CHINA VIP REPORT Sample Report (China) Co., Ltd. D-U-N-S 52-XXX-1277 Prepared for 927XXXXXX Presented by Huaxia D&B China Date Dec.28, 2012 CHINA VIP REPORT Dear Customer, Thank you for your inquiry to Huaxia D&B China. The following China VIP Report was prepared in response to your request for the information on Sample Report (China) Co., Ltd. . If you require further information or have any questions, please contact our Customer Service Center. Sincerely, Customized Reporting RMS Operations, Huaxia D&B China Tel: (8621) 2321 3928 E-address: [email protected] -1- CHINA VIP REPORT Table of Contents 1. OVERVIEW .....................................................................................................................- 4 - 1.1 Executive Summary ............................................................................................................. - 4 - 1.2 Company Highlights ............................................................................................................ - 5 - 1.3 Credit Capacity Assessment ................................................................................................. - 6 - 1.4 Industry Norm Grouping ...................................................................................................... - 7 - 1.5 Risk Assessment Matrix ....................................................................................................... - 8 - 2. COMPANY HISTORY .....................................................................................................- 9 - 2.1 Business Registration ........................................................................................................... - 9 - 2.2 Shareholding Structure ....................................................................................................... - 10 - 3. CORPORATION STRUCTURE .................................................................................... - 11 - 3.1 Corporation Organization ....................................................................................................- 11 - 3.2 Principals............................................................................................................................ - 12 - 4. BANK INFORMATION & PUBLIC RECORDS .............................................................- 12 - 4.1 Bank Information ............................................................................................................... - 12 - 4.2 Litigation Records .............................................................................................................. - 12 - 4.3 Media & Internet Exposure ................................................................................................ - 13 - 5. PAYMENT INFORMATION ...........................................................................................- 14 - 5.1 D&B Paydex ...................................................................................................................... - 14 - 5.2 Trade Payment Information................................................................................................ - 15 - 5.3 Trade Payment Experiences Details ................................................................................... - 16 - 5.4 Industry Payment Information ........................................................................................... - 17 - 5.5 Trade Payment Industry Comparison ................................................................................. - 17 - 6. COMPANY OPERATION ..............................................................................................- 18 - 6.1 Line of Business ................................................................................................................. - 18 - 6.2 Products Information.......................................................................................................... - 18 - 6.3 Awards & Certificates ........................................................................................................ - 20 - 6.4 Location ............................................................................................................................. - 20 - 6.5 Employee Size.................................................................................................................... - 20 - 6.6 Affiliates & Branches ......................................................................................................... - 21 - 7. SHAREHOLDER INFORMATION ................................................................................- 22 - 8. PROVINCE BACKGROUND ........................................................................................- 23 - 9. COMPETITIVENESS ANALYSIS .................................................................................- 25 - 10 INDUSTRY ANALYSIS ................................................................................................- 27 - 11. APPENDIX ..................................................................................................................