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Timber Legality Regulations and their Effect on Wood Products Manufacturers in China and Vietnam
Authors: Benjamin Roe, Ivan Eastin, Indroneil Ganguly, Daisuke Sasatani
Reports that a substantial proportion of wood raw materials, used by Chinese and Vietnamese manufacturers, are from illegal sources have drawn concern from major consumer countries who recently implemented timber legality regulations. These regulations, which include the Japanese ‘Goho-wood’ policy, the U.S. Lacey Act, the EU Timber Regulation and the Australian Illegal Logging Prohibition Act restrict the import of illegally harvested wood and are expected to have a direct impact on major wood processing countries, such as China and Vietnam.
This study focused specifically on the wood products industry and business practices in these two processing countries, targeting individual furniture and flooring manufacturers and wood products traders, as a way to clarify and evaluate the effects of timber legality regulations.
Surveys were conducted at trade shows in Ho Chi Minh, Shanghai and Guangzhou in 2013 and 2014 to assess how these regulations influence attitudes and perceptions regarding regulations, firms’ use of chain of custody certification, and impacts on the material sourcing and export market decisions of industry managers. Survey responses were evaluated using descriptive statistics, regression analyses, cluster analysis, non-metric multidimensional scaling and analysis of similarity.
The analysis showed that as firms increase in size they reduce domestic sales and show increased awareness and support for regulation, and that firms’ awareness of timber legality regulations plays a significant role in whether a firm decides to obtain certification. Analyses showed that Vietnamese firms have lower awareness of regulations while being more supportive of regulations. Chinese firms have higher awareness while having a more negative attitude towards regulations. The findings also highlighted a split between firms with a domestic focus and firms which export to foreign markets suggesting a split in the market which may reduce the impact of regulations. This segmenting of the Chinese market and to a lesser extent the Vietnamese market supports the idea that regulatory leakage is taking place, wherein sales of wood products from suspicious sources are shifting away from regulated markets and towards unregulated markets which are experiencing rapid increases in demand for wood products.
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China’s Forest Sector: Essays on Production Efficiency, Foreign Investment, and Trade and Illegal Logging
Author: Alicia S. T. Robbins
This study explores China’s forest sector through the lens of three interconnected issues: production efficiency, foreign direct investment, and trade and illegal logging. China’s forest sector is now inextricably linked to markets all over the world and this research provides an important contribution to understanding China’s participation in the trade and processing of forest-based resources and products.
First, efficiency metrics were calculated to understand how efficiently Chinese wood-processing enterprises operate, given a set of inputs. Using data collected through an enterprise survey, a stochastic frontier production function was estimated and used to measure technical efficiency for Chinese enterprises. The coefficients for the material and labor inputs proved to be significant, and a mean efficiency score of .70 indicated significant room for efficiency improvements among almost all enterprises.
Second, the location choice of foreign investment in Chinese wood-processing enterprises was examined to understand whether or not the same factors that have been shown to motivate foreign investment in manufacturing as a whole within China also apply to the wood-processing subsector, and to assess the effect of roundwood availability on foreign investment in the wood-processing sector. This was done by employing two estimation methods: tobit and negative binomial. Two variables were found to have an impact on investment: the number of specially-designated economic zones and roundwood production.
The last study examined the effects of the removal of illegally logged resources from China’s imports originating in five of China’s primary source countries for logs on China’s domestic production, consumption, and trade flows. This was performed through the use of a spatial equilibrium approach by modifying the CINTRAFOR Global Trade Model (CGTM). This was performed both by applying a graduated tariff and by changing the supply elasticities in China’s primary log source countries. China was evaluated using supply elasticities that simulated the current harvest quota system, and a system that becomes more self-sufficient through increased log production. The results demonstrated large losses in producer surplus resulting from the imposition of a tariff as compared to methods that approach adjusting supply by a change in the cost structure.
In an increasingly globalized world, these issues are fundamental to the long-term sustainable management and provision of, as well as trade in natural resources and environmental services. This research provides an important contribution to understanding China’s participation in the trade and processing of forest-based resources and products.
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The Impact of Green Building Programs on the Japanese and Chinese Residential Construction Industries and the Market for Imported Wooden Building Materials
Authors: Ivan Eastin, Daisuke Sasatani, Indroneil Ganguly, Jeff Cao and Mihyun Seol
Green or sustainable building programs incorporate the environment, the economy, and human aspects into the design and construction of a building. Green buildings are created through an integrated process where the site, the building design, the construction, the materials, the operation, the maintenance, and the deconstruction and disposal of a building are all seen as being inter-related with the environment. As a result of this integrated process, it is thought that buildings can be made more environmentally friendly, more cost-effective and more resource and energy efficient, while providing a healthier living and working environment. Green building programs are slowly but surely emerging around the world in developed countries. The focus of this report is on the green building programs in Japan and China. The Japanese green building program is called CASBEE-Sumai (House) and the green building program in China is the Chinese Evaluation Standard for Green Building (also called the Three Star System). In addition, two other programs that have the potential to influence materials use in residential housing (the 200 Year House program and the Eco-Points program) have been adopted in Japan. This report provides an overview of these programs, explains the sections of the programs that relate to wooden building materials, and discusses how these programs could affect the use of wooden building materials in Japan and China.
To better understand builder’s, architect’s and design professional’s perceptions and attitudes towards green building programs in China and Japan, surveys were conducted in both countries. A total of 406 surveys were collected in Japan and 150 surveys were collected in China. In addition, a series of informal interviews with building professionals were carried out in each country. These results of the surveys and interviews are summarized in the following report.
While Japanese housing starts declined substantially in 2009, they exceeded those in the US for the second year in a row. With approximately half of its housing starts being constructed from wood, Japan remains an attractive market for US manufacturers and exporters of wooden building materials. The recent adoption of the CASBEE green building program provides an opportunity to increase exports of wooden building materials from the US to Japan, particularly those that improve energy efficiency. However, the results of this research suggest that Japanese builders remain reluctant to use the CASBEE program as they perceive that there is little market demand for environmentally friendly houses and even less desire on the part of homebuyers to pay a premium for them, particularly given the slow economy that prevails in Japan. In contrast, Japanese builders expressed much more optimism about two other programs that could increase the demand for US value-added wood products in Japan, the 200 Year House program and the Eco-Points program.
The results of the survey clearly show that Japanese building professionals perceive wood to be the most environmentally friendly structural building material across all six of the environmental performance measure included in the survey. In contrast, steel is perceived as being the least environmentally friendly structural building material across most of the environmental performance measures. Energy efficiency of the house was found to be the most importance environmental attribute and it was rated as being significantly more important than all of the other attributes. Using water saving appliances and fixtures was found to be the second most important environmental attribute. Based on the results of this research, it appears that the various green building programs in Japan could provide new market opportunities for a variety of US value-added wooden building materials, including environmentally certified wood, energy efficient windows, water saving plumbing fixtures and insulation materials.
