It is now four months since China elected president Xi Jinping along with the 7-man team that constitutes the new Politburo. This regime has inherited an economy that last year recorded its slowest rate of annual economic growth since the late 1900s, i.e., about 7% compared with the 10% that had prevailed over the previous few years. In a rather gloomy prediction, the World Bank has warned that, without quick action, growth may slip further still by 2015. The International Business Times suggests that China’s primary challenge, if it hopes to meet its pledge of doubling incomes by 2020, is to unlock consumption as a bigger driver of growth. It has to balance out the country’s falling export competitiveness and the fallout from its excessive investment in infrastructure, which has reduced the capital available for small and medium-sized businesses and created levels of overcapacity that are constraining wage growth. China may have no other choice but to restructure its economy.
For most of 2012, talk in the Chinese cement market was of overcapacity, declining profits and the increasing potential for further mergers and acquisitions. Over the past decade, cement demand in the country grew by double digits each year in line with the wider economy’s annual growth of 10.7%, largely fuelled by a boom in housing and infrastructure investments. The slowdown in the country’s economy, which is expected to run at an average annual rate of 7.5% through to 2015, will clearly result in reduced growth in the cement industry. It means that 2013 will be another slow year. IA Cement’s Global Cement 2013 Report predicts a 6 – 7% growth in cement demand as infrastructure spending picks up and housing stabilises, trends that had already begun towards the end of 2012.
Before he retired as president of the China Cement Association last year, Lei Qianzhi said, “The cement business in China has been coupled with the country’s economic growth because the economy is largely driven by its investment in infrastructure. With the rebalancing of the economy, it is crystal clear that the golden era for the cement industry has now disappeared.” It is worth noting that in the last 20 years, growth in cement demand has been staggering. From 585 million t in 2000, consumption reached 1876 million t in 2010. IA Cement confirms that Chinese cement demand per capita is now 1500 kg, three times the global average. This year, it is estimated that cement consumption will reach 2355 million t, which equates to almost 60% of total world demand.
Over the past 2 – 3 years, the number of cement producers in China has decreased to 3800 as a result of mergers and acquisitions. Lei suggested that there would be more opportunities than challenges during tough times. Mergers and acquisitions will become more frequent, the production concentration ratio will increase, and this in turn will help the cement industry shift from quantity to quality.
In September 2012, Reuters reported that China’s powerful economic planning body, the National Development and Reform Commission (NDRC) had given the green light for 60 infrastructure projects worth some US$157 billion. This cash injection will be spread over several years in a move to energise the economy. According to cement analyst Imran Akram, the plans include 2000 km of new roads, nine sewage plants, five port/warehouse projects and two waterway upgrades. The stimulus follows approvals for subway projects in 18 cities as well as a higher rail budget and plans to increase the supply of land. Akram suggests that infrastructure is likely to prove a key driver for cement demand in 2013, with predictions of an 8 – 12% growth in infrastructure based on an acceleration in spending stimulated by the start of the 12th Five Year Plan last year.
His predictions look well founded. China’s Finance Ministry announced at the beginning of February that the central government will allocate US$19.3 billion this year to help local governments fund transport and infrastructure spending. The Finance Ministry said that it will inject 70 billion yuan on new projects including highways, waterways and docks. Road upgrades and rural road building will receive 50 billion yuan.
Undaunted by the slowdown in China’s cement industry, two Taiwanese cement producers, Taiwan Cement Company (TCC) and Asia Cement, are continuing to invest in the mainland. Taiwan Cement International Holdings Ltd, a subsidiary of TCC, recently said that it had invested US$66.67 million in two production lines in Jiangxi as part of a scheme to create 50 million t of cross-strait capacity by 2015. In August 2012, TCC announced that it would invest US$300 million annually over the next three years in a move to reach an annual production of 100 million t by 2016. Last year the company was reported to be concentrating on a second-phase construction in Anshun, Guizhou province. It is no secret that TCC wants to strengthen its market share through further M&As. In September 2012, Asia Cement announced that it was investing US$60 million in its plants in Chongqing (Sichuan Province) and in Anshun (Guizhou Province).
In January 2013, TCC signed a cooperation agreement with CNBM with a view to facilitating its expansion in China’s southwestern region. The pact will decrease competition between TCC and CNBM, and pave the way for TCC to expand and conduct acquisitions. TCC and Asia Cement firmly believe that China’s urbanisation policy will generate demand for 100 million tpa of cement. TCC is very optimistic about the cement market this year and said that its subsidiary will raise shipments from 41 million t in 2012 to 45 – 48 million t this year. These will mainly come from the plants mentioned above. At the same time, Asia Cement is reported to be aggressively trying to tap the Qinghai market, but both Taiwanese companies will continue to tap the western China market through mergers. This is not surprising as the country’s urbanisation policy will focus on the west, a market regarded as having high potential for cement manufacturers.
Early in December 2012, an article in China Daily mentioned that from now until 2020, at least 400 million farmers will leave villages for urban areas as permanent residents living on non-agricultural jobs. However, some US$1.27 trillion would need to be invested in infrastructure to accommodate such a population move.
Urbanisation in China has been ongoing for about 20 years, and is seen as one of the major challenges facing the new regime. Former US Treasury Secretary Hank Paulson, now head of the Paulson Institute, said in December 2012, “The challenge, which is very important for China, is reinventing the urbanisation model so you can continue to manage that urbanisation process on a huge scale with fewer social, economic and environment stresses.”
China’s new leaders have spoken of reforms, but as always, time will tell if these will embrace the urbanisation process suggested by Paulson – a process that in the end will be welcome news for the world’s largest cement industry.
- Company news/reports
- Financial Times
- International Business Times
- China Cement Association
- China Daily
- China Cement News, cntv.cn
- Global Cement 2013 (IA Cement)
- Industry Note, (Po Wei, Equity Analyst, Jefferies Hong Kong Limited)
- Central News Agency, Taiwan
Read the article online at: https://www.worldcement.com/asia-pacific-rim/26022013/cement_china_industrialisation_investment_taiwan_03113/