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Treasury China Trust Annual Report 2010 8

CHAIRMAN’S STATEMENT

For TCT, the continued strength of the Chinese economy reaffirms the expansion of our geographic base into regional markets and our increasing concentration on the retail sector. Domestic demand has been a fundamental driver in China, weathering much of the fallout from the recent economic downturn that has engulfed many of the traditional economic powerhouses of North America and Europe. The growing importance of domestic demand is reflected in the growth in total retail sales of 18.4% for 2010, underpinned by a 11.3% increase in urban disposable income and importantly a 14.9% growth in income for rural dwellers. 1

China Retail Sales

2005 2006 2007 2008 2009 2010

RMB billion

Total Retail Sales (LHS) Growth Rate (RHS)

0%

5%

10%

15%

20%

25% 18,000

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

Source: China National Statistics Bureau

However this surge in disposable income has raised concerns of a high inflationary environment looking ahead into the short to medium term. This will be a challenge for the government to manage whilst maintaining its desired real growth rate of 7.0% per annum.

Much focus has been on the government’s attempts to cool residential housing prices, and whilst this sector is a significant contributor to China’s economy, its direct impact on TCT is limited given our exclusive focus on the commercial real estate sector. This also positively impacts our plans for balance sheet growth, where the restrictions placed on capital investment in the housing sector are not evident in the office and retail property markets as shown by the recent acquisitions by TCT of Central Avenue Mall in Qingdao and Huai Hai Mall in Shanghai.

Furthermore the government’s stated policy is to stabilise housing prices to provide a more equitable market, thus facilitating access for many first home buyers and thereby providing a deeper market. This is critical to a continued successful implementation of China’s ongoing urbanisation programme which migrates approximately 15 million residents annually from a rural location to an urban environment. This will have a direct and positive impact on both the logistics and retail sectors as a greater proportion of the population shares in the strong growth of the Chinese economy which will create larger pools of disposable income in an increasing number of urban centres. In addition, this urbanisation programme significantly boosts demand for goods and services which creates long-term demand for high quality office accommodation.

Accordingly, TCT will maintain its exclusive focus on commercial real estate and continue to execute its strategy for selective balance sheet growth that delivers both net asset value and net property income accretion.

1 Source: China National Statistics Bureau