1. Decline in infrastructure investment growth rate (prelude to winter)

In 2017, infrastructure policies were volatile, environmental protection became stricter, new PPP regulations strictly controlled new projects, existing projects were cleaned up, and central enterprises' participation was restricted. According to big data analysis by Jijitong, it is certain that the infrastructure market investment growth rate will decline next year. It is expected that the overall infrastructure market investment growth rate will drop from 15.6% in 2017 to below 10% in 2018, or even negative growth.

Of course, many people hold a pessimistic attitude: will infrastructure investment experience a “hard landing” next year, or even repeat the “stall” of infrastructure investment after 2013? Tongge thinks it won't be that bad, mainly based on the following points:

1. The adjustment and incentive effects of leadership transitions often have a significant impact on the economy. From historical experience, infrastructure investment in the year of and the year after a leadership transition is often slightly higher than in other years. Moreover, various industries are currently at a critical stage of transformation, and maintaining a smooth transition of infrastructure is crucial at this time.

2. As real estate sales further decline in 2018 and environmental pressure remains, the economy faces certain downward pressure. Infrastructure investment remains the most immediate means of stabilizing growth. In particular, the report of the 19th National Congress proposed the goal of building a strong transportation country, and various regions have successively proposed new positioning as strong transportation provinces. Transportation departments in Zhejiang, Jiangsu, Sichuan, Hainan and other places have held meetings to propose building strong transportation provinces and accelerate the pace of transportation investment. According to the national “13th Five-Year Plan”, local governments' willingness to invest in infrastructure will remain in the coming years.

3. In the first three quarters of 2017, newly signed contracts increased by 29% year-on-year, higher than the year-on-year growth rates in 2015 and 2016 (9% and 24%, respectively). Therefore, the sufficient order projects in the past year will directly lead to continued prosperity in construction industry activities in the coming quarters.

Newly signed contracts of nine major central enterprises in the first three quarters of 2017

2. Structural adjustment of PPP investment direction

2017 can be said to be a turning year for PPP. From previously encouraging the development of PPP projects to recent “cooling” policies on PPP issued by the Ministry of Finance, SASAC and other ministries, a series of policies have also triggered market concerns about the implementation of PPP projects and infrastructure investment next year.

Both local governments initiating projects and enterprises participating in investment will bring a certain cooling effect. It is highly likely that the overall market size of PPP will slow down next year, but this slowdown will be accompanied by structural optimization and adjustment in industry sectors.

1. Judging from the current proportion of PPP projects, municipal engineering, transportation, ecological construction and environmental protection together account for 58.6% of the PPP management database. Recent media reports that subway projects in Baotou, Xi'an and other cities have been suspended. Combined with the new PPP regulations, it is clear that the policy level has considered the direction of PPP investment.

In the future, the process of cleaning up and withdrawing PPP projects from the database may have a certain structural impact on project composition. The proportion of municipal engineering projects may decline, while the proportion of environmental protection and ecological construction projects, which are the current policy focus, may increase (Link: Major changes, will 17.8 trillion be the peak? Six predictions for the PPP market in 2018). This is also in line with the spirit of the 19th National Congress regarding environmental protection.

In view of this, the tightening of PPP supervision this time is not a “one-size-fits-all” approach. We believe that strong PPP supervision will not cause infrastructure investment to have “no rice to cook” next year.

2. The purpose of strengthening policy supervision is to eliminate PPP projects that do not meet conditions or are of low quality, such as subway projects in cities with insufficient population density. Even so, we believe that strategic projects related to government-guided regional cooperation plans (such as the Guangdong “Greater Bay Area” blueprint, Xiong'an New Area, and the Yangtze River Delta city cluster) will still receive support from budget expenditures and government bond issuance.

3. Mixed ownership reform enters deep water zone

In 2017, state-owned enterprise reform was in full swing, central enterprise restructuring accelerated, mixed ownership reform took substantive steps, and corporate system reform was nearing completion. In 2018, mixed ownership reform of state-owned enterprises is expected to accelerate implementation and achieve initial results. A number of benchmark reform cases will likely emerge and provide replicable experience paradigms for subsequent reforms.

As the breakthrough point of this round of reform, mixed ownership reform has set off a boom. Data from SASAC of the State Council shows that currently 50 enterprises in three batches are piloting mixed ownership reform in key areas, 68.9% of central enterprises have carried out mixed ownership reform, 126 enterprises in 21 provinces (cities) have carried out employee stock ownership pilots, and more than half of state-owned capital is concentrated in publicly listed companies.

