Economic Update

Premier Wen Jiabao, recognizing, “confidence is more precious than gold”, reassured the country that the nation’s financial institutions are strong and the economy will be able to maintain fast growth. With reserves of $1.8 trillion US, miniscule public debt and a trade surplus (JPMorgan), China has the necessary resources to maintain economic growth.

As the US financial crisis continues to create problems for world markets, China looks to its domestic markets to provide stability. An economist from Moody’s, speaking in September, said “The strong growth in retail sales will please Chinese authorities, who are hoping private consumption will help offset the effect of slowing exports.” According to the China Economic Review, retail sales to August are up more than 21% over the previous year.

Rising Wages
Rising wages have fuelled the strong growth in retail sales. In 2007 urban incomes rose 12.2%, easily outstripping inflation (4.8%). (China Economic Review).

GDP growth
Roughly 7 % of China's GDP is generated from exports to the US (TD Securities Ltd). Swiss investment bank UBS estimates that slower exports will only drag China’s GDP growth to 9.6% for 2008. While most countries consider this a fantastically robust growth rate, it is the slowest pace China has seen since 2002.

The declining output is accompanied by a stock market slump in Shanghai (the Composite Index’s fell by more than 60% from January to September), declining manufacturing and softening real estate in all major cities.

Interest rates
China cut interest rates in September, for the first time in six years, to 7.2%.

Exchange Rates
The Chinese Yuan (RMB) continues to strengthen vis a vis the Canadian dollar as it stands aligned with the US dollar. The exchange rate on October 7 stands at 6.2294 RMB/CDN which is a significant drop from 6.7592 in July 2008.

Housing Market

Recent news that housing prices rolled back a fraction of a percent in August was a warning signal noticed by the government. The housing market is a priority sector because it directly affects ten percent of all employment in China. Expected policy reactions are tax breaks for home buyers, bond financing schemes for developers, and lower interest rates.

SPF Imports

SPF Exports to China (MFBM) - period to July'08 inclusive

2005	2006	2007	2008
9,775	14,181	58,743	180,277

Much of the SPF consumed in this growth trend continues to be 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. Although difficult to determine, likely less than 10% of the exports are utilized in wood-frame construction. 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.

	Jan'08	Feb'08	Mar'08	Apr'08	May'08	Jun'08	Jul'08
Korea	3,083	6,683	5,197	8,433	5,728	3,411	6,450
China	8,526	19,191	19,911	34,524	39,825	36,879	21,404
Japan	50,205	51,882	54,331	63,823	82,515	71,043	81,937

Note: It is not clear why SPF shipments to China in July 2008 was only 58% of that in June 2008, after 3 months of stable levels of shipments. Overall, the Russian tax increase 25% and in the future possibly to 80% will help Canadian shipments. If the recent decrease in value of the Canadian dollar is sustained, it will also be favourable to SPF shipments.

1) Tests confirm WFC is 45% more Energy Efficient than Competition

China is now facing a serious energy supply shortage with the construction sector accounting for one-third of the total energy consumption.

Harbin Institute of TechnologyReport Cover

This current situation is widely considered to be unsustainable, and as a result, the central government has repeatedly stressed the importance of developing building energy efficiency technology and programs. The Harbin Institute of Technology commissioned by Canada Wood conducted building energy saving and heating system comparative tests to prove that a wood frame villa can be more energy efficient than any other type of construction in the northern China region.

From January to April this year, the Research Centre for Energy-saving Technologies at the Harbin Institute of Technology carried out a 12 week long test on a lightweight wood frame house in the Harbin Institute of Technology 2nd campus and a combined insulated brick wall villa in Harbin.

The final result showed that the heat consumption of the light wood frame house (25.38 W/m²) was 41.99% less than the combined brick heat-protected house (43.75W/m²). This could save 45.40% of energy (calculated using the standard amount of energy for annual heating). This means, a savings of 45.40% of coal for heating! The key findings of the report were widely picked up by nearly 20 major Chinese trade publications.

Wood Frame Villa	Concrete Villa

Further research commissioned by Canada Wood is now underway with Tsinghua University and Beijing University of Technology on the comparison of operating energy and environmental impact of an apartment building in wood, steel and concrete respectively. This project will be finished by next March.

