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MARKET OVERVIEW

By Terry Young,2014-11-21 21:01
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MARKET OVERVIEW

    THE CONSTRUCTION MARKET IN SOUTHWEST CHINA THE CONSTRUCTION MARKET IN SOUTHWEST CHINA

EXECUTIVE SUMMARY EXECUTIVE SUMMARY

    Chinas construction industry is the worlds second-largest construction market, following Chinas construction industry is the worlds second-largest construction market, following the United States. It will grow at a rate of 15% to 30% over the next five years, and the United States. It will grow at a rate of 15% to 30% over the next five years, and become the worlds largest construction market by 2010 with projected spending of $1.7 become the worlds largest construction market by 2010 with projected spending of $1.7 trillion CDN. trillion CDN.

    More specifically, Southwest China (composed of Sichuan, Guizhou, Yunnan Provinces More specifically, Southwest China (composed of Sichuan, Guizhou, Yunnan Provinces and Chongqing Municipality) is emerging as an important destination for Canadian and Chongqing Municipality) is emerging as an important destination for Canadian building products and construction services. The construction market in Southwest China building products and construction services. The construction market in Southwest China is being fuelled by factors such as the 1998 housing reform, dramatic economic progress, is being fuelled by factors such as the 1998 housing reform, dramatic economic progress, the Western Development Strategy, and changing demographics due the governments the Western Development Strategy, and changing demographics due the governments plan to accelerate urbanization in Western China. plan to accelerate urbanization in Western China.

    The central government has also designated the real estate industry as one of Chinas The central government has also designated the real estate industry as one of Chinas pillar industries. Accordingly, construction and renovation of residential housing is pillar industries. Accordingly, construction and renovation of residential housing is becoming the focus of investment in Chinas real estate sector. Although the construction becoming the focus of investment in Chinas real estate sector. Although the construction of commercial and industrial building has been growing at a slower pace, it is expected to of commercial and industrial building has been growing at a slower pace, it is expected to gain considerable headway as it becomes a direct beneficiary of the mushrooming of gain considerable headway as it becomes a direct beneficiary of the mushrooming of foreign-invested factories and branch offices, which is likely to follow in the wake of foreign-invested factories and branch offices, which is likely to follow in the wake of Chinas accession into the World Trade Organization (WTO). Chinas accession into the World Trade Organization (WTO).

    While China has an extensive building products industry that produces many of the While China has an extensive building products industry that produces many of the materials that the Chinese market consumes, there is a growing need for higher-quality, materials that the Chinese market consumes, there is a growing need for higher-quality, energy-efficient, more advanced building products and services. Improving the quality of energy-efficient, more advanced building products and services. Improving the quality of construction and making overall improvements to the quality of social residential construction and making overall improvements to the quality of social residential buildings has become a key point in the governments future work. Value-added products buildings has become a key point in the governments future work. Value-added products and technologies, including energy-efficient products, waterproof materials, and and technologies, including energy-efficient products, waterproof materials, and intelligent building management systems and controls, have increasingly high market intelligent building management systems and controls, have increasingly high market potential in China. The country is also beginning to seek out foreign involvement more potential in China. The country is also beginning to seek out foreign involvement more often in the areas of architectural design and engineering consulting. often in the areas of architectural design and engineering consulting.

    Although there is competition from foreign suppliers Japan, Taiwan, Germany, Italy, Although there is competition from foreign suppliers Japan, Taiwan, Germany, Italy, Hong Kong, Korea, the United States, Australia, the United Kingdom and France Hong Kong, Korea, the United States, Australia, the United Kingdom and France Canadian companies have fared well in many sub-sector categories, such as plastic Canadian companies have fared well in many sub-sector categories, such as plastic window frames, coatings and energy-efficient building components. window frames, coatings and energy-efficient building components.

    However, low awareness of Canadian products, high import tariffs, lower-priced However, low awareness of Canadian products, high import tariffs, lower-priced competitors, lower substitutes and other non-tariff barriers all pose impediments to market competitors, lower substitutes and other non-tariff barriers all pose impediments to market entry. With Chinas entry into the WTO, companies seeking to export to China stand to entry. With Chinas entry into the WTO, companies seeking to export to China stand to benefit with lower tariffs and structural trade policy changes. However, the phase-in of benefit with lower tariffs and structural trade policy changes. However, the phase-in of tariff rate reduction and other changes in Chinas trade policy will take time. tariff rate reduction and other changes in Chinas trade policy will take time.

