Easing Activity in China Augurs Well for Sustainable Growth

We have noted in this column previously that one of the consequences of getting the policy settings right for long-term growth is constraining (overheated) economic activity. The steepness of the fall in export log prices in Asia (led by China) over the past two months is highly undesirable and damaging to the harvesting infrastructure in NZ, but it is better than the prospect of the Chinese economy coming off the rails due to asset bubbles and over-speculation.

The Economist recently ranked the emerging economy hot-spots to try to highlight problem areas. Using six different indicators, 27 emerging economies were ranked according to their risk of overheating. The six indicators were inflation, change in GDP growth rate, tightness of the labour market, credit expansion, real interest rates and the current account. Adding up the scores reveals six hotspots; Argentina, Brazil, Hong Kong, India, Indonesia, Turkey and Vietnam. China, interestingly, is well down the rankings at 14th (see The Economist). This is attributable partly to the aggressive monetary tightening that is constraining demand. If this research by The Economist is an accurate harbinger of future economic prospects for China, then the current (steep) market downturn may be just another blip in a strong, sustainable market uptrend for the log and timber market.

Chinese flag maintains vigil as sun sets over Lanshan Port, Shandong Province. Lanshan has developed rapidly to import greater volumes of radiata pine from New Zealand. The hundreds of sawmills constructed over the past two years now hold vastly over-priced stock as log prices plummet.