The significance and performance of infrastructure in China

The significant economic growth and urbanisation of China in recent years has seen increased importance given to infrastructure development in China; this includes airports, toll roads, communications, ports, power plants and water. The purpose of this paper is to assess the significance and investment performance of infrastructure in China, the linkages to commercial property markets and the increasing future role of international private infrastructure investors in China. This paper analyses the performance of infrastructure in China over 1995-2006. Using the Hong Kong-listed China infrastructure companies, risk-adjusted performance analysis is used to assess the added value of China infrastructure, with the portfolio diversification benefits of China infrastructure also assessed. The paper finds that China infrastructure has delivered significant and improved risk-adjusted returns, but there is evidence of some recent loss of diversification benefits by China infrastructure in a portfolio. The strong linkage between effective infrastructure and effective commercial property markets is particularly important, as international investors seek to increase their exposure to China's infrastructure and commercial property markets to add value in their international investment portfolios. This is the first paper to rigorously assess the significance and performance of infrastructure in China. This risk-adjusted analysis has enabled more informed and practical investment decision making by international investors regarding the significance and role of China infrastructure and the associated strong linkage to the commercial property markets in China. This will take on increased importance as international investors increase the significance of both China infrastructure and China commercial property in their portfolios.