China’s forest landscapes, forest-dependent communities, and industry face massive transformation following key legislative and institutional changes over the past several years. China’s newly revised Forest Law (cn) that came into force in July 2020, introduces greater change. Shifting away from a focus on timber production, the revised law seeks to balance forest management to more fully realize the role of forests in providing economic, social, ecological and cultural services.
Evolving Legislation and Institutions
The Forest Law revisions come on the heels of other steps taken to improve China’s forest governance:
2015: China’s Environmental Protection Law, first passed in 2014, underwent revisions to impose extensive responsibilities for public authorities to enforce industry-facing environmental regulations, including limiting pollutant emissions under required levels—with punishments for noncompliance.
China passed a ban on commercial harvesting of natural forests, rolled out from 2015 to 2018. The ban further increased China’s dependency on domestic plantation forests and imported wood sources to supply its forest-based industries.
2017: President Xi Jinping advanced the “two mountains” principle (“Lucid waters and lush mountains are invaluable assets”) to ensure harmonious co-existence between humans and nature, including efficient use of natural resources. The report of the 19th Session of the National Congress of the Communist Party of China (CPC) established “ecological civilization” and “beautiful China” as high priorities on China’s development agenda.
2018: The People’s Congress amended the Constitution to include “ecological civilization” for the first time. This established ecological civilization as the ideological framework for China’s environmental policies, laws and education, and created the basis for establishing corresponding institutions and systems.
The People’s Congress adopted a State Council proposal for institutional reforms to enable comprehensive and coordinated protection of the natural environment and strengthen enforcement of pollution regulations. It dismantled the Ministry of Land and Resources, Ministry of Environmental Protection, and State Forestry Administration. In their place it established the Ministry of Ecological Environment, Ministry of Natural Resources, and National Forestry and Grassland Administration (NFGA). The creation of NFGA in particular enables more centralized coordination of protection and management of forest, grassland, and wetland ecosystems, and accelerates establishment of national parks.
Revisions to the Forest Law
In December 2019, the Standing Committee of the 13th National People’s Congress voted to revise the Forest Law, the second amendment since its original passage in 1984. The revised law requires any cultivation or use of forest resources to follow principles of sustainability and protection of nature. New material has been added to reflect these principles, including to enhance:
- institutions for evaluating the protection of forest resources and achievement of forestry development objectives
- forestry development planning
- forest fire prevention
- forest pest control
- construction of forestry infrastructure
- afforestation (including promoting public participation in afforestation)
- science-based protection and restoration of forest ecosystems.
Clearer Forest Classification
The revised law seeks to address the dilemma between conservation and development by adopting a Classified Forest Management System, dividing forests into public welfare forests and commercial forests. Public welfare forests are to be strictly protected and managed for ecological values, while commercial forests are to be mainly used for economic purposes and be independently operated by forestry operators.
Areas to be classified under public welfare forests include:
- catchment areas at the source of important rivers
- protection areas of main rivers, tributaries and drinking water sources
- areas around important wetlands and important reservoirs
- nature reserves for forest and terrestrial wildlife types
- forests that provide windbreak and sand-fixing functions, particularly in areas of severe desertification and soil erosion
- coastal shelterbelts
- undeveloped or unused virgin forest areas
- other areas to be demarcated.
The law allows for reasonable use of natural resources in public welfare forests—including moderate development of understory economy and ecotourism as long as the use does not negatively affect ecological function.
The revised law retains the existing Forest Harvesting Quota and Harvesting Licensing System. However, it makes the following improvements, based on broad stakeholder consultations and a thorough impact analysis:
- decentralizes the approval of harvest quotas
- narrows the scope of issuance of harvesting license
- strengthens the status of Forest Management Plans;
- reduces content in the law focused on attributes of planned economy such as the Timber Production Plan and Timber Transportation Certificate.
Restricting Illegally Sourced Timber
The newly revised law prohibits the purchase, processing, and transport of illegally sourced timber. It provides a stronger entry point for forestry authorities to supervise and inspect potentially illegal timber, including punishment measures.
