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China Economic Update 2019 Q3

Eric Wong

By Eric Wong

Managing Director, Canada Wood China

November 7, 2019

China’s Gross domestic product (GDP) rose just 6.0% year-on-year in Q3 2019, marking a further loss of momentum for the economy from the second quarter’s 6.2% growth. China’s third-quarter economic growth slowed more than expected and to its weakest pace in almost three decades as the bruising U.S. trade war hit factory production, boosting the case for Beijing to roll out fresh support, reported by Reuters. The third-quarter GDP growth was the slowest since the first quarter of 1992, the earliest quarterly data on record, and missed forecasts for 6.1% growth in a Reuters poll of analysts. It was also at the bottom end of the government’s full-year target range of 6.0%-6.5%.

The Caixin China General Manufacturing PMI index, an important indicator of the strength of the Chinese economy, grew to 51.4 in September 2019 from 50.4 the previous month. China’s manufacturing sector saw a modest improvement in overall operating conditions during September, according to the press release by Caixin’s press release on the September PMI Index. Chinese goods producers continued to express a relatively subdued level of confidence towards future output, as worries persisted over the outcome of the ongoing China-US trade negotiations, says the report.

2019 Economic Outlook

The Economist Intelligence Unit (EIU) under the Economist Group sticked to their earlier forecast that China’s real GDP will grow by 6.2 percent per year on average in 2019-20, just above the minimum level required for the government to achieve its goal of doubling real GDP between 2010 and 2020. Growth will slow to an annual average of 5.5% in 2021-23.

Meanwhile, the International Monetary Fund (IMF) forecasted in its recent report that China’s economic growth will be 6.1 percent this year and 5.8 percent next year. Although the Chinese economy is slowing down, such growth rates are still “reasonable” due to China is restructuring its economy to grow in a more sustainable way, according to Tao Zhang, IMF’s deputy managing director, cited by a report by CNBC.

The EIU expected that relations between the US and China will be frayed during their forecast period. They do not expect the sides to come to an agreement over trade until after the US presidential election in 2020, while bilateral tensions will persist and worsen in other areas. The report also said that The authorities will allow for looser monetary and fiscal policy in 2019-20 to offset downward pressure on economic growth. They expect policy tightening after 2020, as addressing structural economic challenges is prioritised again.


The Construction Sector

Average new home prices in China’s 70 major cities rose 0.5 percent in September 2019 from the previous month, when it also grew at the same pace -the slowest since February, Reuters calculated based on National Bureau of Statistics (NBS) data in October. It was a relief for policymakers who remain wary of high debt and bubble risk and are refraining from stimulating the sector as the economy cools.

Total investment in real estate in China had an accumulated increase of 10.5 percent in September year-on-year, remaining stable compared to the previous months in July and Agust 2019.

Total floor area completed in China in Q3 2019 was at 866 million m2, up 14.4 percent compared to Q2, slightly below the same period in 2018 (883 million m2).

CAD/CNY continued the upward trend in Q3 2019. This strong momentum started in April 2019 and overtook the highs in October 2018.

China Wood Imports (cited from China Bulletin)

Softwood log inventories at China’s main ocean ports totaled 4.1 million m3 at the end of September 2019, a substantial declicne of 20.7 percent versus the previous month. Radiata pine log inventories dropped dramatically of 29 percent from the prior month and represented 62.5 percent of overall log inventory. North American Douglas-fir and hemlock volumes remained the same as the previous month. Softwood log inventories from other countries, including Russia, Europe, Japan and South America, totalled 294,000 m3, decreasing 11 percent from last month.

Softwood lumber inventories at Taicang port and surrounding area were 1.58 million m3 in mid-September 2019, a slight decrease of 20,000 m3 from the previous month. Stocks of SPF lumber was 410,000 m3, a large drop of 120,000 m3 (23%).