Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

China's Highway System Growth Paves the Way to a Stronger Economy

Economics / China Economy Apr 01, 2011 - 06:40 AM GMT

By: Money_Morning

Economics

Best Financial Markets Analysis ArticleKerri Shannon writes: What some have called "the worst traffic jam in human history" happened on the Beijing-Tibet Highway in August 2010. It trapped some drivers for more than 20 days and stretched more than 60 miles (97 kilometers).

The mess was so severe that local residents turned into vendors and profited from selling water, noodles and nuts to stalled travelers.


The cause of the auto standstill was thousands of trucks transporting coal from Inner Mongolia's coal fields to power plants in Beijing's suburbs to satisfy the country's surging electricity demand. The lack of railways connecting the two regions often results in trucks crowding highways, and excessive road damage from heavy vehicles blocks parts of the highway from maintenance.

China's crowded roads have forced cities like Beijing to limit registrations for new cars and impose driving time restrictions on car owners. In Beijing, a city of 20 million, the total number of vehicles is expected to hit 7 million by 2015. The number of vehicles in Chinese capital increased by 1,900 a day on average in the first six months of 2010, officials said last year at a transportation seminar.

"We're making another Great Wall, it's just that this one is made of cars," Gan, a taxi driver, complained to The Hinduduring one of Beijing's traffic jams.

Even if drivers know that a route is likely to be backed up, China's road network offers few alternatives for travel. Truck drivers sometimes have little choice but to brave the crowded highways and risk delaying their business.

Skeptics of China's surging auto industry growth cite the crippling traffic as an enormous roadblock.

But China's highway system is changing. Despite news of never-ending traffic jams, the country has an expansion plan underway.

"As for roads, don't be misled by what's happening here," Money Morning Chief Investment Strategist Keith Fitz-Gerald said in an interview. "China is building the largest road network in the world. It's a numbers game that's going to support cars, buses and all forms of trucking for years to come, together with their underlying suppliers."

China's infrastructure expansion plan is not only going to relieve drivers, but will offer profits to the industries and investors who get in on the growth.

Road Expansion Bridges the Income Gap
China plans to finish a highway network suitable for the entire Chinese population by 2020. China included highway and infrastructure expansion as key part of its 12th Five Year Plan, effective from 2011 - 2015.

He Jianzhong, spokesman for China's Ministry of Transport, said the country is considering building two road networks: One with low-charge tolled roads, mostly expressways, and the other with non-tolled common roads.

Chinese Minister of Transport Li Shenglin predicted that total expressway length would surpass U.S. highway length over the next five years.

China's total highway length increased from 41,000 kilometers to 74,000 kilometers during its previous Five Year Plan ending in 2010. New construction projects include building seven highways starting from Beijing, nine highways running north and south, and 18 running east and west.

Industry experts say the western region's current state of transportation is far behind the country's pace of economic development.

"There are many places in the western region that still do not have highways, which makes it more difficult for the local people to travel," said Li Guoli, an employee at the China Communication Construction Company (CCCC), which works on many highway and railway projects. "For example, there is no highway between Changzhi and Linfen, the coalmine city, which puts a lot of pressure on coal transportation."

A key part of the new Five Year Plan is boosting consumption and creating a larger domestic market. One way to do that is to branch out to the most rural areas of China through highways and railways. The expanded highway network could spread resources out to rural areas, bridging the income gap and narrowing the divide between rural and urban policies.

"The western regions need highways to make travel easier, or it would be impossible for people there to get out of poverty," said CCCC's Li.

Facilitating travel in China's inland provinces allows workers to find jobs closer to home instead of having to travel to the coast for few employment openings. They spend less money on traveling and more time with their families. Fewer job-related expenses allow households to spend more as consumers, supporting China's domestic consumption growth. It also helps contribute to a more balanced economy.

"The changes currently going on in the rural China are tremendous and underreported, especially in the Western media, whose focus is always on the large cities like Beijing and Shanghai," said Professor Kay Shimizu of the Weatherhead East Asian Institute of Columbia University. "Actually the changes in rural China are going to be the engine of China's economic growth in the next five or ten years, and of course China will face tremendous challenges. I think China is well-equipped to tackle them."

