It didn’t matter where you went in China, literally everywhere was in major construction in villages, towns, cities, plus new railways and new freeways – all requiring and consuming metals.

On a relative basis, building in the cities appeared to be greater in Beijing than in Shanghai, but that observation could be due to the areas I visited, since Shanghai was clearly adding a new airport terminal and the “new” Shanghai South railway station itself resembled an advanced airport terminal.

The general building of houses and apartments appeared to have moved on towards demolishing older apartment blocks and replacing them with higher newer ones, while other areas involved demolishing an area and replacing it with a designed housing estate including water features such as a flowing river or lake / pond etc.

The rebuilding was evident throughout China, even in the more far flung reaches such as Baise city in north western Guangxi, where both sides of a lamp-post showed the “new” replacing the “old”. While in Guangxi we actually bypassed a city - it was the same one that I had seen start from a hut by the side of the road about 3 years ago, and develop into a town, and then a city. Now it has rail, and an airport was being built there. At one stage China was building a city the size of Melbourne every month due to the migration of labour to the 200km wide coastal strip.

Also driving through Guangxi on the way to GTX’s Weilong we passed alongside a lake where all the previous housing (constructed literally of wooden planks, branches etc) was being replaced by three storey dwellings. We passed through numerous places in construction often just massive piles of bricks at regular intervals along roads, some of them having started.

There were cars being transported in convoys of car transporters (about 24 cars at a time), motorbikes, and motorbike trailers. Interestingly Nanning in Guangxi has stopped issuing new licences for motorbikes/motorcycles to curb pollution and traffic congestion, with licences only obtainable through the sale of previous ones. Outside of Nanning motorbike licences could still be purchased.

Other construction appeared to be focusing on railways and rail networks, roads and bridges. On the day of our return to Australia from Shanghai on 23 November 2006, the China Daily published a statement from the Transportation Director of the National Development and Reform Commission that US$38bn was going to be invested in rail construction next year (2007) as part of an almost US$190bn (Rmb1.5trn) investment to increase the rail network by 20% by 2010 (being the remaining time to December 2010 of China’s 11th 5-year plan). That US$190bn includes US$32bn on vehicle purchasing, US$76bn on railway lines and >US$79bn on civil engineering.

The Ministry of Railways further stated that although an inter-city passenger transportation express with speeds of >200km/hour was to be set up, the lack of services would not be solved by 2010, further investment has been allocated to solve the expected issues by 2015. There have been many articles on the planned railway network and its 4 hubs of Beijing, Shanghai, Guangzhou and Wuhan, with US$20bn being spent in Guangdong on 10 railway lines linking other provinces.

Both the cities of Guiyang and Hangzhou were installing new underground systems from scratch. When I was in Beijing last year, I thought I had misheard when someone say seven underground lines were being added, but this year someone said that there are 6 plus the Olympic one, and showed me where some of the new ones are.

Two years’ ago it took us about 30mins to work out Shanghai’s underground system on two lines (everything was in Mandarin). This year there are now 5 lines (3 new ones having been completed), smartcards are being used (its just like the Singapore underground system), everything is dual and press an “English” button on the ticket machine and its all in English – the costs are still “cheap” despite a 30% increase from 3Rmb to 4Rmb per journey (~6Rmb = 1A$).

Expressways are not being left behind either with US$242bn allocated for spending by 2020. When we first visited Jinfeng in March 2004, it took ~9 hrs by road to drive there from Guiyang, this time it took 6 hrs. The time to get to “the gorge bridge” (so named because although only about 500m long it is over a ~1km drop to the river below), was only 3.5 hours mostly on freeways (previously it took 5 hours).

The journey still included a “gap” of major bridge building around the famous Huangguoshu waterfall area in Guizhou, and hence may be reduced by another hour with an ~2.8km span suspension bridge near the top of the valley that was observed in construction with the main stanchions already completed.

On the flight from Guiyang to Beijing we saw the new freeways snaking across the country, and bridges visible from the aeroplane. It’s not often that you can see significantly large bridges tracking across valleys and ridges on the ground when an aircraft is in mid-flight “x” km up from the ground.

Just as a reflection, a figure of part of Nanning in Guangxi was included in our column in the February 2006 issue of Paydirt. Figure 1 shows what has happened in the past year since then plus all the additional buildings completed and under construction. This is just a small part of Nanning, the main part is left of this figure.

However, if you want to see steel consumption, the Beijing Olympic venues, must bring a smile to any metal producer’s face, especially the main stadium called the “bird cage” with even the “bubble” apparently hiding some steelwork. Near the Olympic venues significant construction apartment block activity was also well underway.

From what I could see, the main potential restriction to China’s growth still appears to be insufficient raw materials in the world and we have seen Chinese based companies trawling the world for orebodies that have long-life (ideally 10 to 20 years plus) potential and are prepared to finance their development. Jinchuan Nickel for example, has now established a number of offtake agreements with ASX listed companies in the Australian region and Southern Africa.

At the China Mining 2006 conference, the main focus of the main Chinese company presentations was on “win-win” joint ventures with non-Chinese partners, where the Chinese company could learn and apply its newly acquired knowledge. There was also a focus on the efficient reduction of power usage/consumption by major Chinese companies.

On the ~220km train journey from Shanghai to Hangzhou (about 1.75 to 2.25 hours at a cost of Rmb28, or almost A$5, each way) we passed canals that had been closed off containing many old barges covered in weed, and vast housing estates of what looked like over a hundred houses resemblant of 2 or 3-storey cottage type boxes (all the same) in a grid pattern – it appears that China is within a “period” in which it is being re-built, which seems extremely unlikely to be capable of suddenly stopping.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, holds interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

Figure 1. Behind the Wharton Hotel in Nanning in Guangxi in November 2006