Feng Anquan：Sino-Russian Wood Trade and Economic Cooperation in This Field
Sino-Russian Wood Trade and Economic Cooperation in This Field
Anquan Feng*
Wood resources are important strategic materials and play important roles in national economic development. Recently, with the sustained development of the Chinese economy, the requirements for wood have increased tremendously. Additionally, China is a country relatively lacking in wood resources, which means that the market needs cannot be met by domestic supply, and that the contradiction between the supply and demand is continuously expanding. Usually, overseas import is one of the effective ways to solve this problem.
Russia owns the most abundant forest resources in the world, occupying 30% of the total amount of world-wide export in crude wood, and is already the largest importer of Chinese crude wood and board now. For the past few years, in order to promote the wood industry and reward the export of wood ware with high added value, the government of Russia unveiled some fresh policies such as the restriction of log exports, which has had a huge influence on the progress of the Chinese wood industry. Moreover, the progress of the Chinese wood industry has been further influenced since the 2008 global economic crisis. Therefore, clarifying the cooperation in wood resources between both countries is beneficial to the development of the Chinese wood industry and Sino-Russian Wood Trade.
1. China’s Wood Production and Consumption
China has area of 175 million hectares, a forest coverage of 18.2% and an accumulated wood resource of 12.5 billion m³. China ranks the world’s 6th after Russia, Canada, Brazil etc, the forest area makes 4.5% of the world’s total amount. As for the total amount of the resource, China is a country rich forest, but as for the per capita, China’s forest resource is relatively poor.
Table 1 China’s wood Supply and Consumption（1996-2008） (1000 m³)
Source: China customs statistics Yearbook(1996-2008); China Forestry Yearbook (1996-2008).
In the early 1990s, China’s wood production could merely meet the demand of the domestic market, and was a net exporter of wood. See Table 1, from 2001, the consumption of crude wood has increased significantly, from 61.15 million m³ in 2001 to 168.60 million m³ in 2007. Observing from a point view of supply, since 1996, particularly after 1998, the domestic supply was gradually reducing. Although after 2002 the domestic supply has increased, it still cannot balance the increase of consumption. Because of this, after 1999, China’s import of crude wood was growing continuously. In the nine years between 1999 and 2007, the import of crude wood increased 3.7 fold. As the crude wood import was increasing, the dependence on import was also growing, which grew from 4.7% in 1996 to 34.7% in 2007. The reasons for the dramatic growth of
wood consumption are as follows:
Table 2 China Import Wood from Russia (1000 m³, %)
Log Wood Plate
Total Import From Russia Russian Share Total Import From Russia Russian Share
1996 319 55 17.2 93 1 1.1
1997 446 95 21.3 132 1.1 0.8
1998 482 159 32.9 168 1.2 0.7
1999 1013 431 42.5 217 8 3.7
2000 1361 593 43.6 363 16 4.4
2001 1686 874 51.8 403 30 7.4
2002 2433 1479 60.8 539 55 10.2
2003 2546 1433 56.3 551 56 10.2
2004 2631 1682 63.9 600 73 12.2
2005 2937 2045 69.6 597 106 17.8
2006 3215 2183 67.9 607 110 18.1
2007 3709 2539 68.5 651 154 23.7
2008 2957 1866 63.1 705 196 27.8
Source: China customs statistics Yearbook(1996-2008)
a. Continuous economic development has enlarged the demand for wood
This year is the 30 years’ anniversary for China’s Economic Reform and Opening up. During these 30 years, China’s economy has undergone enormous changes. In the nine years between 2000 and 2008, China’s GDP has increased nearly 3 fold. Since 2000, China has launched several high tides of construction. For example the West Development Program from 2000 which was set to narrow the gap between the West and the East, 2008 Beijing Olympics, 2010 Shanghai World Expo etc. In addition, the rapid development of Real Estate also contributed to the increase of wood resource demand. According to the statement of table 2, China’s consumption of crude wood in 2007 has increased 1.8-fold compared to 2000.
