Industry commentary: Quality Improvement of Stock Drives Structural Transformation of Building Materials Demand - Review of the Central Urban Work Conference

Event: From July 14 to 15, 2025, the Central Urban Work Conference was held in Beijing. The conference pointed out that China's urbanization is transitioning from a rapid growth period to a stable development period, and urban development is shifting from a phase of large-scale incremental expansion to a phase primarily focused on improving the quality and efficiency of existing resources. Additionally, five requirements for "transformation" regarding urban work were proposed, along with the deployment of seven key tasks.

The demand structure is shifting from incremental construction to stock updates. The meeting emphasized that promoting urban renewal is an important measure to steadily advance the transformation of urban villages and the renovation of dilapidated houses, to promote the construction of urban infrastructure lifeline safety projects, and to accelerate the upgrading and renovation of old pipelines. From a policy perspective, as China's urban development transitions to stock optimization, urban renewal will continue to gain momentum. In May 2025, the General Office of the CPC Central Committee and the General Office of the State Council jointly issued the "Opinions on Continuously Promoting Urban Renewal Actions," which clarified that by 2030, urban renewal actions should achieve significant progress in areas such as improving institutional mechanisms, transforming development and construction methods, consolidating safety development foundations, enhancing service efficiency, and improving living environments. This means that urban renewal is not just about localized repairs and renovations, but is a comprehensive and systematic reshaping. As a fundamental material for urban construction, building materials are expected to benefit from the in-depth advancement of urban renewal, stimulating demand for building materials in the stock market. The following two sub-sectors in the building materials industry are likely to benefit: 1) The construction of urban infrastructure and urban comprehensive pipe gallery projects is expected to accelerate, driving the release of demand for consumption building materials such as pipes and waterproof materials; 2) The renovation of urban villages and old communities is expected to increase the demand for products such as architectural coatings and thermal insulation materials.

The upgrading of consumption has driven an increase in demand for high-quality green building materials. The meeting mentioned that, with the theme of promoting high-quality urban development, efforts are being made to enhance urban quality and promote green transformation. For the first time, the concept of "good houses" was included in the government work report for 2025, which clearly stated the need to meet the high-quality housing demands of the people and promote the construction of "safe, comfortable, green, and smart" good houses. In March 2025, the Ministry of Housing and Urban-Rural Development released the national standard "Residential Project Specification," which proposed new regulations on the quality, floor height, lighting, sound insulation, elevators, and other aspects of residential buildings. With the implementation and enforcement of the "Residential Project Specification," the demand for high-quality green building materials will continue to rise. High-quality supply will become a new growth point for building materials in the real estate market. Leading building material companies will significantly benefit from this transformation due to their advantages in product quality, environmental performance, and innovative technology.

The acceleration of urbanization construction and the improvement of channel layout enhance the advantages of consumer building material enterprises. The meeting mentioned the classification and promotion of urbanization construction with county towns as an important carrier, facilitating the coordinated development of large, medium, and small cities as well as small towns. In recent years, many consumer building material enterprises have accelerated their channel penetration, expanding their business layout from first- and second-tier cities to county-level and rural markets, thereby increasing their retail business scale. With the rapid advancement of urbanization construction, enterprises with a well-established channel layout can quickly respond to market demands and increase their market share.

With the transformation of urban development towards improving quality and efficiency of existing stock, the building materials industry is. Urban renewal, maintenance and renovation, and pipeline upgrades will drive the demand for consumption building materials such as pipes, waterproofing materials, and coatings. Leading enterprises with product quality advantages are expected to benefit significantly. In addition, the advancement of urbanization will further release the potential of county markets, favoring building material companies with well-established distribution channels.

The risk of raw material price fluctuations exceeding expectations; the risk of downstream demand recovery being less than expected; the risk of policy implementation being slower than expected.