Part 1 EQUITIES
China – Beyond the Olympic Games
The Olympic Games in Beijing, starting on 8 August for two full weeks, will contribute to make
China an even more popular topic of discussion worldwide this summer. However, this year
will stand out for the country in many respects: Olympic Games, disastrous earthquake and
changes in the economic panorama. The Beijing Games are coming at a time of growing
concern regarding economic growth, inflation, and the social situation in China. Indeed,
following a slowdown over the past quarter related to softer external demand, Chinese growth
will be more impacted from July because of widespread factory shutdowns to reduce
pollution. Food price inflation is running at around 9%, a consequence of global inflation and
specific domestic factors. This, combined with other regional claims, not to mention the
consequences of the Sichuan earthquake, could make social unrest more visible.
In short, while investors’ stance on China was almost unanimously positive until last year, it
has become more neutral or even negative. However, faced with the economic “recession” in
the US, the European slowdown, and the ever-present financial crisis, we believe that China,
as well as a good number of emerging markets, will continue to offer higher growth in both the
short and long term. In absolute terms, the situation is deteriorating in China, but in relative
terms, Chinese economic performance will remain well above that of other industrial countries.
We reiterate our view that international groups, among them the European companies, must
remain and continue to invest in the region.
Over the past quarter, we have published several pan-sector reports, focusing on today’s
major investment issues, including What if the bears are right? in September 2007, Emerging
Attraction (December 2007) analysing the exposure of European companies to emerging
markets, Recession – The bears are right (February 2008) where we established the impact of
the economic slowdown on sector stocks, and, less than two months ago (28/03/08), Beyond
the crisis in which we provided a stock selection for the long term. In this report, we integrate
and update these three documents together in order to select shares benefiting from Chinese
growth, with a limited impact from the current crisis, and showing an attractive long-term
valuation. The list below is the result of this triple screening.

3 Part 1 EQUITIES
China – Beyond the Olympic Games
5 Chinese economy at a glance - 2008-09
6 Risks
8 Step 1: stocks with rising contribution from China
12 Step 2: stocks with a limited impact from a recession in the industrial countries
13 Step 3: undervalued stocks on fundamental LT view
14 Conclusion
15 Appendix
19 Part 2 ECONOMY
How will Chinese growth play out in the face of softer external demand?
20 Overview
26 Summary of G3 forecasts
31 The nature of the slowdown in external demand
50 Summary of impact on China in 2008-09
6 Risks