10
2012
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09
NDRC Approves Trillion-Yuan Transportation Projects; Seven Major Industries to Benefit
Source:
Recently, the National Development and Reform Commission (NDRC) announced on its official website that planning approvals have been granted for 25 urban rail projects, 13 highway projects, and several container terminals and waterway development initiatives. According to statistics compiled by a reporter from the Securities Daily, the total investment in these projects is expected to exceed RMB 1 trillion. An analyst who asked not to be named told the reporter: “With economic growth currently slowing, the government’s strategy of using investment to stimulate growth is unlikely to change. This round of infrastructure investment will indeed boost related industries, but its impact may not be immediately apparent.” Approvals Granted for Nearly RMB 1 Trillion in Transportation Projects On September 5, the NDRC website disclosed information on urban rail, highway construction, and container…
Recently, the National Development and Reform Commission announced on its official website that planning approvals have been granted for 25 urban rail projects, 13 highway projects, and several container terminals and waterway development initiatives. According to statistics compiled by a reporter from the Securities Daily, the total investment in these projects is expected to exceed RMB 1 trillion. An analyst who asked not to be named told the reporter: “With economic growth currently slowing, the government’s strategy of using investment to stimulate growth is unlikely to change. This round of infrastructure investment will boost related industries, but its impact may not be immediately apparent.”
Approving Nearly Trillion-Yuan Transportation Projects
On September 5, the National Development and Reform Commission (NDRC) website disclosed details of several transportation infrastructure projects, including urban rail transit, highway construction, container terminals, and waterway development. According to the announcement, total investment in urban rail transit projects exceeds RMB 800 billion, while combined investment in highway, terminal, and waterway projects is projected to surpass RMB 200 billion, bringing the total approved investment under this NDRC initiative close to RMB 1 trillion.
In terms of urban rail construction, recent planning approvals have been granted for urban rail projects in six cities—Taiyuan, Lanzhou, Guangzhou, Shenyang, Xiamen, and Changzhou—and adjustment plans for the short-term construction plans of cities such as Harbin and Shanghai have also been approved. According to the aforementioned analysts, the total investment in these projects will exceed RMB 840 billion, with the adjusted short-term construction plan for Shanghai’s urban rail system projected to involve an investment of RMB 158.691 billion, making it the project with the highest approved investment amount.
Although specific investment figures for highway construction, port development, and waterway projects have not been disclosed, statistics indicate that the total length of highway projects approved in this round exceeds 2,000 kilometers. According to data from Anxin Securities, the current average construction cost for highways is roughly RMB 70 million to RMB 100 million per kilometer; accordingly, the total investment for the approved highway projects is estimated to range from RMB 140 billion to RMB 200 billion. A researcher in the transportation sector told reporters that highway construction costs vary across regions, with eastern areas generally facing higher costs than western regions, and that differences in topography and geology must also be taken into account.
Seven Major Industries Will Benefit
The state’s large-scale approval of infrastructure projects is conducive to boosting demand and stimulating economic development. However, several analysts contend that the impact on improving the performance of listed companies will be limited.
“At present, economic growth is slowing, and the NDRC’s approval is merely a policy-level development; whether local authorities can actually implement the projects depends on specific circumstances, while the impact on the revenues of relevant enterprises will require case-by-case analysis based on tendering outcomes,” the analyst said. “The impact on the performance of larger firms is relatively minor, whereas smaller firms may be somewhat more affected.”
Take urban rail construction as an example: a subway project typically takes four to five years, with the early phase encompassing surveying and design as well as land acquisition and relocation, and the mid-phase involving construction and rolling-stock procurement. From an investment breakdown perspective, the major components are civil-engineering works, land-acquisition and relocation costs, mechanical and electrical engineering, rolling-stock procurement, and other expenses. Among these, civil-engineering investments account for the largest share of total urban-rail-transit project expenditures, often exceeding 60%.
The aforementioned analysts also noted that, during the construction phase, the primary industries set to benefit include seven major sectors: cement, steel, engineering construction, telecommunications, electrical automation, and rolling-stock equipment. Among these, cement, steel, and engineering-construction firms will be the first to reap the rewards, followed by the telecommunications, electrical, and automation sectors, then the rolling-stock equipment industry, with operating enterprises benefiting last.
“Among them, the listed companies most likely to benefit in the project construction phase include China Railway Group, China State Construction Engineering Corporation, CSCEC Second Engineering Bureau, Hongrun Shares, and Tunnel Shares,” he explained. However, he added that the implementation of national policies requires corresponding financial support.
However, the current financing environment is unfavorable, and local governments’ borrowing capacity is now lower than in the past. As a result, construction projects are increasingly being implemented under the BT model, whereby the government, as the project owner, entrusts a project to a project company for general contracting; after financing is secured and the construction passes inspection and acceptance, the project is handed over to the owner, who then pays the investor the total project investment plus a reasonable return. “As a traditional industry, construction firms already have relatively low gross margins, and operating under this model will further increase their financial risks,” an analyst told our reporter.
He stated that, while this announcement is positive news for the construction industry, its impact on boosting the sector’s full-year net profit will be limited. He added that the extent of the benefit will depend on how local governments implement specific policies, the availability of cash reserves, and the ability to secure bank loans.
In addition, some market observers believe that the approval of urban construction projects will benefit CSR and CNR; however, the aforementioned analysts cast doubt on this view, noting that “the two companies’ subway business accounts for only a small share of their overall operations, so the boost to their financial performance will be minimal—and even if they do benefit, it will not materialize until three years from now.”
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