Urban renewal may become a key lever for stabilizing investment in the second half of the year

Overview

This issue of China's Economy Under the Microscope focuses on the potential role of urban renewal in stabilizing investment in the second half of the year, while using high-frequency indicators such as operating rates, capacity utilization, output, prices, inventories, the real estate market, travel, and logistics to observe China's economic performance. The core judgment of the report is that, against the backdrop of sluggish fixed asset investment growth and persistently weak domestic prices, urban renewal may become an important policy lever for stabilizing investment in the second half of the year.

Core views

The report believes that urban renewal projects include both real estate investment and infrastructure investment, helping to slow the pace of decline in real estate investment and improve the infrastructure investment outlook. During the 15th Five-Year Plan period, the quantitative targets for urban renewal are generally higher than those under the 14th Five-Year Plan, including renovation of old urban housing, old streets and factory areas, and underground pipeline networks. Based on market capacity disclosed by official media, the total scale of urban renewal during the 15th Five-Year Plan is estimated at about RMB 20 trillion, up about 60% from the estimated RMB 12.5 trillion under the 14th Five-Year Plan. At the high-frequency level, operating rates and price indicators have improved somewhat, but capacity utilization, output, real estate transactions, land transactions, and some logistics indicators still show that the foundation of the economic recovery remains uneven.

Analysis framework

The report adopts a combination of macro policy interpretation and high-frequency economic indicator tracking: on the one hand, it compares urban renewal-related targets and investment scales under the 14th and 15th Five-Year Plans; on the other hand, it uses weekly data on industrial operating rates, capacity utilization, output, prices, inventories, property sales, the land market, and passenger and freight logistics to monitor changes in aggregate demand, the property chain, the infrastructure chain, and real economic activity.

Methodology notes

• Macro High-Frequency TrackingWeekly Observations of China's Economy Under the Microscope

  Observing marginal changes in economic momentum through high-frequency indicators covering industry, real estate, transportation/logistics, prices, and inventories.

  Operating rates, capacity utilization, output, and price/inventory data are used to characterize industrial and commodity demand; property sales, land transactions, and second-hand home listing indicators are used to observe the property chain; and travel and logistics indicators are used to track real activity and transport demand.

• Policy and Investment EstimationComparison of Urban Renewal Investment Scale

  Comparing urban renewal targets and investment capacity under the 14th and 15th Five-Year Plans to assess the potential for stabilizing investment.

  The report cites an Economic Daily article reposted on the Ministry of Housing and Urban-Rural Development website, estimating urban renewal investment during the 14th Five-Year Plan at about RMB 12.5 trillion, and infers average annual investment of about RMB 4 trillion over the next five years based on total market capacity of about RMB 20 trillion during the 15th Five-Year Plan.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Real Estate Industry Chain

  Urban renewal includes renovation of old residential communities, urban villages, and dilapidated housing, which may provide support for real estate investment.

  Strengths

  The policy direction is clear, and the projects have both livelihood and existing-stock renovation attributes, helping to slow the pace of decline in real estate investment.

  Weaknesses

  Commodity housing transaction area in 30 cities, land transaction area, land premium rates, and second-hand home listing price indices remain weak.

  Comparison

  Compared with traditional new real estate development, urban renewal is more focused on existing-stock renovation and public attributes, and its funding sources and project return models may differ.

  Risks

  Policy implementation falling short of expectations, funding constraints, and continued weakness in property sales.

• Infrastructure and Building Materials Chain

  Underground pipeline networks, smart pipeline networks, renovation of streets and factory areas, parks and green spaces, and emergency shelter facilities all correspond to infrastructure demand.

  Strengths

  Urban renewal market capacity under the 15th Five-Year Plan is higher than under the 14th Five-Year Plan, with underground pipeline network upgrade investment at about RMB 4 trillion.

  Weaknesses

  Cement clinker capacity utilization has declined, cement shipment rates have fallen, and some building material prices are still dropping.

  Comparison

  Compared with pure real estate investment, urban renewal provides more direct stimulus to municipal infrastructure, pipeline networks, and public facilities.

  Risks

  Constraints from local fiscal conditions and project financing, and project progress slower than expected.

