U.S. Embassy Beijing, Office of Agricultural Affairs
James Butterworth & Zhang Lei
In 2006, China’s logs, lumber and wood-based panels production is forecast to increase five, ten and 15 percent respectively driven by China’s booming wood processing and construction sectors. China’s supply of domestic solid wood production is increasing, but not as rapidly as demand due to China’s booming economy. China’s dependence on imported wood is expected to grow into the foreseeable future.
Includes PSD Changes: Yes
Includes Trade Matrix: No
Table of Contents
Executive Summary 3
Forest Situation & Outlook 3
Solid Wood Products Situation & Outlook 5
Market Segment Analysis 9
Construction Sector 9
Construction Sector Strategic Indicator Table 10
Furniture & Interiors Sector 10
Production, Consumption & Marketing 11
Material Handling Industry 11
Statistics Tables 13
Appendix 1 Notice on Forbidding the “Double Rebate” Policy on Border trade 16
Appendix 2 Mark of Wood and Wood Products in Trade 17
Appendix 3 Phytosanitary Treatment Measures for Entry WPM 22
China’s soaring demand for timber, driven primarily by its rapid economic expansion and booming wood processing sectors, is forecast to continue increasing in the next few years. China’s domestic timber production is forecast to increase slightly in the next few years because of China’s soon to be expanded logging quota and China’s Fast-Growing-High-Yielding (FGHY) forests. However, China’s forest management policies have changed to focus more on ecology protection and less on timber production, which will limit timber production expansion. More and more local timber is expected to come from plantations, instead of natural forests. China’s imported timber is forecast to continue increasing driven by the strong demand. China is expected to import more temperate-zone timber as substitute for tropical timber because of price and concerns about future availability of tropical hardwoods. Russia is expected to retain its dominant position in China’s imported timber products over the next few years because of its low price (lower freight, and preferential tax policies), and similar species to China. Indonesia’s timber exports to China have decreased sharply because of the Indonesian government’s restrictive policies toward logging and the December 2004 tsunami. U.S. hardwood exports are forecast to increase moderately, primarily driven by demand from the furniture and interior decorating sectors. U.S. softwood exports, especially Southern Pine, also are expected to increase rapidly, driven by demand from the construction industry, including real estate, infrastructure construction and outdoor landscaping. There are several market niches for U.S. softwood in addition to construction sector, such as pencils and instruments.
Forest Situation & Outlook
Forest Resources: In January 2005, China released its Sixth Forest Inventory Report (covering 1999-2003). It estimated China’s forested area to be 175 million of hectares, with the forest stocking volume at 12,456 million cubic meters, and its forest coverage increased to 18.21 percent from 16.55 percent in 1998. For more information on China’s forest resources, including China’s forest ownership, forest type, major species, age class, and distribution, please refer to GAIN Report CH5027, which is available at http://www.fas.usda.gov/gainfiles/200503/146119239.pdf China’s forestry production policy is undergoing transformation. The policy focus has shifted from maximizing harvesting natural timber stands to one that focuses more on ecological preservation. During the transformation, plantations will replace natural forests as the major timber source in China. Ecological forests, including shelterbelt and special-purpose forests, accounted for 75 percent of China’s total area planted during 2004.
In December 2004, China launched a Forest Ecological Benefit Compensation Scheme (FEBCS). The Scheme began to fund forestry ecological improvement. In 2004, 26.67 million hectares of key ecological forests received RMB2 billion (US$242 million) from the Chinese Central Government as compensation for planting trees. The Scheme stipulates that 90 percent of the fund must be used as compensation for the costs of planting trees, and the remaining 10 percent must be set aside for controlling forest fires, diseases and pests, or monitoring changes in the forest ecology.
Forest Certification: European consumers’ demand for certified wood products is the primary driving force behind China’s pursuit of forest certification. In response to that demand, China established the Forest Certification Division under the State Forestry Administration (SFA) in 2001. Progress moved slowly during the first two years because of a lack of market pressure. In 2004, however, the situation changed because more and more European importers began requesting the use of certificated wood. China began to actively consider different schemes, including those advocated by the Program for the Endorsement of Forest Certification (PEFC), the Forest Stewardship Council (FSC), and the Sustainable Forestry Initiative (SFI).
China will release its Draft Regulations on Forest Certification by the end of 2005. Mutual-recognition of other schemes seems to be the largest difficulty. China is expected to incorporate FSC’s principles and standards into its own scheme. The Wild World Fund (WWF) has actively promoted FSC in China, including with Chinese government forestry officials. The WWF/World Bank Alliance initiated and funded China’s Forest Certification Working Group in 2001. FSC certified forest in China totaled 431,606 hectares as of April 2005. Sixty-two wooden product manufacturers have passed FSC Chain of Custody (CoC) certification by the end of 2004.
