Insight
China’s fiscal dilemma stifles infrastructure steel demand
*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
Table of contents
- 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
What's included
This report contains:
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