Kerstin CanbyForest Trends
Beijing, July 2006
China and the Global Market for Forest Products:Look at Russia and Africa
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
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
Mill
ion
m3
China’s Timber Imports by Product Type
0
5
10
15
20
25
30
35
40
45
50
1997 1998 1999 2000 2001 2002 2003 2004 2005
Imp
ort
s(m
illi
on
cu
bic
met
ers
RW
E)
Logs
Sawn wood
Wood chips
Fiberboard
Plywood
Particleboard
Veneer
Other
Logs & sawnwood up * Plywood & veneer down
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).
0
10
20
30
40
50
60
70
80
90
100
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year
Mill
ion c
ubic
met
ers
RW
E
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Export
s' S
har
e of Consu
mption
Exports Domestic Consumption Export Share (right axis)
Drivers of DemandExports vs. Domestic
Consumption
Drivers of Demand: Domestic Consumption
0
100
200
300
400
0 5000 10000 15000 20000 25000 30000 35000 40000
GDP per capita, USD 2000 prices
Consumption 2000, kg per capita
Japan 1980-2000
USA
Denmark
Sweden
Ireland
UK
Finland
CanadaNetherlands
Austria
Belgium
Singapore
Germany
France
Australia
Italy
Spain
New Zealand
Rep. of Korea
Malaysia GreecePortugal
ArgentinaMexico
Venezuela
BrazilTurkey
South Africa
Russia
China
India
China
USA
GDP per capita and Paper Consumption
Drivers of Demand: International Demand
36.1 million m3 RWE
44.6 million m3 RWE
Imports Exports
China80% imported volume
China's net domestic consumption of timber products is quite low compared to its timber product trade
Pulp and paper different story: only 11% is re-exportedRussian timber different story: majority stays in China itself
Mainly tropical timber processed into furniture, plywood that are exported
China’s Growth as a Wood Processing Center
0 5 10 15 20 25 30
other*
wood furniture
plywood
fiberboard
veneer
particleboard
wood chips
lumber
logs
million m3 RWE
Export – led growth
0
2000
4000
6000
8000
10000
12000
14000
1997 1998 1999 2000 2001 2002 2003 2004
Year
Expo
rts
(milli
on U
S do
llars
)
Major Destinations of Chinese exports
US +800%Japan +200%Others +600% **EU +700%Hong Kong 20%
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
1997 1998 1999 2000 2001 2002 2003 2004
Expo
rts
(RW
E m
3)
Hong Kong Korea South Singapore Taiwan Japan United States EU Others
Major Destinations: Plywood
1000% increase
US and “others”
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%
PaperWood PulpPlywood
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
LumberLogsTimber 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 Exporters of Wood Products to China (2005)
Importance of Russian – Chinese Trade
Overall TradeChina : Russia’s 4th largest trade partnerRussia: China’s 8th largest trade partnerAverage annual growth rate of 30%
Forest Products Trade10% of overall trade between the two countriesRussia: #1 forest products supplier to ChinaChina: Most important market for Russian timber40 fold increase in log trade between 1996 – 2005
Clearly important trade relationship to both countries
(a)similarity of wood species in the Russian Far East and northeast China (China’s traditional timber base);
(b)low prices and China’s decision to reduce tariffs (0% log import tariff);
(c)convenience in border trade and rail links between Russia and the neighboring Chinese provinces of Heilongjiang and Inner Mongolia;
(d)favorable tax policies for border trade; and
(e)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
Rapid Growth of RU-CN Timber Imports
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1997 1998 1999 2000 2001 2002
Imp
ort
s (R
WE
1,0
00 m
3 )
Gabon Germany Indonesia Malaysia New ZealandRussia Thailand United States Others
China’s Timber Imports (RWE)
2000: China replaced Japan as largest market for Russian timber
Logs:1996: 500,000 m3 2005: 20 million m3
77% of timber imports
87% are softwood
90% of log exports go to China
Russia great increaseMY, Indonesia relatively stable
The Commodity Chain for Russian Softwood Imports to China
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”
• Recent rise of processing capacity at “gateway” cities (Suifenhe & Manzhouli) •~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
• Proposed log export taxes increasing to 20% of exp value by 2010• Currently 0.28E / m3; could go as high has 24E / m3
• Incentives for investors in wood processing • No VAT to import processing equipment
• 2006: Russian and Chinese officials announce joint forestry venture in Siberia• Long-term lease of 1m ha; joint RU-CN processing enterprises
• 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
Expanding RFE / Siberia production zones?
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 averagerate per for year)
World Bank (which also disburses some aid in grants)
0 50 100 150 200 250
2005
2004
2003
2002
Billion US $
Africa’s Forest Product Exports to China
Source: Chinese Customs data
0
1
1
2
2
3
3
4
1997 1998 1999 2000 2001 2002 2003 2004 2005
Year
Million
m3
RW
E
Logs Lumber Pulp & Paper Wastepaper & Recycled Pulp
S. Africa & Swaziland (99% p & p)
African Timber Exports to China (with / without Liberia)
0
500000
1000000
1500000
2000000
2500000
3000000
1997 1999 2001 2003 2005
m3
Liberia
Rest of Africa
Top 5 African Log Suppliers to China (2005)
Source: Chinese Customs data
Cameroon Congo
0
500
1,000
1,500
2,000
2,500
1997 1998 1999 2000 2001 2002 2003 2004 2005
Th
ou
san
ds m
3 R
WE
Gabon (2.7%) Equatorial Guinea (1%) Mozambique (0.4%)
* Important forest producing nations in West Africa do not export to China: Ivory Coast, Ghana
(0.2%)(1.5%)
Africa’s Share of CN’s Timber Imports
Three African countries (Gabon, Rep. of Congo, Eq. Guinea) supply almost 21% of China’s tropical hardwood logs.Source: Chinese Customs data
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.
0
5
10
15
20
25
30
35
40
45
50
1997 1998 1999 2000 2001 2002 2003 2004 2005
Year
Million
m3 R
WE
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Total Timber Products African Timber Products Africa's Share
China’s Importance to Africa
Share of Country Timber Exports to ChinaGabon
0
200
400
600
800
1,000
1,200
1,400
1997 1998 1999 2000 2001 2002 2003 2004 2005
Th
ou
san
d m
3 R
WE
0%
20%
40%
60%
80%
100%
Logs Wood chips Lumber Veneer Other Share to China
Mozambique
0
20
40
60
80
100
120
1997 1998 1999 2000 2001 2002 2003 2004 2005
Th
ou
san
d m
3 R
WE
0%
20%
40%
60%
80%
100%
China’s Importance to Africa: Natural Tropical Exports
Source: J. Hewitt/COMTRADE
Esti
mate
d R
WE (
million
m3
)e
)
0.0
0.5
1.0
1.5
2.0
2.5
CameroonGabonCongo
(Brazzaville)IvoryCoast
GhanaEquatorial
GuineaOthers
China EU Rest of the World
China’s Forest Product Exports to Africa
Source: Chinese Customs data
• Africa importing Chinese plywood, paper, fiberboard, furniture
• African countries exporting forest products to China import very little processed timber products
• Most Chinese products go to Egypt (25%) and non-SSA countries
• Of SSA countries: S. Africa (0.35%), Nigeria (0.11%), Ghana (0.06%), etc.
0
100
200
300
400
500
600
700
800
900
1,000
1997 1998 1999 2000 2001 2002 2003 2004 2005
Th
ou
san
ds m
3 R
WE
Plywood Wooden Furniture Fiberboard Paper Pulp Other Forest Products
A Work in Progress
Thank you