China’s Industry &

Market: Growing
Impact on the World
TIAN Gang
PhD Associate Professor
Department of International Economics and Trade
College of Economics and Management
Northeast Forestry University
October , 2006
 My Introduction and Contacts

Head ， Associate Professor ， PH.D.

Department of International Economies and Trade,
  
College of Economics and Management,
Northeast Forestry University
Harbin,Heilongjiang,P.R.China(Zip:150040)
Contacts:
Tel: +86-451-82135935(h), +86-451-82190381(o)
Mobil ： 13313698919
Fax:86-451-82191124
Email ： tiangang0451@yahoo.com.cn
tiangang0451@sina.com
 Chapter 3 China’s Role in
Global Trade and market

• 1.China’s Role in Global Trade

• 2.Russia’s Fit with China
• 3.China’s Industry & Trade in Transition
• 4.China’s Increasing Exports to USA
• 5.China’s Increasing Exports to Europe
• 6.China’s Business
• 7.Outlook on the Chinese Processing
Industry
1. China’s Role in Global Trade

China’s rank in global trade:

• Production: Global Rank
• Softwood lumber #4 (could be higher)
• Hardwood lumber #2 (may be #1)
• Plywood #1
• Block board #1
• MDF #1
• Particleboard #3
• Furniture #2
• Finished Products Soaring
• Imports #2 after the USA
• Exports #1
2. Russia’s Fit with China

• Siberian& RFE Log Exports are high volume to China

(and Japan) = High Margin Business!
• There remains a strong incentive for Russians to
export logs regardless of how they obtain them (legally
or illegally, although this is changing…).
• China’s northern wood industry is booming based on a
heavy diet of imported Russian logs and lumber = “gold
rush” in terms of Chinese processing plants.
• But delivered log costs from Russia to China are
increasing = getting to be very expensive and becoming
one of the highest cost in the world!
 Russia/China Fit in Global Markets

• China= largest log importer in the world.

• Russia = largest log exporter in the world.
• China needs Russia; Russia needs China.
• Putin government is considering (is threatening) to eith
er increase log export duties, or reduce/eliminate log e
xports.
• IF this occurs in part or in whole, China’s processing ind
ustry would lose much of its raw material supply!
• Global raw material prices (logs, lumber, plywood, etc.)
would soar and/or China’s output would crash!
• Need to key your eye on China & Russia!!
3. China’s Industry & Trade in Transition:
The Chinese Wood Processing Industry
Continues to Evolve
• Initial success was primarily in furniture
and capitalized on:
• Low cost labor
• Lower priced imported raw material
• Various levels of imported technology and
quality control were introduced and
applied.
• Investments in shipping/containerization
–improved transportation logistics and
reduced export costs.
 China’s Industry Scale
The industry scale in China ranges from:
• World class (furniture, doors, MDF, paper);
• Moderate scale (plywood, flooring);
• Small scale (sawn wood, moldings).
• The level of technology to meet export qualit
y requirements is also critical (kilns, moulder
s, lacquer lines, finishing equipment).
• The future growth in the Chinese industry wi
ll likely include even larger, more high-tech pl
ants that will incorporate scale and export qu
ality.
Constraints Hitting Chinese Industry

• Increasing difficulty sourcing competitively

priced raw materials.
• Increased energy costs
• Increased transportation costs
• Increased labour costs.
• Trade action -from US, Canada, Europe, o
ther.
• Competition -i.e., from Vietnam.
• Lack of high-level management expertise.
• Lack of branding, innovative designs
• Other specific constraints by sector….
Some Strategies Being Implemented
To remain competitive, Chinese producers are
increasingly:
• Substituting lower quality, lower cost
domestic plantation wood for imported solid
wood.
• Incorporating newer technology to not only
increase product quality but to also to re-
engineer the wood, using these alternative
raw materials to produce export quality
finished wood products at lower costs.(= this
a similar strategy employed by plantation pine
exporters in Brazil, Chile and NZ. )
 4. China’s Increasing Exports to USA

• China continues to increase its export to

high volume, high paying export markets such
as the USA.
• Total China Exports of Wood Products to the
USA in 2005 (excluding furniture):= US$2.3
billion
5. China’s Increasing Exports to Europe

• Total China Exports of Wood Products

to the Europe in 2005 (excluding
furniture):= US$830 million (About 1/3
of the USA)
 6. China’s Approach to Business

• China's purchasing (procurement) polices are

inconsistent -they include some illegal log
sources but also a move to buying from
sustainable forest managed suppliers.
• Current Chinese Government policy measures
(laws, taxes, tariffs, regulations, incentives) are
generally open, but restrictive import duties
still apply to some countries.
• Still issues on patronage and corruption, but
overall, China is doing a good job compared to
other ‘developing’ countries.
 China is Learning & Improving to be a
more Responsible Timber Purchaser!
• 1)Chinais
aggressively encouraging domestic plantation
development, with strong supportive policies on capita
l, taxation, & loans from gov’t.
• 2)China is Increasing the recovery rate of timber usi
ng newer technology and is encouraging the use of oth
er substitute materials to wood.
• 3)China & Myanmar timber trade: After several mont
hs of closed border trade to protest illegal log expor
ts from Myanmar, China re-opened its border under n
ew responsible rules. Timber importers in China will st
art paying an additional 10-15% as reforestation fee t
hat China & Myanmar will share.
China is Learning & Improving to be
a more Responsible Timber
Purchaser!
4)China and Russia timber trade:
• More investments in Russia are occurring and m
easures are being made to promote legal and he
althy timber trade between China and Russia.
• The main projects from China invested in Russi
a are still logging and primary processing.
• Recently, 18 Chinese wood processing company
announcing that they will invest US$100 million
in wood processing manufacturing in Sino-Russi
a zone where located in Ussurisk, Russia. This i
s the first large scale wood processing zone inv
ested by China in Russia..
China is Learning & Improving to be a
more Responsible Timber Purchaser!

• 5)FSC and Chain of Custody certification is acc

epted by Chinese companies step by step as mo
re and more companies are in processing or con
sidering in getting FSC and COC certification.
• 6)This partly in response to accusations that of
China’s total log imports, some 90% originates i
n countries without sustainably managed forest
s or have a record of high illegal log exports.
• 7)The Chinese government imposed a 5% consu
mption tax on solid flooring as well as chop stic
ks from April 1st 2006 in China.
China is Managing its Economy &
Natural Resources

• •Today the urbanization rate in China is 43%,

and by 2020, the urbanization in China will be
55% -60% -this will increase demand in
forest/wood products.
• Housing investment and starts has been
increasing 20%-30% per year and
construction was 6.7% of GDP in 2003,
increasing from 4.7% in 1991.
• With the increasing urbanization and living
standard, the construction will continue to
expand in next 5-10 years, maintaining high
demand on construction and decoration.
 Potential Constraints or Brakes on
China’s Wood Processing Industry
Less favorable policies and developments may be
impacting China’s wood products export
sector:
• 1) Recently, the VAT export rebate has
decreased in some products to encourage
more value-added & non-solid wood processing
& exports It is estimated the VAT export
rebate of other products, like plywood, will be
cancelled or decreased in the coming years.
• 2) RMB exchange rate is increasing (but
slowly).
• 3) Labor costs are increasing.
• 4) Raw material costs are escalating.