2) Re-building Sichuan by Using Wood

Following the aftermath of the Sichuan 512 Wenchuan earthquake disaster, Chinese industry and government honed in on building safety as a top priority and as a result, a large scale reconstruction initiative is underway across the province. Seismic performance has become a primary concern to the Chinese government. Wood Frame Construction is gaining recognition and prominence for its natural earthquake resistant strength properties. Canada Wood is working hard to take advantage of this market opportunity to educate and promote the benefits of WFC.

(A Qiang minority traditional wood-frame house)	(A collapsed house in Beichuan area)

After the earthquake, Canada Wood and BCFII sent a team comprising of technical specialists and scientists to the earthquake hit area. Ethnic maps of China show Qiang villages scattered roughly along the fault line of the magnitude 7.9 earthquake. Beichuan, a county where 80% of the buildings were destroyed, was home to as many as 90,000 Qiang. Among those only 20% remained undamaged, most of them were Qiang minority traditional wood-frame structures. This example is a local testimonal to the benefits of building with wood and makes more and more local residents and government officials recognize wood frame’s seismic merit. Local government has taken notice and have since shown great interest in considering using wood in the rebuilding of Sichuan.

As a result of the BC and Canadian Federal Government’s joint announcement of a $8M donation program, BCFII and Canada Wood, in partnership with Chinese agencies, plan to build a new school, a senior citizen home, and a disabled vocational training center in the Sichuan area.

The first project, a 5,300m² primary school which includes a mixture of multi-storey classrooms, dormitories and administrative/common area facilities, is scheduled for completion by spring 2009. The project will further demonstrate Canadian advanced wood frame technology and showcase wood frame’s superior seismic ability.

3) New Market Opportunity: Wood Framed Pre-manufactured Wall Panel

Lance Tao, the communications director introducing Canada Wood’s China program and services to a designer from Beijing.

In partnership with European Wood, Canada Wood attended the 2008 4th Shanghai International Energy-saving & Advanced Wall Material Exhibition from Oct 19th to Oct 22nd.

This show is the key tradeshow for energy saving technology and products being used in the wall construction industry in China. A high profile Canada Wood pavilion was built at the show and a total of 2,000 visitors visited the booth. Many visitors were unfamiliar with the wood infill wall system and they have shown great interest in knowing more details regarding price and energy efficiency performance - two most frequently asked questions.

Construction with wood framed pre-manufactured wall panels has the benefits of rapid construction, light weight, flexible sizes and dimensions, environmentally friendly and energy efficient, good quality and performance, and, in markets where the technology has been developed, cost effectiveness. 

Pre-manufactured panels, if done right, has advantages over on-site construction. While China’s first experiences with pre-manufactured un-insulated concrete panels were highly negative, the potential benefits have encouraged industry leaders to explore their use again.

Jennifer Yu, program director answering questions from a local developer	(Jennifer discussing with a developer about the energy efficient advantage of infill wall system

Vanke is the largest developer of commodity housing in China and is the leading player in this sector. Vanke has concentrated on pre-manufactured housing construction since 1999 with the goal of using this system to meet rapidly expanding housing demand.

Vanke’s Pudong New Milestone project site, a pre-manufactured concrete wall being lifted to the high-rising build) Photo Source: Xinhua News Agency

They have a pre-manufactured building system R&D centre in Shenzhen and have developed their system by partnering with multi-national material suppliers like Owens Corning and TAISEI. The first test of this system was in 2007 where they successfully completed 2 high-rise towers, a total of 14,000 m² of floor space. While more work needs to be done to develop the application of wood frame pre-manufactured panels, it is an opportunity worth exploring further.

 

Shanghai is brutally hot in July. Looking out from the rooftop of an inner-city apartment building, two things become apparent. There are a staggering number of buildings in need of re-roofing, and although the view is good, a hot roof is an unpleasant place to admire it from.

At nearly 40˚ Celsius with high humidity, no one would choose to spend time on this bare, flat concrete roof without a good reason. The Hongkou Wood Truss Re-Roofing Project provided that reason.

The Hongkou Housing Bureau put their trust in the wood truss system to provide a fast, cost effective solution for their roof renovation. While the housing bureau embraced wood with optimism, the general contractor (GC) was apprehensive. Being a steel frame re-roofing specialist, his crew had never worked with wood trusses before.

A hot and humid July with temperatures reaching 40˚, the CW Tech Team were onsite to provide expertise on the Hongkou Wood Truss-Re-Roofing Project.

