Chinese Economy, Housing and Lumber Shipments
China’s economy is stabilising on a lower trajectory, and remains on track to meet the Government target of 7.5 percent. The economy continues to rebalance towards consumption. Unemployment does not seem to be rising and wage growth remains strong. The leadership has accelerated approvals for some investment projects already in the pipeline, and re-announced others to boost confidence, but this does not represent a large scale stimulus like in 2008.
While many organisations have revised down their China growth forecasts for 2012, they continue to support our view that growth will be above the Government’s official target of 7.5 percent.
This view has not been changed by the latest round of economic data which showed many of the same trends as previous data releases. Indicators that were previously performing well (domestic consumption) have continued to do so, with retail sales growth picking up. Meanwhile, indicators that were previously underperforming (exports, industrial production) continue to be a drag on overall economic performance.
The major exception was import growth, which has been impacted by sluggish industrial performance. Imports saw a surprise contraction of 2.6 per cent in August (compared with 4.7 per cent growth in July).
The Government announced RMB 840 billion (£84 billion) of infrastructure projects on 5th September. However most were part of the 12th Five Year Plan, and some were re-announcements of projects that were approved in April and May.
The Housing/Construction Market
Chinese property prices are now bouncing back, amidst central bank’s decision to slash its key interest rates to boost the slowing economy. China Vanke Co., the country’s largest property developer by sales, said in mid-September its sales rebounded in August, the latest sign that home sales in China are set to continue to pick up.
Sales to first-time home buyers and upgraders have picked up in recent months following the central bank’s shift to a more accommodative monetary policy and moves by local governments to ease some property curbs. The central government has allowed some support at the local level for first-time home buyers while also stamping down on any moves that contravene measures targeting speculation.
Prices have rebounded in many cities. Data issued Monday by China Real Estate Index System, a private sector data provider, showed the average housing price in 100 major Chinese cities rose 0.24% in August to CNY8,738 yuan per square meter, the third consecutive month of sequential gains.
Many property developers plan to launch more projects during the September and October period, typically a peak period for housing sales, as part of efforts to boost sales before the year-end lull and to make up for weak sales earlier this year.
Meanwhile, a new report from S&P analysts Christopher Lee, Bei Fu, and Frank Lu confirms that the Chinese property market is stabilizing, that buyers are returning to the market and credit conditions are improving.
Here are some highlights from the report.
- Bright spots are emerging with property sales in the second quarter at a “healthier level”. But property prices will likely continue to be weak as developers try and clear their inventory. Prices should fall less than 5 percent in the second half of the year.
- The recent improvement in property sales can be attributed to pent-up demand and increased credit via reserve requirement ratio cuts. “In our view, the sales improvement stems from buyers’ expectations that property prices have bottomed now that government policy is becoming less severe.”
- Credit conditions have improved compared to the beginning of 2012 but lenders are still “cautious toward the property sector due to the banking regulator’s concerns over risky property lending and the developers’ uneven property sales performances”.
- While the government isn’t expected to announce major policy changes, the policies could differentiate between owner-occupiers and investors.
- “We believe that home purchase restrictions will likely stay well into 2013. On the other hand, the government will continue to ease funding and mortgage rates for first-time buyers. We don’t expect the government to introduce additional measures to tighten the property market because this could increase the downside risk to the economy–unless property and land prices rise significantly.”
- The commercial property sector is in better shape that the residential property sector. Rents in Beijing and Shanghai have recovered and are above 2008 peak levels.
- China’s property sector will see consolidation as larger developers increase their market share.
BC softwood lumber export volume to China in for the first 7 months of 2012 reached 4.370 million cubic meters, a 4% increase over January-July’11. BC softwood lumber export value for this period reached $591.9 million, a 11% decline over this period in 2011.