[20081121] CITICSSPECIAL REPORTCITICS-Special Report on Infrastructure Cons

Investment Highlights

        The railway construction wave is approaching and the 120,000 km railway network may be finished 7 years ahead of schedule. It is expected up to 2013 railway track length across China will meet the target of 120,000 km under the medium- and long-term plan (till the year 2020) and 150,000 km of passenger routes and 3000 km of inter-city railways will be built. In addition, 28,000 km of other railroads will also be constructed. In total, 42,000 km of railway will be built on top of the 78,000 km as of 2007, equivalent to twice the 21,800 km of railway built over the recent two decades (1988-2007). The efforts in pursuing this are unprecedented.
        The newly drafted railway network scale and investment forecasts: 1. based on the railway construction plans of provinces (up to the year 2020), railway track length will reach 160,000 km. 2. if so much track length is put in place, the combined investment into infrastructure for the incremental 40,000 km track length and the locomotives needed will amount to nearly RMB2 trillion.
        To increase the railway track length to 120,000 km entails around RMB3.5trillion worth of investment into the supporting infrastructure. This figure can be derived via two methods: 1. estimated with the medium- and long-term plan made in 2004, RMB2.5trillion is needed to make the railway track length become 100,000 km and incremental 20,000 km railway needs investment of approximately RMB1 trillion. 2. Based on the composition of the incremental railway routes, 15,000 km of passenger routes needs investment of RMB2 trillion, inter-city railway of 3000 km need RMB0.2 trillion and 28,000 km of newly built railroads entails RMB1.3 trillion worth of investment.
        ~RMB500 billion is needed to purchase locomotives to run on the 120,000 km railway.
        The latest railway investment plan has far exceeded expectations: according to media reports, a total of RMB3.5 trillion will be put into railway construction over next three years, among which RMB600 billion will be invested in 2009 and nearly RMB1.5 trillion need be invested annually over the next two years. We believe that it is very difficult for such progress of investment to be accomplished and then make the following investment forecasts: the annual infrastructure investment over next three years may stand at RMB600 billion. RMB300 billion is predicted to be put in place in 2008 and based on the size of work in progress and projects to be approved, investment will amount to around RMB500 billion in 2009 and RMB600 billion in 2010 and RMB750 billion in 2011. During 2009-2011, annual locomotives investment will come in at around RMB80 billion.