China’s Premier Li Qiang has announced that construction has officially started on what is expected to become the world’s largest hydropower dam.
The project, located on the eastern edge of the Tibetan Plateau, is estimated to cost at least $170 billion, according to the official news agency Xinhua.
This development is being seen by Chinese financial markets as a sign of economic stimulus. As a result, stock prices and bond yields increased on Monday.
The dam will include five cascading hydropower stations and will have the capacity to produce 300 billion kilowatt-hours of electricity each year, roughly the same amount of electricity consumed by the UK last year.
It will be built in the lower stretches of the Yarlung Zangbo River. A portion of the river drops by 2,000 meters over a 50-kilometre stretch, providing significant hydropower potential.
Regional and Environmental Concerns
India and Bangladesh have already expressed concerns about how this project might affect millions of people living downstream.
Several non-governmental organisations have also warned about potential damage to one of the most ecologically rich and diverse regions on the Tibetan Plateau.
Despite these warnings, Beijing has stated that the dam will help meet electricity demand in both Tibet and wider China.
The government also claims it will not cause major problems for downstream water supplies or the environment. Operations for the dam are expected to begin in the 2030s.
Market and Stock Impacts
China’s CSI Construction & Engineering Index rose by as much as 4%, reaching a seven-month high.
Stocks of Power Construction Corporation of China and Arcplus Group PLC increased by their daily maximum of 10%.
Wang Zhuo, a partner at Shanghai Zhuozhu Investment Management, said, “From an investment perspective, mature hydropower projects offer bond-like dividends,” but added that “speculative buying into related stocks would inflate valuations.”
According to a client note from Huatai Securities, the project will increase the demand for construction materials such as cement and civil explosives.
Shares in Hunan Wuxin Tunnel Intelligent Equipment Co, which makes tunnel construction machines, jumped 30%, while Geokang Technologies Co Ltd, a maker of smart monitoring terminals, also rose 30%.
Cement manufacturer Xizang Tianlu Co Ltd and civil explosives maker Tibet GaoZheng Explosive Co both surged by their 10% daily limit.
Government Statement and Economic Outlook
Premier Li Qiang called the dam a “project of the century” and emphasised that “special emphasis must be placed on ecological conservation to prevent environmental damage,” according to Xinhua.
Following the announcement, yields on government bonds rose across the board on Monday.
The most-traded 30-year treasury futures dropped to their lowest point in five weeks. Investors viewed the project as part of broader economic stimulus efforts.
The project will be led by the newly formed state-owned company, China Yajiang Group. It represents a large public investment push aimed at supporting economic growth as other sectors weaken.
A report from Citi said, “Assuming 10 years of construction, the investment/GDP boost could reach 120 billion yuan ($16.7 billion) for a single year. The actual economic benefits could go beyond that.”
Jobs and Displacement
China has not yet given any estimates on how many jobs the dam project might create.
When the Three Gorges Dam was built, it took almost 20 years to complete and created nearly one million jobs, according to state media, but it also displaced around the same number of people.
There is no information so far on how many people may be displaced by the Yarlung Zangbo dam project.
NGOs continue to warn that the dam could cause irreversible damage to the Tibetan Plateau and negatively affect millions of people living downstream.
The Yarlung Zangbo becomes the Brahmaputra River as it exits Tibet, flowing into India and eventually into Bangladesh.
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