Impact of COVID-19 on China’s Wood Import, Construction and Real Estate Industry

FII China recently commissioned RCC, a building information platform, in completing a survey with 45 questions on the impact of COVID-19 on China’s wood import, construction and real estate industry. Thirty-four companies in respective fields have responded to the survey as of February 28, 2020. Based on their answers and further desktop research, FII China developed a report to update Canada Wood’s stakeholders on the current situation and its impact on wood-related businesses. Six impacts of COVID-19 on business operations are heightened below, and the full report can be found here.

An infographic chart can be downloaded from here

1. Work Resumption

 

It is expected to take roughly a month for Chinese wood traders to resume operations, while the construction and real estate industries may have to wait longer before going back to normal. As Hubei is the most severely affected by COVID-19 in China, the province is expected to resume regular operations no early than May.

2.Ports and Logistics

 

According to wood traders surveyed, custom clearance was not affected, and ports have resumed operations on February 28, 2020. However, domestic transportation posed as problems in some cases due to labor shortage, traffic restriction and the closure of downstream companies.

 

Most wood frame manufacturers have not resumed full production, and many projects are being suspended. The downstream subcontractors mostly used local raw materials to mitigate the impact of traffic restriction and logistic bottleneck.

3. Payment Collection

As wood traders strictly apply the delivery upon payment policy, COVID-19 has a limited impact on their cash flow in Q1. It is common for wood frame manufacturers to get paid based on the completion stages of construction. COVID-19 only affected the cash flow of the manufacturers whose construction ended near December 2019. Real estate sales declined, and their Q1 sale receipts will decrease by 20 to 30 percent due to the COVID-19 outbreak.

4.Wood Inventory

Wood inventory has a direct impact on wood frame manufacturers. According to the survey, 46.2% of wood frame manufacturers said most of the downstream companies have not gone back to business due to COVID-19 as of February 28, 2020, but they chose to maintain normal inventory.

 

 

5.Forecast of Wood Import, Construction and Sales

Forecast for Q1

COVID-19 outbreak has a great impact on construction and sales in Q1. Seventy percent of wood traders said that wood imports would decrease by 21 to 50 percent in Q1. Thirty-eight percent of wood frame manufacturers said that their construction and sales would decrease by more than 50% in Q1. Forty-five percent of real estate respondents said that their sales in Q1 would decrease by more than 50%.

Annual Forecast for 2020

Most of the respondents expressed uncertainty about this year’s market trend due to the complexities of the current situation. Some compared it to the year of SARS and considered that the market would only rebound once the COVID-19 is fully controlled.

6.Business Models and Scopes

All ten wood traders said that they would not change their business plans. All 13 wood frame manufacturers said that whether to expand or reduce their business would depend on market opportunities. All 11 real estate companies said that the short-term COVID-19 outbreak would not affect the company’s business scope.

Summary of the China Forest Law Amendment (2019) and Potential Impacts on Wood Export to China

The first Forest Law was originally established in China in 1984, and has been revised twice ever since. It has been over a decade since the last revision in 2009. Forests and the environment have seen huge changes since then, both in China and globally. On December 28, 2019, the Standing Committee of the China’s National People’s Congress, China’s top legislature voted to amend the Forest Law again, and the new Amendment will come into force on July 1, 2020.

This Amendment has nine chapters including general provisions, forest ownership, development planning, forest protection, tree planting and afforestation, forest management and administration, supervision and inspection, legal liability, and supplementary provision. Adhering to the Constitution, the Amendment requires any cultivation or use of forest resources to follow principles of sustainability and protection of nature. Shifting away from a focus on timber production, the Amendment concentrates on ecological civilization construction, seeking to more fully realize the role of forests in providing economic, social, ecological and cultural services. A few new materials have been added to reflect the principles, such as classified forest management system, science-based protection and restoration of forest ecosystems, forestry development planning, and forest fire prevention and pest control.

The revised Forest Law is a domestic-focused law. However, the sweeping changes to China’s forest sector will have overarching and long-lasting impacts, not just domestically, but also on the broader state of the world’s forests, such as direction of trade, availability of forest resources, and role of forests in providing key ecosystem services.