b. The application of Natural Forest Protection Project
During the 1970s – 1990s, because of the over-harvesting, the forestry resource and biological environment have been destroyed dramatically. In order to build a sustainable society, in 1998 Chinese government decided to apply the Project of protecting the natural forest resource, and has imposed restrictions for the logging in north-east China, moreover has banned the logging in the upper and middle area of Yellow and Yangtze River.[1] Since 1998, the logging of crude wood has been reduced outstandingly.
c. Increase of the export of Wood-made Products
The import of crude wood is increasing, so does the export of wood-made products. Especially since China joined WTO in 2001, the export of wood-made products has increased outstandingly. According to the statistics of Chinese Customs, China’ export of man-made plates has increased from 130 thousand tons in 1995 to 10 million tons in 2008, in the fifteen years, it has increased 77-fold. In 1995, the export of wood-made furniture dadn’t even reach 600 million USD, in 2008 this sum has already com to 8.4 billion USD. Additionally, according to the 2008 China Forestry Industry Development Report, in 2007 China's wood-made products export in the wood conversion reached 62.49 million ㎥.[2]
d. Wood Import Policies Affect
Since Jan 1st 1998, the wood business concession restriction has been canceled, all enterprises which have the license of foreign trade can engage in the wood trade.[3] In addition, since 1999, the government has appied Zero- Tariff for the imported crude wood and plates, which has led to standing increase of wood import.
2．Sino-Russian Wood trade
Russia is one of China’s main wood importers. Wood trade has always been an essential part of Sino-Russia trade. Sino-Russia wood trade is actually an unilateral trade – China imports wood from Russia, China hardly exports wood to Russia. In 1982, after USSR and China has reestablished the trade relation, the wood trade has developed rapidly. China’s crude wood import from USSR has grown from 450 thousand m³ in 1982 to 2.54 million m³ in 1986. After the demise of USSR, Russia took the place of USSR, Sino-Russian wood trade has declined. In 1996, the Sino-Russian wood trade began to recover, from 1996 to 2007, it has always increased. According to the statistics of Chinese Customs, China’s crude wood import from Russia has increased from 550 thousand m³ in 1996 to 25.39 million m³in 2007, in 12 years has increased 46-fold. As the imports increased, the proportion of Russian wood in China’s total wood imports has increased gradually year by year, in 1996 the imported Russian crude wood accounted only 17.2% of the total amount imported, in 2001 the proportion exceeded 50%, it has arrived at 68.5% in 2007. Besides the reasons mentioned above, there are also some particular reasons for the rapid development of Sino-Russian wood trade:
a. The climate in the far-east area and Siberian area is similar to the climate in Northeast China, the wood species are the same and so is the quality, therefore it’s welcomed by Chinese buyers.
b. Sino-Russia wood trade has been mainly carried out by the way of border petty trade. Since 1980s, to promote the economic development in the border area, the government has released a series of favor policies related to border trade. For example, half the custom tariff and the VAT for the goods has been imported by the way of “Bian jing xiao e” trade. These measures have reduced the costs and certainly promoted the development of Sino-Russian wood trade.
c. After the 1998 Russian Financial Crisis, because of the devaluation of the Russian Ruble, the Russian wood was relatively cheap. For example, in 2000, the world media price for Bei Yang Cai was 67 USD/ m³, instead the same material in Russia cost only 43 USD/ m³.[4]
However, from 2008, China’s crude wood import from Russia has declined dramatically and a negative growth since appeared for the first time in recent 10 years. China’s crude wood import in 2008 has deceased 6.73 million m³ compared to 2007, with a drop of 27.5%. In 2009, the import has further decreased. According to the statistics of the Customs of Sui Fen He, from Jan to July 2009, the crude wood import from Russia through Sui Fen He has decreased by 38% compared to the same period of 2008.[5] The reasons for the decline are as follows:
a. Russia’s Tariff for crude wood export has increased.
Since April 1st 2008, the second phase of Russia’s crude wood export tariff applied, the tariff has grown to 25%, and in any case cannot be less than 15 EURO, which has led to an increase in import price, the cost increased, China’s crude wood import from Russia has further declined.
b. China has lowered the export tax rebate.
