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China and Taiwan R.O.C Market Review 2019

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China’s construction industry is estimated to grow by 5.9% and 6.1% in 2019 and 2020 respectively, driven by public sector projects

6.6%

China growth

6.2%

China forecast

1.78%

Taiwan growth

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

Trend in Chinese construction output by sector

China trends

China Construction spending growth

China spending

GDP growth rate*

China GDP

Currency exchange rates*

China Currency Exchange

Linesight average Chinese construction costs 2019

China construction costs

Top 15 contractors*

China contractors

Top 15 design firms*

China design firms

Taiwan R.O.C Market Review

The Taiwanese Directorate General of Budget, Accounting and Statistics (GDBAS) announced that it had reduced the 2018 GDP growth outlook from 2.69% to 2.66%, and the growth forecast for 2019 has also been reduced from 2.55% to 2.41%. Taiwan expects to maintain this moderate level of growth to 2023, based on external demand for manufactured goods. 

The domestic economy is facing a further slowdown as a direct result of the Sino-US trade war, but benefits are still being felt from wage increases in 2018. Taiwanese high-tech manufacturers based in China who have been affected by the Sino-US trade sanctions have been offered an incentive to move manufacturing facilities to Taiwan. This, along with revised land ownership policies within industrial parks, will incentivise owners to utilise idle industrial land. Investors who fail to build relative facilities within the fixed three-year term from purchase of the plot will incur fines and be forced to sell the land. Unemployment has reduced to 3.7% and is forecast to hold at that level. The Central Bank has again held the interest rate this year at 1.375%, where it has remained unchanged since 2016.

In terms of local political factors, local elections held 24th November 2018 marked a shock defeat for the ruling Democratic Progressive Party (DPP) to the Kuomintang (KMT), who won 13 jurisdictions compared with the DPP’s six. Mayor Ko was re-elected in Taipei City. The Government is likely to find it difficult to continue to get support for its current domestic economic policy before the national elections in 2020, and if national elections follow suit, the party will lose its legislative majority. Taiwan’s relations with mainland China remain unchanged under the DPP, but could improve after the 2020 polls, assuming KMT return to power. 

The sub-index for the local construction industry fell from 94.72 in December to 93.59 in January, with the construction market appearing stagnant.

According to TIER (Taiwan Institute of Economic Research), one of the country's leading economic think tanks, the sub-index for the local construction industry fell from 94.72 in December to 93.59 in January, with the construction market appearing stagnant, as many projects were pending ahead of the Lunar New Year holiday that started in early February ‘19. The construction industry is expected to improve over the next six months. The Government is planning to expand public construction as well as state-owned enterprises investment; therefore, the overall fixed capital formation for the year of 2019 will certainly have higher growth compared to 2018. TIER forecasts the relevant growth rate standing at 4.40%, with private investment growing by 3.12%.

The current Government has released NT$72.7 billion to the ‘Forward-looking Infrastructure Development Program’ to develop national infrastructure The program includes eight categories; railway projects to provide safe and fast transportation, water environments to build resilience against climate change, green energy infrastructure to foster environmental sustainability, digital infrastructure to create a smart and connected nation, urban and rural projects to balance regional development, childcare facilities to reverse declining birth rate trends, infrastructure to ensure food safety, and human resources infrastructure to nurture talent and boost employment.

Contributor: Rob Kane

Taiwan GDP growth rate*

Taiwan GDP

Taiwan Currency exchange rates*

Taiwan Currency Exchange 1

Linesight Taiwanese construction costs 2019

Taiwan construction costs

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