- 36 - HDBC EMMA Score ............................................................................................................. - 36 - -2- CHINA VIP REPORT D&B Rating ........................................................................................................................... - 39 - Explanation of PAYDEX ..................................................................................................... - 40 - Glossary of Terms ............................................................................................................... - 41 - -3- CHINA VIP REPORT 1. OVERVIEW 1.1 Executive Summary Subject was co-invested as a limited company by China ABC Co., Ltd and China KC Co., Ltd, specially engaged in manufacturing automotives parts. Subject was established in Sep. 1994 and was put into production in January 1995. As the A-class supplier and the major factory for completer sets of equipments of Shanghai Sample Automotive Co., Ltd, subject is also providing products for NAVECO, Guangdong Fengshen, Wuhu Cherry and Shanghai Kaili Air-condition. The products of subject enjoy good quality guaranty. Subject was awarded with in July 1998 ISO9002 certificate, VDA6.1, QS90000 and TS16949:2002. In Oct. 2002, subject was awarded ISO14001 environmental protection certificate。 In June 2001, subject invested Shanghai VIP Sample Sales Co., Ltd. with shares of 20.73%, together with China DJ Auto Company (19.92%), Other company (8.31%) and other 36 individuals (51.22%). Shanghai VIP Sample Sales Co., Ltd. was established as a limited company with the registered capital of RMB 2,460,000, mainly engaged in provide after-sales services. The legal representative id Wang Yi. According to overall credit condition, subject was rated a D&B rating of 4AA1, and its Risk Index was rated at EMMA SOCRE 1, which means Much Lower Risk. -4- CHINA VIP REPORT 1.2 Company Highlights SUBJECT Sample Report (China) Co., Ltd. D-U-N-S 52-XXX-1277 ADDRESS No.188, Huancheng (E) Rd., Fengxian Dist.Shanghai, 201319 TEL (86) 021 12345678 FAX (86) 021 12245677 Website www.vip.com CHIEF EXECUTIVE Jiashu WANG/ General Manager & Legal Representative STARTED 1994 LINE OF BUSINESS Manufacturing and selling automobile parts US SIC CODE 3714 9900 INDUSTRY Motor vehicle parts and accessories LEGAL STATUS a limited company EMPLOYEE 400 (Total) REGISTERED CAPITAL RMB 210,400,000 HISTORY Clear D&B RATING 4AA1 EMMA SCORE 1 (Much lower risk) * All monetary amounts quoted in this report are shown in Renminbi(RMB) unless otherwise stated. -5- CHINA VIP REPORT 1.3 Credit Capacity Assessment D&B RATING: 4AA1 RATING CLASSIFICATION: 4AA The D&B rating for the company is 4AA, which indicates Registered Capital between 85,000,000 and 449,000,000. THE COMPOSITE CREDIT APPRAISAL: 1 The composite credit appraisal of the company is 1, which indicates an overall credit condition which is considered strong. HDBC EMMA SCORE: 1 Range EMMA Score % of Report in Database % of High Risk Business Commentary Low Risk Scores 1-3 28.9% 5.7% Lower Risk Range Medium Risk Scores 4-7 56.7% 9.1% Average Risk Range High Risk Scores 8-10 14.4% 36.4% High Risk Range RISK ANALYSIS Subject is rated good scores in the following aspects in all risk factors, which lowers its overall risk level: Subject's registered capital is RMB 210,400,000, which is in the higher level range, indicating a lower risk. Subject has a long history of 18 years, donating a lower risk level. Subject is a limited company, which is classified as a lower risk type of business. By evaluating all risk factors, the company is assigned with EMMA score of "1", indicating "Much Lower Risk". -6- CHINA VIP REPORT 1.4 Industry Norm Grouping Industry Group SIC 3714 Industry Group Description Motor vehicle parts and accessories Industry Group EMMA Score Quartile Values Lower Quartile 4 Median 5 Upper Quartile 6 COMPANY RISK VS INDUSTRY NORM CHART DISTRIBUTION OF EMMA SOCRE IN HDBC CHINA’S DATABASE EMMA Score Trend (Company vs Industry Norm) Month 2011/7 2011/8 2011/9 2011/102011/112011/122012/12012/22012/3 2012/4 2012/5 2012/6 Company 5 1 1 1 1 1 4 3 1 2 2 1 Industry 5 5 5 5 5 5 5 5 5 5 5 5 -7- CHINA VIP REPORT 1.5 Risk Assessment Matrix Risk Assessment Matrix Risk Range Low Medium High (EMMA 1 - 3) (EMMA 4 - 7) (EMMA 8 - 10) BA CA PAYDEX AA (Subject lies in this PAYDEX>=80 group) 80>PAYDEX>=60 AB BB CB PAYDEX<60 AC BC CC Risk Assessment Matrix Analysis Classifications Quality group Low risk group Risk Level AA->AB BA->BB->AC Description Business is sound, and the bills are paid promptly with good credit reputation. Business is operated under low risk, and some delay payment behaviors exist. Credit Policy Favorable credit policy can be granted with automatic approval. Appropriate credit policy is suggested with some manual review. Business is operated under high risk, and Relatively strict credit policy is High risk group CA->BC->CB some severe delay payment behaviors exist. manual review. Business is run under high risk or with Monitoring group CC suggested with detailed high possibility of windup, and the bills are unable to be paid in time. Avoid credit sales. Cash settlement is suggested. *Risk levels are listed in order of risk from low to high. According to the Risk Assessment Matrix, subject is rated as “AA”, which represents the subject belongs to the quality group: The risk level of the subject is low, which reveals its business risk is relatively lower than the average level amid all Chinese enterprises; The PAYDEX® of subject/industry indicates that most of the bills are paid promptly, rarely with any delay, and the credit reputation of subject/industry is decent; Subject is rated as a quality company due to its sound operation, prompt payment, low risk level and good credit reputation. Therefore, subject is recommended to be granted with relative favorable credit policy. -8- CHINA VIP REPORT 2. COMPANY HISTORY 2.1 Business Registration Registration Date Sep 02,1994 Registered At Shanghai Fengxian Administration for Industry & Commerce Registration No 3100400345678 National Organization Code 234567890 Tax No. 310111234567890 Registered Capital RMB 210,400,000 Start Date 1994 Type of Business a limited company Registered Address No.179 Huancheng (E) Rd.,Fengxian Dist.,Shanghai Legal Representative Wang Jiashu Automobile parts, import and export of commodity and Business Scope technology, establishing branches and affiliates.