Recently, in order to limit the export of products which consume much energy, result high pollution and create low added value and to upgrade relevant industry, the government lowered several times the export tax rebate rate of certain goods including the wood-made products. In September 2006, the government has made further adjustment, during which more than 70 items have been canceled from the list of tax rebate, 115 items’ tax rebate rate have been lowered from 13% to 5%.[6] As a result, the wood-made products export has been slowed down.
c. Impact of the Financial Crisis
The 2008 economic crisis has influenced all the world, the social consumption declined, which resulted in the decline of the world trade. According to the Customs’ statistics, since November 2008, in China’s foreign trade a negative growth appeared which was rare in recent years. In the first trimester of 2009, China’s foreign trade has been continuously declining, compared with the same period of 2008, foreign trade volume has decreased 30.9%. In addition, the Real Estate market continued to slump, the wood consumption shrank.
3. Tendency of Russia’s Wood Trade and the Policy Adjustment
3.1 Tendency of Russia’s wood production and trade
Russia has large forestry resources, with a forest area of 776 million hectares and coverage of 46%. It accounts for 27% of the world’s forest area, wood volume reaches about 82.1 billion ㎥, which account for 25% of the world’s total amount. Russia’s per capita of wood is about six times of the world’s per capita amount. Russia’s forest is mainly distributed in the far-east and Siberian area which is near China’s border. The forest in this area accounts for more than 80% of Russia’s total amount.
In the 1970s and 1980s when still was the time of USSR, the logging volume of crude wood was kept at an amount of 330 million ㎥and The plates production was about 80 million ㎥. After the demise of USSR, Russia’s crude wood and plate production has declined dramatically. The logging volume of crude wood has been reduced to 78 million ㎥ in 1998 from 270 million ㎥ in 1991. The production volume of plates has been reduced to 18 million ㎥ in 1998 from 70 million ㎥ in 1991. After 1999, Russia’s production of crude wood and plates have been recovering, the production volume of crude wood in 2007 was 123 million ㎥ , and the production volume of plates was 23 million ㎥, which was the peak of recent years. In the early 1990s, the consumption of crude wood was principally for the domestic market, the proportion for oversea export was rather small. After the 1998 Financial Crisis, the export has been enlarging gradually, in 2006 the export volume of crude wood reached 51.11 million ㎥, which accounts for 44% of the total production volume, the export volume of plates accounted for 86% of the total production volume.
Table 3 Russian Wood Production and Export(1996-2008) (1000㎥)
Total Production 窗体顶端
Total Exports To China To Japan To Finland
1996 97000 窗体底端
15910 560 5810 5960
1997 85000 17840 960 6350 6200
1998 78000 19970 1690 4760 8820
1999 90000 27610 4410 6140 9530
2000 95000 30860 63300 7260 8960
2001 96000 31690 8610 5360 10720
2002 97000 36760 13830 4780 11470
2003 105000 37420 14180 5060 11590
2004 112000 41140 15400 5890 11770
2005 109000 47710 19610 4680 14460
2006 115000 51110 22960 5200 13360
2007 123000 49330 27620 4450 10070
2008 105000 36740 21280 2010 9890
Source: Tamozhennaia statistika vnesnei topgovli Rossiishoi Federastii(1999-2008)
Russia Statistical Yearbook(1996-2008)
According to the statistics of Russian Customs, the main destination countries for Russia’s wood export are China, Japan and Finland. Exports aimed to these three countries account for more than 80% of the total amount. Since 1990s, although the main importers of Russia’s wood remained the same, the proportions for these three countries varied. Between 1996 and 2001, the first importers of Russia’s wood were Japan and Finland. After 1998, as the export to China has been growing continuously, in 2002 China became the first importer of Russia’s wood. In 2007, Russia exported 27.62 million ㎥crude wood to China, accounted for 56% of Russia’s total crude wood export. But influenced by the increase of tariff and the 2008 financial crisis, Russia’s crude wood export has slowed down.
From the data above we can see that, the main reasons for the recovery of Russia’s crude wood production were increase in export and enlargement of domestic demand. The increase in export mainly relied on the increase of export to China. In 2007 the production volume of Russia’s crude wood increased by 45.00 million ㎥ compared with 1998, the crude wood export volume in the same period increased by 29.36 million ㎥, in which 25.93 million ㎥ have been exported to China. That is to say, crude wood export made a 65% contribution rate for the increase of crude wood production, among which the contribution rate for the exports to China was 56%.
