News Xina 12
Challenges and opportunities for public-private partnerships for infrastructure in China
As the largest global operator in infrastructure management for transport and communications, at Abertis we keep a close eye on the infrastructure potential of emerging and 'emerged' economies, especially in Asia, which may become a priority.
We have known for some time that modern economies need a robust and reliable road, railway, energy and telecommunications network in order to develop. China has made developing its infrastructure a top priority.
According to recent estimates[1], between 1992 and 2011, annual investment in infrastructure in China stood at some $700 billion. This equates to 8.5% of its GDP, a far higher percentage than the equivalent 2.5% spent during the same period in the mature economies of Europe and the US. As a result of these investments, in absolute terms Chinese infrastructure is greater than any other country today.
In terms of road infrastructure, China's high capacity road network is the second largest in the world. Already at over 96,000 km, it is expected to overtake the 101,000 km of the US. in a few years. In the last decade, the number of registered vehicles increased by 18% a year, while passenger traffic and goods grew annually by 10% and 11% respectively.
China's infrastructure growth plans are just as ambitious. By 2020, the Chinese authorities plan to build 70 new airports, 43,000 km of new motorways, and to significantly extend its port and rail capacity. Its land planning entails 10 road and rail corridors to create the links needed between the country's main industrial areas.
To meet these growth plans and to adequately maintain its existing stock of infrastructure, China will have to earmark 6.4% of its GDP over the long term, making a cumulative investment of $16 trillion by 2030. Although this development will largely continue to be financed with public funds, which at present cover 96% of investments, there is clearly a window of opportunity for public-private partnerships (PPP).
Nevertheless, it is important to bear in mind that legal certainty is crucial for long-term investors such as Abertis, which manages public service assets.
This is why we are closely monitoring developments in legal certainty in all countries. With regard to the Asia-Pacific region, a 2011 report by the Economist Intelligence Unit noted that[2]: ‘continued strong growth and large infrastructure needs create an environment of opportunity, although the lack of transparency and clear rules poses significant challenges for development’.
President Xi Jinping and Prime Minister Li Keqiang's new leadership of one year and the plans revealed in late 2013 focusing on the next stage in China's development are a clear sign of its commitment to large-scale economic reform. Both have promised to make the allocation of resources more market-oriented, as well as to foster deregulation and to delimit the functions of the market and the State. They have also said that they will tackle the local government debt issue and foster a municipal bond market, which could have significant implications for the financing and ownership of infrastructure, creating new opportunities for managers of this type of asset.
The administrative concessions for managing infrastructure that are progressively being granted are a potential source of revenue for the government, freeing it up to focus on planning the infrastructure that is still needed to meet the significant rise in movements of people and goods in the country.
In China we foresee a significant place in the medium and long term for joint projects with large Chinese companies or Chinese partners, both in the Asian giant itself and in third countries where Chinese investors can accompany us. We will have to strike the right balance and complementarity between our financial capacity and industrial know-how, and the involvement and commitment of local partners, primarily financial stakeholders, whose input will entail knowledge of the business environment and culture and access to the authorities.
We have a saying: he who works in the long term is also creating value in the short term, but he who focuses only on the short term never generates long-term value. Abertis works in the long term: when it starts working in a country it does so with a view to continuity. Our assets are not stocks that are bought and sold. We invest to stay, and we endeavour to focus our resources on projects that allow us to develop our full industrial potential. This is the challenge that we will also face in China, when the time comes.
Salvador Alemany Mas
Chairman of Abertis Infrastructures
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[1] Chinese Infrastructure: The Big Picture. McKinsey Quarterly, June 2013
[2] Infrascope 2011: Evaluating the environment for PPPs in Asia-Pacific, Economist Intelligence Unit, March 2012