China Seeks Foreign Investment To Boost Sagging Infrastructure

WITH its basic infrastructure straining under the burden of booming economic growth, China is going to great lengths to draw the attention of foreign investors.

At an international conference in Beijing late last month, China opened its Great Wall project to overseas investment. Businesspeople and scholars from the United States, Europe, and Asia were courted to provide expertise and the $11.5 million needed to rebuild 16 sections of the 4,000-mile-long, 2,000-year-old barrier. The government has already set aside $11.6 million, 30 percent of which was raised overseas, for the project.

``We hope to receive more foreign investment for the huge project in the years to come,'' said Ma Keqiang, an official with the China Great Wall Society, who was quoted in the official English-language China Daily.

Help for infrastructure

Turning to foreigners to rebuild this famous icon, now a tourist site, is a highly visible example of China's desperation for foreign funds to bolster a sagging infrastructure that threatens the future of market-style reforms.

Peregrine Securities in Hong Kong estimates that by the end of the decade, China will spend $233 billion in infrastructure improvements, about $35 billion of which will be sought from overseas. ``Construction and equipment companies around the world see this as the biggest bonanza anywhere,'' a Western economist in Beijing says.

Fifteen years of fast economic change have doubled the cargo demand on seaports, tripled the number of airline passengers, doubled the number of civilian vehicles, and boosted energy consumption by two-thirds.

Inadequate infrastructure is starting to strangle economic expansion and widen the disparities between flourishing coastal areas and poor interior regions lacking the transport, communications, and power sources needed to capitalize on China's prosperity. ``Without proper transportation and other infrastructure, the inland areas are losing out,'' a Chinese economist says.

To narrow the gap, China has drawn up plans for a huge boom in infrastructure construction. It is estimated that in the next decade, China will need 60 million telephone lines, more than 100,000 megawatts of electric generating capacity, 20 new or expanded airports, 10,500 miles of railway lines, 200 new port berths, and more than 30,000 miles of expressways and roads.

Despite concerns that construction expenditures are contributing to China's historically high levels of inflation, the Chinese central bank is giving priority to foreign-funded infrastructure expansion, and the government is pushing ahead with a number of megaprojects, some with assistance from the World Bank and the Asian Development Bank. They include the $30 billion Three Gorges Dam, the 1,500-mile Beijing-Kowloon Railway, and the 1,400-mile Beijing-Guangzhou expressway.

But China is a difficult market. Foreign companies that have plunged into the infrastructure building boom often find themselves slowed by a bureaucratic thicket and a snails-pace centralized planning system. ``One thing that's clear is that business has to invest time as well as money in China,'' says Edwin Lupberger, chairman of the New Orleans-based Entergy Corp.

The experiences of Hong Kong tycoon Gordon Wu, a pioneer in Chinese infrastructure projects, are not uncommon. Mr. Wu built China's first six-lane superhighway, a 77-mile, $1.1 billion stretch from Hong Kong to Guangzhou in southern China. But after repeated delays in obtaining land and substandard work by Chinese contractors, the road only opened last July, nine months behind schedule.

Low equity returns

Mr. Wu has been forced to scale back plans to construct power plants in China. His Consolidated Electric Power Asia Ltd. had letters of intent with six Chinese provinces as part of a program to build 12 plants in Asia. But when Chinese officials said foreign investors could earn no more than a 12 percent return on their equity in power facilities, Wu decided to refocus his efforts on the Philippines, Indonesia, and Pakistan. The Chinese-mandated return is below the 18 percent norm for power plant projects elsewhere in developing Asia.

Doubts about the government's committment to pay adequate returns concerns many investors. Huaneng Power International Inc., the second Chinese utility to be listed abroad, received a lukewarm reception when trading began earlier this month on the New York Stock Exchange. Those doubts also knocked 15 percent off the stock price of another Chinese utility listed in August.

Nonetheless, investors such as Wu still see profits in Chinese infrastructure. Construction has started on a second highway from Macao to Guangzhou; Wu is also pushing for approval of a 400-mile highway from Guangzhou to Changsha.

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