China Economy, Construction & Lumber Shipments
China’s latest economic data was a mixed bag – with many measures comparatively negative (against the trends of recent years) but stronger than somewhat pessimistic market expectations. While year-on-year GDP growth was at a five year low, the growth rate remaining above 7% will likely be enough to avoid further broad based stimulus –
measures opposed by the People’s Bank of China (PBoC). This result needs to be viewed in context. Last year’s mini-stimulus program distorted activity in Q3 2013(pushing growth higher), and as a result, sustaining the growth momentum from early 2014 was always unlikely this quarter. Our forecasts remain unchanged, with economic growth at 7.3% in 2014, and slowing further to 7.0% in 2015.
Gross Domestic Product
The latest national accounts data showed that China’s economy grew by 7.3% yoy in the September quarter, the slowest rate of growth since March 2009. In quarterly terms, growth remained reasonably strong at 1.9%. Soft industrial production data over the third quarter did not directly translate into a marked slowing in economic activity for the secondary industries. That said, the comparatively strong growth in China’s service sector saw the tertiary industries account for a larger share of the economy in the third quarter – rising to 47% on a twelve month moving average basis. The share for secondary industries fell to 43% – highlighting the gradual transition that is continuing in China’s economy. There remains speculation around potential stimulus, however commentary from the PBoC continues to suggest opposition from some policy makers. Policy efforts to date have been quite narrow – in areas such as agriculture and social housing – attempting to avoid expansion in credit to over-leveraged sectors, such as residential property and heavy industry.
Industrial Production and Investment
The two major industrial surveys were stable in September. The official PMI (National Bureau of Statistics) was unchanged at 51.1 points, while the HSBC Markit PMI was
also stable at 50.2 points. The former is considered a better indicator of larger state-owned enterprises, and the latter of the small-to-medium sector. Production trends at the sub-sector level remain highly mixed. Output of electricity was stronger this month, at 4.1% yoy (compared with -2.2% in August), as was motor vehicle production (4.5% yoy in September compared with 3.1% previously). In contrast, construction related products were weaker. Cement output fell, down -2.2% yoy (from 3.0% in August) and crude steel output was unchanged (down from 1.0% in August).
China’s fixed asset investment remained comparatively weak in September, with the rate of growth unchanged at 13.8% yoy (in seasonally adjusted terms). Key sub-sectors continue to weaken – most notably manufacturing and real estate. The growth in real estate investment has continued to slow – driven in part by weak market conditions. Investment slowed to 10.1% yoy in September (from 11.4% in August) – the weakest growth rate since the global financial crisis. Similarly, manufacturing investment has continued to trend lower – with growth of 12.3% yoy in September (from 13.8% last month).
Concerns around the broader impact of a property slowdown – reflecting the importance of the sector to China’s economic growth and local government revenues – have resulted in the loosening of a range of policies, with a goal of stabilising the sector. The total residential floor space sold in September fell by -12% yoy (compared with -13% last month). In contrast, the value of these sales fell by just -10% yoy – implying a slight increase in indicative prices in September.
China’s trade surplus pulled back in September, to US$30.9 billion (compared with a record US$49.3 billion in August). The narrowing of the balance was driven largely by a sharp rebound in imports. US dollar denominated exports rose by 15.3% yoy in September (compared with 9.4% in August). The scale of the acceleration reflects some base effects – with a monthly fall in exports occurring in September 2013. In terms of China’s major export markets, there was a sharp increase exports to East Asia – with growth of 24% yoy (compared with just 3.5% in August) – driven entirely by a pick up in Hong Kong, which at almost US$38 billion exceeded exports to the United States and European Union. This raised some concerns around a return to the false invoicing distortions evident in 2013. US exports grew by 11% yoy (largely unchanged) while EU exports increased by 15% yoy (from 12% in August). There was a rebound in High Tech exports – up by 5.8% yoy (compared with -1.2% previously) and Mechanical & Electrical goods, which grew by 8.1% yoy (from 4.7% in August).
Imports were stronger in September, following on from two surprisingly weak months. Imports rose by 7.1% yoy (compared with a -2.3% yoy fall in August). Trends for commodity import volumes were mixed. Iron ore imports improved – with growth accelerating to 14% yoy (from 8.5% in August), while coal was less negative (albeit
very weak), with imports down -18% yoy (from -27% last month). In contrast, copper imports fell by -15% yoy (from -13% in August), while crude oil slowed to 7.4% from 18% previously.
Retail Sales and Inflation
Retail sales tracked lower in September, with nominal growth easing to 11.6% yoy (down from 11.9% in August) – the weakest rate of growth since February 2006. This trend was less negative in real terms – reflecting the low levels of inflation in recent times – with growth edging up to 10.8% yoy (from 10.6% last month). Sales of food and drink products and household goods recorded slower growth, with the former surprisingly weak at 7.5% yoy (down from 12% last month). In contrast, jewellery sales were up over 11% yoy – having fallen sharply across the first half of 2014. Inflation slowed in September, driven by softer growth in food prices. Consumer prices rose by 1.6% yoy (compared with 2.2% in August). Non-food prices eased to the lowest level since April 2010 at 1.3% yoy. Food price inflation slowed to 2.3% yoy in September (compared with 3.0% previously). Previously strong growth in eggs and fresh fruit prices was pared back, while prices for fresh vegetables have continued to fall. Producer prices fell once again – having fallen for thirty-one months in a row – down by -18% yoy in September. This deflation remains driven by heavy industry (down by -2.4% yoy), and trends are closely correlated to weaker global commodity prices.