    Southwest China currently holds significant market potential for Canadian building Southwest China currently holds significant market potential for Canadian building product and architectural services firms. However, the proposition of working in product and architectural services firms. However, the proposition of working in Southwest China must be viewed as long-term business plan. Southwest China remains a Southwest China must be viewed as long-term business plan. Southwest China remains a complex, highly regional and frequently changing marketplace, making it imperative for complex, highly regional and frequently changing marketplace, making it imperative for

     2 2 foreign exporters to seek Chinese partners who are familiar with the culture, language, foreign exporters to seek Chinese partners who are familiar with the culture, language, marketing and distribution systems. marketing and distribution systems.

    MARKET OVERVIEW - RESIDENTIAL CONSTRUCTION MARKET MARKET OVERVIEW - RESIDENTIAL CONSTRUCTION MARKET

    Chinas residential construction market will grow 15% annually over the next five years. Chinas residential construction market will grow 15% annually over the next five years. The first reason for such growth is Chinas plan to further expand the living space of its The first reason for such growth is Chinas plan to further expand the living space of its residents from the current 8.4 square meters to 12 square meters by 2005 and 18 meters by residents from the current 8.4 square meters to 12 square meters by 2005 and 18 meters by 2010. As a result, China will build 1.5 billion square meters of housing in urban areas 2010. As a result, China will build 1.5 billion square meters of housing in urban areas annually, 3.5 billion square meters of housing in rural areas, and renovate 2.9 billion annually, 3.5 billion square meters of housing in rural areas, and renovate 2.9 billion square meters of old houses. square meters of old houses.

    The second reason for such growth is Chinas 1998 housing reform, aimed at privatizing The second reason for such growth is Chinas 1998 housing reform, aimed at privatizing the housing market. (Historically, housing in China was state-provided; private ownership the housing market. (Historically, housing in China was state-provided; private ownership did not exist and disposable income was minimal. Therefore, residential buildings met did not exist and disposable income was minimal. Therefore, residential buildings met only the most basic needs, characterized with simple design, cheap materials, low quality only the most basic needs, characterized with simple design, cheap materials, low quality finishing, and little consideration for living standard or environment.) As a result, 30 finishing, and little consideration for living standard or environment.) As a result, 30 million square meters of old or inadequate housing is currently in need of renovation or million square meters of old or inadequate housing is currently in need of renovation or rebuilding, and an additional 2 billion square meters of old residential buildings need rebuilding, and an additional 2 billion square meters of old residential buildings need repair or remodeling. repair or remodeling.

    To ensure the adoption of housing reform and a smooth transition from welfare housing To ensure the adoption of housing reform and a smooth transition from welfare housing allocation to increased private ownership, China has established the Housing Provident allocation to increased private ownership, China has established the Housing Provident Fund to help low-income families purchase their own housing and the Housing System Fund to help low-income families purchase their own housing and the Housing System Reform Group to encourage the public to spend 20% to 30% of their income to buy Reform Group to encourage the public to spend 20% to 30% of their income to buy houses within the next 10 to 20 years. In addition, local governments are pouring record houses within the next 10 to 20 years. In addition, local governments are pouring record sums into low-cost mortgage programs. According to the Bank of China, the mortgage sums into low-cost mortgage programs. According to the Bank of China, the mortgage market has doubled in size in each of the last 3 years. market has doubled in size in each of the last 3 years.

    In an attempt to curb the over-heated and unbalanced real estate growth across China, the In an attempt to curb the over-heated and unbalanced real estate growth across China, the Chinese central government has issued a series of macroeconomic policies to strengthen Chinese central government has issued a series of macroeconomic policies to strengthen control, including: control, including:

    ; Limited access to bank loan for land purchase; ; Limited access to bank loan for land purchase;

    ; More strict loaning regulations, especially for projects outside of the banks ; More strict loaning regulations, especially for projects outside of the banks

    territory; territory; ndnd; No more bank mortgage package to private investors for the 2 house purchase; ; No more bank mortgage package to private investors for the 2 house purchase;

    ; Increased mortgage interest rate; ; Increased mortgage interest rate;

    Unlike the east coastal areas, Southwest China has been barely affected by the new Unlike the east coastal areas, Southwest China has been barely affected by the new housing policies, due to developers abundant land storage, the ever-increasing demand housing policies, due to developers abundant land storage, the ever-increasing demand with the rapid urbanization, as well as the stable development of real estate in the area. On with the rapid urbanization, as well as the stable development of real estate in the area. On the contrary, the real estate investment has kept an average of 28.5% increase in 2004, the contrary, the real estate investment has kept an average of 28.5% increase in 2004, with commercial building investment has come on top. with commercial building investment has come on top.

    However, developers in Southwest China have been under greater pressure because of the However, developers in Southwest China have been under greater pressure because of the following factors: following factors:

    ; Competitors from other areas plunge into the Southwest area to minimize the risk ; Competitors from other areas plunge into the Southwest area to minimize the risk

    in the over-supplied Eastern market; in the over-supplied Eastern market;

    ; Steep mark-up of building products; ; Steep mark-up of build