Jeff Cao - China's Wood Industry: Trends and Perspectives
1. WOOD INDUSTRY IN CHINA:
Trends and Perspectives
ABIMCI IV International Congress, Curitiba-PR, Brazil, Nov 19-21, 2008
Xiaozhi (Jeff) Cao
PhD Candidate & Research Associate
Center for International Trade in Forest Products
(CINTRAFOR)
University of Washington, Seattle, USA
2. OUTLINE
China’s role in global forest products
1.
markets
Trends and challenges that may shape the
2.
industry’s future
Brazil-China timber trade
3.
Discussion and Q&A
4.
3. China is the largest wood furniture
exporter: $7.1 billion in 2008(e)
Avg Ann % Chg since
2005
China 15.2%
Italy 18.4%
Germany 21.3%
Poland 21.5%
Canada -9.6%
Brazil 0%
*Wood furniture comprises: HS94330-60 Source: Global Trade Atlas
4. China is the 3rd largest wood products
exporter: $9.2 billion in 2008(e)
Avg Ann % Chg since
2005
Canada -17.3%
German 18.7%
y
China 13.0%
Russia 7.2%
U.S. 5.0%
Brazil -8.3%
*Wood products here refer to HS44, excluding wood furniture under HS94 Source: Global Trade Atlas
5. China is the 3rd largest wood products
importer: $8.2 billion in 2008(e)
Avg Ann % Chg since
2005
U.S. -5.3%
Japan -2.5%
China 12.9%
Germany 12.4%
U.K. 6.8%
*Wood products here refer to HS44, excluding wood furniture under HS94 Source: Global Trade Atlas
6. China is not a major consumer of
imported wood furniture - yet: $309
million in 2008
Source: Global Trade Atlas
7. “Chindia” – emerging wood furniture
markets
Avg Ann % Chg since
2005
China 64.9%
India 60.7%
U.S. -2.4%
U.K. 12.9%
France 14.8%
Germany 5.1%
Japan 2.1%
Source: Global Trade Atlas
8. China’s lack of domestic timber
supplies
Broadleaved Forests
Coniferous Forests
Ecological Forests
Economic Forests
Total Forested Land (1999-2003): 175 million ha
…of which, Plantation Area: 30%
Annual Afforestation/Reforestation Rate since 6 million ha
1999:
Forest Coverage: 18.2%, aim to reach 20% by
2010
Sources: State Forestry Administration (SFA), China Data Center
9. China’s growing demand for wood fiber
imports: mainly log, pulp and wood
chips
By estimation, over 40% of the country’s total
wood fiber consumption was imported as of
2006, primarily raw materials (Lu 2007)
11. Russian log export tax impacts: price
may go up sharply in the next few years
Chinese Yuan CNY to USD Exchange Rate
Lumber
Log
Source: Global Trade Atlas
12. Russian log export tax effects: less logs,
more lumber from Russia
Lumber
Source: Global Trade Atlas
13. Russian log export tax effects: diversified
sources -stimulated by dropping freight rates
Russian logs as % of China’s total log imports (volume-
based)
Source: Global Trade Atlas
14. …growth of imported lumber and panel
into China has been moderate
Imported lumber and panel as % of total consumption
has been on decline after reaching its peak in 2002.
7.1%
15.6%
6.4%
Source: Cambridge Forest Products Associates
15. Furniture industry is the single largest
lumber and panel user in China
Source: Cambridge Forest Products Associates
16. Furniture use of wood products in
China
Source: Cambridge Forest Products Associates
18. Furniture industry is migrating from South
to North, from coast to interior area, and
overseas…
Source: China Data Center
19. …similar trends are observed with lumber
and panel sectors featuring increased
outbound investment and vertical integration
Source: China Data Center
20. Industry Consolidation-FDI and
VCs
Acquisition and mergers are quickly changing the industry’s
ownership structure, boosted by foreign direct investment
(FDI). Deal Amount (%
Company Industry Year Investors Investment type Country
share)
2006-2007 Carlyle Group VC/PE US $30 million
A&W Wood Industry Pantheon Venture,
2007 VC/PE US $12.5 million
Co., Ltd. ( Anxin Flooring
Inc.
Flooring)
2007 Strong Media VC/PE US $8.57 million
2005 Legend Holdings VC China (25%)
Kebao & Boloni
Kitchen & Bathroom Furniture
Furniture 2007 Morgan Stanley Close-end fund US $18 million (10%)
Shanghai New Sihe
Flooring 2007 Legend Holdings VC China $20 million
Wood Industry
Yinbin Wood
Flooring 2007 Armstrong Joint venture US $17.6 million
Industry Co., Ltd
21. Industry Consolidation-FDI and
VCs
In the retail area, the level of FDI involvement and
competition is much higher.