Finally, US government agencies and industry associations should be wary of the potential for CASBEE-Sumai to act as a non-tariff trade barrier by providing preferential treatment for domestic wood products. For example, the CASBEE program provides preferential points for domestic wood materials while both the national government and an increasing number of prefectural governments provide subsidies to home buyers and home builders for homes built using domestic wood. These Japanese programs undermine the environmental benefits of wood by promoting an agenda designed to increase the demand for domestic wood relative to imported wood. In doing so, they ignore the environmental superiority of wood relative to non-wood building materials as clearly demonstrated by a life cycle analysis. In effect, these programs promote a myopic strategy that pits domestic wood against imported wood in a fight for market share within a fixed market segment. In contrast, the goal of the wood industries in both countries should be to expand the demand for all wooden building materials by promoting their environmental superiority relative to steel and concrete; an approach which would effectively increase the total market for wood products to the benefit of both domestic and foreign suppliers of wooden building materials.
With nearly twice the total floor space of the US and more than four times as much as Western Europe, China was expected to overtake Japan in 2009 to become the second largest construction market in the world. Yet green building in China’s expanding building market is comparatively rare. The China Greentech Initiative, for example, estimates that certified green floor space constituted less that one percent of the new built environment in 2009. Recognizing the benefits of sustainable building, China’s government has set ambitious targets and guidelines for green building, and developers, designers and builders are increasing their use of green materials and building principles.
Set against the backdrop of the global economic downturn, the Chinese housing sector has shown some encouraging signs of recovery. China’s construction industry has grown at an average annual rate of 20% since 1990. Housing markets in major cities have recently started to pick up again thanks in part to the government’s 4-trillion yuan stimulus package. According to China Data Center, investment in new construction between January and May 2009 reached over 2.5 trillion yuan, an increase of 43% compared to the same period last year.
Since 2006, the Chinese government has been working to promote its “4-savings and 1-environmental” housing ideology, which stands for: energy-saving, land-saving, water-saving, raw material-saving and less pollution. The Center for Housing Industrialization was founded in 1998. Since then, it has initiated several key national projects and drafted guidelines for improving productivity of construction and improving the “healthy” and “environmental” properties of residential buildings in urban areas. According to the 11th five-year plan initiated by the Ministry of Housing and Urban-Rural Development (previously, the Ministry of Construction), by the end of 2017 the level of industrialization of the Chinese housing sector will reach 30% from the current 7-8%, and the average service life of residences will increase from 50 to 100 years. China has started to develop 10 demonstration housing projects, 10 experimental cities, and 10 model construction enterprises. Currently, most construction in China is concrete and brick, while the market for wood frame construction has been growing very slowly due in large part to the government’s tight restrictions on land use in urban areas. After the Sichuan earthquake last May, the Canadian Wood Association participated in the region’s reconstruction projects and donated $8 million to help build wood frame houses for local residents. This has been reported widely in China and in turn has helped wood frame house win wider market recognition.
The new green building program in China, the Three Star System, has the potential to increase the demand for wooden building materials (both primary and secondary wood products) used in residential construction. The extent of its impact on demand in China will be influenced by the degree to which it is accepted and utilized by developers, builders, architects and home buyers. However, the Chinese green building program makes no specific mention of wood as a material of choice, suggesting that the US government and industry groups need to continue working with the Chinese government to encourage the use of life cycle analysis as the basis for future revisions to the green building program.
Despite this shortcoming of the Chinese Green Building Program, green building materials (particularly those related to energy-saving) will be increasingly in demand in China, led by public/commercial buildings and high-end residential projects in major cities such as Beijing, Shanghai and Guangzhou. These opportunities include energy efficient wood windows for high end apartments and condominiums. In particular, wood windows with either vinyl or fiberglass cladding on the exterior have strong potential because of their lower maintenance requirements. Other value-added wood products with strong market potential in China include cellulose insulation, environmentally certified wood, and high quality wood cabinets and flooring produced from certified wood targeted towards high–end apartments, condominiums and detached homes.
In China, almost 95% of respondents have heard of the green building program, a third planned to use the program and just over ten percent have used the green building program. Chinese builders report that the most important material attribute is using energy efficient products and materials, followed closely by using renewable materials. Both of these observations suggest that opportunities exist to market energy efficient wood products (e.g., wood windows and cellulose insulation) for use in multi-story, multi-family condominium and apartment buildings. The survey results obtained for the relative environmental performance of wood, concrete and steel clearly show that Chinese construction professionals perceive that wood and wooden structures provide superior environmental performance across a variety of environmental measures spanning the life cycle of a material. This trend is similar to the trend observed in Japan.
Finally, it should be noted that the US, Japan and the EU have all passed legislation requiring that importers of wooden products must be able to demonstrate that these products do not contain illegally harvested wood materials. As a result, we can expect to see the demand for certified wood in China continue to increase, particularly if the Russian government carries through on its intention of increasing its log export tax to 80% in January 2012.
Wood frame houses have increasingly been accepted into the Chinese market. In February 2009, the Shanghai government approved a B.C.-designed roofing system as part of a plan to renovate 10,000 city apartment buildings in the lead-up to the World Expo 2010 in Shanghai. As China moves to develop more and more “green” houses, experts predict that timber structures will continue to gain recognition by the government and construction sectors in China and open up new opportunities for green building materials and engineered wood products. Also, the projects being promoted by the Canadian Wood Association in Sichuan suggest that wood frame houses could be successful in the rural areas of China where land use is less regulated by local governments.
A number of programs (including green building programs) focused on improving the environmental performance and energy efficiency of homes have been adopted in China and Japan. At the same time, builders, architects and design professionals in both countries perceive wood to be the most environmentally friendly building material. They also believe that homes built from wood are more energy efficient than homes built from steel or concrete. These trends set the stage for promoting wood as a superior building technology as well as for promoting the superior environmental performance of value-added wood building materials such as wood windows and doors. For example, the Eco-Points program in Japan provides a unique opportunity to promote energy efficient US wood windows in both new home construction as well as the growing repair and remodel sector of the housing market (although wood windows must still gain approval under the Japanese fire code to be used within urban fire and quasi-fire zones).
The results of this research project clearly show that there are a variety of market opportunities for expanding US exports of value-added wooden building materials into both Japan and China. Perhaps the best market opportunity exists for increasing exports of wood windows given the emphasis in both countries on increasing the energy efficiency of new buildings. This will be easier to accomplish in China than in Japan where restrictive fire codes require the certification of wood windows used in fire and quasi-fire zones. In addition, the green building programs in Japan and China provide a good market opportunity to expand exports of cellulosic insulation, structural insulated panels, environmentally certified wood and value-added wood products used in interior applications that are made from certified wood (e.g., wood cabinets and flooring). Finally, good opportunities exist to increase exports of certified structural wood products such as glue-laminated beams, metric sized lumber, dimension lumber and treated lumber using the new generation of less toxic wood preservatives.
