywarningsystemfor
governmentdebt
Lessactiveroleinapproving
IPOs
Moreindependentlaw
courts
Lessinfluenceoflocal
governmentonanti-
corruptioninvestigations
Abolishthelabourcamp
18November2013
ChinaMarketStrategy7
Cupstillnotfull,butnotemptyeither
Comparingtotheexpectationsofthemarketjustafewmonthsago,thecurrentlistof
reformsintheDecisionDocumentlooksverycomprehensive.Inaddition,theadditionof
thenewCentralReformLeadingGroup,possiblyheadedbytheGeneralSecretary
himself,couldmakethereformsmoresuccessfullyimplementedthantheHu-Wen
administration.TheonlycaveatinthecurrentreforminitiativesisthattheSOEreformis
stillnotgoingfarenough,andthewillpowerofthegovernmenttobreakupthestate-
ownedmonopoliesinthestrategicsectorsisstillnotstrongenough.Ontheotherhand,
theclearandstrongwordingoftherurallandreformprobablyexceedsexpectation.For
thefiscalreform,thegeneraldirectioniscorrect,butitwouldbegreattoseemoredetails
toseetheiractualimpact.
Overall,wethinkthereforminitiativeswouldstillbewelcomedbythemarket,considering
thedepressedvaluationoftheChinamarket.Thiscouldtriggeramildre-ratingofthe
market.Inparticular,thiscouldbenefitthesectorssuchasbankswhichhavede-rated
significantlyinthelastfewyearsduetoconcernsaboutthelong-termoutlookofChina''s
economicgrowthaswellasthefinancialstability.Incontrast,sectorswhicharelargely
privateownedandenjoyedstrongseculargrowthstorieswhilenottooexposedtothe
macroeconomiccycle,suchasIT(mostlyInternet)andconsumerstaples,haveenjoyeda
veryhighmultipleinrecentyears.Theycouldbere-ratedrelativelyifinvestorconfidence
overthemacroeconomyimprovesandinvestorsarewillingtoputtheirextrainvestment
dollarintothecheaperbutmorecyclicalsectors.
Figure10:PBofIT&consumerstaplesvs.banksinChina
0
1
2
3
4
5
6
7
8
9
Jan09Jul09Jan10Jul10Jan11Jul11Jan12Jul12Jan13Jul13
ConsumerStaplesITBanks
P/B(X)
Source:DataStream
Accordingly,aswethinkthereforminitiatives(despitesomeshortcomings)arerather
comprehensiveandbeingapositivesurprisetothemarket,itshouldbeseenasapositive
factortoChina''slong-termgrowthandfinancialstabilityoutlook.Also,near-termgrowth
alsoshowedsignsofstabilisation,whichshouldbeseenaspositivetothecyclicalsectors.
Therefore,wewouldcontinuetoOVERWEIGHTsectorssuchasbanks,insurance,
property,materials,transportation,energyandconsumerdiscretionary,and
UNDERWEIGHTsectorssuchasconsumerstaples,IT,telecomservices,utilitiesand
capitalgoods.OurTop4picksremainICBC,ChinaShenhua,ChinaPacificInsuranceand
Belle.
Morefarreachingthan
marketexpectationfew
monthsago
Shouldbewelcomedbythe
market
ContinuetoOWbanks
18November2013
ChinaMarketStrategy8
Appendix:Selectedkeyreform
initiatives
Thegreatsignificanceandguidelinesof
comprehensivereform
Thecoreproblemliesintherelationshipbetweenthegovernmentandthemarket.
Attentionsshouldbepaidtosolvetheproblemsrelatedtotheimperfectmarket,
governmentexcessiveinterventionandimpropersupervision,togreatlyreducethedirect
allocationofrecoursesbythegovernment.
Upholdandimprovethebasiceconomicsystem
1.Improvepropertyrightsprotectionsystem.Non-publicproperty,aswellaspublic
property,isinviolable.
2.Activelydevelopamixedownershipeconomylikestate-ownedcapital,collective
capital,non-publiccrossshareholdings,etc.Promotereformofstate-ownedcapital
managementsystem,formseveralstate-ownedcompanies,supportthe
transformationofstate-ownedenterprisesintostate-ownedcapitalinvestment
companies.Raisethepercentageofstate-ownedcapitalgainstothepublicfinance,
by2020itissupposedtoreach30%withmoreusedtoensureandimprovepeople’s
lives.
3.PromoteSOEstoimprovethemodernenterprisesystem.SOEsmustadaptnewtrend
ofmarketizationinternationalization.ExploretopromoteSOEstomakepublictheir
majorfinancialbudgetinformation.
4.Supportthehealthydevelopmentofnon-publiceconomy.
Acceleratetheimprovementofmarketsystem
1.Setafair,openandtransparentmarketregulationsystem.Implementaunifiedmarket
thresholdpolicy,sothatallkindsofmarketentitiesareeligibletoenterthemarketon
thebasisofanegativelist.
2.Perfectthepricingmechanismbymarket.Promotepricingreforminwater,oil,gas,
electricity,transport,telecomandotherfields.
3.Establishaunifiedlandmarketinurbanandruralareas.Allowruralareastoremise,
leaseandbuyashareofthecollectivelandatthesamepriceandrightwithstate-
ownedland.