The day the first set of trusses arrived, four members of Canada Wood’s Tech Team were onsite to work with the GC. The Tech Team had previously provided the GC’s crew with an introductory training session. The remainder of the training was to happen during the construction of the first of thirteen roofs. Each roof was at least 500 m² and included several complicated features. Even though the workers were reliable and willing to learn, this was not an easy “first roof”.

Hundreds of truss pieces where hauled up to the rooftop. The Tech Team set out to organize the work site while dozens of eager, inexperienced workers inevitably strayed from the game plan. Canada Wood’s Steve Ross admitted, “We were working under a microscope with a green crew, a language barrier and the heat. The first few days were very difficult”.

The Hongkou project highlights a common construction situation in China. Projects begin even when experienced personnel are lacking. The “learn as you go” approach is embraced here, and this creates dilemmas for the Tech Team. How should resources be divided between training tasks and quality assurance tasks?

Quality assurance is critical, not only for preventing failures and future brand contamination, but it can also sway potential customers who look upon existing construction sites as ‘show case’ projects. There are active wood frame projects in at least a dozen cities and rural areas, and they would all benefit from more quality assurance attention. This includes two pending re-roofing projects in Nanjing and Shanghai similar to the Hongkou project. Meanwhile, training programs are vital for the healthy development of China’s wood frame construction industry.

Communication is a key component of the job. CW Tech Team members need to be comfortable speaking in any setting.	On the job training was provided by the CW Tech team to a crew of workers with little or no knowledge of WFC.

Building capacity in China requires training construction workers, design professionals, government officials and business owners. To address diverse target audiences, Tech Team members need to be as comfortable behind a podium as they are on a job site.

Training is approached with a combination of informal and structured programs. Examples of structured programs are Canada Wood College, with terms planned this fall for Shanghai and Sichuan, and the designer seminar series that travels to major cities. Ad hoc training takes place during job site visits with direct interaction between workers and the Tech Team.

At the other end of the spectrum, a wood frame business community is being nurtured through the Developers Club and the Builders & Suppliers Club. The goal of these clubs is to create an association that will eventually represent the long term interests of China’s wood frame construction industry. Members of the Tech Team also make time to promote WFC to realtors, engineering students and business associations. Increasing awareness goes hand in hand with building capacity.

The Hongkou project represents a successful model for building capacity. Quality assurance and training were provided simultaneously. As a result, the Hongkou housing bureau was satisfied, other housing bureaus witnessed the advantages of wood frame re-roofing, and the GC gained enough experience to bid on future wood truss projects.

There was a time in Beijing and Shanghai when wood frame villas were inhabited either by Western expatriates or by Chinese who recently returned from living in the West.

Expatriate CEO’s of Fortune 500 companies are compensated upon their transfer to China with an entitlement to maintain a lifestyle to which they are accustomed. Their usual package includes a large suburban house to ease the shock of living in a city with a population density topping 2500 people per square kilometer. Other common perks include a car with driver, a maid, a gym membership, and international school tuition for the kids.

The Chinese who returned from living abroad presumably were impressed by the comforts of wood frame homes and were pleased to discover that North American style suburban developments were also available in China.

WFC villas once considered out of reach for locals is now gaining interest for the growing middle class in China.	Locals buying these WFC homes have made a carefully researched choice to provide a safe, energy efficient and environmentally friendly home for their families.

As yet another indication of China’s economic progress, wood frame developers are increasingly targeting domestic buyers. Some urban Chinese, considered ‘upper-middle class’ by Canadian standards, are willing to pay a premium for low density housing in China’s top tier cities. These consumers buy for different reasons than the richer status-seeking demographic. They do their research and they make well informed purchases.

Mr Yan Jin Bao bought his 495 m² villa in Beijing’s Portland Garden almost a year ago. Mr Yan cites his concern for the environment as the main reason he purchased a wood frame house. He believes in the sustainability arguments of wood, and he wants to take the sustainability of his own house one step further by adding a solar heating system.

Two doors down, Mr Zhang Guo Jin recently moved into a similar house. Like Mr Yan, he lives there with his wife and child, but the main reason Mr Zhang bought his house is to provide a safe home for his family. Based on his own research Mr Zhang came to the conclusion that the modern wood frame system is the best option for “better performance in earthquake[s]”.

Mr Yan and Mr Zhang are examples of a new emerging consumer category in China; professionals with purchasing power who will spend money in pursuit of their values. In this case the wood frame homes reflect their values, they both feel good about their purchases, and they both say they would recommend wood frame homes to their friends.

