South East China Infrastructure Sector Report
Paul Wills & Judy Ma
British Consulate-General Guangzhou
July 2005
www.uk.cn/gz
1. Market Opportunities/ Prospects
Economic reports on Guangdong province and its main municipalities are available on the Consulate's website: www.uk.cn/gz
Major Projects List: A list of infrastructure projects covering the Guangzhou Consular district is available for UK companies on request.
Asian Games & transportation links
The 2010 Asian Games in Guangzhou is a key driver behind the timing of much of infrastructure development in Guangzhou, such as the expansion of the new airport and construction of new metro lines. Guangzhou is planning to set aside more than RMB 200bn (approx USD24bn) in the next six years in the run up to the 2010 Asian Games.
Opportunities on the sports infrastructure and sports facilities side will not be clear until the relevant project office is established (this has been postponed and latest guess is that this will be September 2005), but current speculation is that RMB2 billion (approx USD0.25bn) will be spent on sports facilities. Opportunities under the Asian Games are likely to be invitation to tender only. See separate Sports & Leisure Infrastructure report.
World University Games in 2011 in Shenzhen
Shenzhen are bidding to host the World University Games, spending RMB3.7bn (approx USD0.5bn) on masterplanning, two stadiums, and media facilities. See separate Sports & Leisure Infrastructure report.
Urban Regeneration
Urban regeneration in Guangzhou includes redeveloping the former Consulate district of Sha Mian Island with its traditional colonial-era European style buildings whilst retaining their original character. The municipal government is taking care in protecting their cultural heritage and not rushing redevelopment. This may offer medium term opportunities for UK companies.
Shenzhen, with its remarkable growth in the last 20 years from paddy fields to a population of around 10 million people, is looking to urban redevelopment to tackle districts behind the glossy façade of top class hotels and shopping malls which have been left behind in the city's fantastic growth. The market in Shenzhen is similar to Hong Kong with its land shortages and concentration of high rise buildings. Therefore Hong Kong-based UK companies or those with experience of working there are probably best placed to win business in Shenzhen.
Housing
The Ministry of Construction has chosen Guangzhou to pilot energy saving in housing designs, including requiring architectural firms to consider using energy-saving materials before submitting designs for approval to construction authorities.
Water Sector
Of the first two contracts under the first phase of the Pearl River Remediation Project in Guangzhou, one was won by a UK company and the other by a US company with strong UK expertise in water. UK companies are therefore well placed to win business under future phases of the project. Shenzhen have decided to go ahead without World Bank support for what would have been the second phase. The third phase will be in Foshan, Guangdong's third city, and neighbouring Jiangmen. The fourth phase is also planned to be in Guangzhou. A separate report on the water sector is available from the Consulate.
Healthcare Sector
Construction of Centres for Disease Control is a local priority (Guangzhou is famous as the origin of SARS). A separate report on the healthcare sector is available from the Consulate.
Sustainable Development
Following a visit by Premier Wen Jiabao in January 2005, Shenzhen Special Economic Zone (SEZ) was tasked with pioneering balancing economic development with environmental sustainability for Mainland China including "environmental protection [and] economic use of resources".
2. Background on Infrastructure Sector in Guangdong Province
Metro Sector
Guangzhou has 2 existing lines in operation, and one in partial operation. The plan is to complete 9 lines (225km of track) in time for the 2010 Asian Games. Three lines are currently under construction. The long term plan is to have 14 lines. As part of Metro Line 3, a high speed line (partly elevated) is planned from Guangzhou East station to Guangzhou airport, to be completed by 2010. Guangzhou Metro is responsible for the development of the Guangzhou metro system, and plans to focus on its role as an operating company after 2010. Shenzhen have partly opened metro lines one and four, and are co-operating with Hong Kong's MTR on future developments.
Airport Sector
There are two major airports in Guangdong. The new Guangzhou Baiyun airport is a major international airport being constructed in three phases. Phase one opened in August 2003. Shenzhen airport is a major domestic airport.
Fed Ex are expecting to use Guangzhou new airport as their second Asia-Pacific hub, with target completion October 2008. Freight throughput in 2004 was 632,000 tonnes - a FedEx hub is expected to increase this by 600,000 tonnes per year.
A new RMB2.323bn airport is under planning in Chaoshan.
More information on airport projects can be obtained from the Consulate on request, as part of a Chinawide report.
Guangzhou Aircraft Maintenance & Engineering Company Ltd (GAMECO) is a 50/50 joint venture between China Southern Airlines (10th largest domestic airline in the world) and Hong Kong's Hutchison. It is one of the top 12 aircraft maintenance companies in the world, and is based at the new Guangzhou airport.
Ports Sector
The main ports in Guangdong are Guangzhou and Shenzhen ports. Shenzhen is the world's fourth largest container port. Nansha port, to the south of Guangzhou city, is being developed as part of the Nansha Development Zone, which will focus on industries such as automotive (Toyota), petrochemicals (BP), and steel.
Opportunities for companies operating directly from the UK are likely to be limited in this sector due to the proximity of Hong Kong, from which local partners source their expertise.
Hong Kong Zhuhai Macau Bridge
The Hong Kong Zhuhai Macau Bridge is a major infrastructure project, with an expected investment of around USD3.8bn. This will link Hong Kong to the less developed western Pearl River Delta. Due to the complexity of the project, both in terms of involving partners from Mainland China and the two Special Administrative Regions (SARs), and the various environmental and technical issues relating to the project itself, this project has been making slow progress.
