WVFA Winter 2018-19

I N D U S T R Y N E W S www.wvfa.org Winter 2018–2019 |  West Virginia Forestry Association Mountain State Forestry 17 reduce future purchases of lumber and logs. Many analysts suggest that the reduced demand from Chinese companies in the last two quarters of 2018 had more to do with a wide-spread economic slowdown than with tariffs. Certainly, the threat of tariffs produced a sense of uncertainty in the Chinese economy, but some argue that the economic situation in China is a more significant issue than the threat of a 10 percent tax (tariff) on raw material. Serious instability in the Chinese economy has become more apparent to investment analysts in recent years. According to George Soros, the slowdown in gross domestic product (GDP) growth coupled with rising credit levels has become so unmanageable that China’s economy resembles the pre-“great recession” economy of the United States. China’s economic situation is difficult to assess. While China has made steps toward a more transparent financial sector, there is still a tradition of “cooking the books.” Chinese stocks typically sell at discounts of at least 10 to 20 percent of their American counterparts, and this implies that China’s economy is underperforming compared to what the Chinese government reports. Analysts question to what extent the data are being manipulated. As China’s bad debt reaches a decade high, China is struggling to manage its credit situation. In 2018, the China Banking and Insurance Regulatory Commission reported a nonperforming loan ratio of 1.9 percent, while analysts from Autonomous Research believe that number is closer to 25 percent. So, what are the long-term impacts of a 10 to 25 percent tariff, a trade war on the forest products industry in Appalachia, and a significant softening of the Chinese economy? Generally, not good, particularly if our companies continue to focus on China as a trading partner. Investing time in more stable markets with solid and trust-worthy trading partners should be the long-term goal of the Appalachian forest products industry in the coming years. Many thanks to Tripp Pryor of the American Hardwood Export Council (AHEC) for providing a significant amount of background detail for this article. Figure 1 Hardwood Market Report Estimated Price for KD FAS and 1C lumber per MBF from July to December, 2018