Kerstin Canby

1
China and the Global Market for Forest
Products Look at Russia and Africa
Kerstin Canby Forest Trends Beijing, July 2006
2
Basic Dynamics of Supply and Demand

• Varying projections of domestic production and
  Chinas 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

3
Global Context Increasing Imports
Worlds Top Industrial Roundwood Importers
30
25
20
Million m3
15
10
5
0
2000
2001
2002
2003
2004
Canada
S. Korea
Austria
Sweden
Japan
Finland
China
Source FAOstat and China Customs
4
Chinas Timber Imports by Product Type
Logs sawnwood up Plywood veneer down
5
Drivers of Demand Exports vs. Domestic
Consumption
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).
6
Drivers of Demand Domestic Consumption
GDP per capita and Paper Consumption
USA
China
7
Drivers of Demand International Demand
Imports
Exports
44.6 million m3 RWE
36.1 million m3 RWE
China
80 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-exported Russian timber different
story majority stays in China itself Mainly
tropical timber processed into furniture, plywood
that are exported
8
Chinas Growth as a Wood Processing Center
Export led growth
9
Major Destinations of Chinese exports
US 800 Japan 200 Others 600 EU
700 Hong Kong 20
10
Major Destinations Plywood
1000 increase
US and others
11
Largest Exporters of Wood Products to China
(2004)
Largest Exporters of Wood Products to China
(2005)
Largest Exporters of Wood Products to China
(2004)
Largest Exporter of Wood Products to China
Lumber
Logs
Timber Products
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
Paper
Wood Pulp
Plywood
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
12
Importance of Russian Chinese Trade
Overall Trade China Russias 4th largest trade
partner Russia Chinas 8th largest trade
partner Average annual growth rate of 30Forest
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
2005Clearly important trade relationship to
both countries

13
Drivers of Russian China Forest Trade

1. similarity of wood species in the Russian Far
   East and northeast China (Chinas traditional
   timber base)
2. low prices and Chinas decision to reduce tariffs
   (0 log import tariff)
3. convenience in border trade and rail links
   between Russia and the neighboring Chinese
   provinces of Heilongjiang and Inner Mongolia
4. favorable tax policies for border trade and
5. Russias resumption of maritime shipping of
   timber products in 2001, enabling Russias timber
   to be directly shipped to the major timber
   consuming regions on Chinas eastern coast

14
Rapid Growth of RU-CN Timber Imports
Chinas Timber Imports (RWE)
40,000
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 increase MY, Indonesia relatively
stable
35,000
30,000
25,000
Imports (RWE 1,000 m3)
20,000
15,000
10,000
5,000
0
1997
1998
1999
2000
2001
2002
Gabon
Germany
Indonesia
Malaysia
New Zealand
Russia
Thailand
United States
Others

15
The Commodity Chain for Russian Softwood Imports
to 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

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
16
Change Afoot Russias Desire to Increase
Value-Added Processing

• 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

17
Expanding RFE / Siberia production zones?
18
Rise of Chinese Investing Power
China Development Bank vs. World Bank
Outstanding loans
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.
China Development Bank (converted to dollars at
average
rate per for year)
World Bank (which also disburses some aid in
grants)
Sources China Development Bank World Bank.
19
Africas Forest Product Exports to China
S. Africa Swaziland (99 p p)
Source Chinese Customs data
20
African Timber Exports to China (with / without
Liberia)
3000000
Liberia
2500000
2000000
1500000
m3
Rest of Africa
1000000
500000
0
1997
1999
2001
2003
2005
21
Top 5 African Log Suppliers to China (2005)
Important forest producing nations in West
Africa do not export to China Ivory Coast, Ghana
(0.2)
Gabon (2.7)

Cameroon
(1.5)
Equatorial Guinea (1)
Congo
Mozambique (0.4)

Source Chinese Customs data
22
Africas Share of CNs Timber Imports

• Three African countries (Gabon, Rep. of Congo,
  Eq. Guinea) supply almost 21 of Chinas 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. Africas Silk Road.
  Washington D.C. World Bank.

23
Chinas Importance to Africa
Share of Country Timber Exports to China
Gabon
Mozambique
24
Chinas Importance to Africa Natural Tropical
Exports
Source J. Hewitt/COMTRADE
25
Chinas Forest Product Exports to Africa
Plywood
Wooden Furniture
Fiberboard
Paper
Pulp
Other Forest Products

• 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.

Source Chinese Customs data
26
A Work in Progress Thank you