In 2018, mixed ownership reform of state-owned enterprises is expected to enter a mode of accelerated tackling of tough issues. Mixed ownership reform of state-owned enterprises has the ability to break through the shackles of interests and deal with historical burdens. In the next stage, only by promoting substantive breakthroughs in mixed ownership reform of state-owned enterprises and reshaping micro-incentive mechanisms can the supply efficiency of the traditional economy be fundamentally improved and the leverage level and debt risk of enterprises be steadily and continuously reduced. The advancement of mixed ownership reform of state-owned enterprises will also alleviate structural distortions in factor markets and industrial chains, and loosen the burden for the development of downstream new economies.

4. Migrant workers become legal persons and start businesses

Cancel the approval of construction labor qualification, establish professional operation enterprise qualifications, and implement a notification and filing system. Gradually establish a diversified employment method with construction contracting enterprises' own construction workers as the backbone and professional operation enterprises' own construction workers as the main body.

After the cancellation of labor qualifications, 2018 will definitely be a year of explosive growth in the number of contractors! Foremen who originally worked under bosses will transform into registered companies and become legal persons! This marks the nationwide cancellation of labor subcontracting qualifications, and contractors will enter an era of entrepreneurship where they can undertake projects with just a business license.

5. Prevalence of Engineering, Procurement and Construction (EPC) mode

In recent years, national development has entered the “new normal”. As a pillar industry of the national economy, the construction industry is in a critical period of seeking reform breakthroughs, and the state is further promoting the EPC mode. With the deepening of supply-side reform, the market dominance of China's demand side has become more prominent. As the buyer's market, construction units will inevitably choose more EPC contracting modes that are more favorable to them.

For example, why did the Hangzhou-Shaoxing-Taizhou project go through twists and turns and finally change the original construction plan and adopt the EPC mode of China Railway Corporation? (Link: The dispute over the construction right of the first privately controlled high-speed rail has been settled, China Railway Corporation won! The three major design institutes laughed!)

This is because the core content of design or construction contracting is how to improve profitability by improving efficiency, while most of the work content of EPC is completed through subcontracting. Therefore, the key to the development of EPC enterprises lies in their control of market resources, management of subcontractors, and ability to integrate and coordinate the process. As a contracting mode covering the entire life cycle of building products, EPC brings the entire project process under unified management and provides a full-process service model, and will surely be more favored by the market.

6. Explosive growth of internet informatization in construction enterprises

In the new development cycle and competitive situation, mainstream construction enterprises still generally face problems such as relatively extensive management, weak competitiveness, and low profit margins. Due to incorrect and untimely information transmission, enterprise costs increase by 20%-30%.

So how to control quality, improve efficiency, reduce costs, and manage risks? How to build core competitiveness of enterprises? How to solve problems such as difficult multi-project, cross-regional, multi-level intensive control and collaborative management? How to achieve effective control of high-risk links such as procurement and payment?

As a typical traditional pillar industry, these problems and difficulties should be eternal propositions for enterprises! Correspondingly, the construction of enterprise management internet informatization remains an eternal theme and preferred main path for construction enterprises.

Secondly, in terms of weakening enterprise qualifications, what method should replace qualification review after qualifications are cancelled? In the era of internet big data, enterprise qualifications have achieved electronic declaration and intelligent approval, and a dishonesty punishment system and a blacklist system for construction market entities have been established. Enterprises replace qualifications with brand image, and government departments replace qualification review with a filing system.

In the future, the state will also conduct pilots for enterprises with good credit and able to provide full guarantees, and may even cancel qualification restrictions on the scope of business undertaking. Weakening or canceling enterprise qualifications will certainly fully stimulate market vitality, and construction enterprises will also face reshuffling. Enterprises with low or no qualifications but strong construction capacity and technical strength will usher in huge development opportunities.

7. The era of credit in the construction market arrives

Since 2017, credit construction has entered a substantive development stage. In April, the Ministry of Housing and Urban-Rural Development issued the “Notice on the Division of Labor Plan for the Construction of Credit Supervision, Warning and Punishment Mechanisms for Dishonest Persons Subject to Enforcement” (Jian Ban Ting [2017] No. 32), under which enterprises and registered practitioners (employees) listed as dishonest persons subject to enforcement may have their qualifications or credentials revoked according to law; the “four databases and one platform” construction was promoted, initially achieving the informatization supervision goal of “one database for data, one network for supervision, and one line for management” in the construction market.