Cross section of the two storey suites in a concrete high rise building where the wood infill system was used to create second floor rooms.

In-fill floors are used to add floor space to rooms with high ceilings. An in-fill floor can create a second floor in a retail building or a loft in an apartment. In China, where in-fill floors are often made with steel joists, wood frame can compete on cost and other advantages.

In the summer of 2007, BCFII and Canada Wood targeted Chongqing with a hybrid construction promotion. Kerry Haggkvist from Canada Wood’s Tech Team created a training demonstration for builders and developers. The developer who hosted the program was looking for a solution to add floor space inside two storey suites in a new concrete high-rise apartment building. This was an important opportunity to show that there are good applications for Canadian dimension lumber in China’s high density residential construction.  

Kerry demonstrated the process of installing in-fill floors with 2x10 joists and 5/8” OSB, while he highlighted advantages such as ease and speed of installation, cost competitiveness, and superior comfort.

One builder embraced the lessons of the demonstration and convinced developers on other projects to use the wood in-fill floor system. To date, he has installed wood in-fill floors on at least one hundred apartment units in Chongqing, and he plans to continue using wood floors in new projects in Chungdu. The opportunities for hybrid framing are legitimate. In Chongqing alone there are hundreds of similar new buildings that will use in-fill floors of some type.

Kerry Haggkvist explaining the advantages of wood to the builder in Chongqing.	Near the Eastern city of Ningbo a builder needed a cost efficient approach to add a second floor inside a new concrete retail space. The builder reported it was much faster to use wood than steel in this situation.
Near Ningbo. The exterior of a large retail space where wood in-fill floors were added to create a second floor.

Shino Zhou is the Business Assistant at Canada Wood Beijing. Shino is a recent graduate of the China University of Mining and Technology and also has a Bachelor's degree in English.

As Business Assistant to Marketing Director (Leonard Mao) and Technical Director (Haiyan Zhang) in the Canada Wood Beijing Office, Shino takes on many responsibilities including: translation, assisting in the organization of seminars and tradeshows, participating in the Calling Program, and coordinating the activities of the developers’ club and developers’ mission.

Shino Zhou, Business Assistant at Canada Wood Beijing, pepares to board flight to Prince George, BC during the China Big Builder/Developer mission, which took place September 21-26.	Shino helped to guide the Chinese delegation to various construction sites and technical facilities throughout Greater Vancouver and Prince George. Pictured here is Shino along with tranlslator Shirley Li at the JD Little Forest Center, Prince George.

Shino recently visited Canada and participated in the China Big Builder/Developer mission, September 21-26. This was Shino's first visit to Canada and an important opportunity to see the Canadian wood industry and construction technology she is helping to promote first-hand. Shino was a valuable contributor to the success of the mission, helping to translate and guide 17 major builders from China around Greater Vancouver and Prince George for the week long visit.

 

Economic Update

Timber Trade Federation statistics identify that UK softwood imports during the first 6 months of 2008 were 27.7% below those recorded for the same period of 2007, by volume. Sweden has gained market share, accounting for 41.5% of UK softwood imports during the first half of 2008, while the biggest losers are Lithuania (-70%), Canada (-55%), Estonia (-53%), Latvia (-41%) and Russia (-40%). Canada was the UK’s 6th largest supplier of softwood in the first half of 2007, with 4.2% market share, but that position has been taken by the Irish Republic. While UK imports of Canadian softwood more than halved from 193,843m³ during the first half of 2007 to 81,595m³ during the first 6 months of 2008, western red cedar bucked the trend, with imports growing from 18,326m³ in the first 6 months of 2007 to 20,114m³ in the same period of 2008, accounting for one quarter of all Canadian softwood being imported by volume.

The dramatic fall in demand for softwood lumber has come as a result of the dramatic downturn in house building associated with the global financial crisis, and has not been helped by a very wet summer. The Construction Products Association in the UK predicts a 24.1% fall in housing output in 2008 and a 10.4% drop in 2009. Although housing output is expected to grow by 11% in 2010, it is not expected to reach 2007 levels until 2013. However, the repair and maintenance sector has grown by more than 6% in the last year, helped by funding for energy efficiency improvements and indications that with the recent sharp fall in house sales, people who have decided not to move are spending more on their existing properties.

