China more attractive than India for investors in transport infrastructure

EC Harris research found out that China emerged as the most attractive BRIC economy to invest in and most sought after place for airports investment.

Investors who fund large-scale transport infrastructure programmes across Asia are much more likely to focus on China than India according to research by International Built Asset Consultancy, EC Harris. Whilst both countries have huge investment plans, political and fiscal uncertainty combined with high operating costs are deterring many parties from investing in India.

The ‘Investment in Transport Infrastructure’ study research ranked 17 key countries across the globe on the relative attractiveness of their transport sector to potential investors. The criteria used to judge each country covered a broad range of factors typically considered by various investor groups including the political and economic stability in each market, the government incentives and policies on offer, and the private finance funding channels already in place to support inward investment.

China the most attractive BRIC economy to investors
Overall the research found that despite the huge investment plans being proposed in many non-OECD countries, investors looking for a more reliable return will continue to focus on Europe and North America where there is greater stability and more effective regulatory systems in place. However, China emerged as the one BRIC market where investors do have the confidence to fund the ambitious programmes of work. 

When all of the countries were ranked according to the size of their planned investment, China finished in second place with more than 1trillion Yuan estimated to be spent improving the transport network in the coming years. When grouped in terms of the overall attractiveness of their transport sector, China came fourth overall behind only Germany, France and the US. 

Alan Brookes, Head of EC Harris in Asia said: “The results confirm that for investors who want to look beyond well-established markets, China is an attractive proposition. To help secure this opportunity it will be vital that the right financial mechanisms are in place to attract institutional investment, whilst reaching agreement on the proposals to develop major freight networks to link China to Europe and South East Asia would further strengthen their case.” 

Major hurdles still to be overcome if India wishes to attract significant inward investment
India has similar-sized construction plans for their transport sector however the lack of structure in place makes it a difficult place in which to operate and a very risky target for some investors. When ranked according to the size of their planned programme of work, India topped the league table yet when judged on its likelihood to attract inward investment, the country finished in a lowly 12th position.

Some of the deterrents more commonly cited by investors include the high cost involved in setting up a business, the length of time it takes to purchase land and the country’s continued reluctance to formally ratify anti-corruption and bribery conventions.

“New policy initiatives recently launched to stimulate private investment in rail freight terminals are a welcome first step, however much greater clarity is still needed on a fiscal, political and operational level if India wishes to attract the investment required to build the new transport network that is needed to promote further economic development in the country,” added Brookes. 

China emerges as the most attractive place to invest in airports:
On a sector specific level China was also deemed to be the most attractive market throughout the world for fund managers interested in investing in aviation infrastructure projects, finishing well ahead of countries including Russia, the US and the GCC region.

Caspar Baum, EC Harris Head of Aviation in Asia said: “China has proposed plans to build 45 airports before 2016 to help support the country’s emergence as a growing player in the global economy. However, to secure private funding here, a detailed business case will be required which outlines how the capital expenditure can be minimized during the construction phase, and which indicates the economic return that each facility will ultimately deliver once built.”

The research also indicated that across the globe, environmental pressure to reduce carbon emissions was leading to greater investment in rail and port infrastructure projects. A clear example of this was evident in China where almost 70% of the transport budget has been earmarked for investment in rail projects, whilst in Western Europe, the Spanish government has stated their belief that by the end of 2013, the number of people using high-speed rail will equal the number who take domestic flights.