China’s cooling may help majors

China’s cooling may help majors
17 May 2004

China’s move to rein in building industries to cool its surging economy is expected to wipe out thousands of small cement plants and give foreign firms a crack at the world’s biggest market. Beijing has long wanted to shut the myriad of small, often unprofitable, low-quality cement makers that sprang up in the 1980s.

"My sense is the central government has finally lost patience and slammed down its iron first," said Simon Francis, a Hong Kong-based analyst at ING Securities.  When Chinese premier Wen Jiabao said last month Beijing would use "forceful measures" to cool the economy, investors sold off Chinese stocks. The biggest cement maker, Hong Kong-listed Anhui Conch, has fallen 36 per cent in the last month.

China has more than doubled cement production in the last decade to 813 million tonnes last year, almost half the world’s cement, to feed a boom in infrastructure and housing.  Beijing’s economic planners had forecast in the late 1990s that these volumes would not be reached until 2015, and only after thousands of antiquated plants were closed.

"It will be good if this policy is enforced," Gerard Letellier, a Zurich-based Holcim executive, said of the lending squeeze.  "People have rushed investment to the cement industry because it’s easy cash flow, but a lot of the plants don’t make sense," he said. "Consolidation will bring us some opportunities."

However, analysts say Beijing could find it difficult to close down small cement makers because most are partnerships involving local authorities, also jealously guarding their tax revenues. Labour unrest could also derail the strategy.  "Municipal governments are feeding on tax payments from these cement plants, which also employ many locals," said Edward Fung, an analyst at Kim Eng Research in Hong Kong.

Published under Cement News