China's Big Build Out

April 13, 2006
So extensive is the building and rebuilding of infrastructure in China that the construction crane has become the state bird, quips one U.S. executive. But he and China are serious. From constructing airports and roads to providing logistics facilities an

In preparation for the 2008 summer Olympic Games, Beijing Capital International Airport is undergoing a $3.2 billion expansion, its third since the airport opened in 1958. But as impressive as that investment is and as impressive as is the expansion underway at Shanghai's Pudong International Airport, China needs many more airports. A lot more. The country, with a population of about 1.3 billion people, has only 196 airports certified to handle transport aircraft, calculates Air Transport World (ATW), like IndustryWeek, a Penton Media publication. Compared with the United States -- which has more than 14,000 airports serving a population of nearly 300 million people -- or Australia -- which has 444 airports serving just over 20 million -- China's complement of airports is woefully inadequate. "If China is to become the world's largest aviation market by 2020, it will have to move mountains of earth to provide enough runways," asserts ATW.

Airports aren't China's only infrastructure need.

With brownouts still a sometimes phenomenon in its major cities, and demand for electricity continuing to grow throughout the country, China needs increased power generating capacity and more reliable distribution. "Certainly with the growth that's projected, power availability is going to be important and needs to be invested in," observes Forestville, Conn.-based James J. Scott, executive director of enterprise sales and marketing at Ingersoll-Rand Co. Ltd.

China needs more and better roads. "If you think about when the U.S. built its highway system in the '50s and '60s, that was in the middle of the Cultural Revolution in China. They were destroying infrastructure and technology, not developing it," notes Jeffrey Schwartz, CEO of Denver-based ProLogis, a company that has completed, or is developing, distribution centers in Lingang, Guangzhou, Yantian, Yunpou and at the Beijing airport.

China also needs more port facilities to move goods into and out of the country. Although significant, existing ports don't have the capacity to continue to grow with China, observes Schwartz. For example, the port of Shenzhen, in the Pearl River Delta across from Hong Kong, is at capacity, he says. The port handled more volume last year than the U.S. ports of Los Angeles and Long Beach combined. At Shenzhen, a second port facility is being built. Elsewhere in China, the first phase of the Yangshan deepwater port, which could become the largest deepwater container-ship port in the world, was finished last fall on an island 20 miles offshore from Shanghai. Its original plan calls for 50 berths by the year 2020, at a cost of more than $10 billion.

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China needs better telecommunications to handle a steadily rising amount of voice and data. By 2010, there are expected to be 1 billion telephone users in China and 200 million Internet users, estimates a 2006 commercial guide to China from the U.S. Commerce and State Departments. The guide also notes that all of China's counties and cities must have an integrated emergency responding system by the end of this year.

Meanwhile, such major cities as Beijing, Shanghai and Dalian continue to experience severe water shortages, just part of the inadequate water supply that's said to affect nearly 400 of China's 669 cities.

Also, China is building a superhighway system, "which is where the bulk of the world's concrete is going today," says Schwartz. China, by one estimate, is now putting $40 billion a year into road construction. At the same time, China is overhauling its rail system, building separate lines for freight and passenger traffic. "Improvements in road and rail [and] port development will help us to reduce leadtimes," says Ingersoll-Rand's Scott. For the 2008 Olympic Games alone, the Beijing municipal government is expected to invest about $22 billion on infrastructure, including roads, railways and subway lines, says the U.S. government's commercial guide. Shanghai is expected to invest another $10 billion on infrastructure in connection with the World Expo there in 2010.

Masters of Opportunity

For some U.S. manufacturers, China's infrastructure build-up is an opportunity to get in on the ground floor. Other manufacturers, such as Hewlett-Packard Co., Palo Alto, Calif., are participating in projects that in effect are already several stories tall. Currently, about 90% of the computers used in the generation, transmission and distribution of electric power in China are HP, a total of about 7,000 systems, estimates Bill Lewis, director of global energy-utilities in the company's manufacturing and distribution industries group. HP is now working with the utilities to upgrade their systems using HP servers based on the Itanium processor, which was jointly developed by HP and Intel Corp. The upgrade, HP expects, will take five to 10 years to complete.

In January, Shanghai Tonghua Gas Turbine Services Co. Ltd. announced it had signed a contractual service agreement with GE Energy, a unit of Connecticut-based General Electric Co., covering nine GE gas turbines being installed at four new advanced-technology combined-cycle power plants in China. And late last year, GE announced it was going to supply the Chinese Ministry of Railways with 300 6,000-horsepower locomotives in deal worth more than $450 million.

Delivery is to begin in 2007.

Meanwhile, ITT Industries Inc., White Plains, N.Y., is supplying high-flow large-diameter pumps for the Three Gorges hydroelectric power-generating project on the Yangtze River. But that's not all. The company is participating in "literally hundreds of different projects" related to hydropower, water and wastewater treatment, and heating, ventilation and fluid management systems, three of the company's core competencies, says Steven R. Loranger, ITT Industries' chairman, president and CEO. The "most exciting" opportunities are those dealing with what he calls "environmental" projects. "According to the Chinese plan, they are in the process of investing $170 billion for environmental protection that includes wastewater treatment," he relates.

The company is involved in about 200 large-scale, modern wastewater treatment plants and is bidding on another 100.

"What's great about China is there's opportunity for all five of our business sectors," says Ingersoll-Rand's Scott. One of those is development of China's local roads for which Ingersoll-Rand can supply such products as asphalt pavers, light towers and electrical generators. "We had a meeting in January with 63 road construction [equipment] dealers who we've had long-time relationships with. And these dealers are involved in the products today and are really heavily involved in helping us to craft the product specifications and features of the products of tomorrow," Scott relates. At the same time, in all China's major metropolitan areas, in such places as Beijing and Shanghai, the air conditioning of buses is a business opportunity for Ingersoll-Rand's ThermoKing brand refrigeration products. And as retailing grows in China so will demand for fixed and portable refrigeration, Scott adds. There'll be greater demand for both fixed refrigeration for the storage and resale of perishables and refrigerated transport for those perishables. "One statistic I heard is that the largest refrigerated transportation fleet in China only has 110 trucks."

For Ingersoll-Rand and other manufacturers it's vital that supply chains in and out of China remain open and efficient. And that's an opportunity for manufacturing-related logistics service providers such as UPS Supply Chain Solutions and Meridian IQ, a subsidiary of YRC Worldwide.

"We're trying to streamline the processes in the supply chain," explains Jim Ritchie, Meridian IQ's president and CEO. That includes working in China with suppliers of U.S.-based companies not only to move their goods but to verify content of their shipments as well. "What China lacks in infrastructure is not only in their physical infrastructure, but also in the information infrastructure," he says. "We can verify when it leaves the [shipping] dock what is the product that is on that truck -- how much, what color and what shape -- and start to match that up against the purchase order that's here in the United States," Ritchie says.

Windbrella Products Corp., a Boyton Beach, Fla.-based maker of customized umbrellas, is using UPS Supply Chain Solutions and UPS Trade Direct to move its products from Hong Kong, where they're manufactured, to the U.S. Compared with the way it formerly managed shipments -- through a customs house broker -- Windbrella is saving transit time and expense, says CEO Glenn Kupferman. "I save about 12 to 18 days, and the customer is a happy camper," he states. Individual orders are labeled for their final destinations before leaving the manufacturer in China. They are consolidated into a single shipment. They clear customs as one shipment. And when the shipment arrives in California, the orders are separated and put into the UPS package network for final delivery. Another benefit, says Kupferman: "You can go online and see actually where your goods are."

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