- A guideline of investment opportunities during 2006-2010
1. Retrospection and expectation of the Chinese economy
In course of reformation and development, commercial opportunities are quickly rising and fading away in China. The economic background and situation changes immensely compared with before during the period of the 11th Five-year Economic Growth Plan. Shenzhen Think Tank Investment & Management Co., Ltd studies the economic structure and trend of industry change, so as to figure out the business opportunity for the investment partners.
After the year of 2004 which is the best among the past 3 decades, world economy in 2005 is still strong even under the pressure of high oil price. And the economy in China keeps on high increasing with a little bit lower speed. There are different opinions on the Chinese economy in academe, some are optimistic while some are extremely pessimistic and many make wrong forecast. The combination of “high increasing-low inflation” is in steadiness and tends to be perfect in 2005. Capital assets investment is blooming and the quantity of new projects is increasing, the retail gross of the consumable is rising sharply while CPI is obviously running downward.
The economy in China is in a golden age during the past decade and the GDP rate keeps on more than 9% for 3 years without the high inflation in 90’s. Learned from the economic data of the first three quarters of year 2005, we estimate that the economy in China will fluctuate within a narrow domain of 8% to 9% in 2006 and longer time, assuming the government policy keeps avoiding large fluctuation designedly. Under the trend we can foresee some points in Chinese economy which will achieve faster development.
2. The investment opportunity of the hot industries in the period of the 11th Five-year Economic Growth Plan
The government is able to steer the economy firmly after 20 years’ reform and opening to the world, so the 11th Five-year Economic Growth Plan is still an important guideline to direct the state economic development.
The 11th Five-year Economic Growth Plan gives us directions to search for hot topics of economy development in China. Actually there are huge opportunities during the coming 5 years.
1、 New energy resources and circular economy
According to our experience, the prominent economic problem of the past 5 years will become the key target of the coming 5 years. After the serious inflation during 1993-1994, Inflation control becomes the most important task during the 9th Five-year Economic Growth Plan started from 1996. Solving the problems of the State - owned enterprises and personnel settlement results difficulty in obtaining employment and social stabilization during 1997-1998, hence the 11th Five-year Economic Growth Plan period started in 2001 advances a specific goal for improving employment. And the continuous rising of the energy price makes the energy saving to be the key point in the 11th Five-year Economic Growth Plan.
This subject includes increase of the energy utility rate, exploitation and using of clean energy, reuse of materials which is able to be recycled. Six central ministries and commissions issued the list of pilot enterprises, industries and regions for deploying circular economy and most of which are monopolized in the energy-consuming industries.
Some government officers declare in public that the government will support important pilot projects and technical exploitation items. Now the State Reform and Development Committee collaborating with Treasury Ministry and Commerce Ministry urged the enterprises and local governments to apply for the pilot projects. Big technical innovation items which are important to advancing the circle economy also can receive the support from public debts and finance capital.
Based on rough estimates, the reproducible energy for generating electricity in 2020 will reach a capacity of 20 million kilowatts, which means that it should generate one million kilowatts every year. This assignment is difficult to achieve and far from adequate if only relying on input of the government. Mr. Zhou Fenqi who is the office director of CRESP considers that the key to solve this problem is to attract more and more enterprises and investors in this business.
The renewable energy such as solar energy, wind energy, water energy, energy out of garbage and sewage, terrestrial heat energy, ocean energy have a considerable marketable space and cost superiority, it is supported by the country and have a tremendous development in the future.
Some kinds of pint-sized electricity off-line generators have been commercialized in China, such as wind-electricity generator, light-voltage converter and wind-light complementary electricity station. As of generating electricity by wind, more than 30 factories with a total throughput of 30,000 sets a year have produced and exported dynamotors rating from 100W to 5KW. We have got know-how to assemble 50-200KW generators, and independent electricity stations as well as unite-net-wind-electric-field reached a capacity of 567 million kilowatts in 2003. The cost for generating wind electricity has been reduced to 700 dollars per kilowatt, which is only half of that of nuclear power. Due to operation time of wind-fields is around half of that of nuclear power stations, both costs of capital investment are the same when calculated by the unit capacity. And it is estimated that the cost may be less than 500 dollars per kilowatt.
The efficiency and price of light-voltage battery is close to the international standard now. A 25KW-light-electricity-station at Naqu and a 100KW-light-electricity-station at Anduo in Tibet represent the advanced level of our country. Shenzhen has also built the electricity system with 1MW which is the largest one in Asia.
The electricity capacity in 2050 will reach 2.4billion kilowatts and there are still 0.72 billion kilowatts gap which need renewable energy to fill in when considering all possible alternatives for generating electricity. It is considered that solar energy will act as a very important role to fulfill this task, but the requirement for conversion, storage and transportation is much higher so the research and development in the technology and industry should begin as soon as possible.
2、 Railway Traffic
Capacity of railway transportation is an important bottle-neck that results in a “coal shortage” in the spring of 2004 in China. The organizations in charge of railway are still in a status we called as “half administration, half commercialization”. The progress of paving railroad is very slow comparing with the highway industry which has been given admittance to private investor long time before. Although new investment in the railway expedites suddenly from the year of 2005, the absolute scale is still very small.
According to
Recently the Railway Ministry announced to open four sectors to private investors, which are railroad pavement, railway transportation, railway equipment manufacturing and diversified business. In the meanwhile, innovation in the management mechanism and policy for joint venture is enforced hence we believe that a new climax of the railroading is coming.
