A Spending Spree in China

China just finished building a railroad from Beijing to Tibet. Its a feat of engineering magic the first tracks ever built over such difficult terrain. The new train tracks are symbolic of Chinas rapid expansion & and its willingness to spend, spend, spend.

Most of the railroad is more than 13,000 feet above sea level; at its highest point, the tracks reach 16,640 feet. The elevation is so extreme, and the mountain air so thin, that ballpoint pens and packaged foods sometimes burst. And if you take your laptop computer or MP3 player, watch out. Tiny air bags that are used to cushion disc drives are likely to pop.

Can you imagine what it was like to lay these tracks? For four long years, 35,000 workers toiled in the bitter cold to complete the task.

Certainly, ingenuity and tenacity played a big part in the projects success. But so did money. Almost any project is possible if you throw enough cash at it. The new railways total cost came in at about $4.2 billion, with some companies making a fortune from the bonanza.

The best news: This $4.2 billion railway is peanuts when you look at the big picture. Heck, the Chinese government has pledged to spend as much as $250 billion to upgrade its passenger rail system by 2015.

And the money train doesnt stop with the railroads …

Multi-Billion-Dollar
Projects Under Way
All Over China

The government, along with both Chinese and foreign companies, are investing in ambitious infrastructure projects throughout the country.

Here are just five more areas seeing massive investment:

Spending Spree #1: Dams

Chinas Three Gorges Dam the worlds largest hydroelectric project has cost $25 billion so far, and its still far from finished. The dam will not be fully operational until 2009, but when it revs up its 26 turbines, the dam will have a capacity of more than 18,000 megawatts of electricity a day. Thats enough to provide 10% of Chinas electrical needs!

And theres even more hydropower spending going on. Over the next 20 years, the Chinese government will have built a dozen hydropower plants, with a combined installed capacity totaling 90.2 million kilowatts, just in the upper Yangtze River.

The combined capacity of those hydropower plants is almost five times that of Three Gorges and will cost billions more.

Spending Spree #2: Shipping Ports

All the clothes, shoes, and electronics being produced at Chinese factories and manufacturing plants are clogging Chinese ports. So China desperately needs to expand them.

COSCO Pacific, Chinas largest shipbuilder, has formed a joint venture with two other companies Tianjin Port and the Danish shipping giant AP Moeller Maersk to build a massive container terminal in northern China. The project should cost about $500 million.

Tianjin Port expects to double its container capacity from 4.8 million containers to more than 10 million in 2010. And COSCO Pacific said its container traffic jumped 22% so far this year. Meanwhile, the company also reported a 62% jump in profits!

Spending Spree #3: The 2008 Olympics

Wang Wei, the Secretary-General of the Beijing 2008 Olympic Games Organization Committee, expects China to spend $1.6 billion just to host the games.

About $2.4 billion more will go toward construction of Olympic venues. And another $35 billion to $40 billion will be spent on urban renewal, for projects ranging from new power plants to the world’s largest airport terminal.

To the Chinese leadership, the Olympics are as much a political event as a sporting event, and theyre willing to spend whatever it takes to impress the world.

Just one example of how far the country is willing to go: It recently distributed 4.3 million copies of a book on manners to Beijing households. All to prepare for the flood of foreign guests.

Spending Spree #4: Drinking Water

One of the consequences of Chinas rapid growth is a dramatic increase in pollution, especially when it comes to the water supplies. Right now …

More than half of the surface water in Chinas seven major rivers is unfit for human consumption.
An estimated 320 million rural residents and 110 of Chinas 600 cities suffer from shortages of drinkable water.
Chinese scientists have warned that the pollution of the Yangtze could destroy its ability to support life in a few years if current trends continue.

As such, ensuring access to safe drinking water is one of Chinas top environmental priorities, and the country has committed about $5 billion to clean water initiatives over the next five years.

Spending Spree #5: Highways

In 1998, the Chinese highway network covered 6,250 miles.

Today, China boasts 21,000 miles of modern, efficient highways. The cost for this expansion? $200 billion!

Auto traffic is growing so rapidly in China that the city of Shanghai announced plans to ban bicycles from all major roads by next year.

The number of cars in Shanghai alone is expected to top 200,000 by the end of this year.

Just this week, China announced that its auto sales are up a whopping 50% over last year. This is the fastest growth weve seen in automobiles since the Model-T Ford!

No wonder China plans on expanding its highway system to 53,000 miles! And no wonder its going to spend another couple hundred billion dollars in spending, at least!

All This Spending Means Big
Money for Select Companies

Clearly, a mountain of money is going to be spent building out Chinas infrastructure. And that means companies in a number of industries are going to see windfall profits.

Some of the best investment areas: Commercial and heavy construction; architectural and engineering services; heavy equipment manufacturers; building materials; industrial machinery; and piping and wiring businesses.

Here are some of the companies Im watching right now …

Aluminum Corporation of China (NYSE:ACH) is the largest producer of aluminum in China (and the only producer of alumina).
Jiangxi Copper (OTCBB: JIXAY) is in the cat birds seat because Chinas growing power transmission network means strong demand for highly conductive metal.
Yanzhou Coal Mining (NYSE: YZC) operates six coal mines in China with 1968 million tonnes of proven reserves. Plus, the company provides valuable rail transportation services.
Swire Pacifica (Hong Kong: 0019) is best known for its Cathay Pacific airline. But the company also operates Shekou Container Terminals, one of the fast-growing ports in South China.
Guangshen Railway (NYSE: GSH) operates the main passenger and freight railroad between Guangzhou and Shenzhen two of the primary manufacturing cities in China and Hong Kong.

Plus, there are other less obvious players with even brighter potential.

An old Chinese proverb states, Without rice, even the cleverest housewife cannot cook.

My modern version is a little different: Without a stake in China, even the smartest investor could miss the biggest boat in the investment world today.

Best wishes,

Tony

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MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Colleen Collins, Amber Dakar, Ekaterina Evseeva, Monica Lewman-Garcia, Wendy Montes de Oca, Jennifer Moran, Red Morgan, and Julie Trudeau.

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