Stimulus plan is windfall for multinationals

By Zong He (China Daily)
Updated: 2009-01-05 08:05

China's 4-trillion yuan economic stimulus package could not come at a better time for multinational companies struggling to cope with slumping business on their home turf.

The massive spending plan, announced in early November by the State Council, China's Cabinet, is particularly significant for companies involved in construction-related business such as cement plants and construction equipment makers, as a considerable portion of the investment will go into infrastructure projects.

The huge sum, of which 100 billion yuan has already been meted out in December, will be spent in 2009 and 2010.

"This plan is important, not only for stimulating the domestic economy, but also for rebuilding people's confidence in the economy," said Cyrille Ragoucy, CEO of Lafarge Shui On Cement, a joint venture between French cement giant Lafarge and Hong Kong's Shui On Group.

Lafarge has already started work on new production lines in Guizhou and Sichuan provinces, with two more underway, banking on the cement demand that may come with immense infrastructure construction projects.

"The total cement demand spurred by the stimulus package may reach 430 million tons," said Xu Wen, a Shanghai-based analyst with Everbright Securities.

The stimulus plan also covers railway construction, welfare housing and rebuilding earthquake-ravaged communities in Sichuan.

China will spend 5 trillion yuan until 2020 to add 41,000 km to its rail network, said Vice-Minister of Railways Lu Dongfu in December in Outlook Weekly, a magazine published by the Xinhua News Agency.

"The massive railway infrastructure needs present huge opportunities," Tim Schweikert, president and CEO of GE Transportation China said earlier.

GE will likely produce at least 150 locomotives or more in 2009, up from less than 10 in previous years, Schweikert said.

The US company will also gain business from Chinese cities expanding or building mass transit rail systems, he said.

Caterpillar, the world's leading construction equipment maker, also stands to benefit the stimulus plan.

"China represents a significant portion of the global sales opportunity for many of Caterpillar's key products," said Thomas J. Bluth, vice-president of Caterpillar.

The US company, however, is cutting more than 800 workers at its Illinois plant and slashing executive compensation by up to 50 percent to cut costs to cope with weakening sales in North America and Europe.