2 October 2015 Global Economic Perspectives: A hard landing in China? Figure 14: Government expenditure 40 35 30 26 20 16 10 o %yoy di I A -5 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Sources CP exIdeurethe Beek Rewards !Figure 15: Credit growth (loans vs total social Financing) 40 1 %yoy 35 1 30 25 15 4 10 • 5 • 14 15 03 —Loans 04 05 06 07 08 09 10 11 12 13 14 15 Sources CEIC•no.O*-fach•SteaRessedi Mn themesanaltelolleciPanorckvpraritorn sisowbennettiesenffizeschlorxenverdequoVitanebyrendleorteisifenst But we are more intrigued by developments in the property market. Our view all along has been that the decline in property purchases, investment and then prices over the past two years reflected mostly cyclical factors. Property had gotten too expensive and it was getting increasingly difficult to get financing or approval to buy property in late 2013. As home purchase restrictions have been removed in most cities, interest rates have been cut and incomes have continued to grow, albeit relatively slowly, demand for property revived. This happened first in the Tier 1 cities about a year ago but spread to Tier 2 cities early this year and now even in some smaller cities prices are edging higher. By August, prices were rising in 37 of the 70 cities the NBS surveys each month, a 16-month high. The recovery in the market in terms of breadth across the country is almost as rapid as it was in 2012. (Figure 16: Proportion of 70 cities where prices are rasing, falling or unchanged 100% 90% 80% 70% 60% 60% 40% 30% 20% 10% 0% 2011 2012 2013 2014 2015 SovoeiNswies-40ftertio&nkRoomot •Rising • Unchanged Falling We take the individual city price indexes, weight them by their populations and construct price indexes for the 70-city group and for sub-groups. Figure 17 reports the 70-city price index and the Tier 1 city price index. It shows that in the larger cities on average prices are now rising at nearly a 10%yoy pace. Nationwide, prices are still below where they were a year ago, but they're up about 2% in the past four months. Page 10 Deutsche Bank Securities Inc. CONFIDENTIAL — PURSUANT TO FED. R. CRIM. P. 6(e) DB-SDNY-0118534 CONFIDENTIAL SDNY_GM_00264718 EFTA01458561