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China construction at pivotal juncture

5 March 2025

 

This package also includes: Chinese firms dominate region’s projects market

China’s construction industry remains one of the largest in the world, reflecting its ongoing urbanisation and development initiatives.

Over the past 10 years, the industry has experienced significant growth, with robust public investment and an acceleration of infrastructure projects. In 2024, China’s construction market was estimated to grow by about 4% in real terms, driven by substantial investments in the infrastructure and energy sectors, according to GlobalData.

Decisive moment

In 2025, China’s construction industry stands at a pivotal juncture, poised for growth yet facing a range of challenges. The industry must navigate a complex landscape of regulatory changes, market saturation and economic shifts.

The infrastructure sector is a cornerstone of China’s construction growth, with output expected to reach $1.2tn by 2027, growing at a compound annual growth rate (CAGR) of 8.5%. The growth in the infrastructure market is fuelled by government plans to build 25,000 kilometres of highways, 3,000km of railways and 30 civil airports by 2026. These initiatives aim to enhance connectivity and support economic development, aligning with China’s long-term vision of establishing a comprehensive transport network by 2050.

The commercial construction sector is projected to grow at a CAGR of 8.5%, reaching $430bn by 2027. This growth is driven by increased domestic tourism and robust retail activity.

Industrial construction is anticipated to grow at a CAGR of 7.6%, reaching $370bn by 2027. This growth is propelled by advancements in high-tech manufacturing and the burgeoning demand for new energy vehicles.

The energy sector is projected to grow at a CAGR of 7.4%, reaching $1tn by 2027. Government initiatives to enhance energy generation and storage capacities, including investments in renewable energy, are key drivers of this growth.

Real estate

Despite ongoing urbanisation and housing demands, the residential sector is estimated to grow at a slower CAGR of 4.1%, reaching $1.4tn by 2027. The sector faces challenges such as falling new home prices, declining property sales and rising debt among property developers.

Chinese contractors also face challenges arising from regulatory and policy changes. The government has tightened regulations on property purchases and financing to stabilise the housing market, which could lead to reduced liquidity for construction companies. The implementation of stricter environmental regulations further complicates project execution, as contractors must invest more in sustainable practices and technologies to comply with new standards.

Chinese construction firms are increasingly turning to international markets to diversify their operations

Rising costs of construction materials and supply chain disruptions are another challenge. Global inflation and geopolitical tensions have led to increased prices for essential materials such as steel, cement and timber.

As the Chinese economy shifts towards technology and automation, labour shortages are a growing concern. Fewer workers are entering the construction sector, resulting in a shortage of skilled labour, which can delay project timelines and increase labour costs.

Market dynamics are another factor. After years of rapid growth, China’s construction market is highly competitive, with numerous players vying for limited projects. 

Competition can lead to aggressive bidding practices, resulting in reduced profit margins for contractors. Market saturation in certain regions means that contractors must continually innovate and differentiate their services to secure contracts.

Chinese construction companies are increasingly turning to international markets to diversify their operations and tap into emerging opportunities. This expansion is driven by the need to mitigate domestic challenges and leverage China’s substantial construction expertise.

As well as the Middle East, key overseas markets include Southeast Asia with countries such as Indonesia, Vietnam and the Philippines significant markets for Chinese construction firms. The Belt and Road Initiative (BRI) has facilitated numerous infrastructure projects in these countries, including highways, railways and energy facilities. These projects enhance regional connectivity and economic growth, aligning with China’s strategic interests.

Chinese construction firms have established a strong presence in various African nations, engaging in large-scale projects such as roads, bridges and energy plants.

Complex landscape

Chinese construction companies face several challenges in the international landscape. Navigating local laws and regulations can be complex, often requiring partnerships with local firms. Understanding and complying with diverse regulatory environments is crucial for successful project execution.

Political instability in certain regions can pose risks to project completion and profitability. Chinese firms must assess and manage these risks to ensure the viability of their international ventures.

Local and international competitors create a challenging environment, necessitating competitive pricing and innovative solutions. 

Chinese firms must differentiate themselves through quality, efficiency and technological innovation to secure contracts. 

Chinese firms dominate region’s projects market

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Colin Foreman

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