New type of railway equipment: the State Council approved the
-the mileage will reach 100,000 kilometers,
-separate passengers and goods on the busy trunk lines,
-the rate of dual-line and electrified mileage will reach 50%,
-the transportation capacity should meet the needs for national economy and social development, and the key equipment should reach or approach to the advanced level in the world.
As a result, the country shall develop high-speed train and new type underground vehicle including traction, transmission, control as well as beaconage system. Supply of locomotives and vehicle, manufacture of equipment and components are important developing opportunities for investors.
3、Road traffic and public establishment
It accords with the economic principle of energy saving that developing public traffic in the cities can solve hard-outgoing problem when city expands its size quickly. When Chinese people discuss about the city traffic, they are focusing on orbit-bound traffic items which are approved but have not started. There are nine cities having put orbital-bound traffic system in operation. The total investment had been reached RMB200 billion Yuan in the period of the 10th Five-year Economic Growth Plan period. The capital investment of the orbit-bound traffic items that are established or under construction is RMB280 billion Yuan and the mileage is 688.3 kilometers. An optimistic estimate is that the total mileage of urban orbital traffic in China will be more than 1000 kilometers by 2010.
Infrastructure of the traffic industry: It is a key timing for development of road traffic in the period of the 11th Five-year Economic Growth Plan because the bottleneck problem constrained the development of economy must be solved.
Now the State Reform and Development Committee has reviewed and approved the 11th Five-year Economic Growth Plan for the traffic industry and it will reinforce the development of the industries in perspectives such as railway, expressway and ports, as well as advancing and improving the capability of carrying and distribution. Hence investment scale will advance plentifully so as to achieve this goal.
The goal of integrative traffic transportation in this period is to build a persistent integrated traffic system which is fast, convenient, safe and economical with a main frame containing railroad and highway, energy transport channel, fast guests transport system and container transport system, so as to relax the restriction on economic development resulted from poor traffic transportation and satisfy the needs on better living condition as well as secure safety of the country. The construction capital for building the traffic system is RMB4500 billion Yuan from 2001 to 2010, and more than RMB8000 billion Yuan till 2020. The amount invested in traffic transportation industry always takes 3.5% to 3.8% of GDP in the developed countries and the primary reason for the lagging development in China is due to shortage of investment. As we want to drastically resolve the transportation restriction on the economy, we should increase the investment amount of transportation to 3.5% of the GDP.
Ports: port industry is a very important proportion of the transportation traffic industry. Driven by fast increase of the international trade and domestic economy in 2004, the domestic sea transportation was growing strongly. Large transportation quantity also drove the development of the ports and ramp-up of shipping capacity. The supply of the marketable transportation capacity results in a stable increase of the transportation fee and the shipping enterprises have a good perspective.
China is taking a more and more important position in the international transportation market. The top 6 biggest container ports in the world are all located in Asia, and Hong Kong takes the first while Shanghai and Shenzhen take third and fourth respectively. China has become the driving force for the rising demands of sea transportation in the world. 80% of global sea transportation increment last year in the world is from China. Therefore, the good foreground of the port economy in China attracts more and more foreign investment.
The average profit margin of the port industry keeps on a high level and stably increasing, which attracts many investors. Some beachfront cities such as Dalian, Tianjin, Qingdao, Nantong, Ningbo, Zhoushan, Maoming and Zhanjiang take the port development, especially construction of berth for large-scale oil tanker as the most important target of their development strategies. The construction of strategic reservation tanks will make the oil transport to be a new growth pole of the port administrations.
Large-scale port is the trend nowadays. The total throughput of the ports is 4.07 billion tons, the foreign trade accounts for 1.15 billion tons and the container throughput is 6.18 million standard containers which are 23.3%, 19.2% and 27% respectively higher than before and keeps the first position in the world. With fast increase of investment and production, the transportation of energy and raw materials is increasing sharply, the capacity of ferry shipping for bulk cargo and the berth for loading and unloading the imported crude oil, ironstone and coal are deficient, some ports appear the unwonted phenomena of ship and port pressing.
However, the investment condition of port is more comfortable than other infrastructure industry. The reform on the port administration system has being launched and all the ports are transferred to local government now, which containing transfer of the property and separation of party affair from operation. The
4、Water Industry
Our country is one of the 13 water-shortage countries in the world. The quantity of water allocated per capita is only a quarter of the average thus ranks the 121th globally. 400 of 600 Chinese cities are short of water supply and 100 of which are lack of water badly. The amount of gap is 6 billion cubic meters. The data from the State Water Conservancy Ministry indicated that gross of the water is 2413 billion cubic meters in 2004, which is 10% less than the other years. And the water consumption was 554.8 billion cubic meters which is 22.7 billion cubic meters more than that of in 2003. The cumulative water consumption rate was 54%. With fast development of the economy in China, the water shortage problem will become more and more serious.
Water business is an industry that has the characteristics of large investment, long cycle, low and stable return rate. It can be divided into two secondary industries as water supply and sewage disposal.
Water supply goes up stably. Looking at the statistics, we can find out that the gross of water supply keeps balance basically. The industry consumed water reduces obviously while the water for living is increasing accompanied with the undergoing of the industry water-saving activities. With the increasing of the population as well as development of the urbanization and economy, the gross of the required water of the country will reach 710 billion cubic meters and the gross of water consumption in cities will reach 132 billion cubic meters, the comprehensive rising rate is 4.3% and the water supply industry will keep stable increase. The annual revenue in the water supply industry in our country will increase from RMB60 billion Yuan to 70 billion Yuan through RMB150 billion Yuan to 200 billion Yuan.
