Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Coronavirus is America's "Pearl Harbour" Moment, There Will be a Reckoning With China - 6th Apr 20
Coronavirus Crisis Exposes Consequences of Fed Policy: Americans Have No Savings - 6th Apr 20
The Stock Market Is Not a Magic Money Machine - 6th Apr 20
Gold Stocks Crash, V-Bounce! - 6th Apr 20
How Can Writing Business Essay Help You In Business Analytics Skills - 6th Apr 20
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

The Great Traffic Jam of China, Transport Crisis and Investment Opportunity

Economics / China Economy Sep 05, 2010 - 07:34 AM GMT

By: Dian_L_Chu

Economics

Best Financial Markets Analysis ArticleWell, it is official now - in addition to the Great Wall, the Great Traffic Jam started on Aug. 14--60 miles and ten-day long on an "expressway" into Beijing from Inner Mongolia (see map)--has earned the capital of China the top spot among the cities with the world's worst traffic…, at least according to Foreign Policy.


Although that logjam seemed to have cleared up, Reuters reported on Sep. 3 yet another similar 75-mile (120 km) crawl in Inner Mongolia on the same highway heading toward Beijing and the neighboring province of Hebei

Graphic Source: newgeography.com

Infrastructure Under-capacity

Until recent years, China was able to maintain growth despite its inadequate infrastructure; however, this is not the case anymore. While the world seems quite fixated on the length--miles and number of days--of these mega jams near Beijing, there's also a serious message--the under-capacity of China’s infrastructure.

Coal Overloads While Rail Lags

Both super-sized gridlocks reportedly were caused primarily by heavy trucks transporting illegal coal, compounded by road maintenance works. China is the world's top producer and consumer of coal. However, with limited rail lines, China's roads often suffer from the spillover of illegally overloaded trucks, especially along key coal regions. And Inner Mongolia is an important coal producing region in north China.

“Shorter Than a Cigarette”


The per capita railway mileage in China is estimated to be only 6 cm--shorter than a cigarette—and remains below those of developed economies. In addition to commercial lines, the inadequate rail network also has been causing serious passenger travel headache, particularly during the annual spring festival migration. Cognizant of the crucial link between infrastructure and economic growth, China is keen to catch up.

Infrastructure investment was the cornerstone of China's economic growth last year. In 2009, China pumped $102.7 billion of investment into railways, an increase of 69.1% year over year, with high-speed passenger rail lines accounting for almost 60%, according to the report released this April by China's Ministry of Railway (MOR).

The country already has the world's largest high-speed rail network with 6,920 km of tracks, and is planning to lay down 42,000 km of new rail track by 2020, much of it completed by 2012, adding new high-speed rail lines between major cities.

However, as China’s Minister of Railways Liu Zhijun noted last year, “...even in the future, China's railway mileage of 1.2 million km road network is still relatively low intensity.”

Commuter Pain #1 – Beijing

Even without the latest headline road congestions outside the city, Beijing already has taken the top spot in "Commuter Pain” among major world cities based on IBM's latest survey.  And that’s with 44% of the respondents in Beijing taking bus to and from work, based on the same IBM survey.

The ranking is of no surprise.  According to Newgeography.com, by 2008, Beijing has reached a car ownership rate almost equal to that of New York City dense boroughs, but with 1.5 times as many drivers per household.



The Great Auto Boom of China

The city of Beijing is not along in this predicament as other cities in China are also facing growing congestion headaches. Bloomberg reported Chinese vehicle ownership climbed 51-fold, while per capital disposable income for Chinese households increased 46-fold in nominal terms from 1977 to 2008.

Somewhere along the line, China dethroned the U.S. as the world’s largest auto market when its automobile sales zipped past the U.S. for the first time in 2009, when its total car sales hit 13.6 million vehicles, up 46% from 2008.

China is racing to build new roads and has embarked in recent years on a huge expansion of its national road system. Nevertheless, the road upgrade and expansion has failed and to keep pace with, and will continue to lag behind the rising car buying and driving population (Chart 1).

And the latest data offers few contradictions to this great auto boom.  China's car sales in August rose 55.7% on the year, as renewed subsidies for energy-efficient vehicles and a stronger yuan currency spurred demand.  Jeffrey Shen, CEO of Ford Motor China this week told Reuters that he is projecting auto sales in China this year to grow by 15-25%, after a breakneck 45% rise in 2009.


Law of (transportation) Supply & Demand

China is going through a "growth normalization" phase after the Great Stimulus (4 trillion yuan) of 2009, and there are worries of a slowdown, even crash, partly as a result of the high base last year. However, Chin’s “normalized” growth forecast is still in the 8-10% range for 2010, and growth is becoming more broad-based as domestic consumption growth has strengthened since 2008.

As opposed to the chorus of Chinese overbuilding bubble focusing on some overhyped planning misses not representative of the overall picture, China essentially has to keep expanding and upgrading its transport infrastructure (road, rail, ports, etc.) just based on the basic law of supply and demand, regardless of its monetary policy.   

Stay Logistically Competitive

According to World Bank statistics, goods lost due to poor or obsolete transportation infrastructure amounted to 1% of China's GDP based on the most current survey (mid 1990's). Logistic costs account for 20% of a products price in China; compared to 10% in the U.S. (The numbers probably would be higher by now in light of China's rapid growth rate since the mid 1990s.)

In order to stay competitive while meeting future social economic development needs, China will likely keep a strong commitment to accelerate its infrastructure development for years to come (think the next decade, minimum) just to play the catch-up game.

About “Face”

Furthermore, the recent world headline grabbing super traffic jams have put the number two economy in the world in a somewhat negative spotlight. I'd suspect Chinese government would most likely accelerate and re-appropriate funding and projects just to rid of this not-so-favorable image and press.

Now Playing - Great Infrastructure Expansion 

Recent data affirmed that total fixed asset investment for the first seven months was up 24.9% year-over-year, while railway construction also registered a 17% year-on-year growth, albeit at a slower rate than last year. (Char 2)

Although they are not covered in this discussion, infrastructure expansion will likely also continue in other developing regions like India and Brazil, in addition to China.


Investing Ideas

This trend should provide good long-term growth prospect up and down the entire infrastructure supply chain from raw material, equipment to construction companies like China Railway Group, China Railway Construction Corp., Caterpillar (CAT), General Electric (GE), CNH Global N.V. (CNH), KOMATSU LTD, and VOLVO Group.

There are also some infrastructure-focused ETFs that could give individual investors some broad coverage such as iShares S&P Global Infrastructure Index Fund (IGF), SPDR FTSE/Macquarie Global Infrastructure 100 (GII), PowerShares Emerging Markets Infrastructure Portfolio (PXR).

INDXX China Infrastructure Index Fund (CHXX), and Global X China Materials ETF (CHIM) are examples of funds specifically focusing on China.

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at Economic Forecasts & Opinions.

© 2010 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules