Thursday, August 20, 2009

China rail investment strength aiding stock advances

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China’s Shanghai Composite Index rallied 4.5% Thursday, prompting other Asian markets, their Europe counterparts, and Wall Street to follow suit in similar fashion. While the rally on Wall Street was attributed to several contributing factors, including expansion in U.S. regional manufacturing, some analysts cite China’s continued strong investment in rail infrastructure as abullish factor affecting markets worldwide.

Before Thursday's advance, the Shanghai index was down more than 20% from its early August peak, officially putting it into bear market territory and making global investors nervous.

But China’s Ministry of Railways says its investment for the first seven months of 2009 is up 110% compared with the comparable period of ayear ago. China previously had noted its commitment to invest 700 billion yuan (roughly $100 billion) per year in each of the next three years on rail infrastructure, to promote economic growth and ease transport bottlenecks. It hopes to have upgraded or put in place 86,000 kilometers (53,320 miles) of rail by year’s end, expanding to 110,000 kilometers (68,200 miles) by 2012.

The 700 billion yuan commitment to rail infrastructure expansion and upgrading represents roughly 17.5% of China’s overall stimulus package of 4 trillion yuan.