Potential For Stimulus Boosts Infrastructure Construction Outlook
BMI View: We continue to hold the view that China's construction and infrastructure sectors are in a structural slowdown. The key reason for this outlook is because we believe that the basis for this increase in fixed asset investment is through the increase in liquidity in China's financial system, an unsustainable investment model due to the diminishing marginal return on expenditure. This however, does not mean a dearth of growth opportunities in both sectors.
In our January 2014 analysis of China's infrastructure and construction sectors, we held the view that the recovery in construction activity experienced in 2013 will not be sustainable in 2014 (see 'Construction On Course For A Slower 2014 Despite Reforms', January 5 2014). This view has already started to unfold in the first half of 2014. Official data dating up to May 2014 showed that fixed asset investment into the real estate and infrastructure sectors (the most up-to-date proxy on the trends within the construction and infrastructure industries) grew at a slower rate in 2014 than in the same period in 2013.
Data from the National Bureau of Statistics of China (NBS) show that fixed asset investment into the real estate sector increased by 14.2% year-on-year (y-o-y) between January and May 2014, lower than the 23.6% y-o-y seen during the same period in 2013.
|China - Real Estate Fixed Asset Investment (FAI) Data|