China's grand expansion

Urbanisation

By 2030, China will have a population of around 1.5 billion.

Beijing's ambitious urbanisation program for completion by 2030, envisages the relocation of more than 500 million from the rural regions to new and existing industrial cities to meet the expected demand of factory labour by 2030.

This rural to urban transition translates into demand for accommodation and services, the equivalent of about1.6 new cities the size of Beijing every year. And this does not take into account demand generated by normal urban population growth.

It not just a matter of accommodation; new factories are needed to provide employment. Sustaining increasing urban demand requires services including electricity, gas, telecommunications, water, sewage, municipal waste, public transport all of which consume steel.

Projected demand for water and electricity by the urbanisation program is not a simple exercise of transferring consumption from one area to another. The rural sector relies primarily on untreated water from storage tanks, wells, rivers and basic community supplies. Urbanisation on the other hand, demands potable water that has a higher per capita consumption, imposing disproportionate and escalating demands on water resources.

Official statistics report that the rural sector consumes 25 per cent of the electricity consumed by their urban counterparts. The majority of farmers however, rely on coal, gas, kerosene, batteries and crop stalks to provide energy for lighting, heating and cooking. These 500 million new urbanites will bring with them an additional 100 per cent per capita increase in electricity demand.

The state-owned enterprise factor

Steel remains China's major strategic pillar industry produced by iconic state owned enterprises (SOEs). That steel, in turn, is reliant on considerable coal, coke and energy resources produced by other major SOEs.

China's SOEs are there to produce for China at a controlled price, boost GDP by turnover, and act as the sponge for unemployment. Profits are a secondary consideration and are mostly minimal and annual losses are common. SOEs monopolise the heavy industry sector and are reliant on the generous government subsidies on coal, coke, ores, water, and electricity as well as rail and maritime transport provided by other SOEs to avoid insolvency.

All SOEs are dependent on state bank financing, even the oil companies which have received multi-billion bailouts for losses on fuel and oil refinery operations in 2009.

Except when Beijing approves the release of selected details of SOE "profits" the accounts and profits of SOEs fall under the catchall of "state secrets" making it impossible to verify accuracy and methodology of calculation.

Because of their immense combined capacity and workforces, the major SOEs are major and important contributors to China's GDP. The obvious question is, where is the money coming from?

Stock and property

Both stock and property benefitted from lax bank lending under the stimulus package.