4.Perfectthefinancialmarketsystem.Allowqualifiedprivatecapitaltolaunchandset
upsmallandmiddle-sizedfinancialinstitutionslikebanks.Promotethereformofstock
issuanceregistrationpolicy.ImproveRMBexchangeratemarketisationmechanism
andboostRMBexchangeratemarketisation.
5.Deepenreformintechnologicalsystems.Enhancetheapplicationandprotectionof
intellectualproperty.
Acceleratethetransformationofgovernment
functions
1.Improvemacro-controlsystemanddeepenthereformofinvestmentsystem.Projects
financedbyenterprisescannolongeraskforadministrationapprovalexceptthatthe
projectsarerelatedtonationalsecurity,ecologicalsecurity,nationalsignificant
productivitylayout,strategicresourcesexploitationandsocialwelfare,etc.Correctthe
18November2013
ChinaMarketStrategy9
assessmentmechanismfocusingonGDPgrowth;raisethepercentageofrecourses
depletion,environmentcontamination,ecologicalprofit,excessivecapacity,
technologicalinnovation,securedproduction,newdebt,etc.inevaluatingofficial’s
performance.Establishnationalandlocalbalancesheet.
2.Properlyperformgovernmentfunctions.Makefurtherdecentralisation,deepenreform
ofadministrativeexaminationandapprovalsystem,andacceleratethereforming
institutions.
3.Optimiseorganisationalstructureofgovernment.
Deepentaxationreform
1.Improvebudgetmanagementsystem.Clearprojectsthatcorrelateexpenditurewith
fiscalrevenueorGDP.Establisharationalcentralandlocalgovernmentdebt
managementandriskearlywarningmechanism.Thefinancialgapresultedbycentral
governmentpolicywillbeadjustedbycentralgovernmentgeneraltransferpayment.
Clearandstandardisespecialtransferpaymentprojects,andfinallyeliminatethe
specialandlocalmatchingfundsincompetitivefields.
2.Improvetaxationsystem.Adjusttherange,procedureandtaxrate;incorporatethe
highenergyconsumption,highpollutionproductsandpartsofhighendconsumer
goodsintotaxationscope.Graduallyestablishacomprehensiveandclassified
personalincometaxsystem.Speeduptherealestatetaxlegislationandpromote
reformatrighttime;acceleratethereformofrecoursestaxandpromotethechange
fromenvironmentprotectionfeestotaxes.
3.Establishasystemthatmakespowersandexpenditureresponsibilitiescompatible.
Modestlystrengthenthecentralpowersandexpenditureresponsibilities:defence,
foreignaffairs,nationalsecurityandnationalmarketregulationsandmanagements
areallinthechargeofcentralgovernment;partofsocialsecurity,cross-regional
majorprojectmaintenancecontrolledbycentralandlocalgovernments.
Improvetheintegrationofurbanandrural
development
1.Acceleratetheconstructionofnewagriculturalmanagementsystem.Encourage
cooperativeeconomicdevelopmentinruralareas.
2.Entitlefarmersmorepropertyrights.Entitlefarmstherightstoholdsharesof,use,
makeprofitfromandinheritfromcollectivelands.Protectfarmer’srightonhousing
sites.Steadilypromotefarmers’housingpropertymortgage,guarantee,transferof
propertyincomeandexplorewaystoboostfarmers’income.
3.Promoteequalexchangeofurbanandruralfactorsandbalancedallocationofpublic
resources.
4.Improvethehealthydevelopmentofurbanisationinstitutionalmechanisms.Allowlocal
governmenttoexpandfinancingchannelsbyissuingbonds.Perfectthestandardto
setscities,allowqualifiedcountiestobecomecities.AccelerateHukoureform,
completelyremovethelimitsonregisteringHukouatsmallcities,graduallyopen
middlesizedcitiesHukouregistration,andreasonablysetstandardsonregisteringin
bigcities,strictlylimitthepopulationinbigcities.Incorporatethefarmersregistering
theirHukouincitiesintourbanhousingandsocialsecuritysystemswiththeirpension
insuranceandhealthcareinsurancetransferredtourbansocialsecuritysystems.
Buildanopeneconomicsystem
1.Furtherlowertheentrythresholdinvestment.Acceleratecoordinationwithrelated
countriestosigntradeagreements.Reformoverseasinvestmentadministration
mechanism.
18November2013
ChinaMarketStrategy10
2.AcceleratefurtherdevelopmentofShanghaiFTA.
3.Extendopennessofinlandcities.
Strengthenthedevelopmentofsocialistdemocraticpoliticalsystem
1.PromotethePeople''sCongressSystemtokeeppacewiththetimes.Strengthenthe
monitoringfunctionofPeople''sCongressSystemonstate-ownedassets.
2.Promotethemulti-institutionaldevelopmentofdemocraticconsultation.
3.Promotedevelopmentofgrassrootsdemocracy.
PromotethedevelopmentofChina’slegalsystem
1.MaintaintheauthorityoftheConstitution.
2.Deepenthereformofadministrativelawenforcement.Reformthejudicialsystem;
promoteunifiedmanagementofpeopleandpropertyinprovinciallocalcourtsand
procuratorates.Exploretheestablishmentofjurisdictionwithappropriateseparation
fromadministrativedivisions.
3.Makesuretheindependentandimpartialexerciseofjudicialpowerandprosecutorial
power.
4.Improvethejudicialpoweroperatingmechanism
5.Improvetheprotectionoverhumanrights.Abolishthere-educationthroughlabour
system.
