Impact of Changes in China’s Forest Sector on Japan and Other Major Countries

Abstract

The objective of this research is to analyze the impact on the global forest sector of changes in China’s domestic market and international trade in forest products. Price and income elasticities of demand for seven forest products are estimated using cluster analysis combined with panel data analysis. Cluster analysis is used to group countries by their levels of per capita gross domestic product (GDP), per capita consumption of forest products and forest coverage rates. Panel data analysis is then undertaken for each cluster, and price and income elasticities for every cluster are estimated. We used the estimated elasticities of demand and other exogenous parameters, including GDP growth, in the Global Forest Products Model (GFPM) to simulate the global forest sector through 2030. The GFPM is a dynamic economic equilibrium model encompassing 180 countries and 14 forest products. The GFPM results show that China is likely to continue to rely on foreign raw materials, leading to increases in consumption in Asia and throughout the world and in prices of forest products. A lower GDP growth for China would lead to lower world consumption of forest products and to lower prices. The GFPM results also show that Japan and South Korea (hereafter Korea) could take advantage of the lower prices to import more raw materials if China were to consume less. Increases in manufacturing costs in China could lead to a significant decrease in consumption in China, to less of an impact in Japan and Korea and to greater consumption and fewer exports in Africa and Oceania.