(subject to the license, if a license is needed) Administration for Industry & Commerce is a government entity subordinating to the State Council. It is in charge of the market supervision, management and other related administrative law enforcement affairs. Its major responsibilities include but not limit to organizing and managing the business registration, checking and ratifying registered company names, examining, approving and issuing relevant licenses for enterprises of all types (including foreign invested enterprises) and other business units, individuals and foreign (regional) enterprises representative organizations. Limited Company (or Limited Liability Companies) refers to companies with less than 50 -9- CHINA VIP REPORT shareholders. The shareholders of a limited company shall assume liability towards the extent of their respective capital contributions, and the company shall be liable for its debts to the extent of all its assets. 2.2 Shareholding Structure Name Country Shares Investment Mode Paid-Up Rate China ABC Co., Ltd China 70% Cash Fully paid China KC Co., Ltd China 30% Cash Fully paid Total 100% Note: Subject passed the annual inspection of 2011 with Administration for Industry & Commerce. - 10 - CHINA VIP REPORT 3. CORPORATION STRUCTURE 3.1 Corporation Organization China sample Industry Corporation China KC Co., Ltd China ABC Co., Ltd 30% 70% Sample Report (China) Co., Ltd. 20.92% Technology Finance Production Purchase Marketing Dept.. Dept.. Dept.. Dept.. Dept.. Office Shanghai VIP Sample Sales Co., Ltd. Exhaust System Technology Center - 11 - 20.73% CHINA VIP REPORT 3.2 Principals Wang Jiashu Activity Status: Yes Related Working Experience 5 years+ 4. BANK INFORMATION & PUBLIC RECORDS 4.1 Bank Information The company maintains relationship(s) with the following bank(s) in China: The Agricultural Bank of China, Shanghai Fengxian Dist. Sub Branch Address No.200,Changji Rd., Anting Town, Shanghai Telephone 021-87654321 4.2 Litigation Records Up to June 3, 2012, HDBC has searched the China Court website, website of local court in the place where subject is located, major domestic courts nets as well as our internal China court database, but no related court records can be found against the subject during current investigation. Note: All the above channels are the information channels through which can publicly obtain the litigation records of Chinese enterprises. However, some cases related to subject might be omitted due to the absence of the database covering all enterprise litigation information in Mainland China for inquiry. - 12 - CHINA VIP REPORT 4.3 Media & Internet Exposure Company Name Sample Report (China) Co., Ltd. Publication: SINA.COM Date: Mar. 25, 2011 News: The market share of automotive parts manufactured by Subject is around 20%. Linkage: http://www.sina.com.hk/search?hl=zh-CN&source=hp&q Publication: FINANCE.COM Date: Mar. 25, 2011 News: Subject has signed an agreement with GE Company and will establish strategic relationship in business development. Linkage: http://www.finance.com.hk/search?hl=zh-CN&source Note Media information we focus on: Key Event:Bank account frozen, merge, purchase, bankruptcy, out of business, assets reorganization, restructured, property right transfer, reformed, listed, delisted and etc. Ranking: Industrial ranking, top 500 list, customs red or black lists other industrial rankings. Negative news: Principal’s bribery, arrest, corruption, absconding with money; Poor quality products, complaints, litigation; Default funds on account, delinquency, tax evasion, issuing false invoice, contract dispute, violation of regulations, compensation, smuggle and etc. Operation:New product launched, new patents granted, quality certificates awarded and etc. Court information we focus on: All court records, either sentenced or under cognizance, with subject company as the defendant or plaintiff, including intellectual asset in the form of copyright and/or patent, civil case, economic sentence, fraud, bankruptcy, bribery, contract dispute, compensation, laboring dispute, damage compensation and so on. - 13 - CHINA VIP REPORT 5. PAYMENT INFORMATION 5.1 D&B Paydex The D&B PAYDEX® is a unique indicator of payment performance weighted by the monetary value of the payment experiences as reported to D&B by trade references. A detailed explaination of how to read and interpret PAYDEX values can be found in the Appendices section of this report. D&B PAYDEX® Trend(Company vs Industry Norm) Month 2011/7 2011/8 2011/9 2011/10 2011/11 2011/12 2012/12012/22012/3 2012/4 2012/5 2012/6 Company 75 76 76 77 78 78 78 79 79 79 80 80 Industry 72 72 73 72 72 71 72 71 71 71 71 71 - 14 - CHINA VIP REPORT 5.2 Trade Payment Information - 15 - CHINA VIP REPORT 5.3 Trade Payment Experiences Details - 16 - CHINA VIP REPORT 5.4 Industry Payment Information According to the statistics collected by Huaxia D&B during the recent 12 months (2011.10-2012.9), the timely