外文报告：CICC-China in the Second Half of Rapid Urbanization：Potential Changes in Infrastructure Construction Based on Japan’s Experience-120924

Please read carefully the important disclosures at the end of this report
Investment Focus




September 24, 2012 Construction & Engineering RESEARCH
Yue DING
SFC CE Ref: AWT001
dingyue@http://wendang.chazidian.com
Wei CHAI
wei.chai@http://wendang.chazidian.com

Huimin WU
SFC CE Ref: AUZ699
wuhm@http://wendang.chazidian.com
China in the Second Half of
Rapid Urbanization
Potential Changes in Infrastructure Construction
Based on Japan’s Experience

What’s new
Vice premier Li Keqiang recently stressed that urbanization will be one of China’s core state policies and investment will be
focused on urban services and related infrastructure on the basis of housing price controls, indicating more development in
China’s ongoing urbanization process.
Comments
By looking at Japan’s urbanization experience we can better understand the 1) current stage of China's urbanization, 2) the
trend of future infrastructure investment, and 3) changes in China's investment structure. Japan’s urbanization rate surged from
30% to 70% during 1935~1970, and stabilized to moderate growth after the 1970s. China’s urbanization rate was 30% in 1996,
and reached 51.3% 15 years later (2011), an urbanization level Japan reached around 1955. This means China is still in a
stage of rapid urbanization, but is already in the second half (50~70%). Japan’s infrastructure investment growth was still
accelerating in the second half of its rapid urbanization, and began to stabilize after its urbanization rate exceeded 70% and
gradually declined after staying at a high level for several years.
Expect large changes in sub-sector structure in the second half of rapid urbanization with a decreased proportion of
traditional infrastructure and a surging share of emerging infrastructure.
? In 1955~1970 (second half), the proportion of railways and ports in Japan’s infrastructure investment continuously fell;
of the three traditional infrastructure sub-sectors (railways, roads and ports) only road investment continued to grow.
? Investment CAGR during 1955~1970 was 19% for subways, 14% for policy housing, 25% for aviation, 30% for waste
disposal, 14% for state-owned forests, and 35% for industrial water pipelines, much higher than the 10% average across
all sub-sectors.
Based on Japan’s experience, we should not be too pessimistic on China’s overall infrastructure construction investment in the
second half of rapid urbanization; we believe the investment uptrend will remain. As for investment structure, China’s port and
road investment peaked during 2000~2006, and railway investment peak in 2008~2009. Investment will stay high in years to
come but growth will gradually decelerate. YTD the NDRC's approved projects have mainly been rolling stock and airport
projects, similar to the changes in Japan’s investment structure when it entered the second half of rapid urbanization.
Beneficiaries in each segment
Subways: CRG and CRCC have the highest subway construction market share, but regional builders, Hongrun Construction
and Shanghai Tunnel Engineering, are more resilient. Policy housing: CSCI (03311.HK) may be the major beneficiary from its
resilience and share of business. Waste-disposal-related: Originwater Tech. (sewage treatment); Longyuan Power Tech.
(waste gas treatment); and Sound Environmental Resources (solid waste treatment). Ecological management and
landscaping stocks: Techand, Orient Landscape, and Hotision & Monsod. Comprehensive industrial water pipeline stocks:
Yulong Steel Pipe. Industr ial waste water treatment pipeline stocks: Qinglong Pipes Industry and Newchoice Pipe Tech.
Risks
Urbanization process affected by policy controls and economic cycle in the short term.
This is a translation of 进入城镇化快速发展“后半程”:日本经验提示基建结构变化 published on September 23, 2012.