Inflation is a persistent challenge for the Chinese economy. The consumer price index is expected to expand to more than 7% in 2008, which is well above the 4.8% CPI growth in 2007. This level of inflation has not been seen in China since 1996. Just as China’s economic growth slowed somewhat after 1996, it is expected to do so this year, easing from nearly 12% growth in 2007 to an estimated 10.5% in 2008.

In recent economic talks between China and the United States, the US criticized China’s attempts to harness inflation by capping the price of gasoline and diesel. Such price caps keep the demand for fuel in China artificially high, which puts added pressure on the tight world supply of oil.

The US continues to protest Chinese controls on the exchange rate, complaining that the 20% appreciation in the past 3 years is not enough, considering the trade imbalance between the two countries. At the same time, China is highly critical of American currency management, stating that it has irresponsibly allowed the dollar to fall into its recent slide. Meanwhile, the Canadian dollar has been steadily losing ground to the RMB. Since the briefly held high of 8 RMB to the Canadian dollar in November 2007, the CDN dollar has slid back to 6.7 RMB in June 2008.

This favorable exchange rate may be contributing to the growth of Canadian SPF exports to China, or at least it isn’t hurting it. The first three months of 2008 show a very strong continued increase over the same time period in 2007, 2006, and 2005.

Much of the SPF consumed in this growth trend is used in ‘utility’ applications rather than structural applications in China’s vast housing market. Although there are over 5 million housing units built per year, concrete, brick and steel are the primary structural materials. Canada Wood is addressing the challenge of improving the grade mix of SPF exports to China with several programs aimed at increasing the capacity to use, structural lumber, landscaping lumber and some specialty lumber.

SPF Shipments

Mr. Fred Spoke has been appointed by the Canada Wood Group Board of Directors to assume the role of Managing Director – China based at the Shanghai Dream Home Canada facility. Mr. Spoke’s appointment is effective June 23rd. His first week will be spent in Vancouver meeting key contacts and undertaking orientation activities. He will assume his permanent position in China in early July. 

Fred has an extensive background in the China including serving as Minister Counselor (Commercial) at the Canadian Embassy in Beijing. Fred was also the Executive Director of the Canada China Business Council based in Toronto and served on CCBC’s Board in Shanghai. He has also filled other overseas roles at the Department of Foreign Affairs and International Trade. In the private sector he has guided international clients in the development of their China strategies and was the General Manager for Victorinox China Ltd. (Swiss Army brand). Fred speaks mandarin Chinese and holds an MBA degree.  In his new position, Fred will be responsible for managing the Canada Wood presence in China and coordinating the activities and efforts of the various partners of Canada Wood. We all extend a warm welcome to you Fred!

Dujiangyan is one of the most destroyed areas in the Sichuan Earthquake, which is about 60 kilometers away from epicenter. There are 15 wood-frame houses in the area. We asked Chinese 2X4 Builder T-deco, to send us photos of one of their wood-frame duplexes located in Dujiangyan. We were so pleased to receive the report from T-deco that their wood duplex didn’t experience any damage whatsoever.

Conversely, neighboring concrete buildings showed obvious cracking and damage. The good news is that the developer of the duplex project now plans to use wood construction in the next phase of development.

Wood frame house after earthquake in Dujiangyan-Qing Cheng Mountain Villas in Dujiangyan.	Concrete apartment after earthquake in Dujiangyan, 60 kilometers away from epicenter.

There are 46 million people affected by the earthquake. The Chinese government requires 1.5 million temporary houses to be built in the upcoming two months. The plan is the have the city rebuilt within 8 years. Undoubtedly, the Chinese will now take the earthquake resistance of their current and future dwellings to heart after this terrible event.

CanadaWood staff are using this incident to educate the masses on the resilience and strength of wooden buildings. There are many wooden structures in the Sichuan area that have stood for hundreds of years that have been unaffected by the recent earthquake. These are the tangible and relevant real-world examples that allow us to make inroads into the minds of local people and get them to consider wood frame construction as their best choice in the future reconstruction effort.

Vancouver, June 2-6, 2008
COFI had the great pleasure of hosting the first of three Chinese developers missions scheduled for 2008/9. It was the group's first time to Canada and they were extremely impressed with Canada’s forest products industry. “Canadian lumber mills are so incredibly efficient. It’s a wonder that so much lumber can be produced by so few workers”, said Mr. Zeng, Director of Fengshang Real Estate.

Mr. Li, General Manager Beijing Yinzuo Real Estate Co. Ltd. was extremely impressed with wood-frame construction. “if I hadn’t seen the number of houses here built from wood I would have never have believed it. The quality of interior finishes, especially in the kitchens and bathrooms of the new demo homes is exceptional—China simply doesn’t have the skilled trades to perform such work yet."

Others like Mrs. Qi made observations about why Canada's products were of high quality, and had this to say, “Canada moves at a slower pace than China but it does ensure things are done right here".

The delegation consisted of the following high level company representatives:

1.Mr. Laian Luo General, Manager Chongqing Yinxin Science & Technology (Group) Co. Ltd.
2. Mr. Jianlong Zeng, Director, Fengshang Real Estate Co. Ltd.
3. Mr. Guanqian Zhu, President, China Timber Distribution Association
4. Mr. Huizhen Zhang, Chairman of the Board, Gansu Yuzhen Logistics Group Co. Ltd.
5. Ms. Ying Qi, General Manager, Tianjin Molida Real Estate Co. Ltd.
6. Mr. Dechang Li, General Manager, Beijing Yinzuo Ruizhi Real Estate Co. Ltd.

