K Canby FT 3 8 07

Slide1: 

Kerstin Canby Forest Trends Washington, DC * March 8, 2007 China and the Global Market for Forest Products: Transforming Trade to Benefit Forests & Livelihoods

Slide2: 

Basic Dynamics of Supply and Demand Varying projections of domestic production and China’s ability to be self-sufficient by 2015. NDRC 2006: 150 million m3 gap between domestic supply of industrial roundwood and demand (domestic consumption + exports). This gap to be addressed by: imports improvements in domestic production substitution greater efficiency

China’s Import Growth: 

China’s Import Growth World leader in wood imports World’s leading importer of tropical wood 2 X increase in pulp, waste and recycled paper 3.5 X increase in timber

Slide4: 

Global Context: Increasing Imports World’s Top Industrial Roundwood Importers Source: FAOstat and China Customs 0 5 10 15 20 25 30 2000 2001 2002 2003 2004 Canada S. Korea Austria Sweden Japan Finland China Million m3

China’s Timber Imports by Product Type : 

China’s Timber Imports by Product Type Logs & sawnwood up ** Plywood & veneer down

Slide6: 

Total consumption of wood products has grown rapidly over the past decade. Adapted from Figure 17 of Fuller, Bernard. 2006. China's Rapidly Expanding Wood Products Market: Are they Sustainable? Bedford, Massachusetts: Resource Information Systems Incorporated (RISI). Drivers of Demand Exports vs. Domestic Consumption

Drivers of Demand: Domestic Consumption: 

Drivers of Demand: Domestic Consumption China USA GDP per capita and Paper Consumption

Slide8: 

Drivers of Demand: Export Demand 36.1 million m3 RWE 44.6 million m3 RWE Imports Exports China 80% imported volume Pulp and paper different story: only 11% is re-exported Russian timber different story: majority stays in China itself Mainly tropical timber processed into furniture, plywood that are exported

Slide9: 

China’s Growth as a Wood Processing Center Imports primary materials * Exports manufactured products

Slide10: 

China’s Timber Product Exports: Plywood and Furniture - 364% increase by value ($13.1b) - Logs & lumber stable - Wooden furniture & plywood +400, +1000% - Wood chips -50%

Slide11: 

Int’l Demand for China’s Forest Product Exports (1997-2006)

Slide12: 

Major Destinations of Chinese exports US +1000% EU +1000% Japan +180% Others +1200%

Slide13: 

Major Destinations: Plywood 1997-2006: 1,980% increase 2005-2006: 48% US and “others”

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1. Taiwan 16% 2. USA 13% 3. S. Korea 12% 4. Japan 8% 5. Indonesia 7% 1. Canada 27% 2. Indonesia 18% 3. Russia 13 % 4. Chile 10% 5. US 10% 1. Indonesia 65% 2. Malaysia 21% 3. Russia 3% 4. Japan 2% 5. Hong Kong 3% Paper Wood Pulp Plywood 1. Russia 18% 2. USA 14% 3. Thailand 13% 4. Indonesia 12% 5. Malaysia 8% 1. Russia1 68% 2. Malaysia 6% 3. PNG 6% 4. Myanmar 4% 5. Gabon 3% 1 20 million m3 1. Russia1 49% 2. Malaysia 8% 3. Indonesia 6% 4. Thailand 5% 5. PNG 4% 1 26.4 million m3 Lumber Logs Timber Products Largest Exporters of Wood Products to China (2004) Largest Exporter of Wood Products to China Largest Exporters of Wood Products to China (2004) Largest Suppliers of Wood Products to China (2005)

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Largest Exporters of Wood Products to China (2004) Largest Exporter of Wood Products to China Largest Exporters of Wood Products to China (2004) Largest Exporters of Wood Products to China (2005)

Slide16: 

Russian Far East/Siberia: Significant resource base, but much is illegal and ecologically damaging Malaysia: Malaysia increasingly concerned about reputation risk & being blamed for laundering illegal Indonesian lumber Myanmar: Human rights abuses, illegality, corruption, harvesting organized by militants Papua New Guinea illegal logging, illegal labor, human rights abuses Forest Department review World Bank audits confirm (2000-2005) Thailand, Cambodia, VietNam: Natural forest being lost or threatened, intense social conflict-exclusion over land rights, pressure to increase plantations to supply China Governance Problems in Major Supplying Countries

Slide17: 

China Industry Vulnerable from Supply and Demand Side Insecure supply and prices as: Natural forests dwindle in SE Asia (historical suppliers) Plantations are not yet on-line Potential for illegal logging campaigns increase (Indonesia 2005 government crackdown > 83% decrease in volume of merbau logs arriving in China) Russian log export taxes up to 80% by 2009 Environmental sensitivity in some of its fastest growing markets: EU, North America, Japan Governmental Public Procurement Policies European countries, Japan, New Zealand

Slide18: 