Forest certification brings both benefits and challenges to U.S. wood exporters because a lot of imported U.S. wood, especially hardwood, is further processed and re-exported to the United States, Europe, Japan, and other countries. The primary benefit is that forest certification will help to decrease illegal wood from entering China and thereby create more export opportunities for U.S. exporters. The main challenge lies in universal acceptance of the various certification schemes mentioned above. If, for example, the European market does not accept uncertified, or SFI certified wood, Chinese manufacturers would not use such wood for products destined to Europe, which means U.S. wood might lose this market. However, Post expects it will be a long time before certified wood becomes a major factor in the Chinese wood market, so the U.S. wood industry has time to solve the problem.
Logging Quota: China continues to enforce a logging quota to protect its forest resources. The annual allowable cut during the Tenth Five-Year (2001-2005) is 223.1 million cubic meters. China has started to work on a new logging quota plan for the 11th Five-Year (2006-2010). According to the latest forest resource inventory, China’s stocking volume annual growth is about 497 million cubic meters. Industry sources expect China’s State Council will approve increasing the new quota to about 250 million cubic meters, when it releases its decision at the end of 2005. This will be about half of the annual growth.
Special quota policies for commercial plantations: In an effort to encourage commercial plantations, the Government of China (GOC) allows the following special exemptions to the logging quota as detailed above: 1) managers of commercial plantations above a “certain size”1, are allowed to develop their own annual logging quota2; 2) plantation managers can determine the harvesting age of plantation-grown timber for industrial raw material use; and, 3) the GOC will separately list commercial plantations’ logging quotas and production plans.
Despite the GOC’s efforts to enforce the logging quotas, excessive logging is still one of the biggest forestry-related problems in China. According to the latest inventory, annual logging has exceeded the quota by 75.54 million cubic meters, or 34 percent.
Fast Growing High Yielding (FGHY) Forest: Developing FGHY forests is China’s major measure to protect its domestic natural forests and thereby decrease its reliance on imports. China’s goal is to plant 13 million hectares of FGHY forest by 2015. This would provide 133 million cubic meters of timber. However, Post questions whether China will be able to reach this ambitious target because of the following factors: 1) China does not have anywhere near 13 million hectares available for planting forests or any other commodity for that matter. As a point of comparison, 13 million hectares would account for about 60 percent of China’s total corn planted area (22 million hectares). There are large tracts of desert in Western China, but they are not suitable for FGHY forests primarily because there is not enough water for irrigation, and irrigating forests are not the optimal use of China’s limited water resources; 2) China needs to plant about one million hectares of FGHY annually from 2002 to 2015 to meet its target. During the period from 2002 to 2004, actual plantings fell far short of that goal -- less than 100,000 hectares were planted annually; and, 3) China’s large-scale FGHY plantations need to overcome considerable ecological concerns. China’s favorable investment environment has attracted large amounts of foreign direct investment from multinationals for pulp and paper processing facilities, which spurs pulp plantations in South China, especially in Yunnan, Hainan, and Guangxi Province. In early 2005, China’s state-run media alleged that a major Indonesian paper manufacturer illegally logged natural forests in order to plant eucalyptus forests. Several non-governmental organizations (NGOs) highlighted the story as an example of how, in their view, single-specie plantations damage ecological diversity. These conflicting interests are forcing the GOC to balance FGHY forest expansion with environmental protection.
Post forecasts that China’s FGHY program will not decrease U.S. wood imports because most timber from FGHY forests is for low-end use, such as paper & pulp production, inside layers of plywood, and laminated flooring. Most imported U.S. wood, on the other hand, is used for high-end furniture, interior decoration, and outdoor landscaping. Wood from FGHY forests is not a substitute for U.S. wood for those uses.
In addition to planting FGHY forests, China has planted small tracts of rare species forests. In Hainan province, for example, they planted teak. However, given the small quantity and slow growth rate of such species, timber from these forests will not be a measurable factor anytime in the near future.
Illegal Logging: Although most experts opine that China’s domestic illegal logging is not as serious as in Russia or Indonesia, as mentioned above, it remains a considerable problem. Equally important, however, is that China is considered to be one of the largest buyers and millers of illegal logs. Post expects forest certification and the GOC’s concern about potentially harmful pests that enter China on the illegal logs eventually will help reduce the flow of illegal logs into China. In the meantime, however, the illegal logs continue to flow in.