Delgates at CANFOR PG Sawmill.	Group learns about advantages of floor and roof trusses at Winton Global PG.
Group was extremely impressed with the scale of WFC.	Delegates paid special attention to grade stamps on lumber.

It was a busy week filled with many great presentations as well as some extremely valuable site tours. The 5 day itinerary took us to the following destinations:

We are looking forward to the next developer mission which is scheduled to arrive in Vancouver, September 22nd, 2008.

Prior to working with the Canada Wood Group, Leonard worked with the State Economic and Trade Commission, P.R.C., where he developed business contacts between foreign and domestic companies. He also coordinated sector input leading to the successful accession of China into the WTO. Before this, Leonard worked with consulting companies for 5 years, developing marketing strategies and sales channels for customers from China and abroad. Leonard is a graduate of Nanjing University of Science and Technology in China with a major in material science and international trade.

SPF Group was one of Leonard’s customers in 2002 which exposed him to Canadian wood products and building technology.  It became apparent to him that wood frame construction was a more efficient and environmentally sustainable building method, with advantages over steel and concrete construction. He strived to learn as much as he could about wood products, and recognized that WFC represented an exciting opportunity for China.

Leonard Mao (left) sees enormous potential for WFC in China.

Leonard joined Canada Wood in 2005, as SPF marketing director for China. He is responsible for Canada Wood promotional programs and activities in China. Leonard has fostered strong relationships with Chinese developers, builders and designers to help them understand the technology related to Canadian Wood Frame Construction. He has also organized many seminars in all of the major cities, including trade shows in Beijing, Shanghai, and Guangzhou.

One of the developers he knows for almost 5 years just told him that a 3,000 square meter wood frame club house is going to be built in Tianjin, which will be used as a meeting venue for construction officials and developers. This wooden structure will serve as a great demonstration on the benefits of WFC. Another developer that he knows for 4 years has planned to develop wood frame apartments for seniors. Leonard believes that more and more developers will take action to develop more wood frame constructions in China, and that a “harvest season” for the Canadian industry will come eventually.

Apart from the work, Leonard enjoys traveling, swimming and spending time teaching his 2 and half year old son to be a good boy.

Poor Market Conditions Continue in the UK

Gloomy market conditions reported in UK: house prices are dipping, people are reluctant to purchase property, and the private housing sector is falling rapidly into serious decline.

Decline seen this year in the house building, and repair, maintenance and improvement sectors will have contributed to reduced demand for timber and wood products.

Overall the OECD expects that UK GDP will grow by 1.8% in 2008, in line with the lower end of the Chancellor’s forecast range; and for 2009 the OECD forecasts weak growth of 1.4%, far below the range of 2.25% to 2.75% projected by the Treasury. On the ground, it is clearly evident that the “credit crunch” is beginning to impact on the UK, with some anticipating worse to come. There is no doubt that reduced liquidity is weakening companies’ ability to invest, and consumers’ ability to finance their mortgages and spend. In a mood of uncertainty, house prices are dipping, people are reluctant to purchase property, and the private housing sector is falling rapidly into serious decline. Merrill Lynch analysts believe that concerns over job security and falling house prices are leading to a reluctance to make house purchases, and the company has downgraded its assessment of major housebuilders Barratt, Persimmon, Bellway, Berkeley, Galliford Try and Redrow. The main hope for the short-term lies in the UK government using public finance to meet its own ambitious house building targets. 

This year’s early Easter and poor spring weather has triggered a sharp fall in sales of garden furniture and barbeques at DIY chain B&Q, and the company expects that the home improvement market will remain under pressure because of the weak housing market. Like-for-like sales at B&Q dropped by 8.1% in the quarter to May 3rd, 2008, while sales of outdoor products plunged almost 40% as unseasonably cold and wet weather kept shoppers inside their homes. Some more optimistic commentators are of the opinion that low levels of transactions in the housing market will lead to increased activity in the home improvement sector. 

The decline seen this year in the house building, and repair, maintenance and improvement sectors will have contributed to reduced demand for timber and wood products, at a time when Sweden and Germany, in particular, are trying to offload their surplus stocks of sawn softwood at discounted prices. Feedback from importers suggests that the current market price for KD carcassing (FOM) is £140/m³, and for CLS it is £90/m³, though prices being offered for Canadian material are closer to £125/m³ and £85/m³ respectively. Some blame Swedish mills for continuing to offload surplus stocks onto the market, resulting in prices that may be considered to be approximately 10% below what might otherwise be expected. German suppliers have gone some way towards trying to compete at these price levels, but are not expected to be able to afford to continue to do so for much longer. Sentiment remains in the expectation of gradually firming prices later in the year, as the cost of log supplies increases, but any positive trend may be undermined by faltering demand in the UK. Canadian exporters appear reluctant to supply at the prices being offered, at a time when exchange rates are distinctly unfavourable for UK import from Canada. 

Meanwhile, CE marking for strength-graded structural timber, under EN14081, has been delayed for a further year to September 2009. This is not stopping some suppliers applying the mark voluntarily in order to obtain associated market advantage, while testing the scheme to iron out any procedural difficulties prior to it becoming mandatory.