The market scale of sewage disposal goes up stably in the near future. As the quantity of the sewage drainage is increasing every year and the pace of the pollution treatment is slower than the increase of the pollution, the proportion of the less V-class water is still very high. The data from the State Environmental Protection Bureau indicates more than half of the Seven Rivers in China are polluted to some extent and could not conform to the standard of drinking water. 36.6% of the reach water is of V-class and less V-class, 27.9% of which are less V-class that have been lost the function of being used directly.
The revenue per year of the water supply industry in our country will increase from RMB60 billion Yuan to 70 billion Yuan through RMB150 billion Yuan to 200 billion Yuan and the sewage disposal rate in city will increase from 22.3% to 45%, the daily increment of disposal gross is 26 million cubic meters. Some experts estimated that total investment of water industry will reach RMB1000 billion Yuan in 2006. The estimated annual growth rate of the water industry will keep 15% for a long and middle period of time, and it is worthy of investment because the ROI is higher than the average level of the other industries.
The sewage disposal rate of the water industry is 45.6% and nearly half of the sewage has not been disposed. The goal of the 11th Five-year Economic Growth Plan is to increase the sewage disposal rate higher than 60% in all the cities and higher than 70% in the key cities such as provincial cities, site-seeing cities and environmental protection cities. The country is planning to double the capacity of the sewage dispose in the towns in the coming five years and the business of which will be larger than RMB300 billion Yuan.
It is the trend that the price of the water will raise. The motif of the economy construction makes it to be certain that the price of the public utility will be raised. Raising the water price is a good method for saving water, so most of the cities in the country are going to or have been raised the water price. The water prices are different obviously in different areas and the price in the north is higher than in the south, and the prices in some cities badly short of water in the north are much higher than in the south. Beijing began to collect water resource fee in February, 2002 and the price of the raw water has been rinsed up 1.1 Yuan, while the price of the supplied water is the same as before and the sewage disposal fee raises 0.5 Yuan. In some developed countries the price of one ton water is the same as about ten KWH of electricity, but the price of one ton water is worth two or three KWH electricity in most areas of our country, so there are large spaces for the rising of the water price.
The profit level of the water enterprises is advancing. The payoff of the water enterprises is not related with the water price, the income of the water supply enterprises rely on the business balance with the related subsidiary companies and the income of the sewage disposal enterprises rely on the transfer payment from the government. The market innovation in the future will extend the industry value chain and expand the scale of the water enterprise and would bring profit into the related companies. As the growth of the economy will decline, we consider that the water industry could obviate the economic risk because the outstanding achievement is rising stably and the cash flow is plentiful. What is more, with the raising of the water price, marketing innovation and industry conformity, the water industry has a good foreground in the future and a valuable investment now.
It is estimated that the market value of the water industry will rise to RMB200 billion Yuan in the period of 11th Five-year Economic Growth Plan. The annual increasing rate will keep on more than 15% till 2010. Water industry is the last commercialized public project, the innovation for the water industry is imperative under the market economy.
5、Information Industry
The information industry should develop the core industry of integrate circuit and software and pay attention to the development of the information industry sectors such as digital video, new type remote communication, high capability computer and network equipment.
The 3G network which was delayed more than once for many reasons did not turn into the hotspot of investment in the past years. And it is supposed that the Information Industry Ministry will complete the 3G program and report to the decision makers in 2005. The formal deal will be made in 2006.
It is estimated by the Information Industry Ministry that the total investment for the 3G network which lasts for 6 years is RMB430 billion Yuan and the average investment every year is RMB36 billion Yuan. But the increase of the 3G investment is synchronous with the investment decline of the 2G (such as Xiao Lingtong and GSM network). So the investment of the equipments for 3G will be gentle but not eruptible. The actual investment scale will be decided by the reform pattern of the telegraphy, the providing quantity of the 3G license and the institutional choice.
The third part of the 11th Five-year Economic Growth Plan is “building new socialism country”. The 9th line of which is “proactively developing the public project in the countryside”. We can see from it is developing long-distance education and make all the villages have TV and broadcasting system, so as to develop the country’s communications quickly. Now the population in the rural area takes up about 70% of the whole population, but the communication situation is lagged and the basic establishment of telephone and telecom is few. There are still 8.8% of the administration villages do not have telephone network. Country communication is ranked to be the important developing field in the period of the 11th Five-year Economic Growth Plan.
The program advances building of the basic establishment of broad band communication net, digital TV net and the new generation network, advocating the amalgamation of the three nets and the safety system of information. The program also makes a regulation on the relationship of the telecom and extensive electricity.
Seen from the developing trend, the operation among telecom, internet and electricity is inevitable. For example, the market value of the mobile telephone with TV and the IPTV will be hundreds and thousands billion Yuan.
3. Suggestion on some specific industry sectors
1、Equipment Manufacturing
According to the 11th Five-year Economic Growth Plan, we can find that the key words in the presentation about the industry are “independent innovation” and “modern manufacturing”.
