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China Economy, Construction, Lumber Shipments

Wayne Iversen

By Wayne Iversen

Blogmaster

February 5, 2015

China’s official 2014 numbers are in.

IMG_1800Gross Domestic Product -the economy expanded by 7.4% in 2014, the slowest annual rate of growth since 1990 and below the official target of 7.5%. In the December quarter, China’s economy grew by 7.3% yoy, unchanged from Q3 and remaining at

the weakest quarterly growth result since March 2009 (the low point of the global financial crisis).

China’s economy continues on its gradual transition, away from a manufacturing hub towards a modern, consumption-based economy. One signal of this trend is the increasing share of China’s services sector (tertiary industries), averaging 48% of GDP in 2014 up from 47% in 2013). In contrast the share of secondary industries (such as manufacturing and construction) fell below 43%.

Industrial Production and Investment

Industrial production growth slowed to 8.3% from 9.7% in 2103. Conditions in China’s industrial sector picked up a little in December, with growth at 7.9% yoy (compared with 7.2% in November). The November results were distorted by the shutdowns implemented ahead of the APEC conference, and the relative strength in December may reflect the recovery in utilisation rates.

Fixed-asset Investment

Fixed-asset investment rose by 15.7%, down from 19.6% in 2013, the slowest rate in 13 years. The economic slowdown was driven mainly by a slowdown in fixed-asset investment, especially in real estate and manufacturing investment, which face oversupply problems.

International trade

China’s trade surplus narrowed marginally in December 2014 –pulling back from a record level. The surplus was US$49.6 billion in December, compared with US$54.5 billion previously, driven by a recovery in imports. Export growth was also strong in December – rising by 9.7% yoy in US dollar terms (well above market expectations),

compared with 4.7% in November. The key drivers of this increase were accelerating exports to Asia and the United States. The former increased by 15% yoy

(compared with 7.2% in November) while the latter grew by 9.9% yoy (from 2.6% previously). In contrast, growth in exports to the European Union was relatively

stable at 4.9% yoy.

China’s imports remained weaker than a year earlier – down – 2.3% yoy in US dollar terms, but the growth rate was considerably stronger than November (when imports

fell by – 6.7%). Imports in December were also stronger than expectations.

For the full year, imports rose by just 0.6%, however falling commodity prices

contributed to this result. In 2014, average commodity prices – as measured by the RBA Index of Commodity Prices – fell by 15%. This included weaker prices for crude oil and iron ore (which respectively accounted for 12%and 4.8% of China’s US dollar

denominated imports in 2014). That said, with commodity prices falling further in

December, Chinese consumers took advantage of the opportunity to restock. The volumes of crude oil and iron ore hit record levels, while coal imports reached the highest level since January 2014.

Retail Sales and Inflation

Retail sales trends have slowly improved across recent months, increasing by 11.9% yoy in December, up from 11.7% previously. In terms of recent history, this rate of

growth has been relatively weak; however slowing retail price inflation – remaining at just 0.4% yoy (unchanged from November) – has boosted real sales. Real retail sales grew by 11.5% – the strongest rate in 2014.

2015 Forecast

The International Monetary Fund has cut its forecasts for China’s economic growth for this year and next as the global economic rebound plateaus, despite a sharp drop in oil prices. The fund expects China’s gross domestic product growth to slow to 6.8 per cent and 6.3 per cent – estimates revealed in the update to its World Economic Outlook published three months ago. But Gian Maria Milesi-Ferretti, a deputy director of research at the IMF, said slower growth and lower prices provided a positive backdrop for much-needed structural reform to rebalance the world’s second-biggest economy.

“The decline in oil prices is a positive for China. China needs to rely less on stimulus, which is good for rebalancing. It is going to provide a boost to the Chinese economy in the next few years,” Milesi-Ferretti. Oil prices, which have fallen to more than five-year lows, would enable the Chinese government to maintain economic growth at a decent level without having to resort to infrastructure investments, Milesi-Ferretti said.

Source: Chinese media and IMF

Construction Market

National home sales in December recorded a surge over the previous month, wrapping up 2014 with the second highest sales volume in years. According to the National Bureau of Statistics, home sales in December rose 41.7% by floor area from November. By value, sales rose 41.4% month-on-month. These were extraordinary numbers considering that in July, at the trough of the housing market, sales slumped 32% from June.

Behind this dramatic turn-around were a slew of stimulus policies, including a move by the central bank to ease mortgage restrictions on September 30th and cut interest rates on November 21st. Sales have steadily picked up since October, and by November sales rose 14.8% month-on-month.

The explosive growth at year-end has pushed annual home sales to 1.05 billion square meters, down 9.1% from 2013 but larger than in 2011 and 2012. That surprised many analysts as they held a pessimistic outlook on the property market even after the stimulus policies.

Yan Yuejin, an analyst with E-House, said a big reason for the boom was that many developers sought to post a good full-year performance, which prompted them to boost sales with lower prices. The unleashing of pent-up demand amid a changing outlook was another reason.

Source: China Daily

Lumber Shipments YTD November 2014

BC softwood lumber export volume to China to the end of November 2014 was 7.06 million cubic meters as compared to 7.33 million cubic meters over the same period in 2013, a decrease of 3.6%. BC softwood lumber export value over this same period was $1.33 billion, a 2.6% increase.

Click graph to enlarge

China Lumber Shipments Nov 2014