Canada Wood Today | The Canada Wood Group

China Economy, Housing, and Lumber Shipments

By canadawood_admin

President, Canada Wood Group

May 30, 2012

China Economy:

A new World Bank report projects GDP growth in China will be 8.2 percent in 2012 and 8.6 percent in 2013. The China Quarterly Update, released 20th of May, says that the prospects for a gradual adjustment of growth remain high.

“China’s gradual slowdown is expected to continue into 2012, as consumption growth slows somewhat, investment growth decelerates more pronouncedly and external demand remains weak,” says Ardo Hansson, Lead Economist for China. “The risks of overheating are moderating, increasing the prospects to achieve a soft landing.” 

The China Quarterly Update, a regular assessment of China’s economy, identifies as the key near-term policy challenge the need to facilitate a soft landing and sustain growth. Key risk factors include the weak and uncertain growth prospects of high-income economies and the evolution of the ongoing correction in China’s property markets.  Sufficient policy space exists to respond to downside risks, but any policy response would need to be carefully crafted keeping in mind longer-term effects and objectives.

The Update notes that the burden of any policy response should in the first instance fall on fiscal policy, with measures supporting consumption first priority. Reserve requirements could be tweaked further to ease the availability of credit, but policy rate action should best be reserved for potential downside scenarios since real interest rates are already accommodative. Administrative measures have been helpful in cooling the property market. Looking ahead they should be substituted by market-based measures that raise the cost of capital and expand the range of investment opportunities.

China’s longer-term outlook will depend on its management of central structural challenges. As the traditional drivers of growth weaken over time, GDP growth may gradually slow. Sustaining strong per capita income growth requires invigorating underlying fundamentals of growth, especially productivity improvement.  To enhance the scope for competition and to redefine the source of China’s competitive advantage from low cost to higher value on the strength of innovation will be key.

In the past rapid growth and structural change has come at the price of economic, social and environmental imbalances. Looking forward it will be important to sustain the ongoing shift in focus from the rate of growth towards the quality of development.

Housing / Construction

Real estate transactions in China were scant during the first quarter of 2012—mostly due to regulation from the central government, forcing the market to hit the bottom. Residential land sales declined considerably both in volume and price in major cities under the weight of new regulation. Experts say real estate transactions will remain slow if regulation pressure is not relieved. 

At two major political meetings this year, Premier Wen Jiabao expressed the need to better regulate the real estate market—raising the public’s expectation of a further housing price drop and in turn contributing to the decline of real estate transactions.

The total transaction volume from January to March for 20 cities was 222,000 units—a drop of 28.3 percent from the 309,000 units in the same quarter last year, according to statistics published by Centaline Property’s market research department. 

The decline from the last quarter of 2011 was 15.6 percent, or 41,000 units. In the same period, the drop for Shanghai, Tianjin, Shenyang, Dalian, Qingdao, Hefei, Changsha, and Haikou was more than 40 percent. Zhang Dawei, the chief inspector of Centaline’s research department said housing prices are expected to drop 10 to 20 percent in the next six to twelve months.

Developers have indicated they expect housing prices to drop a further 20 percent, according to Standard Chartered Bank’s recent survey of 30 real estate companies across eight cities. The survey found inventory steadily increasing, and 23 companies reported that the inventory in their developing cities exceeded estimates. The cities surveyed were Chengdu, Wuhan, Nanjing, Hangzhou, Xian, Shijiazhuang, Zhongshan, and Zhaoqing.

Statistics from “I Love My Home Market Research Institute” show that the total number of first quarter transactions in second-tier cities in northern China dropped 51 percent, a rate of decline higher than the first-tier cities in the region. In the central south, the drop rate for second-tier cities is 22 percent, which is consistent with the drop experienced in first-tier cities. The eastern part of the country was the only area that showed a higher transaction rate in second-tier cities.

In March, average house prices in 100 cities continued a seven-month consecutive decline, according to data released by the China Institute of Real Estate Index. 

In addition, many developer’s loans are maturing in the second and third quarters of this year—placing more pressure on the financing system, according to Standard Chartered Bank. The number of loan defaults and bankruptcies are expected to rise. 

Lumber Shipments

BC softwood lumber export volume to China in for the first 3 months of 2012 reached 1.842 million cubic meters, a 19% increase over January-March’11.  BC softwood lumber export value for this period reached $237.4 million, a 3% decline over this period in 2011.