Abstract
The strong results of China Railway Group (that has been bolstered by new
government contracts), as
well as the existence of several ongoing
infrastructure projects, are clear signs of sustained activity in
China’s infrastructure sector. These developments put China’s
infrastructure sector on a positive footing
to achieve the 7% industry
value real growth rate that BMI forecasts for 2009 and 2010.
According to
the Beijing Municipal Development and Reform Commission, as cited by China
Knowledge, Beijing alone is planning to spend US$160bn in infrastructure
projects in 2009. Infrastructure
projects will represent 35% of the
municipality' s fixed asset investment in 2009, a 4% rise from 2008.
This
is quite a surprising announcement given the significant investments in the
city that were already
made in preparation for the Olympic Games. The
pledge does highlight the high government commitment
to infrastructure
spending, but we also believe it raises questions as to whether or not the
funds are being
allocated where they can maximise productive
capacities.
In this Q309 China Infrastructure Report, we maintain our
forecasted growth levels for 2009 and 2010 at
7%. We anticipate that the
growth rate in the industry value will decelerate thereafter as the
stimulus
expires and the government focuses on rebuilding its savings,
leaving the industry to its own devices. Our
outlook for the actual
effects of the stimulus plan is in line with the local industry view which has
been
expressed in various press reports over the past quarter.
Accordingly, the situation will normalise and
positive effects for the
industry will be felt towards the end of Q409. In tandem, the demand for
raw
materials will also rise (steel and cement), though huge stockpiles
will mean that there is plenty of
domestic supply to sustain the initial
phases of the infrastructure plan, and thus demand for building
material
imports is expected to rise in H110. For 2009, BMI forecasts that the industry
value will be
CNY1,770bn and will rise to CNY1,882bn in 2010.
According to BMI’s revised Infrastructure Business Environment and
Project Finance Ratings, China’s
infrastructure business environment
and investment risks are relatively low. For the business
environment, the
country achieves an overall score of 69 out of 100, coming in at second place
in the Asia
Pacific region. The score is bolstered by strong industry
growth and the large size of the market. The
Project Finance ratings offer
a more mixed picture. The overall score is 60.4, suggesting a moderate
level
of potential risks throughout a project’s life cycle in the
country. However, according to our tables, the
market does present higher
risks in the Design and Construction phase when compared to other markets
in the region. When compared to other regional markets in the Commissioning
and Operating phases,
meanwhile, the risk environment in China is more
appealing than others. This could mean there is greater
chance for revenue
generation to become disturbed in the longer term.
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