The decline in the market for Canadian softwood lumber is primarily a price issue, as one might expect with what is effectively a commodity product. Swedish suppliers appear to have been prepared to continue to sell at low prices in order to maintain turnover and maintain their brand names in the UK market. While the Pound Sterling has no doubt weakened against the US dollar, making Canadian purchases more expensive, the euro also has gained markedly in strength against the Pound.

Poor trade conditions have resulted in high levels of landed softwood stock accumulating at UK terminals, and a general reluctance to commit to forward purchases. Importers are resisting replenishing any gaps in stock sizes that do occur, where it would mean buying general cargoes that include overstocked dimensions. Some buyers are finding that they can control their inventories best by purchasing from Nordic shippers capable of delivering small and regular volumes. Increased freight costs combined with weakness in Sterling’s value are likely to counterbalance the effect of any reductions in export price offered by shippers. With so little trade currently taking place, some agents say that it is hard to establish an indicative market price for softwood construction timber.

1) Canada features in the UK’s Timber Trade Journal

Canada Wood UK co-ordinated input to a major feature on Canada published in the 27 September edition of TTJ, the UK’s timber industry magazine. Contributions from the Quebec Wood Export Bureau, the Western Red Cedar Export Association and the Canadian Mortgage and Housing Association ensured that importers were exposed to a wealth of information on Canadian timber and wood products. The feature was supported by prominent advertising arranged by Canada Wood UK and WRCEA, not least in consideration of the fact that any future focus on Canada will be viewed in relation to its forecast ability to generate support and revenue.

2) Western Red Cedar in the UK

WRCEA installed a permanent cedar display within the UK’s National Self-Build & Renovation Centre that has resulted in an average of one trade enquiry each day.

The Western Red Cedar Export Association (WRCEA) with Canada Wood UK has conducted a highly effective marketing campaign in the UK, so that now western red cedar accounts for one quarter of all Canadian softwood being imported to the UK by volume. The key to the success lay firstly in targeting architects to ensure prominent use of cedar in well designed buildings, and then being in a position to develop the pursuant demand placed by aspiring self-builders. As well as participating at trade shows, WRCEA installed a permanent cedar display within the UK’s National Self-Build & Renovation Centre that has resulted in an average of one trade enquiry each day. The trade enquiries are acted on immediately by Canada Wood UK, and fed to WRCEA Associate Members for their further action. Canada Wood UK serves to preserve the reputation of cedar by educating specifiers and users on the material’s characteristics and uses, with information resources provided by WRCEA and by delivering presentations approved by the Royal Institute of British Architects for their members’ Continuing Professional Development.

3) National Floor Show, Harrogate, UK; 2008

The Quebec Wood Export Bureau (QWEB) arranged a trade pavilion accommodating QWEB’s own stand and booths occupied by member companies Preverco Inc, Wickham Hardwood Flooring and Mercier Wood Flooring.

The National Floor Show took place at Harrogate’s International Centre during period 2 – 4 September 2008. The annual exhibition is the UK’s biggest flooring trade show, with over 200 exhibitors showcasing all types of flooring products, from carpets and rugs to laminate and hardwood floors, together with accessories and tools. The event attracts manufacturers, importers, distributors, contractors, retailers, property managers, interior designers, contract specifiers and architects; and provides participants with an opportunity to showcase and view new products, identify latest trends, develop trade and network with industry colleagues. The 2007 edition of the show registered an audience of 4,080 visitors.

The Quebec Wood Export Bureau (QWEB) arranged a trade pavilion within Hall Q, accommodating QWEB’s own stand and booths occupied by member companies Preverco Inc, Wickham Hardwood Flooring and Mercier Wood Flooring. Information on timber and wood flooring products manufactured by QWEB member companies was distributed by Canada Wood staff members who are based in the UK and serve as a gateway to Canadian wood products. QWEB member companies at the pavilion showed their superb ranges of solid temperate-wood flooring, in species such as red oak, cherry, maple, ash, birch and walnut, with engineered wood floors offered in addition by Preverco. The companies all offer high quality flooring in a range of contemporary finishes. Independently of QWEB’s pavilion, QWEB members Goodfellow and Primatech occupied stands within the same hall; the former showing a wide range of flooring types to suit all tastes and needs, and the latter promoting their latest range of pneumatic and manual hardwood flooring nailers, with nails, specifically designed for the installation of hardwood flooring. The show provided an ideal opportunity for Canadian manufacturers to exhibit their products, establish contacts, fact-find and demonstrate their interest in and commitment to the UK market. Click here for more information on the National Floor Show www.nationalfloorshow.co.uk