INDUSTRY SECTORS FOR THE MISSION TO CHINA AND KOREA
The China mission will focus on the following broadly described infrastructure sectors:
- Environmental technologies. With one quarter of the world's population, China faces
one of the most significant environmental challenges in the world. These challenges
include contaminated and limited quantities of water, poor air quality, a deteriorating
natural resource base, dense population center, and heavy reliance on soft coal for energy
production. The government recently launched a series of environmental legislative
reforms including stricter regulations, an increased commitment to environmental
spending, and promotion of the State Environmental Protection Administration (SEPA)
to the status of a ministry in March 1998. Recently, government officials pledged to
boost environmental and infrastructure investment in order to maintain high growth rates
in response to the Asian financial crisis. They intend to raise expenditures to roughly
$15 billion by the turn of the century. Realization of this goal requires investing
approximately $54 billion during the plan years, 1996-2000.
- Information Technologies including Telecommunications. China is generally regarded as
the largest and most important market for telecommunications equipment in the world.
U.S. exports of telecommunications equipment to China amounted to $540 million
through the first three quarters of 1998. China ranked as the 6th largest export markets
for telecom equipment during this period.
- Housing Construction and Building Materials. The market potential for housing
construction and building materials in China is enormous. During the next three years,
Government officials plan to increase spending on new homes by 15 percent. The
elimination of state subsidies for housing, the establishment of a low-interest loan fund,
and local tax breaks for home purchases have led to greater demand for affordable
housing. State economic reforms which designated the building materials industry as an
engine of economic growth in 1998/99 are promoting the development of a housing
industry. This mission will seek to enhance the U.S.-China Housing Initiative, which
President Clinton announced in July 1998 to provide U.S. support for China's goal of
increasing home ownership and to promote new technologies and energy-efficient
materials.
- Power Generation. According to numerous experts, China is currently in a period of
relative balance between demand for electricity and the availability of supplies from the
country's electric utilities. New generating capacity will continue to be added, however,
to replace older, less efficient power plants and to provide electricity for areas that do not
yet have sufficient supplies. Under the country's current 5-Year Plan, electric generating
capacity is to be increased to a target level of 290 gigawatts (GW) by 2000. An estimated
15,000 megawatts (MW) of generating capacity will be added each year, at an annual cost
of about $15 billion. Most of China's electric generating capacity is provided by coal.
China operates two nuclear power plants, whose combined capacity currently supplies
less than 1 percent of the country's total energy needs. By 2010, China plans to add 20
GW in new nuclear generating capacity. U.S. manufacturers will be able to compete for
nuclear power projects, for the first time, since the acceptance by Congress of presidential
certifications regarding U.S.-Chinese cooperation in the peaceful uses of nuclear energy.
Natural gas is not now used extensively in the electric power sector, but could become
increasingly important as China seeks less-polluting sources of electricity for its growing
economy. China's first liquefied natural gas project, to be built in Guangdong Province,
will probably supply fuel for one or more power plants in this important area of Southern
China.
- Oil Exploration and Development. China is a net importer of oil whose dependence on
overseas supplies of petroleum will only grow in the future, notwithstanding the fact that
it is also the world's fifth-largest producer of crude. Domestic production is growing, but
it cannot keep up with demand. Crude oil production is likely to grow slowly from a
projected level of 3.4 million bbl/d in 2000, to 3.6 million bbl/d in 2010, although a
slowing economy my retard this growth somewhat. Most new production will come from
offshore reserves in the South China Sea, onshore fields in Western China, and other
areas outside the northeastern part of the country. Offshore production grew from two
percent of China's total crude output in 1992 to 10 percent in 1997. Foreign investment
in China's petroleum industry is concentrated in offshore projects.
