Officials Approve Plans for Nation's Largest Mall

China’s Surge Turns Nation Into Massive Construction Site

Tue April 06, 2004 - Northeast Edition
Pete Sigmund



Construction is roaring ahead in China, the world’s fastest-growing economy.

The exploding market, with great potential for multi-million-dollar contracts, includes all sectors, from highways, bridges and dams, to offices, factories and hotels, changing the face of the nation.

The construction needs of the immense country, which includes more than 1.276-billion people and covers 3,705,610 sq. mi., is astounding.

Work is almost complete on the $24.57-billion Three Gorges Dam, part of the world’s largest hydroelectric project, in Yichang, which is in Central China. Blocking the Yangtze River to form what will become a 600-km long (373 mi.) reservoir, the dam, begun in 1993, will be used with 26 power generating units which will produce 18.2-million kilowatts of power for Shanghai, Wuhan and other population centers by 2009.

Another huge project, just beginning, is the $11-billion undertaking to divert approximately 14-billion cubic meters of water each year across several thousand kilometers from the south to regions in the north, including the capital of Beijing and other dry areas. This work, expected to be completed by 2010, involves extensive construction of channels, pipelines, tunnels and other infrastructure. The Association of Equipment Manufacturers (AEM) in Milwaukee, WI, estimates that it will require approximately $1.6 billion worth of equipment purchases.

Cities are booming (and choking with traffic).

“If you go to China, every city is like a construction site,” said Li Jianhua, first secretary at the press office of the People’s Republic of China in Washington, D.C. “There are many new buildings, private homes and highways. The economy is doing well. People are getting richer. They have money to buy things like houses, apartments and other things. Expansion will continue in the future.”

One sign of the exuberant construction: Chinese contractors and manufacturers pop up all over the world. An estimated 2,000 attended this year’s Bauma Show March 29 to April 4 in Munich, Germany.

Ambitious Program

According to a market profile on China by the International Road Federation (IRF) in Washington, D.C., China is now committed to an ambitious program of road and bridge construction.

“In the last 20 years, China has been the world’s fastest-growing economy … The federal government in Beijing has decided to invest heavily on the construction of a modern, comprehensive road network. If completed as planned, China will have a system of paved roads reaching nearly every county seat across the country by 2020.”

(IRF is a not-for-profit organization, founded in 1948, which encourages development of better and safer road system worldwide. Its Web site is irfnet.org.)

Big Market for Equipment

“China offers huge opportunities for manufacturers,” said Kaien Li, international marketing manager of Asia of the Association of Equipment Manufacturers (AEM) in Milwaukee, WI. “In the big cities especially, like Beijing or Shanghai, you can see job sites on each block, with excavators, cranes, loaders, dump trucks. Construction jobs are everywhere. Every province, every city, has a highway construction project.”

The IRF Report is likewise upbeat. “One of the few product markets where foreign companies can effectively compete against Chinese suppliers is the construction equipment market. Because of the superior technical characteristics of foreign construction equipment, China tends to look favorably on their import for use on road construction projects.”

Many equipment manufacturers, including Caterpillar Inc., are establishing joint operations to meet the need for all types of construction equipment.

Contractors Interested But Cautious

U.S. contractors are far from jumping on the Chinese bandwagon en masse.

“Obviously, China offers many opportunities and we’re paying close attention to them,” said Deanna Goelzer, director of development programs and global relations of the Associated General Contractors of America (AGC) in Washington, D.C.

“Not that our members aren’t interested, but it will take a few years. There’s risk in anything. Especially with the economy the way it is now, why pursue work somewhere else when there’s plenty of work in your own backyard where you don’t take so much risk? Then there’s the inevitable problems of working through the structures of a country in the Far East.

“Difficulty comes into play in overcoming the bureaucracy in order to actually work there,” Goelzer said. “Overcoming such obstacles is part of what we do, cooperating with our Chinese counterparts.”

Expanding Highways

New paved highways, both asphalt and concrete, are dramatically changing the face of the country, reaching far through the mountains and plains to make remote counties accessible by many thousands of new cars and trucks, and ringing cities with freeways.