Given the law’s focus on domestic sources, it does not sufficiently address illegal timber sourced from abroad. The implementation decree for the law, due for release in spring of 2021, will hopefully include clear regulations for imports. China’s National Forestry and Grassland Administration has been continuing to work with other government agencies and research institutes to develop Administrative Measures to strengthen procedures to verify the legality of imported wood.
Strengthening Forest Tenure
The revised law strengthens the protection of forest tenure and establishes the National Forest Eco-Compensation System.
The revision introduces stronger protections of the rights of private forest right holders. Any expropriation of forest land and trees must be carried out using evaluation and approval procedures in compliance with the law and include fair and reasonable compensation. In the event that demarcation of public welfare forests involves non-state-owned forest land, a written agreement should be signed with the forest rights holder and paired with reasonable compensation.
Enhancing Efficiency of Timber Production
While the revision strengthens the law’s focus on the management of forests for multiple uses, it still retains a strong role for domestic timber production. The revision strengthens protections of the rights of forestry operators. It also improves the efficiency of timber production and distribution by eliminating the Timber Transportation Licensing System and streamlining the issuance of Timber Harvesting Licenses.
China remains the world’s largest plantation forest grower, and the largest producer, importer, consumer, and exporter of primary, secondary, and further processed wood products.
Yet domestically, China’s forest-based industries (i.e. primary forest products, mechanical wood, furniture, and pulp and paper) and associated trade have all been affected by the series of legislative and institutional changes. Enforcement of the earlier revised Environmental Protection Law has already accelerated trends of relocation, consolidation and technical upgrading in many industries, including forest industry.
For example, an estimated 70% of sawmills have closed because of strengthened enforcement of new environmental regulations. Many wood processing mills in the Manzhouli, Suifenhe and Erlianhot areas have stopped production. Some have closed doors entirely while others have relocated, altering the distribution channels for wood products.
According to ITTO reporting, nearly 3,000 wood-based panel factories in Wenan County, Langfang City in Hebei Province have been ordered to cease operations following provincial government investigations. Some small polluting factories have been given the option of relocating or upgrading to satisfy the environmental regulations. Many small and medium-sized wood-based panel factories across Jiangsu and Zhejiang Provinces have closed because they cannot afford to upgrade their technology or relocate. Players in the wooden furniture and pulp-and-paper industries have similarly been undergoing a wave of relocation, consolidation and technical upgrading processes.
Market operators will need to adapt quickly to stay active in the market. In order to secure stable wood supply in the long run, Chinese companies operating in wood processing and pulp-and-paper production are actively looking for overseas investment opportunities in forest concessions, plantation or joint ventures.
The sweeping changes to China’s forest sector legislation and institutions will have overarching and long-lasting impacts, not just domestically, but also on the broader state of the world’s forests, availability of forest resources, direction of trade, and role of forests in providing key ecosystem services.
Indufor’s Experiences and Service Offerings
Indufor has worked in China for more than two decades, accumulating a wealth of knowledge and experience in the country’s forestry and wood processing industries. Indufor has been providing technical assistance to international financial institutions in implementing forestry projects across China and providing advisory services to Chinese companies in realizing their overseas investment plans. Indufor has also provided forest valuation services to international and Chinese clients managing plantation forests in China. Indufor established its China representation in Beijing starting in 2019. Doing so positions us well to better support Chinese and international clients operating in China across public and private sectors in the following areas:
- Strategic industrial development within the wood and fibre-based industry & bio-products
- Sustainable natural resources and fibre sourcing strategies and optimization
- Business and investment strategies with M&A support
- Due diligence with forest resource assessment and mapping
- Sustainable finance & green bond verification
- Climate change mitigation, carbon sequestration and ecosystem services in forest landscapes
- Sustainable natural resources management & SMEs
Indufor is a global leader in Natural Resources Management, Investment Advisory, and Strategic Industrial Development consulting. We support our customers to compete and sustainably grow in international markets. Indufor has offices in Finland, New Zealand, Australia and the United States, and representation in China. We have 40 years of experience in more than 100 countries. Our services support our clients to make the world more sustainable and greener.