Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

China: Eastern Promise

As the world continues to feel the effects of the economic crisis, expansionist policies have kept China’s economy growing respectably. Dream Liu reports.

China is a very real exception to the global crisis, according to the World Bank’s latest China Quarterly Update, published last month. On the back of a strong economy, the Chinese government has brought in a fiscal stimulus centred on an infrastructure-oriented £400bn spending bonanza, throwing up potential opportunities for foreign construction firms.

The breakdown of the latest stimulus package, unveiled by China’s economic planning body the National Development and Reform Commission (NDRC) in November last year, shows that over half of the money will be directly injected in construction projects.

The package couples with China’s 11th five-year plan which runs between 2006 and 2010. Although some of the programme is nearing an end, much of the work in the stimulus package will continue to roll out over the next decade or so.

Fast reaction

According to economic analysts Global Insight, a total of £180bn will be spent on roads, railways, airports and power grids. In addition, £100bn is earmarked for reconstruction projects in earthquake-affected Sichuan province. Outside the infrastructure sector, £28bn has been allocated for the construction of low-cost housing.

On top of the direct investment in the construction sector, other stimulus categories such as sustainable development, educational and cultural projects, rural development and social welfare are likely to have a large construction element. Overall, China’s construction output could potentially be boosted by 42% between 2009 and 2010.

China has reacted extremely fast to the economic downturn, especially on infrastructure projects. The reason why China was in a position to act so fast, was because a series of projects to build major roads, airports, subway systems and other infrastructure had been strategically postponed when inflation started to become a problem in 2004. These have now been given a go-ahead.

Foreign benefits

Can foreign firms benefit? The great news for foreign companies is that although the package is aimed at helping local businesses, foreign companies are also in a position to benefit.

Some of the biggest opportunities lie in the areas where foreign firms can compete on an equal footing, and in many cases, foreign firms have a stronger competitive advantage.

But foreign companies with few local connections must be circumspect about their next move and closely monitor the actions and policies of the Chinese government.

“China’s philosophy towards transport is that ‘for the economy to develop, transport must come first’, so transportation will receive a large chunk of the funding.”

According to research carried out by CRCC Asia, firms would do well to focus on key areas of transport and energy. Bridges and highways had been developing at an astonishing speed even before this stimulus plan was implemented.

Some 50,000km of expressways have been built in the past decade. China’s philosophy towards transport is that “for the economy to develop, transport must come first”, so it is hardly a surprise that transportation infrastructure projects will receive a large chunk of the funding. Twelve major routes are planned across the country and some 36,800km of roads will be completed by 2020.

China's latest stimulus package

China’s latest stimulus package

Airports and related facilities also provide construction opportunities due to government investment in the aviation sector. For example, Quanzhou Jinjiang Airport in Fujian province has won “open approval” from the State Council, allowing it to accept flights from across the Taiwan Strait. Before the new passenger terminal is put into service, the international terminal will need to be rebuilt to allow annual international traffic of 200,000 passengers.

Rail investment on track

Railways are a focal point as they have suffered from under-investment in previous years. In the last five-year plan for 2001 to 2005, railways only received £30M in central government investment. As a result, transportation capacity only meets 35% of demand in China.

To reverse this, the Ministry of Railways claims the State Council has already approved a massive investment programme which will see £500bn spent on building 45,000km of new lines by 2020. Around £60bn will be spent in 2009, and another £200bn will be spent on 120 projects in 2010 to 2011.

China aims to complete the construction of 16,000km of passenger railway lines − city railways and the Beijing-Shanghai high speed lines − by the end of 2010, complete another 16,000km of freight line for coal transportation in Xinjiang-Xian, Shanxi-Ningxia and Inner Mongolia-Shanxi, and add another 15,000km to service mining needs in the west of China.

Energy and emissions

Energy infrastructure is also on the top of the government’s investment list. China is reducing its dependence on coal and oil, and moving aggressively into clean, renewable energy.