In order to increase the exposure of US value-added wood products among building professionals in Japan and China, US exporters should strongly consider participating in the wide variety of trade shows and trade missions by joining industry associations that are active in international markets and have a proven track record of providing access to qualified buyers in these countries. For example, the Evergreen Building Products Association offers trade missions to Japan and China several times a year. Similarly, the State of Washington sponsors trade missions for wood products manufacturers in Japan. Finally, industry associations such as the Softwood Export Council and the American Hardwood Export Council provide opportunities for US companies to rent booth space within the US Pavilion at trade shows in Japan and China. All of these associations provide tremendous logistical support for US exporters and manufacturers of wood building materials, allowing them to focus their energy on meeting potential customers for their products (a list of upcoming trade shows and missions is included in Appendix D).
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Authors: Yuan Yuan and Ivan Eastin
Forest certification is becoming an important issue within the forest products industry and also a new trend in forest products markets. Although forest certification was initiated to confront the severe deforestation of tropical rain forests, certified forests are unbalanced in geographical locations, with 60% of certified forests being located in North America and 36% in Europe in 2006. The end markets for certified forest products, especially certified wood products, are also concentrated in European countries (particularly the United Kingdom, Germany, Belgium and the Netherlands) and North America, because the price premium for environmentally friendly products is only available in these mature and value-added markets. In manufacturing, countries such as Germany, Italy, the Netherlands, Poland, United States, Brazil, Japan and China are competitive in the area of certified wood products.
China is attracting more attention for its increased use of certified timber in wood products manufacturing. In accordance with its leading status in traditional labor intensive manufacturing industries, the Chinese forest products industry has an advantage in low cost labor, convenient infrastructure, and favorable export trading policies. The number of Chain-of-Custody (CoC) certified companies, mostly wood products manufacturers, soared between 2004 and 2006, reaching 200 by the end of 2006. Certification of forest farms in China , however, has been relatively slow and difficult, with only four forests (less than 1% of all the FSC certified forest area in the world) having obtained Forest Management (FM) certification by 2006, representing a total area of 439,630 ha.
This study consists of two sections: a case study of a certified state-owned forest farm and its downstream wood products manufacturers located in Northeast China, and an email survey of all FM/CoC and CoC certified companies in China , including manufacturers, forest farms with wood mills, and traders. Unless mentioned specifically, FSC is the default forest certification program in China because of its widespread use within the country (to the virtual exclusion of all other certification programs).
Case StudyYouhao Forest Bureau is currently the largest certified forest farm in China with two associated certified furniture manufacturers, Hualong and Huali factories, mainly supplying solid wood furniture for IKEA. The certification of Youhao's forest farms and the Hualong and Huali factories helped to maintain product orders from IKEA, which has committed itself to sourcing its wood materials from certified forests through the four steps of the IKEA Forest Action Plan (FAP). Although the high cost of certification determines that profits from certified wood products are often lower than non-certified wood products, both the forest farms and manufacturers view certification as a new trend in the forest products industry, and hope the niche market for certified wood products will grow in the future, assuring a higher price premium.
Governmental administration played an important role in the certification of Youhao through administrative commands and favorable policies. As a country with diverse forest resources, China 's central and local governments actively initiated forest certification, took part in the process of certifying two important state-owned forest farms, organized training projects on forest certification in several more state-owned forest farms after Youhao and Baihe's certification, and drafted the “Criteria and Principles of Forest Certification for China ”.
While these actions made certification favorable for state-owned forests, complicated forestry property rights reform and unstable tenure length represent significant obstacles to the certification of privately owned forests.
Survey ResultsA survey of all the FSC (CoC) certified companies in China was conducted to investigate the basic issues related to forest and chain-of-custody certification and their influence on the international trade of forest products in China. Although there are only 200 certified companies, a general pattern on this new trend within the industry was obtained. Out of the population of 200 companies, 41 usable responses formed the sample of certified companies, including 2 forest farms with wood mills, 31 wood products manufacturers, and 8 trading companies. Most of the certified companies in China are located along the eastern and southern coast of China , from Guangdong Province to Jiangsu Province . Nearly half of the companies (46.3%) are domestic private companies, and 29.3% are wholly foreign-owned enterprises. More than half of the companies (53.7%) have over 500 employees, indicating a labor intensive production process. Evaluated by annual sales, more than half of the companies (51.2%) achieved annual sales of more than US$13 million (RMB ? 100 million) in 2006, which can be viewed as medium to large sized companies.
Product mix of certified wood products
The mix of certified wood products made by survey respondents can be divided into ten major categories: indoor furniture and accessories, craft products, stationeries and toys, outdoor furniture and accessories, wood material, garden and BBQ tools, flooring, doors and windows, logs, pulp and paper, and others. Most of the certified wood products are small piece, uni-material, finished products. This is natural as large, mutil-material, semi-finished products would increase the complexity of production, management and the percentage calculation according to CoC requirements.
End markets for certified wood products
The two biggest export markets for certified wood products were Europe and the United States , accounting for 54.6% and 29.8% of exports respectively. The giant DIY chain stores such as Home Depot and B&Q are important retail markets for certified wood products. Furniture retailers, pulp and paper companies, public procurement by governments, and other users form a niche market for these products. A recent report showed that from 1999 to 2000, annual sales of all certified wood products by retailers in Britain increased from £351 million (1.8% of total forest products annual sales) to £629 million (3.4% of total forest products sales). No similar data was found for the United States .
Certified wood raw materials
The US is currently the most important source of certified wood raw materials for wood products manufacturers in China , with 24.9% of certified wood originating from the US . Other countries supplying certified wood raw materials are New Zealand (with 18.5%), Brazil (12.4%), and European countries (10.8%). Domestic forest farms in China supply about 14.5% of the raw material mix for domestic manufacturers. The species of certified wood is almost evenly distributed among conifer species, tropical broadleaf species and semitropical/temperate broadleaf species. More than half (56.4%) of the companies in China indicated that they are now facing a shortage of supply for certified wood raw materials.
Cost and benefit analysis
The costs and benefits of using certified wood products is inevitably the critical problem confronting all certified companies. The issue of profitability can be viewed from several different perspectives: the market share of certified wood products; the market growth rate; the increased cost of certified wood; the small price premium obtained for certified wood products; and the lower profit margin for certified wood products relative to non- certified wood products. The profitability of certified wood products will influence both the short-term and long- term marketing strategies of companies considering selling certified wood products.
