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Clarky's Comment - April 2013, Prime Minister's Trade Delegation to China

China is going through an infrastructure and housing build at a pace that is unprecedented in the history of mankind. Although concrete is the primary construction material this development also generates massive demand for wood. A total of 7.22 million government-subsidised housing units were set to be finished by the end of 2012, with a plan to add 36 million units during the 12th Five-Year Plan running from 2012-2017. China's sawmilling industry revenue reached $9.1 billion in 2012, reflecting 24.8% annualised growth over the past five years. There were about 915 enterprises operating within this industry in 2012. This sawmill industry has been fed a diet of Russian, North American and New Zealand softwoods, as well as hardwoods from Africa, PNG and Solomon Islands.

Russia, Canada, USA and Chile amongst others have been successful in establishing profitable and growing trade in sawn timber, but from New Zealand the growth in trade has been dominated by logs. The chart below tells the story.

Source: NZ Ministry of Primary Industries – Forestry Trade Statistics

The log trade is very valuable and important to the New Zealand forestry sector, and should continue. By the time a NZ-grown pine tree has been cut into logs and sent to either a mill or an export port, our forest owners have turned a 10 cent seed into a set of logs worth about $200 delivered. That is a lot of economic value added using New Zealand land, labour and other inputs. And we do that profitably and efficiently by world standards.

At present around one half of the New Zealand log harvest is processed within New Zealand, with the other half processed overseas. The single biggest contribution the forestry sector can make to New Zealand's GDP is to process a higher proportion of our forest harvest within New Zealand. That idea is the essence of the Woodco Strategic Action Plan.

I recently joined the Prime Minister's trade delegation to China to help open doors for business to business contacts in China's growing construction sector. This mission also aims to signal to Chinese politicians and authorities that New Zealand welcomes investments and Joint Ventures that can increase the trade in sawn timber and finished wood products from New Zealand to China, or direct to China's export markets (e.g. the USA). The main messages delivered in my presentation at the Partnership Forum in Beijing on 12th April were:

  1. There is an opportunity to build on the existing trade and grow both the volume and value of forestry exports from New Zealand to China. The success of this would have energy and environmental benefits for China, deploy Chinese investment capital to New Zealand and create jobs in New Zealand.

  2. Investment in wood processing can be supported by an expansion of available log supply out of New Zealand – from the current 25 million to over 30 million m³/annum in 2020 and beyond. These forests are sustainably grown with a large proportion of them Forest Stewardship Council (FSC) certified.

  3. Increased exports of New Zealand pine logs to China have been a critical component of the strength of the relationship between New Zealand and China since the Free Trade Agreement was signed. However our goal is to increase the forest industry's contribution to GDP, by expanding the proportion of New Zealand's forestry exports to China that are in the form of processed products. Direct Chinese investment in new processing plants in New Zealand should be fostered in order to build long-term relationships and supply chains from New Zealand's large sustainable plantation resource.

  4. The case for this has been advanced to date via Project Softpower which was focused on new processing in Taupo in the Central North Island but there is an opportunity for investment across the wider New Zealand forestry and wood processing sector; hence Project Change.

  5. Research from Chinese' NDRC has identified the building sector as a major energy consumer at 25% of all energy – and rising. Increasing the use of pine as a construction or decoration material could contribute significantly to NDRC policies to curb energy consumption in the building sector.

  6. Production of kiln-dried timber, interior apartment fit-out components, furniture or cross laminated timber (CLT) panels close to forests in New Zealand would reduce energy consumption in China. New Zealand sawmillers have existing capacity to increase sawn timber production. They are ready to engage but they need access to Chinese distribution chains via relationships (Guãnxi).

  7. A new mill development and/or remanufacturing plant for production of furniture, light-coloured timbers for apartment fit-outs or panels should be examined. New Zealand-based manufacturing may be more trade efficient for furniture destined for USA markets.

  8. Project Change has already put Chinese the MDF manufacturer New Development Group [NDG] and New Zealand mouldings manufacturer Tenon together for joint marketing of their respective products in China and USA.

China faces the massive issue of rapid urbanisation in an energy-constrained world. More log processing in New Zealand could partially alleviate this.