Fibre, high-end products, strategic services are Canada's best opportunities

According to Dr. Cohen, “it’s difficult to say whether Canada’s forest products sector will benefit or suffer from China’s development, as several factors must be weighed. My view is that Canada’s best opportunities in China lie in supplying fibre, high-end products and strategic services.”

Fibre will definitely continue to be an opportunity for Canada. Dr. Cohen says that it is even possible that China will invest in Canada to acquire that fibre, as it has in other regions of the world. The reason is that most of China’s plantations are being used for ecological restoration, not for eventual wood production. “However, 10 to 15 years down the road, China could have extremely efficient plantations of fast-growing species such as genetically modified eucalyptus. Fibre from the Russian Far East will also continue to displace some of the Canadian fibre coming into China.”

With the future in mind, it will be critical for Canadian manufacturers to create a niche for themselves in high-end specialty products, according to Dr. Cohen. China’s low labour costs will make that country much more competitive in low-end products. He adds that it remains difficult to sell Canadian structural wood for houses in China as the population does not currently have the disposable income to make large purchases. Higher-end housing has been built in the recent past and has only led to speculation with no real customer base to support it. “That being said, the Chinese are saving their money at a much higher rate than North Americans. Despite lower salaries, they could, therefore, be in the market for housing down the road, and this could be a future opportunity for Canada.”

In Dr. Cohen’s view, China’s focus on the growth of its Gross Domestic Product has left little consideration for the basic business performance of firms in terms of profitability, shareholder value or competitiveness. “In China, there is a basic assumption that supply exists for all increased production. Such basic lack of strategic planning is leading to a growing but unprofitable production of many manufactured wood products.”

He adds that current plans for production expansion rarely consider markets—more specifically, the unintended market consequences, such as protectionism, that China’s unbridled expansion could cause.

Given this scenario, Dr. Cohen suggests that there would be an opportunity for Canadian companies to sell strategic marketing and supply-chain management services to help Chinese companies.

Assessing Canada’s opportunities in China is complicated by the difficulty in obtaining strategic business information from China. “Most people working there in positions responsible for the generation of this information basically have sales backgrounds. Canada needs to address that issue,” says Dr. Cohen.

Experts need this information to make strategic decisions, especially since there is little real data about China’s wood industry, such as plantation areas and volumes, as well as imports and exports. Dr. Cohen says, “The words of experts are therefore probably closer to opinions than actual facts.”

Regardless of whether China’s development results in a boom or a bust for Canada, one thing is absolutely clear, says Dr. Cohen: “Over the next 10 to 15 years, the economy of the world will be determined by how well the Chinese industry is integrated in global markets, so it’s important to help them do it right.”