3.2 Adjustment of the Policy on Russia’s Crude Wood Export
Although Russia’s crude wood export accounts for world’s 30%, the export of wood-made products with high added value accounts for less than 3%. According to the statistics of the Russian Customs, the exports of Russian wood are mainly of crude wood and simply-manufactured plates, wood-made products with high added value are extremely rare, and in the meantime it needs to import plenty of wood-made products with high added value every year. Recently, in order to promote domestic wood industry, to restrict crude wood import and to award the export of wood-made products with high added value, Russian government has issued a series of policies, especially the N. 75 Resolution issued by the government on Feb 5th 2007. According to the Resolution, from July 1st 2007, Russia began to increase crude wood export tariff. The first phase started from July 1st 2007, the crude wood export tariff increased by 20%, and in any case cannot be less than 10 EURO/㎥ ; the second phase started from April 1st 2008, the crude wood export tariff raised to 25%, and in any case cannot be less than 15 EURO/㎥; the third phase started from Jan 1st 2009, the crude wood export tariff raised to 80%, and in any case cannot be less than 50 EURO/㎥.[7] In addition, illegal logging and export are very common in Russia, in order to restrict the illegal wood export, Russian customs have issued N.1327 Regulation on Oct 29th 2007, from March 2008, the ports in which the declaration of wood export can be made have been cut down to 128 from the original 688.
The purpose for which the government has raised the crude wood export tariff was to enhance the deep processing capacity for its domestic wood, to promote the export of wood-made products with high added value. In order to realize this scope, the Russian government has issued a series of favor policies on attracting foreign investment, promoting the export and processing of wood-made products. For example, In May 2007, the import tariff on wood processing machine has been removed. On May 15th 2007, Russian government released N.290 Resolution, in which the export tariff for plates was canceled from June 15th 2007. On June 30th, Russian government has issued N.419 Resolution, in which it’s provided the favor policy for the priority of investments for the Forestry Industry Projects. According to the Resolution, if one invests more than 300 million Rubles on the development of forestry industry and the fundamental instruments for wood processing, he/she can apply for the priority on investing projects. If approved, he/she only needs to pay half of the rent for the utilization of the forest area.
In addition, as one of the steps for the Forestry Industry Reform, on Jan 1st Russia has promulgated its new Forestry Industry Law. This new law had significant changes compared to the old one, mainly are: the longest rent period of forestry area is 49 years, the operators need to participate a bid in order to acquire the right to rent the forestry area. Prior to the new law, the 1997 law was always applied, providing that the period of renting the forestry area cannot be more than 3 years. Besides, the new law has made some adjustments on the administrative right’s transferring to the local authority and on dividing the administrative right. The new law will certainly play a positive role for Russia’s forestry reform and promotion.
3.3 Influence of Raising the Crude Eood Export Tariff
Raising the crude wood export tariff will directly lead to a rise on export price. Before raising the tariff, from Jan to Jun 2007, the media wood export price was 81.6 USD/㎥. During the first phase of raising the tariff, the export price was rising vertically, during July to December 2007, the export price has raised by 4.9 USD/㎥, to 86.5USD/㎥. During the second phase of raising the tariff, the export price further raised to a media export price of 95.4USD/㎥, by 8.9USD/㎥ compared with the first phase. Because of the price’s rising, the export volume declined. The export volume from Jun to December 2007 has decreased by 5.4% compared with the same period of the previous year. In the second phase of raising the tariff, the export volume further declined, the crude wood export volume between Apr and Dec 2008 has decreased by 35% compared with the same period
of the previous year.
Table 4 Influence of Raising the Crude Wood Export Tariff t
Production Export Export Prices
2007 1-6
7-12 5950 2612 81.6
6350 2321 86.5
2008 1-3
4-12 3490 1067 94.2
7010 2607 95.4
2009 1-6 4360 1064 85.9
Source: http://www.gks.ru; http://www.customs.ru.
