China’s economy is stabilising after a flurry of modest policy measures, including a Notice on Several Measures to Promote Home Furnishing Consumption, has seen Chinese factory activity increase for the first time in six months.
And in positive signs for the global timber market, China’s Global Timber Index (GTI) – which measures timber activity across seven pilot countries – registered 52.6% for August, the second consecutive month the index exceeded the 50% threshold for growth.
According to the Chinese National Bureau of Statistics, the Purchasing Managers’ Index (PMI) rose to 50.2 in September from 49.7, correcting a half-year decline in manufacturing activity.
The Chinese economy sagged after a burst in early 2023 when its zero-tolerance COVID policies were lifted, and its slowdown significantly impacted global timber markets.
As the world’s largest consumption market, meeting 18% of global demand and 71% of Asian demand last year, it has the highest reliance on imports – with the share of imported wood is 55%, and it includes sawn timber, logs, pulp and paper.
As a result, China now accounts for more than 60% of New Zealand’s export trade in sawn wood, and due to sanctions arising from the war in Ukraine, more than 83% of Russia’s export trade with conflict timber now using China as a “red lane” to enter global markets.
Nonetheless, demand for imports has fallen 6% over the past three years, mainly driven by the construction sector, which represents around 45% of demand, leading some economists to allege the emergence of a “timber tantrum” in export markets.
In late August, the Chinese government released a new housing policy with four “first cities including Beijing, Shanghai, Guangzhou and Shenzhen, announcing that “families that own no property in the region, regardless of whether they have taken a loan in the past are to be treated as first home buyers eligible for favourable mortgage conditions.”
However, whilst production for consumption has rebounded, Chinese manufacturers are now suffering from a slowdown in export orders.
Major exports include processed products, such as wood furniture and plywood, which account for about 60% of China’s total wood product exports by value.
In the wake of the US-Chinese tensions, western economies diversified into new markets, including Vietnam, which has emerged as a viable alternative supplier of forest and wood-based products.
State-supported Chinese companies are also investing in off-shore manufacturing facilities, especially in Russia and Central Africa, whilst the US is leading the push to onshore to meet future needs in pulp and paper.
This has led some economists to fear falling exports, a property bubble and even high youth unemployment could cloud China’s economic future.
In a survey released yesterday, the Caixin/S&P Global Manufacturing Purchasing Managers’ index reports that external demand remained weak, with the export orders index contracting for the third month.
“The economic recovery has yet to find a solid footing, with insufficient domestic demand, external uncertainties and pressure on the job market,” said senior economist Wang Zhe at Caixin Insight Group.
Factory owners’ confidence for the year ahead hit a 12-month low.
The survey showed that consumer, investment and intermediate goods producers cut staff. It also found that input costs have risen fastest since January due to rising prices of chemicals, crude oil and industrial metals.
As a result, policymakers face the daunting task of reviving stalled economic growth, with analysts calling for more aggressive steps on top of the piecemeal support of recent months.
“The implementation and effectiveness of the economic stabilisation policies should be the next focus of attention,” said Dr Wang.
“More effort may be needed to increase employment and income.”
In September, the central bank cut the amount of cash banks must hold as reserves to support growth.
“We do not anticipate substantial fiscal or monetary stimulus by the Chinese authorities,” according to S&P Global Ratings in a note.
“While muted policy stimulus means more pain in store for corporates and banks, it also shows China continues to move away from unproductive debt-fuelled growth.”