It pointed out that the equipment manufacturing should rely on the construction engineering, insist on combining the independent innovation with the technology introduction, intensify the support of the policy and advance the indigenous level of the grand equipment. Especially, we should achieve breakthrough in the field of electricity generation and transmission which is effective and clean, petroleum, advanced transportation, top grade numerical control machine tool, robot, integrated device electronics, etc. Thus it can be seen that the equipment manufacturing has been taken to a very important position.
-Large-scale ocean engineering and port equipment. According to the State construction program for the three big ports of Yangtze River Delta, Pearl River Delta and Bohai Bay, the capacity will be doubled till the year of 2010.So we need to build three smoothly integrated traffic channels on the sea and develop large-scale concentrative and professional docks. The program brings forward the plan of developing the large-scale ocean port equipment definitely and the emphases are developing large-scale transport vessel for ore and crude oil, high speed heavy container vessel and advancing the manufacture level of the core fittings of diesel engine crooked axes, large-scale casting and the boiler generator, etc.
-Large-scale mining equipment. Our country will construct and reconstruct 120 seats of mine, so as to advance the security and efficiency of exploitation and protect the environment. Therefore, the country will tackle the key problem such as the technology and then produce large-scale equipment for picking, advancing and washing, as well as the equipment for excavating the coal bed. It is important to master the key manufacture technology about the break side rock grab and the large-scale construct machine so as to utilize the mining resource synthetically.
-Numerical control machine tool.
The level of the tool decides whether the modernization of equipment industry will come true. The machine tool market in China is divided into two parts as middle and low-end and high-end. In most of the Chinese enterprises, the national enterprises take up the low end market as ordinary machine tool generally; the “low-end infighting” is becoming more and more vehement among civil competitors while the high-end such as numerical control machine tool market is monopolized by the foreign manufacturer, especially manufacturers from Europe and Japan. From 75% to 100% of the required numerical control machine tools for automobile industry, voyage and spaceflight, electricity, ship-building and military industry are imported. The premier Minister Wn Jiabao figured out in the colloquia in Liaoning Province that the first step for prosper the equipment manufacturing is to focus on the machine tool, so we definitely anticipate the numerical control machine tool in our country will be fully supported by the government.
Speedy increase in the investment of capital assets and the fast development of the industry of automobile, voyage and pattern are the primary motivation for activating the machine tool industry. When poured into RMB10 billion Yuan of the capital investment into the market, it would bring along with the expenditure from RMB80 million Yuan to 110 million Yuan. And the expenditure of the numerical control tool market will extend 0.54% if the turnout of the saloon car advanced 1%.The large-scale and heavy industry such as electricity generation, ship-building and metallurgy are also the primary clients of the machine tool. Although the dominating production required is out of obstacle in the technology, the demand exceeds the supply because the production could not reach the optimum scale. And it results in a great deal of import of various numerical control tools. Therefore, multiple function numerical control machine tools will be the focus of competition in the market.
In the future, as there are about RMB20 billion Yuan of trade deficit between the supply and the demand in the machine market, it means that the space of machine tool in our country is still sizeable space for development. It can be expected that the production volume of the machine tool will increase about 15% every year in the coming 3 to 5 years.
-Water conservancy construction equipment.
We should carry out the 11th Five-year Economic Growth Plan, the water conservancy faced the problem of flood and waterlog and environment protection when actualizing the stratagem of west exploitation. The government takes the water conservancy to the top priority for advancing the infrastructure of the economy, and increases the investment on water conservancy construction in the new economic project and development program.
The most important problem in the west is water shortage, which affects development of agriculture and the correlative industries. It is so urgent to enhance the construction of water conservancy that the capital investment will be increased and the equipment will be added such as the water pump, valve, spurt and pour machine, etc. Thus the demand of advanced water construction equipment is considerable.
The demand of the advanced water construction equipment is as follows: Firstly, equipment to economize and protect the water resource. The amount of water supply in china is 580 billion cubic meters every year and the water used for agricultural flooding takes up 70% of it. It means that the water conservancy market needs large numbers of correlative equipment. The advanced flooding technology and equipment for saving water can economize 40% to 60% of water, which is significant for solving the problem of water shortage. The market of the advanced technology and equipment for water inspection and sewage management, as well as the water regeneration are large too. Secondly, equipment to build the engineering system so as to prevent or control flood and reduce disaster. There are 14 items of primary engineering for preventing flood in the Yangtze River and the Three Gorge Dam is progressing now. What is more, many water conservancy dams require numbers of water conservancy equipment. Thirdly, equipment for water supply system. The first phase of “south - to - north water diversion” program is progressing. It is an important channel for solving the problem of overbalanced distribution of the water resource. So the water supply equipment has a favorable market foreground.
2、Energy Industry
There are many investment opportunities in the energy industry during the period of the 11th Five-year Economic Growth Plan. And there are two important coordinates when we discuss the trend of energy resources. The first is the average domestic product in 2010 is one time more than that of in 2000. The second is that the energy consumption for the domestic product per capita is 20% less than in the last period of the 11th Five-year Economic Growth Plan. The first one means that the economy in china will keep on high speed in the future 5 years which requires enough energy supply. The second one means that with the adjustment of the industry structure of economy in the period of the 11th Five-year Economic Growth Plan, there will be many investment opportunities in the upgrade of industry, techniques and equipment for energy saving, renewal of the energy industry as well as new energy application.
There are large invest gap in the investment of coal and charcoal. Seen from the point of ensuring the energy resource supply, we can find that there are still large gap in the throughput of the coal and charcoal industry. It needs large investment in the expanding of the throughput, industrial centralization, intensive industry, the period of integrate upgrading, the process of improving the safety level.