ARC Capital
Oriental Home Big Box Retail 2008 Close-end fund Germany (51%)
Holdings
Home World Big Box Retail 2006 Home Depot Acquisition US $100 million (100%)
Redstar Macalline Big Box Retail 2008 Warburg Pincus Private equity US $190 million (20%)
Dongyi Rising-sun Home Decoration
2007 Rison (?) Venture Capital Singapore $30 million
Co., Ltd (DYRS) and Construction
22. Industry Consolidation-IPOs
Together with the surge of FDI is the Chinese firms’ rush to the stock market
through IPOs (initial public offerings).
Company Year IPO Market listed Products Employee ROA 2006 (%) ROE 2006 (%)
Guangming Group
1996 Shenzhen Furniture 2,156 -16.46 -33.47
Furniture Co.,Ltd.
Jilin Forest Products
1998 Panels, flooring 9,050 3.08 4.95
Co., Ltd
Aluminum foils,
aluminum foil
Dare Technology
1999 Shenzhen compound paper and 7,946 4.95 13.45
Co., Ltd.
printed packaging
materials
Markor International
1999 Furniture 3,575 4.12 4.32
Furniture Co., Ltd.
Guangdong Yihua
Timber Industry Co., 2004 Furniture and flooring 1,903 10.36 19.28
Ltd
Dehua TB New
Decorative plywood
Decoration Material 2005 Shenzhen 3,411 4.68 8.64
and veneer
Co., Ltd.
Samson Holdings
2005 Furniture 13,700 20.61 25.51
Ltd, (Lacquer Craft)
Yongan Forestry
Panel and bamboo
(Group) Joint-Stock NA Shenzhen 2,034 -1.68 -6.09
products
Co., Ltd.
investment, wood
Sino-Forest chips, logs,
1995 500 10.6 20.76
Corporation manufacturing and
trading
23. Panel industry under structural
changes
Chinese industry administration aims to adjust the proportion
of plywood, fiberboard and particleboard from current
50:35:15 to 40:40:20 by 2010, in terms of total production
volume ( Qian, 2007).
Unit: million m3
Source: Qian, 2007
24. Plywood industry uses more plantation
species
China has 3.1 million
ha of poplar plantation
with a total standing
timber volume of 193.3
million m3, of which
almost half are mature
forests, this means that
Chinese poplar
plantations can supply
its plywood industry
with 52.5 million m3
RWE per year (Wu,
2007).
Wood Use in Plywood Production
Source: Wu, 2007
25. Flooring industry is changing in favor
of engineered wood products and non-
timber composites
250
Unit: million m3
200
Laminate
d
150
100
Solidwoo Engineered
d
50
Bamboo
0
1999 2000 2001 2002 2003 2004 2005 2006
Laminated Solidwood Engineered Bamboo
Source: CWI, 2005
26. Global economy is cooling down
Global GDP Forecast by Cambridge Forest Products
Associates The Economist Forecast of
GDP
2008 2009
1.6 1.3
US
1.0 0.9
Japan
9.8 8.5
China
1.2 0.6
Britain
1.1 2.0
Canada
4.6 3.4
Brazil
7.7 7.1
India
Source: The Economist, Oct 2008
32. China’s position as a low-cost leader is
challenged
Unit price of Chinese wood bedroom furniture exports to the U.S.
market vs. Vietnamese exports
Source: Global Trade Atlas
33. Will China be replaced by Vietnam in
exports?
US Wood Furniture Imports by Sources
CHINA
CANADA
VIETNAM
Source: Global Trade Atlas
34. Industry in the threshold for a
“Change”
Differentiation:
Specialty Production
35. Environmental and product safety
regulations: new challenges to Chinese
exporters
• By 10/2008, FSC CoC-certified companies in
China reached 580, up from 376 as of 2007
• China’s own national forest certification standard
• Green procurement policies, e.g. EU FLEGT and
US Lacey Act, doom to have an impact
• CARB rule: rising formaldehyde emission
standards in the U.S. (CARB)
40. Brazil is net exporter to China in forest
products, $770+ million surplus in 2008
Export to Change % Import Change %
2008 China from 2007 from from 2007
China
Pulp $686.1 M 72.8% < $1 M --
Wood $110.5 M -23.4% $16.0 M 36.5%
products
Paperboard $53.3 M 170.5% $57.5 M 95.9%
Wood < $1 M -- $2.2 M 90%
furniture
Total $850 M $76 M
Source: Global Trade Atlas
44. Conclusion
• Long-term raw material supply is still a major concern to China.
• Falling demand of wood products in China is expected during 2008-
20011 due to global economic downturn, but industry growth
momentum will recover
• China is losing its cost advantage in the export market as
competition from Vietnam and other low-cost countries is
increasing.
• Technology and FDI are facilitating a major re-structuring within
China’s wood products industries.
• Environmental law, product safety regulations (CARB), government
policy, as well as market-based forest certification initiatives will
have a major impact on both public and private sectors in China.
• There is good potential for Brazil and China to increase bi-lateral
trade.
45. Thank you!
www.cintrafor.org
Jeff Cao caoxz@u.washington.edu
