Industry Report - Building Construction in China.pdf

CONTENTS Error! No text of specified style in document. August 2011 www.ibisworld.com.cn | 1-800-330-3772 | chinahelpibisworld.com IBISWorld Industry Report 4710 Building Construction in China August 2011 About This Industry . 2 Industry Definition . 2 Main Activities . 2 Similar Industries 2 Additional Resources 3 Industry Performance 4 Executive Summary 4 Key External Drivers . 5 Current Performance 5 Industry Outlook 8 Industry Life Cycle 10 Products and oil and gas mining facilities. 4724 - Wiring and Pipeline Construction in China Firms that construct high voltage transmission electricity cables; urban power networks; telecommunication networks; pipelines for natural gas, oil, water and sewage; and radio broadcasting networks. 4729 - Other Civil Engineering Construction Works in China Establishments involved in the construction of other civil engineering projects, such as stadiums, golf courses, public parks, amusement parks, cable cars, billboards, and road signs. WWW.IBISWORLD.COM.CN Building Construction in China August 2011 3 5090 - Other Construction in China Establishments involved in the construction of walls, and other miscellaneous construction works. Additional Resources For additional information on this industry: www.stats.gov.cn National Bureau of Statistics of China www.cin.gov.cn Ministry of Housing and Urban-Rural Development of China www.zgjzy.org China Building Industry Association www.cnguest.com Construction Guest WWW.IBISWORLD.COM.CN Building Construction in China August 2011 4 Industry Performance Executive Summary The industry has been largely unaffected by China's weaker real estate market or the lower building construction demand from other industries caused by the global recession from late 2008. In 2009, the output value growth rate in the construction sector slowed due to lower completed Gross Floor Area (GFA) in 2008 and declining newly started GFA in 2009. Growth rates for building floor areas under construction and completed both slowed, largely dragged down by the weak performance of the real estate market. However, strong real estate prices from 2008 to 2010 resulted in strong revenue growth for the industry. In 2009 and 2010, the large increase in social fixed investment and strong demand in China's real estate market greatly benefited this industry. The industry is highly influenced by China's real estate sector. After several years of constant appreciation in most areas of China, housing prices in major cities dropped slightly in 2008 and the trading volume of new residential buildings declined sharply. This was reflected in lower demand levels, and many real estate developers stopped investments in new projects due to tighter financial conditions, which contributed to large pricing increases. The growth rates in floor area under construction, newly started areas and completed areas all slowed or declined during the year with weak expectations toward the real estate market. In 2009, stimulated by favorable policies and increased credit supply, the real estate market in China recovered strongly with sales volumes and sales values reaching record highs. The industry also benefited from this. During the year, floor area under construction and completed areas in China increased by 10.9% and 9.8% respectively from 2008. In the real estate sector, the floor area under construction and completed area increased by 12.8% and 5.5% respectively, from 2008. The steady growth of floor area under construction was driven by positive growth (8.5% for the year) of newly started GFA in buildings, which was then pushed higher by decreasing real estate inventory in the strong real estate market. During 2010, encouraged by the strong performance of China's real estate market in 2009, newly started GFA of buildings in the real estate sector increased by 40.7%. During the year, total GFA of buildings under construction also increased by 19% to 7.0 billion square meters. However, completed GFA of buildings increased by just 5.9%. At the second half of the year, affected by the slowdown in the growth of housing sales and the government's strict macro-control on real estate market, China's real estate developers delayed the completion time of commercial houses. Rapidly increasing housing prices in major cities resulted in the State Council and several local governments issuing a series of measures in 2010 to curb speculative housing demand and prevent excessive housing prices growth. Trading volumes and sales values of commercial buildings began to decline in May 2010 and further declines are estimated during the rest of the year. In September 2010, the second round of macroscopic readjustment and control policies on the real estate market were put forward, which mainly limits the number of houses purchased by the same family in major cities and implements stricter housing loans policies by suspending housing loans on the third houses and enhancing the share of down payment for the first house from 20% to 30%. In order to control the rising consumer price index (CPI) levels and housing prices, the People's Bank of China increased benchmark interest rates four times from October 2010 to July 2011. This led to benchmark credit rates of individual housing loans reaching their highest point since 1998. These policies are expected to cause declines in sales volume and average prices of commercial buildings in the near term and will discourage real estate investment and new house starts during the year. The total output value of construction in China during 2011 is expected to reach $2.32 trillion, of which $ 1.31 trillion is forecast to be generated by building construction, or 56.5% of the total (constant 2011 dollars). The value of work put into place in this sector measures the value of construction along with all material inputs into construction, while industry revenue excludes inputs supplied by the building owner or developer. WWW.IBISWORLD.COM.CN Building Construction in China August 2011 5 The industry is forecast to employ about 30.6 million people across 68,400 establishments in 2011. Total wages paid by the industry participants are expected to total $83.3 billion, or about 6.2% of industry revenue. Over the five years through 2011, industry revenue is expected to increase at an average annualized rate of 29%. ACMR-IBISWorld expects that in the five years through 2016 total industry revenue will increase at an annualized rate of 28.5% to $4.7 trillion by the end of 2016 and total assets are expected to total $1.95 trillion. Key External Drivers The key sensitivities affecting the performance of the Building Construction industry include: Economic Indicators - House Price Index Increasing house prices limit the demand for buildings and therefore building construction. Frequent fluctuations in house prices can also lead to speculative activity in the market. Gross Government Fixed Investment - Structures - State and Local The public sector continues to be the principal source of demand for institutional buildings, with ongoing (and often anti-cyclical) investment into government buildings, schools, universities, hospitals, museums, law courts, police stations, recreational facilities, etc. Gross Private Fixed Investment - Residential The private sector generates a large share of industry revenue and therefore the demand for industry services is directly influenced by the level of private investment