payment rates of automobile and parts industry of the past 12 months are mainly between 55% and 60%, indicating that the payment performance of this industry is stable. In terms of payment records, the average overdue terms from Q4, 2011 to Q3, 2012 was 19 days. The timely payment rate and the overdue rate were 56.77% and 32.61%, which almost equal to Q3, 2012 (59.03% and 30.08%), indicating a stable situation of the industry. Moreover, 18.75% of the payment amount was delayed. The overdue term of 1-30 days has the largest proportion. Overall, the payment performance of the automobile and auto parts industry is stable in the recent 12 months, indicating a steady condition of the market, which might result from the rebound of automobile sales this year. 5.5 Trade Payment Industry Comparison - 17 - CHINA VIP REPORT 6. COMPANY OPERATION 6.1 Line of Business Subject is mainly engaged in manufacturing and selling automobile parts 6.2 Products Information 6.2.1 Products Category Product Name Productivity Usage Products A / / Products B / / 6.2.2 Purchasing Information Area Percent Region Local 100% East China Terms PERIOD Percent Credit 30 days / Contract / Advance / - 18 - CHINA VIP REPORT Major Suppliers Area Name DUNS Domestic Supplier A Co., Ltd. 42-000-1234 Domestic Supplier B Co., Ld. 66-000-1234 6.2.3 Selling Information Area Percent Region/Country Local 60% East China Overseas 40% Japan, USA, Europe Terms Period Percent T/T L/S Credit 30-90 days Major Customers Region Name DUNS Local Shanghai Customer Co., Ltd. 65-012-3456 - 19 - CHINA VIP REPORT 6.3 Awards & Certificates Awards Year Awards 2001 Top 500 Industry Enterprise of Sales 2006 Member of China Auto Association Committee License Import & Export License Certificates ISO9002 VDA6.1 ISO/TS 16949:2002 QS90000 6.4 Location Location Description An industry area Land Area 66000 sqm Used as Office and factory Occupation Type Owns 6.5 Employee Size Total Employees 400 Note: 50 technicians - 20 - CHINA VIP REPORT 6.6 Affiliates & Branches 【Affiliates】 『Name』 Shanghai VIP Sample Sales Co., Ltd. 『Address』 No. 1111, Fangtai Town, Jiading District, Shanghai 『TEL』 021-61234567 『Shares held by Subject』 20.73% - 21 - CHINA VIP REPORT 7. SHAREHOLDER INFORMATION Shareholders of Subject Company Name China ABC Co., Ltd DUNS 65-XXX-1111 Address Tangdian Luzao, Nanhui County, Shanghai China TEL 021-58791635 FAX 021-58161568 Type of Business State owned company Shares Held in 70% Subject Company Overview China ABC Co., Ltd is wholly owned by China sample Industry Corporation, mainly engaged in manufacturing automobile products. It was awarded as the large-scaled state-owned company, class Ⅱ national company, China Star company, one of the Top 100 Enterprises of Environment Protection in China, and AAA Grade enterprise of quality, service and goodwill. It is also the member of the jointly owned company by China Auto Industry Sales Services Company and China Auto Parts Industry Company. The annual sales are over RMB 500,000,000. Company Name China KC Co., Ltd DUNS 66-009-7890 Address Jichang Road, Jiading District, Shanghai China TEL 021 87654321 Shares Held in 30% Subject - 22 - CHINA VIP REPORT 8. PROVINCE BACKGROUND Shanghai Geological Characters East China, Yangtze River Delta, Coastal Area Area (square kilometers) 6,340.5 Population (as end of 2011) million 1,858 Position in the national economy One of four municipalities; the largest city and the economic centre, financial center and logistic center in China Major Industry Sectors Automobile industry, petrochemical and fine chemical industry, high-rank steel products, complete set of equipment manufacturing and biological & pharmaceutical industry Key Economic Indicators 2011 2010 1,369.8 1,200.1 9.7 13.3 0.8 0.8 45.5 47.3 53.7 51.9 482.7 445.86 8.3 13.6 105.8 103.2 212.91 192.43 10.3 18.6 393.65 328.48 19.9 23.2 3,748 4,206 Number of FDI Growth (%) -10.9 -3.6 Contracted FDI (USD billion) 17.11 14.87 GDP Value (RMB billion) GDP Growth Rate (%) GDP Composition: Agricultural Sector Industry & Construction Sector Service & Trading Sector Fixed Assets Investment (RMB billion) Fixed Assessment Growth (%) Consumer Price Index (pre. Yr=100) Import Volume (USD billion) Import Growth (%) Export Volume (USD billion) Export Growth (%) Number of FDI Projects Approved - 23 - CHINA VIP REPORT 15.1 Foreign Investment Growth (%) - 24 - 2.0 CHINA VIP REPORT 9. COMPETITIVENESS ANALYSIS Threats Opportunities *Automotive Industry has been listed among *The demand on automotives plunged Influence by the financial crisis, the demand the National Top 10 Plans for Industry on automotives plunged and the global Revitalization & one of the key industries market shows decaying trend. It is deemed sponsored by Shanghai Municipality that Government the productivity and sales of In recent years, the national automotive External Factors automotives will descend in 2010.。 