The market for certified wood products in the world is relatively small, and the total sales of these products by all the certified companies in China were estimated to be around US$697 million. The market for certified wood products is growing, with nearly 39% of the sampled companies reporting that their sales increased about 22.7% between 2005 and 2006, while just 2.4% of companies' reported that their sales decreased. There are increased costs that contribute to the higher price of certified raw materials, including the cost of certification (both the initial evaluation and a semiannual audit fee) and the cost of production updating and management adjustment for certification. The increased cost of using certified raw materials is the most significant cost factor, with the
average price of certified wood being 22.3% higher than non-certified wood. The cost of certification varies dramatically between forest farms gaining forest management certification and wood products manufacturers obtaining CoC certification. The cost of certification for forest farms was reported to be about ten times higher than the cost of certification for manufacturers. The average cost of certification for all certified companies including the two forest farms was about $9,037 per year, while the average cost of certification without the forest farms was around $5,912 per year. However, it is important to note that the annual cost CoC certification is likely to decline over time as the initial adjustments in management and manufacturing practices that are required for certification are implemented and they become part of the routine operating procedures for the companies.
Certified companies obtained an average 6.3% price premium for certified wood products in European markets, a 5.1% price premium in the United States and a 1.5% price premium in Canada . About 24.4% of the companies reported that the profit margin for certified wood products was 6.7% higher than for non-certified wood products, while 39.0% of the companies reported a loss of about 5.6%. The profit margin for certified wood products is highly dependent on the price premium companies can achieve. A simple linear regression model was developed to estimate the profit margin based on the price premium. The regression model results suggest that as long as the price premium obtained for certified wood products exceeds 11% (relative to non-certified wood products), the profit margin for certified wood products will exceed that of non-certified wood products.
Attitudinal evaluation on certification
Certified companies expressed a positive attitude towards most of the survey statements regarding forest certification and its influence on the industry. Statements viewed positively included the belief that certification can help companies enter new markets (especially markets in Europe and North America); certification can help maintain a company's existing markets if new requirements on environmental issues are implemented; certification is helpful in enhancing the competitiveness and public image of companies; and companies were optimistic about the increased market share and profits that would be generated from selling certified wood products over the next two years.
This study focused on FSC certification in China because there were only four companies that had received certification from programs other than FSC (i.e. PEFC). Therefore, FSC is currently the dominant certification program in China for the forest products industry. The survey respondents were asked an open-ended question about their reasons for choosing FSC certification, and their reasons can be summarized into three main categories: specific requirements dictated by their buyers; specific strategies companies took for entry into new markets; and FSC's highly credible reputation.
Some common problems that certified companies in China face relate to the cost and supply of certified wood raw materials. Lacking domestic accredited certification bodies not only increases the cost of certification, but also hinders the improved communication and training among foresters and manufacturers about certification issues.
Due to the supply shortage of certified wood, companies have to communicate with importers more efficiently to obtain reliable information about the origin and supply of certified wood from foreign countries. Although domestic forest farms are in the process of being certified, which may alleviate the dependence on imported raw materials to some extent, the complexity and ambiguity of the forestry property rights reforms being considered and implemented in China will slow the privatization and consolidation of local forests, and further impede the process of certifying private forests.
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China Treated Lumber Market Study
Authors: Jeff Cao, Rose Braden, Ivan Eastin and Jeff Morrell
As China’s economy has grown and personal income has risen over the past decade, spending on landscaping and public works projects has increased dramatically, and with it China’s demand for treated softwood lumber. New luxury residential developments commonly include traditional Chinese landscape design, which includes man- made lakes and waterways traversed by footbridges and flanked by wooden fences, gazebos, and pavilions with decks. Government projects to revitalize shopping areas and tourist destinations has boosted demand for high- quality US treated southern yellow pine (SYP) lumber used to build walkways, bridges, stages, and landscaping elements.
Treated softwood lumber is a relatively new product in China, yet imports have increased steadily over the past several years. However, as demand for treated softwood lumber has increased, the number of domestic wood treaters has also increased. These new Chinese lumber treaters pose a competitive threat because many produce poor quality treated lumber which threatens to undermine the good reputation that US treated SYP has established.
This research is intended to provide US suppliers with a description of the Chinese treated softwood lumber market and strategic marketing recommendations. This report is based on information collected through interviews with treating plant managers, softwood lumber distributors, and other industry experts. Additional information was collected from surveys completed by Chinese architects, distributors, and other construction professionals.
The report consists of four parts: 1) an overview of the China’s wood preserving industry, 2) a description of the Chinese treated softwood lumber market, 3) results of surveys about user perceptions and attitudes about various treated softwood lumber species used in China, and 4) strategic implications for US manufacturers, exporters and industry associations.
Key findings include the following:
Chinese manufacturers follow international environmental standards as a means of accessing international markets, interest in environmentally-friendly treating chemicals should increase. Survey responses indicate that Chinese construction professionals rate the importance of environmentally-friendly treating chemicals fourth highest in a list of ten quality and service attributes associated with preservative treated softwood lumber. With no regulatory body however, the majority of Chinese treaters will likely use substandard preservative treating chemicals and treating procedures to keep product costs low.
construction professional’s awareness of the superior performance and durability of softwood lumber that has been properly treated to international wood treating standards. The results of this research clearly demonstrate that there is a brand awareness of US preservative treated southern yellow pine as the “gold standard” of treated softwood lumber products in the Chinese market. Like any successful branding effort, the rapid development of the preservative treated softwood lumber market has spawned low-cost domestically treated products with inferior performance and poor durability. Often, domestically treated SYP is marketed as US-treated SYP. In other cases, pine from South America is marketed as US SYP. In a price sensitive market like China, where markets tend to move towards a commodity focus, it is hardly surprising that these domestically treated, low-priced products have gained a surprising degree of market success.
The success of these inferior treated lumber products threatens to undermine the entire market for treated softwood lumber if consumers associate the poor performance and low durability of this domestically produced inferior treated lumber with all treated softwood lumber. To the extent that US preservative lumber
manufacturers and exporters allow the commoditization of treated softwood lumber, they stand the risk of having US treated lumber be subject to consumer perceptions based on the poor quality of domestic Chinese treated lumber. From a marketing perspective, it becomes important that the US industry adopt a branding strategy that allows consumers and end-users to differentiate high quality US treated lumber from low quality domestically treated lumber. Thus, it is imperative that the US treated lumber industry work with industry associations and their Chinese distributors to implement a promotion and education strategy to differentiate US preservative treated lumber from competing products.
Fundamentally, this marketing strategy would help prevent the commoditization of US treated lumber in the Chinese market and ensure that the poor performance of domestically treated lumber in China does not adversely affect the reputation or demand for US treated lumber. Failure to do this would seriously jeopardize the market for US treated lumber in China.