- Transportation (including aviation, air safety, airport infrastructure, port and rail
construction and engineering). China's rapidly expanding economy has created a strong
demand for air travel, which in turn has created a enormous market for commercial and
business aircraft. In 1995, China's annual passenger air traffic was about 50 million
people; by the year 2000, it is expected to exceed 100 million passengers. This rapidly
expanding commercial aviation market has put tremendous strains on China's existing air
traffic control (ATC) infrastructure and airport infrastructure. Over the next ten years,
China will make up to $720 million available for ATC infrastructure projects, and plans
to build, expand and/or modernize up to 40 airports. China's expansion plans provide
significant opportunities for U.S. ATC and airport equipment and system manufacturers,
and airport architects, designers, planners, developers and constructors.
- Services (including engineering and design, finance, banking). China's construction
market for all types of infrastructure has been booming throughout the 1990's. In 1997,
the Chinese Government announced a $1 trillion infrastructure spending program that
will be spaced out during the next three to five years. While it is unlikely that this goal
will be accomplished, even a small percentage of the plan would create a tremendous
market for engineering and construction services, materials and equipment. The vast
majority of that market will be supplied by Chinese domestic firms, but U.S. engineering
and construction management companies can compete in China under certain limited
conditions, generally through joint ventures with local firms.
The projected development of China's infrastructure far outstrips the country's ability to
finance such projects using traditional sovereign and official finance. In order to reach its
goals in this area, China will have to tap the far more vast pool of resources offered by the
international private capital. Projects in the sector, therefore, offer great opportunities for
financial services companies involved is the structuring of project finance deals,
including commercial and investment banks, consultants and advisors, legal firms,
insurance providers and credit rating agencies.
The Korea mission will focus on the following sectors:
- Environmental technologies. While Korea's current economic downturn has slowed
private sector environmental projects, regional governments still plan to invest heavily in
wastewater treatment plants and other environmental projects. The 1998 total budget for
environmental projects is $963.8 million (in March 1998 figures).
- Information Technologies including Telecommunications. Korea is the 15th largest
export market for U.S. telecommunications equipment exports through the first three
quarters of 1998, accounting for $264 million in exports in that period. Prior to the Asian
financial crisis, Korea was an even more important export market. In 1997 the U.S.
exported $891 million worth of telecommunications equipment to Korea. Even during
this crisis year, sales of communication services increased over 20 percent. Korea now
ranks as the fifth largest market in the world for cellular phone usage.
- Infrastructure. The financial crisis has compelled the Korean government to consider
privatization of several of its infrastructure sectors in order to attract capital to implement
necessary projects. Infrastructure privatization could create multibillion-dollar
opportunities for U.S. investors, project developers, operators, architects, engineers,
construction managers and manufacturers. Much will depend upon how privatizations
are structured, and the extent to which projects will utilize local labor and locally
manufactured construction materials and equipment. That said, a number of
infrastructure projects are in the pipeline, and could offer some opportunities for U.S.
exporters. These include projects relating to the new Inchon International Airport (such
as highway and railway access to and from the airport, maintenance hangars, air cargo
and passenger terminals and power plants); highway and light rail projects; and
environmental projects such as sewage treatment, industrial wastewater treatment, night
soil treatment, agricultural waste treatment, and municipal solid waste treatment.
- Energy. Korea uses a combination of thermal, nuclear, and hydroelectric capacity to meet
its demand for electric power. Total power generation capacity exceeded 43,000 MW as
of October 1998, of which 28 percent is nuclear. In addition, industrial companies have
installed about 4,000 MW of self-generation capacity that is not connected to the state-owned KEPCO's grid. Power demand in Korea fell by nearly 4 percent during the first
seven months of 1998 compared with the same period last year due to the country's
economic downturn.
The economic crisis has accelerated restructuring initiatives in the power sector. The
Korean government plans to sell 5 percent of its 58 percent holding in KEPCO later in
1998. KEPCO also will sell four of the company's thermal power plants in 1999, and
plans to partially privatize by establishing several other power companies by 2001. The
phased liberalization of Korea's power market is creating opportunities for outside
investment in the independent power producer market.