Approvals send investors on the high road again
Infrastructure and cement stocks rose yesterday on news that the central government has approved the construction of 2,018 kilometres of highway projects, as well as new ports, water plants, waterways, and rail projects.
But analysts reacted with caution to the news, expressing concern over the financing of so many infrastructure projects, whose total costs they estimate will exceed 1 trillion yuan (HK$1.22 trillion).
"It's in line with what China has been trying to do since April, namely to accelerate infrastructure projects and boost investment," said Standard Chartered senior economist Kelvin Lau. "The investment component of China's GDP will get a lift, but the problem is that if any bad debts arise, it will be three to four years before we know."
Untroubled by such concerns, Hong Kong investors chased shares in China Resources Cement 14 per cent higher on the news yesterday, while shares in China National Materials rose 9.8 per cent, China National Building Material 8.8 per cent, and Anhui Conch Cement 8.5 per cent. Shares in China Communications Construction, which builds ports and roads, were up 6.1 per cent.
On September 5 and 6, the National Development and Reform Commission approved a wide range of infrastructure projects including the construction and renovation of 2,018 kilometres of highways and metro rail projects. Given that every kilometre of highway costs 70 million to 100 million yuan to build, the bill could reach between 141.26 and 201.8 billion yuan, estimated Nomura analyst Jim Wong. In addition, the total cost of the metro rail projects approved in the past few days exceeds 800 billion yuan.
On September 5, the NDRC gave approval to a mainland finance leasing company to borrow 2 billion yuan in Hong Kong to support the shipping sector. It also gave the nod to China Export-Import Bank to take out an international loan of US$1.2 billion to support Chinese airlines; and China Eastern Airlines to take out an international loan of US$210 million to finance the purchase of aircraft.
"China is going to have trouble if it wants to get listed expressway companies to build highways," said Nomura analyst Jim Wong. "Even local governments are not incentivised to build highways. The roads will still get built, but funding is getting increasingly difficult."