Best development chance for engineering contractors International engineering contracting enterprises are seeing the best development opportunities thanks to the inauguration of Asian Infrastructure Investment Bank (AIIB) and depreciation of RMB, pointed by Sealand Securities in a research report.
Chinese Academy of Sciences pointed in a report the infrastructure construction in the more than 60 countries along the Belt and Road is accelerating, and total investment in these infrastructure projects may top 6 trillion US dollars. Large state-owned construction enterprises are expected to benefit from the potential overseas engineering contracting opportunities residing in "the Belt and Road" construction, said GF Securities.
AIIB, with focus on investment in energy, transportation, rural development, urban development and logistics at preliminary stage, will facilitate financing for large infrastructure construction projects especially transportation and energy projects in countries along the "Belt and Road".
Nur Bekri addressed in 2015 that China would focus on strengthening interconnection and interworking of infrastructure facilities and safeguard oil and gas transmission lines with Belt and Road-related countries, promoting cross-border power generation and transmission channel construction, and launching cooperation in regional power grid upgrading.
According to Statistics from the Ministry of Commerce, Chinese enterprises has contracted 3,987 engineering projects in 60 Belt and Road-related countries with contracted value of 92.64 billion US dollars newly added in 2015, which presented 44 percent of total contracted value of China's overseas engineering projects in the same year.
Meanwhile, contracted value of outsourcing service projects in Belt and Road-related countries undertaken by Chinese enterprises hiked 42.6 percent on year to 17.83 billion US dollars in 2015, accounting for 18.8 percent of China's total overseas service contracted value of the year.
-- Huge infrastructure equipment demand
The "Belt and Road" construction, with focus on interconnection and interworking of energy and transportation facilities, has put up huge demand for infrastructure equipment. Minsheng Securities pointed out that traders should pay much attention to the ultra-high voltage industry to find investment opportunities on the promotion of Asian Infrastructure Investment Bank (AIIB) and the "Belt and Road".
In recent years, China's ultra-high voltage construction has provided challenges and opportunities for the electrical equipment manufacturing industry, and cast a positive effect on upgrading China's electric power equipment. In the process of research and construction in ultra-high voltage demonstration project, China's ultra-high voltage equipment manufacturers had mastered core technology in equipment manufacturing and implemented "Created in China" and "Led in China".
In 2015, State Grid Corporation of China has established transmission line corridor relying on ultra-high voltage technology on power grid interconnection with surrounding countries. Among the developing countries except for Russia, installed power capacity of other countries, including India, Indonesia, Nigeria, and Pakistan, are much lower than the global average level.
Furthermore, in the domestic market, the State Grid Corporation of China has constructed 27 ultra-high voltage lines by 2020, and large amount of orders of ultra-high voltage projects would be brought for China's electrical equipment manufacturing enterprises in the following years.
China's "Belt and Road" initiative also has offered a whole new opportunity for the country's high-speed railways, which has become a main artery promoting China's regional economic development with total operational mileage exceeding 16,000 kilometers, over half of world's total.
China's proposal of the "Belt and Road" initiative will provide a good opportunity to expand economic and trade cooperation at overseas, also boost the development and expansion of the high-speed railway projects in the overseas market in a near future.
According to the Ministry of Commerce, the domestic enterprises injected 11.66 billion US dollars on the transport equipment, power grid, and telecommunication industries in the overseas market in 2015, up 80.2 percent year on year, and the domestic equipment manufacturing conducted overseas direct investments reaching 7.04 billion US dollars in 2015, up 154.2 percent year on year.
-- Environmental protection services in great need
With closer attention by government to pollution control and environmental protection, environmental protection industry would find constant impetus for growth in emerging market explored by the Belt and Road initiative, noted Cinda Securities. For instance, China Western Power Industrial (002630.SZ) is the base of research and development, manufacture, export in China for large-scale power plant boiler, special-type boiler, and power station auxiliary equipment. It has established several Build-Operate-Transfer (BOT) projects for garbage burned power generation, and also won biding for EPC service contracts in the overseas market. It is estimated that the company's revenue will hit a new high in the following two years on the support and concern of the government.
-- PPP projects to be boosted
Public Private Partnership (PPP) projects are expected to gain popularity in future construction of "Belt and Road" as an innovated financing source. According to a research report by Asian Development Bank (ADB), infrastructure construction in Asian area of "Belt and Road" would require 820 billion US dollars annually in the coming decade.
ADB, a major financing source for Asian infrastructure construction, provided only 21 billion US dollars of debts in 2013. Meanwhile, China is actively working on creation of new platforms and new modes of financing for "Belt and Road" construction. So far, China is estimated to provide 350 billion US dollars for cross-border infrastructure construction in "Belt and Road" countries, yet not enough for feed the financing demand.
The remaining investment gap would have been fulfilled by innovated financing instruments. PPP projects have been vigorously promoted in many countries, and are expected to become a new way for Chinese social investment to go abroad. Minsheng Securities forecast that Chinese capital projects would appear in more and more countries under the push by AIIB and the Belt and Road initiative.
According to statistics from the Ministry of Commerce, Chinese enterprises made direct investments in 49 countries that were closely related to the "Belt and Road" initiative, with investment values at 14.82 billion US dollars, up 18.2 percent year on year. Some experts also suggest introducing more social investment from sovereign wealth fund, pension and private sectors in infrastructure construction through co-financing by AIIB and local government, and letting private investors to reasonably share risks and benefit.
-- Fresh impetus to SOE reform
The "Belt and Road" construction is expected to fuel SOE reform in China by transferring excessive domestic production capacity to emerging markets in the "Belt and Road" countries through international capacity cooperation and help SOE to seek new development engine in overseas market. China's domestic industries, such as cement and steel, would find the best exit for their excessive production capacity in infrastructure construction in the Belt and Road countries, noted CITIC Securities.
The overseas performance elasticity of enterprises those have gone abroad is expected to gradually emerge under the Belt and Road initiative. China has shown its leading role in pushing forward global infrastructure construction in the past years through Belt and Road initiative and foundation of AIIB and Silk Road Fund, which would promote investment in large infrastructure projects in countries and regions along the Belt and Road in at least the future 5-10 years and trigger more cross-border cooperation, said Tao Kuangchun, chairman of KPMG China.
China's "Belt and Road" initiative has heard more and more response from overseas countries with stronger willingness in investment cooperation with Chinese companies. Through cooperation with Chinese companies, investor from developed countries would explore bigger market in the Belt and Road countries and prevent political risks, said Tao.
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