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Last Updated: Tuesday, 19 July, 2005, 00:46 GMT 01:46 UK
China's highway to economic growth
By Nick Mackie
in Chongqing, China

China plans to build 85,000km of expressways
At last, a mountain road in China that is spectacular for its scenery - and also safe.

The mid-section of the Chongqing to Guizhou motorway should be finished later this year.

This 100 km highway bores through 17 imposing hillsides and crosses 121 deep valleys.

Great "T" section bridge piers reach for the sky, but manage to avoid blotting the landscape.

New opportunities

The project is an impressive example of Chinese civil engineering.

Listed highway companies
Jiangsu Expressway
Zhejiang Expresssway
Shenzhen Expressway
Sichuan Expressway
Anhui Expressway

The new highway bypasses a winding, potholed rural road that weaves between some of the region's poorest villages. The old route is prone to dangerous rockslides.

Here every day an estimated 3,000 lorries churn up the tarmac round the hairpin bends. Many are old and overloaded, spewing-out clouds of rancid, black smoke that choke the farmers in the roadside paddy fields.

According to the Asian Development Bank, which finances around a quarter of the $800m project, the new route will power the economy by linking the local rural population to market opportunities, social services and employment, not to mention attracting investment deeper into the country.

Every year China is constructing around 4,000 km of expressways, towards its target of connecting every city with a population of 200,000 or more to an 85,000 km national motorway network.

Half the work is already done.

Lenders demand foreign consultants

Ambitious plans like this are opening China's door to foreign consultants.

Construction workers in Guizhou
Every year China builds some 4,000 km of expressways

Lenders like the Asian Development Bank, World Bank and Japan's Bank for International Co-operation insist on having independent experts to advise on some of the world's most challenging construction projects.

"The international funding institutions require foreign consultants to come in and act as a liaison between them and the clients, " explains Bill Austin, Managing Director (Asia-Pacific) of the UK consulting engineers Halcrow Ltd.

"(We) help the clients develop their project management capabilities and to help them raise their design standards. And this is certainly the best entry point for foreign consultants coming into the market."

Halcrow's consultancy fee on this project is $1.5m.

Panda luck

Worker in Guizhou
The highway programme is bringing employment to China's poorer regions

The company has five highway supervision contracts underway in the Chongqing-Guizhou region.

With an eye on other western China projects, Halcrow held its recent board meeting at the Chengdu Panda Research Centre, where the firm won a building design contract.

"The giant panda is the national emblem of China, it's very close to the Chinese people's heart, it's close to the government's heart," explains Bill Austin.

"Although this is a small project, it's highly prestigious and we've been able to pick up other work on the back of that."

The directors decided to sponsor a female bear, "He Le", which they hope will bring them luck on the business front as western China continues to invest heavily in developing its highways and other infrastructure.

Strategic routes

From the late 1980's, China's government recognized that its neglected, underdeveloped road network constrained the economy.

So it embarked on a massive 85,000 km highway building programme. It is designed to bring the country on par with the United States within 30 years.

From Beijing, seven routes are fanning out to Shanghai, Taipei, Hong Kong, Kunming, Urumchi and Harbin.

The plan sets out nine additional highways from north to south and 18 from east to west.

Over 34,000 km of expressways are now in use, with the most developed road network in the more commercially mature eastern seaboard.

A further 30,000 km will be built further inland with its challenging topography.

Niches for Western firms

Shanghai highway
In Shanghai Highways are highly profitable

While opportunities exist for consulting engineers, foreign contractors, however, can't compete on price with local firms.

Typically, a four lane motorway will cost $4 million per km - double this if there are tunnels or bridges.

Around 100 Chinese construction companies are capable of handling these projects.

However, there's clearly potential for those supplying construction equipment and traffic control technology.

Around 60% of equipment like asphalt pavers and vibratory rollers are imported. While Chinese companies share the market for end user technology such as electronic bulletin systems and toll booth readers.

Virgin land

Local authorities are also keen to attract foreign capital to finance and operate their new highway networks.

Fuling highway bridge
Fuling Highway: high scenic value, low revenues

This would free-up government cash for the likes of badly needed environmental projects.

Chongqing, for example, wants to strike its first deal with an outside investor - one that's interested in partnering a further 1,300 kilometres of motorways planned for the next five years.

"The west of China could be regarded as virgin land, " enthuses Li Zuwei, General Manager of Chongqing Expressway Development Company.

'Everything is negotiable'

"There is great potential for growth. If investors eye a medium to long term return, they should invest in infrastructure. At least in, say, 10 years, you could get a return," says Mr Li.

In 2004, he says a deal was close with a French investor, but the city baulked at a condition guaranteeing a 20% return.

With cars scarce in China's west, some of the country's Highways are empty

Now, Mr Li says, "everything is negotiable" - including development rights along the highway, even a reasonable guaranteed return. And, of course, there are preferential tax policies.

He cites several operators elsewhere, mainly in China's wealthier east, whose shares trade well on the Hong Kong stock exchange.

Anhui Expressway, in particular, has enjoyed a 41% share price rise over the past 6 months, after reporting that four of its five roads saw revenues rise.

On 1 June, the Chinese government cut the business tax rate on highway toll income from 5% to 3%. This was to compensate for a reduction in tariffs for heavy duty trucks introduced earlier in the year.

Investors should note that the government levies the tolls in China.

No traffic in the West

But there are many economies in China.

Development is uneven.

Although the western region is modernising - and receiving billions of dollars annually in central government support - near China's coast more people can afford cars.

Shanghai's average income is five times greater than Chongqing's.

So the toll booths out here aren't as busy.

Uneven returns

With the exception of the original Chongqing to Chengdu highway built 10 years ago - the main inter-city truck and bus route - highway driving here is usually a pleasure as there is so little traffic.

The 118km Chongqing to Fuling link opened with a fanfare four years ago.

By the end of this year, total revenues are not expected to reach 10% of the $600m building cost.

Half of China's huge infrastructure project is now complete.

The lion's share of the balance will be built in the developing central and western regions - where the authorities are eager to attract foreign expertise and foreign capital.

China's developing regions offer opportunities for those with building and engineering talents - notably fee earning experts.

But investments here should be planned for the long term, if the projects are dependent on local spending power.

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