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Authors: Jeff Cao, Rose Braden and Ivan Eastin
In recent years, China has become a vital market for many US wood exporters. Now the fourth largest export destination for US wood products, exports from the US to China have increased an average of 30 percent per year over the past 10 years. From 1999-2004, US exports of softwood lumber increased from $1.2 million to $27.5 million and exports of hardwood lumber increased from $29.9 million to $150.8 million. While China predominately imports raw materials, exports of value-added products are increasing. For example, in 2004, US suppliers exported almost $4 million in builders’ joinery to China, replacing Canada as the leading supplier. Sales of wood furniture from the US are also increasing. Between 1999 and 2005, wood furniture exports from the US increased from $1 million to $6.8 million.
China’s plentiful supply of cheap labor and comparatively low capital costs have made it arguably, the world’s workshop. China consumes billions of dollars in raw materials and re-exports even more in value-added wood products. As the world’s third leading importer of forest products, China has inevitably drawn the attention of the supplying nations and competition for China’s business has become intense. Russian and Canadian suppliers dominate China’s softwood lumber market and Southeast Asian suppliers are extremely competitive in China’s hardwood market. US companies, however, are competitive suppliers of high quality raw and finished building materials. For US suppliers to maintain and improve their competitiveness in China however, they must understand what US products are in demand, the sales process, the distribution system, and their competition.
While raw materials, such as logs and lumber used in China’s furniture factories, remain China’s leading wood imports, the country is rapidly transitioning from a raw materials market to a diversified market with rising demand for value-added imports. Locally produced building materials dominate the regionally fragmented and price-sensitive market, yet US building materials are making inroads into certain niche markets. Yet, China remains a challenging market that can easily consume exporters’ time and money. In order to improve their competitiveness, US suppliers must identify appropriate niches for their products, navigate through thousands of specifiers, and negotiate a fair contract. In addition to understanding market opportunities and competition, exporters must understand the markets for US products and how to introduce products into these markets.
This report presents information about opportunities, market size, factors affecting competitiveness, and makes recommendations for improving competitiveness and product positioning. These issues will be discussed throughout this paper and suggestions will be made to help US suppliers enter the Chinese market and increase their sales in China. Distribution systems for raw materials and value-added building materials will be presented and the purchasing process used by developers and contractors will be discussed. The information used for this report is a combination of secondary trade data and primary information derived through in-person interviews
Conclusions and Recommendations
Understanding government policy and directions of investments is critical for firms with long-term resource commitments in China. Although the Chinese government readily embraces the capitalist ideology, a number of housing developments are controlled by local government agencies and China has yet to develop an open exchange of information. Therefore, good relations with government officials and large real estate companies are extremely helpful for firms in obtaining project and bidding information. Most, if not all of the successful US building materials exporters spend a great deal of time developing contacts in government offices to learn about new government housing development contracts.
Over the past decade, China has invested heavily in fixed assets to maintain the country’s recent level of economic growth. According to the Eleventh Five-Year Blueprint (2005-2010), the central government will recommit investments to “building a harmonious society” by improving people’s living standards, particularly those of rural and low-income individuals. Therefore, analysts expect housing developments for middle- and upper-income consumers will gradually slow and subsidized affordable housing projects will increase. Land use restrictions for single family developments were expected to limit the number of luxury developments, but most of the large builders have already secured enough land with permits to enable them to continue to build.
Maintaining market presence is critical. Most US firms don’t have inventory capacity in China and are selling their products via a variety of intermediaries such as: trading companies, sales offices, timber markets, distributors and home centers
Key findings of this report include: 1) policies enacted to achieve an economic “soft-landing” after years of double digit economic growth could curtail demand for housing and wood-based building materials, 2) distribution channels vary greatly depending upon the product and region, 3) distribution channels for value- added products are more complicated than those for raw materials, 4) long lead times and high prices hinder US suppliers’ ability to compete with domestically produced building materials, 5) locating an aggressive local partner has an important influence on export success, particularly for technical products (e.g., treated lumber and wood windows) where technology transfer programs are required to educate builders, developers and architects, and 6) although competition from domestically produced building materials is intense, there are niche-market opportunities for hardwood lumber, hardwood veneer, windows, engineered roof truss systems, glulam bridges, treated lumber and naturally durable species, and high-end fine furniture from the US.
Hardwood lumber and hardwood veneer
While wages in China are increasing, China still has an ample supply of low-cost labor to fuel its value-added wood manufacturing plants, which will continue to drive demand for US hardwood and softwood lumber. US red oak, cherry, alder, maple, and walnut are among the most popular species for furniture manufacturing in China.
Yellow poplar lumber and cherry veneer are also in high demand, due to an increasing shortage of supply. The American Hardwood Export Council (AHEC) has predicted double-digit export sales growth in the Chinese non- structural markets over the next few years.
US wood windows have many advantages over their competitors in China, including high energy efficiency. As the Chinese government promotes energy-efficiency in buildings and building materials, Chinese window manufacturers face rising costs and high market-entry barriers with respect to window technology, quality and performance. The current market for wood windows is high-end villa projects located in the major Chinese cities. However, in the future, rapid urbanization is likely to provide new opportunities in second tier cities such as Chongqing and Nanjing.
Engineered Roof Truss Systems
As a major part of the government’s campaign to renovate older urban districts, flat roofs of aged residential buildings are to be replaced with sloped roof systems. Slope roof modification has many advantages over flat roofs, including energy-efficiency and visual appeal. For most Chinese people, it is also a design that provides increased storage and living space in the house. This initiative could provide market opportunities for US engineered roof and truss systems.
Glulam Bridges and Beams
Outdoor applications such as bridges may be an opportunity since local wood is generally of lower quality compared to imports. Current uses for glulam timbers include bridges and clubhouses in upscale golf course developments as well as structural components in the outdoor walkways built around the water features that are becoming more prevalent in upscale residential developments.
Treated SYP and naturally durable species
Although competition is intense in the treated lumber market, there is a potential for US treated softwood lumber if the market is well educated and US standards are well recognized. Critical to the success of this product market
is educating Chinese construction professionals about the importance of proper lumber treatment on the long-term durability and performance of treated lumber. This is particularly challenging given the price sensitivity of this market. Another option is the use of naturally durable wood species such as western red cedar, Alaska yellow cedar, eastern white cedar and redwood. While these species provide attractive options for builders, availability and cost can be an issue.
High-end fine furniture
Import tariffs on furniture imports were totally removed in 2005. US furniture brands, such as La-Z-Boy and Ethan Allen, can already be found at the retail level in major Chinese cities. Buyers of imported furniture are largely limited to overseas expatriates and upper income Chinese who are pursuing western lifestyles. With China’s increasing integration into the global economy, and continued economic growth, this high end segment of the market is expected to increase substantially.
