Infrastructure Projects To Fuel Chinese Construction Growth

Continued rapid development of China’s infrastructure is expected to help boost its construction spending by almost 10 percent annually over the next few years, according to a new report from Freedonia Group.

Construction expenditures in China are expected to rise 9.2 percent per annum in real terms through 2012. A rapidly expanding domestic economy, continuing efforts to upgrade physical infrastructure, sustained strength in foreign investment funding, healthy demand for Chinese manufactured goods, ongoing urbanization, and further population and household growth will all boost construction spending in China, Freedonia says in its Construction Outlook in China.

Nonbuilding construction will be the fastest growing sector, advancing 10.2 percent annually in real terms through 2012.

Growth will be fueled by government initiatives to expand and upgrade the country’s physical infrastructure, especially its highways, railways and subway systems.

Utilities construction will also contribute to nonbuilding construction spending gains, as the government continues to increase the country’s power generation capacity and improve electricity transmission networks, as well as expand and improve municipal water supply coverage and natural gas distribution.

Nonresidential building accounted for the largest share of construction spending in China in 2007, reflecting the nation’s emergence as an economic powerhouse over the last decade and its position as the largest producer of manufactured goods in the world. Nonresidential construction expenditures are projected to increase 8.9 percent annually in real terms through 2012.

China’s ongoing industrialization and modernization will help to boost investment in manufacturing, office and commercial facilities.

Real residential building construction expenditures will grow at an 8.4 percent annual pace through 2012. Advances will be spurred by rising employment and personal income levels, further urbanization of the population, and increasing average per capita living space in both urban and rural areas.

Advances will be spurred by rising employment and personal income levels, further urbanization of the population, and increasing average per capita living space in both urban and rural areas. However, government efforts to prevent the real estate market from overheating (for example, by raising the one-year lending rate and restricting second home purchases) and a deceleration in household growth will provide an offsetting influence, preventing demand from advancing at a faster rate, Freedonia says.

Freedonia’s Construction Outlook in China is available for purchase here.