Railway Sector
There are major changes underway in the railway network in Guangdong, with the construction of the major new Guangzhou Railway Station in Panyu, in the south of Guangzhou. This new Railway Station will act as the passenger hub for the railway network in the south of China, linking services to Beijing, the planned Hong Kong Guangzhou high-speed rail link, and services to the west of China.
Commercial and Residential Developments
Lessons of over-optimism abound particularly in Guangzhou, with half built tower blocks which fell victim to the Asian financial crisis. However, this should not distract from the fact that there are genuine opportunities, providing partners have been chosen carefully.
After years of low development in the international hotel market compared to Shanghai, Guangdong is seeing major new developments with internationally managed hotel planned in Guangzhou and Shenzhen, and also in the other major centres in the Pearl River Delta such as Dongguan and Zhongshan. Guangzhou is planning to build 30 five star hotels in the next 3-5 years. Five five-star hotels will be set up in Conghua District as the part of the infrastructure project for Pan-Pearl River Delta forum, with the aim to complete these in 2007.
High-end residential developments in Guangzhou are centred in Er Sha Island and Panyu district, with major local developers such as City Development Group, Clifford Group www.cliffordgroup.com.cn . Overseas Chinese Town (OCT) www.chinaoct.com and China Vanke www.vanke.com based in Shenzhen have projects Chinawide. Some of these have associated developments such as hospitals and retail opportunities.
Retail developments vary in their success, and opportunities should be viewed with caution. Some retail developments are ghost-like in their lack of customers. However, consumer spending power is very strong and B&Q's stores have had notable success in this region.
Guangzhou new Central Business District (CBD)
Guangzhou's skyline suffered from the Asian financial crisis, which led to a number of projects being shelved and other projects resulting in bankruptcy. However, with the support of the provincial and municipal governments, the new CBD is being completed in the east of Guangzhou. Along with business developments, a number of landmark buildings are being constructed in the CBD, including the new Zaha Hadid-designed Guangzhou Opera House, a new provincial Guangdong Museum, a TV & Sightseeing Tower, Guangzhou Library, Guangdong Science Centre, and the first of the 400 metre high 'twin towers'.
3. Current Foreign Investment
Many UK companies based in Hong Kong focused first on following Hong Kong developers into Beijing and Shanghai, using Shenzhen offices to outsource work from Hong Kong. As the market potential increases in the Pearl River Delta, companies are increasing resources devoted to exploring the local market, through a combination of local and Hong Kong offices.
UK investment in the Pearl River Deltaincludes Swire Properties, engineering consultancies such as Arup, Atkins, Gammon Construction, Halcrow, Hyder, and Scott Wilson, building materials (eg Corus) and architectural services companies.
4. Regulatory Environment & Market Entry Strategies
Most major projects in the infrastructure sector are still on an invitation to tender basis, rather than being open to international tender. Establishing relations with relevant research/ planning institutes, government departments, etc is therefore often essential in order to win business. The advantage lies with companies with the capability to build long-term relationships and to establish local ties in advance of major projects being announced. Companies with a local presence, or working with larger overseas project partners who do have a local presence, have a significant advantage especially when it comes to identifying the right local partners in the event of winning a project.
Building materials suppliers are strongly recommended to consider a local presence with aftersales/ product training capability in order to service the local market and feedback on local market requirements for new product development.
A list of lawyers and business services companies is available from the Consulate on request.
City Links
Companies from UK regions with existing links with Guangdong can seek to exploit these in getting access to key decision makers.
Guangdong has signed Memoranda of Understanding (MoU) with the UK's North West and South West Regional Development Agencies (RDAs).
Guangzhou is twinned with Bristol and also has an agreement with Birmingham.
Formal UK links with Shenzhen include a Memorandum of Understanding with the City of London (ie the Square Mile, focusing on financial services) and the South West Regional Development Agency (SWERDA) office. China Britain Business Council (CBBC) also has an office in Shenzhen.
5. Recent and Forthcoming Events Supported by the Consulate
October 2003 - the Consulate supported a generic PPP seminar in Shenzhen organised by International Financial Services London and China Britain Business Council
March 2004 - the Consulate supported a PPP seminar focusing on healthcare in Guangzhou organised by International Financial Services London and the UK's Department of Health
July 2004 - the Consulate supported an infrastructure seminar focusing on Hong Kong and the Pearl River Delta organised by the British Consulate-General Hong Kong
March 2005 - the Consulate supported an infrastructure seminar focusing on Hong Kong and the Pearl River Delta organised by the British Consulate-General Hong Kong
September 2005 (tbc) - the British Consulate General Hong Kong is considering co-organising a seminar on urban regeneration in Shenzhen
October 2006 (tbc) - Guangdong Sports Bureau are planning to organise an exhibition focusing on sports and leisure infrastructure. Plans for a UK presence are being discussed.
December 2005 (tbc) - the British Consultants and Construction Bureau (www.bccb.org.uk) is planning to visit Guangzhou, Shenzhen and Chongqing focusing on urban regeneration
March 2006 - Chinalink (based in Liverpool) are co-organising Stadia China 2006 in Guangzhou, focusing on sports and leisure infrastructure. This is supported by Guangzhou Sports Bureau.
UK Trade & Investment Contact: paul.wills@fco.gov.uk