Strengthencontrolandsupervisiontowardsthe
powersystems
1.Formascientificandeffectivepowerconstraintsandcoordinationmechanisms.
2.Strengthenanti-corruptioninstitutionalinnovationandinstitutionalguarantee.
Investigationofcorruptioncasesshouldbeledsuperiordisciplinaryleaders,clues
shouldbereporttothesuperiorDisciplineInspectionCommissionbesidestheParty
Committee.
3.Improvenormalisationofauthorities’wayofwork.
PromoteinnovationofculturalInstitutional
mechanisms
1.Improvetheculturalmanagementsystem.
2.Establishandimprovethemodernculturalmarketsystem.
3.Buildamodernpublicculturalservicesystem.
4.Improvetheopennessofculture.
Promotesocialreformandinnovation
1.Deepeneducationreform.Vigorouslypromoteequityineducation,andpromote
reformofexaminationandenrolmentsystem.
2.Improvetheinstitutionalmechanismstopromoteemploymentandentrepreneurship.
3.Formareasonableandorderlypatternofincomedistribution.
4.Establishamoreequitableandsustainablesocialsecuritysystem.
18November2013
ChinaMarketStrategy11
5.Deepenhealthsystemreform.Encouragesocialmedicalinstitution,withpriority
supportinnon-profitmedicalinstitutions.Adheretothebasicnationalpolicyoffamily
planning,butenablethecouplewithoneofthemastheonlychildtohavetwochildren.
Promoteinnovationofsocialgovernancesystem
1.Improvesocialgovernance.
2.Stimulatesocialgroups’activity.
3.Establishaninnovativeandeffectivesystemtopreventandresolvesocialconflicts.
Improvethepetitionworksystemswithimplementationofonlinepetitionsystem
acceptance.
4.Improvethepublicsecuritysystem.EstablishtheNationalSecurityCouncil,improving
nationalsecuritysystemtoensurenationalsecurity.
Acceleratetheconstructionofecologicalcivilisation
system
1.Improvethenaturalresourceassetspropertyrightssystemandusagecontrolsystem.
2.Setaredlineforecologicalprotection.Explorethepreparationofnaturalresource
balancesheet.
3.Implementpaiduseofresourcessystemandecologicalcompensationsystem.
4.Reformecologicalandenvironmentalprotectionmanagementsystem.
Deepenthereformofnationaldefenceandthearmed
forces
1.Deepenstructuralandorganizationalreformofthearmy.
2.Promotetheadjustmentandreformofthemilitarypoliciesandsystems.
3.Promotecivil-militaryintegration.
18November2013
ChinaMarketStrategy12
CompaniesMentioned(Priceasof15-Nov-2013)
BelleInternationalHoldingsLtd(1880.HK,HK$9.69)
ChinaPacific(2601.HK,HK$28.05)
ChinaShenhuaEnergyCompanyLimited(1088.HK,HK$24.5)
Industrial&CommercialBankofChina(1398.HK,HK$5.33)
DisclosureAppendix
ImportantGlobalDisclosures
I,VincentChan,certifythat(1)theviewsexpressedinthisreportaccuratelyreflectmypersonalviewsaboutallofthesubjectcompaniesand
securitiesand(2)nopartofmycompensationwas,isorwillbedirectlyorindirectlyrelatedtothespecificrecommendationsorviewsexpressedin
thisreport.
3-YearPriceandRatingHistoryforBelleInternationalHoldingsLtd(1880.HK)
1880.HKClosingPriceTargetPrice
Date(HK$)(HK$)Rating
24-Nov-1014.5216.90O
24-Mar-1114.1016.10
12-Apr-1115.6616.90
12-Jul-1115.7619.30
07-Sep-1116.26R
08-Sep-1114.8819.30O
28-Sep-1113.6817.60
02-Jan-1213.5414.50
17-Jan-1212.08
02-Feb-1213.6214.50O
21-Mar-1214.1817.20
25-Apr-1214.9417.60
13-Jun-1212.3415.10
22-Aug-1214.1815.60
16-Oct-1213.6216.60
23-Nov-1215.7017.50
14-Jan-1317.2819.00
21-Feb-1315.2817.80
26-Mar-1313.2616.90
08-Jul-1310.7212.80
12-Jul-1311.1813.30
Asterisksignifiesinitiationorassumptionofcoverage.
OUTPERFORMRESTRICTED
3-YearPriceandRatingHistoryforChinaPacific(2601.HK)
2601.HKClosingPriceTargetPrice
Date(HK$)(HK$)Rating
25-Nov-1031.5041.00O
19-Oct-1122.7038.00
03-Jan-1222.7035.00
13-Jun-1224.9534.00
13-Jan-1331.1037.50
Asterisksignifiesinitiationorassumptionofcoverage.
OUTPERFORM
18November2013
ChinaMarketStrategy13
3-YearPriceandRatingHistoryforChinaShenhuaEnergyCompanyLimited(1088.HK)
1088.HKClosingPriceTargetPrice
Date(HK$)(HK$)Rating
04-Jan-1134.1540.00O
18-Feb-1132.5043.10
28-Mar-1134.9541.00
03-May-1135.9542.40
05-Jul-1138.9543.60
29-Aug-1135.1045.00
30-Oct-1136.7050.30
26-Mar-1233.0546.00
27-Apr-1233.7046.40
14-Jun-1226.6039.00
26-Aug-1229.5038.00
06-Dec-1231.9540.00
25-Mar-1328.7539.70
12-Jun-1324.6034.90
26-Aug-1325.3531.80
Asterisksignifiesinitiationorassumptionofcoverage.
