Foreign Markets Key for China Engineering

Foreign Markets Key for China Engineering

Engineering and construction companies profited from strong domestic demand in the second half of 2016, giving contractors, including Chinese breakbulk logistics companies, a welcome boost.

But industry analysts expect the momentum to shift to overseas projects from domestic demand in 2017, a forecast that could bode well for international breakbulk companies serving Chinese engineering companies with projects abroad.

The domestic scene is clouded by weak demand for new building projects in the real estate development and manufacturing sectors – two of the three business pillars for Chinese construction companies.

Analysts are generally upbeat about the third pillar – government-financed infrastructure construction – as well as business prospects overseas through engineering projects linked to China’s Belt and Road initiative.

Thanks to Belt and Road, “engineering companies are generally doing better overseas,” according to a recent Guangfa Securities review of the industry in 2016 and forecast for the coming year. “Due to declining domestic investment demand, more and more construction companies are going to foreign countries. Mainly private enterprises and big state-owned enterprises are going to great lengths to expand overseas.”

In a related forecast, Changjiang Securities analysts pegged the market potential for overseas construction contracts, including contracts tied to Belt and Road, at 10 trillion yuan – an amount equal to about 30 percent of China’s entire domestic construction market. “There’s an enormous amount of room for overseas development,” the report said.

Northeast Securities analysts wrote in a recent report that further devaluation of the Chinese currency, the yuan, against foreign currencies should help engineering companies with international projects in 2017.

Inside China, though, demand for new construction “remains weak,” Changjiang said. Building companies trying to increase market share in 2017 “may be facing problems,” the Guangfa report said.

The domestic picture was far brighter just a few months ago. The Northeast report said growth in housing, infrastructure and other construction businesses had enjoyed “good momentum” in China in the third quarter before tapering off.

Photo: Apartment complex under construction in Kunming

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