China

Details

  • Industry: Infrastructure, Government and Healthcare, Building, Construction & Real Estate
  • Type: Press release
  • Date: 12/8/2010

Asia's construction industry sees rising demand, bucks global trend: KPMG survey 

8 December 2010, Hong Kong

 

Large infrastructure projects are boosting companies in Asia Pacific, bucking the downtrend elsewhere, according to a recent KPMG survey of 140 global engineering and construction companies.

 

China for example, has enjoyed massive state investment in the past year, which has filtered down to infrastructure projects typically carried out by the mainly government-owned construction companies, some of whom participated in this survey.

 

Across Asia Pacific, over one third of respondents reported that various government stimulus initiatives have had a "significant" impact. However in Europe, the Americas, the Middle East and Africa, a majority said it has had little or no effect.

 

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."

 

Despite an overall slow global economic recovery, the outlook for the industry remains strong. Almost half of the worldwide respondents expect an increase in their backlog in the next year, driven by pent-up demand, expansion into new services, such as power; or moving into additional geographies, such as the Middle East, Asia, Australia, Africa and India. Asia Pacific respondents were especially bullish about the future, with 21 percent of respondents confident of a significant increase in backlogs in 2011.

 

Another trend noted by the survey is that many contractors are considering moving into new sectors, regions or geographies to improve profitability.

 

Whilst average margins for companies across Asia Pacific have tended to be higher than elsewhere, only a small proportion overall have managed to avoid price reductions. Close to half of respondents in Asia Pacific said they have had to price at or below break-even levels. Some have chosen to scale back activity rather than be drawn into a price war.

 

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. Pricing in Hong Kong was described by one respondent as "extreme".

 

Asia-Pacific's positive market was also reflected in the headcount numbers, with only one in seven companies in this region making any type of job cuts at all. Conversely, 35 percent of respondents said their organisation had increased its direct labour force.

 

In terms of the future outlook, the survey notes 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 their expansion plans, respondents indicate strong interest in the Middle East, Asia, Australia, Africa and India. 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."

 

 

- Ends -

 


Note to Editors:

 

The KPMG 2010 Global Construction Survey, Adapting to an Uncertain Environment, polled 140 senior leaders of major global engineering and construction companies in 25 countries to gauge their views on their business outlook for the sector. Forty-six percent of the respondents were based in the Europe, Middle East and Africa (EMEA), 30 percent from Asia Pacific (AsPac), and 24 percent from the Americas.

 

Below are highlights of findings from each of the three regions.

 

ASPAC

• 21 percent believe their organizations backlog will increase significantly, the most bullish of all regions

• A third of companies said that the stimulus package had a significant impact

• Higher average margins compared to those in other regions

• Only one in seven construction companies have made job cuts in the past year

 

Americas

• 7 percent believe that their organizations backlog will increase significantly in the coming year

• 69 percent expect to experience no impact from the government stimulus in the next 12 to 24 months

• 24 percent consider their risk management practices to be highly effective

• 35 percent have taken on more government compliance staff

 

EMA

• 9 percent believe that their organizations backlog will increase significantly in the coming year

• 29 percent reduced their pricing to breakeven levels or below in the last 12 months

• 71 percent reported that the government stimulus has had no impact on their bid opportunities over the last 12 months

• 24 percent planned to cut 2010 investments

 

About KPMG

 

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 146 countries and have 140,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

 

KPMG China has 13 offices (including KPMG Advisory (China) Limited) in Beijing, Shenyang, Qingdao, Shanghai, Nanjing, Chengdu, Hangzhou, Guangzhou, Fuzhou, Shenzhen, Xiamen, Hong Kong and Macau, with more than 9,000 professionals.

 

For media enquiries, please contact:

Nina Mehra

Senior Manager
Media Relations

KPMG China

 +852 2140 2824 (Direct)

   +852 9724 6092 (Mobile)

 nina.mehra@kpmg.com