into residential building construction. Loan Approvals for Investment Properties - Residential Loan approvals for investment properties determine the demand level for buildings. Limited loan approvals to construction enterprises and for investment properties have limited the industry's development in recent years. Personal Final Consumption Expenditure - Total Growth in final consumption expenditure (especially household consumption) stimulates investment into commercial building stock (e.g., shops, hotels, restaurants, banks and cinemas). Population Growth - China China has the largest population in the world, and growth and distribution of the population is a principal driver of demand for new buildings of all types. Current Performance The construction sector is very important for China's economic development and its total output value accounted for 23.9% of China's GDP in 2010. According to data from the National Bureau of Statistics, this share increased from 18.8% in 2005. The industry makes up the largest share of total construction output value. In 2010, the total construction output value amounted to $1.49 trillion (constant 2011 dollars), of which about 57% or $849.7 billion was generated by the Building Construction industry. Total output value of this industry accounted for about 13.6% of China's GDP in 2010, up from 11.3% in 2007. The value of work put into place in this market measures the value of construction along with all material inputs into construction, while industry revenue excludes inputs supplied by the building owner or developer. ACMR-IBISWorld estimates that the industry will generate total revenue of $1.34 trillion in 2011, with an annualized growth rate of 29% over the five years through 2011. WWW.IBISWORLD.COM.CN Building Construction in China August 2011 6 The industry is still in its growth cycle of development, although it has a history of over 50 years. The opening of the financial sector in the early 2000s, which provided greater access to bank loans for apartment purchases, greatly stimulated demand for residential buildings. This, along with rapid growth in downstream industries such as retailing, wholesaling, manufacturing and government activities, has contributed to the rapid growth in building construction in China in the past five years. Revenue and housing prices In 2010, encouraged by the strong performance of China's real estate market in 2009, newly started Gross Floor Area (GFA) of buildings in the real estate sector increased by 40.7% from 2009. During the year, total GFA of buildings under construction also increased by 19% to 7.0 billion square meters. However, completed GFA of buildings increased by just 5.9%. At the second half of the year, affected by the slowdown in the growth of housing sales and the governments' strict macro-control on real estate market, China's real estate developers delayed the completion time of commercial houses. Rapidly increasing housing prices in major cities resulted in the State Council and several local governments issuing a series of measures in 2010 to curb speculative housing demand and prevent excessive housing price growth. Trading volumes and sales values of commercial buildings began to decline in May 2010 and further declines are expected during the rest of the year. In September 2010, the second round of macroscopic readjustment and control policies on the real estate market were put forward, which mainly limits the number of houses purchased by the same family in major cities and implements stricter housing loans policies by suspending housing loans on the third houses and enhancing the share of down payment for the first house from 20% to 30%. In order to control the rising consumer price index (CPI) levels and housing prices, the People's Bank of China increased benchmark interest rates four times from October 2010 to July 2011. This led to benchmark credit rates of individual housing loans reaching the highest point since 1998. These policies are expected to cause declines in sales volume and average prices of commercial buildings in the near term and may discourage real estate investment and new house starts during the year. During 2011, the Chinese Government plans to construct 10 million units of indemnificatory houses (up 72% from 2010) to further improve the living standards of medium- and low-income families and promote the healthy development of the real estate market in China. These indemnificatory houses are required to start construction during the year and are expected to raise strong demand for building construction services and to offset the negative effects of slowed growth in the commercial real estate market. In 2009, the implementation of China's 4.0 trillion yuan investment package led to rapid increases in social fixed asset investment, especially in fixed asset investments within the real estate sector. Total social fixed asset investment in 2009 increased by 30.5% (in terms of current Chinese yuan), five percentage points higher than the growth rate of 2008. The central government also issued a series of favorable credit and transaction policies for the real estate sector. China's real estate sector recovered strongly, with volumes and sales values reaching record highs in 2009. The Building Construction industry benefited from strong downstream demand during the year. Strong industry growth continued in 2008 as China's economic conditions remained strong. Demand for housing pushed construction levels and prices higher, which contributed to strong industry revenue growth of 21.2% for the year. Lower interest rates in response to the global recession contributed to increased investment in a wide range of assets, including housing and commercial property. The total output value of construction in China in 2007 amounted to $727 billion, of which $427.3 billion was generated by building construction, or 58.8% of the total (constant 2010 dollars). Enterprises and establishments There were about 48,500 construction establishments operating in the building sector in China in 2006. According to the China Building Industry Yearbook, building construction enterprises accounted for 64% of all construction enterprises in 2006. In 2011, there are expected to be 68,400 establishments operating WWW.IBISWORLD.COM.CN Building Construction in China August 2011 7 in this industry. Many of these also have operations in similar industries and upstream industries. For instance, most of the major players in the industry also have operations in civil engineering, real estate development, professional engineering services, plan designing, building materials manufacturing, and construction machinery manufacturing. By operating across different sectors, these firms are able to decrease costs and maintain stable supply sources. However, smaller contractors that have lower grade qualifications or specialize in specific fields or areas of building construction do not have the ability to establish businesses in so many different fields. They are usually subcontracted by general contractors and work on a specific part of the project. As barriers to entry for this type of contractor are lower, fluctuations in the number of establishments and enterprises are very likely to occur in this segment, where one enterprise basically equals one establishment. Large general contractors are assessed to be relatively stable and less vulnerable to industry changes due to their broad business scope an