What Drives Cable Groups To Invest in China?

 

Key Drivers

 

There are various reasons that would encourage a foreign company to invest in China, all of which are related to the strong growth in the cable market and in Chinese industrial production. The main drivers relevant to wire & cable markets are:


• Strong Chinese market growth due to infrastructure development
(e.g. power cables, telecom cables);
• Strong market growth due to high construction activity
(e.g. building wire, power cables, datacom cables);
• Strong Chinese market growth due to shift in global production by OEMs
(e.g. auto cables, magnet wire);
• Opportunity to develop a low cost manufacturing base for export to markets outside China.

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Rapid Infrastructure Development


After lagging behind the growth rate in real GDP during the late 1990s, growth in electricity demand has been faster than real GDP growth in recent years. Development of Chinese electricity infrastructure (power generation facilities and transmission / distribution networks) has been accelerating in recent years to keep pace with this demand growth. In the communications sector there has been very strong growth in telephone lines in China, (as shown in the graphs included in the October 2005 issue of ICF News), though much of the expansion in the last three years has been associated with mobile phones and wireless local loop lines. Expansion of the fixed line telephone network via traditional copper pairs has continued, but the pace of expansion has slowed somewhat.

 

Growth of OEM Production

 
There has been a very strong increase in Chinese production of many electrical consumer goods. For example, Chinese production of air conditioners has grown from 0.7 million in 1995 to more than 5 million in 2004. Partly this growth has been driven by increased demand from consumers in China, but there has also been high growth in exports as production in other countries has been displaced by Chinese production.


 

 

Low Cost Export Operations


China’s cable trade was discussed in detail in the July 2005 issue of ICF News. In China’s exports the main feature is not primarily exports of cable, but exports of assemblies and harnesses where the labour cost saving through production in China is significant. The main exports include harnesses for autos or electrical equipment and cable assemblies, such as power cords and extension leads that incorporate flexible cables. For most types of cable the labour cost element is not so critical and the lead times for delivery to markets in Europe, for example, are too long for Chinese cable suppliers to be really competitive. However, there are exceptions where Chinese exports of cable are high, serving not only Hong Kong but also other markets in Asia.