3.4 China's demand for forestry products to increase
The forestry sector is expected to benefit from China's ongoing strong investment, especially in residential construction. Housing and infrastructure investment will continue to grow strongly as China's industrialisation and urbanisation continue. Demand for housing continues to surge and the government has also made building new housing a priority to try to contain house price inflation. In its Twelfth Five Year Plan the government committed to constructing 36 million state-subsidised houses. It has also become a priority to increase the stock of housing in low-income urban areas.
Around half of Chinese forestry consumption is in the housing and construction sector (Deutsche Bank, 2007). About a quarter is used in consumer products, the production of which is expected to increase strongly in coming years as the economy is rebalanced towards domestic consumption. These factors will continue to support demand for forestry products, although the growth may slow as the economy rebalances away from investment to consumption.
While China has the fifth largest forestry area in the world, forestry area as a percentage of total land and forest area per capita are both low by world standards. China has 22% of its land area in forestry compared with a figure of 31% for both the world average and New Zealand. China has only 1.6 square kilometres of forestry land per 1,000 people, compared to the world average of 5.7. However, the exact amount of forestry land available is harder to gauge as a lot of its new forests are locked up for erosion control and environmental reasons. Also, entry costs to the forestry sector in China are very high owing to the large capital expenditure required to get into the industry and the long harvest cycles for tree species in China.
In addition, a lot of the forestry area is deep inland, making transportation costs high, although as infrastructure continues to improve this will become less of a problem. China has also made the protection of forest land a priority over the next 10 years, making it more difficult to harvest forests in the short term to meet growing timber demand. These factors suggest that as the demand for forestry products continues to grow, China will have to source more of these products from overseas. As demand is likely to continue to outstrip domestic supply, there will be further need for China's forestry imports to grow, some of which can be met by New Zealand, which supplied 8% of China's wood and wood product imports in 2010(Ma, Liu, & Du, 2009).
Forestry analysis company RISI forecasts that China's forestry deficit will increase from 117 million m3 in 2010 to 182 million m3 (55%) in 2015 (Flynn, 2011). The US Department of Agriculture (USDA) predicts that China will increasingly substitute imports of softwood logs for hardwood logs to use in construction and interior decoration (USDA, 2010b). This will benefit New Zealand as it supplied 26% of China's softwood log imports in 2011, up from 5% in 2007, partly replacing Russian exports which fell from 91% in 2007 to 42% in 2011 (USDA, 2012).
New Zealand should be a favoured source of forestry products owing to trade and environmental protectionism in other competing supplier countries. Several countries have started tightening up on illegal logging, which if successful will reduce supply from those countries. Also, environmental factors in certain countries have led governments to become stricter about keeping logging at a sustainable level. Russia (the world's largest forestry producer) increased its export tax on logs to 25% in 2008, increasing the competitiveness of New Zealand logs. The uncertainty around the future of Russian export taxes makes more stable suppliers, including New Zealand, more attractive.
Wood availability forecasts from MPI suggest there is potential for New Zealand to increase harvesting in the longer term. Currently around 22 million cubic metres (m3) of radiata pine are harvested per annum and this is expected to rise by around two million m3 per annum by 2015. Harvested volumes are projected to increase by 10 million m3 between 2015 and 2025 (Ministry for Primary Industries, 2013). Forestry prices are also likely to remain high owing to China's forestry deficit impacting the world market with extra demand. MPI forecasts log prices to increase from their 2013 level of $119 per m3 to $140 in 2017, a 17.7% increase. Other forestry products are expected to have similar increases over the forecast period.
- Forest area is land under natural or planted stands of trees of at least 5 metres, whether productive or not, and excludes tree stands in agricultural production systems (for example, in fruit plantations and agro-forestry systems) and trees in urban parks and gardens (World Bank, 2013).