China's construction sector to face slowdown in 2024: Fitch

June 03, 2024 (MLN): Fitch Ratings expects slower growth in China’s construction sector in 2024 as the property market remains weak and infrastructure investment growth is likely to moderate.

As a result, we will see continued polarisation in Chinese engineering and construction (E&C) companies’ credit profiles.

Fitch believes weakness in property investment will persist in 2024 as developers’ sales and liquidity are still under pressure.

In addition, overall growth in China’s infrastructure investment may moderate to low- to mid-single digits, from around 8% YoY in 2023, amid weak land concession revenues and efforts to contain local-government debt risks.

Fitch expects the challenging market conditions to drive continued polarisation in E&C companies’ credit profiles.

It foresees state-owned enterprises (SOEs), in particular the central SOEs, gaining market share and cementing their leading positions. In contrast, privately owned enterprises (POEs) that rely more on property projects will continue to struggle for survival.

Fitch expects limited rating changes in the peer group as the issuers are mostly SOEs rated under our Government-Related Entities (GRE) Rating Criteria, with the ratings notched down from the government parent’s rating, reflecting the strong likelihood of government support.

The negative Outlooks on some of the issuers’ ratings reflect the same Outlooks on their respective government parents’ ratings.

On the other hand, rated E&C issuers’ standalone credit profiles are differentiated by their financial leverage, liquidity position, interest coverage, market position and geographic diversification.

Fitch expects the leverage of the peer group to remain high in the coming years due to funding needed for investment-driven projects.

Their liquidity position and interest coverage should remain adequate, given their strong access to funding at relatively low cost.

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