The Trillion Dollar Upgrade: The Unprecedented Scale of Infrastructure Investment in China and India Is Only Now Being Fully Understood

NEW YORK, NY and LONDON -- (MARKET WIRE) -- 06/04/08 -- China and India are spending an unprecedented $1.5 trillion on infrastructure projects in the next five years, approaching the level of US infrastructure spending for the first time, according to investor reports published today which identify the full scale of expenditure for the first time.

The comparison with the US, which spends $400 billion on infrastructure annually, is particularly striking given the big difference in national wealth. US gross domestic product in 2007 was $46 trillion compared to China's $3.6 trillion and India's $1.05 trillion.

The scale of this spending in China and India, on everything from sea ports and railways to energy and water systems, is much larger than previously understood and opens up significant new opportunities for private investment and expertise from overseas. The surprise is that India is likely to offer better infrastructure investment opportunities than much-trumpeted, and still fast growing, China.

This conclusion emerges from two new reports on infrastructure development in Asia's two major emerging economies by the independent research firm Trusted Sources and Australia-based consultancy Urandaline. The reports offer the first comparative analysis of the impact, and scope for investment, of infrastructure modernisation in China and India.

Larry Brainard, chief economist at Trusted Sources, said, "Both countries are investing on a massive scale and this is creating attractive long-term investment opportunities, both in specific projects as well as in companies that are positioning themselves to meet the new demands for resources, expertise and technology. To sustain economic growth, both countries urgently need more and better infrastructure. Our reports highlight where investors will find the best opportunities and how the political landscape will shape potential returns from such ventures."

India -- playing catch-up, fast

India's infrastructure is largely underdeveloped but the government in New Delhi is now making up for lost time. Almost $500 billion is budgeted for infrastructure spending in the Five Year Plan covering 2007-12, almost double the proportion of GDP earmarked in the previous plan. One third of this investment is now expected from private firms, up from 18 percent previously. Converting this plan into reality will test both the country's political flexibility as well as the patience of potential private investment.

India leads the major emerging economies in attracting private investment in infrastructure. Our report "India Infrastructure: Playing Catch up" analyses how this sets it apart from those economies in which infrastructure investment, other than ports, is dominated by state firms.

China -- playing the boom

For all the huge strides made since economic reform was launched 30 years ago, China still desperately needs improvements in its infrastructure. May's earthquake disaster in Sichuan underlined the poverty and underdevelopment that characterize large parts of the country. Key sectors such as energy, water supply and railways lag far behind what is required both to meet consumer demand and to keep industry moving forward. The leadership in Beijing increasingly recognises the need to expand and modernise infrastructure if China is to foster the economic growth it needs to maintain social stability. However, political constraints are evident as the government fights inflation and powerful interest groups seek to protect their turf.

Much of the targeted infrastructure expenditure of more than US$1 trillion in the current Five Year Plan (2005-2010) will be made by the central government and local authorities. But the sheer scale of the work to be done means that even monoliths like the Ministry of Railways are being forced to bring in outside partners to meet these targets.

Our report "China Infrastructure: Playing the Boom" finds that, as the country becomes more selective about the foreign investment it needs or wants, some of the best opportunities will be portfolio investments in local and foreign companies supplying technology and services to the state-run firms directly investing in these projects.

Additional Notes:

India's estimated infrastructure spending of $500 billion is based on its Five Year Plan budget for 2007-12. China's estimated infrastructure spending of $1 trillion is based on a conservative estimate of spending in the 2006-10 Five Year Plan, and the assumption based on discussions with key officials in various ministries and other sources that this high spending level will continue in the next plan.

About Trusted Sources

Trusted Sources is an independent firm providing top-down research on emerging markets with a focus on explaining the investment impact of public policy developments. Founded in 2006 by Nicholas Mather and Christopher Granville, along with Lawrence Brainard and Jonathan Fenby, the main focus is on the BRIC countries and their impact on global markets. Africa coverage commenced in 2008. The team consists of country analysts with backgrounds in strategy, economic and political analysis who bring many years of experience to bear on research into policy and macro issues as well as sector trends. Analysts also tap into a network of experts and specialist sources to deliver subscription and bespoke research services. More information about Trusted Sources is available at www.trustedsources.co.uk.

About Urandaline Investments

Urandaline is an independent consultancy specialising in capital-intensive and commodity businesses. Urandaline focuses on China, where its founder, Michael Komesaroff, has been doing business for 30 years. With the assistance of a network of local exports, it tracks industries such as electricity, petrochemicals, mining and metallurgy. Urandaline publishes the highly regarded newsletter China's Industries, which has more than 500 subscribers. Its series of multi-client sectoral reports, including "The Dragon Constrained," a 2005 study of Chinese infrastructure, has proved indispensible for companies working in China. More information on Urandaline is available at www.urandaline.com.au.

MEDIA CONTACTS:

UK, EUROPE, ASIA and AUSTRALIA Nicholas Mather Trusted Sources + 44 (0) 203 008 5761 nicholas.mather@trustedsources.co.uk

Nick Dunne Quiller Consultants +44 (0) 207 233 9444 dunne@quillerconsultants.com

UNITED STATES and ASIA Alicia V. Nieva-Woodgate ANW Networks +1 (415) 515 0866 alicia@anwnetworks.com

2008-06-04 07:13:36 0376948 MARKETWIRE