Firstly, the demand of coal and charcoal is advancing fast in recent years. The increase of domestic electricity generation is relying on coal and the demand for electricity will increase in the period of the 11th Five-year Economic Growth Plan. The coal for generating electricity in 2004 is 1.5 billion ton, taking up more than half of the total consumption in the country. It is estimated that the electricity demand will increase at the speed of more than 10% in 2005 and 2006. The increasing rate of electricity generated by firepower is 13.26% and 12.93% respectively. The coal required for generating electricity is 1.08 billion ton and 1.21 billion ton for the two years, which are 0.12 billion ton and 0.13 billion ton more than before, with the increasing rate of which are 12.22% and 11.98% respectively.
Secondly, there is also some driving factors in the structure transformation in recent years. For example, the throughput of some old coal mines is mature in the energy exhausted areas and they should be replaced by that of new ones.
Thirdly, the government makes structural adjustment for the coal and charcoal industry. The pint-sized coal mine should expand the throughput to some scale, so as to save energy and enhance efficiency.
Fourthly, there is high attention paid to the safety problem of coal and charcoal industry. The throughput should be complemented by some large-scale coal mine after the shutting off of some pint-sized unauthorized coal mines. Therefore, the investment in safety for the whole coal and charcoal industry should increase.
The investment for electric power is increasing mildly. The construction for electric power is unbalanced in recent years. For one hand, the electric power stations are superfluous and the scale is large which is restricted by the government now. For another hand, the investment for transmission net is not enough. From 2006 to 2007, the investment for electricity is affected by the excessive investment during the period of the 10th Five-year Economic Growth Plan, the increasing rate will be lower. However, the investment for power transmission net keeps on going.
The investment for electric power is going on fast increasing during the period of the 11th Five-year Economic Growth Plan as a whole. To build the well-to-do society comprehensively, the demand for electricity is related with the economic growth rate, as well as the increase of average standard of living. Our country is still in the phase of consuming extensive resources, the requirement for electricity is increasing stable but still could not meet the requirement. The Central Committee of CPC Sixteenth Conference brings forward the goal of doubling the GDP in 2020 than in 2000. It is estimated that the electricity demand will reach 6400 billion KWH and the loading capacity will reach 1.287 billion KW. The increasing rate of the capacity should keep on 7%. Therefore, the fluctuation of the electricity demand is provisional while the increasing trend is persistent.
3、Building Material Industry
According to the 11th Five-year Economic Growth Plan, expediting the change of the economic increasing mode and realize the persistent development is the point. Therefore, the key words related to the building material industry are “saving resources, protecting environment, upgrading the industrial structure, adjusting the products mix, circle economy” etc. The building material industry is important to realize the circular economy for the whole society.
-Cement Industry
Although the factual layout of the cement industry has not brought up, we can estimate that the direction of “controlling the gross of the cement and adjusting the structure” will go on. The building of the new production facilities will be advanced but with a lower speed. And the degree of washing out the lag products will be enhanced. What is more, “circle economy” would be the topic of the 11th Five-year Economic Growth Plan in the cement industry.
“Saving energy and reducing consumption” is the point of the circle economy. The 11th Five-year Economic Growth Plan makes the saving energy to be a basic national policy for the first time. It is brought in the 11th Five-year Economic Growth Plan that the gross of production in unit should decline 20% than the last of the 10th Five-year Economic Growth Plan. In the supposed condition of increasing price of fuel, saving energy would be the key measure for achieving outstanding performance. We suppose that the cement industry would meet the goal of declining 20% of consumption and then the average consumption would be about 4% of that in the period of the 10th Five-year Economic Growth Plan. The cost of coal and electricity takes 68% of the cement product (coal takes 38% and electricity takes 30%). If the price of the coal and the electricity is stable and the average cost of the cement industry is keeping on the basis of that in 2004, then we can calculate that the saved cost in cement industry is about RMB5.3 billion Yuan and the total profit would increase about 38%.
The concept of “circle economy” is brought in the 10th Five-year Economic Growth Plan that the government would carry out the preferential policy of tax-free to the enterprises who are using the industrial waste residues, gangues, waste liquid and city garbage as the material and fuel to produce.
The cement factory adds mixed materials such as coal powder to the baked materials to produce cement. As a good and popular way to make full use of wastes and get the preferential policy support, a distinguished company named Hailuo is constructing its own electricity generation system by utilizing surplus heat. When analyzing the moving situation of cement industry in the period of the 10th Five-year Economic Growth Plan and combining with the 11th Five-year Economic Growth Plan, we can find that there are three kinds of investment opportunities:
The first one is to grasp the investment opportunities of the new type dry cement. This new technology has the factures of low energy consumption, little pollution and high quality. The 11th Five-year Economic Growth Plan takes the topic of “saving resource” into the fundamental national policy, and if we consider this policy we can find that the new type product line is important. It is the trend of the development of the cement industry.
The second is to grasp the development opportunities created by the west exploitation policy. In our opinion, we think that the demand for the western regions would be encouraged by the development of the west exploitation for the one hand. And for another hand, the 11th Five-year Economic Growth Plan may enhance the construction of the new type production facilities in west so as to acquire the capability of the new cement production.
