Biden’s infrastructure bill will lift up China Inc

Beijing's real estate crackdown has sent shudders well beyond the sector. But US President Joe Biden may have China Inc. covered.

President Xi Jinping's efforts to rein in property giants has left industrial companies in the lurch. Real estate accounts for a quarter of China's economy and a big chunk of the global construction business. No one's going to be taking on building projects anytime soon amid curtailed credit, business and investment activity. 

Excavator sales in China were down 30.6% in October, the lowest growth since Covid-19. Excluding last year's lockdown, it would be the lowest since 2016. Investors have been quick to dump the shares of industrial machinery and heavy-equipment makers that usually lift the tide as construction rises.

That, though, misses what's happening with the fate of Chinese machinery companies internationally. Demand has been sharply up. It seems the lead-in to the passage of the landmark $1.2 trillion US infrastructure bill last week that now stands to fund an upgrade of everything from highways and trains to the internet has lifted China too. Activity will rise, which means more machines are needed. Meanwhile, global shortages and delays of chips to raw materials to make parts have helped create yet more demand. 

It isn't surprising, then, that China's excavator exports have hit a record high, up 85% in October compared to last year, according to analysts at Daiwa Capital Markets Hong Kong Ltd.

Then there is the supply chain itself. Some companies make components that are already an integral piece of American construction equipment. Any demand for more forklifts and excavators as construction takes off in the US will mean even more parts. Consider Jiangsu Hengli Hydraulic Co., which manufactures high-pressure tanks, hydraulic systems and other equipment. Some of these elements typically account for around a third of the cost of an excavator. The company supplies cylinders to American bellweather Caterpillar Inc. — an obvious winner of an uptick in the Biden administration's infrastructure spending. It also sells to other beneficiaries, including Japan's Hitachi Construction Machinery Co., that operate in the US market.

For China's industrial machinery makers, Biden's gift couldn't have come sooner. These machinery firms had been on a roll, with double-digit sales growth until last year. However, the implementation of environmental regulations around emissions have crimped heavy-equipment makers. And while some level of stimulus could help, infrastructure investment and construction activity is likely to remain lackluster under Beijing's current crackdown. Even without much foreign competition in China and room to gain market share, machinery sales domestically are down across the board.

The bill's passage occurs at a time of thawing ties after a period of tit-for-tat tension on trade and concerns over Taiwan and Beijing's expanding nuclear arsenal. Xi and Biden are expected to hold a virtual summit next week. The meeting will follow a key gathering of Communist Party officials in Beijing this week that's expected to pave the way for Xi to win a record third term as party leader next year. 

While turning the infrastructure bill into reality seems months away, the global supply chain shortages and delays mean ordering will start soon — if it hasn't already. Without the machines and the parts, it'll be hard for Biden to get the building going. Ironic, isn't it? So much for geopolitical tensions.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.