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In 2020, the Chinese government announced a regulatory clampdown on the real estate market, including the tightening of lending rules. The move came amid the backdrop of a US$300 billion debt crisis at Evergrande, one of the largest property developers in China, which hammered investor sentiments and fueled fears of a spillover into the wider economy. However, in an attempt to reduce the risk for the financial sector, the regulatory clampdown from the Chinese government meant that the real estate and construction sectors shrank significantly in 2021.
In H2 2022, the Chinese government announced a series of measures, this time for restoring the construction and real estate market conditions. These measures also include a new credit policy aimed at promoting urban housing sales. The move allows Chinese cities that have experienced a drop in home prices for three consecutive months to reduce mortgage rates, thereby making home purchases more affordable for Chinese citizens. Furthermore, to revive the growth of the broader economy, the Chinese government also announced higher spending on infrastructure projects in 2023.
Beijing is also seeking to increase its investment in the development of new projects in 2023. In 2022, the city’s fixed-asset investment reached US$118 billion or 800 billion yuan. In 2023, Beijing is expected to drive its investment even further with a planned increase of more than 4% compared to the 2022 levels.
The activities in the Chinese construction industry in Q1 2023 are already building on the momentum that the sector picked up in Q4 2022. Several new infrastructure projects have been announced in the country. Many of the provinces in China have announced significant spending on projects such as transport infrastructure, industrial parks, and energy generation in 2023.
For 2023, the Chinese provinces were provided with a 3.8 trillion-yuan quota for selling special bonds that are largely utilized for funding infrastructure construction projects. This is less than what the provinces sold in 2022. As a result, Chinese provinces will have to tap into other resources to meet their infrastructure spending goals.
Although regional governments are prohibited from borrowing money from banks, private and state-owned companies can still obtain funding from banks and the corporate bond market to finance major projects. In 2023, funding from the Chinese policy banks is also expected to grow. Notably, the central bank in China is offering cheap funding, thereby encouraging commercial banks to lend for construction-related projects in the energy sector.
Notably, the higher spending announced on various infrastructure projects is likely to push up the debt for corporate and the Chinese government in 2023. This means that the local government will be faced with added fiscal strains, although the national government is taking an increasing share of that burden by issuing more debt. According to IMF, the total government debt for China will increase by 12% to 123% of the GDP in 2023. Corporate debt, on the other hand, will increase by 4% to 117% of GDP.
