China has long been recognised as a major potential market for wood-based products. This view has been fuelled by the scale of the domestic market, rising GDP per capita (albeit from a low base), a demonstrated government commitment to housing reform, reduced timber supplies and, more recently, China's accession to the World Trade Organisation (WTO).
These enormous market changes will have significant implications for forest products exporters. A cursory examination of the literature suggests that while there is considerable information and analysis of past trends, few of these provide comprehensive clues to the real areas of competitive advantage for softwood producers, or provide insights into the demands of future Chinese wood products consumers, who will undisputedly be of a different genre to the past consumer.
This study investigates these potential opportunities via a two-part literature review and the results of a market benchmarking survey of almost 1,000 existing or pending homeowners in Beijing, Nanjing and Shanghai, three cities which have been identified with the largest potential for increased demand for wood products related to housing. The first of the literature reviews focuses on the published demographics of housing demand in China, and serves as a background to the benchmarking survey results. The second review is a paper written by Dr. David Cohen at the University of British Columbia, and investigates the cultural, political and societal changes and its impacts on foreigners doing business in China. The benchmarking survey was intended to record the existing awareness of wood-frame residential buildings, along with positive and negative attributes that they associate with these structures.
Highlights of this study include:
At over 1.2 billion people, exploding urbanization, steady economic growth and a significant housing deficit, the growth in demand for housing materials/systems will be massive over the coming decades. At the same time, government reform has created a housing market where consumer quality demands exceed what was previously offered by the State.
With continued environmental protection policies, self-sufficiency in building materials will continue to decline, relying more and more on imports. (Note: overall imports surged by 63.4% year on year in January of 2003, to US$31billion; exports grew by 37.3% to US$29.8 billion, leaving China with its first monthly trade deficit since December 1996. [The Economist])
Like Japan, China’s population is aging, largely due to their “one child” policy. The number of people aged 60 and over is predicted to double in size by 2020.
Income distribution in China is uneven geographically and the disparity is widening. 2.2% of the population of China, living in such cities as Shanghai and Beijing, had reported annual household incomes between US$10,000 and US$15,000 in 2001 (CPIRC). This is considered a very affluent income level in China, a point that must be kept in mind regarding the population’s ability to pay for B.C./Canadian wood products. In contrast, over 50% of the population in China live in western and inland parts of China and earning less that US$1,800 in 2001.
These income levels were confirmed in the market benchmarking analysis of this study, showing annual household incomes among the respondents of primarily between CDN$4,600 and CDN$8,900 per year (26,000 to 50,000 RMB). It should be noted that the vast majority of these household incomes are earned by two people, meaning the average income per person is half this.
Further, average monthly rents for those that did not yet own their homes was CDN$191 for Beijing, CDN$122 for Nanjing and CDN$143 for Shanghai for those surveyed. Surprisingly though, the average existing/expected home purchase size (primarily apartments) was 97 m2 at a price of CDN$72,000 for Beijing, 125 m2 at a price of CDN$75,000 for Nanjing, and 109 m2 at a price of CDN$83,000 for Shanghai. There are two explanations for this divergence between income levels and willingness to pay for housing. First, savings rate is very high in China as compared to Canada. Second, not unlike Japan, interest rates are very low. It will be interesting to see what the existing levels of bad debts in China’s banking system does to the latter in the coming years.
Although evolving, China’s cultural, political, social and economic realities necessitate that B.C./Canadian exporters understand the environment to succeed. The need for local joint ventures, an assessment of risks/costs/benefits and a clear understanding of the dynamics of this market are critical.
The awareness of North American platform-frame and Japanese post & beam wood building systems was significant in all three cities investigated. For example, 44% of the respondents in Nanjing were aware of Japanese post & beam and 22% aware of North American platform-frame homes. Awareness came primarily from advertisements in China, followed by exposure through television / cinema programming. Awareness of wood-based home systems increased both with the respondent’s level of income and education.
There was an even higher awareness of combined wood / concrete / masonry building systems. This was found as a curious result as evidence of such structures in urban China is not evident. Further investigation revealed that the high awareness comes from the respondents’ previous life in (or knowledge of) rural homes in China where such structures are common. This is a very important issue regarding the Chinese connotations of wood-based homes. The image of these masonry/wood rural homes is not high, but rather associated with subsistence living. This is a much needed area for further market research, as it will not be clear whether or not this influences responses to positive / negative attitudes toward wood-based homes (next two highlights).
Aesthetics of wood-framed homes was the number one positive attribute in the survey in all three cities, followed by its insulative properties and environmental protection. Attributes such as “natural” and comfortable were also common among respondents. It is interesting to see that the performance of wood structures was NOT listed as a positive except for its earthquake resistance (see negative attributes).
On the negative attributes side, concerns over fire ranked number one in all three cities. The other negative attributes noted were virtually all performance related, including lack of insect resistance, moisture resistance, or even seismic concerns (conflicting with the positive mention above). Dealing with the concern over these negatives will be key in any promotion activity in China.
The results of this study suggest that there is a strong potential demand B.C./Canadian wood products/systems. In addition to continuing exposure through the existing promotion of high-end single-family homes, it is recommended that the greatest potential lie in the recognition of the cultural, social, political and economic realities that exist for housing in China. These largely point toward increased wood-use in their common low-rise multi-family structures. This must include dealing with the existing negative performance connotations of wood by the Chinese.
Promotional efforts by our government and industry need to incorporate the knowledge gained by the market intelligence generated in this and ongoing market research studies.
China has become the focus of much interest by the Canadian forest sector for its potential as a growth market for Canadian wood products. Such interest spans the full range of products (softwood and hardwood lumber, wood-based panels and other further processed wood products) and end-use applications (residential and non-residential construction, doors, windows, interior finish, furniture, and industrial end-uses).
This preliminary competitor analysis is the first step towards actively positioning British Columbia as a supplier to the Chinese market for the purpose of increasing market share. The two key objectives of the analysis are to do a thorough review of existing information on China’s wood products market and industry and to identify gaps in information. The results will provide Forestry Innovation Investment with a basis for prioritising future research, product development and promotional activities for China’s market.
When analysing information on China’s market and industry it is important to keep in mind that much of the officially reported data is not reliable. Comprehensive and reliable statistical collection systems have yet to be established in China. This report is primarily based on adjusted official figures and published primary research reports.
The key conclusions from this analysis are:
· China’s raw material supply from plantations and imports is increasing.
· Russia and Southern Hemisphere countries will remain B.C.’s main competitors for softwoods.
· China’s domestic sawmilling industry is uncompetitive.
· Panel demand is rapidly growing while lumber demand is steady; at the same time lumber imports are rising.
· Substitution with reconstituted wood-based panels and non-wood materials affects lumber demand.
· Furniture and interior finish are the main drivers of wood demand in China; softwood lumber consumption depends largely on civil construction activity.
· There is a mismatch between the main wood products currently supplied by B.C. and market demands in China. China demands hardwood for interior finish and furniture and softwood logs for processing in China to compensate for the decline in domestic harvests. B.C., on the other hand, supplies structural softwood lumber that has limited existing applications in China. In China demand for non-structural reconstituted panels is growing fastest while B.C. produces mainly structural panels.
· Any opportunities for B.C. producers to capture a significant market volume in China therefore require either developing a new market for existing B.C. products or developing new products for existing markets.