OUTPERFORM
3-YearPriceandRatingHistoryforIndustrial&CommercialBankofChina(1398.HK)
1398.HKClosingPriceTargetPrice
Date(HK$)(HK$)Rating
26-Nov-105.927.82O
29-Nov-105.96R
29-Dec-105.687.82O
05-Jan-115.958.06
25-Feb-115.877.22
15-Apr-116.547.60
05-May-116.427.93
21-Jun-115.846.87
06-Sep-114.927.38
11-Oct-114.315.49
10-Nov-114.745.71
22-Feb-125.636.46
10-Apr-125.016.75
13-Jun-124.316.37
03-Sep-124.205.07
16-Oct-124.886.26
13-Feb-135.637.09
08-Apr-135.176.33
Asterisksignifiesinitiationorassumptionofcoverage.
OUTPERFORMRESTRICTED
Theanalyst(s)responsibleforpreparingthisresearchreportreceivedCompensationthatisbaseduponvariousfactorsincludingCreditSuisse''s
totalrevenues,aportionofwhicharegeneratedbyCreditSuisse''sinvestmentbankingactivities
AsofDecember10,2012Analysts’stockratingaredefinedasfollows:
Outperform(O):Thestock’stotalreturnisexpectedtooutperformtherelevantbenchmarkoverthenext12months.
Neutral(N):Thestock’stotalreturnisexpectedtobeinlinewiththerelevantbenchmarkoverthenext12months.
Underperform(U):Thestock’stotalreturnisexpectedtounderperformtherelevantbenchmarkoverthenext12months.
Relevantbenchmarkbyregion:Asof10thDecember2012,Japaneseratingsarebasedonastock’stotalreturnrelativetotheanalyst''scoverageuniversewhich
consistsofallcompaniescoveredbytheanalystwithintherelevantsector,withOutperformsrepresentingthemostattractive,Neutralsthelessattractive,and
Underperformstheleastattractiveinvestmentopportunities.Asof2ndOctober2012,U.S.andCanadianaswellasEuropeanratingsarebasedonastock’stotal
returnrelativetotheanalyst''scoverageuniversewhichconsistsofallcompaniescoveredbytheanalystwithintherelevantsector,withOutperformsrepresentingthe
mostattractive,Neutralsthelessattractive,andUnderperformstheleastattractiveinvestmentopportunities.ForLatinAmericanandnon-JapanAsiastocks,ratings
arebasedonastock’stotalreturnrelativetotheaveragetotalreturnoftherelevantcountryorregionalbenchmark;Australia,NewZealandare,andpriorto2nd
October2012U.S.andCanadianratingswerebasedon(1)astock’sabsolutetotalreturnpotentialtoitscurrentsharepriceand(2)therelativeattractivenessofa
stock’stotalreturnpotentialwithinananalyst’scoverageuniverse.ForAustralianandNewZealandstocks,12-monthrollingyieldisincorporatedintheabsolutetotal
returncalculationanda15%anda7.5%thresholdreplacethe10-15%levelintheOutperformandUnderperformstockratingdefinitions,respectively.The15%and
18November2013
ChinaMarketStrategy14
7.5%thresholdsreplacethe+10-15%and-10-15%levelsintheNeutralstockratingdefinition,respectively.Priorto10thDecember2012,Japaneseratingswere
basedonastock’stotalreturnrelativetotheaveragetotalreturnoftherelevantcountryorregionalbenchmark.
Restricted(R):Incertaincircumstances,CreditSuissepolicyand/orapplicablelawandregulationsprecludecertaintypesofcommunications,
includinganinvestmentrecommendation,duringthecourseofCreditSuisse''sengagementinaninvestmentbankingtransactionandincertainother
circumstances.
VolatilityIndicator[V]:Astockisdefinedasvolatileifthestockpricehasmovedupordownby20%ormoreinamonthinatleast8ofthepast24
monthsortheanalystexpectssignificantvolatilitygoingforward.
Analysts’sectorweightingsaredistinctfromanalysts’stockratingsandarebasedontheanalyst’sexpectationsforthefundamentalsand/or
valuationofthesectorrelativetothegroup’shistoricfundamentalsand/orvaluation:
Overweight:Theanalyst’sexpectationforthesector’sfundamentalsand/orvaluationisfavorableoverthenext12months.
MarketWeight:Theanalyst’sexpectationforthesector’sfundamentalsand/orvaluationisneutraloverthenext12months.
Underweight:Theanalyst’sexpectationforthesector’sfundamentalsand/orvaluationiscautiousoverthenext12months.
Ananalyst’scoveragesectorconsistsofallcompaniescoveredbytheanalystwithintherelevantsector.Ananalystmaycovermultiplesectors.
CreditSuisse''sdistributionofstockratings(andbankingclients)is:
GlobalRatingsDistribution
RatingVersusuniverse(%)Ofwhichbankingclients(%)
Outperform/Buy42%(55%bankingclients)
Neutral/Hold41%(49%bankingclients)
Underperform/Sell15%(41%bankingclients)
Restricted3%
ForpurposesoftheNYSEandNASDratingsdistributiondisclosurerequirements,ourstockratingsofOutperform,Neutral,andUnderperformmostclosely
correspondtoBuy,Hold,andSell,respectively;however,themeaningsarenotthesame,asourstockratingsaredeterminedonarelativebasis.(Pleasereferto
definitionsabove.)Aninvestor''sdecisiontobuyorsellasecurityshouldbebasedoninvestmentobjectives,currentholdings,andotherindividualfactors.
