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China representsa huge, but challenging, market for Canadian wood producers

By Joseph Caron

China seems to be forever in the news, but it truly remains a country of contrasts—an emerging economic superpower, yet its poor number in the hundreds of millions; a member of the World Trade Organization (WTO), yet in many ways a difficult place to do business. When we look at China as a market for wood products, it is important to consider these contrasting pictures so that we can better understand the true size and nature of the market, but not be carried away with false expectations.

However, the main message remains that because of its immense population of 1.3 billion and with its rapid economic growth, China matters to Canada, and Canadian companies should at least consider whether China fits in their strategic view of the world. China is in the midst of massive economic, structural and societal change. A number of these changes taken together have created the potential for a strong market for Canadian wood.

These changes include:
• Rapid economic development leading to increased individual wealth
• Development of wood frame building codes
• Housing policy reform
• Entry into the WTO

Despite all of these fundamental changes, China remains stable, as evidenced by the recent uneventful leadership transition.  Through sustained economic growth, a middle class of perhaps 100 million people has developed in China, with projections showing an increase to 200 million by mid-decade. The economy continues to boom, growing by seven to 10 per cent per year, and China has become the second largest destination for foreign investment, after the US.

All of this has combined to create a large population capable of buying imported wood products and a more select upper class possessing the means of purchasing Canadian-built wood frame homes. One estimate states that China has five million people with incomes over CDN$200,000. This may represent a small percentage of China’s population, yet it does create a huge potential market. Single family homes are now being built on the outskirts of most of China’s major cities, targeting this group as well as high-income ex-pat families.

Concurrent with the development of a high-income class capable of purchasing single family homes, comes the addition of a new chapter on timber design to China’s national building codes. The inspection and construction codes have been approved and are in effect and the design code is pending approval, most probably in the first half of 2003.

This new policy is a result of the hard work done by the Council of Forest Industries of BC, Forintek and the CMHC. The active participation of Canadian organizations in the creation of the building code will result in a code compatible with the methods and materials used by Canadian builders. Its formal introduction will serve as a strong catalyst for the construction of wood frame houses in China.

The barriers facing wood frame construction are primarily those of lack of knowledge among developers, builders and consumers about the benefits and methodology of wood frame construction. Through the Canada China Wood Products Initiative, Canada’s federal and provincial governments, in cooperation with leading forest products business associations, are seeking to resolve these barriers. Along with these changes, the Chinese government has instituted policies that are designed both to increase home ownership and quality and size of housing for China’s citizens.

As time goes on, the middle class will become a better target for Canadian suppliers of wood products such as kitchen cabinets, windows, doors, hardwood floors and wall panelling. China’s entry into the WTO will increase both China’s imports and exports. As well, lower tariff barriers and WTO-compliant trade practices will make China a better customer for Canadian products. At the same time, we should not overlook the fact that WTO membership will make China a more formidable competitor, particularly in the fields of manufactured products. As a wood producing country, we should not overlook the opportunity to provide the raw materials for China’s factories.

China is a huge exporter of many wood products, most notably furniture, and we can and should be a major supplier of wood to these industries. From all of these developments, there is a good possibility that the market for wood products in China may be on the verge of large-scale growth.

Of course, we should not overlook that in supplying wood products to China we face competition from Russia, New Zealand, the EU and Southeast Asia and—in the case of wood-frame housing—we face competition from the US and other countries and from competing structures such as concrete and light steel. It is also important that Canadian companies should not be blinded by the glow of the China market, and overlook the fact that China remains a developing country and retains many characteristics of a developing country market, including imperfect legal, financial and regulatory environments.

Companies should make their decision to enter the China market using the same criteria related to risk and opportunity as they apply elsewhere in the world, and should commit themselves for the long run.

Joseph Caron is Canadian ambassador to the People’s Republic of China. He was manager of the Asia region for the Council of Forest Industries of BC from 1984 to 1987, and was based in Tokyo. The Canadian Trade Commissioner Service has posts in Beijing, Shanghai, Guangzhou, Chongqing and Hong Kong. Further information on the Chinese market and assistance for Canadian companies is available on their web site at www.canada.org.cn 

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