T he negative influences of raising the crude wood export tariff have not yet finished, the 2008 financial crisis has further impacted Russia’s wood industry. Since 2009, the influences are enlarging gradually, the crude wood export declines continuously. Russia’s crude wood export volume between Jan and Jul 2009 was 12.75 million ㎥, decreased by 10.74 million ㎥ compared with the same period of 2008, with a drop of 44%. The decrease on export led to a decrease on production, from Jan to Jul 2009, the logging volume of crude wood was 43.60 million ㎥, decreased by 20.1% compared with the same period of 2008, with a drop of 10.80 million/㎥.
As known to all, Russia’s logging enterprises are mostly SMEs, the capacity of anti-risk is weak. Recently the crude wood export was the main reason of the increase of logging. The decrease on logging put many enterprises, especially the enterprises of the far-east and Siberian area which are undeveloped on wood processing, in difficulty. Far in the Forum on wood processing and far-east/Begar area, held in Moscow on Apr 2007, head of the Forestry Bureau of Habarovsk had proposed to postpone the third phase of raising the export tariff to 2012, but was rejected.
4. Status of Sino-Russian Forestry Cooperation
From the trade volume, we can see that Sino- Russian wood trade has developed well in recent years, but in forestry cooperation, the goals achieved by both countries were rather limited. Although that we don’t have concrete data of chinese investment on Russia’s wood industry, from the province which invest most on wood trade with Russia, Hei Long Jiang, we can conclude that the investments on Russia’s wood industry are rather few. Till Jun 2006, Hei Long Jiang Province has invested only 140 million USD on Russia’s wood industry, and only for logging and simple plate processing. The investments on deep processing industry are pretty few. After 2007, the enterprises which have the intention of investing in Russia’s wood industry are all waiting and would like to see what will happen. In recent years, China and Russia have signed several Contracts of intention for large forests, but have not been performed yet for different reasons.
Since 2001, China has set up several Wood Processing Industrial Zone in some border areas as Man Zhou Li, Sui Fen He, Er Lian Hao Te. Till the end of 2008, Sui Fen He Wood Processing Industrial Zone had 410 enterprises, processing capacity per year 4.5 million ㎥. In 2003, Man Zhou Li has also set up a Wood Processing Industrial Zone which covers 18.5 Km², processing capacity per year 3 million ㎥. Russia’s raising crude wood export tariff has seriously impacted these industrial zones. 2008 economic crisis has worsen the situation. Nowadays 70% of the enterprises of Sui Fen He Wood Processing Industrial Zone were bankrupted or in cut-off status.
5. Trend and Suggestions for Sino-Russian Wood Trade
With the widening of the impact of current financial crisis, each government has adopted corresponding steps. At the end of 2008, Chinese government has approved an investment program of 4 trillion in order to boost economic increase. This program has referred to every industry to promote the consumption of wood. In addition, in order to decrease the impact of the crisis, ensure the smooth development of economy and pass through the crisis, the government raised export tax rebate of wood-made products twice in Dec 2008 and Jan 2009 respectively. This policy will positively affect the export of wood-made products.
Because of the crisis, Russian government also made some adjustment to the policy concerning crude wood export. On 24th Dec 2008, the Prime Minister Putin has signed N.982 Government Resolution, it decided to postpone the third stage of crude wood export tariff one year later. To some extent, it relieved the pressure of wood enterprises in both countries, and it would benefit the development of Sine-Russian wood trade.
However, it will remain the same that Russia limits the export of crude wood and increase the depth of wood processing. Moreover, for China, Russia is still the dominant wood supplier in the short term, which will not changed neither. This further leads to reinforced cooperation between the two countries in wood industry, which entirely meets the common interests of these two countries. Several years ago, Russia was lack of perfect policy for attracting foreign investment, and the investment circumstances were changed considerably and of high risks, which hindered Chinese companies to invest there, and the progress of Sino-Russian forest cooperation was slow. But recent years, Russian government has made some preferential policies in order to seduce foreign investment in forest department. Meanwhile, Russia has made some adjustment in crude export tax tariff; the increased export price has burdened Chinese undertakings. Nevertheless, this economic crisis has trapped a large amount of Russian wood companies into troubles, which in turn offered sound opportunities for our companies to enter Russia market. From now on, Sino-Russia wood trade should change its mind, improve its understanding of Russian policy and increase the height of Sino-Russia wood trade collaborations in order to promote the healthy development of Sino-Russia wood trade.