CreditSuisse’spolicyistoupdateresearchreportsasitdeemsappropriate,basedondevelopmentswiththesubjectcompany,thesectororthe
marketthatmayhaveamaterialimpactontheresearchviewsoropinionsstatedherein.
CreditSuisse''spolicyisonlytopublishinvestmentresearchthatisimpartial,independent,clear,fairandnotmisleading.Formoredetailpleaserefer
toCreditSuisse''sPoliciesforManagingConflictsofInterestinconnectionwithInvestmentResearch:http://www.csfb.com/researchand
analytics/disclaimer/managing_conflicts_disclaimer.html
CreditSuissedoesnotprovideanytaxadvice.AnystatementhereinregardinganyUSfederaltaxisnotintendedorwrittentobeused,andcannot
beused,byanytaxpayerforthepurposesofavoidinganypenalties.
Pleaserefertothefirm''sdisclosurewebsiteathttps://rave.credit-suisse.com/disclosuresforthedefinitionsofabbreviationstypicallyusedinthe
targetpricemethodandrisksections.
SeetheCompaniesMentionedsectionforfullcompanynames
Thesubjectcompany(1088.HK,1398.HK,1880.HK)currentlyis,orwasduringthe12-monthperiodprecedingthedateofdistributionofthisreport,
aclientofCreditSuisse.
CreditSuisseprovidedinvestmentbankingservicestothesubjectcompany(1088.HK,1398.HK)withinthepast12months.
CreditSuisseprovidednon-investmentbankingservicestothesubjectcompany(1398.HK)withinthepast12months
CreditSuissehasmanagedorco-managedapublicofferingofsecuritiesforthesubjectcompany(1398.HK)withinthepast12months.
CreditSuissehasreceivedinvestmentbankingrelatedcompensationfromthesubjectcompany(1088.HK,1398.HK)withinthepast12months
CreditSuisseexpectstoreceiveorintendstoseekinvestmentbankingrelatedcompensationfromthesubjectcompany(1088.HK,1398.HK,
1880.HK)withinthenext3months.
CreditSuissehasreceivedcompensationforproductsandservicesotherthaninvestmentbankingservicesfromthesubjectcompany(1398.HK)
withinthepast12months
Asoftheendoftheprecedingmonth,CreditSuissebeneficiallyown1%ormoreofaclassofcommonequitysecuritiesof(1088.HK,1398.HK,
2601.HK).
ImportantRegionalDisclosures
SingaporerecipientsshouldcontactCreditSuisseAG,SingaporeBranchforanymattersarisingfromthisresearchreport.
Theanalyst(s)involvedinthepreparationofthisreporthavenotvisitedthematerialoperationsofthesubjectcompany(1088.HK,1088.HK,
1398.HK,1880.HK,2601.HK)withinthepast12months
18November2013
ChinaMarketStrategy15
RestrictionsoncertainCanadiansecuritiesareindicatedbythefollowingabbreviations:NVS--Non-Votingshares;RVS--RestrictedVotingShares;
SVS--SubordinateVotingShares.
IndividualsreceivingthisreportfromaCanadianinvestmentdealerthatisnotaffiliatedwithCreditSuisseshouldbeadvisedthatthisreportmaynot
containregulatorydisclosuresthenon-affiliatedCanadianinvestmentdealerwouldberequiredtomakeifthiswereitsownreport.
ForCreditSuisseSecurities(Canada),Inc.''spoliciesandproceduresregardingthedisseminationofequityresearch,pleasevisit
http://www.csfb.com/legal_terms/canada_research_policy.shtml.
CreditSuissehasactedasleadmanagerorsyndicatememberinapublicofferingofsecuritiesforthesubjectcompany(1398.HK,1880.HK,
2601.HK)withinthepast3years.
Asofthedateofthisreport,CreditSuisseactsasamarketmakerorliquidityproviderintheequitiessecuritiesthatarethesubjectofthisreport.
Principalisnotguaranteedinthecaseofequitiesbecauseequitypricesarevariable.
Commissionisthecommissionrateortheamountagreedwithacustomerwhensettingupanaccountoratanytimeafterthat.
Totheextentthisisareportauthoredinwholeorinpartbyanon-U.S.analystandismadeavailableintheU.S.,thefollowingareimportant
disclosuresregardinganynon-U.S.analystcontributors:Thenon-U.S.researchanalystslistedbelow(ifany)arenotregistered/qualifiedasresearch
analystswithFINRA.Thenon-U.S.researchanalystslistedbelowmaynotbeassociatedpersonsofCSSUandthereforemaynotbesubjecttothe
NASDRule2711andNYSERule472restrictionsoncommunicationswithasubjectcompany,publicappearancesandtradingsecuritiesheldbya
researchanalystaccount.
CreditSuisse(HongKong)Limited.....................................................................................................................................................VincentChan
ForCreditSuissedisclosureinformationonothercompaniesmentionedinthisreport,pleasevisitthewebsiteathttps://rave.credit-
suisse.com/disclosuresorcall+1(877)291-2683.
