Australia’s Tantalizing Lessons on Privatizing Infrastructure

The White House is interested in modeling Australia’s approach to national infrastructure. Here’s how they do it Down Under.

Clement Tan | June 9, 2017 | CityLab

The White House’s “Infrastructure Week” didn’t offer many clues about how the Trump administration might approach its promise to “spend big” on ailing infrastructure in the United States. But when it comes to financing roads, bridges, and other projects through public-private partnerships, we know Trump advisers have one model in mind that Australia figured out nearly 10 years ago.

In July 2008, facing the fact that inadequate infrastructure could limit economic growth, the Australian government decided to do what it had never done before: infrastructure planning on a national level.

That month, the federal government created a statutory body—Infrastructure Australia—that brought together the public and private sectors to devise a long-term strategy and prioritize key projects for funding.

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Without Baggage of Legacy, China Budget Airlines Gain on “Big Three”

By Clement Tan

March 31 (Bloomberg) — Cheap fares and no legacy are helping China’s budget airlines beat state-owned carriers in the stock market.

With combined fleets exceeding 1,000 planes, $31 billion in market values, and up to 20 times more workers, state-controlled China Southern Airlines Co., China Eastern Airlines Corp. and Air China Ltd. on average provide just one-third the returns of Spring Airlines Co. and Juneyao Airlines Co., according to data compiled by Bloomberg. Even the Chinese regulator has lauded Spring as a model of efficiency.

Investors have driven up shares of Juneyao fourfold since the stocks listed last year, while Air China, the leader by market value, has fallen 46 percent in the same period. The data also suggest the three carriers need to step up the pace of reforms to better exploit growth in the Chinese air-travel market, poised to become the world’s largest within two decades.

“Spring and Juneyao don’t have the baggage of legacy like the state-owned airlines,” said Cao Xuefeng, an analyst at Huaxi Securities Co. in Chengdu. “They were started as profit-driven businesses and cost-efficiency for them extends to all aspects of their operations, not just their smaller work forces and cheaper tickets.”

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Airbus, Boeing See Politics Make Good Business Sense in China

By Clement Tan

March 1 (Bloomberg) — China’s political leaders identified aerospace as one of 10 key industries in the country’s quest to become an advanced industrialized nation. Ahead of this weekend’s annual legislative session, Western planemakers — their future competitors — are helping them toward that goal.

Airbus Group SE will break ground Wednesday on a finishing center for its wide-body A330 jets in Tianjin, near Beijing, a decade after it opened an assembly plant there for single-aisle planes. Chicago-based Boeing Co. also is seeking a location in China for a plane-completion facility.

Opening plants in China, poised to become the world’s largest aerospace and air-travel market in two decades, is as much a political as an economic decision. One factor is proximity to customers: Chinese airlines order billions of dollars of planes from Airbus and Boeing every year, and doing some assembly locally eases the strain on the planemakers’ existing facilities. Equally important is the goodwill such investments earn.

 “It’s absolutely undeniable there’s been a communication of Chinese expectations for companies to build in China, to provide jobs in China, that they will be treated less equitably otherwise,” said Scott Harold, the Washington-based associate director of Rand Corp.’s Center for Asia Pacific Policy. “If you build in China, you’re a ‘friend’ of China.”

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Deal-Making Hits China Plane Leasing as Billionaire Li Jumps In

By Clement Tan

China is making the aircraft-leasing business a popular destination for mergers and acquisitions.

Plane-leasing companies in China have been involved in more than $16 billion worth of acquisitions since last year, according to figures compiled by Bloomberg. In addition, billionaire tycoons such as Li Ka-shing, Hong Kong’s richest man, have entered the industry during that period.

Behind the recent flurry of activity is the Chinese government’s call in mid-2014 for local leasing companies to expand overseas and benefit from rising travel demand. Renting out planes to airlines has shown to be a stable business and is often more profitable than the carriers themselves.