production and sales have made great *End of the Rocketing Era for China Auto progress. And the improvement of domestic Industry living condition as well as the governmental Since 2002, the automotive market in China encouraging on domestic demands leave has been keeping rocketing for six years, more space for auto industry growth. At the with the growth rate greatly exceeding same time, the service industry supporting GDP. But the space was slowing down automotive industry will be urged, too. In a from the later half of 2008. The more and totally mature international auto market, the more gloomy trend of the domestic auto profit shares for vehicle and auto account for production 20% respectively. There are profit shares fundamentally and the sales, fast curbed growth of enterprises of complete sets of parts. - 25 - available for sedan parts and the auto services suppliers. CHINA VIP REPORT Internal Factors Weakness Strength *Squeezing industry profit margin *Leading position of science and technology, The price decision mechanisms of upper and with lower auto parts are different; leading to the The company started in R&D, relying on science profit space of parts industry is squeezed. The and technology innovation, strengthen the imbalance parts development of new products and internal enterprises and car enterprises result in the management, excellent product performance, inferior position of auto parts industry in the powerful industry chain, which cannot be fundamentally "environmental changed. Due to the manufacturers, the subject follow the main developing direction of company calls for reduction of high cost world car industry as green engineering and reduction car launched the new product of three-way catalyst manufacturers would depreciate, subject’ has instruments, with exhaust gas emission meeting pressure to reduce its costs. the standards of DBH/105-1998 and Europe 2 & *Ability to resist risks and profitability 3. At the same time, subject has own R&D power pressure, between etc. auto Since the In 2010, subject’s sales demonstrated an upward trend indicating its increasing market share. But at the same time, subject suffered from poor profitability, its fees and costs are significantly higher than the industry average. self development silencing functions, protection star". ability known as Meanwhile, center. * Advanced production equipment, good customer resources, obvious scale effect There are over 200 pressing machines and hydraulic pressing machines in subject and numerical control pipe introduced from USA, bending automatic machines welding machines introduced from Germany and barrel automatic production line introduced Canada and tube cutting machines. - 26 - from CHINA VIP REPORT 10 INDUSTRY ANALYSIS Chinese Auto Parts Industry Development Situation Chinese auto parts industry has the following features: *Obvious trend of international industrial transfer, rising proportion of overseas business China auto parts enterprises successfully enter the international procurement system, and undertake international industrial transfer by virtue of its comparative advantages in international market. In the sense of transferor, the three major USA car companies continued to shrink its shares in the market, with continuing low profit levels of parts suppliers, and rising labor and raw material costs. As the result, more auto parts enterprises in USA entered the lists of bankruptcy protection in the list. The financial situation of North America auto parts enterprises is not optimistic, more than 80% of the parts suppliers bonds are rated as a "garbage class" by Standard &poor. Therefore car companies split the non-core competitive parts apart, to distribute industrial chains globally, and implement the business strategy of global procurement, global production. *As the comparative predominance for main raw materials and energy prices, not mention labor cost, China's auto parts industry advantage will not disappear in short-term future. China's main raw materials and energy prices are still significantly lower than the international market; therefore China's advantages are still apparent. Compared to mature markets in Europe and America, auto parts procurement in China will save cost ranging from 25% to 30%. Although the cost of labor and employment of domestic auto parts industry is increasing, unit labor costs (real wages / labor productivity) has no increased, benefiting from significant improvement of labor efficiency. Therefore, domestic auto parts industry still has absolute advantage in the international - 27 - CHINA VIP REPORT comparison. As a result of a long period of "workshop" operation style, auto parts industry relatively lacks of fixed assets investment, leading to low productivity. In 2006, this situation has been fundamentally changed, with the capital-intensive inputs, the proportion of capital and labor input rationalize gradually, resulting in increasing labor productivity. Chart 1:International Comparison of labor 400 350 300 250 200 150 100 Column from left to right: 50 Japan, 0 日本 美国 韩国 新加坡 马来西亚 中国 印度 USA, South Korea, Malaysia, China, India Source: Bureau of Statistics of China *The imbalance power between auto parts enterprises and car enterprises, the inferior position of auto parts industry in the industry chain has not fundamentally changed The domestic auto parts enterprises feature as numerous, small-scaled, low industry concentration. Average sales of single domestic auto parts enterprise only account for 2-3% of the sales of car enterprise; industry concentration is also much lower than the car industry, therefore there is great disparity between the two sides. Most part enterprises have no bargaining power in the business negotiations with car enterprises, which is extremely unfavorable for the accessories industry. Car enterprises will pass the loss of declining price to the upstream parts manufacturers, with its dominant position in the whole industry chain. - 28 - Singapore, CHINA VIP REPORT Chart2:parts manufacturer average sales only 