Domestic Impacts

Clearer Classified Forest Management System

The Amendment adopts a Classified Forest Management System, dividing forests into public welfare forests and commercial forests to achieve the balance between conservation and economic development. Public welfare forests are to be strictly protected and managed for ecological values while commercial forests are to be mainly used for economic purposes and be independently operated by forestry operators.

Increasing Efficiency of Timber Production

To increase the efficiency of timber production and distribution and strengthen the protections of the rights of forestry operators, the Amendment makes improvements on the existing Forest Harvesting Quota and Harvesting Licensing System by decentralizing the approval of harvest quotas, narrowing the scope of issuance of harvesting license, eliminating the Timber Transportation Licensing System and streamlining the issuance of Timber Harvesting Licenses.

Enhancing the Forest Tenure

On the basis of integrating the legal liability system of forestry, the Amendment strengthens the protection of forest tenure, establishes the National Forest Eco-Compensation System, and introduces stronger protections of the rights of private forest right holders. Any expropriation of forest land and trees must be carried out using evaluation and approval procedures in compliance with the law and include fair and reasonable compensation. In the event that demarcation of public welfare forests involves non-state-owned forest land, a written agreement should be signed with the forest rights holder and paired with reasonable compensation.

Global Impacts

Prohibiting Illegal Logging and Trade in Timber

The Amendment stipulates that “timber operating and processing enterprises should establish an account for entry and exit of raw materials and products. No unit or individual may purchase, process or transport timber that he/she clearly knows was piratically felled or indiscriminately felled in forest regions.” It provides a stronger entry point for China’s forestry authorities to supervise and inspect potentially illegal timber.

Over the past 20 years, China’s forestry authorities have cooperated with the trade and customs supervision authorities and research institutes to adopt a series of policy advocacy and technical support measures to combat illegal logging and trade in timber. As legislation, the Amendment provides a legal basis for China’s State Council and relevant ministries to formulate regulations, policies, legal framework, implementation plans and mandatory measures for regulating its market to help stop illicit import timber trade and bring about sustainable supply chains.

China remains the world’s largest importer, producer and consumer of wood. From 2009 to 2018, China’s total timber product market supply increased from 420 million m3 to 560 million m3, an increase of 32.6% over the past ten years. More than half of this wood is imported. Canada has an international reputation as a trusted source of legally and sustainably obtained forest products, which is now also recognized by the Chinese government senior officials. The third-party certification to assure the legality and sustainability of Canada’s forest products makes an advanced position for Canadian wood industry to import legal sourced timber to China under the new Amendment.

Backgrounder: COVID-19 outbreak

The COVID-19 is the seventh type of Corona Virus discovered in the World so far that are pathogenic to humans. Unlike MERS and SARS, or the H1N1 flu, statistics show that the death rate of the new virus is significantly lower.

However, clinical observation indicates that its incubation period for showing fever and pneumonic symptoms could take as long as two weeks, with an average of three days. What does this mean?

Imagine someone travelling around, going to meetings, gathering with family members, or merely walking on a street full of people for two weeks without knowing that he has contracted a virus that could be spread by a single cough or sneeze?

An infected individual could travel around the World in 72 hours but still not show any symptoms, yet everyone who’s been in the same space with this person or had been near is at high risk. Therefore, the longer the incubation period, the easier a virus spreads.

Although the reported death rate of the new virus is not as high as other more lethal types of coronaviruses, it could still be fatal for seniors and people who already suffer from chronic illnesses such as diabetes, cardiovascular disease or asthma, because their immune systems are more fragile, which requires great attention.

The first case of the virus was diagnosed on January 2 in Wuhan, the capital of Hubei Province, and at the time, doctors were still not certain if the virus could achieve human-to-human transmission because the source of the virus was tested on wild animals. This did not take long to confirm as cases started to grow exponentially.

The DNA chain of the new virus is 80% similar to the SARS virus in 2003, patients demonstrated similar clinical symptoms, they had similar transmission methods, even the time of the outbreak happened around the same time period, which is right before the Chinese New Year (CNY).

This presents a huge epidemic control challenge for the Chinese government. Every year the “CNY transportation rush” is reported to receive a passenger volume of almost three billion travelling back and forth their home towns for this most important annual celebration of the Chinese people.

