There have been signs since October’s Party Congress that China’s infrastructure boom was about to cool off as the leadership seeks to contain debt levels and focus on the quality not the quantity of growth. Subway building is one sector which has seen some high-profile project cancellations. In mid-November 2017, Caixin reported that China’s top economic planning authority, the National Development, and Reform Commission, was “raising the bar for subway proposals” – increasing scrutiny in terms of fiscal conditions, population and GDP. In recent weeks, we’ve seen two large subway projects shelved, one in Hohhot, the capital city of Inner Mongolia (worth 27 billion Yuan) and another in Baotou, another Inner Mongolian city (worth 30 billion Yuan). As Caixin noted.

The cancellation of the Inner Mongolia subway projects is having a ripple effect in other cities. Several city governments, including those of Xianyang in Shaanxi province and Wuhan in Hubei province, said in statements that their subway plan are unlikely to win immediate approval under the central government’s crackdown on financial risks related to borrowing for such projects.

The crackdown on local government debt, a key source of infrastructure financing, will have a knock-on effect on Chinese GDP growth. A difficulty for China’s central planners is that the infrastructure share of Chinese fixed asset investment has been on a rising trend, surpassing 20% during 2017 versus just over 15% in early 2014. While we’ve been expecting China’s infrastructure spend to slow next year, we are surprised by the rate of slowdown estimated by Bloomberg, which surveyed a large number of forecasters.

China’s frenzied construction of roads, bridges and subways is set for a major slowdown, adding a headwind to economic growth in 2018. The nation’s fixed-asset investment in infrastructure will grow 12 percent next year, according to the median estimate in a Bloomberg survey, down from almost 20 percent in the first ten months this year. All 18 economists in the survey anticipated a moderation, adding to reports by Morgan Stanley, Goldman Sachs Group Inc. and UBS Group AG predicting a similar trend.