Inside Caltech Example of Private Placement Activity in China Industrial Relations Center December 5, 2013 Tom Korzenecki, Principal Managing Director Grand Avenue Capital-Asia Member FINRA (NASD)

Typical Factors found in Chinese Companies Complex ownership relationships involving private parties and individuals, state ownership and public entities For the most part, exports from China meet or exceed Quality, Product Performance, and Technical requirements, typically at lower cost Banking relations are looser relative to Western practices….credit, number of lenders to individual companies, high leverage…… fast growing companies need equity to ultimately go IPO offshore Tax advantages and 5-year tax holidays for “high tech” industries and those catering to exports: 0% - 15% -15% -30% -30%......new subsidiaries will start 0% tax rate again Labor rates are low: $0.65/hr straight time typical….straight time + overtime ~ 300 hours per month……$0.87/hr blended rate….Shanghai (western areas less) Management typically has strong work ethic, driven, entrepreneurial and much wealth being created laws and regulations favor controlled capitalism but are in flux, changing gradually Growth rates and CAPEX seem to defy Western paradigms….the idea that capital intensive businesses can be perpetually over capacity hasn’t sunk in Inside Caltech

Typical ownership: state, individuals inside/outside PRC, public companies…..often all together….high complexity

Elements of China-based private placements Private Equity groups seeking 30+% IRR…holding periods less than in West How to exit remains primary consideration…..IPO offshore preferred, but IPO inside PRC not unattractive now…..69x average PE Shanghai exchange. control investments are less likely desired by investee…..substantial minority investments are the norm…..very unlike PEG in West politically sensitive “national treasure” industries or companies are harder to invest in (Carlyle in PRC equivalent of CAT, banks, media, etc.) PRC trying to accomplish in 15 years what we have accomplished in 100 years…..the Chery is coming to the US in 2009! Inside Caltech