3% of car manufacturer 百万元 400 整年平均单厂月度销售规模(左轴) 10 零部件平均单厂月度销售规模(右轴) 300 200 5 200 - 06/07 06/01 05/07 05/01 02/07 04/01 04/01 03/07 03/01 02/07 02/01 - Source: Bureau of Statistics of China Average monthly sales of car manufacturer ( left axis) Million RMB Average monthly sales of part manufacturer (right axis) Million RMB *Raw material prices shows a rising trend, which put a lasting margin pressure on parts manufacturers The raw material needed by parts industry can be divided into metal and rubber. Iron and steel raw materials accounted for 64% of the whole, aluminum alloy for 8.3%, PU, PVC, PB, as rubber materials, also occupy a certain proportion. Overall, raw material prices show a rising trend, which put a lasting margin pressure on parts manufacturers. The iron and steel occupy the largest pieces of shares of car product; therefore its price changes will significantly affect the industry gross margin level. - 29 - CHINA VIP REPORT Chart3:proportion of raw materials used in automotive industry 0.3% 12.6% 镁合金 7.4% 其他 橡胶和玻璃 7.6% 塑料 铝合金 63.8% 8.3% 钢铁 Source: Bureau of Statistics of China Column from up to down: Magnesium alloy, Others, Rubber & Glass, Plastics, Aluminum alloy, Steel & iron *China's auto parts industry related policies and regulations 1."Eleventh Five-Year Plan" National "Eleventh Five-Year Plan" raised the strategic objective as "Raise China's auto parts industry from producing level into world advanced level”. Under the guidance of energy saving, environmental protection, safety, parts industry has rapid progress in new products development, product structure adjustment and so on. With further standardization of national industrial policy, mandatory implementation of Guosan emission standards, acceleration the pace of developing diesel cars, for the of the diesel car further speed up the pace, auto parts industry entered the stage of the overall skills upgrading. - 30 - CHINA VIP REPORT 2.Changes of value-added tax and export tariffs on tax rebate policy China's export tax rebate policy adjustment boosted structural changes in exports auto parts productions. On July 1, 2007, China implemented the new export tax rebate policy, and the 2821 commodities export tax rebate rate will be further reduced, including the automotive spring, glass and some other auto parts. Government introduced large-scale export tax rebate policy adjustment, which will help ease the liquidity impact brought by trade surplus, there is always the possibility that government would further strengthen the tax rebate policy adjustment in the wider range. Most adjusted products are low value-added products. First, for the labor-intensive low value-added products, such as low-end auto glass, tires, fuel tanks, the profit was generally not high. Many enterprises rely heavily on the export tax rebate policy and to take this into big price war. And increased Low-cost low-quality exporting products have led to frequent trade friction. For such products, the impact of tax rebate policy is material. Secondly, the state continues to encourage exports of high value-added auto parts. After policy adjustment, the auto parts products transfer from labor-intensive to technology and higher value-added products, which will transfer domestic suppliers competition from International AM fighting market to high-end OEM market, thus realizing the high value-added supplying. 3.Industry development planning The year 2009 is China's "most difficult year” for the economic development since the new century. To achieve GDP growth target of 8%, the central government made a series of policies and measures to ensure growth rate, to protect the people's livelihood, and to ensure security and stability, such as the two-year investment plan of RMB 4 trillion. And it gives support for ten industries, agriculture, consumer, financial and tax deduction. Especially restructuring the top ten - 31 - CHINA VIP REPORT industries, such as automotive, steel, shipbuilding, petrochemical, light industry, textiles, non-ferrous metals, equipment manufacturing, electronic information, modern logistics, and the formulation of revitalization planning would make these key industries rehabilitation. Almost half of the total RMB 4 trillion is invested for railways, highways, and airports and urban and rural power grid construction. And the 1.8 trillion will boost the demand for cars. At the same time, the state introduced "the automobile industry restructuring and revitalization planning", and work out a number of supportive policies, such as motor vehicles to the countryside, government procurement, automobile credit, automobile new energy purchases, also reduce the vehicle purchase tax, consumption tax, to speed up the replacement of old vehicles, arrangements RMB 5 billion for farmers buyers financial subsidies. These policies will stimulate farm vehicles demands and consumption growth, as the impetus for automotive parts market out of the bottom. - 32 - CHINA VIP REPORT Forecast for China's auto parts industry * Driven by the domestic car prosperity, parts industry is expected to enter the boom cycle. Total China car-in-use per thousand is only 40, which is far below the level of developed countries. With the lifting national standard of living, as well as national policy of stimulating domestic demand, there is still developing space for cars. This could be a lot of good for upstream industry, and parts industry is expected to boom driven by the car industry. After