Chinese Construction Industry Overview, Trends and Issues

Chinese Construction Industry
  • Growth in the Chinese construction sector will continue to be restricted in the near future due to the government’s stringent property market curbs. The government published new rules in March 2013 amid growing speculation of further price rises. According to the new rules, homeowners selling their homes will receive an income tax of 20% on capital gains. The rules will discourage market speculation and home sales in the short term. Under the new rules, local governments have also been urged to step up market inspections, and those that fail to cap the price rise below the 2013 target will be penalized.
  • The likelihood of a hard landing in the residential property market remains low, as the government is working to engineer price moderation and avoid inducing a property market crash, particularly as property development is a major contributor to GDP growth and local governments’ income. The government encourages the credit support for the development of small-to-medium sized common homes to meet real demand. Housing sales nationwide recorded annual growth of around 2% in the last two months of 2012 and up from the trough of 10% annual decline in January-February of the same year.
  • Prospects for the construction sector are bright over the forecast period, with annual growth set to average above 10% until 2016. This is due to the country’s immense need for greater housing supply and better infrastructure networks to cater for rapid, large scale urbanization. 10 million workers migrate from rural areas to urban centers every year.
  • Government policy will play a key role in determining the pace of future construction growth, particularly given its commitment to expand social housing and address the rising demand from first home buyers.
  • Infrastructure construction is expected to record strong growth, as investment in railway construction has resumed its rapid pace after a temporary moderation following a major incident in 2011. The government is expected to encourage infrastructure investment; it is likely that export growth will remain subdued and restrictions on the residential property market will continue.
  • The Ministry of Transport has stated that between 2011 and 2015 the total investment in the construction of roads, waterways, aviation and logistics will amount to CNY6.2 trillion, up from the CNY4.7 trillion invested between 2006 and 2010. The roads network will rise to 4.5 million kilometers from 4.0 million kilometers in 2010, and the number of airports is set to increase to 230 from 175. The Ministry of Railways (now the China Railway Corporation) will invest CNY2.8 trillion in the construction of 3 million kilometers of new railways during the same period, as well as CNY430 billion in urban wastewater systems.

There are some risks in construction. The government’s unwavering stance on the continuation of property market restrictions, which is essential for the market’s long-term sustainable growth, may discourage home sales and thus the pace of property development. Given the huge stock of on-going projects (450,000 hectares) and an excess in newly started projects (140,000 hectares) relative to home sales (99,470 hectares) in 2012,

About Varun Seepathi 40 Articles
With an experience of over 3 years, Varun Seepathi has aided more than 50 medium to small and large firms for foraying into new markets, by increasing footprint in the existing bracket and understanding the ins and outs of these beasts. These beasts are the companies which have been exclusively engaged in materials, chemicals or packaging activities, and have encountered restraints either in the maintenance of P&L or in beating their competitors. He has also authored more than 300 research papers relating to the industry which consist of crucial information such as addressable serviceable market, strategies of players, growth of the market, market size, forecast, market share estimations and winning strategies along with opinions on the same. The “three slope distributor/off-taker evaluation model” currently in use by a lot of multinational companies has also been pioneered by him. A mood driven writer, a professional consultant, and a born explorer, Varun Seepathi is currently working as a full-time consultant. Healthcare, wealth management and information technology are some of the verticals of the industry where he has demonstrated his skills.