What could go wrong: We, like many other market participants, share a positive secular view of China’s
economic outlook over the medium and long term. However, faced with the vagaries of the economic and
financial market developments over the last two years, we are as humbled by the cruelty of short-run
unpredictable events as we are emboldened by our strong conviction in a long-run secular story.

What we do not do: Making a call on the potentia developments of uncertain macroeconomic events is a
key part of our job. However, it is not our style to make a call on the potential outcome of an inherently
low-probability or high-uncertainty event with false conviction, only hoping to somehow hit the mark.

What we CAN do: We are launching the China Macro Risk Radar (CMRR) as a new research product under
China Macro AlphaWise initiative. The key purpose of CMRR is to provide a framework to systematically
assess and monitor risk events of low probability but potentially high impact. A risk event will be put on our
radar screen if it meets two criteria simultaneously: 1) of material macroeconomic impact if materialized; and
2) of at least 20% probability. A risk event will drop off the radar screen if: 1) its probability drops below 20%; or
2) if its probability rises above 50%. A move to the latter case would warrant us to make a formal call on the risk
event.

Ten risk events: In this inaugural report, we assigned 10 risk events to four categories on the CMRR. Each risk
event is assessed according to six aspects, including its description, content, potential impact, likelihood,
timeframe, and evolving direction. The 10 risk eventsare: Massive NPLs, Local Government Default, Economic
Hard Landing, Introduction of Property Tax, Resource Tax Reform, Sharp Wage Increase, Property
Price Bubble Burst, Commodity Price Spike, European Sovereign Debt Crisis Redux, and Intensification of
Trade Protectionism.