How To Make Money On The Biggest Transportation Infrastructure Project In Human History

CHina high speed train
Wikimedia Commons

China’s high-speed rail system (HSR), which will span 30,000 kilometers and connect 250 cities and regions with a population of 700 million, will have huge economic implications for the country.

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In a new report, Morgan Stanley -- which describes this as the biggest transportation infrastructure project in human history -- gives us an overview of the system and looks at the impact this will have on various sectors of the economy.

In the near-term, companies involved in railway infrastructure will benefit from the HSR. In the medium-term leisure industries and properties, like national developers Vanke, and Longfor Properties will gain from the project. In the long-term consumer staples, retailers and consumers discretionaries like Want Want Holdings, Yum! Brands, and Anta Sports will make the bank off the HSR.

  • The country’s planned 2 trillion yuan ($300 billion) in spending will give it about as much track by 2012 as the rest of the world, according to Bloomberg.
  • Construction of the HSR grid is expected to take another 10 years. More than 50% of cities planned for the HSR grid over the next 10 years will be connected before 2013.
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  • First-class tickets cost 233 yuan each, which is 56% higher than current first-class tickets. Based on ticket-price estimates, per-thousand kilometer revenue, will be around 6.5 billion yuan per year.
  • China's regional differences are the most disparate in the world. The rail system is expected to reach previously neglected inland and western regions of the country. The most significant impact will be the creation of connected metropolitan areas, dubbed the super city clusters (SCCs).
  • Emerging HSR hub cities like Hangzhou, Guyiang, Shijazhuang will see greater economic growth than the rest of the country in the coming decade.
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7 Days Group Holdings Ltd.

seven days inn

Weight: 1.5%

Sector: Budget Hotels

7 Days has 45% of its hotels in 14 of the 2015 super-hub cities. It also has the largest exposure to the cities that will see the strongest passenger growth after the HSR is completed. The brand is also expected to benefit from lower rental costs and brand awareness.

Data provided by Morgan Stanley

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Anta sports

anta sports
Anta sports

Weight: 4.6%

Sector: Consumer discretionary

The HSR will allow for greater market access and ties. Regional chains will become stronger. Retailers can expect cost cuts and increased efficiency from shorter travel times. Reduced logistics costs could potentially allow more online opportunities.

Data provided by Morgan Stanley

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Want Want Holdings Ltd.

want want food
Want Want Holdings

Weight: 4.6%

Sector: Consumer staples

National convenience food and beverage brands like Want Want with strong presence in both urban and rural markets would be the first beneficiaries from increasing traffic. The new SCCs and the narrowing gap between the lower-and higher tier cities would boost overall consumption growth.

Data provided by Morgan Stanley

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Intercontinental Hotels Group

intercontinental
Intercontinental Hotel Groups

Weight: 5.7%

Sector: Hotel

IHG is the biggest international operator with 12.5% market share of the branded segment and has 25% of the market share. IHG believes that the Chinese hotel market could grow from 2.3 million to 7.5 million rooms by 2030, of which roughly half would be branded.

Data provided by Morgan Stanley

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Yum! Brands Inc.

pizza hut
Yum! Brands

Weight: 5.5%

Sector: Restaurants

Quick-service brands like McDonald's, Starbucks etc. will all profit from a larger geographic reach, but the primary beneficiary of such growth will be Yum! Brands, with its KFC, and Pizza Hut Casual Dining.

Data provided by Morgan Stanley

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Longfor Properties

Longfor Properties
Longfor Properties

Weight: 2.8%

Sector: Property

Longfor Properties, an investment holding company engaged in property development, has one of the highest exposures of western China. The company is expected to see the strongest growth in railway traffic. It has a 59% exposure to super-hub cities and 6% exposure to emerging hubs.

Data provided by Morgan Stanley

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