CHINA’S CAREFULLY MANAGED ECONOMIC MIRACLE

2008 Stimulus Minimizes Downturn

After 10 years of often double-digit economic growth, the Chinese economy remains an impressive story. A huge part of the country’s economic success has derived from manufactured exports. The government has promoted industrialization and manufacturing industries with credit policies, tax incentives, and direct assistance for select industries. When the severe recession struck the world economy in H2 2008, China clearly had a vulnerability in sales to its export markets, especially to the US and Europe. But the Chinese government moved swiftly to limit the fallout, and implemented a US$586 billion, two-year, stimulus-spending program. Major goals of this program included:

• Spending on power, telecom, roadway, and other infrastructure, especially in rural areas;
• Incentives for domestic consumption;
• Expenditure to address social welfare, safety, health, and security issues.

This stimulus program began in Q4 2008 and has continued through 2009. Data on industrial productivity and domestic spending suggest that it has been successful so far.

China’s 2009 Indicators Stayed Positive

With the stimulus program in force, spending on construction of roads, power lines, telecom networks, housing, and industrial facilities has remained at a high level. Exports have fallen as expected, and wire and cable exports have been affected as much as other export industries. But the sheer size of China’s domestic wire and cable market has buffered the problems caused by the export business losses incurred by some of the larger wire and cable producers. The year-end assessments of China’s 2009 GDP growth are between 8.8% and 9.0%, and the outlook for 2010 is similar, continuing the decade-long pattern of rapid transition from an agrarian and highly centralized economy to an industrial and more market-driven economy.

Energy Demands Continuing to Rise

China has just completed a decade of massive construction in the areas of generating capacity and high-voltage transmission routes, especially to serve the major urban centres in the southern and eastern industrial areas. Construction of energy infrastructure, while not completed, will undergo shifts in the next decade, as China extends power to more rural areas.

Power Sources and Sites Are Changing

China’s power consumption is not only a large quantity, but it continues to show rapid growth. In Q4 2009, China’s national energy consumption was more than 300 billion kilowatt hours per month, and year-on-year growth was at or above 20% for much of 2009. China’s power consumption increased with a CAGR of 14% from 2000 to 2007, which is the reason for the past decade of strong growth in power cable demand. The world’s largest hydroelectric power facility, capable of generating 9,800 MW, was completed in China’s Hubei Province in 2006. In its peak year of coal-plant construction (2007), China reportedly was completing two new coal plants per week. This figure has since dropped significantly, and China has stepped up investment in renewable sources. China has a major initiative to ramp up wind-turbine production. In 2009, China announced plans to build five new nuclear plants.

Transmission Cable Demand to Stay High

Although the overall capex budgets of China’s main transmission operators, the State Grid Corporation of China (SGCC) and Southern China Power Grid (SCG), may be somewhat lower in 2010 than previous years, ongoing plans to link to international energy sources and to tie in remote provinces will help to keep demand for transmission cables at high levels, especially medium-voltage cables for domestic routes. A further driver of demand is the ongoing Village Electrification Program, which aims to bring electricity to 10,000 villages by 2010, with full rural electrification by 2015. Much of this will be via solar power, with cables installed mostly overhead.

New Homes Drive Building Wire Market

Construction of apartments is being driven by migration from rural to urban areas and, as incomes rise and society changes, a demand for increased living space. Growth rates look likely to slow in the period to 2015, but the amount of additional residential space needed in the period to 2015 is likely to exceed that added in the period 1995-2005. The number of new residential units or flats completed in one year was 4.4 million in 2007, up from 2.1 million in 2000. This figure is still comparatively small compared with the annual demand for 6 to 7 million new housing units in China’s metropolitan areas.

High Demand Likely for Five Years

Beyond 2015, a steep drop in residential building looks likely as the increase in urbanization and per capita living space both slow down. Office/commercial new build should become more important as consumer spending and the service sectors expand their share of GDP in the longer term. Repair and maintenance is also currently a tiny part of overall construction, but should become increasingly important as the stock of buildings and infrastructure grows.

Building Wire Has Role in Copper Market

Approximately 40% of the total market for low-voltage energy cable is building wire. In China, building wire is made to national standards GB5023 and JB8734, with many companies also producing cable complying with IEC227. The typical building wires used in China are PVC insulated types BV (single core), BVV (multi-core round), BVR (single core flexible), BVVB (multi-core flat), BLV (single core aluminium) and BLVV (multi-core aluminium). Nearly all building wire used in China contains copper conductors, with aluminium conductors used only in some rural areas. Some cable manufacturers offer zero halogen alternatives, and there is also some use of international types of building wire, with British Standard cables being common in Hong Kong, and US-style THHN types also being made locally.

The intensity of China’s building wire use (expressed, for example, in terms of kg of conductor weight per square metre of floor space) is lower than in the developed world, but it is higher in China than in many other countries at a similar stage of development. One reason is that larger conductor sizes are used in some situations. For example, 2.5-square-mm conductors generally are used for lighting circuits in residential buildings in China, though 1.5-square-mm or 1.0-square-mm conductors would be considered adequate for this application in most other countries.

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