China's construction outlook has gained clearer policy support after the July politburo meeting, but the recovery still depends on turning available funding into work-on-site. We continue to expect a delayed, uneven improvement in infrastructure activity, led by selected network projects, alongside continued contraction in building activities.
Entering into Q4, financing availability is expected to improve faster than transmission and executions. Infrastructure activity is anticipated to improve selectively, led by the Six Networks. Meanwhile, a bearish outlook for the building sector continues. Reforms to housing credit and sales favour transactions involving completed homes, but may slow early-stage construction.
FAI: Infrastructure to recover further, property investment under pressure
We estimate that the contraction in fixed asset investment (FAI) eased slightly last month, driven by infrastructure and property investment. The improvement reflected more favourable weather conditions and fewer disruptions from typhoons, rather than stronger fiscal support. Despite stronger bond issuance last month, fiscal spending is yet to gain momentum due to the usual lag between bond issuance and fiscal outlays.
In Q4, we expect infrastructure investment to recover, following fiscal spending improvement as officials have pledged to speed up the new projecting financing and fiscal expenditure. In contrast, the recent changes in China’s housing pre-sale system may weigh on property investment. The previous pre-sale model let developers use buyers' payments to fund construction. The new model requires completing the main structure first, before receiving payment. This raises the financial threshold for new projects, making developers more cautious about buying land, which makes up ~30% of real estate investment.
Fiscal funding: Slow financing, weaker transmission and execution
The construction impulse from fiscal policy can be assessed in three stages:
- Financing availability
- Transmission into projects, and
- Execution into physical workload
Financing availability remains adequate on paper, with the 2026 headline framework providing a steady funding quota for the infrastructure sector. However, issuance has lagged behind, despite an accelerated pace in Q3, as reflected by the fiscal spending contraction. Meanwhile, fiscal expenditure remained low – the January-August Special Purpose Bond (SPB) issuance reached only ~70% of the quota, leaving the cumulative total below year-ago levels.
Transmission and executions have been also slow, largely due to local fiscal weakness. Fund issuance does not necessarily mean cash has reached contractors or that procurement has begun, and time lags only partly explain the gap. Falling local revenue, dragged by poor land income, continues to restrict matching finance, complementary spending and contractor payments. Balance-sheet repair has run ahead of new project financing, with nearly 90% of the annual debt-replacement quota issued by end-July. This absorbs administrative capacity and is directed more at improving local liquidity and completing existing projects than at starting new ones such as pipelines or roads.
Policy in Q4 is, therefore, focused on accelerating issuance and converting funding into construction activity. In July and August, the Ministry of Finance explicitly called for stronger project preparation, faster construction starts and more project construction work to be carried out. The NDRC has subsequently prioritised faster policy-finance deployment and closer coordination between central and local investment. For China’s construction outlook, we expect faster bond issuance will feed through stronger fiscal spending over the coming months. Even so, recent weak procurement of infrastructure-related upstream products indicates bottlenecks between funding and site activity. We therefore remain only cautiously positive on incremental metal procurement from infrastructure projects in Q4, even after funding acceleration.
Infrastructure: Total network spending is concrete but uneven among sub-sectors
The January-August infrastructure investment data shows a general contraction from Q1 to Q2 due to slow funding and weak transmission and execution, while investment has centred on the Six Networks, as set out in our Q2 report.
The headline fund package shows major projects are positioned as counter-cyclical tools. However, as mentioned above, transmission and executions need separate treatment as project maturity, fiscal capacity and time lag vary. For example, welded pipe production – one of the underlying products used in water and pipeline networks – remains flat y/y despite order recovery. In contrast, grid investment has seen negative monthly growth since Q2. However, we continue to hear that health order books and power cable production growth are expected to remain resilient in 2026 as presented in the below chart, taken from CRU’s Wire and Cable Market Outlook. Computing network investment converts into execution comparatively quickly, and the expansion is visible across the value chain.
