this year, the revenue from the transfer of the right to the use of state-owned land has been further reduced, while the pressure on government debt expenditure has not been reduced, and local fiscal revenue and expenditure are relatively tight, so debt reduction has become an important part of the government's work. Affected by this, the rate of capital in place in the infrastructure sector dropped to a low level, some projects were suspended, and the demand for cement in the infrastructure sector declined considerably, which became one of the important factors affecting the decline in cement production during the year. From December 23 to 24,
2024, the National Conference on Finance was held in Beijing. The meeting pointed out that a more active fiscal policy should be implemented in 2025, including raising the fiscal deficit rate, arranging larger-scale government bonds, and increasing and optimizing the expenditure structure. According to the policy statement since the second half of the year, the macro-policy support will be significantly improved in 2025, the downstream capital is expected to improve, and some infrastructure projects suspended in the early stage may be restarted, which will bring a certain increase in demand to the cement industry. The specific analysis is as follows:
First, the fiscal revenue and expenditure are tight, and the number of construction projects
suspended in recent years has increased. Since 2022, the real estate industry has entered a stage of deep adjustment, and the scale of land transactions has continued to shrink. By September 2024, the revenue from the transfer of state-owned land use rights had dropped to 2.3 trillion yuan, a further decline of 24.6% year-on-year. As an important source of income for local governments, the shrinking scale of land transfer income has damaged local financial resources, and the leverage ratio of local governments has risen to about 35%.
Figure 1: In the past three years, the pressure on local fiscal revenue and expenditure has increased significantly (Unit:%)
Data source: Cement Big Data (https://data.ccement.com/)
Meanwhile, the local debts issued in the early stage have concentrated on maturing in recent years. From 2023 to 2028, the average annual repayment exceeded 3 trillion yuan, and local governments are facing greater pressure to repay debts. In order to avoid the negative impact of the exposure of debt risk factors on the economy, local borrowing behavior is constrained, the approval requirements for key projects tend to be strict, and the financial funds flowing to the infrastructure sector are gradually tightened.
Against this background, the growth of new orders in the domestic construction industry was hindered, and the construction of orders in hand slowed down. In 2024, the proportion of carry-over orders in the construction industry is expected to reach about 53.0%, which is about 2.1 percentage points higher than that in 2023. In addition, affected by financial factors, the number of construction projects shut down has increased significantly in recent years. By the end of 2024, the cumulative shutdown scale of the construction industry will expand to about 12.8 trillion yuan, an increase of about 16.4% over the same period last year.
Figure 2: Construction industry slows down and the scale of shutdown increases significantly (Unit: trillion yuan,%)
Data source: Cement Big Data (https://data.ccement.com/)
II. In
2025, the government will implement a more active fiscal policy, which will further expand the issuance of government debt. According to current market expectations, the issuance limit of new special bonds issued by local governments will be raised to about 4.5 trillion yuan in 2025, which will generate 600 billion yuan of incremental funds compared with 2024.
Figure 3: Capital flow of new government bonds in 2024 (Unit:%)
Source: Cement Big Data (https://data.ccement.com/)
Local government special bonds mainly drive the construction of infrastructure projects in the form of project funds. Achieve steady growth. From the perspective of capital flow, municipal and industrial park construction accounts for the largest proportion, reaching about 27%; followed by the transportation sector, accounting for about 17%; social undertakings and affordable housing projects account for 13% and 9% respectively. In recent years, the structure of the flow of new government special debt funds has not changed much, and the proportion of funds used for municipal and transportation infrastructure projects has declined, but the overall level remains above 40%.
Considering that land storage and other purposes will occupy part of the special debt funds, we assume that in 2025, the proportion of funds for municipal and transportation projects will be reduced to 40%, and the increase of financial funds in related fields will be about 240 billion yuan. According to the current system, the capital ratio of capital construction projects is generally about 40%, and major projects can be relaxed to 20%. Based on this calculation, the increase of the special debt limit will leverage 0.6-1.2 trillion yuan of project orders, and the municipal and transportation projects that have been suspended in the early stage may restart construction. Affected by this, it is expected to bring 35-70 million tons of demand increment to the cement industry, which is equivalent to about 2% -4% of the national cement output in 2024.
