Kerstin CanbyForest Trends

Beijing, July 2006

China and the Global Market for Forest Products:Transforming Trade to Benefit Forests & Livelihoods

Forest Trends, RRI, CIFOR and Partners

’00 – ’02 • Collaborate with CCAP to advise CCICED

Task Force on Forests and Grassland

’02 – ’06 Programs• China and Forest Trade in the Asia-Pacific

Region: Implications for Forests and Livelihoods (CCAP)

• Chinese Forest Policies – Impacts and Implications for Collective Forestry Sector (CAU)

• Collaborate with Peking University to advise CCICED Task Force on EcoCompensation

On Chinese domestic issues:– State Forest Administration (SFA), in particular the Forest

Economics and Development Research Center (FEDRC)– Chinese Academy of Forestry (CAF)– China Agricultural University (CAU)– Beijing Forestry University (BFU)– Other, regional universities, NGOs and forestry agencies

On Regional and International Studies:– World Agroforestry Center, Kunming (ICRAF)– IIASA– University of British Columbia, Canada– World Bank– Regional Community Forestry Training Center (RECOFTC)– Experts in Russia, PNG, Indonesia, Myanmar, Mekong

Collaborators

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

Basic Objectives

• Identify implications of China’s growing demand for wood products

• To better understand China’s domestic policies impacts on forests, livelihoods, production and environmental protection

• How can China meet this demand through sustainable forest production which also brings livelihood benefits to rural areas and imports of known legal and sustainable wood products?

• Through its leverage on the global market, can China transform the global forest sector towards one that is more sustainable and brings benefits to both local economies as well as the environment?

Increasing Imports

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 Imports 1997-2005

• World leader in wood imports (from 7th to 2nd in last 7 years)• World’s leading importer of tropical wood• 2 X increase in pulp, waste and recycled paper• 3 X increase in timber• 80% of timber is logs and sawnwood

020406080

100120140160

1997

1998

1999

2000

2001

2002

2003

2004

2005M

illion

RW

E cu

bic

met

ers

Timber ProductImports

Pulp and PaperImports

Total Wood-based ProductImports

China’s Timber Imports by Product Type 1997-2005

05

101520253035404550

1997 1998 1999 2000 2001 2002 2003 2004 2005

Impo

rts(

mill

ion

cubi

c m

eter

s RW

E) Logs

Sawn wood

Wood chips

Fiberboard

Plywood

Particleboard

Veneer

Other

Logs & sawnwood up * Plywood & veneer down

Projected Trends in Import Growth

0

100

200

300

400

500

600

700

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

mill

ion

m3

impo

rts

Low end Mid High end

Projected imports at current annual growth rates (16% per year)

Trends based on Domestic Consumption Patterns

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

ItalySpain

New Zealand

Rep. of Korea

Malaysia GreecePortugal

ArgentinaMexico

VenezuelaBrazil

Turkey

South Africa

Russia

China

India

China

USAGDP per capita and Paper Consumption

Int’l Demand for China’s Wood Products

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 lowcompared to its timber product trade

Pulp and paper different story: only 11% is re-exported

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1997 1998 1999 2000 2001 2002 2003 2004

Expo

rts

(1,0

00

RW

E cu

bic

met

ers)

Timber products Pulp & paper Total forest products

Int’l Demand for China’s Forest Product Exports (1997-2004)

364% increase by value ($13.1b)Wooden furniture & plywood +400-1000%Logs & lumber stableWood chips -50%

0

2000

4000

6000

8000

10000

12000

14000

1997 1998 1999 2000 2001 2002 2003 2004

Year

Expo

rts

(mill

ion

US

dol

lars

)

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. Russia 68%2. Malaysia 6%3. PNG 6%4. Myanmar 4%5. Gabon 3%

1. Russia 49%2. Malaysia 8%3. Indonesia 6%4. Thailand 5%5. PNG 4%

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 Suppliers of Wood Products to China (2005)

Importance of China’s Trade to Other Countries

Republic of Congo (Brazzaville)

0%

20%

40%

60%

80%

100%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Gabon

0%

20%

40%

60%

80%

100%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Mozambique

0%20%40%60%80%

100%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Central African Republic

0%

20%40%

60%80%

100%

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

• Trees and forests are the primary asset of millions some of the world’s poorest people, and could be used as an important instrument for rural development – Summary of Impacts for Asia-Pacific Supplying Countries– Chinese Collective Forests: Contributions & Constraints– China’s Sloping Land Conversion Program After 4 Years– Analysis of China-Myanmar Timber Trade (2)– Overview of Forest Sector in Russian Far East: Production,

