You asked for the following economic information regarding China and India:

This memo provides the requested information with regard to China. We will expand on this memo shortly to provide information regarding India.

ECONOMIC DATA-CHINA

The People’s Republic of China is the fastest growing major economy in the world. In 2003 its gross domestic product (GDP--the most commonly used measure of the size of a nation’s economy) grew by 9. 1% over 2002. In the first half of 2004, the GDP grew an annual rate of 9. 7%. But, the Conference Board, a major economic forecasting organization, projects that the annual growth rate will fall to 8. 6% in 2004 and 7. 7% in 2005. Part of this slowdown is attributable to the Chinese government’s decision to diminish the risk of inflation by reducing its investments in steel, concrete, real estate and other overheated segments of the economy. Another factor behind the projected slowdown is the increase in energy prices.

Rapid economic growth in China, which accounts for approximately 30% of global demand for steel, is one of many factors behind the recent increase in U. S. steel prices. The current U. S. price of hot rolled steel coil (a major product on the steel market) is more than $ 700 a ton, a 125% increase in the past 12 months. In the third quarter of 2001, the price of this product was $ 225 per ton. Other factors leading to the price increase is the economic recovery in the U. S. , Japan, and Europe; higher energy costs; shortages of raw materials used in producing steel, notably coke. Part of the increase in the U. S. price has been due to the declining value of the dollar versus other major currencies.

China is one the United States’ largest trading partners and has routinely run large trade surpluses with the U. S. For the first six months of 2004, China ran a $ 68. 5 billion surplus in its trade with the United States, according to the U. S. Department of Commerce. In 2003, the annual figure was $ 124 billion and in 2002, the surplus was $ 103 billion.

China is the world’s second largest consumer of oil after the United States. From January to May 2004, it consumed 118 million metric tons of oil, of which 50 million tons were imported. In June 2004, China imported 2. 8 million barrels of oil per day, 47% above the June 2003 figure. In contrast, China imported 1. 8 million barrels per day in 2001. Consumption is expected to continue to grow this year, although the recent increase in the world price of oil will likely slow the rate of increase.

The Chinese Academy of Social Sciences estimates that the Chinese middle class accounted for 19% of the population in 2003. This proportion has increased by one percentage point each year since 1999. The academy considers a household to be middle class if it has assets of between 150,000 and 300,000 yuan (approximately $ 18,000 to $ 36,000). At the current rate of growth, the academy projects that 40% of Chinese households will be middle class by 2020. Similarly, the State Information Centre has estimated that by 2005, approximately 200 million of China’s 1. 1 billion people would be middle income by 2005, able to buy houses and cars and go on vacation.

KM: ts