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China Sourcebook: An Introduction to the Chinese Residential Construction and Building Materials Market
Authors: Alicia Robbins, Paul Boardman, John Perez-Garcia and Rose Braden
China Wood and Building Materials Market: A Sourcebook for Exporters
China's rapid economic development over the past two decades has dramatically changed its position in the world economy. China has emerged from virtual isolation to become the seventh largest trading nation and the sixth largest economy in the world. Policies to encourage international trading relationships and stimulate consumer spending have created a booming economy. Today, trade accounts for nearly 50% of China's Gross Domestic Product (GDP), with imports from the United States making up US$20 billion. In 2001, China's GDP reached almost US$1.13 trillion. While the economies of the US's other leading trading partners such as Japan and the European Union have declined or remained flat in recent years, China's GDP has generally remained greater than 5% for the past decade.
Foremost in the list of reforms that have helped stimulate China's economy is housing reform. The shift from state provided housing to private ownership relieved the government of the financial burden of providing its housing while at the same time creating a leading industry in China's economy. Beijing alone is calling for the development of the housing industry as a means of increasing its current 6% share of GDP in 2001 to 10% by 2010.
Between 1978 and 2000, per capita living space increased from 3.6 square meters to 10.3 square meters and total investment in fixed assets had increased to more than US$387 billion. The Chinese government estimates that approximately 700 million square meters of residential floor space was constructed from 1997 through 2000. The government hopes to increase urban per capita living space to 25 m2, or approximately 72 m2 per household, by 2005. In order to achieve this plan, the government expects to construct 1.5 billion square meters of residential building space from 2001 to 2005. Domestic housing starts, which reportedly reached 22 million last year, are projected to grow to 24 million in 2002 and 26 million in 2003. This could result in approximately four to ten million urban annual housing starts, depending on the rate at which increases in per capita and household living space are achieved.
Because of the high population density of most urban areas, approximately 78% of China's urban residents live in multi-family housing, which ranges from low-end housing to full service apartments. It is estimated that 48% of urban residents live in six-story and under buildings, 28% in high-rise apartment buildings, and 3% live in luxury-style apartments. Less common is low-density housing, which includes high-end luxury villas geared to high income Chinese and the expatriates living in China. These villas, Most of which tend to be western-style architecture, account for only 1% of urban housing.
Concrete, steel and brick, have been the dominant building materials in the modern era. Wood frame construction, popular in traditional Chinese architecture, has not seen much penetration since housing reforms began, and will likely only be attractive or affordable to upper class Chinese and the expatriate community for the foreseeable future. The Foreign Agricultural Service has estimated wood frame construction housing starts to be significantly less than one percent of total housing starts for the next several years, while steel, masonry, and others forms will make up the majority of construction methods.
Wood frame construction faces several challenges. While wood is now recognized in the Chinese building code, consumers and developers repeatedly express concern about price, durability, wind load resistance, fire, moisture/decay, insects/termites, and seismic strength of wood frame construction.
Opportunities exist for US building materials and housing system companies to enter and expand in the Chinese market, but it will require a tremendous amount of work to overcome cultural barriers. Firms should be committed to establishing long-term contacts with whom to develop trading relationships and to make effort to adapt their products to meet Chinese needs. It is estimated that a growth rate of anywhere in the range of 15-30% will be sustained in building materials for several years to come, growing from US$24 billion to $71 billion between 2001 and 2005. The US has managed to increase its exports to China in this market, despite an overall decrease in imports of building materials.
One of the greatest opportunities to enter the market is in the 2008 Beijing Olympics. The government estimates that nearly $22 million will be invested in infrastructure for the Olympics. Furthermore, the government is promoting a "Green Olympics," providing good opportunity for green building and use of wood products in building materials and finishing.
Furthermore, the Ministry of Construction has recently approved "green building" guidelines, and is promoting energy saving, recycled or renewable and pollution-free building materials. This initiative could prove to be a useful marketing tool for imports of wood-based building materials. As of June 2000, clay bricks, a traditional building material in China, have been banned in the construction of all new buildings in medium to large cities by the Ministry of Construction, the State Economic and Trade Commission, and the State Administration of the Building Materials Industry. Coal is China's primary energy source, and in an effort to reduce air pollution the government is targeting brick production, which reportedly consumes a quarter of China's coal. As of June 2003, clay bricks will be banned entirely.
In 2000, the government banned the use of clay brick in home building. Prior to this ban, brick was one of the most preferred building materials and was a major competitor to wood frame housing, composing nearly 70% of Chinese construction materials. The Ministry of Construction is largely promoting the use of lightweight concrete blocks as a substitute to clay bricks and is hoping that the housing boom will carry over to China's steel industry. However, because there are no codes for steel frame houses and they serve a different market than wood frame housing, and because homebuyers in China (like those in the US) do not want to live in a home constructed entirely of steel, experts do not expect steel and concrete to pose much of a threat to the development of wood frame housing in China.
Most of the new housing will likely be built in the form of six-story walkups or high-rise buildings, but there also exists a potential for single, wood-frame homes. Weyerhaeuser's Kent Wheiler has said that China represents the only opportunity in the world to create a large wood frame housing market where one does not currently exist; this is largely because of China's aggressive housing reform policies, low amounts of housing currently available, high savings rates, increasing purchasing power, and a strong consumer desire for better housing. To penetrate the market, however, will require a significant amount of effort and marketing, as there is no current infrastructure to introduce potential Chinese homebuyers to wood frame construction. Despite this tremendous long-term potential, the Foreign Agricultural Service (FAS) estimates that for at least the next several years, wood frame construction will occupy less than half a percent of all housing starts.
It should be noted that China has nearly four times the population of the United States living on almost half the arable the land. The American suburban model of the single-family home with a large surrounding lot is not likely a feasible model for a high percentage of Chinese real estate development. Not only is it not affordable for the majority of the population, but also there simply is not enough land for such expansion. Wood frame construction and single-family homes, in general, will be limited to a small subset of the population and most construction efforts will be focused on multi-family and multi-story buildings.
Other housing reforms that promise to change the current way that building materials are supplied include the newly policy to provide consumers with turnkey housing. Previously, Chinese homebuyers bought only the unfinished shell (maopei) of a home or apartment. Consumer complaints about graft, poor workmanship, and construction delays have prompted the government to require builders to pre-install features. This policy will take effect in Shanghai by 2005 and industry experts expect the policy to expand to other cities. The policy may result in a decline in the number of small interior finish companies as construction companies expand to fill the new niche.
Quality issues are a central area of concern in China's housing industry. The National Bureau of Statistics reports that only 30% of all construction in 2000 was of "high" quality. Many Chinese consumers have expressed concern over issues regarding the safety and durability of their homes, malfunctions, and comfort. As Chinese homebuyers become more selective and acquire more financial resources, quality is certain to become an important factor in consumers' decision-making process.
