New infrastructure in China: new drivers for economic growth and potential investment opportunities
New infrastructures in China can be defined as support new urban development, which including energy conservation, environmental protection, advanced rail transit, ultra-high-voltage and other forms of power transmission and distribution. Those facilities for strategic emerging hi-tech sectors, including new materials, artificial intelligence, alternative energies, electric cars, new-generation information technologies (e.g., 5G, big data, internet and IoT), and advanced equipment such as robots and high-end computerized numerical-control (CNC) machine tools can be included in a broad sense
Scope of infrastructure expands along with economic growth and transformation
The Chinese government highlighted the importance of investment and the potential demand for investment in its 2019 economic plans formulated at the Central Economic Work Conference held in last December. According to these plans, China is to upgrade technologies and equipment in manufacturing industries, accelerate commercialization of 5G technologies, and invest in new infrastructures such as artificial intelligence (AI), industrial internet, and the internet of things (IoT). Meanwhile, China also plans to invest more in intercity transit systems, logistic networks, and municipal infrastructures.
New infrastructure investment to drive economic growth
By thoroughly examining patterns of recent project approval, implementation, and sources & uses of the government’s FAI-related funds, we estimate that the highest infrastructure investment growth rate in 1H19 may recover to the mid-teens.
Sector-wise, we may see higher investment growth in urban rail transit systems, poverty alleviation & rural infrastructure, telecom facilities, environmental protection, water & waste treatment systems, sports & cultural facilities, healthcare facilities, as well as low-income housing.
Geographically, we have observed higher growth of project pipelines for high-speed railway (HSR) investment in western China, as well as urban rail transit systems in eastern China. Infrastructure investment also receives a boost from accelerating development of economic zones (EZ), such as the Beijing-Tianjin-Hebei EZ, the Yangtze River EZ, the Guangdong-Hong Kong-Macau Greater Bay Area, and regions covered by the Belt & Road Initiative.
Investment opportunities emerging from new infrastructures
Based on bottom-up stock picking by sector analysts, we prepared a list of noteworthy stocks in 8 sectors and 15 subsectors related to new infrastructures, including construction, machinery, telecom services, smart city and industrial internet, alternative energies, environmental protection, construction materials, oil & gas. See our sector reports for details.
For more information, please refer to our report “New infrastructure in China” published in March 2019.