By Geoff Dyer (Financial Times)
Updated: 2007-12-03 15:27

Lafarge, the world's biggest cement group, plans to double its investment in China over the next five years in the expectation that rapid growth in construction spending will continue in the country which already consumes nearly half the world's cement output.

Bruno Lafont, chairman of Lafarge, said the company's China operations would invest about US$1.5 billion in new facilities which would take production from about 23 million tons at the moment to 50 million tons in 2012.

"For the time being there is still high growth," he said in an interview. "There are still considerable unmet needs, especially in the parts of the country where we operate." The investment accounts for about one-third of the capacity Lafarge will build in the next few years.

As part of the planned expansion, the French group announced a US$600m investment last week in Yunnan Province that would boost annual capacity by 10 million tons a year. The group, which is the biggest maker of cement in the world, operates in China through a partnership with the Shui On Group of Hong Kong. Lafarge owns 55 percent of the business, which is concentrated in four southwestern provinces and municipality - Sichuan, Guizhou, Yunnan and Chongqing.

In an indication of just how strong demand for cement is in China, Lafont said that cement consumption in these four provinces was greater than in the whole of the United States.

The cement industry has come under scrutiny because of its significant contribution to carbon emissions - the sector accounts for about nine percent of China's fast-growing carbon emissions and five percent globally.

Lafont said the Chinese government was keen to support investment by foreign companies such as Lafarge because they would bring cleaner technologies with them. The expansion project in Yunnan Province, for example, also included a programme of closing older facilities.

"We have something of a buffer, as around 50 percent of the new capacity will be replacing old factories," Lafont said.

Other foreign groups have also been attracted to the cement sector in China, including Goldman Sachs which paid US$79 million in August for a 25 per cent stake in privately-owned cement producer Hongshi Group.