18November2013
ChinaMarketStrategyCH0352.doc
ReferencesinthisreporttoCreditSuisseincludeallofthesubsidiariesandaffiliatesofCreditSuisseoperatingunderitsinvestmentbankingdivision.Formoreinformationonourstructure,pleaseusethe
followinglink:https://www.credit-suisse.com/who_we_are/en/Thisreportmaycontainmaterialthatisnotdirectedto,orintendedfordistributiontooruseby,anypersonorentitywhoisacitizenorresidentof
orlocatedinanylocality,state,countryorotherjurisdictionwheresuchdistribution,publication,availabilityorusewouldbecontrarytolaworregulationorwhichwouldsubjectCreditSuisseAGoritsaffiliates
("CS")toanyregistrationorlicensingrequirementwithinsuchjurisdiction.Allmaterialpresentedinthisreport,unlessspecificallyindicatedotherwise,isundercopyrighttoCS.Noneofthematerial,norits
content,noranycopyofit,maybealteredinanyway,transmittedto,copiedordistributedtoanyotherparty,withoutthepriorexpresswrittenpermissionofCS.Alltrademarks,servicemarksandlogosused
inthisreportaretrademarksorservicemarksorregisteredtrademarksorservicemarksofCSoritsaffiliates.Theinformation,toolsandmaterialpresentedinthisreportareprovidedtoyouforinformation
purposesonlyandarenottobeusedorconsideredasanofferorthesolicitationofanoffertosellortobuyorsubscribeforsecuritiesorotherfinancialinstruments.CSmaynothavetakenanystepsto
ensurethatthesecuritiesreferredtointhisreportaresuitableforanyparticularinvestor.CSwillnottreatrecipientsofthisreportasitscustomersbyvirtueoftheirreceivingthisreport.Theinvestmentsand
servicescontainedorreferredtointhisreportmaynotbesuitableforyouanditisrecommendedthatyouconsultanindependentinvestmentadvisorifyouareindoubtaboutsuchinvestmentsorinvestment
services.Nothinginthisreportconstitutesinvestment,legal,accountingortaxadvice,orarepresentationthatanyinvestmentorstrategyissuitableorappropriatetoyourindividualcircumstances,or
otherwiseconstitutesapersonalrecommendationtoyou.CSdoesnotadviseonthetaxconsequencesofinvestmentsandyouareadvisedtocontactanindependenttaxadviser.Pleasenoteinparticular
thatthebasesandlevelsoftaxationmaychange.InformationandopinionspresentedinthisreporthavebeenobtainedorderivedfromsourcesbelievedbyCStobereliable,butCSmakesnorepresentation
astotheiraccuracyorcompleteness.CSacceptsnoliabilityforlossarisingfromtheuseofthematerialpresentedinthisreport,exceptthatthisexclusionofliabilitydoesnotapplytotheextentthatsuch
liabilityarisesunderspecificstatutesorregulationsapplicabletoCS.Thisreportisnottoberelieduponinsubstitutionfortheexerciseofindependentjudgment.CSmayhaveissued,andmayinthefuture
issue,othercommunicationsthatareinconsistentwith,andreachdifferentconclusionsfrom,theinformationpresentedinthisreport.Thosecommunicationsreflectthedifferentassumptions,viewsand
analyticalmethodsoftheanalystswhopreparedthemandCSisundernoobligationtoensurethatsuchothercommunicationsarebroughttotheattentionofanyrecipientofthisreport.CSmay,totheextent
permittedbylaw,participateorinvestinfinancingtransactionswiththeissuer(s)ofthesecuritiesreferredtointhisreport,performservicesfororsolicitbusinessfromsuchissuers,and/orhaveapositionor
holding,orothermaterialinterest,oreffecttransactions,insuchsecuritiesoroptionsthereon,orotherinvestmentsrelatedthereto.Inaddition,itmaymakemarketsinthesecuritiesmentionedinthematerial
presentedinthisreport.CSmayhave,withinthelastthreeyears,servedasmanagerorco-managerofapublicofferingofsecuritiesfor,orcurrentlymaymakeaprimarymarketinissuesof,anyorallofthe
entitiesmentionedinthisreportormaybeproviding,orhaveprovidedwithintheprevious12months,significantadviceorinvestmentservicesinrelationtotheinvestmentconcernedorarelatedinvestment.
