Summary
China’s $586 billion stimulus package includes major infrastructure and social welfare spending in the next two years. Among the priority projects in infrastructure development are high-speed rail and rural electric-grid fortification. While the plan’s objective is to stimulate domestic consumption and assist industry, it should also provide business opportunities for offshore vendors who could offer unique equipment and technology services.
Analysis
China’s 4 trillion yuan ($586 billion) stimulus plan to increase domestic consumption was warmly received by economists from abroad. While part of the spending in the next two years will be in social welfare such as housing, health, education and the earthquake relief, a substantial portion of the package will be focused on infrastructure development. Rural electrification and rail transportation are mentioned in the top 3 of the 10 measures targeted by China’s State Council.
Recent documents released by China’s planners indicated that highspeed rail for passengers and coal transport are among the high priority projects. Total investment for upgrading China’s railroads could reach $290 billion by 2020. The emphasis on rail transport is a strategic policy for China to solve its coal transport bottle neck by bringing coal from the fuel-rich provinces in North Central China to the load centers in the coastal regions.
As well, by raising the present rail electrification level (32%), China hope to substitute diesel fuel with coal which it still have plenty of reserve (1300 billion metric ton). It is forecasted that China’s plan to electrify its railroad and the development of electric vehicles and hybrids will be a key pillar in its energy policy.
At present, China is in the midst of constructing a network of highspeed intercity rail shuttles with speed upto 300 km/h, thus relieving the overtaxed freight lines for the coal transport. These shuttles with connections to inner city subway systems would increase public transport and lessen the burden on oil import for its auto sector.
While China’s electrical power industry is facing a very difficult time due to decrease in demand and high coal prices, the stimulus package with focus on rail electrification and rural grid refurbishment may bring a timely relief. Offshore vendors with unique equipment and services to offer may find opportunities in the rail and electric sectors as China would look for technologies to modernize its industry.
