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China Economy, Construction & Lumber Shipments

Wayne Iversen

By Wayne Iversen

Blogmaster

April 1, 2015

Economy

IMG_9524At the closing press conference of the March annual session of the National People’s Congress, Premier Li Keqiang expressed determination to press ahead with reforms meant to reduce the Chinese government’s role in the world’s second-largest economy in hopes of spurring growth despite what he acknowledged would be pain for “vested interests” that benefit from regulation.

The premier repeated pledges to reduce requirements for government approval of new businesses. He said the number of private businesses being set up has doubled following efforts already underway simplify the process of registering a new enterprise.

At this year’s meeting, the government lowered China’s official economic growth to 7 percent from last year’s 7.5 percent and promised to maintain employment levels, fight corruption and curb pollution.

IMG_9442-2Li acknowledged that reforms face opposition from politically influential state companies that might face tougher competition and officials who might see their own status reduced.

Li warned that meeting the lower official growth target would not be easy. He said the ruling party is ready to change its macroeconomic strategies if the rate of new job creation dips too low.

“There is considerable downward pressure on China’s growth and we still face multiple challenges,” the premier said. “When it comes to China’s economy, we must meet both ends of maintaining steady growth and making structural adjustments.”

While expressing cautious confidence in the economy, Li reminded reporters that China ranked behind more than 80 countries in per capita gross domestic product and still had 200 million citizens living in poverty, according to the World Bank.

Also in Li’s work report this year were some targets for battling pollution, a continued emphasis on fighting corruption and a pledge to find jobs for the 7.49 million university students who will graduate this year.

“Enforcement of environmental laws should not be a cotton swab but a killer mace,” Li said, vowing to hold polluting factories liable for excessive emissions while also urging members of China’s society to take part in cleaning up the environment.

“It’s a project in which everyone in the society should take responsibility,” Li said. “If you cannot change the environment you are in, you can modify your behaviours.”

During the annual session that closed Sunday morning, the congress approved a single piece of legislation in the form of amendments intended to modernize and update China’s legislative law that acts as a sort of mini-constitution governing how laws are enacted.

Li’s remarks highlight the challenges China’s leaders face as they seek to wean the economy off its reliance on exports and investment, a model that’s fueled pollution, corruption and ballooning debt. At the same time, missteps risk further dragging down growth that was the slowest in more than two decades last year.

‘Thin Needle’

“It’s a very thin needle that they are trying to thread,” said Andrew Polk, the Conference Board’s Beijing-based economist. “The downward pressure on the economy is very strong. All the main drivers of economic growth are decelerating.”

The economy expanded 7.4 percent last year. Bloomberg’s gross domestic product tracker, which draws on measures such as electricity production, shows the pace weakened to 6.28 percent in February.

Expansion of 7 percent would be the nation’s slowest pace since 1990. Li said it wouldn’t be easy to reach even that target. The challenge of making structural adjustment while maintaining growth is similar to weiqi — a Chinese game that in Japan is known as “go” — where players must plan for the big picture and also get individual moves right, Li said.

“The good news is that in the past couple of years we did not resort to massive stimulus measures for economic growth,” Li said. “That has made it possible for us to have fairly ample room to exercise macro-economic regulation, and we still have a host of policy instruments at our disposal.”

Monetary Policy

Among the steps that officials have already taken in recent months are two reductions in benchmark lending and deposit rates, and a paring back of banks’ required reserve ratios. Economists anticipate further steps to stoke liquidity this year.

Efforts to streamline the government helped boost economic vitality and put China in a stronger position to cope with downward pressure on growth, Li said. He said China could forestall any systemic or regional financial risks.

The International Monetary Fund forecasts 6.8 percent expansion for China’s economy this year, while the World Bank estimates growth will be 7.1 percent. At that pace, China is still set to remain the fastest growing Group of 20 nations.

“They have to accept that the potential growth in China at least in the next five years has slowed significantly,” said Liu Li-Gang, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “Without policy support, growth could slow to even lower than 7 percent.”

Source: Associated Press & Bloomberg

Construction

On March 30th, China loosened its mortgage policies in a bid to boost demand in the country’s housing market and spur economic growth. Second-time buyers will have their minimum down payment cut to 40% from the previous 60-70%. The ratio for households who have paid off their mortgage and use provident funds to purchase a second home remains at 30%.

First-time buyers using housing provident funds will have to pay a minimum of 20% as a down payment, down from the previous 30%. “The move is aimed at improving housing credit policies, supporting residents’ demands to improve housing conditions and promoting the steady and healthy development of the property market,” said a Central Bank spokesman.

The move comes as China’s growth falters, leading to widespread expectations that policy-makers will have to boost the economy through further monetary loosening. Li Jiadong, a property analyst at Guangfa Securities, said, “the cut (in down payments) will strongly support the property market, especially in first and second-tier cities. In a separate statement, the Ministry of Finance said that it would ease taxation on home sales. A home owned by a seller for at least two years will be exempt from business tax, the ministry said. The previous minimum was five years.

Property investment is a key driver for China’s economy, while land sales are a major source of revenue for cash-strapped local governments, which have been feeling the pinch as economic growth has slowed.

The average home price in 100 monitored cities in February dropped 0.24% month on month and 3.84% year on year, according to the China Index Academy.

Source: China Daily

Lumber Shipments

BC softwood lumber export volume to China in January 2015 was 401,705 cubic meters as compared to 563,959 cubic meters over the same period in 2014, a decrease of 28.8%. BC softwood lumber export value over this same period was 79.92 million, a decrease of 18.2%. It is noted that China’s imports of softwood lumber from most major suppliers decreased in January.

china lumber shipments

Click graph to enlarge