Additionalinformationis,subjecttodutiesofconfidentiality,availableonrequest.Someinvestmentsreferredtointhisreportwillbeofferedsolelybyasingleentityandinthecaseofsomeinvestmentssolely
byCS,oranassociateofCSorCSmaybetheonlymarketmakerinsuchinvestments.Pastperformanceshouldnotbetakenasanindicationorguaranteeoffutureperformance,andnorepresentationor
warranty,expressorimplied,ismaderegardingfutureperformance.Information,opinionsandestimatescontainedinthisreportreflectajudgmentatitsoriginaldateofpublicationbyCSandaresubjectto
changewithoutnotice.Theprice,valueofandincomefromanyofthesecuritiesorfinancialinstrumentsmentionedinthisreportcanfallaswellasrise.Thevalueofsecuritiesandfinancialinstrumentsis
subjecttoexchangeratefluctuationthatmayhaveapositiveoradverseeffectonthepriceorincomeofsuchsecuritiesorfinancialinstruments.InvestorsinsecuritiessuchasADR''s,thevaluesofwhichare
influencedbycurrencyvolatility,effectivelyassumethisrisk.Structuredsecuritiesarecomplexinstruments,typicallyinvolveahighdegreeofriskandareintendedforsaleonlytosophisticatedinvestorswho
arecapableofunderstandingandassumingtherisksinvolved.Themarketvalueofanystructuredsecuritymaybeaffectedbychangesineconomic,financialandpoliticalfactors(including,butnotlimitedto,
spotandforwardinterestandexchangerates),timetomaturity,marketconditionsandvolatility,andthecreditqualityofanyissuerorreferenceissuer.Anyinvestorinterestedinpurchasingastructured
productshouldconducttheirowninvestigationandanalysisoftheproductandconsultwiththeirownprofessionaladvisersastotherisksinvolvedinmakingsuchapurchase.Someinvestmentsdiscussedin
thisreportmayhaveahighlevelofvolatility.Highvolatilityinvestmentsmayexperiencesuddenandlargefallsintheirvaluecausinglosseswhenthatinvestmentisrealised.Thoselossesmayequalyour
originalinvestment.Indeed,inthecaseofsomeinvestmentsthepotentiallossesmayexceedtheamountofinitialinvestmentand,insuchcircumstances,youmayberequiredtopaymoremoneytosupport
thoselosses.Incomeyieldsfrominvestmentsmayfluctuateand,inconsequence,initialcapitalpaidtomaketheinvestmentmaybeusedaspartofthatincomeyield.Someinvestmentsmaynotbereadily
realisableanditmaybedifficulttosellorrealisethoseinvestments,similarlyitmayprovedifficultforyoutoobtainreliableinformationaboutthevalue,orrisks,towhichsuchaninvestmentisexposed.This
reportmayprovidetheaddressesof,orcontainhyperlinksto,websites.ExcepttotheextenttowhichthereportreferstowebsitematerialofCS,CShasnotreviewedanysuchsiteandtakesnoresponsibility
forthecontentcontainedtherein.Suchaddressorhyperlink(includingaddressesorhyperlinkstoCS''sownwebsitematerial)isprovidedsolelyforyourconvenienceandinformationandthecontentofany
suchwebsitedoesnotinanywayformpartofthisdocument.AccessingsuchwebsiteorfollowingsuchlinkthroughthisreportorCS''swebsiteshallbeatyourownrisk.Thisreportisissuedanddistributedin
Europe(exceptSwitzerland)byCreditSuisseSecurities(Europe)Limited,OneCabotSquare,LondonE144QJ,England,whichisauthorisedbythePrudentialRegulationAuthority("PRA")andregulatedby
theFinancialConductAuthority("FCA")andthePRA.ThisreportisbeingdistributedinGermanybyCreditSuisseSecurities(Europe)LimitedNiederlassungFrankfurtamMainregulatedbythe
BundesanstaltfuerFinanzdienstleistungsaufsicht("BaFin").ThisreportisbeingdistributedintheUnitedStatesandCanadabyCreditSuisseSecurities(USA)LLC;inSwitzerlandbyCreditSuisseAG;in
BrazilbyBancodeInvestimentosCreditSuisse(Brasil)S.Aoritsaffiliates;inMexicobyBancoCreditSuisse(México),S.A.(transactionsrelatedtothesecuritiesmentionedinthisreportwillonlybeeffected
incompliancewithapplicableregulation);inJapanbyCreditSuisseSecurities(Japan)Limited,FinancialInstrumentsFirm,Director-GeneralofKantoLocalFinanceBureau(Kinsho)No.66,amemberof
JapanSecuritiesDealersAssociation,TheFinancialFuturesAssociationofJapan,JapanInvestmentAdvisersAssociation,TypeIIFinancialInstrumentsFirmsAssociation;elsewhereinAsia/Pacificby
whicheverofthefollowingistheappropriatelyauthorisedentityintherelevantjurisdiction:CreditSuisse(HongKong)Limited,CreditSuisseEquities(Australia)Limited,CreditSuisseSecurities(Thailand)
Limited,havingregisteredaddressat990AbdulrahimPlace,27Floor,Unit2701,RamaIVRoad,Silom,Bangrak,Bangkok10500,Thailand,Tel.+6626146000,CreditSuisseSecurities(Malaysia)SdnBhd,
CreditSuisseAG,SingaporeBranch,CreditSuisseSecurities(India)PrivateLimitedregulatedbytheSecuritiesandExchangeBoardofIndia(registrationNos.INB230970637;INF230970637;
INB010970631;INF010970631),havingregisteredaddressat9thFloor,CeejayHouse,Dr.A.B.Road,Worli,Mumbai-18,India,T-+91-2267773777,CreditSuisseSecurities(Europe)Limited,Seoul
Branch,CreditSuisseAG,TaipeiSecuritiesBranch,PTCreditSuisseSecuritiesIndonesia,CreditSuisseSecurities(Philippines)Inc.,andelsewhereintheworldbytherelevantauthorisedaffiliateofthe