“They want to grow big — and fast,” said Dewey Yee, head of aerospace finance and leasing advisory at Bridge Partners Capital in Hong Kong. “Aviation is really the only very, very long-term investment that you can make that gives you these really solid, steady returns.”

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With a Rail Merger, China Is Forging an Industrial Giant Second Only to GE

By Clement Tan

June 8 (Bloomberg) — China is forging the country’s answer to General Electric, combining two state-owned railroad equipment makers to create the world’s second-largest industrial company. And the giant isn’t planning to stay at home.

The merger of CSR Corp. and China CNR Corp. is now complete, producing a nearly $130-billion behemoth called CRRC Corp. with economies of scale that will allow China to compete even more aggressively for overseas rail deals. Shares of CRRC began trading Monday under CSR’s old tickers, gaining 4.5 percent to HK$15.68 in Hong Kong and rising by the daily limit of 10 percent to 32.40 yuan in Shanghai.

China is using its state-owned rail firms not just to win lucrative contracts but to project political influence abroad. CRRC will dwarf competitors like Germany’s Siemens AG and France’s Alstom SA as it targets emerging markets in Africa, Latin America and Southeast Asia — often with sales pitches from Premier Li Keqiang — while bidding for high-profile contracts in the developed world.

“It used to be that CSR and CNR were competing against Bombardier and Alstom; now it has become China versus everybody else,” said Alexious Lee, head of industrials research for CLSA Ltd. in Hong Kong. “China’s products may not boast high-end specifications, but they provide value for money.”

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Made in Chindia: Two Paths Toward Industrialization

By Clement Tan and Siddharth Philip

June 1 (Bloomberg) — It may sound like another example of rivalry between the world’s most populous nations.

The Communist Party recently announced a Made in China program aimed at transforming its manufacturing sector, months after Prime Minister Narendra Modi unveiled his Make in India plan, also targeted at manufacturing. Look closer though and the signs point to a broad shift that could draw the two Asian giants closer economically in the years ahead.

Made in China 2025 is a 10-year campaign to push the country beyond labor-intensive work into more sophisticated sectors, from robotics to aerospace. Modi’s goal is to bring basic manufacturing to an economy that needs more decent-paying jobs. In short, China has set its sights on rivaling Germany or Japan, while India will happily settle for where China is now.

“Whatever industries China will be shedding over the years, India can capture,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. “The advanced guys will find that they finally have to compete head to head with China and I think it’s going to be a big, big headache for these industrialized countries.”

Besides sheer scale, China is years, if not decades ahead of its neighbor. According to International Monetary Fund and World Bank data, China’s gross domestic product per capita is almost five times that of India at $7,600 and its manufacturing sector is 10 times bigger at about $3 trillion. Still, China is losing workers by the millions, similar to what Japan experienced in the late 1990s.

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How to Become an Airline Millionaire, Chinese Style

By Clement Tan and Jill Mao

May 26 (Bloomberg) — Two decades ago, the Wang brothers sold flavored milk and yogurt to children in China. Last week, they sold shares in their airline in an IPO to become millionaires.

Their journey from a poor fishing village to the largest shareholders of budget carrier Juneyao Airlines Co., which begins trading in Shanghai this week, is a success story that mirrors China’s growth. The company is benefiting from a government plan to encourage entrepreneurship in an air-travel market that’s set to become the world’s largest over the next two decades and is currently dominated by state-owned airlines.

At its offer price, Juneyao Air will be valued at 6.35 billion yuan ($1 billion). That’s about a tenth of the market value of Spring Airlines Co., whose stock has surged over 600 percent since a January listing. Every one of the 147 mainland initial public offerings that began trading over the past year has jumped the maximum 44 percent on its first day of trading.

“Certainly, Spring Air’s crazy surge, which outperformed even the broader bull market, would be on the minds of many people,” said Zhang Qi, a Shanghai-based analyst with Haitong Securities Co. “With oil prices at low levels, airlines that are more efficiently run would make an attractive investment proposition.”

