LIU XIAOGUANG IS the man tasked, quite literally, with the construction of the new China. As chairman of the state-owned Beijing Capital Group, he is at the helm of one of the country's largest infrastructure, public utility and real estate companies. The incredible scale and pace of activity above and below ground in China is partly thanks to the various joint ventures the group has with partners such as French water giant Veolia, Hong Kong's MTR Corp and Dutch financial services firm ING. At its modest beginnings in 1995, when the government threw more than 100 capital-starved firms together under the Capital Group umbrella, Mr Liu, 51, was transferred from his government planning position to head up the conglomerate. 'We only had about 10 million yuan in cash between more than 100 companies,' he said. 'After 10 years of hard effort we are now the number one water company in China, dealing with 7.2 million tonnes of sewage.' The company's infrastructure and public utility business, including subway and highway construction, water business and gas, now accounts for 50 per cent of the group's revenue; its Beijing Capital Land real estate subsidiary makes up about 30 per cent and financial and other services account for the remaining 20 per cent. Mr Liu said the group aimed to be a pan-Asian player with sales of about 20 billion yuan and profits of well over 1 billion yuan. In 2004, the company made post-tax profit of 590 million yuan on sales of 5.67 billion yuan. His strategy for closing that gap relies in large part on the growth of the water industry in China. 'Water is just as promising an industry as oil,' he said. 'It's not a renewable resource and more than 400 of the 600 big cities in China suffer from water shortages.' He said that once the government eventually loosened control of water prices, they would rise and never come back down. China still only treats about 30 per cent to 40 per cent of its sewage; the rest is pumped raw directly into rivers, waterways and the sea. This is a huge potential market that Capital Group is well positioned to exploit. The real estate business is less promising in the current climate of central government macroeconomic controls aimed at cooling soaring housing prices. Beijing Capital Land is the sixth biggest real estate developer in China but, 'of 10 large-scale projects planned last year, we only started four of them because of the regulatory approval procedure and newly-introduced controls,' Mr Liu said. Under new transparency regulations, Beijing Capital Land now has to bid in public auction to buy land along with its private developer counterparts, but it has been less affected than other companies by a shortage of land sales because it already has a very well stocked land bank. Mr Liu said a relatively stable property market in Beijing, where the company's projects were concentrated, meant it expected to be able to weather the storm that had hit more volatile markets such as Shanghai, where prices had dropped an average of 20 per cent to 30 per cent in the past year. Still, the group's real estate arm is expanding into second-tier cities as part of a plan to diversify risk away from the capital, and already has about two million square metres of land under development in Taiyuan, Tianjin, Wuxi, Chengdu and Chongqing. Mr Liu forecasts average house price rises of 5 per cent to 6 per cent this year and about 10 per cent in Beijing. Demand for flats in the capital is partly driven by buyers from other parts of the country and abroad, with 40 per cent of Capital Land's customers falling into this category. It has been 15 years since Chinese citizens were first allowed to own their houses and many people across the country are still allocated housing by their danwei, or work unit. Mr Liu believes there is at least another 10 to 15 years of high growth left in the Chinese property market. Even if he is wrong and the property market runs into real trouble, Mr Liu can rest assured there will always be demand for water and sewage treatment.