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China suffers sharp decline in construction output, but a recovery is underway, says GlobalData

April 28, 2020

Dubai, UAE

Construction output growth in China is expected to grow by just 1.9 percent in 2020 due to the severe impact of COVID-19, according to a latest report by GlobalData, a leading data and analytics company.

The disruption in the first quarter of 2020, when the outbreak was at its peak and the lockdown widely enforced, is illustrated by the 17.5 percent year-on-year decline in construction activity during that period.

Total investment in real estate development was also down by 7.7 percent, and private fixed asset investment declined by 18.8 percent.

The government will accelerate the disbursement of funds for infrastructure, which will be a recovery step for the construction activities in the coming quarters, says GlobalData. 

Danny Richards, Lead Economist at GlobalData, comments: “The construction work on major commercial projects in key cities has been greatly affected. The disruption caused by the epidemic is likely to be prolonged in the leisure and hospitality buildings sector, reflecting the likely downturn in both domestic and foreign tourism, which could reduce investment in new hotel projects. The residential sector is facing a high risk of a sharp downturn with major developers recording sharp drops in new sales.

“Although underlying drivers of growth include ongoing urbanization and the government’s efforts to renovate aging urban residential buildings, years of high levels of investment in real estate have resulted in oversupply, undermining the demand for new space. In January-March 2020, real estate investment in residential buildings had dropped by 7.2 percent year on year, with the sharpest drop being recorded in the central region, at -16.9 percent.” 

GlobalData expects that the state council will issue guidelines on increasing investment in various types of infrastructure, notably railways, roads, waterways and airports in the second half of 2020 while local authorities are likely to be ramp up the issuance of special bonds to finance major infrastructure projects.  

Richards concludes: “China is also set to boost investment in ‘new’ infrastructure to support the economic recovery and the acceleration in digital transformation, and notably, this will include investment in 5G networks and data centers.”