China is a big country and it has a massive population, the bulk of which still lives in its vast countryside. Its industrialisation since the 1970’s has been continuous and has transformed the world’s most populous nation into the world’s second largest economy. During 2010 it overtook Japan and its GDP was $5.9tn.
Development on this scale has had massive consequences, not just internally but also on the rest of the world. It’s not exaggerating to say that China could be the single biggest driver of world economic growth for the next 20 years.
This growth is likely to see massive spending internally as the Chinese government invests in long term infrastructure projects, which will help provide housing, power, transport links and clean water.
Previously, the government had targeted GDP growth of around 10% as part of its ongoing series of ‘5 year plans’, with these plans taking little consideration of the environmental impacts of the growth.
Now, it is targeting growth of around 7% - 7.5% over the next five years and it will also place a greater emphasis on the environment. Despite this desire to slowdown the rate of growth in China, the sheer size and scale of the projects needed are massive.
Such strong growth from a massive country results in impressive statistics:
- 354 million people will move from the countryside into Chinese cities between 2005 and 2025
- There will be 221 Chinese cities with more than one million inhabitants in 2025 – in Europe there are currently 35 such cities
- 50,000 skyscrapers could be built up to 2025 – equivalent to ten New York cities
It is investment on this huge scale which has meant that China has and will continue to act as a vacuum for the commodities it needs in order to build the infrastructure it requires.
Firms now sourcing materials in a global market are competing with a cashed up financial powerhouse and in a competition like that, there will only ever be one winner. The upshot is that whatever the Chinese are willing or able to pay for resources, that will become the global benchmark price.
The impact on the UK is likely to be negative. Higher costs will combine with flat or falling tender prices and result in lower margins – not just in construction but also in other industries. Nowhere is immune to the potentially higher costs. But construction firms could feel the pinch more than others as there is no pricing power and clients are unwilling to foot the bill.
It’s a reality that will not go away and one which will take some adjusting to – on all sides.