China Economy, Construction & Lumber Shipments
HSBC flash PMI signals persistent weakness in economy.
* Reinforces expectations of fresh policy stimulus
* Output sub-index at 13-month low
* New export orders at 23-month low
* Premier Li says 7-pct growth target achievable (Repeats to remove text of earlier story; adds Premier Li comment, analyst quotes)
Chinese factory activity contracted for a third month in May and output shrank at the fastest rate in just over a year, a private survey showed, indicating persistent weakness in the world’s second-largest economy that requires increased policy support.
The poor reading, which followed a raft of downbeat April data, reinforced analysts’ views that Beijing has to take bolder steps to combat a protracted slowdown, as growth threatens to drop below 7 percent for the first time since the global financial crisis.
“The subdued flash PMI print suggests there is no clear sign of near-term stabilization in the economy. Risks to the outlook remain to the downside,” Barclays economist Shengzu Wang said in a research note.
The preliminary HSBC/Markit Purchasing Managers’ Index (PMI) fell to 49.1 in May, below the 50-point level that separates growth in activity from a contraction on a monthly basis.
Economists polled by Reuters had forecast a reading of 49.3, slightly stronger than April’s final reading 48.9.
After a brief rebound in February, the index has now been back in negative territory for three consecutive months.
“Softer client demand, both at home and abroad, along with further job cuts indicate that the sector may find it difficult to expand, at least in the near-term, as companies tempered production plans in line with weaker demand conditions,” said Annabel Fiddes, an economist at Markit.
“On a positive note, deflationary pressures remained relatively strong, with both input and output prices continuing to decline, leaving plenty of scope for the authorities to implement further stimulus measures if required.”
The latest survey showed China’s factories continue to struggle with sluggish demand at home and abroad.
The sub-index on new export orders fell to a 23-month low of 46.8 in May, while overall new orders shrank for the third straight month, albeit at a slower pace.
The output sub-index contracted for the first time this year, to a 13-month low of 48.4, while the employment sub-index showed manufacturers shed jobs for the 19th month in a row.
The central bank is widely expected to cut interest rates further in coming months, on top of three reductions since November, and is also likely to lower banks’ reserve requirements again to reduce companies’ borrowing costs and encourage more lending.
The government is stepping up fiscal spending, with a strong focus on infrastructure projects. China has approved 250 billion yuan ($40.30 billion) of railway and subway projects so far this year, the country’s top economic planner said on Monday.
Julian Evans-Pritchard at Capital Economics said the PMI painted a mixed picture, with domestic demand possibly showing signs of stabilising in response to earlier policy easing but still under pressure from a weak property market. Exports, meanwhile, have been hurt by the yuan’s rapid trade-weighted appreciation.
WHEN WILL STIMULUS KICK IN?
China’s economic growth slowed to a six-year-low of 7 percent in the first quarter, weighed down by the cooling property sector and softening demand, which is leaving more and more factory capacity standing idle and depressing companies’ profits.
Recent data showed a further loss of momentum heading into the second quarter; with investment growth in January-April falling to it’s lowest in nearly 15 years.
Most analysts have already penciled in sub-7 percent growth for the second quarter, raising the risk that the government will not meet its full-year growth target of around 7 percent.
State Information Centre, a top government think-tank, has predicted second-quarter growth of 6.8 percent.
But signs that the government is ratcheting up its policy support for the economy have fanned optimism that growth could bottom out in the second half, though few analysts expect a solid recovery.
“We expect economic growth to gradually stabilise as the government is determined to safeguard its growth target, but policy measures are still not strong enough,” said Xu Gao, chief economist at Everbright Securities in Beijing.
The official news agency Xinhua on Thursday quoted Premier Li Keqiang as saying he was confident China has the ability to meet the 2015 target. (Editing by Kim Coghill)
Construction / Housing
China’s housing sales showed signs of a turnaround in April, posting year-over-year growth for the second time since December 2013, as home buyers waded back into the market following recent policy easing measures by the central government.
While sales picked up sharply, other metrics such as investment and construction starts in the all-important property sector continued to show weakness.
China’s housing sales in the first four months fell 2.2% to 1.49 trillion yuan ($240.3 billion) from the same period a year earlier, marking an improvement from the 9.2% decline in the first quarter, according to the National Bureau of Statistics Wednesday.
In April alone, housing sales rose 16.0% from a year earlier to 485.4 billion yuan, according to calculations by The Wall Street Journal based on the official data.
“The market is turning the corner,” said Frank Chen, an executive director of property consultancy CBRE.
Policy makers have been worried that a prolonged property downturn would make things worse for the Chinese economy, which grew at its slowest pace in six years in the first quarter and will likely post its worst full-year performance in more than two decades.
On Sunday, the central bank cut benchmark interest rates for the third time in six months, a move that could help the emerging signs of improvement in housing demand. With the latest interest rate cut, the effective mortgage rate on loans of more than five years has dropped to 5.37% from 5.61%.
Down payment requirements have already been eased for second home purchases and local governments have been rolling back some of their restrictions on home purchases.
Policy makers are hoping such moves will convince people to buy a home.
Alex Huang, a production engineer in Shanghai, is one such potential buyer who just might be convinced to take the plunge.
“I’m looking for an apartment near my office in Minhang district, and I’m more confident in buying a place in Shanghai rather than in my hometown, where prices are still falling,” said the 28-year-old Mr. Huang. He believes housing prices are more likely to appreciate in Shanghai than in Changsha–where he was born–a city around 680 miles west of Shanghai.
Average home prices in major Chinese cities are stabilizing, analysts said, and the sales momentum has picked up in cities such as Beijing, Shanghai and Shenzhen, where developers are still planning new projects. However, the situation in smaller Chinese cities remains weak, with plenty of unsold inventory.
“The situation is uneven. Home prices in tier one and some tier two cities are going up, but elsewhere, prices are still weak,” said Jinsong Du, a Credit Suisse analyst. He adds that while housing sales are expected to pick up in the second quarter, especially on a year-over-year basis, the forecast for the second half is less clear.
Analysts also said that they anticipate further accommodative monetary measures from Beijing given that property starts and investment in real-estate development nationwide are likely to remain sluggish for some time as developers fear overbuilding.
New construction starts for residential and commercial property in the first four months fell 17.3% from a year earlier to 358 million square meters. That compares with an 18.4% decline recorded in the first quarter.
Source: Wall Street Journal
After two months of decline, BC softwood lumber export volume to China in the first three months of 2015 was 1.572 million cubic meters as compared to 1.415 million cubic meters over the same period in 2014, an increase of 11%. BC softwood lumber export value over this same period was $323.69 million, an increase of 28%.
Click graph to englarge