China’s fiscal dilemma stifles infrastructure steel demand Report

Insight 13 August 2019

Get this report*

$1,050

You can pay by card or invoice

Share link

First name
Last name
Job Title
Company
Email
Telephone

Country

Message

Consent

Please keep me informed about Wood Mackenzie products, services and events.

Submit Category

For details on how your data is used and stored, see our Privacy Notice.

- FAQs about online orders
- Find out more about subscriptions

*Please note that this report only includes an Excel data file if this is indicated in "What's included" below

Report summary

China’s fiscal system has gone through a structural change, which has made financing infrastructure more difficult. As a result, infrastructure investment growth in H1 2019 was only 4.1%, around half the level we expected. China now faces a new fiscal dilemma: it cannot cut taxes, reduce debt and increase spending in infrastructure at the same time. This is likely to have a far-reaching effect on steel and iron ore demand. Although we believe infrastructure steel demand will recover, it is unlikely to reach a level significantly above GDP growth, even with more supportive policies

Executive summary
Infrastructure steel demand below expectations
Tax cuts, lower land sales and local government debt hinder investment
- Recent tax cuts lower government income
- Slower growth in land sales
- Heavy local government debt
- The diminishing fiscal multiplier effect
- Realised investment from PPP is too small
No major growth yet despite dedicated policies
- More projects approved
- supported by more local government special-purpose bonds
What does all this mean for steel demand?

Tables and charts

This report includes the following images and tables:

Infrastructure investment growth (year-on-year) is far below our expectations
Infrastructure steel demand scenarios (in 2019)
Any swing in infrastructure investment growth could have a significant impact on steel and iron ore demand

VAT and land sales are major sources of government income. Both are facing challenges to grow
Government revenue and expenditure are slowing (% ch.)
The trend of land sales
China has allowed more special-purpose bonds in 2019
Monthly issue of local government special-purpose bonds