17
january-february 2014
international
construction
ECONOMIC OUTLOOK
Roaring again?
>
Roaring again?
T
he Chinese economy and construction
sector will continue to be guided by the
government’s growth-support policies in
the near future. The policy shift that took place
in mid-2013 has rejuvenated infrastructure
investment in particular.
The main construction story for China is
a rejuvenation of infrastructure, particularly
within transportation. For example, Guangdong
province will invest US$ 16 billion in
transportation projects, with over 70% devoted
to expressways. The remaining funds will go
to other road construction as well as ports and
waterways.
This intensive campaign will complete eight
expressway projects, begin eight more and
continue another 30 road projects in 2014, and
is part of an official program to build nearly
2,500 km of expressway from 2014 to 2017.
This is noteworthy because even though
Guangdong constructed 5,724 km of expressway
up to 2013, ten counties have yet to be linked to
the network (an issue to be completed by the end
of 2015), and the transport network linking the
eastern, western and Pearl River Delta (the core
area) portions of the province are not sufficiently
developed relative to growing demand.
In addition, the current waterways in
Guangdong are not able to meet the
requirements of economic growth without
further construction, suggesting that sustained
high levels of transportation infrastructure are
likely for at least the next five years.
Railways and metro systems will also see an
infusion of funding. Beijing, troubled by severe
traffic congestion, will add an additional four
subway lines in 2014, to augment the existing
17 lines that transport an average of 8.8 million
people per day. By the end of 2016, 94 km of new
track will be laid.
Underground capacity
The trend of exploiting underground space will
continue as a way of solving problems with the
city’s high urban density, and more importantly,
will be followed by other first- and second-tier
cities with increasing density issues, such as
Guangzhou and Hangzhou.
Shenyang and Wuhan have recently been
approved for new metro lines. According to
the Ministry of Railways, metro lines will grow
from 2,000 km in 2012 to 6,000 km by 2020,
requiring up to US$ 650 billion in investment.
Intercity rail has also seen tremendous
investment to enable trade flows. Such spending
has been exclusively in the government domain,
and the national railway corporation is nearly
CNY 3 trillion (US$ 495 billion) in debt as a
result.
Needing a new means of financing rail projects,
China is promoting reforms to fully open railway
construction to the private sector, although no
majority private ownership will be allowed.
Railway development funds will be established,
and new types of railway securities issued. Indeed,
Sichuan will allow private capital to hold shares
in two state-owned railway companies.
While national regulations on what kinds
of private companies are qualified to invest,
how they can invest and become controlling
shareholders still remains to be worked out. Still,
railway reform is a highlight of the 12th Five-Year
Plan, and mixed ownership of railways is likely to
begin in other regions of China.
Financing reform combined with new project
announcements indicate that China will
maintain railway investment of about CNY 700
billion (US$ 115 billion) over the next couple of
years, roughly the same level as in 2009, when
railway investment was ramped up as part of the
stimulus program.
Anhui province alone has announced plans to
construct a large railway network of 14 inter-
city passenger lines and five lines carrying both
passengers and freight. The network will be
centred on Hefei and will link 11 major cities in
the province with 1,485 km of rail.
Residential
Residential construction has been another
linchpin of Chinese construction. While there
remains concern over excess supply in parts of the
market, there is a renewed focus on the neglected
lower end of the sector - essentially shantytowns
and slums.
There is a need to improve the living conditions
of the poorer urban residents who live in crude
housing that does not meet safety standards.
Between 2013 and 2017, ten million housing
units will be refurbished, with about eight
million of those in cities. To reach this goal,
China will need to renovate between two and
three million homes per year at an annual cost of
US$ 49 billion. Such renovation could add three
percentage points per year to investment growth
over the next five years.
Rail and housing construction are elements of
China’s urbanisation strategy, and that strategy
continues to evolve.
Among 144 of China’s prefectural-level cities,
there are plans to expand or establish more than
200 urban areas. Within these areas, there are
local plans to build national level financial centres,
education centres and cultural centres, which
would place these cities in direct competition
with well-established centres among tier-1 cities
such as Beijing or Shanghai.
The concern is that the rate of urban expansion
is exceeding demand by a large margin, with
one city with a population of 300,000 having as
many as 100,000 housing units entering supply,
Growth support policies are helping to drive the Chinese construction sector, but care will be needed
not to repeat the mistakes of the past.
Scott Hazelton
reports.
Historic and forecast Chinese construction growth
30%
25%
20%
15%
10%
5%
0%
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