Coordination, therefore, has been addressed to reduce bottlenecks. Officials have proposed the "2+3+N" mechanism to bring together two grid companies, three telecom operators and computing enterprises, linking computing deployment with power and communications planning.
Among all six networks, the water and underground utilities represent a more direct construction-intensive program, which favours steel demand; while power grid, computing and communication networks support non-ferrous metals. The logistic network develops from an existing hub system towards a more integrated physical and digital network. This support on metals depends on the project mix as waterways, rail connections and warehouses are more construction-intensive than digital systems.
Particularly, transmission and execution in communication and computing power is more complex than other networks. While capital spending remains concentrated in computing infrastructure, government orders for software and applications are also growing rapidly. Those orders are less metal-intensive than infrastructure investment.
Building: A shrinking pipeline, tentative core-city stabilisation and new property mode
We continue to believe the building sector will follow an "L-shaped" trajectory in aggregate volumes, with "K-shaped" divergence across cities. Recent data shows some signs of stabilisation in Tier-1 cities, though the broader industry is still far from bottoming out. As government focus shifts toward livelihoods and stock optimisation, housing destocking appears to be progressing, though we believe this mainly reflects a shrinking supply pipeline rather than a recovery in China housing sales.
The recent reforms shift external financing to the front of the project. Over time, the new property model may boost buyer confidence and improve protections for home delivery. But developers will need more committed equity and development finance before they receive cash from sales, so new housing starts are likely to benefit last. That said, newbuild China housing sales have shifted from a leading indicator of metal demand to a lagging one under the new mode. This is because developers can no longer use buyers' advance payments to fund construction under the new mode, so construction now relies more on other financing tools, delaying the link to metal demand.
In this environment, urban renewal is the clearest source of policy support for building activity. For 2026, the central government has arranged RMB97 bn of central-budget investment for renewal. A further RMB160 bn of ultra-long special treasury bonds supports underground networks, which is RMB25 bn more than last year.
The composition of metal demand will continue to shift. Underground networks and major structure municipal renovation support steel and construction machinery; while old community refurbishment and resale-linked renovation favours aluminium window and door profiles as well as copper in rewiring works. Nonetheless, renewal spending remains too small to offset the aggregate shortfall. Intelligence from aluminium and copper processors points to a sharp contraction in the construction share of order books, with some processors now reluctant to take on construction orders, citing difficult payment collection and extended payment terms.
China’s construction outlook: Pre-sale reform may slow new starts modestly
When considering China’s construction outlook, housing starts remain in deep contraction.. We expect activity to remain sluggish (see the chart below), but do not anticipate the recent overhaul of China’s housing pre-sale system to have a significant negative impact on housing starts.
Replacing buyers’ pre-sale payments with interest-bearing financing raises the financial threshold for new projects, making developers more cautious about land acquisition. However, the market is increasingly dominated by state-owned developers, which generally have better access to credit. As a result, the impact of the reform on is likely to be smaller than it would have been previously.
Moreover, developers already hold substantial land reserves that can support new construction starts. We estimate it would take at least five years to deplete at the current pace of construction. Some of this land already has planning approval and is therefore not subject to the new pre-sale restrictions.
For land without planning approval, most provinces have yet to release their local implementation rules. However, Beijing issued the country’s first implementation rules last week, under which the new pre-sale restrictions will not apply to projects that can ensure timely completion and delivery until end-2027. Because Beijing’s property market is relatively resilient, we think other local governments are unlikely to adopt stricter rules. New starts on much of developers’ existing land reserves should remain largely unaffected over the coming years.
Overall, we do not expect the pre-sale reform to materially weaken new starts in the near term. This is consistent with the experience in Hainan, which became the first province to ban pre-sales for projects on all newly supplied land parcels in March 2020. In the years that followed, new starts in Hainan did not appear to have underperformed compared to the national average.
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