The Middle Kingdom in the Middle of the Global Market
It is difficult to overstate China’s impact on the world’s economy and environment. Since 2000, its contribution to global growth in terms of gross domestic product (GDP) has been almost double that of India, Brazil and Russia combined—the next three largest emerging economies. China has experienced annual GDP growth of over 9 percent since 1990, and the International Monetary Fund2 projects that its economy will continue to expand by 6-8 percent a year. China has become a leading exporter of manufactured products, ranging from clothes to wooden furniture to electronic goods, as well as a major importer of raw materials such as minerals, timber and oil. Its trading activities are having a significant impact on both developed and developing countries.

China is now the world’s largest consumer of many natural resources and a dominant player in the global timber market. In just ten years, it moved from a ranking of seventh to second among all nations in terms of the total value of its forest products imports, and it is now the leading importer of industrial roundwood. Between 1997 and 2005, the value of its forest product imports rose from $6.4 billion to $16.4 billion, and the volume more than tripled.

A variety of factors lie behind China’s burgeoning demand for forest products. The most obvious is the country’s remarkable economic growth. China has had considerable success in reducing poverty—the number of people living on less than US$1 a day halved during the last decade of the 20th century—and disposable income has steadily increased.3 Even in rural areas, incomes have risen five-fold during the post-Mao era. All of this has stimulated a sharp increase in the domestic demand for forest products.

Environmental and economic factors have both played a part in the dramatic increase of wood pulp imports to supply China’s paper industry. In the past, most literate Chinese used poor-quality paper manufactured from rice straw and other agricultural residues, produced in small mills scattered across the countryside. However, concern about water pollution, and a rising demand for high-quality paper and packaging material, led the government to close down over 4,000 small-scale pulp mills and promote a modern paper industry based on high-tech processing plants and fast-growing pulpwood plantations. The demand for paper and paperboard grew by an average of 9.6 percent a year between 1990 and 2003, and China is now the second largest producer of paper and paperboard in the world after the US, with most of its production being for domestic consumption.

China has also become the world’s largest wood workshop, responding to a growing demand for furniture, plywood, wood moldings and flooring, particularly in the developed world. The quantity of timber which is processed and exported is equivalent, in terms of volume, to over 70 percent of the timber imported by China. In a period of just eight years, China’s timber product exports tripled in volume and quadrupled in value, with approximately one-third of its furniture output going for export. Major markets such as the US and EU increased imports of Chinese manufactured wood products by 700-900 percent between 1997 and 2005.

Domestic supply of industrial wood has failed to keep up with China’s growing demand. This is a reflection of the spectacular increase in growth in domestic consumption and the demand for exports on the one hand, and the government’s decision to protect the country’s forests on the other. The Natural Forest Protection Program (often referred as the logging ban), introduced in 1998 after floods devastated the middle reaches of the Yangtze River—deforestation in the upper reaches of the Yangtze River was thought to be partly responsible—led to a dramatic decrease in domestic production.

The following pages explore what all this means for China and for the many countries which supply China with forest products and which import Chinese furniture and other manufactured wood products since 1997. Some 75 percent of timber products and over 60 percent of forest products overall come from Asia-Pacific countries, but China is also having a major influence in Africa and Latin America. While the Chinese market is obviously growing in global importance, it is useful to realize that China is just one, albeit critical, link in a global commodity chain.

The Rapid Growth of China’s Imports
Between 1997 and 2005, China’s total forest product imports more than tripled in volume (round-wood equivalent) from 40 million to 134 million m3, and more than doubled in value. This was a reflection of three things: the country’s own increasing consumption of forest products; the rising international demand for low-cost forest products manufactured in China; and China’s inability to meet rising demand through production from its own forests.

During recent years, the nature of Chinese forest product imports has changed, as China is able to increasingly capture more value in its own manufacturing process. Figure 2 shows the trends of timber product imports. Through the late 1990s, for example, China imported large quantities of plywood. Today, however, China imports large quantities of raw logs, or barely processed wood products, to feed its own thriving plywood industry. Between 1994 and 2004, plywood production rocketed from 2.6 to 21.0 million cubic meters, with the country becoming a net exporter of plywood in 2001.5 This has had a serious impact on plywood manufacturers globally, who are not only losing their share of Chinese markets, but also being out-competed in other markets by cheaper Chinese plywood. Indeed, over the last few years China has established a panel production capacity equivalent to that of the United States. Similarly, in 1997, China imported 70 percent more paper than pulp by roundwood equivalent volume. However, pulp imports grew so fast that by 1999 China imported as much pulp as paper, and by 2005 pulp imports far exceeded those of paper.

The Export Boom
Responding to Growing Global Demand
Evidence which suggests that Chinese demand for timber is linked to an increase in unsustainable harvesting, illegal logging and the abuse of human rights has led some international organizations to rail against China’s role in the timber trade. However, China is only one link in a global commodity chain. Consumers and retailers in the US, EU and Japan who buy Chinese furniture and plywood made from illegally harvested hardwoods from Papua New Guinea—to give just one example—are an integral part of the story.

China’s massive reservoir of cheap labor and unusually open economy has helped to transform the country into a leading supplier of many consumer goods. China now makes 30 percent of all the world’s televisions, 50 percent of the world’s cameras and 70 percent of the world’s photocopiers. Furthermore, it accounts for over 30 percent of the world’s furniture trade. As far as forest products are concerned, China is now a key link in a vast global commodity chain, with tens of thousands of Chinese businesses responding to the growing demand for cheap wood-based products, especially furniture, in the developed world.

Between 1997 and 2005, exports value of forest products rose from US$3.6 billion to US$17.2 billion. Exports of timber products accounted for more than 75 percent of China’s total exports of forest products over the last eight years, significantly more than pulp and paper, although exports of the latter have also experienced steady growth, almost doubling in value since 1997. The main timber products exported by China are furniture, wood-based panels and, to a lesser extent, wood chips. In 2005, these accounted for over 80 percent of China’s total timber product exports.

China’s exports of wood furniture have increased at an average annual rate of 19 percent, from 3.2 to 12.7 million cubic meters RWE between 1997 and 2005. During the same period China’s plywood exports increased ten-fold—to over 10 million cubic meters RWE—making China the largest exporter of plywood in the world.

While the number of countries importing forest products from China has steadily increased, a relatively small number take the lion’s share of China’s exports. The US, Japan and Hong Kong have long been the major destinations of Chinese exports, with the EU member countries playing an important, but less substantial role. But imports by the US and EU, in particular, have exploded since 1997. US imports have increased almost 1000 percent since 1997. The US has been the single largest importer since 2000 and its share of total imports reached 35 percent of total export value by 2005. Imports by the EU have grown dramatically as well since 1997, almost 800 percent, with the UK the top importer and accounting for approximately one-third of all EU imports. Germany and the Netherlands follow the UK in imports from China with 16 percent and 10 percent respectively. Imports of Chinese forest products by Hong Kong and Japan have roughly doubled during this same period. The main destinations for China’s rapidly growing plywood exports are the US, South Korea, Hong Kong, Taiwan and the EU.

There is every indication that China’s exports of manufactured wood products will continue to grow, and within a decade they will far exceed the already considerable volume leaving the country today.

The above text is a segment of the original report “China and the Global Market for Forest Products; Transforming - Trade to Benefit Forests and Livelihoods, by authors: Andy White, Xiufang Sun, Kerstin Canby, Jintao Xu, Christopher Barr, Eugenia Katsigris, Gary Bull, Christian Cossalter and Sten Nilsson. The full article can be viewed at: http://www.forest-trends.org