five years since the accession to WTO, China's automobile industry successfully weathers the external shocks, and the average annual compound growth rate reach 25.5%. The automobile industry is no longer the infant industry; China has become a truly big country of manufacturing and sales of cars. As consumer durable goods, the car industry has a clear periodicity, highly relevant with the GDP and per capita disposable income. History has shown that when per capita GDP enter the interval of 1000 $ -3000 $, the car industry is within a period of rapid growth, which is sustainable for 5-8 years, then entering the period of steady growth. Now China has entered the region, the automotive industry is expected to maintain rapid growth. In addition, China's first-line city shows the car changing demand, second and third line cities car purchasing demand come to a peak point, leading to the superposition of two types of demands. - 33 - CHINA VIP REPORT Chart4: 1000 900 800 700 600 500 400 300 200 100 0 汽车产量 38.9% 13.0% 234 2001 325 2002 增长率 45% 40% 36.6% 728 35% 30% 27.5% 571 507 25% 444 22.5% 20% 14.2% 15% 12.6% 10% 5% 0% 2003 2004 2005 2006 2007E 892 Auto Production Volume Auto Growth Rate Source: Bureau of Statistics of China Chart5:2004-2007Car productive per month units: 10,000 100 90 80 70 60 50 40 30 20 10 0 2004 1 2 3 2005 4 5 6 2006 7 8 9 2007 10 11 12 Source: Bureau of Statistics of China *Higher localization rate of car manufacturing provides new opportunities for domestic parts enterprises Since 2005, the State introduced policy of "Verification rules for constitution of a whole car by importing auto parts ", some introduction cares realized manufacturing localization. In particular in - 34 - CHINA VIP REPORT 2006, importing of parts for assembly is significantly reduced, the proportion has been reduced to 4.6%, and localization rate of manufacturing increased. We believe that the proportion of importing CKD will continue to decline, with the higher level of localization manufacturing rate, which undoubtedly creates new opportunities for domestic auto parts enterprise development. - 35 - CHINA VIP REPORT 11. APPENDIX HDBC EMMA Score D&B EMMA Score (Emerging Market Mediation Alert Score) is a risk assessment model developed for emerging market countries. It is a score developed by data profiling approach and statistical modeling, which predicts the possibility of a business in perilous status of instability or unreliability, such as poor financials, delay payment, stale inventory, abnormal operational status, etc. The EMMA Score provides you with a quick assessment of a business' risk standing, and when used together with other information, allows you to make better risk decisions. The EMMA Score is based on a scale of 1 to 10, where 1 represents a lower risk and 10 a higher risk. EMMA Score for China is initially rolled out in May 2009, derived from the sample analysis of millions of company records. When using the Score to make individual applicant decisions, a customized version of this table based on an analysis of the Score against your customer account portfolio is recommended. It does not necessarily mean doing business with a company, which is assigned with higher Risk Score, will result in increased risk. Considering the particularity of Chinese business environment and in order to make EMMA Score analyze and reflect risk factors of Chinese enterprises more appropriately, HDBC conducted an optimization and adjustment toward EMMA Score in the first half of 2012, combined PAYDEX® to appraisal model as an important risk evaluating dimension and will try harder to deeply reflect the internal factors of enterprise risk. The optimized EMMA Score makes the scores more scientifically and effectively reflect the risk characteristics of current China as an emerging market and more objectively and deeply reflect risk level of Chinese enterprises. EMMA Score for China is calibrated on regular basis following D&B Global Modeling Methodology that captures business environmental change in China caused by macro economy shift and particular systematic events. - 36 - CHINA VIP REPORT HDBC EMMA Score Commentary Range EMMA Score % of Report in Database % of High Risk Business Commentary Low Risk Scores 1-3 28.9% 5.7% Lower Risk Range Medium Risk Scores 4-7 56.7% 9.1% Average Risk Range High Risk Scores 8-10 14.4% 36.4% High Risk Range The Key Drivers of the EMMA Score include the following: Business Information Geographical Information Business Type Line of Business Employee Size Sales Territory Registered Capital Percentage of Overdue Payment Year of Establishment Company/Industry PAYDEX® History Status Property Ownership Region & Province Public Record Number of Negative Record Payment Information EMMA Score Application Low EMMA Score - May proceed to process the applicant quickly with minimal or no manual review depending on the extent of score validation analysis. Medium EMMA Score - Medium Risk Scores - Recommend a manual review of the applicant based on the applicant's capacity, your internal policy and risk tolerance. High EMMA Score - High Risk Scores - Requires thorough manual review of potential decline, or approval depending on the applicant's capacity, your internal policy and risk tolerance. - 37 - CHINA VIP REPORT Sample Data Analysis of Risk Assessment Matrix Database Risk Matrix Sample Distribution Risk Range PAYDEX Low Medium High PAYDEX>=80 13.6% 12.6% 0.5% 80>PAYDEX>=60 15.2% 28.7% 1.7% PAYDEX<60 