Chinas Building Market for U.S. Wood
By Roseanne Freese
Wood exporters who seek a market in China have great opportunitiesalong with enhanced competition. And, in the areas of product grading and pricing, U.S. exporters face special challenges.
But first, the good news. The government of the Peoples Republic of China recently made two important decisions that may affect U.S. wood exports. First, it instituted, then expanded, a logging ban; second, it did an about-face on private home ownership. No longer illegal, it is now encouraged.
Chinas Logging Ban
In the wake of recent severe flooding and erosion, Chinas State Forestry Administration took dramatic action. The agencys logging ban, established in 1989, originally covered five provinces, but has now been extended to 18 provinces, or two-thirds of the country.
Another 48 million hectares of forests will be off limits to loggers for the next 12 years, according to the State Forestry Administration.
But the country still needs wood for new homes and a growing furniture market. Knowing that the demand would create a climate for illegal logging, the government cut import tariffs for all logs and lumber to zero in Jan. 1999.
These new incentives work to the advantage of U.S. wood exporters, although you wouldnt call the market a cakewalk. Remember that a stiff value-added tax of 17 percent is still in effect for most imported lumber.
Home Ownership for Chinas People
In 1998, China abolished the direct housing distribution system, which many economists regarded as the last icon of a planned economy. No longer will work units be responsible for providing their members with housing.
But Chinese dream homes are quite different from what U.S. consumers would idealize. Although the skeleton that frames housing in the United States is usually made of wood, Chinese home buyers can look forward to a basic cement structure. They will purchase and install everything else separately from wood flooring to wainscoting and window paneling as add-ons. The door will probably be made of metal.
Homeowners dont do all this work themselves. Instead, they hire small-scale contractors to do much of it. A majority of those in the trade are using imported wood.
Buying Sometimes; Improving Often
In spite of the housing policy changes, new home sales have not been stellar. Of the 5.25 million square meters of floor space completed in the first two months of 1999, only 4.15 million were sold.
Chinas economy is part of the current problem. Much of the housing for sale now is out of the price range of the average wage earner.
Opportunities for home ownership are unlikely to change overnight, although the country has launched three groups of affordable housing projects. The Industrial and Commercial Bank of China is also trying to help.
In the meantime, many consumers choose to remodel their existing homes. Sometimes their needs are more urgent than cosmetic: building codes are not standardized, so substantial safety upgrades as well as consumer-ready additions like electrical wiring are often needed. Wood can also play a role in these renovations.
Making Fortunes Selling Furniture
Chinas logging may be lagging and its housing situation complicated, but there is one wood-based industry where this country is world-class: furniture.
"China has a long history of furniture production and its a good industry for that country. The capital demand is low, the market is flexible and the number of employees and the work space required is small," said FAS agricultural economist Roseanne Freese. "In 1999, China produced more than $10 billion in furnitureand its wood exports totaled $2.4 billion. You can see why China already is Asias largest furniture exporter."
Right now, 50,000 companies in China are involved in producing furniture or interior paneling.
"We continue to receive increased orders from China; most of it ends up in furniture, kitchen-counter products, or do-it-yourself products like curtain rods or towel racks," said Jameson French, president of Northland Forest Products, headquartered in Kingston, New Hampshire. "The manufacturing of these wood products has moved in recent years from places like Japan and Taiwan to China. The main reason is lower labor costs."
An Industry Leader Helps FAS
Raymond S.C. Lo, President of Lo Brothers and Associates in Lilburn, Ga., was born in China, grew up in Taiwan and earned a degree in architecture from the Georgia Institute of Technology. He is Chairman of the American Hardwood Export Councils Strategic Planning Committee for Greater China. He began his wood exporting business in 1979, buying from sawmills throughout the United States. Lo, who has offices throughout Southeast Asia, including three in China, is considered a leader by many who export to the region.
Lo views getting other countries importers up to speed on U.S. lumber grades and categories as critical to building profitable markets there.
"In the United States, we have a one-size-fits-all lumber grading system, rather than separate standards for domestic and international products. In some Asian countries, people had to learn our system through trial and errorand sometimes through argument. At any given time I carry from 8 to 10 species of American wood, so we help ourselves by helping educate importers."
Thats why Lo has allowed AHEC to use his warehouses in China to hold FAS-sponsored seminars to teach Chinese importers and end users about the lumber and wood grading systems of the United States.
Competition for U.S. Wood
While the changes in China have benefited U.S. exporters, these same forces have helped other countries, too. Russia has done well. Germanys exports rose 440 percent between 1997 to 1998. This might be due to a strong U.S. dollar affecting price, but it is also because Chinese customers like European beech, which eastern European countries produce in abundance. Whats the attraction?
"Thats the thousand dollar question," said Mike Snow executive director of the American Hardwood Export Council in Washington, D.C. "European beech is a really light colored wood, and consumers favored pale wood for years. But at a trade show this year in Beijing, Chinese furniture designers told me they felt it is becoming too common, people could be getting tired of it."
That trade show, attended by a record 508 participants, illustrates the strength of the growing Chinese wood market.
Not only are trendy European woods fierce sales competitors, but European trade rules tend to place U.S. producers at a disadvantage.
"In Europe, prices are locked in for a six-month period. In the United States, supply and demand can cause prices to continuously fluctuate," Raymond Lo explains. "If you are a furniture vendor or builder in China and demand goes up for a U.S. wood product, you may not be able to afford it. Plus, the very fact of constant price change may itself be a deterrent."
How Long Will the Opportunity Last?
In spite of these competitive concerns, total U.S. wood export sales to China could climb as high as $500 million in five years, according to Freese, providing that the United States can convince the Chinese government that it is a consistent supplier. U.S. exporters must also persuade the countrys furniture manufacturers that their wood can be used to design exciting and profitable products.
Theres a lot of work to be done. Producers in the United States also need to educate Chinese building code officials to the energy efficiency and fire safety of U.S. wood products. We also need to identify industry leaders in China who might become persuasive advocates for U.S. wood once they learn of its value, says Freese.
Roseanne Freese is an Agricultural Economist with FAS Forest And Fishery Products Division, Washington, D.C. Tel.: (202) 720-0770; Fax: (202) 720-8461; E-mail: freeseR@fas.usda.gov