China - sustained demand or a bubble about to burst?

Authors: Andres Katz
Publication: New Zealand Journal of Forestry, Volume N.Z.J.For. 2011, Issue N.Z.J.For. 56(2) 2011, pp 27-29, Aug 2011
Publisher: New Zealand Institute of Forestry

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Abstract: Introduction The volume of wood heading offshore to China is one of the defining features of the New Zealand forest industry today. In 2010 China consumed over one quarter of all roundwood harvested in New Zealand, including 6.5 million m³ of logs (Figure 1). A large number of enterprises and personnel are depending on Chinese demand to sustain their businesses. With ports and other infrastructure working at capacity, managers also need to be considering whether to invest for further growth. China is currently experiencing a boom in housing construction. The area of construction has increased year by year, with the area in 2010 up by 19 per cent on 2009. This pace has been driven by boom in house prices, which have increased by 140 per cent nationwide since 2007, and by as much as 800 per cent in Beijing over the past eight years. The rise in China’s residential investment is approaching 6% of GDP, which almost matched the 6.1% reached in the US at the height of its bubble, and 8.7% in Japan in the 1970’s (The Atlantic, 2011). Not surprisingly, there has been increasing concern about the sustainability of this demand, and whether this bubble is about to burst. The Chinese housing sector is the main driver of growth in China in this economic cycle. A decline in residential investment will see a decline in GDP growth. And as growth slows in China, so does the demand for commodities, such as timber, steel, oil, aluminium and copper. Thus a shock to the housing market would not only have a major impact on China’s economic activity, but also on global demand for commodities.

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