New credit – as measured by total social financing – edged higher in September to RMB 1050 billion. While this was the strongest level for new credit in the past three months,
it was around 26% lower than September 2013. Bank loans continued to contribute the largest share of new credit in September, at RMB 807 billion (for both domestic and foreign currency loans) – accounting for over three-quarters of the total. Over the first nine months of 2014, new credit declined in year-on-year terms, down by -8.3% yoy. Bank loans have increased modestly – increasing by 3.4% yoy – while net corporate bond financing has grown strongly (at almost 19% yoy). Attempts to address concerns around the growth of shadow banking appear to have impacted on non-bank lending, with other financing contracting by -37% yoy over the first nine months of the year. This was led by trust and entrusted loans (two key components of China’s shadow banking sector), where new credit has fallen by -37% yoy.
Sept home prices fell for 1st time y/y in nearly two years
* Prices down 1.0 pct on month, fifth straight fall
* New home prices fell m/m in record 69 cities
* Sales improved on easier mortgages (Adds detail, GDP forecast, jobless rate)
Chinese home prices fell for a fifth straight month in September, wiping out gains scored in the past year and raising expectations the government will have to implement more economic support measures to cushion the blow. The monthly falls left average home prices in 70 major Chinese cities down 1.3 percent in September from a year earlier, the first such drop since November 2012.
New home prices fell month-on-month in a record 69 of the 70 major cities, up from 68 in August. Only the southern city of Xiamen saw stable prices last month, National Bureau of Statistics (NBS) data showed.
The worst performance was in the eastern city of Hangzhou, where prices sagged 7.6 percent in September from a year before. “The property downturn is still the main drag on the economy,” Wang Tao, an economist at UBS in Hong Kong, said in a note. “The negative impact of the ongoing property downturn is being felt not only in heavy industry, but also in manufacturing investment.”
The slowdown in the housing market followed GDP data showing the economy grew at its slowest rate since the 2008/2009 global financial crisis in the September quarter, adding to worries that it will drag on global growth.
Chinese officials have indicated they would be willing to tolerate slightly slower growth as long as the job market continued to hold up, so there was some relief in the form of steady unemployment data on Friday. China’s urban registered unemployment rate was 4.07 percent at the end of September, down slightly from 4.08 percent at the end of the second quarter, the labour ministry said.
NO QUICK RECOVERY
In late September, China cut mortgage rates and down payment levels for some home buyers for the first time since the 2008/09 global financial crisis, its boldest step yet to energise an economy increasingly threatened by a sagging housing market.
Although transaction data from private real estate consultancies pointed to a pick-up in sales in recent weeks, the impact of new government measures to provide cheaper loans to second-home buyers remains uncertain. “It still takes time to see whether a recovery of home sales will affect home prices,” Liu Jianwei, a senior statistician at the National Bureau of Statistics (NBS), said in a statement accompanying the data.
Analysts concurred it was too early to tell if government moves in late September to lower mortgage rates and down payment requirements would be enough to stem the price slide. And even if prices do stabilise, developers will remain reluctant to start new projects until a glut of unsold homes is worked off, depressing demand for raw materials and keeping pressure on labour markets.
“You can’t expect to feel the impact of policy measures right away. Liquidity is increasing and the real estate sector is driven by liquidity so prices will gradually improve,” said a Shenzhen-based developer.
The number of potential buyers and sellers of properties increased significantly in October, but the negotiation process has also grown more demanding as sellers become more confident in the market outlook, a real estate agent in Shanghai said.
Meanwhile, Chinese developers are turning to offbeat marketing gimmicks and give-aways as they battle to shift their massive inventory, including resort stays for buyers. (Additional reporting By Judy Hua and Kevin Yao; Editing by Eric Meijer)
Real estate investment, which affects more than 40 other sectors from cement to furniture, rose 12.5 percent in January- September from a year earlier, down from 13.2 percent in the first eight months of the year, the National Bureau of Statistics said on Tuesday.
“The weakest part of China’s economy is still the property sector,” said Wang Tao, an analyst at UBS in Hong Kong. “The government has relaxed some controls recently and property sales may pick up in the fourth quarter. However, we may not see improvement in sectors like heavy industry and we expect the economy to continue to slow down.”
Canadian Lumber Shipments to China
BC softwood lumber export volume to China to the end of August 2014 was 5.11 million cubic meters as compared to 5.05 million cubic meters over the same period in 2013, an increase of 1.2%. BC softwood lumber export value over this same period was $949.73 million, a 5.7% increase.
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