• Coal and Electric Power

  The report observes industrial and power demand through indicators such as power plant coal consumption, coal prices, and days of coal inventory available.

  Strengths

  Average daily coal consumption at power plants rose week-on-week last week, and thermal coal prices increased slightly.

  Weaknesses

  Days of coal inventory available at power plants declined, and some year-on-year indicators remain weak.

  Comparison

  Coal and power-related indicators reflect short-term industrial and seasonal electricity demand more than they represent a direct beneficiary theme of urban renewal.

  Risks

  An unstable demand recovery, coal price volatility, and macro growth below expectations.

• Transportation, Logistics, and Travel

  Metro passenger traffic, flights, rail freight, highway trucks, port throughput, and parcel collection are used to observe the intensity of economic activity.

  Strengths

  The number of domestic civil aviation flights operated increased week-on-week, and postal and express parcel collection volume rose slightly week-on-week.

  Weaknesses

  Metro passenger volume, rail freight volume, highway truck traffic, and port cargo throughput declined week-on-week.

  Comparison

  Logistics indicators more directly reflect real activity volumes than price indicators, and current recovery signals remain uneven.

  Risks

  Weak domestic demand, volatility in external demand or shipping, and disruptions from extreme weather.

Key data

• Year-on-year growth rate of completed fixed asset investment in the first half-5.7%Down 8.5 percentage points from the same period last year, the lowest since June 2020.
• Estimated urban renewal investment scale during the 14th Five-Year Planabout RMB 12.5 trillionEstimated based on annual completed urban renewal investment of over RMB 2.5 trillion in the middle and later stages of the 14th Five-Year Plan.
• Total urban renewal market capacity during the 15th Five-Year Planabout RMB 20 trillionAbout 60% higher than the estimated scale of the 14th Five-Year Plan, averaging about RMB 4 trillion per year.
• Investment demand for old residential community renovationmore than RMB 8 trillionListed in the report as an important component of urban renewal market capacity during the 15th Five-Year Plan.
• Total investment in urban village and dilapidated housing renovationabout RMB 2.5 trillionListed in the report as one of the directions of urban renewal investment.
• Investment in underground pipeline network upgradesabout RMB 4 trillionThe share of smart pipeline network renovation is expected to rise to 30%.
• Overview of operating rate indicators4 up, 1 flat, 8 downThe report judges that operating rate conditions strengthened last week.
• Overview of capacity utilization indicators2 up, 0 flat, 7 downThe report judges that capacity utilization conditions weakened last week.
• Overview of output indicators3 up, 0 flat, 7 downThe report judges that output conditions weakened last week.
• Overview of high-frequency price indicators8 up, 3 flat, 8 downThe report judges that high-frequency price indicators strengthened last week.
• Commodity housing transaction area in 30 cities1.2153 million square metersDown 192,100 square meters month-on-month and up 3.6% year-on-year.
• Land transaction area7.0501 million square metersDown 7.4787 million square meters month-on-month.

Impact & implications

If urban renewal investment is advanced according to plan, it will provide support to both the property chain and the infrastructure chain, helping to ease downward pressure on fixed asset investment and potentially improving demand related to cement, steel, pipeline networks, building materials, and engineering services. However, current high-frequency data still show weakness in capacity utilization, output, real estate transactions, and land transactions, so the intensity of policy implementation and the pace of funding availability will determine the effectiveness of investment stabilization.

Risks

• Geopolitical risks.
• Domestic policy implementation may fall short of expectations.
• Global recession risks.
• Major economies' monetary policy may exceed expectations.
• Recovery in fixed asset investment and the real estate chain may be weaker than expected.

What to watch

• Urban renewal-related policies, funding arrangements, and the pace of project implementation.
• Progress in targets such as old housing renovation, underground pipeline networks, urban villages, and dilapidated housing renovation in the 15th Five-Year Plan for urban renewal.
• Whether fixed asset investment growth and the pace of decline in real estate investment improve.
• Changes in commodity housing transactions in 30 cities, land transaction area, land premium rates, and second-hand home listing price and volume.
• Prices, inventories, and operating rates of industrial products such as cement, steel, asphalt, glass, PVC, and coal.
• Whether transportation and logistics indicators shift from partial divergence to overall improvement.