China: massive infrastructure development

HONG KONG — As Beijing clarifies details of its fiscal stimulus plan, the Chinese economy looks set for a surge in building work that will confound western skepticism, says one of Canada’s top businessmen in the region.

“Contrary to what many foreign observers are saying, there is a vast construction boom in the making,” said Ken Courtis, the former head of Goldman Sachs in Asia.

After some in the West had cast doubt on China’s four trillion yuan (US$586-billion plan), details are beginning to emerge, and include massive spending on a series of infrastructure projects aimed at propelling the country’s economy through the global downturn.

In meetings with senior members of the international business community, cabinet level officials from China’sMinistry of Finance, State Council and National Development and Reform Commission have been outlining on which sectors they will spend the monies first unveiled in the package announced last week.

The details include building almost 100,000 kilometres of oil and gas pipelines, upgrading or building from scratch 60 airports, and creating 17,000 kilometres of new subway and light train lines. The officials are said to have estimated that China’s new rail projects alone will require 120-million tons of additional cement and 20-million tons of additional demand for steel.

The plan also calls for 450-billion yuan (US$60-billion) for increased power generation, as well as whole series of anti pollution investments.

“This should have some impact,” said Mr. Courtis, who is a frequent economic adviser to governments in the Asia Pacific region.

The Chinese government’s plan commits to the additional investments by 2010. It is expected Beijing will fund the additional expenditure in part by issuing bonds, and also from tax revenue.

Officials close to the central government have said they will provide about one quarter of the total stimulus package, with the rest likely to come from local authorities, companies and overseas investors.

China’s economy has expanded by more than 10% a year since 2003 but growth has slowed in recent quarters.

As global demand for cheap Chinese exports dropped off, China’s economic growth fell to 9% in the third quarter of 2008. Many analysts predict 2009 will see China’s economy will grow by less than 8% — a figure some say marks the point where China can continue to support its ongoing modernization.

China’s central bank sad yesterday the stimulus plan may take “preemptive” measures to revive growth as the financial crisis increasingly takes its toll on the economy.

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