This number is a horror story when it comes to trying to stop a fast-spreading, long incubation period, highly contagious virus. Hubei province, being an important economic centre and transportation hub for Central China, makes it even more terrifyingly possible to become a national pandemic and eventually a World pandemic.

The Chinese government is doing everything it can, mobilizing all available resources to stop the virus from spreading, sometimes even at the stake of compromising the country’s economy. Here are a few very effective actions to control the pandemic from my observations living in China:

  • China was able to map out the DNA Chain of the COVID-19 within a week of its outbreak and shared this information immediately with the WHO in order to facilitate the production of nucleic acid testing kits and confirming suspected cases of diagnosis expected to arise around the World. .
  • This year’s CNY was on January 25, the Chinese government announced the closure of Hubei Province on January 23, barred all travelling in and out of the province, except for medical teams from around the country sent to support pandemic control.
  • From Central, Provincial, and municipal governments, down to district, county, village, and residents’ committee, all levels of governments actively took stringent measures to minimize people gathering, travelling, or any person-to-person contact.
  • The original start date after coming back from CNY holidays was Feburary 1, most cities have postponed starting work by two weeks, and schools will not restart until May.
  • The Chinese government made a 24/7 channel available to deliver transparent media communications on statistics such as confirmed cases, suspected cases, severe cases and the death toll of each province and region. Reports on treatment options, medication advancements and vaccination research, among all relevant news on combatting the virus are broadcasted real-time on all media networks.
  • Each province and region sent their most sophisticated and experienced respiratory experts and medical teams to support Hubei Province. The Chinese army also sent three batches of 4000 army doctors and nurses to Hubei. These medical teams account for almost 11,000 people, and they were the only ones travelling to Hubei during the CNY.

The above measures effectively controlled the extensive outbreak of the virus around the country and minimized its expansion internationally. However, the most demanding work is still to treat and accommodate the rapid growth of confirmed cases within Wuhan and surrounding areas, where the virus was first found.

Rethink Prefabrication: How China Built Two Hospitals in Ten Days

Author’s note: Canada Wood and FII have been promoting WFC as an ideal solution for China’s drive to advance prefabricated construction technology due to its advantages in construction speed, reduced waste, and green benefits. This story seeks to examine the ultra-fast completion of two hospitals built in Wuhan for the coronavirus outbreak, in an effort to lead to some fresh insights on how WFC promotional endeavors could better cater towards China’s rapid technological advancements in construction.

 

The recent Chinese New Year of the Rat was besieged by an atmosphere of fear and distress prompted by an epidemic outbreak of the novel coronavirus that was titled by the World Health Organization (WHO) as “Corona Virus Disease COVID-19.”

Since the first case was discovered in early January, to date, almost 60,000 infected cases and still around 10,000 suspected cases have been reported in Hubei, three-quarters of which are in Wuhan.

Wuhan’s usual medical resources are far from capable of taking in, testing, quarantining, and treating this many numbers of patients. At the onset of the virus outbreak, there were only 400 hospital bed spaces available daily for respiratory patients.

On January 22, Hubei announced the construction of hospitals for exclusively treating COVID-19 patients. Within a span of 14 days, Wuhan had two hospitals accommodating almost 3000-bed spaces completed.

Moreover, large public buildings, including sports stadiums, exhibition halls and schools, were refitted into 11 field medical centres, and all existing hospitals were also redesigned and renovated to provide additional bed spaces.

In merely two weeks, a rough estimate of 15,000-bed spaces was made available to patients and supporting medical teams. The speed and scale of the construction are unprecedented in a global context, how did China do it?

Let us first look at the two hospitals built from scratch in 10 days. They are called the “Huoshenshan Hospital” and the “Leishenshan Hospital,” meaning the Fire God Mountain and the Thor God Mountain respectively. Both Gods are described in ancient Chinese mythology as being able to defeat all evils, explicit of China’s determination to conquer the pandemic.

At the behest of the Central Government, Fire God Mountain started construction on January 22, shortly followed by the Thor God Mountain.

