COUNTRY RISK ASSESSMENT China & Japan Eliza Bogucka Magdalena Mirek Dominika Dunin - Szpotańska

AGENDA Introduction Theory according to financial risk Case study: China Case study: Japan Conclusions

Financial Risk Financial risk can be defined as the possibility of losing money or not receiving the whole amount invested in particular project. (It may be investing in stocks, bonds, treasury bills, diverse sets of portfolio, etc.)

Types of Risk political risk exchange risk inflation risk, interest rate risk

What we consider when assessing risk

We will focus on… GCI index Economic Freedom HDI Country Rating (Coface)

Japan – Quick Facts million population Second largest economy GDP 1.8% 5-year compound annual growth 5.7% unemployment 0.0% inflation FDI inflow $ million

Strengths Current account surplus Reduction of debt in banks and companies R&D spending

Weaknesses Ageing of population Social inequality Dependence on imports of raw materials and food Low productivity of small companies

Insolvency Trends

Emerging countries - resistance to the US slowdown

China – Quick Facts 1.3 billion population 3rd largest economy in the world Average GDP growth rate 11.1% Average per capita income annual growth rate of more than 8% Unemployment 4% Inflation 4.8% FDI inflow $69.5 billion $585 billion US treasury securities vs Japan’s $573 billion

Strengths Competitive and diversified industry Foreign investments facilitate rapid expansion Infrastructure development High corporate savings

Weaknesses Inequality Environmental problems Weak banks Overcapacity

Threat of Inflation?

Global Competitiveness Index The set of institutions, policies, and factors that determine the level of productivity of a country. YearsChina’s Rank (of 133) China’s Score (1-7) Japan’s Rank (of 133) Japan’s Score (1-7) GCI 2009– ,4 GCI 2008– GCI 2007–

Economic Freedom China – 132nd in the world Japan – 19th in the world

Human Development Index Measure of life expectancy, literacy, education, and standards of living. China 92nd rank (developing) Japan 10th rank (very high)

Country & Business Climate Rating Country Rating A3 Business Climate Rating B China Country Rating A2 Business Climate Rating A1 Japan

China Overall Risk Assessment Economic Slowdown in 2008 slowdown of exports and domestic demand falling demand from industrialised countries reduced investment Recovery in 2009 expansionary monetary policy GDP growth in Q2 2009,reached 7.9% due to domestic demand

Japan Overall Risk Assessment Fall of economic growth in 2009 – decline in exports and investments Decline in household consumption and disposable income Rise of unemployment Fiscal deficit (-6.7% of GDP) and public debt (185% of GDP)

Conclusions Economic growth of China will continue in 2010 Investment drives economic activity Foreign trade contributes positively Japan suffers from recession Fall of corporate profits to their lowest since 1983