Boston, MA -- (SBWIRE) -- 03/12/2014 -- We continue to hold the view that the recovery in China's construction activity in 2013 will not be sustainable in 2014 - we forecast construction real growth falling from 6.6% in 2013 to 5.1% in 2014. The key reason for this outlook is that the basis for this increase in fixed asset investment is increased liquidity in China's financial system, an unsustainable investment model due to the diminishing marginal return on expenditure. The Chinese government is implementing reforms that could lead to a sustainable increase in construction activity (namely rural and privatisation reforms), but we believe they are unlikely to have a material impact over the near term.

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Key developments in China's infrastructure sector

- In November 2013, the Shanghai Transport & Port Authority announced plans to develop a new 90km tram network in the district of Songjiang, China, reports Railway Gazette. The network is slated to have a total of 118 stops across six lines. It is intended to be the first phase of an 800km network which is scheduled for implementation in Shanghai by 2020.
- In January 2014, Sheng Guangzu, general manager of the China Railway Corporation (CRC), announced (cited from the China Daily) that about CNY630bn will be allocated as fixed asset investment into the railway sector, with more than 6600km of new railway lines to be built in China in 2014.
- In January 2014, the State Grid Corporation of China announced (cited in the China Daily) that it plans to increase its fixed asset investment by 11.92% to reach CNY403.5bn in 2014, with CNY381.5bn injected into building electricity power grids.
- Airports remain high on the government's agenda, which is reflected in our bullish airports infrastructure value forecast. The Chinese government announced that it will build 82 airports and refurbish a further 101 by 2015. This will take the number of airports in the country to around 230. The flagship project will be Beijing's second airport with capacity of up to 70mn passengers by 2025. Another key project is the construction of a new airport close to Tibet, the Daochen Yading Airport, which will be the world's highest altitude civilian facility.

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