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Muhammad Qasim Jamal

(B3) What 2-3 most attractive business opportunities do you perceive in Chinese construction markets, based on these references? Accordingly, do suggest and justify these business opportunities to the management of your focal firm.

This paper will first show why there is much reason to be optimistic about its prospects and then the opportunities in the Chinese construction market. Clearly the greatest strength of the Chinese Construction market is its size. Investment in fixed assets, construction market GDP and the added value of the construction market in China have more than doubled in the last few (4-5) years alone. According to heat map ranking 2009, China scores very well on market prospects but badly on the ease-of-business criteria and tax complexity. In my opinion the most attractive business opportunities in Chinese construction market are

SECTOR WISE
1. 2. 3. Infrastructure, (transportation, water supply, water treatment etc) Residential and office buildings Energy sector

INFRASTRUCTURE
Urbanization will continue to be the main driver of the growth. The urban population currently 46% is expected to rise to the 50% by 2020 adding 322 million more. Urbanization has created the need for supporting infrastructure, including transport, water supply, and waste water treatment, so much infrastructure investment has been concentrated in the most populous areas, and in linking them with rail tracks, roads and airports. China sustained demand for the residential, industrial and infrastructural expansion which generated the need for new construction projects. Transportation especially the railway is the most promising area for the foreign firms and is estimated that the foreign firm are given contract worth of USD 10 billion during 2009. In 2006-10 five year plan USD 183 billion is allocated to railroad infrastructure and is even more in 2011-15 five year plan and is USD 526 billion. There are plans to refurbish the old rail system to new high speed rail system. It plans to increase to a total of 25,000km of high speed track from current 6500km, much of it by 2020. China has over 100 cities with populations of more than a million, and 30 with more than two million. Of these, 11 have built a rail mass transit system. Because of the size and density of its population, China is building a state-of-the-art rail network to link these cities. On current plans, the country will have 120,000kms of railway by 2020 and in the past five years China has invested USD 75bn annually to add a total of 17,000km of railroad. There is ample scope for further construction growth in rail system. The sale of vehicles is increasing tremendously in China from 5 million in 2005 to 13.6 million in 2009 and 17.2 million in 2010 and it is forecasted that in 2035 there will be 35 million vehicles sale. China is also investing on roads and china aims to add another 20,000km by 2035, linking all provincial capitals and cities with more than 200,000 people, with annual investment of USD 15bn from 2010 to 2020. The civil aviation administration of China has reported that 230 million passengers traveled in 2010 which is projected to increase to 1.5 Billion by 2030. Another 100 airports are expected to be in operation by 2015, bringing the total to 260. Chinese government will spend USD 303bn on water distribution infrastructure to supply clean water to rural areas out of which 3bn only for Beijing.

Team 6 A

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Muhammad Qasim Jamal


RESIDENTIAL AND OFFICE BUILDING
For instance, China is currently undergoing an amazingly strong and rapid process of urbanization and the individual wealth of Chinas citizen has tripled from USD 6,000 in 2000 to USD 18,000 in 2010. While this is of course true for major cities such as Beijing Shanghai, and Guangzhou, the effects can be seen in hundreds of smaller cities throughout the countrys 23 provinces. The net effect on the construction market is the same: an unprecedented need for new residential buildings and service facilities for the growing urban masses. This results in a Chinese construction market, especially in large cities that has an influx of insurance companies, banks and other professional service providers which will increase the demand for the office place, so it will boost up the non residential buildings.

ENERGY
Chinas global energy share will rise from 15.7% in 2007 to 18% in 2015 and 23% in 2030; Power generation has been an area of heavy involvement by foreign players. As there are plans to diversify from coal to renewable and nuclear energy sources. There is a plan to install 2 GW power generation capacities in Magnolia by covering 64 square km area with solar cells.

