Impacts of Global Economic Crisis

The global economic crisis has caused profound impacts within the Chinese wood products industry and temporarily frozen its exports, as well as the appetite for raw materials imports. According to trade statistics, China’s imports of wood products, primarily logs, fell by 9.6% in 2009 to US$7.3 billion from US$8 billion in 2008, this compares to average annual growth of 13% between 2005 and 2008. China’s wood products exports (excluding wood furniture) plunged in 2009 to US$7.7 billion from the previous year’s US$9.3 billion, down by 17% (Global Trade Atlas 2010). Chinese wood furniture exports also declined substantially during the first half of 2009, but quickly bounced back following the government’s decision to reinstate the 15% export tax rebate in June 2009. By the end of 2009, Chinese wood furniture exports registered 11% growth over the previous year, growing from US$6.8 billion in 2008 to US$7.6 billion in 2009.

The economic crisis also led to high inventories and significant price drops for wood based commodities, which put over 50% of wood-based panel companies (approximately 3,000 enterprises) in severe financial trouble, ending with forced plant closures or stopped production. Since 2008, wood fiber prices have dropped by 15-25% in the market. High inventory levels within the wood-based panel and flooring industry exceeded 6 million cubic meters. Forest products companies located in 6 counties within the provinces of Zhejiang, Shandong, Jiangsu and Hebei have reportedly laid off a total 3 million workers, according to official sources (State Forestry Administration, 2009).

On the positive side, however, the crisis has contributed to industry consolidation in favor of bigger and domestic-selling companies with own-brands and distribution channels. According to a recent speech by Mr. Qingwen Jia (2010), President of China National Furniture Association, due to the crisis, Chinese furniture industry experienced significant decline in exports during most part of 2009, however, thanks to lowered raw material and energy costs, and manufacturers’ continued cost-reduction efforts, the industry reported 29% gain in average profitability and 12% increase in sales revenue, led by companies located in Zhejiang Province which have been successful in developing domestic Chinese markets since early 2000s under manufacturer-owned brands. Similar trends are observed in wood flooring sector which is now led by a group of domestic branding manufacturers such as Nature and Anxin.