This year, China is seeing continued growth across its freight transport sector, after the robust recovery in China's trade and freight volumes in 2010.
Road freight continues to dominate the sector, with tonnage carried projected to grow by 4.9% in 2011; however, we note that China's rail network sector is undergoing a major expansion both domestically and abroad with the next few years expected to see a growth in rail freight links to neighbouring countries. We caution that the growth in China's rail network threatens the market share of the country's air freight sector, which has been struggling with overcapacity in recent months.
We also highlight downside risks in the form of our increasingly bearish outlook for US consumer demand, which could reduce demand for Chinese exports, resulting in lower volumes for Chinese freight transport.
Headline Industry Data
?? 2011 air freight tonnage is expected to grow by 5.9%;
?? 2011 rail freight is forecast to grow by 4.4%;
?? 2011 Port of Shanghai throughput is forecast to grow by 7.74%;
?? 2011 road freight is forecast to grow by 4.9%;
?? 2011 total real trade growth is forecast by 5.4%.
Key Industry Trends
Yangtze Investment To Keep Pace With Rapid Growth Of River-Borne Trade
In July 2011 China announced an investment programme for navigation projects on the Yangtze River that should see its facilities catch up with the rapid rise in freight traffic on the waterway. Chinese Deputy Minister of Transport Xu Zuyuan announced that more than CNY36bn (US$5.57bn) will be spent over the next five years on dredging and navigation upgrades on the Yangtze. Xu said that this followed an overall investment of CNY80bn in freight transport infrastructure projects over the past five years. Money has been spent on ports and shipping capacity, but work on the river has not been sufficient thus far.
Intra-Asia Focus: China-South Korea Route Offers Long-Term Growth Potential Intra-Asia is a region that the shipping industry has identified as the next growth market for box shipping. The route linking Chinese ports to South Korean maritime facilities offers considerable growth potential, with both countries set to enter free-trade agreement (FTA) negotiations. Trade between China and South Korea increased rapidly between 1990 and 2009, rising from US$669mn to US$156bn. The growth trend is expected to continue as China seeks markets closer to home for its exports. Imports from its neighbours are also set to rise, as the country tries to cater for the demands of its steadily developing middle class.
Box Throughput King Shanghai Eyes International Hub Role China's port of Shanghai is pushing ahead with its expansion plan, which is set to lift capacity at the facility by 40% over the medium term. The world's number-one box port is keen to hold on to its top position, but the expansion will also enable it to diversify further into the transhipment sector, with plans afoot for the port of Shanghai to be transformed into a major international shipping hub. The Shanghai City government is awaiting the go-ahead from the National Development and Reform Commission to invest US$1.54bn to build new deepwater facilities at the port of Yangshan, which is within the port of Shanghai harbour zone. The project is the fourth phase of development at the port, which accounts for a third of the port of Shanghai's total throughput.
Risks To Outlook
Risks to China's freight transport sector are primarily to the downside, with our growth projections for all modes contingent on the strength of the country's international trade volumes. The increasingly bearish outlook for the US consumer threatens to dampen US demand for Chinese imports, which will in turn slow down Chinese economic growth. As a result there is a possibility that we could see a slowdown in Chinese demand for raw material imports, leaving the Chinese freight transport sector with weakening volumes.
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