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China’s construction industry growth to remain slow

  According to GlobalData, the heady days of double-digit growth in China’s construction industry have long gone. The industry’s expansion is expected to remain on a general slowing trend over the next five years until 2023, said the data and analytics company.

  In 4Q18, construction activity in China grew by 6.1% year-on-year, pushing the growth for FY18 up to 4.5%. Despite this being a marginal improvement on the 2017 outturn, GlobalData has stated that this remains a relatively sluggish performance for the industry as a whole.

  Reflecting the weak performance in the building’s sector, the total floor space of buildings completed dropped by 1.3% in 2018, compared to the previous year’s total.

  In a heavily managed economy, such as China’s, the government is able to reverse policy direction relatively quickly. It is thought that local authorities are likely to attempt to reinvigorate demand by relaxing measures that had been imposed to avoid overheating the market. This is in view of the slowdown in property markets across the country.

  It has also been noted that the authorities can revert to infrastructure investment to prop up the industry and support the economy when necessary. For example, in October 2018, the State Council issued guidelines on increasing investment in various types of infrastructure. Notably, this includes railways, roads, waterways, and airports.

  It is expected that these policy changes will ensure that annual construction growth does not slow too much, remaining at around the 4.5% level in the next five years. According to GlobalData, this is with the potential for slightly higher growth in 2019 – 2020, if new infrastructure projects move to the construction phase without delay.

  “With the authorities taking steps in recent years to rein in excessive debt-driven investment in infrastructure and urban development that had resulted in excess capacity in infrastructure and industry, and oversupply in real estate, the industry is not expected to return to the boom years of double-digit growth,” said Danny Richards, Lead Economist at GlobalData. “The construction industry’s performance will continue to reflect the ongoing struggles of China’s policy makers to deal with the challenge of supporting expansion in the economy, while limiting the financial risks associated with excessive fiscal and monetary stimulus.”

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