(1) Russia could become the main source of imported wood
On the basis of the statistics of relevant departments, with the on-going development of our economy, the absence of wood is increasingly bigger, it will reach 1.2-1.8 hundred million㎥ till 2010 and 3 hundred million till 2015. On the other hand, Russia has the most abundant forest resource in the world, its storage of wood has come to 82.1billion ㎥,annual allowable cut is 5 hundred million ㎥ while its actual fall is less than 1/3. In recent years, Russia is the biggest importer of Chinese crude wood and plank stuff while China is the biggest exporter of Russian crude wood. For the continuous stable development of our wood industry, China needs a reliable and consistent supply market. The same is for Russia, if Russia wants to improve its wood industry, it must need stable market of paying capacity. Thus, do strengthen the cooperation in wood industry will satisfy the two countries’ common interests.
(2) Commodity composition of Sino-Russia wood trade should be improved
Although Russia has large amounts of wood resource, its wood industry still needs to be developed, which takes up a very low proportion in world wood trade, the export of high added value products was little. In order to improve the situation, Russian government increased heavily the crude wood export tariff to limit the export of crude wood so as to increase the depth of its own wood processing. In Sino-Russia wood trade, usually China imports from Russia the crude wood and simple processed plates. Though significantly influenced by the financial crisis and the EU’s pressure, for now Russian government was forced to extend one year for the application of the third phase of raising the tariff, but for a long term this policy can hardly be changed. Therefore we have to change the strategy for the Sino-Russian wood trade, rightly understand Russian government’s policy, promote the wood trade level between the two countries and to boost the development of the Sino- Russia wood trade.
(3) Cooperation in labor services with Russia should be improved
Russian forest resources have been distributed in sparsely populated areas of far east region of Siberia . However, the labor shortage has severely blocked the economic development of that area. Every year, Russia forest-fire covers as much as 3million hectare, therefore, a large quantity of fired forest emerge, without timely cut, the forest cannot grow healthily. Since the enforcement of Natural Forest Protection Project in China, many skilled workers and machinery are left unused in northeast forestry district. If the two states can make advantage of these resources, it would definitely promote their cooperation.
(4) Increase the investment in Russian and encourage Chinese companies enter Russia wood processing market.
A lot of Russian wood companies have the problem of aging obsolete equipment and inefficiency. Furthermore, pledged by funding, equipment modification progressed slowly, and economic crisis deteriorated the situation of these enterprises, which has offered chances for our enterprise. As early as 1999, Premier Zhu put forward the notion of move toward ‘Russia’ and first held national work conference towards Russia, after that, a workgroup mechanism in forest industry has been established between China and Russia. Chinese government set up a special fund of 300 million soft loans to encourage our businesses to enter Russian wood logging and processing. However, it will need a large amount of money once entering into Russia for wood logging and running factories, the support from the state in funding and policy is crucial, which is also in accordance with the strategic purpose of our government to invest 12 billion dollars to Russia till 2020.
Furthermore, Russia has a population of 140 million, which means a big market. With the economic development of Russia, there is an increasing need of furniture, flooring, artificial slabs. But, Russia has set up a high threshold for Chinese wood-made products, which hindered our export to Russia. Therefore, investing within Russia can not only solve the above problems, but also increase Russian employment, improve wood processing, meet the needs of Russian market and re-export to other countries.
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* East China Normal University, School of Advanced International and Area Studies，Russian Research Center.
[1] China Forestry Yearbook, 1999/2000, p.128.
[2] China Forestry Development Report2007, 2008, p.57.
[3] Xinfang Duan, Sino-Russian Wood Trade and Russian Wood Processing Technology, p.105.
[4] International Financial Statistics, 2007.6, p.71.
[5] SuiFenHe Customs Statistics 2009.8.
[6] China Wood, 2008.4, p.57.
[7] Russia Collection of Laws2008 NO.1, p.245.