Sino-Russian Forest Products Trade 10% of overall trade between the two countries Russia: #1 forest products supplier to China China: Most important market for Russian timber 40 fold increase in log trade between 1996 – 2005 similarity of wood species in the Russian Far East and northeast China (China’s traditional timber base); low prices and China’s decision to reduce tariffs (0% log import tariff); convenience in border trade and rail links between Russia and the neighboring Chinese provinces; favorable tax policies for border trade; and Russia’s resumption of maritime shipping of timber products in 2001, enabling Russia’s timber to be directly shipped to the major timber consuming regions on China’s eastern coast Drivers of Russian – China Forest Trade

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1. Taiwan 16% 2. USA 13% 3. S. Korea 12% 4. Japan 8% 5. Indonesia 7% 1. Canada 27% 2. Indonesia 18% 3. Russia 13 % 4. Chile 10% 5. US 10% 1. Indonesia 65% 2. Malaysia 21% 3. Russia 3% 4. Japan 2% 5. Hong Kong 3% Paper Wood Pulp Plywood 1. Russia 18% 2. USA 14% 3. Thailand 13% 4. Indonesia 12% 5. Malaysia 8% 1. Russia1 68% 2. Malaysia 6% 3. PNG 6% 4. Myanmar 4% 5. Gabon 3% 1 20 million m3 1. Russia1 49% 2. Malaysia 8% 3. Indonesia 6% 4. Thailand 5% 5. PNG 4% 1 26.4 million m3 Lumber Logs Timber Products Largest Exporters of Wood Products to China (2004) Largest Exporter of Wood Products to China Largest Exporters of Wood Products to China (2004) Largest Suppliers of Wood Products to China (2005)

Slide20: 

The Commodity Chain for Russian Softwood Imports to China ~80% consumed domestically, mostly by construction sector ~20% for export to U.S., EU, Japan– over half from Chinese processors at border. Complicated supply chain creates challenges for timber tracking Source: Estimatesn from Song, W., B. Cheng, S. Zhang, X. Meng (Beijing Forestry University). Forthcoming Forest Trends “Russian logs in China: The softwood commodity chain and economic development in China”

Slide21: 

Proposed log export taxes increasing to 80% of exp value by 2009 Incentives for investors in wood processing No VAT to import processing equipment 2006: Russian and Chinese officials announce joint forestry venture in Siberia Many international investors, however, see Russia as a risky investment climate (new & uncertain Forest Code) CN MofCom recognizes need to ensure legal trade and investment relationships with major trade partners: Need to combat “China Theory”: fear of Chinese domination in mrktplace Recognition that small-scale illegal Chinese operations have created a bad reputation for larger operations that would like to invest in Russia Change Afoot: Russia’s Desire to Increase Value-Added Processing

Slide22: 

Expanding RFE / Siberia production zones?

Slide23: 

Rise of Chinese Investing Power Developing countries say China is often prepared to help when traditional donors are not, and will sometimes pay over the odds, to secure natural resources. The west African state of Gabon, for example, after trying unsuccessfully for years to interest American and European investors in extracting its rich iron ore deposits, found China was eager” – Financial Times, Jan. 12, 2007. Sources: China Development Bank; World Bank. China Development Bank vs. World Bank: Outstanding loans China Development Bank (converted to dollars at average rate per for year) World Bank (which also disburses some aid in grants)

Slide24: 

Africa’s Forest Product Exports to China Source: Chinese Customs data S. Africa & Swaziland (99% pulp & paper)

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Top 5 African Log Suppliers to China (2005) Source: Chinese Customs data * Important forest producing nations in West Africa do not export to China: Ivory Coast, Ghana

Slide26: 

Africa’s Share of China’s Timber Imports Logs 2nd largest category of African exports to China (4.9%), following oil (62.2%) Source: UN COMTRADE SITC Revision 2, cited in Boardman, G. 2006. “Africa’s Silk Road.” Washington D.C.: World Bank.

Slide27: 

Europe Still Dominate Importer of African Timber Source: J. Hewitt/COMTRADE

Slide28: 

Objective: to slow down heated export-oriented economy or to promote domestic efficiency: New tariff policy (Nov.1 2006) 10% temporary export tax on wood flooring, disposable chopsticks and wood chips Cancelled or lowered export tax rebates (Sept. 15 2006) Reduction to 11% for wood packaging, wood doors & windows, plywood, laminated wood floorings Cancellation for charcoal, railway sleepers, wooden tools 5% consumption tax: solidwood floorings & disposable chopsticks (Mar 2006)) Green procurement policy- eco-labeling (Jan. 2007) The central & provincial governments are asked to give priority to products proven to be environment-friendly Standards target protection of consumers’ health, environment, energy & efficient, but nothing on legality or sustainability of wood source Recent Chinese Government relevant policy changes

Slide29: 

Signed Bali and St. Petersburg FLEG Declarations Bilateral MoUs with Russia, Indonesia and Myanmar State Forest Administration (SFA) has a new Trade Watch and Information Exchange Program Ministry of Commerce has up a task force working on “Sustainable Development: China and Global Markets” SFA plans to host an international conference on illegal logging in Summer 2007 In general: no concrete actions taken yet, not clear which ministry is the leading coordination body for the issue Government Dialogues

Slide30: 

A Work in Progress Thank you