China also plans to boost production of ports, airports and train facilities to reduce reliance on roads and allow newer roadways to last longer. China's roads transport 74.1% of the country's freight traffic and 94.5% of passenger volumes, according to data from the Ministry of Transport.

China invested more than $713 billion (4.7 trillion yuan) in land and marine infrastructure during the previous Five Year Plan and will maintain that pace over the next five years.

Growing Too Fast?
Not everyone favors this rapid construction rate. Some experts think developing highways in China's rural areas will produce such a small return on investment that the project isn't worth its high cost.

The high cost of China's highway expansion also has kept toll fees higher than drivers expected, according to China's Global Times.

But others say that while a short-term return on investment might not be realized, the long-term benefits of infrastructure growth are far more important to China's economic future.

"In the short term, it might be difficult to make profits, but profits are not the top priority for state-owned enterprises sometimes," said CCCC's Li.

Many say transportation conditions in rural areas are so underdeveloped that new construction is necessary for sustainable future growth. If the country doesn't start soon it could drastically fall behind its transportation needs.

"Take Xianyang airport as an example," Zeng Peiyan, former vice premier in charge of industrial development, wrote in a book published last year on Chinese development. "The local authorities used to be questioned for expanding the scale of the airport from a 2-million-passenger flow to 7 million, but when the project was finished, the passenger flow had increased to more than 7 million."

The expansion efforts also will bring more employment opportunities to Chinese workers. Every $15 million (100 million yuan) invested in highways will create 3,900 jobs, according to a report by China Youth Daily.

Private companies will benefit from the growth as China has so many infrastructure development projects underway that state-owned enterprises can't handle them all and have started turning to contractors. This will reduce the financial burden of construction on the Chinese government and allow private businesses to grow.

More Roads, More Profits
China's expansion plans open profit opportunities in a number of sectors.

Each mile of highway requires 1,000 tons of iron and steel, according to a report in the China Youth Daily. Phil Newman, chief operating officer of the metals consulting group CRU, told Reuters that 95.1% of global steel production growth from 2007 to 2021 will occur in Asia, with China the dominant force.

This will strengthen investments in the global steel industry, like the exchange-traded fund PowerShares Global Steel Portfolio ETF (Nasdaq: PSTL). This fund tracks the price and yield performance of the NASDAQ OMX Global Steel Index, investing at least 90% of assets in the stocks, ADRs and GDRs of companies that comprise the underlying index.

China's infrastructure development also will strengthen its fast-growing auto industry, relieving painful Chinese traffic as a menace to auto market growth.

"The limiter of Beijing traffic isn't what the West thinks," said Money Morning's Fitz-Gerald. "True, conditions are terrible and Beijing traffic makes Los Angeles look positively organized, but it still works just like any other major city in the world - London, New York, Tokyo and even Los Angeles. All are implementing some form of limited driving access, parking priorities and the like."

China became the world's largest auto market last year as a rising middle class bought more cars and trucks than ever before, and analysts expect the trend to continue.

"Private vehicle ownership is still low in China, and we expect that the number of first-time car buyers will increase sharply in the next few years," said Shirley Ng, a director in the automotive division of Nielsen China.

China will need more steel for its auto manufacturing, benefiting POSCO (NYSE ADR: PKX), South Korea's largest steel producer. POSCO recently started building a new plant in the Guangdong Province of southern China to produce galvanized steel sheets for cars. It also made a deal with the Guangdong government to collaborate on projects involving stainless steel production, electric vehicles and green city construction.

Another auto-related stock to look at is China Yuchai International Ltd. (NYSE: CYD), which is engaged in the manufacturing and sale of diesel engines that are mainly distributed in China.

"CYD benefits from three uniquely Chinese trends: rising consumer purchasing power, the Chinese infrastructure build out, and the development of transportation within China to move people, goods, and services around the nation," said Fitz-Gerald.

Fitz-Gerald also sees foreign automakers that market to Chinese consumers profiting from continued auto growth.

"General Motors Co. (NYSE: GM), Ford Motor Co. (NYSE: F), Volkswagen AG (PINK: VLKAY), Audi and other international makers are already benefiting significantly from this trend and all have substantial manufacturing plants inside China," said Fitz-Gerald..

GM sold more than 2.35 million cars and trucks in China last year, beating U.S. sales (2.2 million) for the first time in the company's history.

Source : http://moneymorning.com/2011/04/01/...

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 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