What makes it possible to coordinate what seemed to be a disarrayed bunch of people, materials, and resources and put together a hospital that has over 1000 bed spaces, equipped with fresh air system, negative pressure system, emergency wards, sewage treatment, cafeteria, water electric and gas network, and dormitory for 2000 medical workers, in merely ten days?

 

Below is a brief summary of the ten-day construction schedule for the two hospitals:

Day 1 Machinery arrive onsite, land forming 
Day 2 35,000 sqm of land forming completed
Day 3 All BIM design specs completed
Day 4 Construction site temporary assembly line ready, prefrab components arrive onsite
Day 5 Underground pipes laid, foundation poured
Day 6 4000 workers, two 12 hours shifts, assemble precast structure components and 400 prefabricated hospital wards
Day 7 Install water reservoir
Day 8 Electricity network installed, power connected
Day 9 Door and window installation and internal decor
Day 10 Internet connected, appliances installed, equipment debugging completed. Medical team arrived
Day 11 First batch of patients arrives

 

Here are some interesting yet touching details behind building the hospitals:

The hospitals started construction right before the CNY, and most workers have gone back home to celebrate with their families. The “China Construction Engineering Bureau” who took the lead in constructing the projects sent notices recruiting workers who were based in Hubei, almost 8,000 workers showed up, most of them voluntarily enrolled to show support.

A Beijing Design Institute took 78 minutes to update and complete all architectural and structural designs of the hospitals, and they were in charge of designing the Beijing Xiangtangshan SARS hospital 17 years ago.

The designs were then handed over to the projects’ designated design Institute that spent one hour on assembling 60 onsite designers and several hundred online BIM designers. This massive design team used 24 hours to complete all design specs and coordinated onsite drawing details with the construction team.

Design confirmation was immediately followed by foundation work on land formation, road paving, underground drainage, seepage-proofing, sewage treatment, creating underground medical waste transfer system, and land backfill, all done in one day.

Then almost 300 electricians from the State Power Company arrived onsite to perform circuit line switching, bury 30 plus electric transformers underground, lay 8000 meters of electric cables, completed within 24 hours in order to ensure timely electricity connection of the construction site.

Seven Chinese telecommunications companies used 36 hours to complete 5G hospital network coverage, equipped with cloud resources, core systems, computing and storage systems, as well as teleconsultation systems for remote diagnosis. With a 5G network in place, a camera is then set-up for the 24 hours live streaming of the construction progress.

Logistics coordination was key to timely project delivery. The Hubei highways gave exclusive passage to transport workers and construction materials needed for the projects, 2 KM of trucks lined up overnight going into the construction sites. Countless supplies, as well as personnel, were delivered onsite within one day, they include but not limited to:

  • More than 100 onsite heavy machineries and almost 4000 workers to each site;
  • Concrete and steel material, as well as partition walls needed for the foundation and main structure;
  • Cement, fire retardant coating, galvanized round steel, insulation materials, nodular cast iron, piping, and fire alarm sets to all rooms;
  • almost 6000 sets of toilet bowls and faucets, 3500 sets of prefabricated integrated hospital rooms, nearly 5000 sets of steel connectors, 50 sets of power supply systems, and 2000 sets of valves;
  • Three meals, temporary shelter, site toilets, simplified onsite meeting rooms, e-cashier supermarkets, among other supplies needed for the workers;

These otherwise costly construction materials and needed resources have all been donated by their generous producers in support of Hubei, and that is not all. Upon the completion of the construction phase up to internal décor, the next set of donations arrived on site shortly:

  • Electronic supplies including 2000 set of computer systems and supplementary IT teams, LCD screens, internet security systems, and hospital cloud systems;
  • Medical equipment including CT scans, specialized air conditioning systems for ICU wards and operation rooms, thermal imaging systems and core plates, medical lighting equipment, 2000 electronic thermometers and 700 oximeters, medical use air purifiers, robotic nurses and hospital beds;
  • Electric appliances including air conditioners, refrigerators, water dispensers, and water heaters, and TV screens;
  • Twenty negative pressure ambulances to each hospital.

Even small things like furniture, filing cabinets, and chairs have been contributed courtesy of anxious enterprises eager to help.

