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Peak Construction

Construction activity—primarily in residential property and infrastructure—has peaked in China as a long-term structural driver of economic growth. This has several implications:

The property sector will be a significant headwind for China’s economy starting in late 2019. The fundamental supply-demand balance for residential property has changed, property prices are likely to fall in the coming years, and financial system risks will rise.

Investment growth in China’s economy will slow. The composition of investment growth will shift away from construction activity over time, but overall investment activity and economic growth will also decline. This will also reduce returns to investment and aggregate interest rate levels in the coming decade.

China’s demand for construction-related raw materials—domestic and imported—has also peaked, but the structure of that demand will change. Upstream heavy industries in China will not see the same level of demand from construction activity as in the past, particularly from residential property.

Posted December 14, 2018
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