China ramps up infrastructure construction activities to revive economic growth in 2023
In 2022, the Chinese government announced a series of policy measures to revive the struggling real estate and construction market in China. This also includes the credit policy that aims to promote housing sales in urban cities as well as the US$29 billion in special loans from the Chinese government with the aim to finish the stalled construction projects. As part of its efforts to revive economic growth in 2023, China has kicked off many infrastructure projects across the country. The massive investment in the segment is projected to play a crucial role in driving economic growth over the next 12 months.
After the Spring Festival holidays in China, major infrastructure projects totaling an investment of US$7.4 billion have been initiated in a centralized manner in Shanghai. The development has also gained momentum in North China, wherein a total of 43 projects have initiated construction activities. These projects, worth 41.6-billion-yuan cover infrastructure development, public services, and smart city facilities. In Guizhou, construction activities of 687 major projects commenced in Q1 2023.
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Beijing, as a city, is also seeking to increase its investment in the development of new projects. In 2022, the city’s fixed-asset investment reached US$118 billion or 800 billion yuan. Over the next 12 months, Beijing is expected to drive its investment even further with a planned increase of more than 4% compared to 2022 levels.
The activities in the Chinese construction industry in Q1 2023 are building on the momentum that the sector picked up in Q4 2022. Reduced prices of construction materials, recorded in November and December 2022, are also assisting the growing investment in the Chinese infrastructure construction sector in 2023. Over the next 12 months, the fixed asset investment from the government is projected to record strong growth, compared to 2022.
· In January 2023, the National Development and Reform Commission (NRDC), the top economic planner in China, announced that the agency approved investment in a total of 109 fixed asset projects in late 2022. These projects, totaling an investment of 1.48 trillion yuan, cover various sectors including transportation, energy, and water conservancy.
Over the next 12 months, China has also announced its plans to extend the railway network by 3,000 kilometers. This will include the addition of 2,500 kilometers of high-speed lines in the country’s railway network, thereby upgrading the system into an advanced transport network. The investment in the railway network enhancement project is part of the country’s strategy to revive economic activities in the region.
· Some of the key projects that China plans to undertake in 2023 include the Sichuan — Xichang Railway, in the Southwest region of China. In 2022, China Railway Co. invested a total of US$104.8 billion towards the construction of 4,100 kilometers of the new railway network. Notably, a total of 102 railway-related projects were undertaken by China over the last 12 months.
· In 2023, Xinjiang, in Northwest China, plans to invest more than 80 billion yuan in the development of local road infrastructure. The investment has been allocated for a total of 66 construction projects, of which, 22 are slated to be completed over the next 12 months. In recent years, Xinjiang has continued to invest significantly in the development of road infrastructure.
· In addition to its investment in the development of road infrastructure, Xinjiang has also announced the development of airports. In 2023, Xinjiang announced to build 8 new airports as part of its plans to further improve its aviation network. These airports are expected to commence construction activities in 2023 and are slated for completion in 2025. An investment totaling US$1 billion or 6.7 billion yuan will be used for the construction of airports.
Along with the investment in the construction of basic infrastructure such as railways, roads, and airports, China is also expected to increase its investment towards the development of digital infrastructure projects such as big data centers to charging piles of electric vehicles in 2023. These infrastructure construction projects also have more growth potential and can drive consumption demand in China from the short to medium-term perspective. Furthermore, private sector investment in the construction of new data center projects is also expected to increase significantly over the next 12 months, as demand picks up amid the reopening of the economy.
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Investment in the development of 5G infrastructure, computing power, and distributed electricity grids is also projected to grow in 2023. Driven by supportive policies and the recovery in market demand, new infrastructure investment projects will record strong growth from the short to medium-term perspective in China.
The country has been issuing special-purpose bonds as well to support domestic infrastructure development. In 2022, local governments issued a total of 4.04 trillion yuan in special-purpose bonds. Over the next 12 months, the special-purpose bond issuance is projected to remain in line with the levels of 2022.
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The investment from the central and local government institutions towards the development of key infrastructure projects will keep supporting the growth of the overall construction market in China from the short to medium-term perspective. Furthermore, the government’s intervention to revive the struggling housing and real estate market will also drive investment in the residential sector in 2023. The government, in 2023, might also allow some of the property developers to add more leverage by easing borrowing caps. All of these policy measures along with the special-purpose bonds will keep driving investment in the Chinese construction market, thereby supporting a strong growth recovery in the construction industry over the next 12 months.
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