Besides the spirit of unity of the Chinese inspired by a time of national crisis, the prefabricated construction technology and the BIM system that the Chinese government has been promoting in recent years significantly accelerated the speed of construction.

Because of BIM and PC advancements, each stage of the project is able to interlock with the next accurately, greatly reducing convergence time in between. The efficiency of this system is not only demonstrated in the construction of the two hospitals, but also the refitting work of the 11 field hospitals in Wuhan.

Field hospitals are emergency temporary hospitals that the Chinese army used to put together in a time of war, they usually need to be completed fast and can fulfill simple duties of first aid treatment and hospitalizing injured soldiers.

In Wuhan’s case, 11 large public buildings were all refitted into field hospitals overnight to provide bed spaces for confirmed cases of patients with milder symptoms, while critical patients are sent to the more professionally equipped newly built hospitals.

From the expeditious construction and refitting of Wuhan’s pandemic hospitals, it is evident that PC systems will be the future and has become a celebrity of the Chinese construction market. As one of the three recognized PC systems by the Chinese government, it maybe opportune for WFC to explore prospects integrating with the BIM system in an effort to string resonance with Chinese designers.

China is called by the World as the “Captain Marvel of Infrastructure”, WFC needs to keep abreast of China’s technical construction advancements in order to win its respect and acceptance.

 

China Economic Update Q4 2019

China’s GDP increased 6.0% in Q4 2019, official data showed in mid-January, in line with expectations of market analysts and unchanged from the previous quarter’s pace. Facing sluggish demand at home and abroad as well as U.S. trade pressure (before the Phase One economic and trade agreement was signed in January 2020), Chinese policymakers have been rolling out a stream of growth boosting measures over the past two years in an effort to contain financial and debt risks. The world’s second-largest economy grew 6.1% in 2019, the slowest in 29 years, but still within the government’s target of 6-6.5%.

The Caixin China General Manufacturing PMI, an important indicator of the strength of the Chinese economy, stood at 51.5 in December, slightly down from 51.8 in the previous month. The recent data indicated a moderate expansion of the manufacturing sector. According to Caixin’s press release on the December PMI Index, although the rate of new order growth eased to a three-month low and export sales rose only slightly, the overall health of China’s manufacturing sector continued to improve.

2020 Economic Outlook

Economist Intelligence Unit (EIU), under the Economist Group, forecasted that real GDP will expand 5.9% in 2020 — a rate just strong enough for China to meet its political goal of doubling real GDP between 2010 and 2020. However, business conditions on the ground are unlikely to be as good as headline GDP data in 2020. This is because the importance attached to meeting this political target leaves economic figures susceptible to manipulation.

The Construction Sector

Home prices in 70 major Chinese cities remained generally stable in December 2019. Kong Peng, chief statistician with the National Bureau of Statsitics, said the real estate market maintained its steady trend in December as local governments have reiterated that “housing is for living in, not for speculation,” along with implementation of a long-term management mechanism for the market, according to a recent report by Xinhua News, China’s state-owned news agency.

Total investment in the real estate sector in 2019 increased 9.9 percent year-on-year. Total floor area completed in Q3 was at 866 million m2, up 14.4 percent compared to Q2, but still below the same periods in 2018 (883 million m2).

CAD/CNY further edged down in Q4 2019 compared to the preivous period, but still higher then the levels at the beginning of the year. The currency ended at 5.3636 on December 31, 2019.

China Wood Imports (cited from China Bulletin)

Softwood log inventories at China’s main ocean ports totaled 3.7 million m3 at the end of December 2019, an increase of 6.5 percent from the previous month. Radiata pine log inventories recorded a decline of 2 percent for the month. December’s European spruce log inventory was 770,000 m3, up 27.7 percent from the previous month. Inventories at the Taixing port jumped rapidly, moving from 60,000 m3 in November to 180,000 m3 by the end of Decmeber.

Softwood lumber stocks in the Taicang port and the surrounding area were at 1.06 million m3 in mid-December 2019, a large decrease of 21,000 m3 (down 16.5 percent) from November. Stocks of SPF lumber were 180,000 m3, a major decline of 28 percent from November. Meanwhile, softwood lumber inverntories at the Tianjin port were nealry 150,000 m3, down 20,000 m3 from November.