Construction On Course For A Slower 2014 Despite Reforms
BMI View: We continue to hold the view that the recovery in China's construction activity in 2013 will not be sustainable in 2014 - we are forecasting construction real growth to fall from 6.6% in 2013 to 5.1% in 2014. The key reason for this outlook is because we believe that the basis for this increase in fixed asset investment is through the increase in liquidity in China's financial system, an unsustainable investment model due to the diminishing marginal return on expenditure. The Chinese government is implementing reforms that could lead to a sustainable increase in construction activity (namely rural and privatisation reforms), but we believe they are unlikely to have a material impact over the near-term.
As highlighted previously, we believe the recovery in China's economic activity in 2013 has been largely down to a boost in infrastructure activity and sustained expansion in the real estate sector. Official data dating up to November 2013 showed that fixed asset investment into the infrastructure sector (the most up-to-date proxy on the trends within the construction and infrastructure industries) increased by 17.0% year-on-year (y-o-y) between January and November 2013, slightly higher than the 16.2% y-o-y seen during the same period in 2012. Fixed asset investment into real estate also remains considerable, though the rate of increase in investment inflows is gradually declining. Investment into the real estate sector grew by 20.2% y-o-y between January and November 2013, slightly lower than the 22.2% y-o-y seen over the same period in 2012.
The increase in infrastructure investment was driven by investment into the transport infrastructure sector, where roads and railways (the two largest components of transport infrastructure investment in China) saw significant increases in investment. Fixed asset investment into railways grew by 2.4% y-o-y between January and November 2013, higher than the growth of 0.9% over the same period in 2012. Meanwhile, fixed asset investment into roads continued to grow robustly, increasing by 22.6% y-o-y between January and November 2013, slightly lower than the 24.3% y-o-y seen over the same period in 2012.
|Fuelled By Liquidity Surge|
|China - Infrastructure* And Real Estate Fixed Asset Investment (FAI) Data|