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Home > Manufacturing > Fabrication > Building/Construction
China Infrastructure Report Q4 2008
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The earthquake in Sichuan in May 2008 caused heavy damage to the region’s transport and energy infrastructure, but reconstruction efforts begun almost immediately and the government has pledged an initial US$10bn for reconstruction. The Olympics have been the counter-weight this year; an event of great national pride for China and has been a major incentive and boost for infrastructure development around the capital. As the Olympics come to a close, the targets set by the 11th Five Year Plan (2006- 2010), which gave rise to the momentum behind spending in infrastructure nationwide, rise to the forefront again. China is currently right in the middle of this period of development and we anticipate that the momentum in infrastructure spending will remain.
We have revised our construction sector forecasts for 2008 onwards. Primarily, this comes as a result of new model being introduced in our forecasting methodology, a change that has been introduced across the spectrum of BMI’s Infrastructure Reports, in an effort to increase the reliability of our data. In BMI’s Q308 China Infrastructure Report we forecast that the construction industry in China will grow by 10% in 2008, reaching a value of CNY 2,253mn (US$330.6mn).
Examples of major projects in the second and third quarters of 2008 include the inauguration of two of the largest overseas bridges in the world in eastern China, the inauguration of China’s first high speed railway linking Beijing to Tianjin and new energy pipelines to Central Asia. China’s infrastructure needs have expanded and foreign expertise has been recruited to meet the demand for bigger and more advanced structures. Nevertheless, foreign penetration into the market (either in the form of public-private partnerships (PPPs) or direct investments) has been very limited compared to the needs for development, with major Chinese giants like China State Construction Engineering Co. and Shanghai Construction Group for instance, taking the lead in their respective fields.
The cost of raw materials continued to climb to new highs. Prices for Australian iron ore were expected to rise by 85% to 95% year-on-year (y-o-y) putting pressure on construction costs, which have risen on average about 50% across the Asian markets in the past two years alone, eroding profits and returns on investments. In addition, the power generation sector was hit by soaring coal prices that put many small power plants out of business, creating the conditions for a potential 18 gigawatt (GW) power deficit during peak demand times.
Poor labour conditions, high levels of corruption and a decrepit legal system remain as China’s key structural problems plaguing its business environment. The sub-standard legal framework drags China’s overall Business Environment score down. On the strength of its infrastructure sector growth however it ranks second in BMI’s Infrastructure Business Environment Ranking matrix. According to BMI’s forecast the economy will continue its robust growth, growing by 10.1% in 2008, despite the efforts of Beijing to curb growth to offset potential overheating of the economy.
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