An important feature of China’s economy in 2022 will be “real estate and infrastructure”. Although the Politburo meeting on Monday (December 6, 2021) did not mention the positioning of “no speculation in housing”, there is still obvious differentiation in the setting tone of real estate and infrastructure investment. The former strives for “healthy development and virtuous cycle”, while the latter focuses on “actively expanding effective investment”. The general direction of investment in 2022 may be “under real estate, on infrastructure”. Then To what extent can “infrastructure” hedge “real estate”?
Our basic idea is to map the three terminal demand dimensions of real estate investment, infrastructure investment and real estate sales to relevant industrial chains such as construction industry and real estate industry through the input-output table, and calculate the impact on GDP through the added value of relevant industries. We use the data in 2018.
From a macro perspective, the impact of infrastructure investment on GDP growth is about half of that of real estate investment. If we map real estate investment to residential and other housing buildings, The infrastructure investment (broad sense, the same below) is corresponding to transportation infrastructure and other civil engineering (possibly including some manufacturing investment), and the construction, installation and decoration are not considered for the time being (the proportion is small, and both real estate investment and infrastructure investment are involved). Real estate investment and infrastructure investment increased by 10%, affecting the nominal GDP growth rate of 1.45% and 0.73% respectively. The impact of infrastructure is about half of that of real estate, especially transportation infrastructure.
Real estate sales is also an important starting point for stabilizing the economy. In addition to stimulating real estate investment, It is also closely related to the added value of the real estate industry (tertiary industry). In 2018, the GDP of the real estate industry accounted for about 7% of the total GDP. Combined with the pull of other industries, the overall proportion of GDP was about 9.8%. In the meeting of the Political Bureau in December 2021, it was proposed to “support the commercial housing market to better meet the reasonable housing needs of buyers” , stabilizing real estate sales in 2022 is an important policy starting point to alleviate the impact of the decline in real estate investment.
“Under real estate and infrastructure”, which industries may be greatly impacted? Starting from the proportion of the added value of other industries driven by real estate investment and infrastructure investment in the added value of the industry, we compare the top 20 industries. If an industry is greatly affected by real estate investment but relatively less affected by infrastructure investment, we think it has a great impact. The typical industries are ceramic products, graphite, electrical equipment, forest products Glass, paint, etc. In terms of cement, gypsum and other major building materials, infrastructure can provide better hedging.
What may be missing from our calculations? Two issues may be of concern to the market: first, real estate sales may also affect the terminal consumption of furniture and household appliances. In 2020, the consumption of furniture and household appliances in consumption above the quota will account for about 7.7%. Assuming that this proportion data is representative, the relevant terminal consumption will account for about 2.9% of GDP, and the proportion affected by real estate should be smaller. Second, the decline in land acquisition costs and government land transfer fee income behind the decline in real estate investment may drag down the infrastructure. We believe that this problem needs to be analyzed in the long term and short term. In the long term, the transformation of the “real estate – government revenue – infrastructure” model will indeed affect the infrastructure, but from the perspective of looking forward to 2022, This problem may not be the main contradiction.
The “surplus grain” of government funds is an important support for infrastructure investment in 2022. The variable of infrastructure expenditure in 2022 may lie in the level of government funds. The “slow development” of infrastructure investment in 2021 leads to the rise of “idle” financial funds. In addition, there are profits handed over by middle and upper reaches state-owned enterprises, which will provide support for infrastructure in 2022. We estimate the space for capital construction in 2022 from the perspectives of budgeted capital and capital leverage (infrastructure investment scale / budgeted capital scale) – we predict that the growth rate of infrastructure investment in 2022 may be between 5% and 8%:
From the perspective of budgetary funds, the funds used for infrastructure construction mainly come from general public budget expenditure, land transfer fees and special bonds. besides, The “idle” financial funds in 2021 (compared with the end of 2019, the balance of Financial deposits at the end of 2021 may increase by about 1.3 trillion yuan, assuming that this is the upper limit of idle funds) are also an important reserve force. We predict that the scale of budget funds in 2022 may be 464-50300 million, depending on how the government uses the previous “idle” funds and turned in profits.
From the perspective of capital leverage, The main sources of funds that can be leveraged in the budget may be private investment and urban investment platforms (there may be some overlap between the two). After 2015, the enthusiasm of private funds to participate in infrastructure decreased. In addition, the high-level supervision of local implicit debt also increased, which led to the gradual increase of the proportion of budgeted funds in infrastructure. From another perspective, the leverage ratio of budgeted funds decreased. We believe that this leverage ratio will increase with the increase of budgeted funds and infrastructure Decline due to the expansion of the construction scale – the decline of the marginal rate of return on investment will reduce its attraction to private capital. According to historical data, for each increase of 1 trillion yuan in the budget, its proportion in the source of fund investment funds will increase by 0.03 percentage points (the reciprocal of capital leverage ratio means the decline of leverage ratio).
Based on the above analysis, the policy direction of “real estate and infrastructure” in 2022 may mainly include four aspects: first, support the construction of indemnificatory rental housing and hedge the decline of commercial housing investment to a certain extent; The second is to stabilize real estate sales and stabilize the basic market and market confidence of the real estate industry; Third, make full use of the government’s “surplus grain” accumulated since 2020 to support infrastructure investment; Fourth, make full use of transportation infrastructure with more obvious pulling effect and energy infrastructure with higher “leverage” (private investment accounts for a higher proportion). We can see the clues from the major project plans announced by Guangdong, Zhejiang and Jiangsu provinces.
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