In the aftermath of the Sichuan earthquake that left a trail of death and devastation, the authorities face a daunting reconstruction task.

It is time the authorities opened the door for foreign investors in Chinese infrastructure projects to assist in the rebuilding work in the quake-shattered province. The measures could lead to a greater presence of foreign infrastructure companies within the next three years.

The total cost of structural damage in Sichuan is estimated from 500 billion yuan to 1 trillion yuan.

The central government has already embarked on the reconstruction work; a special planning committee led by the National Development and Reform Commission (NDRC) will work out an overall plan for Sichuan and oversee the work.

The work will be done in two phases. The first phase will begin now and end in 2010 and the focus will be the restoration of infrastructure systems and public utilities in Sichuan. Under the phase two - from 2011 to 2015 - the focus will be on development and improvement on the work done in phase one.

The Ministry of Finance has allocated 70 billion yuan for rebuilding works and in addition, China has received donations worth 43.6 billion yuan.

However, "this is still far from enough," said a source at China Development Bank (CDB).

As a result, foreign investment is likely to be considered, even encouraged.

"Foreign capital from investors with a long-term interest in China will be welcomed; investors could participate in M&A, joint ventures, foreign direct investment (FDI), syndicate loans, bond purchases and even fund of funds (FOF)," the source said.

CDB, once specifically geared at supporting and financing infrastructure projects in China, is now a commercial bank.

Still the largest financer of China's infrastructure projects, CDB has taken a leading role in the reconstruction work in Sichuan. The bank has promised 26 billion yuan in special loans which will fund infrastructure projects such as highway, road, and bridge building and public utility requirements.

"We are still in the process of deciding on an overall plan for Sichuan. Once the details are finalized, we will consider various fundraising tools but foreign capital with long-term staying power, pension funds for example, will definitely be welcomed," said the CDB source.

Although China has already opened infrastructure projects to foreign capital, State-owned companies still dominate.

Since the second half of last year, foreign capital has been kept outside the domain of China's real estate industry while the Chinese government attempts to cool an overheated market. The CDB source predicted further tightening of restrictions on the property market to prevent foreign capital.

However, with the exception of real estate, long-term foreign investment is encouraged in Sichuan. And foreign investors may find access to this fast-growing sector, the CDB source said.

The author is bureau chief of Shanghai Representative Office of mergermarket.

(HK Edition 07/10/2008 page3)