Juneyao Air, whose Chinese name means lucky, is selling 68 million shares at 11.18 yuan apiece, raising 760 million yuan from the offering. The stock begins trading May 27.

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Asia’s Richest Man Starts 2015 With $45 Billion in Deals

By Clement Tan

Jan. 23 (Bloomberg) — For Li Ka-shing, Asia’s richest man, 2015 is turning out to be a busy year.

Li’s Hutchison Whampoa Ltd. said today it’s in exclusive talks to buy U.K. wireless carrier O2 for as much as 10.25 billion pounds ($15 billion), three days after Li-controlled units agreed to purchase a British rail business for more than 1 billion pounds. Two weeks ago, the octogenarian announced his biggest deal yet: the $20 billion-plus merger of Cheung Kong Holdings Ltd. and Hutchison Whampoa, his two main companies.

Li, 86, isn’t done. One of his companies is among bidders for Fortum Oyj’s Swedish electricity grid, a sale people familiar with the matter have estimated could fetch more than $5 billion, and more deals may be on their way. The flurry of activity comes as the tycoon, so revered by Hong Kong’s media they call him “Superman,” reorganizes his business empire before handing over the reins to his eldest son, Victor Li.

“The profile of the company is slowly changing to becoming one where the regulated utility type of cash flow is becoming more significant,” said Kalai Pillay, head of Asia-Pacific Industrials research at Fitch Ratings in Singapore. “They will be looking at things that are more long term cash.”

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Graveyard for Jets Coming in China’s Icy City as Orders Boom

By Clement Tan

Dec. 18 (Bloomberg) — China, poised to become the world’s biggest buyer of new planes, also wants to build a graveyard for old aircraft.

China Aircraft Leasing Group Holdings Ltd. is investing $2 billion to build the country’s largest plane disassembly plant in Harbin — known as China’s “Ice City” — some 750 miles northeast of Beijing. The facility starts operation in 2017 and aims to tear apart 50 jets annually after five years, Chief Executive Officer Mike Poon said at a press conference in Hong Kong today.

“The headlines for aircraft in Asia are about new deliveries, but there will be significant retirement of old aircraft,” said Will Horton, a Hong Kong-based analyst at the CAPA Centre for Aviation. “You need a robust system to catalog the parts to sell them in foreign markets.”

China’s foray into the field comes as Boeing Co., the world’s largest plane maker, also is exploring ways to wring money from the end of a jetliner’s life. With the value of parts potentially outweighing an old jet’s resale price, the $3.2 billion a year market for used aircraft parts is growing as companies discard planes well before the end of their 30-year life cycles.

The scrap-aircraft industry is concentrated mainly in the U.S., a mix of closely held operators such as Aircraft Demolition LLC — which works out of Arizona’s Pinal Airpark, known for its open-air storage — and publicly traded companies like AAR Corp.

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China Merging Trainmakers Adds to Pressure on Siemens

By Alex Webb and Clement Tan

Oct. 29 (Bloomberg) — China’s plan to merge its two biggest trainmakers may allow the country to win more overseas orders with improved and cheaper offerings, increasing pressure on rivals including Siemens AG, Alstom SA and Bombardier Inc.

China’s State Council has ordered the merger of China Northern Locomotive & Rolling Stock Industry Group Corp. and southern counterpart CSR Group into one company, government officials involved in the transaction said yesterday. The pair are already the world’s No. 1 and No. 2 in rail equipment, each getting more than 90 percent of their sales from China.

“This would create a very strong global competitor,” said Ingo-Martin Schachel, a Frankfurt-based Commerzbank AG analyst who rates Siemens shares hold. “It would heighten the need for consolidation among the western manufacturers.”

The increased competition from China comes at a time when manufacturers such as Germany’s Siemens and France’s Alstom are facing constrained public spending in their home markets. China is competing aggressively for overseas rail projects, targeting emerging markets such as Africa, Eastern Europe, Latin America and Southeast Asia. Premier Li Keqiang has touted the country’s rail equipment, engineering and construction companies during overseas trips, signing several deals along the way.

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