Infrastructure: It's Not About Beijing in '08

Chip Hanlon
Delta Global Advisors
Dec 21, 2007

Stop it! Please just stop.

I saw it yet again yesterday: another commentator talked about how China's economy should keep chugging along through the 2008 Olympics in Beijing, particularly its appetite for commodities due to its infrastructure needs ahead of that event. Sometimes I hear it said that the trend might last through 2010 and the World Expo in Shanghai for similar reasons.

Please.

Maybe it is because we here at DGA are so deep into the research on this topic due to our new Basic Needs and Basic Services global infrastructure portfolios that the '2008 Beijing Olympics' argument drives me so crazy. In fact, the emerging market infrastructure story is so big and so long-term that the only way to forgive those who advance such argument is to conclude that the numbers are almost too large to wrap the mind around.

Consider:

- A close look at IEA figures shows that it estimates China will have to spend nearly $4.5Trillion on energy infrastructure alone between now and 2030.

- China is already a net importer of soybeans, interestingly. Before the end of this decade, it will become a net importer of coal for the first time, as well.

- Despite a penetration rate of approximately 12% (versus our 70%), Asia already claims 200 Million more internet users than North America.

- To meet its future needs, it is estimated that China still must install electrical-generating capacity greater than all of what currently exists here in the U.S., to say nothing of the nation's road, port and water infrastructure needs.

And this is not just a China-related story: Russia recently stated its intention to spend nearly $200Billion on its energy and rail sectors by 2011 while India, whose shoddy infrastructure may be costing it fully 2% of GDP, has recently stated its intent to vastly increase its own infrastructure spending, nearly doubling it over the next five years. Meanwhile, smaller Asian nations and the GCC countries are pursuing similar courses to support their booms.

As we have been spending, other nations have been saving; not only is this resulting in a massive, global transfer of wealth (think: China's investment in Morgan Stanley yesterday), but those savings are also being put to the productive use of building out infrastructure in developing economies around the globe.

Does the U.S. economy stand today at an elevated risk of recession? Sure. If we experienced a severe economic decline, would that impact other nations, as well? Of course, and arguments to the contrary are silly in our estimation. That said, any near-term economic or stock market dips can scarcely put a dent in the long-term infrastructure story taking shape in emerging markets.

Here at home, we're also witnessing a budding infrastructure story, thanks in large part to the awful bridge collapse in Minnesota earlier this year. However, that story is at least partly a political one which may fade after next year's elections. At the very least, we are unlikely to see funding which reaches anywhere near the level of the projected need.

In emerging economies, however, infrastructure is not a matter of choice, but of need. Build it or stagnate. Build it or risk political unrest. Build it or become less competitive than your neighbor. And again: they have the savings to do it.

So please just ignore the 'Beijing '08' story about China's growth. We'll all be talking about the infrastructure needs of China, India and other emerging societies for many years to come.

Dec 21, 2007
-Chip Hanlon
President
website: Delta Global Advisors
email: chanlon@deltaga.com
800-485-1220

Chip Hanlon is currently the President of Delta Global Advisors and the founder of Green Faucet.

Chip Hanlon is the President of Delta Global Advisors (www.deltaga.com), an SEC-registered investment advisor in Huntington Beach, CA. He is also a contributing writer to TheStreet.com. He can be reached at chanlon@deltaga.com.

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