2012-10-22 02:16:53 - China Infrastructure Report Q4 2012 - a new market research report on companiesandmarkets.com

We maintain our forecasts for a deceleration in growth in the Chinese infrastructure and construction segments over 2012. An increasing number of indicators are validating our view, the most notable being the continuing slowdown in steel production and gross fixed capital formation. The National Development and Reform Commission has put some meat onto its previously announced ministimulus plans by announcing a 9% increase in railway spending over H212. We reiterate that the swollen local government debt from the first stimulus is making new credit allocations a precarious and prohibitive venture. This announcement is not going to impact our 2012 forecasts, which have already priced in a small uptick in railway infrastructure industry value real growth for 2012 (following the initial

 

 

government announcement in late-April 2012), but that will dissipate quickly as we head into 2013.

The key developments in China´s infrastructure sector are:

- Leading indicators, such as steel production and total fixed assets investments growth, clearly show that demand has cooled, corroborating and reinforcing our view of a slowdown in the entire construction sector over 2012 and 2013.

- Gas-related infrastructure will see a massive boost as the government focuses on re-aligning the energy mix away from coal and towards gas. This includes investment in gas distribution infrastructure, LNG terminals and gas-fired power plants.

- We remain bearish on China´s residential and non-residential construction sector, as demand within the country´s stalling economy continues to weaken significantly. Our 2012 forecast of 3.9% year-on-year real growth also reflects the cooling of an investor boom that had inflated China´s real estate sector, and also represents the lowest level of sector growth since 1999.

- Whilst social housing builds have the potential to significantly drive construction, our concerns over the ability of indebted local governments to meet their share of funding requirements mean we see risks to the timely implementation of the ambitious scheme. A tightening in project funding is highlighted by the central government´s announcement that social housing unit starts will be 7mn for 2012 - down from 10mn units in 2011.

Our bearish outlook for China´s construction industry is supported by a slump in the performance of domestic machinery producers. With a huge fall in fixed-asset investment in the Chinese economy, producers of heavy equipment are showing signs of weakness across the board.

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 our infrastructure risk/reward ratings (RRRs). 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, we have revised down the component scores in these categories. In BMI´s infrastructure RRRs, China scores 64.9 out of 100, with its strong infrastructure market propelling it near the top of the regional table.The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

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