REGIONAL
The largest concentration of the wealth and growth have occurred in coastal areas, yet the coming decade will increasingly see the vast new markets open up in interior china. The pace of the economic growth has been already overtaken by inner provinces as compared to coastal provinces. These fastest growing inner cities all share common features of rapid increase in population, income and infrastructure development. Increasingly, development is more encouraged in the less developed regions. In 2009 Housing investments in the Central Region rose 23.3 per cent to 59.7bn, whilst in the Western Region they increased 18.9 per cent to 55.1bn.

BUSINESS AREA WISE


Consultancy/design partnership (infrastructure, energy sector, residential/non residential) Raw material provider (steel, concrete) Construction equipment firms (excavators, wheel loaders, other equipments)

CONSULTANCY
With the increasing demand for the sustainability and the participation of foreign designers and construction firms in the Chinese market has introduced new building materials, environmentally friendly materials and novel techniques to the Chinese market, there is huge demand for the well educated professionals and consultants from abroad. China's needs for human resource development for the CI are massive. The education and training needs to produce managers, engineers, technicians and workers for the changing environment.

MACHINERY
Without a doubt, China is the largest construction site in the world. Buildings, railroads, highways, airports, power plantsyou name it, and China is building more of them than any other country. Its no wonder then that China is becoming the largest market in the world for construction equipment

Team 6 A

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Muhammad Qasim Jamal


Two staples for any construction project are wheel loaders and excavators. As might be expected, both types of equipment are in strong demand in China this year. Through July, 134,160 wheel loaders have been sold, a 63% increase from 2009. During this same period, sales of 105,918 excavators represented an 84% increase over the year before. There is an urgent need to establish an effective mechanism through which construction equipment is made available to contractors. As the chinas machinery market continue to progress, and although china is the biggest exporter of the machinery but the opportunity still exists for the foreign firms to export machinery to the china, particularly for the innovative products with cutting edge technology. It is often a matter of pride and symbol of quality for Chinese manufacturer to have foreign made equipment.

RAW MATERIAL PROVIDER


China is using half the worlds concrete and a third of its steel for its numerous ambitious projects. A vast amount of raw materials are needed to feed Chinas construction industry. Therefore it is not surprising that eight of the top forty largest companies in China deal in raw materials. When taking sales, profits, assets and market value into account Baoshan Iron & Steel is Chinas largest materials company, and the eighth largest company in the country. As of the end of the fiscal year 2006 Baoshans profits were approximately $1.6 billion.

JUSTIFICATION
Foreign investment in Chinas construction sector remains modest, but had grown by 12 per cent a year since 2003 to 2008. Yet the opportunities within China, particularly in infrastructure construction, remain enormous. Twofifths of villages still lack a paved road to the nearest town. Many foreign construction companies have established joint venture companies with Chinese construction companies There are few challenges for the foreign investors, most of the construction companies are state owned, 9000 state owned and only 400 foreign firms. But with the increasing demand and modernization there will be opportunities for foreign firms with high technology and educated professionals. Encouraged projects include construction of energy sources and transport; projects that use new or advanced technology, especially to save energy or control environmental pollution; and projects that help develop manpower and resources in central and western China. These small cities increasing need for municipal services has led a large number of them to seek private funding. Traditional Chinese building design and construction technical code is increasingly facing challenges from innovative construction technologies from abroad. With the changing world and change in regulation which allow Chinese people to live with luxury increased the demand for the modern residential buildings which will indirectly increase the demand for foreign high tech firms. With the urbanization, industrialization and increasing wealth of the Chinese, it is no surprise that more international businesses are currently seeking to establish a firm presence in China. The 2010 budget called for slower increases in spending on transport infrastructure, and more investment in health, education and social welfare. Construction expenditures in China are expected to rise 9.4 percent annually through 2015. The residential building sector will surpass nonresidential buildings as the leading market, while non-building construction grows the fastest. The populous Central-East region will remain the largest market while the Northwest region grows the fastest.

Team 6 A

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