Five lessons from Xiamen Stone Fair 2014

1.- The construction industry in China is slowing down and demand for imported stone is declining after 12 years of consistent growth. But this should not be mistaken for an imminent crash in demand for natural stone. The Chinese government has recently announced plans for building infrastructure for a further 100 million people moving from the rural areas to the cities by 2020 and this should mean a lot of demand for all kinds of stones. Whether this headline figure translates into demand for stone at same levels as before or less, is hard to estimate, but it still means a dynamic construction industry. One reason for reduced orders of granite and marble blocks by the Chinese buyers was the higher level of inventory existing in the port of Xiamen, but this means a clearer picture will emerge only after a few months.

2.- The markets of south-east Asia, consisting of 600 million people, till very recently, met their demand for natural stone of all kinds, both Chinese and imported, from Chinese factories. Now the factories of rest of the world are beginning to sell to the south-east Asian countries semi-finished and finished stone again as higher costs of all kinds of inputs has reduced Chinese competitiveness.

3.- New materials from different parts of the geographically vast country that is China are now appearing in the market. Stone mining activity is taking place in new regions. Since many of them are in the interior of the country, transport costs and logistics are still an issue, however, in a few years time, the range of stones in the market and exhibited in the stone fairs is likely be far more varied. According to some experts, it will be the appearance of new stones quarried and processed in China that may lead to another 50% decline in reduced imports of imported blocks in the next five years, as important a factor as possible reduction in construction activity in the country.

4.- In spite of reduced competitiveness of the Chinese stone industry as a result of higher costs of all inputs, China remains a formidable competitor in cut to size projects all over the world. With so much construction of mega projects having taken place in the last 20 years, the Chinese companies have acquired great experience and skill in doing all kinds of the most complicated projects with all kinds of stones- these skills are not as price sensitive. Chinese companies will probably continue to occupy an important market share of major projects in many parts of the world for some more years at least.

5.- For the first time the Chinese businessmen are facing uncertainty in their business environment and this lack of clarity about the future may explain why the much expected upgrading of technology and new investments in their factories is not taking place to the extent expected, so far. Possibly in the next few months the situation returns to “normal”, but for the first time the Chinese businessmen in the stone industry seem to be using the same approach as everyone else- more cautious, more prudent, more deliberate, more measured, more conscious of the risk element.