In 1990, approximately 1.622-million passenger vehicles (cars or buses) were on China’s roads. By 2000, 7.402 million privately- owned passenger vehicles were on roads. Truck traffic increased from 3.685 million to 6.770 million.

“It’s totally different from 10 years ago,” said AEM’s Kaien Li. “Freeways are everywhere. The number of cars in Beijing increases by about 600,000 each year. Many thousands of excavators, bulldozers and other equipment can be seen on new road projects.”

Michael Martin, senior economist of the American Road & Transportation Builders Association (ARTBA) in Washington, D.C., describes this highway work.

“China decided to build a national highway system in the 1990s. The focus before that, especially in the growth period between 1949 and 1965, had been on constructing major railway and waterway systems rather than giving a priority to roads.

“The Chinese call their new national system ’The Five Verticals and Seven Horizontals.’ This refers to the fact that they are now focusing on five national trunk highways, which go north to south [vertical] and seven which go east-west [horizontal].”

China’s Ministry of Communications has announced a goal of completing the trunk highways, which will total at least 36,800 km, by 2010. It is approximately half way through building the system, whose limited-access expressway will connect all major cities.

In 1949, China had only 8,700 km (5,406 mi.) of roads. Between then and 1990, further road spending was by local governments or the military. Most roadways were only two lanes wide, with concrete pavement over crushed rock. However, during the 1980s, the country began constructing some single-access roads with more than two lanes, completing its first expressway in 1988 and building several toll roads in high-growth regions around Guangzhou, Shanghai and Beijing.

By 1990, China had 1million km (638,986 mi.) of roads. Growth has continued unabated since then. The road system expanded by 36.4 percent in the 1990s. Half of this expansion was between 1997 and 2000.

China’s 10th five-year plan covering 2001 to 2005 calls for expanding its road network to a total length of 1.6-million km (994,194 mi.), including more than 25,000 km (15,534 mi.) of expressways and 280,000 km (173,984 mi.) of class 2, 8-meter-wide-lane (26 ft.) roads.

The plan calls for building 42,000 km (26,098 mi.) of new roads, at an estimated cost of $1.7 billion, by 2005. The focus will be on eight inter-provincial trunk highways. Sources told Construction Equipment Guide (CEG) that most of the new roads will be asphalt, though the older roads were primarily concrete.

The IRF report says that, during the 11th five-year plan ending in 2010, the Ministry of Communications plans to build 350,000 km (217,480 mi.) of new highways, 12,600 km (7,829 mi.) of expressways, and 15,000 km (9,321 mi.) of interprovincial highways.

Another huge highway undertaking, now in the early stages, is developing ring roads around the major cities, much like the United States except that five or six such rings, instead of one, may encircle a city like Beijing.

“In Washington, we have the Beltway; just imagine six of them around Beijing,” Martin said. “Beijing is exploding with cars and trucks.”

China also plans to build four-lane highways connecting all the rural county seats to the national system by 2015.

“There’s a strong recognition that economic reforms have been more beneficial to eastern China than the western area, so the plan is to build more transportation infrastructure, particularly roads, in the west,” said Martin.

The IRF report quotes Vice Minister of Communications Zhang Chunxian as saying that China will spend more than $84.5 billion over the next 20 years to build approximately 350,000 km (217,480 mi.) of new roads in western China.

Much Work on Bridges

Many of China’s bridges were built during “The Great Leap Forward” in the late 1950s and early 1960s, so many are roughly 40 years old. During the 1990s, China embarked on a major program to add new structures, and increased the number of its bridges by 65.4 percent. (It also doubled its number of tunnels.) China now has 275,000 bridges of all types. Roughly 9,600 of these are considered dangerous, so quite a bit of bridge work is under way or planned.

Financing

The IRF said China spent $106.48 billion on road or bridge construction during the 1990s.

There has been a major shift in financing from the central government to local governments and loans.

