Chinese recovery creates hope for the NZ construction sector

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Frank Xu, president of the non-profit New Zealand Chinese Building Industry Association.

Key indices showing that China’s manufacturing sector is recovering from the coronavirus outbreak offer hope to New Zealand construction and development companies – but only if the New Zealand Government can quickly roll out policies to protect the sector.

So says Frank Xu, president of the non-profit New Zealand Chinese Building Industry Association (NZCBIA).

Xu advocates for the New Zealand Government to add to the recent launch of the Infrastructure Industry Reference Group by urgently rolling out policies on two fronts:

• To help the industry to maintain workforce and employ contractors by allowing some construction sites that comply with certain Health & Safety conditions to be opened, and by allowing financial institutions to lend bridging funds to construction companies.

• To enable the industry to benefit from domestic and international stimulation programmes by reviewing and amending the overseas investment policy.

“I see a glimmer of light, but without further Government action construction companies in New Zealand will go bust,” Xu says.

“The launch of the Infrastructure Industry Reference Group is good news.

“But the most helpful thing the Government here in New Zealand can do right now is allow some sites to open, allow bridging funds, and re-think its overseas investment policy to allow investment to come in that will help to generate employment and tax revenue, which will help balance sheets to survive.

“The NZCBIA is working to help expedite this process on two fronts: we have issued an industry survey to identify issues and possible solutions, and we are working on a Covid-19 Health Induction process, including documents and equipment needed for when working resumes after Alert Level 4.”

China’s lift in activity has been reported around the world. The Guardian newspaper disclosed that as companies got back to work, the Chinese composite Purchasing Managers’ Index (PMI) — an index of the prevailing direction of economic trends which tracks activity across service sector firms and factories — surged back into a monthly growth environment at 53, from a record low of 28.9 in February, stronger than economists expected.

“China’s confidence levels are slowly starting to recover, alongside its economy, which is coming back towards 80% of pre-outbreak levels,” Xu says.

“Sea freight shipments from Chinese ports are returning to some degree of normality, even if air cargo space is likely to remain a challenge for the next couple of months.

“Although larger players in the New Zealand construction sector had stockpiled a few months’ worth of some materials from China — such as steel and concrete, which they normally do for the annual slowdown over the Chinese New Year — the stock will run out and start impacting some projects.

“As the Chinese economy recovers, predicted at current rates by the end of April, logistics should return to normal, and be back up to speed by the time the New Zealand market emerges from quarantine.

“Supply chain issues outside China may last longer, but lessons should have been learnt from Chinese suppliers.

“Companies need to talk to their suppliers to understand how they work, and have contingency plans on identified risks along the supply chain.”

Xu says the big picture questions will remain about how fast New Zealand recovers from the initial quarantine period, and how the broader change of macroeconomic environments will impact the business in the building industry.

“The underlying economic factors of the building industry will stay strong, if not stronger,” Xu says.

“The demand and supply imbalance in Auckland’s housing market will be long term, the RBNZ has dropped the OCR to record lows, the Government has announced a major stimulus package on infrastructure, and there will be more to come.

“While understanding and predicting where the economy or the building industry is in this turbulent time is difficult. One thing is apparent though — there are many opportunities that come from hard times.

“Businesses will need to be a lot smarter to find these opportunities, and then fight for them.”