China’s construction market: value in the face of volatility
China’s construction market is in transition, but its cost and supply chain advantage remain intact. With average costs below regional and global benchmarks, a stable supply chain and strong contractor availability, the fundamentals continue to support well-placed investment. While delivery risks and regulatory complexity persist, clients aligned with domestic priorities can move with greater confidence and value.
H1 marked by tariff turbulence
The first half of 2025 highlighted the duality of China’s market conditions. Public infrastructure investment provided some stability, with railway spending increasing by 5.2 percent year-on-year. However, real estate activity contracted sharply and new construction fell 28.9 percent, loosening supply chain capacity and creating material surpluses.
The reintroduction of US tariffs in Q2 added complexity. Export-driven sectors, particularly high-tech manufacturing, slowed.
Foreign invested projects were delayed or shelved, denting investor confidence. Our Global construction market intelligence report outlines a softer demand, high contractor availability and very competitive tendering conditions in most tier one and two cities.
While challenging, this environment presents an opportunity to engage tier-one contractors at competitive rates. Construction cost escalation is expected to remain muted through 2025 at approximately 1.0 percent. However, macroeconomic uncertainty and reactive fiscal policy continue to create pockets of risk that require active management.
Activity picking up due to local investment
Despite a subdued start, signs of recovery are emerging. Strong government stimulus is stabilising the domestic economy, with several leisure projects advancing. The recent opening of LEGOLAND Shanghai exemplifies policy support translating into real activity. Data centres and life sciences are also among the top performing sectors in the country and are helping to sustain market activity.
Growth over the next six months is expected to come from local Chinese investors, particularly in the emerging industrial, science and technology sector such as electric vehicles, batteries, artificial intelligence (AI) and automation.
Consumer-focused investments tied to domestic spending, such as Fast-Moving Consumer Goods (FMCG) production, retail and themed entertainment, are also progressing. Public funding continues to support large-scale infrastructure and renewable energy programmes.
Given that the full impact of the US tariffs remains uncertain and with the added unpredictability of shifting tariff rates, international investors remain cautious. Many are reassessing their China strategy, exploring local partnerships and focusing on sectors aligned with domestic policy and long-term demand.
Navigating delivery pressure points
While opportunities are emerging, skilled labour constraints, material volatility and regulatory complexity continue to impact cost, timelines and risk profiles across the market.
Although general labour availability is broadly stable, shortages in skilled trades, particularly in Mechanical, Electrical and Plumbing (MEP), structural and finishes is placing upward pressure on costs and project timelines in major cities like Beijing, Shanghai, Guangzhou and Shenzhen.
These skills gaps are already constraining delivery capacity in highly technical or fast-track programmes and are shifting the way projects are delivered. For example, the use of prefabricated or modular components is becoming more common, with an increasing adoption of digital tools to improve coordination and manage site-based risk.
Regulatory compliance remains complex. Local developers benefit from familiarity with evolving frameworks and approval pathways, while international players take time to navigate the system. Early engagement with experienced local teams can help to mitigate delays.
Reliable, affordable and future-focused
Despite global volatility in core materials like copper, China’s push for supply chain self-reliance has kept availability strong and material prices relatively stable, with only a slight fluctuation in iron ore and copper prices. This enables quicker time-to-market and reduces execution risk. Ongoing global trade uncertainty has accelerated the region’s drive toward greater self-sufficiency, creating fresh momentum for China’s manufacturing industries. China is also reaping the benefits of strengthened regional trade, with industrial output increasing by 5.8 percent in 2024.
At an average cost of US$940 per m2, China remains one of the most economical construction markets globally.
Four Chinese cities rank among the world’s top 10 most cost-effective markets to build, making China the second most affordable country behind India for construction in Asia. This makes it a cost-effective investment destination, provided regulatory risks are managed.
Several trends are gaining traction following the 14th Five Year plan. China’s construction industry is being steered toward greener and smarter practices. Environmental, Social and Governance (ESG) expectations are rising, with clients in most major cities now aiming to exceed local sustainability standards.
Our Global construction market intelligence data shows that 90 -100 percent of clients in Beijing, Guangzhou, Shanghai and Shenzhen now target higher certifications as a baseline. Green materials, energy-efficient systems and embodied carbon considerations are becoming standard. Government driven initiatives toward development of prefabricated buildings constitute over 30 percent of new construction.
Digital transformation is rising, though implementation remains uneven. While more than half of the market is exploring digital tools like Building Information Modelling (BIM) and modular construction methods, execution is inconsistent. For now, digital maturity remains a differentiator and those with stronger capabilities are starting to see more efficient delivery outcomes.
A market in transition, not retreat
The future will be marked by tariff uncertainty, regulatory challenges and uneven recovery across sectors.
The market is shifting toward domestic demand, technological innovation and more agile delivery strategies. While public investment plays a stabilising role, private sector activity is aligning with long-term national priorities.
Investors should focus on reassessing scope, adjusting procurement strategies and building stronger local delivery teams. Focusing on consumer-led sectors, advanced manufacturing and operational resilience can support both near-term stability and future growth. Success in China hinges on adapting to local dynamics, embracing digital tools and aligning investment strategies with the nation’s transformation agenda.