-Glass Industry
When analyzing the changing situation of glass industry in the period of the 10th Five-year Economic Growth Plan and combining with the 11th Five-year Economic Growth Plan, we can find that there are four investment opportunities:
The first one is high quality float glass. Seen from the structural conflicts in the glass industry and the target of upgrade and structure optimization emphasized in the 11th Five-year Economic Growth Plan, we could find that the high quality float glass would be the emphase in the period of the 11th Five-year Economic Growth Plan.
The second one is portrait integrative glass. There is conflict between the surplus supply of up flat glass and lacking process capability of down flat glass. It brings many opportunities into the market. The business of processing glass can make large profit under the background of macro-economy control. For example, the fine glass business of Nanbo (containing the ITO glass and colorful filter) got a profit margin of 42% in the first three quarters in this year. And the car glass business of Fuyao glass also got a profit margin of 37%.
The third one is of saving resource in the glass producing enterprises. The data shows that the consumed energy for buildings takes 27% of the total energy in the society. And the wastage made by the glass doors and windows takes up 40% to 50% of the total wastage. With the recognition of the government, there will be more developing opportunities of saving energy glass in the process glass. For example, the hollow glass, membrane glass and Low-e glass will have a fast increase in the future, and demand of traditional common flat glass for buildings would decline.
The fourth one is new energy glass. It is brought out in the 11th Five-year Economic Growth Plan that we should develop the renewal energy such as wind energy, sun energy and biology energy. Some special kind glass such as extreme white glass could be used to be the flake of switch system for the light- heat and light-electricity of the sun energy. With the development of the new energy in the country, the enterprises which are related to it could obtain benefit from it.
-New Building Material Industry
New building material contains the new type of wall, waterproof and hermetical material as well as fitment material. Now the consumption for building takes 27% of the total consumption in our country, which is very different from the developed countries and the efficiency is only 1/3 of the developed countries.
The government brings forward the goal of saving 50% of the energy in the municipal building consumption in 2010 and saving 65% of the energy in 2020 in the north and developing areas along the coast and very big cities. To save the energy is not only saving energy of the door glass and window glass, but also saving the energy of the wall. Now the commonly used material for wall is the solid adobes which need much clay and energy. The government has stipulated policy that all the cities are prohibited to use solid clay and adobe. And it is the trend that developing the new type of wall materials with the low energy consumption and good light transmission and heat insulation. Thus, there would be many opportunities for the development of producing wall material.
4, Primary Machinery Industry
-Instrument industry.
Being driven by the innovation of housing system, it is anticipated that the demand for each water meter and ammeter is tend to be steady, and the photoelectric instrument and consumptive instrument will keep the increase trend as now, so the amount of the production this year will increase about 5%.
-Petrifaction machinery industry.
Most of the productions are the assistant mechanism with a large quantity and extensive market, although the amplitude of the production is declining every month from this year, it is moderate when compared with other mechanism manufacture industry.
Considering the primary production, the drill and pick of the petroleum and the chemical equipment for oil refining keep on going to some extent, this was affected by the development of the petroleum under the seabed. Gas compressor and valve in high and middle pressure range have a rather fall which is influenced by the stagnation of fertilizer industry. Seen from the development foreground in the correlative industries, the petrifaction machinery industry will have a favorable return and the increase of the production will be resumed, especially the country will take the technical alteration of the whole set equipments for the complex ammonia whose production are more than 300,000 ton, the carbamide whose production are more than 480,000 ton and ethene whose production are more than 300,000 ton, and this will accelerate the smooth increase in the requirement.
4. The field that need to be cautious to enter.
-Automobile.
The profit of the domestic automobile industry will descend vastly because there are large amount of capital invested into the automobile industry. It is estimated that the using rate of the automotive energy is only 55%. Meanwhile, the Industrial and Commercial Bureau promulgates 3463 selling enterprises of the brand automobile according to the
What is more, Morgan Stanley also estimates that the selling price of the automobile will fall 6% and the profit margin of the products will fall 4%, and indicates that the automobile market is not the worst. It is estimated that the automobile industry will become more difficult next year and without any profit with the acuteness of the price war.
-Steel.
The industry of steel shows deficit because of the spill in the price of the steel from the April this year. The steel industry has taken the action of reducing the production. So the turnout of steel in 2006 is estimated to be 384 million ton, which would be 40 million ton more than this year and rises by 12%.We should increase steel throughput by 58.5 million ton as the total consumption is 428.5 million ton if measured by the investment and expend ed quantity of steels in fixed assets. Some experts estimate that the overstock of steel should be about 4.35 million ton next year.
The head of State Development and Innovation Committee said that our throughput of steel would be controlled at about 400 million ton. Based on the survey, the committee published the
However, the demanding climax for the metal material such as steel would be lasting for the long-term. Along with the implement of 11th Five-year Economic Growth Plan, 15% to 20% of the population will enter into big cities in China, which will expend the consumption of raw materials and have a larger influence on the price of the large amount of materials such as copper and steel which are highly depending on import in China. Nowadays, China is the largest consuming country in copper and steels in the world. It is estimated that the requirement in copper will increase 81% within 10 years in China, the course of urbanization and western exploitation strategy will change the boom cycle of primary metal and noble metal in the world, the upsurge of demanding boom will be extended. The secondly metal demand in China is just beginning and this trend will last for more than ten years, which will make the heavy demand in raw materials such as copper, nickel and steels continues for another ten years in the world.
-Farming Machine Industry.
As the country will reinforce the devotion for the agriculture, it is estimated that the drop of the large-scale farming machine will be obvious, but the agricultural transportation will keep rising reasonably, and the market demand of some pint-sized and special farming machine will keep stable.
