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.

 

 

 

 

 

 

 

 

European Timber Quickly Changing the China Market

In 2019, the most notable change in China’s softwood log and lumber market was the significant growth of such imports from Europe. This was mainly due to an infestation of spruce bark beetles and windstorms that have led to a massive timber salvage program in Europe. This has hampered the competitiveness of other softwood species in the Chinese market.

 

Softwood log exports

 

In the first 11 months in 2019, European softwood log exports (excluding Russia) to the Chinese market were a whopping 6.8 million m3 – the pace for the last three months was over one million m3 per month. This represented an increase of 484 percent over the same period of 2018. On the contrary, the softwood log supply from North America was 4.9 million m3, down 27 percent year on year.

 

 

 

 

 

 

 

 

 

 

Softwood log exports from Europe were led by Germany (3.1 million m3, up 2,764% year on year) and the Czech Republic (1.9 million m3, up 1,277% year on year). The current Cost and Freight (C&F) at China’s main ports (by containers) is about Euro 95-100/m3 (US$ 105-110/m3). The C&F for New Zealand radiata pine log is around US$123/m3, and Canadian hemlock is about US$120/m3.

 

European spruce logs are gaining market share at Chinese sawmills in the production of construction lumber and are displacing radiata pine logs and especially North American softwood logs. There are several reasons for this. First, the log scaling in Europe allows for at least a 5 percent gain in volume for Chinese importers — this contrasts with North American logs, where there are normally no gains or even a volume loss for Chinese importers. Second, European spruce logs are longer (mostly 5.7m to 11.5m with over-length tolerances). Better yields are achieved in Chinese sawmills with Central European logs compared to using North American logs. Last, European spruce logs are now the cheapest species in Chinese wholesale markets – even cheaper than radiata pine logs. As a result, European log imports have soared, thus pushing down the prices of North American and radiata pine logs.

 

It’s difficult to predict how long this trend will continue; however, we (Who does “we” refer to?) expect the supply of European spruce logs will remain strong for several years, although this does depend on weather conditions. Furthermore, more Chinese players (companies?) are investing in log yards in Europe to ship logs to China at competitive prices. This will create a tough challenge for other softwood log suppliers to compete – including North American logs.

 

Softwood lumber imports

 

In terms of softwood lumber, the supply from Europe (excluding Russia) has reached 4.2 million m3 during the first eleven months of 2019, up 61 percent from the same period of 2018. In the meantime, European lumber imports accounted for 15.3 percent of the market share in China (vs. 11.3 percent in the same period of 2018).

 

Finland and Sweden, and now the Ukraine and Germany, are the four largest suppliers. Softwood lumber imports from Ukraine reached 764,000 m3 during the first eleven months of this year, an increase of 94 percent from the same period of last year. The softwood lumber supply from Germany has reached 641,000 m3, a dramatic growth of 375 percent compared with the same period of last year.

 

 

 

 

 

 

 

 

 

 

The growth of the Central and Eastern European softwood lumber supply in China is largely driven by low-grade lumber applied in construction, including:

 

  • Ukraine red pine lumber: offered at flexible sizes (mainly 36×86 mm or even 35×85) with a size tolerance price of around US$162-165/m3 for air-dried (AD) deadwood lumber grade – this competes with SPF lumber in construction lumber applications.
  • German spruce lumber: offered at flexible sizes (based on Chinese importers’ requirements) at price of around US$170-175/m3 for AD, ABC grade (cut from storm and beetle logs).
  • Stock volume to be offered from various European mills at prices of US$ 130-150/m3 for KD lumber, but at fixed specifications offered in the stock listing.

 

Essentially, the volume of low-priced spruce lumber from Central Europe in China was relatively small compared with other main suppliers. Furthermore, for the market ahead, this rapid pace of low-grade lumber exports from Central Europe is expected to slow down, considering sawmills have limited ability to add shifts and some non-favored specification issues.

 

About the writer: Jane Guo is the China Operations Manager for Forest Economic Advisors. In this role, Jane is responsible for conducting market research, information assessments, industry evaluation as well as logistics organization for market trips, conferences and tours in China. The focus of the China office is on softwood log and lumber products, but a variety of other products is also covered (some hardwood and value-added products).

For further background information, please contact: Russ Taylor [email protected].

 

China’s First WFC Nearly Net Zero Project Design Meet Government Standards

The China Academy of Building Research (CABR), China’s largest and most diverse research institution in the building industry, has completed an assessment report on the design of the Changzhou Nearly Zero Energy Wood-Frame Project. The report concluded the light wood-frame project meets the Technical Standard for Nearly Zero Energy Buildings required by China. It will be China’s first wood-frame project consuming nearly net-zero energy.

 

A nearly zero-energy building (NZE) is a building with nearly zero net energy consumption, meaning the total amount of energy used by the building on an annual basis almost equals the amount of renewable energy created on the site. 

 

The CABR’s recognition of the Changzhou Nearly Zero Energy wood-frame project is a milestone for the government’s endorsement of wood’s contribution to energy saving in the construction sector. It will also strengthen the industry/market’s understanding that wood-frame construction (WFC) is an ideal solution to NZE, thus creating more opportunities for wood applications in China. 

