Infrastructure spending to keep Chinese construction in the black for 2020

The effects on Chinese construction of the coronavirus lockdown in the first quarter of the year are expected to be countered by public sector investment in infrastructure, according to a report from market analyst Fitch Solutions.

The sector’s output fell more than 17% between January and March, but is likely to make up ground over the remainder of 2020 and to record a year-on-year increase of 1.8% over the full 12 months. However, Fitch noted that this depends on how quickly increased funding can be translated into activity.

"We remain positive on the outlook of China’s construction sector, which is the world’s largest in terms of nominal value," the report says. "Growth will be driven by government efforts to invest in infrastructure, both in the transport and energy sectors, to improve connectivity between cities and to reduce pollution."

Construction is set to be the main beneficiary of government attempts to pump demand into the economy. Other areas, particularly those dependent on exports, are likely to continue to suffer – a number of surveys have found international demand falling rapidly. For example, research firm TS Lombard expects China’s exports to fall 40% in the second quarter of 2020, and construction has not been immune to this (see further reading). 

The construction recovery is also suggested by a rise in demand for cement and site machinery. Last month, the 25 largest makers of excavators recorded sales up 60% year on year, according to data from the China Construction Machinery Association.

The increased investment in infrastructure has been boosted by spending at the province and city level. In May, bonds worth $150bn were issued by local governments, surpassing the previous record of $101bn issued in January.

Image: Spending on provincial metros, like this one in Wuhan, has been one mechanism for stimulating the economy (Brian19891003/CC BY-SA 4.0)

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