China’s Gross domestic product (GDP) grew 4.9% Year-Over-Year (YOY) in Q3 2020, following 3.2% growth in the second quarter. The government has rolled out measures that include more fiscal spending, tax relief and cuts in lending rates and banks’ reserve requirements to revive the economy and support employment. While the economy has steadily returned to growth, it missed the 5.2% forecasts by analysts in a Reuters poll.

China’s manufacturing economy continued a strong growth momentum in September. The Caixin China General Manufacturing Purchasing Managers’ Index (PMI index), an important indicator of the strength of the Chinese economy, grew to 53 in September from 51.2 in June (where a reading above 50 indicates an expansion in activity). This indicates the post-COVID manufacturing recovery has improved and stayed strong. Factory output increased, boosted by foreign demand for Chinese-made masks and other medical supplies. Retail sales, which had lagged behind the rebound in manufacturing, beat estimates and finally returning to pre-COVID levels as they accelerated to a 0.5% YOY growth in august, and 3.3% growth in September. Increased activity at home and abroad was reportedly driven by the easing of lockdown measures as the sector continued to recover from the COVID-19 pandemic. Furthermore, employment stabilized in September, which ended an eight-month period of job losses.

In terms of the currency exchange rates, CAD/CNY fluctuated in Q3 2020. Specifically, the exchange rate showed an upward trend in the first half of Q3, briefly reaching the highest point at 5.26 RMB on August 19. It declined in the second half of Q3, dropping to a low of 5.08 RMB on September 30.

2020 Economic Outlook

The Economist Intelligence Unit (EIU) under the Economist Group revised up for the real GDP growth to 1.4% in 2020, from 1% previously. This reflects the faster than expected recovery of economic activity following a historic economic contraction over the first half of 2020. The International Monetary Fund (IMF) has forecast an expansion of 1.9% for China for the full year. That would make China the only G20 economy expected to report growth in 2020, albeit at the slowest annual pace since 1976.

With consistent policies on wearing masks, use of digital apps for contact tracing, coloured health code rankings to access public buildings and extensive measures to control the safe re-opening of different industries, the COVID-19 outbreak has been kept under control within China. Cross border travel is still restricted, with only a gradual opening of the borders to foreigners looking to return to China for work and family reasons. Most recently, there were 12 cases found in the eastern province of Shandong in October, with a small outbreak that was traced to port workers in Qingdao. China still faces great pressure to prevent a resurgence of the virus, where more than 10 million people were tested for the virus within a few days.

China’s economic recovery has been supported by a rebound of exports and consumer spending. September’s fixed-asset investment (FAI) grew to an implied rate of 7.6% YOY growth, the same rate as August. This led the Year-to-Date (YTD) investment to reach a 0.8% growth, showing another major indicator that has reached positive growth. There are still risks that remain, such as a return of lockdowns in Europe and North America with the second wave of COVID-19 outbreaks hitting those markets. It’s also unclear how durable the recovery will be with pressures from unemployment levels, and rising corporate, household, and government debt levels. There are stimulus options such as the estimated 1 trillion RMB of subsidized relending quotas still remaining, so growth in Q4 is likely to overcome these risks and maintain a positive trajectory.

The Construction Sector

Several indicators of the construction sector declined in the first half of 2020. The total output value of the construction industry was 10.08 trillion yuan, a YOY decrease of 0.76%, and the number of employees was 41.21 million, a YOY decrease of 4.38%. Despite this decline, the total amount of contracts signed increased 7.39% YOY and the number of construction enterprises also witnessed a 10.76% YOY increase.

According to the National Bureau of Statistics of China (NBS), the average new home prices in China’s 70 major cities increased by 4.6 percent YOY in September 2020, following a 4.8 percent rise in the previous month. This was the slowest gain in home prices since February 2016.

Total investment in real estate in China had a YOY increase of 5.6 percent from January to September, 1 percent higher than that from January to August.

The total accumulated floor area completed YTD in China in Q3 2020 was at 2069.56 million m2, down 9.63 percent compared to the 2289.99 million m2 YTD in 2019 Q3.

The below figure shows the trend of total construction project starts and the total projects completed in the corresponding quarter. In Q3, total construction projects completed rose 8.56 percent compared with Q2, but still 4.73 percent lower than that in the same period in 2019.

China Wood Imports (cited from China Bulletin)

Softwood log stocks at China’s main ocean ports totaled 4.6 million m3 at the end of September 2020, up 3 percent from the previous month. Radiata pine log inventories recorded an increase of 2.9 percent, and European spruce log inventories totaled 680,000 m3, up 28 percent.

Softwood lumber inventories at the Taicang port and surrounding area were an estimated 1.5 million m3 at the end of September 2020, a decline of 80,000 m3 from August. SPF lumber stocks were an estimated 200,000 m3, reflecting a month-over-month decrease of 25,000 m3. The wholesale market prices for softwood lumber increased moderately during the month due to the stronger demand.

According to the China Bulletin, China’s total softwood log imports in 2020 YTD was 26,952,000 m3. The largest exporter was New Zealand, which exported 9,348,000 m3 softwood log to China in 2020 YTD. China’s softwood log imports from Canada in 2020 YTD was 747,000 m3, a significant drop of 50.6 percent compared to 2019.

China’s total softwood lumber imports in 2020 YTD was 17,694,000 m3. The largest exporter was Russia, which exported 10,531,000 m3 softwood lumber to China in 2020. Canada, the second major softwood lumber exporter, exported 2,148,000 m3 softwood lumber to China in 2020 YTD, a decline of 34.9 percent compared to 2019.