China: Running on rails

By Chris Sleight15 April 2010

When the Chinese government announced its CNY 4 trillion (US$ 585 billion), two-year stimulus package in late 2008 contractors in other parts of the world could only look on in envy. Although the US eventually budgeted to spend more in total to prop up its economy, construction had a much stronger emphasis in the Chinese plans, with a total of CNY 3.08 trillion (US$ 450 billion) set aside for various projects.

That is a massive amount of money in any terms, but in the context of the Chinese construction sector, which in 2009 was valued around US$ 700 billion per year by IHS Global Insight, it represented more than an additional 30% investment in 2009 and 2010.

This spending helped maintain the Chinese construction industry's annual growth rate above +10% last year. On one hand, this was something of a slowdown on figures from the previous decade, when year-on-year growth of anywhere between +12% and +20% had been seen.

But against the backdrop of global construction output falling by some -5% last year, this was a remarkable achievement. According to IHS Global Insight, China will be the world's fastest growing construction market again this year, with a +10.8% rise in output forecast.

The company also says that China has now leapt ahead of Japan to become the world's second biggest construction market. Output was valued at US$ 700 billion last year - well ahead of Japan's US$ 559 billion, but there is still a big gap to the US construction market, which even in its depressed state was worth US$ 845 billion last year by IHS Global Insight's reckoning.

Shift to rail?

Over the last decade or so, the construction market in China was associated in most people's minds with road building. The first multi-lane highways in China were complete in the late 1980s, but now its trunk road network now reaches all 78 cities with a population of 0.5 million people or more via five north-south and seven east-west highways measuring 35000 km in total.

The total trunk road network in China is now around 65000 km, and is being added to at a rate of more than 6000 km per year. China's broad plan is to double the network to 120000 km by 2020.

As impressive as these figures are, they highlight the fact that the road building market in China is now reaching a state of maturity. Growth is levelling off, and the market looks set to stabilise with the construction of about 6000 km of highways per year over the next decade.

However, the next big growth market in China looks to be high-speed rail. The country's first high speed line (i.e. speeds in excess of 200 km/hour) was opened as recently as 2003, but by the end of 2008 the country only had about 1500 km of high-speed lines in place.

That changed with the stimulus plan, which outlined an ambitious scheme to build more than 35 new high-speed lines by 2012, with a total length of some 13000 km.

The overall plan is to build four north-south lines, mainly along the densely populated eastern seaboard, although one line, from Shijiazhuang to Shenzhen will serve some of the more inland cities including Changsha, which is about 800 km from the Pacific.

There will also be four east-west lines, which will reach central cities such as Chongquing, almost 1000 km from the sea.

These projects will bring the country's high-speed rail network to about 15000 km. As anyone who follows the Chinese market will know, the government has a knack of doing what it says when it comes to infrastructure construction. As of the end of 2009, work was underway on well over half of the new lines.

In addition to these cross-country routes, the 35 lines highlighted in the stimulus plan included 19 more local links designed to join up nearby major cities. The length of these routes varies between 100 and 300 km, for a total of nearly 4000 km.

So in all, from having just 1500 km of high-speed railways just over a year ago, in thee years' time China expects to have a network comprising about 19000 km, which will include a direct link between Beijing and Shanghai.

One of the drivers for this is the huge amount of internal migration in China, with workers travelling from the poorer central and western provinces to work in the booming cities in the east. National holidays like the Spring and Moon festivals see as many as 100 million Chinese take round trips to their hometowns to see relatives, and rail is the transport of choice.

However, trains are slow, leading to long journey times. When the Beijing to Shanghai link is open in October 2012 however, the travel time between these two cities is expected to more than halve to about 10 hours for the 1300 km journey. The capacity of the line is also expected to double compared to today, up to about 220000 passengers a day.

The budget for the Beijing to Shanghai line along is CNY 221 billion (US$ 32 billion) - about US$ 25 million per kilometre. At this rate, the total 13000 km plan outline in December 2008 is worth US$ 325 billion over four years.

To put this in context, the total cost of building China's 65000 km of highways is estimated at about CNY 1 trillion (US$ 146 billion). And that was over almost two decades. In contrast, China now plans to spend more than double that on high-speed rail networks in just four years.

Put like that it sounds lie a tall order. However, those that follow the Chinese construction sector know that the government has a habit of setting ambitious targets and achieving them.

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