In the 1980s, the central government, which had previously provided capital for road construction in the form of grants, switched to loaning the funds, encouraging the local governments to raise their own capital. The locals raised so much money on their own that by 1993, foreign capital investment in Chinese transportation exceeded the central government’s.

By the end of the 1990s, The World Bank had provided more than $2 billion in loans for roads. The Asian Development Bank provided approximately $3.5 billion via its Japan Special Fund.

The central government financed only 5.7 percent of transportation infrastructure, compared with 33.9 percent from domestic loans, 3.5 percent from foreign capital and 56.9 percent from local government capital and other sources.

In restructuring its economy, China kept a core of state-owned enterprises but permitted local companies, including individual entrepreneurships, to manufacture and sell goods in direct competition with the state. The private companies now dominate the economy.

The Ministry of Communications tried to institute a national fuel tax in 1998 to finance road construction, but the measure failed due partly to opposition from farmers and local governments. The central government must rely heavily on a mix of tolls, surcharges and other fees.

ARTBA’s Martin said that China has not established a clear, dedicated stream of revenue to finance highway work. Instead, funding is out of the general budget. To lessen the impact, the government is actively seeking private funding.

“In many cases, they’re hoping to establish joint ventures to develop many of the highways as toll roads, which they would finance, in conjunction with an overseas partner, based on projected revenue,” Martin said.

2008 Olympics

Beijing will host the 2008 Olympic Games. This is spurring a wide range of construction. One IRF consultant said China plans 142 projects, valued at more than $22 billion, related to this world event.

Approximately half of the Olympic projects relate to surface transportation. These include.

• A $5.4-billion expansion — needed for approximately 50 years — of Beijing’s subway system.

• A 5th and 6th ring road around the city.

• A new passenger terminal, cargo terminal and runway at Beijing International Airport. This work is valued at $1.8 billion.

• New traffic control information technology valued at $3.6 billion.

Construction of the first group of venues for the Games began in January, concentrating initially on earthwork and infrastructure facilities. These initial four venues are the $360-million National Stadium, the National Swimming Center, the Beijing Shooting Range and the Laoshan Cycling Velodrome. They are to be completed in 2006.

An estimated 600 foreign companies are competing for Olympics-related contracts. In theory, all are open to foreign bidders, but Chinese companies are expected to receive preference.

“Foreign companies that can also offer a substantial capital investment in the project, or advanced technology, may receive a more-favorable review,” said the IRF report.

Trade

Congress approved normal trade relations with China in May 2000, sweeping aside 20 years of economic restrictions that had been part of anti-Communist policy.

The Clinton Administration backed normalization. Three out of four Republican lawmakers also voted for it, while two out of three Democrats voted against. Admitted to the World Trade Organization (WTO) in December 2001, China has become a very large source of a wide range of products produced with cheaper labor and sold in the United States.

According to the Foreign Trade Statistics Div. of the U.S. Census Bureau, U.S. imports from China totaled $152,279.1 million in 2003 while exports to China totaled $28,418.5 million. That’s a trade deficit of $123,860.6 million. The U.S. trade deficit with China in January 2004, was $11,476.6 million. Over 12 months, that would be $137,719.2 million.

Statistics on trade between the United States and China since 1986 has shown spectacular growth. In 1986, U.S. imports from China totaled $3,861.7 million.

Exports to China were $3,855.7 million. In 1991, imports were $18,969.2 million; exports were $6,278.2 million. By 1999, imports were $81,788.2 million and exports were $13,111.1 million. In 2002, imports from China were $125,192.6 million while exports were $22,127.7 million.

China’s total foreign trade rose to $851.21 billion in 2003, up 37.1 percent from 2002. Its economy is predicted to grow approximately 9 percent in 2004. During the 1990s, its gross domestic product (GDP) increased 142.7 percent, for an average annual rate of growth of 15.8 percent.

China is to open its industries and market much wider to the outside world, according to its commitment to the World Trade Organization. It is in the process of cutting tariffs and gradually lifting non-tariff barriers.

In the next three years, the People’s Republic says it will import $1 trillion of goods and services as its import market expands.