China

Huge and Growing Demand for Timber

It is no surprise that China will soon surpass Japan, if it has not done so already, as the leading consumer of tropical timber. Catastrophic floods over the last few years were exacerbated by widespread clearcutting within China, prompting severe restrictions on logging. The resulting upsurge in China's imports of timber from its neighbours in Russia, Indonesia and Papua has been well documents by Forest Trends and others. As with imports into Japan from these three regions, it can be safely assumed that a very large proportion is illegally sourced, making China of primary importance in solving Asia's forest crisis.

Chart 1 shows both that Japan imports a substantial share of the plywood, lumber, furniture and other timber products which China exports, and that Japan's timber imports from China increased during the first half of this decade at a slower rate than the expansion in China's timber exports. (The USA accounts for approximately half of those exports).

Chart 2 shows that, in recent years, China has become a major supplier of Japan's timber imports (supplying 9% by roundwood equivalent volume in 2006).

Although Japan remains the world's principal importer of tropical timber, if one excludes supplies from Indonesia and Malaysia, China holds this unflattering position. China is also much the world's largest importer of timber from Eastern Russia.

Much of the timber which China imports is subsequently exported - notably to the USA, Japan and the European Union - as wooden furniture, plywood, joinery, picture frames and other products.

The majority of the timber which China imports is arguably illegal - giving China significant cost advantages relative to its competitors in export markets. China's government treats its timber industry as of strategic importance and supports procurement internationally and export-oriented manufacturers.

This has lead to anti-dumping cases being brought successfully against China in two of China's three biggest markets - the USA and in the EU, but not yet in Japan.

These cases and the trend in China's main export markets towards prohibiting the import illegal timber may slow down the very rapid growth in China's timber exports. There is also concern that descriptions used in the marketing some of China's timber exports might be fraudulent.

Chart 3 indicates that Japan is the destination for a small share of China's increasing paper exports and (with Taiwan and, to a lesser extent, South Korea) the main destination for China's wood chip exports.

Almost all of the virgin wood fibre which China uses in making paper is imported. (Commendably, recycled wood fibre accounts for a substantial share of the raw material out of which China produces paper.) Much of the increase in the consumption of virgin wood fibre by China's paper industry is imported from Indonesia. Logs from natural tropical forest (most of which are probably illegal) continue to supply the majority of the raw material which Indonesia uses in its export-oriented pulp and paper mills.

Having established itself as Indonesia's largest bankruptcy, Indonesia's leading pulp and paper company (Asia Pulp and Paper - whose owner is from China's Fujian province, notorious for its criminal underworld) is following a similar business development model in China (dubious sources of finance, no prospect of sufficient local wood fibre supply, logging illegaly in natural forest) to become China's largest paper company. Japanese banks, with Japanese government support (via JExIm) have invested heavily in APP.

China has started to establish plantations of genetically engineered trees - despite widespread concern about such technology. In doing so with poplar, China is jeopardising the future of its rapidly expanding plywood business much of which is based on plywood with a poplar core.? Genetically engineered pulpwood and the atmospheric pollution caused by the electricty? consumption of China's pulp and paper mills likewise threaten China's expanding (energy-intensive) paper exports.

To date, the productivity of the (implicitly controversial) major expansion in China's tree plantations (supported by the World Bank) has been significantly less than forecast.? Prospects for China's self-sufficiency in timber and pulpwood remain very optimistic.? Much of the increase in the roundwood equivalent volume of China's paper sector imports merely offsets the decrease in output caused by the closure of a large number of small-scale paper mills in China which tended to rice straw rather than wood as their source of fibre.