-Engineering Machine
Scrap transportation is affected by the macro-economical control mostly and the output and profit in the second and third quarter in 2004 declined speedily. But with the driving of the factual demand, the output in the fourth quarter in 2004 and the first quarter in 2005 increased gradually and the profit capability is improving. However, the production in the loading machine industry is still superfluous, which may affect the profitability of the enterprises badly.
The influence of the macro-economical control for the concrete engineering is declining. However, we can see that it will keep on good situation because of the following factors. Firstly, it is forbidden to mix concrete in the regional town after 31st Dec.2005. Secondly, the superiority of the commodity concrete compared with the mixed concrete, such as stable quality, saving the material, shorten the construction time. Thirdly, the commodity concrete price is declining. The commodity concrete is more popular, it will make it to be close to the price of the mixed concrete. So the commodity concrete will be more magnetic and would substitute the mixed concrete more quickly.
The correlation between the car derrick industry and the capital asset is close. With the three years’ speedy increase in the car derrick industry after 2002, it is a high production and sale year of 2005. But with the decline of the capital asset, the car derrick industry will be adjusted to some extent. The fluctuation of this economy cycle will be less than the last time and the decline of the capital investment will be lower. Secondly, the building of many key engineering projects in the coming 2-3 years will increase the demand for the car derrick. Thirdly, the industry structure of the car derrick changed obviously, many enterprises drop out of this market and the condition of production is good. Finally, the product structure is changed obviously and the total profit is increasing.
Fork vehicle is affected little by the macro-economical control and the periodicity is not obvious. What is more important is that the fork vehicle of our country especially the vehicle with low capability is competitive in the world; the export amount is increasing speedily.
Spin engineering industry is affected by the output of the spin largely; the opening for the spin quota is quite good for the spin engineering industry. However, the developed countries may restrict the spin by special guarantee measures, which will affect the spin engineering industry mostly.
-Electrical apparatus industry.
Seen from the economic cycle of the electrics industry, we can find that the situation will be better in the future. Generators lower than 10,000,000 kilowatt will be less needed in three years.
-Traditional build material, light industry, metallurgy industry.
The supply is large more than the demand in the Building industry and Metallurgy industry. In the first three quarters of 2005, the output of the cement was 734.63 million ton and the output of the flat glass was 261.06 million boxes, which were 10.6% and 15.2% higher than before respectively, and the increasing rate were 4.7% and 6.2% lower than before. In September 2005, the mixed average price of the cement in key building material enterprise was RMB278 Yuan per ton while the mixed average price of the color glass was RMB66 Yuan per ton, which dropped 9 Yuan per ton and 7 Yuan per ton, the amplitude of decline were 3.1% and 9.6%. At the end of September, the storage of cement in key building material enterprises was 6.85 million ton, which was 1.3% higher than before. While the storage of flat glass in key building material enterprises were 15.03 million ton, which was 65.3% higher than before. In the first 8 months of last year, the building material industry made profit of RMB20.1 billion Yuan, which declined 15.3% and the percentage of decline is 6.8% lower than before. The profit of the cement industry and the flat glass industry were RMB2.73 billion Yuan and RMB0.96 billion Yuan, 70.2% and 36.5% less than before respectively.
In the metallurgy industry, the output of 10 kinds of metal was 11.4 million ton in the first three quarters of 2005, which increased 15.2% and the percentage declined 1.4%. The output of the electrolytic aluminums was 53.6 million ton, which was 17.6% higher than before and it declined 0.3% than the first half year. The output of the cooper, lead and zinc increased 19.6%, 24.5%, 2.6% respectively. The metallurgy industry made profit of RMB38 billion Yuan which was 60% higher in the first 8 months of last year because the price of many kinds metal such as copper reach the highest. The industry of picking metal mine made profit of RMB12.5 billion Yuan, 101.3% higher than before. As the production of the electrolytic aluminums was superfluous, the cost increased rapidly while the market price was declining, so the profit is difficult to manage.
Traditional light industry is beginning to be in crisis, the average marginal profit of the Chinese traditional export commodities such as garments and low-end electronic appliances and foodstuff is 1-3% only, and these industries will lose the international competition and profit margin with the increase of the wage level and the expediting increase of the RMB valuta.
-Realty.
The blowout period has been past and the realty boom vision of the city expansion cosmically and house removing which are the same as some years ago is not being any longer. The investment for realty in 2006 will be lower than the year of 2005 and the rising rate is estimated to be 15% to 18%.According to the structure and the distributing of the house property bargained, we can see that the proper period for selling of the house property have been passed and the brand products and brand developer have been appeared. It is estimated that 20% of the products are popular and the price of them will rise in 2006.however, the distribution of the other 30% of the products is common, and another 50% of the products may be unmarketable. The vacancy rate of the realty in China has the structured diversity characteristics, and the realty products and brand will present the trend of convergence.
5. Regional investment opportunities
The 11th Five-year Economic Growth Plan brings up the new mechanism of mutual development across areas for the first time, which means forming the mutual development between the east and the west, reinforcing the advantage, accelerating each other and reaching the new situation of development together. 《suggestion》made an integrated presentation in the strategic layout of “four plates ” containing the east, middle, west, northeast for the first time, which means going on improving the exploitation in west, inspiring the base of traditional industry areas such as northeast, improving the growing up of central regions, encouraging the east taking the lead in development. It also defines the “four mechanism” in harmonious development among areas, which are market mechanism, cooperation mechanism, mutual aid mechanism and supporting mechanism. This is significant for accelerating the harmonious development across different areas and constructing the harmonious society.
