For a long time, infrastructure construction has been an important driving force to support the growth of China's cement demand, and the proportion of cement consumption at the infrastructure end to the total demand is basically around 5-6%. During the period from 2011 to 2021, the cement consumption in the infrastructure sector is basically consistent with the growth rate of infrastructure investment (this article refers to the growth rate of infrastructure investment in a broad sense including "electricity, heat, gas and water production and supply industry"), and the correlation coefficient between them is about 0.85. The infrastructure data has become an effective indicator for the market to observe the cement supply and demand structure.
However, since 2022, the trend of cement consumption and infrastructure investment growth has deviated, the correlation coefficient has changed to -0.86, and infrastructure investment as an indicator of cement demand has actually been in a state of failure. Through the analysis of infrastructure investment, this paper finds that the main reasons for this phenomenon are the financial constraints of local governments and the structural changes in the flow of investment.
Figure 1: Since 2022, Cement consumption deviates from the trend of infrastructure investment (Unit: 10,000 tons,%)
Data source: Cement Big Data (https://data.ccement.com/)
I.
In order to analyze the relationship between the growth rate of infrastructure investment and cement consumption, it is necessary to understand the process of infrastructure investment and how to form physical workload. Simply put, infrastructure construction needs to go through the process of "project establishment → capital issuance → leveraging supporting funds → entering the construction stage → forming physical workload" .
Figure 2: The organic combination of projects and funds is a necessary condition
for the formation of physical workload at the infrastructure end Data source: Cement Big Data (https://data.ccement.com/)
First of all, project approval is the premise and basis for the formation of physical workload. Infrastructure is mostly public welfare projects, which are promoted by the government in China. According to the Opinions on Further Deepening the Reform of Budget Management System issued by the State Council in 2021, "Government budget expenditure must be included in the budget project bank in the form of projects, and no budget shall be arranged for projects not put into storage". At the same time, in order to avoid the increasing pressure of government debt repayment, in recent years, the self-balancing of financing and project income has become an important consideration for the government to plan infrastructure projects. After the establishment of the
project, the government's financial capital is injected to form capital, which generally accounts for about 2-4% of the total investment of the project. Only when the capital is in place can they apply for supporting funds from banks and other financial departments. The capital and supporting funds are allocated according to the schedule, and the project meets the start-up conditions, the construction unit will start the construction work, and eventually form the physical workload.
