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China Infrastructure Report Q1 2012
Business Monitor International, Nov 2011, Pages: 112
Business Monitor International's China Infrastructure Report provides industry professionals and strategists, corporate analysts, infrastructure associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on China's infrastructure industry.
BMI's view on the unwinding of spending on railways is playing out, with the latest figures emerging from China suggesting an 80% reduction in high speed rail spending y-o-y. The fatal accident between two high speed trains near Whenzou catalysed a process that had been underway for months, especially following the changes at the helm of the Railway Ministry. In BMI’s latest Special Report China 2012: From Miracle to Meltdown it is clear how much the infrastructure and macroeconomic dynamics in the country are intrinsically tied and how the unwinding of the former is corroborating BMI's consensus view on the latter and vice versa.
Key themes for China’s infrastructure sector this quarter include:
- The shares of the two railway builders have been battered, highlighting how quickly the fortunes of companies that solely rely on the state for contracts can change. Their overseas operations will be a solace now that the Chinese government has stopped handing out contracts, which have fuelled the double digit revenues growth for the railways builders.
- BMI is maintaining its forecasts for construction, infrastructure and its subsectors as its sees the trend that it has in place since June 2011 playing out. BMI anticipates moderation in the transport infrastructure industry value growth and growth in energy and utilities.
- Notwithstanding major changes to regulations and pricing, BMI anticipates that there will be an increase in natural gas power plant construction in the coming years. Natural gas pipeline construction will flourish as a result, hence BMI's bullish outlook for the sector.
- BMI maintains its muted forecasts for railways and expect to see a deceleration in industry value growth starting this year and running to the end of its forecast period. New data from the Ministry of Railways corroborates this view, indicating a steep unwinding of spending. According to a report in the China Securities Journal, the government is also looking to revise downwards the planned spending for railways in the 12th Five Year Plan.
- BMI's forecasts for a revival in airport construction are supported by the announcement of a new mega-airport project – to replace the Beijing Nanyuan Airport – should be completed by 2017.
- In the housing sector, the government has pledged the construction of another 50mn low cost housing units between 2011 and 2014. While this will drive construction, BMI's concerns over the ability of indebted local governments to meet their share of the funding requirements mean it sees risks to the timely implementation of the ambitious scheme.
China offers scale – measured in terms of total construction industry value – and high levels of growth, combined with a high level of capital investment as a percentage of GDP. The combination of these three factors plays strongly in China’s favour in BMI's Infrastructure Risk/Reward Ratings.
However, the strength of its infrastructure market often masks the high barriers to entry, the opaque regulatory and legal framework and the uncompetitive environment, which have shaved points from the country’s overall ratings. Consequently, BMI has revised down the component scores in these categories this quarter. In BMI’s Infrastructure Business Environment Ratings China receives a score of 65 out of 100. its strong infrastructure market propelling it to near the top of the regional table.
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