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Authors: Juan Luo and John Perez-Garcia
Prior to the 1980’s, the government provided its citizens with public housing. As a consequence, there was a lack of investment in this sector. State-Owned Enterprises (SOEs) were responsible for providing its workers with an apartment or other housing unit. SOEs allocated apartments under a series of rigid administrative regulations that resulted in a rental market with artificially low rents, no home ownership and average living space per capita that was less then 4 m2. These conditions led the Chinese government to consider housing reforms by the end of the decade.
During the 1980's, along with other aspects of their economic system, China started to reform its urban housing sector. The housing reforms increased investment in the private (also know as commercial) and public (also known as non-commercial) housing sectors. As a result of these reforms, there are roughly 1 million annual housing starts today. The average living space is 8-10 m2, with a goal of 12m2 by the year 2010. So far, the housing reforms are focused mainly in the cities of Beijing, Tianjin, Shanghai and those in Guangdong Province.
The introduction of reforms has produced a dual-housing system in China. One segment of this dual system is the SOEs, which continue to provide the majority of housing to its employees. The other segment is the private housing sector, which operates in a more conventional, open housing market. Eventually China hopes to eliminate this dual-housing system. To do so additional market mechanisms must be undertaken to further develop an open, competitive housing market. These mechanisms involve reforms to price setting mechanisms that set current home sale prices and government-set rents.
An important consideration will be a households’ income in establishing market price setting mechanisms. The recent reforms have led to two problems. One is that the price on the ‘open housing market’ is too high to be affordable by average urban residents. As a result there is currently an overstock of newly built housing that was constructed for affluent households. The other problem is that government-set rents can’t be raised to market levels without a significant wage adjustment. Thus wage reform will be just as important for housing reform to be successful.
Housing reforms will need to be monitored along with other economic reforms in China. SOEs still control much of the urban housing stock—i.e. the majority of housing is in the public, non-commercial housing sector. The reliance of employees on their work units for their housing needs has not fundamentally changed under the reforms undertaken to date. Successful housing reforms will depend on the reform of SOEs. Wage and housing reforms, and controlling unemployment are a part of much larger and more complicated SOEs reforms. In large part, SOEs reforms will be key for housing reforms to be successful.
It is estimated that housing reforms generated $80 billion in new household-related spending in 1998 (9% of GDP) and $150 billion in 1999. However, housing reforms are major undertakings, which will gradually, rather than immediately, bring opportunities for foreign firms. Continued success in generating economic activity will promote further reforms.
China’s prediction of 10% annual growth in domestic demand over the next ten years may be over-optimistic, but disposable income has increased by an average of 6% in urban areas over the last five years, and 5.4% in rural areas. A continued growth in income is likely to have a substantial effect on the domestic demand for wood products, hence the outlook for a growing market in China for wood products is optimistic.
Rising incomes among China’s emerging middle class, many of whom still live in accommodations provided by their employer, has also raised spending levels on furniture and interior wood products. Demand will initially depend on affluent families that can afford a home purchase and separation from SOEs housing subsidies. As more middle class families become affluent, they also will likely renovate existing units or move into new apartments. Those dependent on heavily subsidized state housing are not likely to contribute much to any potential increase in wood products demand, however. Hence the transition to a western-style housing market is likely to be slow and intimately coupled with wage reforms and the transformation of SOEs to competitive industries. As this happens, over the next several years, demand will grow for higher quality products such as flooring, molding, windows, doors, cabinets, paneling, wall units and furniture. It is expected that consumption of these products will develop into a significant market following these transitions.
Over the last decade and more, China’s furniture industry has attained unprecedented development; its output during the period 1986-1997 had developed from 120 million pieces to 476 million pieces, with an average annual increase of 39.8%. Total output value of the industry as of 1998 reached 78 billion RMB and then in 1999 with growth rate to an estimation of 12%. Timber is an important raw material for the furniture industry. A large furniture sector will depend more heavily on imports of timber.
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Authors: Thomas R. Waggener, Charles A. Backman and Ekaterina Gataulina
Both China and Russia are and have gone through unprecedented change as both of their societies adjust away from the centrally planned approach and begin to adopt a mixed system incorporating facets characteristic of both private and public sectors. However, while Russia’s economy has collapsed following the demise of the centrally planned system, GDP falling nearly 40 percent between 1990 and 1994 (25 percent between 1990 and 1993), China’s economy has grown with GDP rising by 55 percent (40 percent by 1993). While the activity of the forest sector in Russia has fallen more steeply to a level of only 45 percent that existing in 1990 (63 percent 1993), being somewhat lower in Siberia and Russian Far East, China’s forest sector has expanded though it is facing constraints imposed by the forest resource (27 percent between 1990 and 1993).
Ongoing growth linked to evolution of the Chinese system will translate into higher demand for forest products than can be met in the short to medium term by domestic sources. The looming shortages present emerging opportunities for regions rich in forest resources which must seek export opportunities abroad. Nowhere does this opportunity beckon more than in the relatively less developed forests of Siberia and the Far East.
By the year 2025 under a low growth assumption, China could face a deficit in industrial wood of some 200 million cubic meters annually, equal to slightly more than two times the domestic production of industrial roundwood in 1992. Outside of Siberia and the Russian Far East, very few regions have the ability to service this looming deficit. Furthermore, even the Russian region will seemingly be able to meet only up one-half of the short fall and only under conditions which promote capital investment in the Russian forest sector and development of the forest resource which is available subject to development of the infrastructure.
While on the surface conditions seem to be emerging which will favor increased trade activity between Russia and China in forest products beyond current levels of nearly one million cubic meters annually, much uncertainty remains regarding the longer-term outcome of reform and restructuring in both countries. Future China trade in forest products with Russia will depend on many factors on both sides – many of which are political in nature of speculative regarding future course of economic and market reforms. There is no doubt that in the near term China will experience increasing demand for all forest products and that the domestic supply will be insufficient to satisfy consumption a prevailing prices. Increased trade, including trade with Russia, is one of the several policy tools available to China to deal with this reality. Whether this will be selected as a major or significant element of overall timber strategies remains to be seen. Russia, the potential trading partner, will almost certainly seek nuw and expanded markets for timber from Eastern Russia (East Siberia and the Far East regions). The future status of economic reform and transition to markets will dictate outcomes with respect to Russian forests and potential for trade. International markets will grow in importance as traditional markets in European Russia and former Soviet Republics become increasingly economically inaccessible.