above.ResearchonTaiwanesesecuritiesproducedbyCreditSuisseAG,TaipeiSecuritiesBranchhasbeenpreparedbyaregisteredSeniorBusinessPerson.ResearchprovidedtoresidentsofMalaysiais
authorisedbytheHeadofResearchforCreditSuisseSecurities(Malaysia)SdnBhd,towhomtheyshoulddirectanyquerieson+60327232020.Thisreporthasbeenpreparedandissuedfordistributionin
Singaporetoinstitutionalinvestors,accreditedinvestorsandexpertinvestors(eachasdefinedundertheFinancialAdvisersRegulations)only,andisalsodistributedbyCreditSuisseAG,Singaporebranchto
overseasinvestors(asdefinedundertheFinancialAdvisersRegulations).Byvirtueofyourstatusasaninstitutionalinvestor,accreditedinvestor,expertinvestororoverseasinvestor,CreditSuisseAG,
SingaporebranchisexemptedfromcomplyingwithcertaincompliancerequirementsundertheFinancialAdvisersAct,Chapter110ofSingapore(the"FAA"),theFinancialAdvisersRegulationsandthe
relevantNoticesandGuidelinesissuedthereunder,inrespectofanyfinancialadvisoryservicewhichCreditSuisseAG,Singaporebranchmayprovidetoyou.ThisresearchmaynotconformtoCanadian
disclosurerequirements.InjurisdictionswhereCSisnotalreadyregisteredorlicensedtotradeinsecurities,transactionswillonlybeeffectedinaccordancewithapplicablesecuritieslegislation,whichwillvary
fromjurisdictiontojurisdictionandmayrequirethatthetradebemadeinaccordancewithapplicableexemptionsfromregistrationorlicensingrequirements.Non-U.S.customerswishingtoeffectatransaction
shouldcontactaCSentityintheirlocaljurisdictionunlessgoverninglawpermitsotherwise.U.S.customerswishingtoeffectatransactionshoulddosoonlybycontactingarepresentativeatCreditSuisse
Securities(USA)LLCintheU.S.PleasenotethatthisresearchwasoriginallypreparedandissuedbyCSfordistributiontotheirmarketprofessionalandinstitutionalinvestorcustomers.Recipientswhoare
notmarketprofessionalorinstitutionalinvestorcustomersofCSshouldseektheadviceoftheirindependentfinancialadvisorpriortotakinganyinvestmentdecisionbasedonthisreportorforanynecessary
explanationofitscontents.ThisresearchmayrelatetoinvestmentsorservicesofapersonoutsideoftheUKortoothermatterswhicharenotauthorisedbythePRAandregulatedbytheFCAandthePRA
orinrespectofwhichtheprotectionsofthePRAandFCAforprivatecustomersand/ortheUKcompensationschememaynotbeavailable,andfurtherdetailsastowherethismaybethecaseareavailable
uponrequestinrespectofthisreport.CSmayprovidevariousservicestoUSmunicipalentitiesorobligatedpersons("municipalities"),includingsuggestingindividualtransactionsortradesandenteringinto
suchtransactions.AnyservicesCSprovidestomunicipalitiesarenotviewedas"advice"withinthemeaningofSection975oftheDodd-FrankWallStreetReformandConsumerProtectionAct.CSis
providinganysuchservicesandrelatedinformationsolelyonanarm''slengthbasisandnotasanadvisororfiduciarytothemunicipality.Inconnectionwiththeprovisionoftheanysuchservices,thereisno
agreement,directorindirect,betweenanymunicipality(includingtheofficials,management,employeesoragentsthereof)andCSforCStoprovideadvicetothemunicipality.Municipalitiesshouldconsult
withtheirfinancial,accountingandlegaladvisorsregardinganysuchservicesprovidedbyCS.Inaddition,CSisnotactingfordirectorindirectcompensationtosolicitthemunicipalityonbehalfofan
unaffiliatedbroker,dealer,municipalsecuritiesdealer,municipaladvisor,orinvestmentadviserforthepurposeofobtainingorretaininganengagementbythemunicipalityfororinconnectionwithMunicipal
FinancialProducts,theissuanceofmunicipalsecurities,orofaninvestmentadvisertoprovideinvestmentadvisoryservicestooronbehalfofthemunicipality.Ifthisreportisbeingdistributedbyafinancial
institutionotherthanCreditSuisseAG,oritsaffiliates,thatfinancialinstitutionissolelyresponsiblefordistribution.Clientsofthatinstitutionshouldcontactthatinstitutiontoeffectatransactioninthesecurities
mentionedinthisreportorrequirefurtherinformation.ThisreportdoesnotconstituteinvestmentadvicebyCreditSuissetotheclientsofthedistributingfinancialinstitution,andneitherCreditSuisseAG,its
affiliates,andtheirrespectiveofficers,directorsandemployeesacceptanyliabilitywhatsoeverforanydirectorconsequentiallossarisingfromtheiruseofthisreportoritscontent.Principalisnotguaranteed.
Commissionisthecommissionrateortheamountagreedwithacustomerwhensettingupanaccountoratanytimeafterthat.
Copyright?2013CREDITSUISSEAGand/oritsaffiliates.Allrightsreserved.
Investmentprincipalonbondscanbeerodeddependingonsalepriceormarketprice.Inaddition,therearebondsonwhichinvestmentprincipalcan
beerodedduetochangesinredemptionamounts.Careisrequiredwheninvestinginsuchinstruments.
Whenyoupurchasenon-listedJapanesefixedincomesecurities(Japanesegovernmentbonds,Japanesemunicipalbonds,Japanesegovernmentguaranteedbonds,Japanesecorporatebonds)fromCS
asaseller,youwillberequestedtopaythepurchasepriceonly.
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