China Accelerates Infrastructure Investment Supporting Steel Demand

China has accelerated its pace of approvals for new infrastructure projects in 2020, and more support is expected to be announced during the "two meetings" starting this week in Beijing, which will boost steel demand.

China approved nine airport projects in January-April with a total investment of 100.16 billion yuan ($ 14.1 billion), equivalent to 55% of the total permitting volume in 2019, according to a report by S&P Global Platts.

In addition, 13 rail and urban rail transport projects were approved during the same period, with eight more expected to be approved in the near future. The total length of these projects is 3,641 km, which corresponds to 61% of the total length approved last year.

Most of the projects will start this year. Platts estimates that the projects will require 19.56 million tonnes of steel, already 63% of the steel used in similar projects approved in 2019.

The resurgence of new airport, rail and urban rail projects is a sign that China is returning to traditional infrastructure construction in an effort to mitigate economic slowdown and support. China's “new” infrastructure projects focus on technology and communications networks and require fewer people and goods.

China is also stepping up its financial support to accelerate infrastructure construction, through measures such as raising the local government's special bond quota and promoting the creation of real estate investment trust funds, or REITs, in the infrastructure sector.

Local government special bonds are expected to reach 3 trillion - 3.5 trillion yuan in 2020, up from 2.15 trillion yuan in 2019, some steel market sources say. Special bonds are banned from spending on real estate projects in 2020, while 64% of special bonds issued in 2019 went into ownership and thus failed to stimulate infrastructure growth.

The REIT infrastructure will help expand the sector's funding channels.

Some market sources expected additional financial measures to support infrastructure to be announced during the National People's Congress and China Political Consultative Conference, NPC and CPPCC, starting May 21.

Some steel market players believe that China's infrastructure investment growth could reach around 7% in 2020 if fiscal stimulus remains at current levels. But if other measures are announced, such as allowing the government to borrow directly from the central bank, infrastructure growth could reach 10% or even higher, some say.

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