China Economy, Construction & Lumber Shipments
Reports indicate that Chinese property market prices rose more in August than they have in the last six years. New-home prices increased in 64 of 70 cities, marking a 9.2% increase year-on-year. In Shanghai and Beijing, prices rose 4.4% and 3.6%, respectively[i].
Some cities have introduced new restrictions in an effort to cool prices; in September Hangzhou, for example, announced that it would restrict home purchases for non-residents. Shenzhen and Shanghai have also tightened down payment terms and restricted purchases for non-residents[ii].
However, economists seem to agree that we are unlikely to see a fall in Chinese property prices unless the government moves to tighten credit and add more land supply, as property inventories are already at a low level[iii]. Property prices reflect the health of the Chinese economy; rising property values are driven by demand for investments, not demand for accommodation.
Perhaps an apt symbol of China’s heated property market is the spike in Shanghai of “happily married” couples seeking to divorce at the end of August[iv]. According to reports by the BBC, the surge in divorce applications was driven by a fear of missing out on more favorable terms for singles to buy property as rumors spread of the government seeking to close a loophole promising singles more favourable payment terms[v]:
- According to current policies, first time buyers and Shanghai residents can buy one property with a 30% deposit and 10% discounted interest rate.
- A married couple can buy up to two properties. The deposit for the second home has to be between 50% and 70%[vi].
The government has vehemently denied the rumour[vii].
In construction, volumes continued to soften. Residential construction was 94.61 million m2 (July: 106.69), meanwhile office construction volumes remained relatively level at 5.12 million m2 (6.82); non-residential also remained flat at 20.79 million m2 (20.31).
[i] Bloomberg News (September 19, 2016). China’s home prices rise most in six years as sales gain.
[ii] Reuters (September 10, 2016). Here’s where Chinese home prices spiked the most in August. Retrieved from Fortune.
[iii] Bloomberg News (September 19, 2016). China’s home prices rise most in six years as sales gain.
[iv] BBC (September 3, 2016). Why are some of China’s happy couples getting divorced?
[v] BBC (September 3, 2016). Why are some of China’s happy couples getting divorced?
[vi] BBC (September 3, 2016). Why are some of China’s happy couples getting divorced?
[vii] BBC (September 3, 2016). Why are some of China’s happy couples getting divorced?
EXPORTS AND MANUFACTURING
The most recent PMI from August 2016 suggests that factories in China expanded at the fastest pace since October 2015 to 50.4 According to reports; however, this is still considered as relatively weak and the majority of this increase can be attributed to an increase in light manufacturing. Analysts also suggest that the August pick-up could be due to an exceptionally low output in July[i].
The Satellite Manufacturing Index (see infobox) provides a comparison to the Purchasing Managers index, which is the predominant measure used[ii]. Most recent reports confirm that manufacturing is weak, while real estate is performing better and auto sales and e-commerce continue strong[iii].
[i] CNBC (August 31, 2016). China services and manufacturing PMIs expanded in August.
[ii] Bloomberg News (March 14, 2016). Hedge funds look to space with new China economy gauge.
[iii] Bloomberg News (September 21 2016). Big data Lens on China’s Economy (mostly) Affirms Official Stats.
LUMBER EXPORTS TO CHINA
The China Timber Price Index shows a year-on-year decrease in the price of lumber sold in China during the first six months of 2016. The price of domestic coniferous lumber is down 2.5% and imported coniferous lumber is down 9.3%. The volume of log imports January to July have increased 3.14% compared to the same period last year, while lumber imports increased 19%. In the same period the volume of Canadian softwood lumber is down 10%.[i]
[i] BOABC (August 2016) China Wood Market Monthly Report. Vol. Wood, Issue 211.