To cut down on carbon emissions and increase the proportion of renewable energy capacity from 7% of total capacity in 2006 to 15% by 2020, China is planning to invest an average of £22bn annually in the renewable energy sector for the next 12 years. China is determined to speed up the development of its wind, hydro and solar power industries.

Large-sized wind farms are being planned for construction in Gansu, Hebei and Jiangsu provinces as well as the Inner Mongolia autonomous region.

“At the current growth rate, China will comfortably reach its targets for wind power generation capacity.”

At the current growth rate, China will comfortably reach its targets of 20GW of wind power generation capacity by 2010 and 100GW by 2020.

Similarly strong growth can be seen in the solar energy sector. A number of massive solar investment deals were announced in early January this year, including two large solar power plants in the western plateau provinces of Qinghai and Yunnan in 2009.

Finally, hydropower is a central part of China’s plan for diversifying its energy mix. After completing the Three Gorges dam, the NDRC approved two more hydropower projects, Luding Dam (920MW) in Sichuan province and Dongjing Dam (880MW) in Guizhou province. China is also very committed to a nuclear power station construction programme.

Currently, China’s mainland has 11 nuclear reactors at six plants, all on the east coast. They have a combined installed capacity of 9.07GW. The targeted power generation capacity is 40GW by 2020, four times the current level. The current construction trend suggests that the nuclear plants will be allocated more evenly with more nuclear plants being built in inland China.

China: How it’s spending its money

  1. Beijing £12bn to £15bn government spending in two years, which may drive £100bn total investment
  2. Shandong £80bn investment in 240 projects − the first phase will focus on 60 projects worth £48bn
  3. Guangdong Estimated £130bn total investment by 2009, of which government will contribute £10bn
  4. Hebei £58.9bn investment projects
  5. Sichuan Accelerated £2bn spending from reconstruction fund, which could drive £40bn total investment in 2009
  6. Zhejiang Accelerated five-year plan of a £30bn investment, with £1bn incremental government spending
  7. Chongqing £100bn industrial investment in five years; and another £2bn from central government budget
  8. Tianjin 337 projects worth £30bn in total
  9. Guangxi £7.8bn added to investment by year end, £2bn of which is from central government budget
  10. Hubei Started £1bn construction in Wuhan port
  11. Liaoning £1bn in five years to support Dalian port
  12. Guizhou Offer of £460M credit to 15 corporations
  13. Jiangxi £170M to build subsidised housing in 4th quarter of 2008 and additional £140M in 1st quarter of 2009

 

Other large new energy projects include the £90bn upgrade of rural and urban power grids by China’s State Grid Company over the next two years. Another £9bn is being invested in the construction of a pipeline to supply gas from Turkmenistan.

Not forgetting that post-earthquake reconstruction work in Sichuan province will receive £100bn − 25% of the stimulus package. Although rebuilding has been carried out rapidly in the quake zone, some 1.5M homes have yet to be rebuilt.

Affordable housing will receive £40bn from the stimulus package: after completing the construction of 214,000 units of new or improved housing by the end of April this year, the construction of another 650,000 units has started. The housing construction programme along with the rural infrastructure construction programme mainly concentrates on the less developed rural areas to encourage settlement and narrow the gap between rural and urban living conditions.

Commercial projects steam ahead

In addition to the infrastructure opportunities arising from the stimulus plan, China’s commercial projects also see few signs of slowing down. Engineers are still completing four tower blocks every day.

Foreign engineering firms such as Arup, Buro Happold, Scott Wilson and Skidmore Owings & Merrill (SOM) who have established themselves in China remain active, even though the competition is more heated due to the global downturn.

SOM carried out the architectural and structural designs of an ultra-sustainable high rise office building, the Pearl River Tower, in Guangzhou. The building is currently under construction and due to be completed in October 2010.

The money is there to be spent, is being spent, and given that, it seems certain that China will come out of this economic crisis with a much stronger infrastructure, healthier energy structure and brighter economic outlook.

  • Dream Liu is an analyst at CRCC Asia, a specialist consultancy focused on finding opportunities for western firms in China.

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Please note comments made online may also be published in the print edition of New Civil Engineer. Links may be included in your comments but HTML is not permitted.