Industry and the Problem of Illegal Logging– China’s Impact on PNG’s Forest Industry– Thailand’s Forest Policies, Plantation Sector and

Commodity Export Links to China

II. Impacts: Within China and Regionally

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. Russia 68%2. Malaysia 6%3. PNG 6%4. Myanmar 4%5. Gabon 3%

1. Russia 49%2. Malaysia 8%3. Indonesia 6%4. Thailand 5%5. PNG 4%

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)

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. Russia 68%2. Malaysia 6%3. PNG 6%4. Myanmar 4%5. Gabon 3%

1. Russia 49%2. Malaysia 8%3. Indonesia 6%4. Thailand 5%5. PNG 4%

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)

Poor Governance of Natural Resources and Corruption Common in 7 of Top 10

Russian Federation

Indonesia

Canada

USA

Malaysia

New Zealand

Thailand

Germany

GabonPNG

Myanmar

-1

-0.5

0

0.5

1

1.5

China's Supplier Countries(ranked by RWE imports 2001)

Envi

ronm

enta

l Gov

erna

nce

Inde

x

Russian Far East/Siberia: Significant resource base, but much is illegal and ecologically damaging

Russian policy reform to encourage value-added processing within Russia itself

Malaysia:Malaysia increasingly concerned about reputation risk & being blamed for laundering illegal Indonesian lumber

Myanmar:Human rights abuses, illegality, corruption, harvesting organized by militants

Problems in Major Supplying Countries

Papua New Guineaillegal 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

Problems in Major Supplying Countries

Who Benefits from Illegal Logging

1 cubic meter illegally logged hardwood(from Russian forest to Chinese border)

Chinese middleman,

$70

Bribes, $30

Purhcase of depot documents $10

Gasoline, $5 Forest leaser, $5

Loggers, security and truck driver,

$18

Who Benefits: Value Chain of Furniture Exports to USA

1000

2000

3000

4000

5000

Supplie

r

Countr

ies

Rev

enue

(mil

$)

Chines

e

mftrers

USA

retaile

rs

Total Sales ValueRevenue Added

US, EU and other major markets who are benefiting from low-cost imports from China are critical “drivers” and have important leverage and responsibility

China Industry Vulnerable from Supply Side

Insecure supply and prices as– Natural forests dwindle in SE Asia– 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)

4-9Cambodia10-15Myanmar13-16PNG10Indonesia>20Russian Far East

Years left of natural forests (est’d)Country or Region

• Changing buyer preferences (legal verification, certification) in some of its fastest growing markets: EU, North America, Japan

• Governmental Public Procurement Policies– European countries and Japan drafting or implementing

policies requiring public projects to procure only wood products that have been legally verified or certified with chain-of-custody systems

• Retailers requesting audits of their Chinese suppliers: – UK, Netherlands, Spanish,

German trade associations are likely to conduct audits of major Chinese suppliers & demand verification of legal sourcing of raw material

Vulnerability of Chinese industry in European & N American Markets

Consumer side: • EU Forest Law Enforcement, Governance

and Trade (EU FLEGT) Action Plan– EC and member states examining regulatory

options to eliminate trade in illegal logs -- making use of existing legislation, or possible new legislation that could be enacted either at Member State or the EU level.

Vulnerability of Chinese industry

China Industry Vulnerable from Demand Side

Insecure supply and prices as– Natural forests dwindle in SE Asia– 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)

4-9Cambodia10-15Myanmar13-16PNG10Indonesia>20Russian Far East

Years left of natural forests (est’d)Country or Region

Solutions: Increasing Domestic Production

Varying projections of domestic production

0

50

100

150

200

250

300

350

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Mill

ion

m3

Sources: Zhou (SFA) 2001, Bull and Nilsson 2004

Increasing Domestic Production

1. Support to SFA and others to boost domestic production for conservation and poverty alleviation

2. Add….

Solutions: China take a leadership on legal imports

• Public procurement policies requiring public projects to procureonly wood products that have been legally verified or certified with chain-of-custody systems through 3rd party verification. UK, Japan, Vancouver Olympics, London City

• Agreements for bi-lateral cooperation: Indonesia’s log export bans complemented by Malaysia’s ban on logs imported from Indonesia – response to call for assistance from Indonesia’s ministers