0.1% 15.4% 12.2% Possibility of High Risk Enterprise Risk Range PAYDEX Low Medium High PAYDEX>=80 5.8% 8.4% 9.1% 80>PAYDEX>=60 5.6% 8.4% 14.5% PAYDEX<60 5.6% 11.1% 40.4% Interpretation and Analysis of Risk Assessment Matrix Classifications Quality group Low risk group Risk Level AA->AB BA->BB->AC Description Business is sound, and the bills are paid promptly with good credit reputation. Business is operated under low risk, and some delay payment behaviors exist. Business is operated under high risk, High risk group CA->BC->CB and some severe delay payment behaviors exist. Business is run under high risk or with Monitoring group CC high possibility of windup, and the bills are unable to be paid in time. Credit Policy Favorable credit policy can be granted with automatic approval. Appropriate credit policy is suggested with some manual review. Relatively strict credit policy is suggested with detailed manual review. Avoid credit sales. Cash settlement is suggested. *Risk levels are listed in order of risk from low to high. Risk Assessment Matrix is the tool for investigating the insight of subject combined with EMMA Score and PAYDEX®. EMMA Score can indicate the risk level of subject. With the help of PAYDEX®, one can also further analysis subject's risk and find out the internal factors causing risks based on the payment records of - 38 - CHINA VIP REPORT subject. In summary, the assessment matrix can make further insightful analysis towards the enterprises with similar EMMA Scores. When using EMMA Score and Risk Assessment Matrix, the combination of other information, such as internal assessment policy of enterprise, commercial information provided by HDBC, and feedback from the people who directly contacts with subject, etc., is recommended. With these information, it will allow you to be more convenient to make risk decisions. D&B Rating D&B Rating Interpretation Tables Financial Strength Composite Credit Appraisal Tangible Registered Net worth Capital 5A 5AA > 450,000,000 1 2 3 4 - 4A 4AA 85,000,000 - 449,999,999 1 2 3 4 - 3A 3AA 8,500,000 - 84,999,999 1 2 3 4 - 2A 2AA 6,500,000 - 8,499,999 1 2 3 4 - 1A 1AA 4,500,000 - 6,499,999 1 2 3 4 - A AA 2,500,000 - 4,499,999 1 2 3 4 - B BB 1,750,000 - 2,499,999 1 2 3 4 - C CC 1,000,000 - 1,749,999 1 2 3 4 - D DD 650,000 - 999,999 1 2 3 4 - E EE 450,000 - 649,999 1 2 3 4 - F FF 300,000 - 449,999 1 2 3 4 - G GG 200,000 - 299,999 1 2 3 4 - H HH < 200,000 1 2 3 4 - 3 4 - 3 4 - Alternate Ratings Renminbi (RMB) Strong Good Fair Limited Undetermined Explanation N Financial Strength is negative O Financial Strength is undisclosed - 39 - 1 2 CHINA VIP REPORT NB New Business: Less than 24 months 1 NQ Out of Business: Business has ceased to trade BR Branch or division location INV Investigation is undergoing 2 3 4 4 Explanation of PAYDEX A score of 80 denotes that payments reported to D&B have generally been made within terms. Scores over 80 indicate that payments reported to D&B have been made earlier than terms. The chart below outlines the specific 0-100 score and what it means. D&B PAYDEX® Payment Habit 100 Anticipate 90 Discount 80 Prompt 70 15 days beyond terms 60 22 days beyond terms 50 30 days beyond terms 40 60 days beyond terms 30 90 days beyond terms 20 120 days beyond terms 0-19 Over 120 days beyond terms UN Unavailable - 40 - - CHINA VIP REPORT Glossary of Terms D-U-N-S Number The Data Universal Numbering System (D-U-N-S) is a standard for keeping track of companies all over the world. D-U-N-S number is a unique nine-digit code assigned to each company worldwide. Standard Industrial Classification (SIC) The Standard Industrial Classification (SIC) system was first developed by the U.S. Government and has been widely adopted as the standard coding system used to define and analyze industry structure. Parent Company Parent company refers to a company holds more than 50% of another company’s shares, which can actually control the company. Subsidiary Company Subsidiary refers to a company, 50% of whose shares are held by another company and is actually controlled by it. Affiliated Company Businesses with 50% or less voting stock owned by another business are designated Affiliated Company. Branch A Branch is a secondary location for which its headquarters has legal responsibility. Typically, a branch is at a separate location. However, a branch can be located together with its headquarters or sister branch, provided they have unique, separate, and distinct operations. Branches often have secondary names of trade styles, but the branch primary business name must be identical to its headquarters’ primary name. - 41 - CHINA VIP REPORT Remarks This report, furnished pursuant to contract for the exclusive use of the subscriber as one factor to consider in connection with credit, insurance, marketing or other business decisions, contains information compiled from sources which Shanghai Huaxia Dun & Bradstreet Business Information Consulting Co., Limited (Huaxia D&B China) does not control and whose information, unless otherwise indicated in the report, has not been verified. In furnishing this report, Huaxia D&B China in no way assumes any part of the user's business risk, does not guarantee the accuracy, completeness, or timeliness of the information provided, and shall not be liable for any loss or injury whatever resulting from contingencies beyond its control or from negligence. -- End of the Report-- - 42 -
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