Concerning the way of advancing urbanization, it should economize the ground, take intensives and compact way, emphasize the conception of “city group”, but not take the way as the “carpet model” in America. This requires that it should rely on one or two special great cities in definite area coverage and emphasize the functional harmonious distribution among the big, middle and small cities. Each city is charged with different function, such as industry function, commerce function, education function and entertainment function. There are convenient traffic network connections between each city and make it easily to trip frequently to do business, and it also leaves permanent interspaces of greenbelt between each city.
It gives the opening and exploitation of new developed area in the port area of Tianjin as important as the new developed area of Pudong in Shanghai for the first time.
In the past years, the development in east of Shanghai focuses attention upon all over the world and brings along with the swift development of the whole Yangtze River Delta. Advancing the exploitation of new developed area in Tianjin and area along Bohai Bay would make profound influence in Beijing, Tianjin and Hebei, as well as northward, and the effect is the same as Shenzhen in Guangdong and Pudong in Shanghai.
The Yangtze River Delta, Beijing, Tianjin, Hebei, Chongqing and old industry base in northeast will become the emphases in the country’s development plan. What is the important is adding Chongqing but omitted the Pearl River Delta in the plan. The Yangtze River Delta, Beijing, Tianjin, Hebei, Chongqing and Northeast are all spanned more than two provincial districts, the inconsistency and unbalance between any two areas is outstanding comparatively in the past. The cooperation between different provinces need the guidance and control which are exceed the province administration. However, the Pearl River Delta is different that it could be seen as the Guangdong’s internal problem, so it could be solved by Guangdong itself. On other side, as the earliest reform area in China, it has formed its industry foundation and the resource and space could not be “arranged again”.
Pay attention to The Yangtze River’s economic belt.
The east of the Yangtze River’s economic belt is Shanghai and the west is the city of Panzhihua in Sichuan Province, which is containing 7 provinces and 2 municipalities of Shanghai, Jiangsu, Zhejiang, Anhui, Jiangxi, Hubei, Hunan, Sichuan and Chongqing. The Yangtze River’s economic belt is not only the most developed and prosperous area, but also the most important economic corridor with high consistency in China and one of the most developed area in economy, science and technology and culture. After the foundation of the new China and especially after the reform and opening, the economy and social development of the Yangtze River’s economic belt has been acquiring great accomplishment which was never got before. The Yangtze River’s economic belt created RMB5244.2 billion Yuan in GDP, which took up about 45% of the whole GDP in China in 2004.With the large enhancement in integrative economic strength, The Yangtze River’s economic belt has become the developing principal axis having the sense of entire stratagem. The Yangtze delta area which is located in the core area of the Yangtze River’s economic belt is the intensive industrialized area, it is the most competitive area in China and has become the largest core area bringing along with the economic development in the whole country. The Yangtze River Delta area created RMB2887.5 billion Yuan in GDP, taking up more than 22% of the whole GDP in China in 2004.After the reform and opening of Jiangsu Province, the Yangtze River Delta area has been kept the rapid growth and the GDP reached RMB1551.2 billion Yuan in 2004, taking 11.3% of the whole GDP in China, the average GDP reached RMB20852 Yuan.
The range of the Yangtze River’s economic belt is far-flung and there are different natural conditions, comparative average, different society base of economy, it should exert itself to developing the “three circles and one section”, so as to make it to be the barycenter of economy for bringing along with development of this area.
1. The center of Yangtze River Delta economy belt is Shanghai. In a quite long term in the future, this area will build the important area for bringing along with the development of economy in China, and making itself to be the new type of industry base which is competitive in the world. With the startup of the Bridge striding the Sea in Hangzhou Bay, the Yangshan Harbor in Shanghai, the Big Channel between Shanghai—Chongming—Jiangsu, the other areas of the Yangtze River Delta should make the best of the average in existence, catch the chance of construction of traffic net, advance the generalization of economy and construct the internationalization metropolitan circle.
In the future, not only the economy section in the south of Jiangsu will keep the trend of high speed growth, but also the section in the center of Jiangsu will become the new important rising area in Yangtze River economy belt. It contains three cities such as Nantong, Yangzhou and Taizhou, the future development of this area has possessed comparative base and potential, it can be expected that this area will become an important triangle for economic development in the Yangtze River Delta area.
2. The center of Yangtze River middle economy circle is Wuhan. Catching up the important opportunity of accelerating the development of the central section, emphasizing the construction of the Wuhan city circle, Changzhu bay city group, Wanjiang area in Anhwei and Nanchang-Jiujiang-Anqing industry corridor, Wuhan will be developed into the largest trade and finance center, a modern logistics center and an international metropolis in the central China.
3. The central of Yangtze upstream economy circle is Chongqing and Chengdu. Keeping on advancing the exploiting stratagem for the west, it will make Chongqing to be the economy center in Yangtze upstream and stride forward the international metropolis gradually. And it exerts the Chengdu’s function as the core city and bring along with the development of other cities following the Chengyu freeway and trunk of railway.
4. The three gorge reservoir will be built into the largest base of water and electricity energy sources in the country, an important base for processing new energy, high effective ecological agriculture corridor and a terrific tour spot gradually.