Asia's robust construction industry

Asia's construction industry remains strong. Large infrastructure projects are boosting companies in Asia Pacific, according to KPMG. China for example, has enjoyed massive state investment, which has filtered down to infrastructure projects typically carried out by the mainly government-owned construction companies. In January-June 2011, China's construction machinery industry accumulatively achieved the total industrial output value of Rmb312.35 billion (US$4.87 billion), ascending by 43.04% YOY, and realised the sales revenue of Rmb306.13 billion (US$47.76 billion), increasing by 40.86% YOY.
Across Asia Pacific, various government stimulus initiatives have had a "significant" impact. Jonathan Downer, Partner, KPMG China, says, "Construction companies in Asia Pacific are benefiting from infrastructure and resources related activity and the medium term outlook is positive. The challenge today for Hong Kong construction executives is how to benefit from the China construction boom in a profitable way, and how to diversify away from pure contracting to enhance margins and build a sustainable, longer term business."
Many contractors are considering moving into new sectors, regions or geographies, such as the Middle East, Asia, Australia, Africa and India to improve profitability.
Mid-sized companies in particular, remain optimistic for the coming year, despite government spending being tightened across the board. However, there is a more measured prediction on profits over the next 12 months. The environment remains highly competitive in all markets, and almost a third (31 percent) of engineering and construction companies report they are bidding for new business with lower margins - even in the more robust Asia Pacific markets.
In terms of the future outlook, there has been a global shift away from heavy infrastructure projects such as railways, roads and bridges, towards power, energy, mining and water, particularly amongst larger companies. The exception to this trend is Asia Pacific, where there is a significant push for railway construction, an example of which is the high-speed rail projects underway in Mainland China and rail development in Hong Kong.
For expansion plans, strong interest in the Middle East, Asia, Australia, Africa and India are seen. The larger players in particular appear to be avoiding the European market, in favour of Australia and Africa.
Downer concludes, "It's a bullish picture for Asia and you don't have to be an industry specialist to see and feel the infrastructure related construction activity taking place in Hong Kong and China. But there are challenges - the market is competitive: pricing is tough and costs rising, and in Hong Kong in particular there are concerns about skills shortages-tunnel blasters for example."
"Singapore is experiencing a boom in construction activity brought about by the confidence in the market leading to a demand for construction in the tourism, commercial and residential sectors," said Tim Robinson, Head of Cost and Commercial Management in Asia at EC Harris.
"Construction costs in Asian cities, such as China, India, Vietnam and Indonesia offer a significant price advantage over European and Middle Eastern countries. This is driven by the availability of cheaper labour.
It will be interesting to see how global design standardisation, higher commodity prices, currency appreciation and rising levels of inflation could result in a levelling out of the international construction index," he added.

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