The significance and performance of infrastructure in China
| Published date | 06 March 2009 |
| Date | 06 March 2009 |
| DOI | https://doi.org/10.1108/14635780910937863 |
| Pages | 180-202 |
| Author | Graeme Newell,Kwong Wing Chau,Siu Kei Wong |
| Subject Matter | Property management & built environment |
The significance and performance
of infrastructure in China
Graeme Newell
University of Western Sydney, Penrith South, Australia, and
Kwong Wing Chau and Siu Kei Wong
University of Hong Kong, Hong Kong
Abstract
Purpose – The significant economic growth and urbanisation of China in recent years has seen
increased importance given to infrastructure development in China; this includes airports, toll roads,
communications, ports, power plants and water. The purpose of this paper is to assess the significance
and investment performance of infrastructure in China, the linkages to commercial property markets
and the increasing future role of international private infrastructure investors in China.
Design/methodology/approach – This paper analyses the performance of infrastructure in China
over 1995-2006. Using the Hong Kong-listed China infrastructure companies, risk -adjusted
performance analysis is used to assess the added value of China infrastructure, with the portfolio
diversification benefits of China infrastructure also assessed.
Findings – The paper finds that China infrastructure has delivered significant and improved
risk-adjusted returns, but there is evidence of some recent loss of diversification benefits by China
infrastructure in a portfolio. The strong linkage between effective infrastructure and effective
commercial property markets is particularly important, as international investors seek to increase
their exposure to China’s infrastructure and commercial property markets to add value in their
international investment portfolios.
Originality/value – This is the first paper to rigorously assess the significance and performance of
infrastructure in China. This risk-adjusted analysis has enabled more informed and practical
investment decision making by international investors regarding the significance and role of China
infrastructure and the associated strong linkage to the commercial property markets in China. This
will take on increased importance as international investors increase the significance of both China
infrastructure and China commercial property in their portfolios.
Keywords China, Organizations,Property, Risk assessment, Diversification, Investors
Paper type Research paper
Introduction
Recent years have seen China emerge as a major economic force in Asia and
internationally, with Table I giving a general social, economic and financial profile of
China in 2006. Fundamental to this success has been strong economic growth,
significantly ahead of other Asian countries; with this economic growth expected to
continue. This economic growth has largely concentrated in the Yangtze River Delta
(e.g. Shanghai, Nanjing), Pearl River Delta (e.g. Guangzhou, Shenzhen) and Bohai Bay
Region (e.g. Beijing, Tianjin), seeing the establishment of significant commercial
property markets in China. Importantly, the development of the Chinese property
markets has seen increased focus on China by the major international investors (e.g.:
RREEF, Morgan Stanley, Goldman Sachs), as they seek value-added property
The current issue and full text archive of this journal is available at
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JPIF
27,2
180
Received March 2008
Accepted November 2008
Journal of Property Investment &
Finance
Vol. 27 No. 2, 2009
pp. 180-202
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/14635780910937863
investment opportunities in the emerging and developing commercial property
markets in China.
China currently accounts for 12 per cent of the world’s gross domestic product
(GDP). Key factors in this significant economic growth in China include:
.integration into the global economies;
.export growth;
.being the manufacturing hub of the world;
.expansion of China’s domestic markets;
.commitment to WTO; and
.inland China growth (JLL, 2007a).
Importantly, improved infrastructure has been a key element in this economic growth
and urbanisation in China, with effective infrastructure seen as essential for the social
well-being of communities and the economic growth, business competitiveness and the
effective functioning of the commercial property markets; particularly for interna tional
investors who are now seeking to increase their exposure to the China property
markets. Within Asia, there is a strong correspondence between infrastructure quality
and property market transparency (r¼0:93), with this rank correlation for Asia
stronger than that seen for Europe (Newell and Peng, 2007a).
Similarly, in a global context, listed infrastructure has performed strongly over the
last ten years, with Table II presenting the average annual returns for one-, three-, five-
and ten-year holding periods for global infrastructure and the various global asset
classes at Q4: 2006. Strong performance was evident for global infrastructure and
Population 1.322 billion; world’s largest population; 40 per cent
urban
Main language Mandarin
Major cities Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin
WTO membership 2001
Major events Olympic Games (2008), World Expo (2010)
Currency Yuan; US$1 ¼7:97 yuan
Inflation 1.5 per cent
Labour force 798 million
Labour sectors Agriculture (45 per cent), industry (24 per cent),
services (31 per cent)
Unemployment 4.2 per cent
GDP $10.2 trillion
GDP growth 10.7 per cent
GDP sectors agriculture (12 per cent), industry (48 per cent),
services (40 per cent)
Industrial production growth 22.9 per cent
Exports $974 billion
Imports $778 billion
Stock markets Shanghai, Shenzhen; established 1990
Global competitiveness 54th in world
Business competitiveness 64th in world
Sources: CIA (2007), WEF (2007)
Table I.
Social, economic and
financial profile of China:
2006
Infrastructure in
China
181
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