 

Canada Wood China (CW China) supported the Jiangsu Urban and Rural Construction College to explore the Changzhou demonstration project jointly. It will be a two-storey guesthouse with light wood-frame structure, covering a building area of 592 m2, with eight guest rooms. Glue-laminated timber (GLT) will be used in the hall and entrance. CW China helped design the building, which is energy efficient, especially with regards to insulation, airtightness and its ventilation system. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Images: Designs for the Changzhou demonstration project.

 

The project will demonstrate the capabilities of WFC with very low energy consumption to Chinese officials, developers and the industry. This project was selected as part of China’s National Key Research and Development Program of the 13th Five-Year Plan, a framework for government policies from 2016-2020.

On November 13, 2019, builder Shenzhou Yuanlin was selected through a rigorous bidding process to carry out this demo project. The design review and final construction permit application was completed. The Jiangsu Urban and Rural Construction College plans to start the construction of its foundations in late December 2019.

 

 

 

 

 

 

 

 

 

 

Image: The interior plan of the building.

 

Background

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University Timber Structure Design Competition

Students from Nanjing Tech University and Tongji University won the first prizes in the Fourth University Timber Structure Design Competition held by Tongji University, Chongqing University and Canada Wood China (CW China) in December 2019.

The competition provided an excellent platform for young talents to contemplate the innovations of wood materials. Moreover, it strengthened university students’ understandings of timber structures and enhanced their abilities in applying theory to practice.

Twenty-five works from 15 universities in China entered the competition. Students majoring in civil engineering and architecture were asked to set up a team of three to six team members and design one timber structure for a public service centre (with a floor area of 400 m2) within a national forest park. Eight teams, including Tongji University, Nanjing Tech University, Xi’an University of Architecture and Technology, Guangzhou University, reached the final competition.

Professor Frank Lam from the University of British Columbia and two Chinese professors, one from Nanjing Forestry University and the other from Shanghai Jiao Tong University, were invited to sit on the judging panel. The judges rated the projects based on the following criteria: timber structure should be used for the main load-bearing system; architectural design is in harmony with the surrounding environment; design complies with national building codes; the design is economical and easy to build; and the building’s functional area can be integrated with high-tech equipment.

This year marked the fourth edition of the University Timber Structure Design Competition. Through the continuous efforts made by CW China and Chinese universities, the enthusiasm for wood designs has been further enhanced by both university lecturers and students, laying a good foundation in cultivating new blood for the industry.

Foshan Prefabricated WFC seminar a success

Canada Wood China (CW China) held another successful inbound mission in Foshan Guangdong province on December 11. It was based on the theme “Exploration of Prefabricated Wood-Frame Construction (WFC).” The event was co-organized by CW China and the Guangdong Provincial Construction Sustainable and Prefabricated Industry Association (GDCSDA), an organization promoting green and prefabricated development under the Guangdong Ministry of Housing and Urban-Rural Development (Guangdong MOHURD).

The activity was fully supported by Guangdong MOHURD, the official government department that oversees the province’s construction industry. Some local construction entrepreneurs also joined the mission, visiting the prefabricated WFC projects representative of Foshan Gaoming District’s hybrid applications and prefabrication advancements.

A seminar during the mission made a strong case for using prefabricated WFC in the resort sector. Associations and industry experts shared views that wood is an ideal material for prefabrication, as it is fast to construct and install. Wood constructions are ideal in realizing ultra-low energy and green development.

To further recognize wood as a solution for the prefabrication target in the province, the GDCSDA started setting up a sub-association, Prefabricated Wood Construction. It’s expected to acquire high-quality industry information to build a complete green construction chain and introduce financing in the booming Guangzhou-Hong Kong-Macao Greater Bay Area (the Bay Area).

CW China approached the GDCSDA in December 2018, inviting the association to attend a seminar on wood in manufacturing. Inspired by the seminar’s topics, the GDCSDA introduced, Foshan Yiyuan Company, a manufacturer of handicraft, to CW China. The company was invited to join the “Try Canadian Wood” Campaign and produced 19 pieces of furniture with hemlock provided by CW China in 2019. The photos of the furniture pieces will be included in a catalogue for the campaign, reaching out to more potential trial partners.

Convinced by the applications of Canadian wood in manufacturing and also an outbound mission to Canada in June 2019, the collaboration with the company has extended from wood in manufacturing to wood in construction with prefabrication and energy efficiency.


One of the highlights during this Foshan inbound mission was visiting Yiyuan Company’s showroom and office. The showroom displays the company’s capacities and wood carving techniques for interior decorations.

Currently, the company is considering switching its planned museum building from concrete to hybrid structure (concrete + wood). Once the new museum building is completed, the furniture they produced with Canadian hemlock will be displayed, showcasing how Canadian wood can be used in both construction and manufacturing.

The Bay Area is one of three strategic regions in China in addition to Bejing-Tianjin-Hebei and the Yangtze River Economic Belt. The Bay Area’s 11 cities account for 13 percent of China’s overall economy. It is also a prioritized area for CW China due to its fast-growing economy and advancements in manufacturing and construction.