At present, the basic databases of construction market supervision and credit information in 31 provincial-level regions across the country have achieved real-time interconnection with the central database of the Ministry of Housing and Urban-Rural Development.

On December 11, 2017, the Ministry of Housing and Urban-Rural Development officially launched the “Interim Measures for Credit Management of the Construction Market”, providing specific guidance on the collection and use of construction market information and punishment for dishonesty, with special emphasis on classified supervision of enterprises according to credit status, which also means that good reputation will bring substantial benefits to enterprises.

8. Prefabricated buildings will usher in comprehensive development

As a major turning point for the industry towards industrialization, prefabricated buildings are the fundamental way for the sustainable development of the construction industry, and therefore continue to receive policy support. The national level and various regions across the country have set relevant development goals for prefabricated buildings, issued related policies, and increased support.

The “Several Opinions on Further Strengthening the Management of Urban Planning and Construction” clearly proposed: vigorously promote prefabricated buildings and build national-level prefabricated building production bases; increase policy support and strive to achieve a proportion of 30% for prefabricated buildings in new buildings in about 10 years. The “Outline for the Development of Building Industrialization” pointed out that by 2020, the proportion of prefabricated buildings in new buildings will reach 20%; by 2025, the proportion will reach more than 50%.

Therefore, 2018 will be a year of comprehensive development for prefabricated buildings, with breakthrough progress in overall planning, standards and specifications systems, industrial supporting capacity, and construction workforce development. For construction enterprises, they should keep up with the pace of industrial development, lay out the prefabricated building market early, and improve the construction management capabilities of prefabricated buildings, so as to meet market demand and achieve long-term development.

9. Benefiting from the “Belt and Road”, international projects breed new opportunities

Since the “Belt and Road” initiative was proposed more than 3 years ago, more than 100 countries and international organizations have actively responded and supported it, more than 40 countries and international organizations have signed cooperation agreements with China, and Chinese enterprises have invested more than 50 billion US dollars in countries along the route. A series of major projects have been implemented, driving economic development of various countries and creating a large number of employment opportunities.

As the overall domestic investment growth slows down, expanding overseas markets has become an inevitable trend for the development of construction enterprises. The “Belt and Road” policy provides development opportunities for enterprises to go global. From January to October last year, the newly signed contract value of China's foreign contracting engineering industry was 165.52 billion US dollars, a year-on-year increase of 11.1%; enterprises signed new contracts worth 84.39 billion US dollars in 61 countries along the “Belt and Road”, accounting for 51% of the newly signed contract value of China's foreign contracting engineering in the same period.

With the hosting of the “Belt and Road” International Cooperation Summit Forum in Beijing in May 2017, the dividends of the “Belt and Road” policy will be further demonstrated. Discussing cooperation plans and building cooperation platforms together, Chinese construction enterprises should seize this opportunity and create new brilliance.

10. Infrastructure private customization (Ji Qing customization)

The internet integration in the infrastructure sector is relatively slow and has always lacked an innovation gene. For example, China's architectural design has always been “the same for a thousand cities”, “the same for a thousand tunnels”, and “the same for a thousand bridges”. Urban planning and design drawings are often “copied from east and west without in-depth study of the specific history and culture of a particular city, resulting in most cities looking the same”.

With the proposal of the “smart city” concept, personalized design and presentation of transportation infrastructure will also be strengthened: for example, Chengdu Line 7 (Link: Looking at beauties in Chengdu? This subway line is about to replace Chunxi Road) changed the rigid standard station design of the past and added art stations with Chengdu characteristics and cultural heritage, revitalizing our infrastructure innovation and bringing different user experiences to travelers.

Secondly, with the deepening of Internet Plus transportation infrastructure, some construction enterprises are also slowly trying innovative internet transformation. For example, Sichuan Provincial Transportation Investment Group cooperated with Beijing Shouqi Group to create a time-sharing car rental called “Gofun Chuanjiao”, which is an embodiment of the internet spirit integrating new elements such as “sharing economy” and “green transportation”.

As an internet sharing platform in the infrastructure sector, Jijitong will also make big moves in “infrastructure sharing” and “Ji Qing customization” in 2018. Customization is welcome!