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China Economy, Housing & Lumber Shipments

Wayne Iversen

By Wayne Iversen


September 5, 2012

The State of the Economy

China’s economy showed extended signs of weakness in July with less-than-expected growth in a batch of key economic indicators, dampening wishes of a modest recovery in the second half. However, the CPI expanded at the slowest pace in 30 months at 1.8% allowing more room for policy easing to encourage growth. The rate slowed from June’s increase of 2.2% and May’s 3% and was the lowest since February 2010.

The National Bureau of Statistics data also showed industrial production grew 9.2% from a year earlier in July, down from a rise of 9.5% in June and less than an expected 9.8%.

Fixed asset investment in the first seven months gained 20.4% year on year, flat with growth in the first half of the year and defying estimates of a strong rebound after faster approvals of investment projects since June. Retail sales gained 13.1% on an annual basis in July, also weaker than the advance of 13.7% a month earlier.

“China’s real activity indicators all came in worse than expected, suggesting that the economy is still ailing,” said Liu Ligang, an economist at ANZ Banking Group. “If the current pace continues, the third-quarter growth could be lower than our projected 8%.”

The CPI slowdown in July was led by less growth in food costs, a major factor influencing the inflation reading. They rose 2.4% year on year, compared with 3.8% in June. In the first seven months, China’s inflation advanced 3.1%, lower than the government’s target of 4%.

The Producer Price Index, the factory-gate measure of inflation, lost 2.9% on an annual basis, expanding losses for a fifth month and down from June’s 2.1% fall.

China cut interest rates twice in the past two months after its GDP grew 7.6% in the second quarter, its slowest pace in three years.

Source: National Bureau of Statistics

The Housing/Construction Market  

New home prices rose in 50 cities in China, compared to the previous month.  This is putting the government in a policy quandary again.  This market revival is a double-edged sword. It points to an improved outlook of housing construction. Nonetheless, the risk has increased again for reflating the housing bubble.

The price gain has been quite substantial in a few coastal cities, including Hangzhou, Zhanjiang, Dalian and Beijing. New housing prices in Hangzhou rose 0.6% sequentially, the biggest gain since February 2011. Beijing experienced a 0.3% month-month gain, the biggest in 16 months.

As a result of these market trends, the central government is considering a new round of housing price regulations.  A problem for the central government is that many local governments have tried to boost the housing market by not strictly implementing existing property control policies, such as providing incentives to home buyers and lifting the public housing fund and loan caps.

According to Yu Fenghui, a senior financial commentator, since tightening curbs on the property sector in 2010, 33 Chinese cities have issued policies going against the central government’s property restriction policies.

The central authorities, for their part, have reiterated their firm stance on property market regulation many times this year. In July, Premier Wen Jiabao said the government must make unswerving efforts to ensure house prices return to reasonable levels and block a price rebound that would undermine the effects of previous efforts.  In a recent notice released by MOHURD, it stated “local authorities must strictly implement property control policies. Those that have loosened up controls must set straight the policies.”

Source: various Chinese journals


B.C. Softwood Lumber Exports to China, as of June’12

BC softwood lumber export volume to China in for the first 6 months of 2012 reached 3.798 million cubic meters, a 5% increase over January-June’11.  BC softwood lumber export value for this period reached $508.2 million, a 12% decline over this period in 2011.