China Railway Group Ltd, Asia's biggest builder, will raise spending on tunnel-making machines, factories and other capital projects by 47 percent this year amid a construction boom in the world's fastest-growing major economy.

Investments will climb to 18.1 billion yuan from 12.3 billion yuan last year, Vice President Li Jiansheng told reporters on Friday in Hong Kong. New contracts increased 26 percent to 248 billion yuan last year, while the order backlog rose 36 percent to 216 billion yuan, the company said on Friday, while announcing full-year earnings.

Net income increased 18 percent to 2.42 billion yuan, it said in a statement to Hong Kong's stock exchange.

Affected by a 25 percent rise in raw material prices, the company's overall gross profit margin dipped 0.5 percentage point to 7.3 percent in 2007, but the company's chairman Shi Dahua said he believed the decline could ease this year.

"Gross profit margin is widening on new contracts, and we're confident it will increase in 2008" Shi said. "We've already been working on contract-price adjustments, and we'll continue to do so."

China Railway Group posted an 18.4 percent gain in its net profit to 2.42 billion yuan in 2007, while its revenue grew 13.1 percent year-on-year to 173.7 billion yuan.

The gross profit margins of the four core segments -infrastructure construction, survey consulting services, engineering equipment manufacturing and property development - recorded drops last year as a result of price hikes.

The company's capital expenditure for 2008 is about 18 billion yuan, of which 6 billion yuan will be used to purchase equipment for the railway construction business. In addition, the company will pour about 3 billion yuan into its mining business.

Owning about 50 ore mines, Shi said the mining business would become the company's new growth engine.

"Some of the mines have been under development and we will gradually step up investment in the area."

(China Daily April 26, 2008)