China's rural stimulus plan, aimed at improving livelihoods and boosting consumption of construction materials, is expected to benefit the nation's cement makers, analysts said.

[Yang Ena/ CFP]

The State Council announced last month that the central government is considering plans to encourage rural home construction by offering rebates to subsidize construction material purchases. To date, no detailed policies have been issued.

A group of related institutions including the China Strategy Institute of Building Materials, the Chinese Academy of Social Sciences (CASS) and the China Building Material Federation, jointly submitted a proposal to the Ministry of Industry and Information Technology suggesting potential policy initiatives.

In the proposal, it was suggested farmers get a rebate ranging from 5,000 yuan to 20,000 yuan for the purchase of construction materials used in personal home construction projects valued over 100,000 yuan. The group advised that the policy last for three years.

Rural families are forecast to spend more than 400 yuan each annually on housing under the proposed rebate plan, said Li Guoxiang, a researcher at the Institute of Rural Development under the CASS.

Rural home construction expenditure could rise 10 to 15 percent each year under the stimulus plan, generating 500 billion yuan to 600 billion yuan in overall consumption, said Zhang Renwei, director of the China Building Material Federation.

The housing construction market is small compared with abundant public infrastructure projects including roadways and water management systems, Song Zhiping, chairman of the China National Building Material Group, said.

Rural construction of private housing and public infrastructure together could generate 1 trillion yuan in consumption annually, according to Song.

Rural markets account for 30 percent of national cement sales and the cement industry, one of the biggest beneficiaries of the proposed rebate plan, could enjoy a sales increase of 30 million tons annually, according to the China Cement Association.

The rebate proposal may generate 80 billion yuan in rural consumption of building materials, Jing Ulrich, chairwoman of China equities at JPMorgan, said. The plan would benefit companies like Anhui Conch Cement Co, which is focused on expanding markets in central and western China, she said.

China began providing farmers subsidies on household appliances from Feb 1 last year. As a result, 2009 rural consumption outpaced urban consumption for the first time in over two decades. Rural sales of household appliances generated over 50 billion yuan from February to October of last year.

Yet cement makers expressed doubts over the actual impact of the subsidies on their bottom line.

The rebate will mainly be allocated to the rural home construction market, which only makes up a small part of cement consumption in rural areas, a senior official from Qilianshan Cement Group said.

Other experts also worry that the plan may lead to errant dumping of inferior construction materials in rural areas. In response to these concerns, China Building Material Circulation Association indicated only qualified brands that meet national standards - and those that are environmental friendly - would be allowed to sell in rural markets.

(China Daily February 3, 2010)