China Infrastructure Investment Growth to Slow to Low-Single Digits

Overview

This report analyzes the outlook for China's infrastructure fixed asset investment (FAI) using a bottom-up approach. UBS forecasts that infrastructure FAI growth in China will slow to the mid-low single-digit range in 2026/2027, recovering from the negative growth of -1% in 2025, but overall growth momentum remains weak. The report monitors leading indicators of infrastructure investment, new contracts signed, revenue, operating cash flow, and tracks the issuance of local government financing vehicles (LGFV) and local government bonds (LGB) to assess the strength of funding support for infrastructure investment.

Core views

UBS has made separate growth forecasts for various infrastructure sub-sectors. In 2025, overall infrastructure investment decreased by 1% year-on-year. Utilities (water, electricity, gas) performed relatively resiliently with 9% growth, while environmental protection and public facilities faced significant pressure (environmental protection down 14%, public facilities down 8%). Overall growth is expected to rebound to 2% in 2026, but most sectors excluding utilities are projected to maintain low single-digit growth; growth is expected to modestly rise to 3% in 2027. Looking at key areas such as transportation, water conservancy, environmental protection, public facilities, and telecommunications networks, growth fluctuates significantly. Transportation declined 2% year-on-year in 2025, is expected to rebound to 6% in 2026, and then fall back to 3% in 2027. Utilities remain relatively stable but with slightly declining growth rates. Telecom and internet are expected to maintain double-digit growth (12%) in 2026/2027, representing one of the few high-growth sectors. From leading indicators such as new contracts signed, revenue, and operating cash flow, the business environment for the infrastructure industry has continued to deteriorate since 2024. Cement production growth declined from its peak of over 60% in 2021 to negative growth. Social financing balance growth peaked in 2022 and has continuously declined. Revenue growth for construction enterprises gradually slowed from the high growth seen in 2020-2021 to recent negative growth. Operating cash flow also turned negative. These indicators suggest that the actual momentum of infrastructure investment is waning.

Analysis framework

UBS employed a multi-dimensional tracking framework. First, it started with the macro investment scale to monitor the overall trend of fixed asset investment and its impact on the construction industry. Second, it captured the real-time temperature of infrastructure investment through high-frequency leading indicators such as leasing, cement, and financing. Third, it assessed supply chain transmission through operational indicators like contract mobilization, revenue recognition, and cash recovery. Finally, it tracked fiscal support strength via the progress of government bond issuance. This chain of analysis reveals the complete transmission path from policy intent and financing supply to investment initiation and corporate performance. On the policy front, the report highlights the issuance pace of government bonds, particularly special purpose bonds. The August 2024 peak of 115 billion yuan and the January 2025 all-time high of 100 billion yuan reflect periods of intensified effort by the government to underpin infrastructure. However, this pattern of peaking and then stabilizing at a lower level also indicates challenges regarding policy sustainability. Volatility in LGFV financing further suggests that liquidity pressures on local financing platforms persist.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Infrastructure investment is primarily driven by government expenditure, new construction area, and the global economic situation, belonging to a supply-driven sector

  Unlike consumption-driven industries, the core of the infrastructure sector lies in the government's supply capacity and willingness to finance. A decline in macro investment volume directly determines the revenue space for construction enterprises; therefore, monitoring government investment intent and financing availability is crucial for assessing infrastructure sentiment.

• Cycle and Sentiment FrameworkSentiment Turning Point Analysis

  Confirming signs of industrial sentiment shifting from upward to downward trends or finding a bottom through multiple indicators such as new contracts, orders, revenue, and cash flow

  From the peak in 2021 to continuous decline in 2025, the infrastructure industry has clearly entered a downward cycle. The research report tracks changes in these indicators to determine when sentiment bottoms out and when policy stimulus can effectively improve industry fundamentals.

• Macroeconomic frameworkAssessment of Fiscal Support Intensity

  Evaluating the intensity of government fiscal support and policy sustainability for infrastructure investment through government bond issuance progress and LGFV financing scale

  Peaks in government bond issuance (especially special purpose bonds) reflect phases of intensified policy action, while a decline in issuance suggests marginal easing of policy. This indicator helps investors judge whether infrastructure investment can receive sufficient financial support to maintain growth momentum.

Key data

• 2025 Infrastructure FAI Growth Rate-1%Year-on-year decrease, a negative value in recent years
• 2026 Infrastructure FAI Forecast Growth Rate2%Expected to recover from 2025 levels, but growth remains in the medium-low range
• 2027 Infrastructure FAI Forecast Growth Rate3%Modest growth, no significant rebound observed
• 2025 Environmental Protection Sector FAI Growth Rate-14%The sub-sector with the largest decline
• 2025 Utilities Sector FAI Growth Rate9%Most resilient performance, one of the few positive growth areas
• Cement Production Year-on-Year Peak60%+In 2021, subsequently declined to negative growth
• August 2024 Local Debt Issuance Peak115 billion yuanReflects the policy peak phase
• January 2025 Local Debt Issuance100 billion yuanAll-time high, followed by a rapid decline

Impact & implications

The slowdown in infrastructure investment growth has multi-level impacts on China's economic growth, employment, and related supply chains. Short-term, a mid-low single-digit growth rate in 2026/2027 implies a significant reduction in infrastructure's contribution to economic growth, placing downward pressure on investment-related assets. For construction enterprises, slowing revenue growth and deteriorating operating cash flows will directly compress profit margins and shareholder returns. Long-term, if policies fail to effectively reverse the downturn in infrastructure investment, pressure will mount on the entire supply chain, from building materials (cement) to machinery and labor demand. Meanwhile, persistent liquidity pressures on local government financing platforms could impair the investment driving force of local economies. For the market, in this environment of slowing growth, valuations and earnings expectations for listed companies heavily reliant on infrastructure orders need to be revised downward.

Risks

• A decline in macro investment scale is a key risk for the construction industry; slower economic growth or policy tightening could further drag down infrastructure investment revenue
• Rising costs of raw materials (such as steel and cement) and labor may compress contractor profitability
• Revenue from overseas projects is denominated in foreign currencies; appreciation of the RMB will increase exchange losses
• Chinese construction enterprises face geopolitical risks in their overseas businesses

What to watch

• Subsequent issuance progress and scale of government bonds (particularly special purpose bonds), which relates to the availability of funds for infrastructure investment
• Trends in leading indicators such as new construction area and new contract values, which signal future momentum for infrastructure investment
• Signs of bottoming out and rebound in key supply chain indicators (cement production, social financing balance growth)
• Revenue recognition, cash flow, and order execution status of major construction enterprises