<P><FONT size=5>高盛：China Views－CPI inflation on the rise</FONT></P>
<P><FONT size=5>May 25, 2007 3页</FONT></P>

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<P>1. There have been media reports of surging meat prices in mainland China since<BR>early May 2007, suggesting upside risks to CPI inflation for the coming months. An<BR>increasing number of cities, including Beijing, Nanjing and Guangzhou have<BR>reported a fast rise of meat prices, beginning with pork but appearing to spread<BR>quickly to other meat products such as poultry and beef. The media cited month-onmonth<BR>increases between May versus April in a range between 10%-30% for pork,<BR>and the inflation momentum picked up noticeably after mid-May.<BR>2. The Ministry of Agriculture cited the following factors for the rise of pork prices: 1)<BR>rising prices of feed stock such as corn; 2) inadequate supply of pork by farmers<BR>because of depressed prices last year; and 3) rising demand for pork because of rising<BR>wage income. While we believe meat supply can catch up relatively quickly (usually<BR>within 6 months), the other two factors (1 and 3) cited by the ministry suggest more<BR>inflation pressures may be in the pipeline. That is, upstream cost inflation is passing<BR>through to prices</P>