What is certain, however, that the People’s Republic of China will increasingly play a major role in Asia and the Pacific Rim forestry, both as a producer and consumer market. Likewise, it is certain that Russia, particularly Siberia and the Far East, will impact the overall equation for Forest products trade in the Pacific region, with important linkages to China. It is certain that China will need to compete with other Pacific Rim consumer countries in order to obtain timber. It is unlikely that Russia will offer substantial concessions I order to sell to China. Barter trade may persist (currently denominated in Swiss francs) but will be more difficult given competition from hard currency buyers for the available timber from Russia. The willingness to pay international prices for specific species and quality of timber will largely determine the competitiveness of China. Japan, as the major log importer in the Pacific Tim, is increasing seeking timber supplies worldwide, including from the Russian Far East, to offset declines from traditional sources including the West Coast of North America.
It is also certain that Russia will seek expanded international market outlets for timber and forest products. The level and mix of timber for export will in turn depend critically on development strategies for the forests in East Siberia and the Far East. The lack of capital for investment I new and modern capacity and technology will slow the development of competitive processing, largely indicating future trade will continue to emphasize unprocessed roundwood in the near term. The near term outlook for unprocessed roundwood exports from Russia is not materially affected by the import tariff structure imposed by China, though there appear to be inconsistencies in how tariffs are applied to Russia.
China has historically had preferential tariff structures favoring the import of unprocessed timber with increasingly higher tariff rates for semi-processed and finished products, thus favoring domestic manufacture of the wood raw resource. Although ‘special arrangements’ can often prevail for trade with Russia, importers of Russian timber in the Northeast of China complain that they must pay full duties on wood imported uven under barter arrangements or from labor-export agreements. Government officials indicated that this could be ‘resolved’ in the case of trade with Russia, although no clear policy appears to exist dealing with such issues. China’s future policies with regard to timber substitution and regulations to enforce limitations on timber in many end uses (including construction) will be important with regard to meeting pressures for increased consumption as well as the future role of trade and import of timber from Russia or elsewhere.
The role of finance and credit arrangements will perhaps be most significant for China’s importers. Russian enterprises have virtually no working capital and little possibility of credit. In many cases, supplies must be paid for in advance, in some cases including timber. Production is impossible without adequate credit or advance payment from buyers of timber products. Given the financial situation of many forest products enterprises with China, it is unlikely that advance payment for imported timber can be feasible any time soon. Greater roles for banking institutions, including letters of credit and foreign exchange accounts will be required if timber trade with Russia is to expand. Improved infrastructure, including rail, port and other transportation services for Russian trade remain critical, and although agreements in principle have been announced for cooperation on infrastructure development much remains to be accomplished.
From the perspective of China, timber from Russia has both advantages and disadvantages. Advantages for trade with Russia include the possibility of ‘trade deals’ as both countries seek to minimize the use of scarce foreign exchange in trade. Border trade, including barter trade, expanded between China and Russia from 1990-93 following some 20 years of closed borders. Various agreements were negotiated for the import of goods from Russia by China, including timber. In exchange China offered consumer goods, textiles, electronic goods, and a variety of other light industrial and agricultural products. Border trade declined during 1993-95, due to many perceived problems on both sides. The changing nature of policies and regulations in both countries contributed to charges of “difficulty” in reaching agreements that could be honored and enforced. In 1993, China also tightened credit in its efforts to control inflation, resulting in a drop in demand for imported products including timber. Tax regulations, trade policies including quotas and licenses, and foreign exchange restrictions also impacted trade. The ‘political situation’ in Russia was frequently mentioned as causing many difficulties for Chinese importers. This was noted particularly with regard to ‘labor contracts’ whereby China has sought to use Chinese labor to supplement Russian workers in exchange for both wages and timber which can be brought back to China.
Closeness to Russian timber is a considerable advantage for China importers. Access by rail or water is relatively low cost considering alternative timber supply sources, including North America. Trade with Russia also has the advantage of species familiarity. The common forests of NE China and the Russian Far East reinforce the dominant role of China’s NE as a supplier of timber throughout China. Enterprises and users of timber are generally quite familiar with the attributes and characteristics of the Russian timbers and can easily substitute supply sources. Siberian larch, Korean (red) pine, spruce, and “white pines” (whitewoods) are all acceptable I the China market. Larch, a relatively abundant species in Easter Russia, is commonly used for railroad ties, construction, vehicle floor boards, etc. and can substitute for Douglas-fir and hemlock in these and other lower-valued markets such as packaging. Internal river ports and coastal shipping compliment rail connections directly linking China and Russian or passing through Mongolia. Improved infrastructures in the Far East and in China ease the problems of transportation and distribution. Although rail connections still require changing of rail car wheels, plans have been put forward to eliminate this difficulty in the near future. Coastal shipments (up to 40 percent of Russian timber imports) are by comparatively small ships, handling about 5,000 cubic meters. Most China buyers do not need (or cannot finance) larger shipload purchases, hence favor smaller and faster transport by smaller vessels. Shipments to Shanghai, Jiangsu, and Shejiang have increased as wholesale markets have evolved, allowing brokerage of relatively small volumes to individual enterprises and other purchasers.
While having some advantages over competitors brought on by proximity and familiarity with species, China buyers and processing enterprises prefer North American timber to Russian timber. While technical characteristics are noted (for example strength), log size is the most common difference identified as leading to this preference. Russian timber is generally smaller diameter, normally less than 25-30 cm, and often 12-16 cm. China prefers larger timber, preferable over 30 cm diameter at a minimum. China imports also complain that Russian timber is ‘old’, having spent considerable time in storage or transit following harvesting, resulting in considerable drying and cracking, thus degrading product yields.
China importers also feel that Russia trade is not ‘dependable’ in terms of quality per orders, timely delivery, and other details of trade agreements. Contract disputes are difficult to resolve, as are questions of financing and credit. Quality of timber had declined, according to China importers, and comparisons were made to radiata pine from New Zealand which was considered much better and quite suitable for pulping.
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Author: Thomas R. Waggener
Forestry and forest products in the People’s Republic of China is a large and complex subject – just as China itself is large. The contemporary ties between the forestry and forest products community in China and the College of Forest Resources at the University of Washington formally began in 1980 with the April 24th visit to Seattle by a senior PRC forestry delegation led by Luo Yuchuan, then Minister of Forestry. This delegation included twelve senior officials of the Ministry of Forestry, leading Chinese forestry educational and research institutions, and professional forestry organizations in the People’s Republic of China. Five extended visits to the PRC, by the author, together with numerous return visits by foresters, educators, and officials to Washington State have contributed greatly to an understanding of the Chinese people and forestry sector.
China’s longstanding forestry goal is to increase the commercial forest estate to 20 percent of the land base, or to approximately 192 million ha. of productive forest. Forestry, forest products sector, international trade, and consumption policies are all undergoing rapid and continuous change as China seeks to revamp its economy, and spur economic growth and development. Wood imports can be expected to play a growing role in balancing national domestic supply and consumption.