China’s construction industry is estimated to grow by 5.9% and 6.1% in 2019 and 2020 respectively, driven by public sector projects
China Market Review
China’s economy grew by 6.6% last year, the slowest pace since 1990. This is expected to slow further to about 6.3% in 2019, with the country’s trade dispute with the US affecting its domestic economy. China continues to shift away from manufacturing and infrastructure toward services.
The labour force is one of the most important factors that has contributed to the country’s unparalleled economic development over the past number of decades. Initially benefitting from its ample supply of cheap labour, the country’s demography and labour dynamics are now evolving with the slowdown of the economic growth.
Minimum wages in China continue to grow, and last year, 20 out of the 31 regions in mainland China increased their minimum wages. The statistic shows the unemployment rate for China from 2012 to 2017, with projections up until 2023. In 2018, China's unemployment rate was recorded at about 4%.
China’s economy grew by 6.6% last year, the slowest pace since 1990. This is expected to slow further to about 6.3% in 2019.
Consumer price inflation slowed to a six-month low of 1.9% year-on-year in December 2018 from 2.2% the previous month, and came in below the market consensus of 2.1% . The slowdown in inflation was mainly due to non-food prices, while food inflation stood at its lowest level in three months.
For the currency, Chinese government will try their best to keep the Chinese Yan stable.
Foreign direct investment (FDI) into China rose by 0.9% to ¥885.61 billion in 2018, which is equivalent to an increase of 3% percent to US$130.93 billion. Investment in the manufacturing sector accounted for 30.6% of total investment, and rose 20.1% from a year earlier. Within this sector, investment in high-tech manufacturing grew 35.1%. The biggest sources of foreign direct investment were as follows, with the biggest increases coming from Europe; Singapore (8.1% year-on-year), South Korea (24.1%), Japan (13.6%), the UK (150.1%), Germany (79.3%) and the US (7.7%).
China’s construction industry is estimated to grow by 5.9% and 6.1% in 2019 and 2020 respectively, driven by public sector projects, such as railway. Infrastructure investment remains a key driver of demand. However, China’s fixed-asset investment growth has declined in 2018.
As the US-China trade war starts to affect economic growth and market sentiment, there could, in turn, be a dampening of demand and prices for building materials. In addition, if China sticks to its initiative of deleveraging the whole economy, it will not have the ability to use increased investment to buffer any decrease in demand. Building materials generally still face overcapacity. The recovery in prices in 2017 and 2018 was primarily from rationalization of production between producers, for example, cement producers in China, without shutting down excess capacity. So far, the rationalization has been functioning well. However, if demand growth slows and the market turns, also resulting in a price drop, companies may not necessarily adhere to the rationalization plan and may start to raise production to increase cash flow. Therefore, overcapacity remains an overhang for the building materials industry in the region.
In summary, the Chinese economy is expected to face downward pressure in 2019, while the pace of growth gradually stabilizes.
Contributor: Helen Jie Shao