Chinese forestry industry companies are gearing up to upgrade product structures, seeking new cooperation with their Russian partners.

Starting from 2001, forestry sectors in China and Russia have seen a rising timber trade.

In north China's Heilongjiang Province, more than 40 companies have cooperative forestry projects with their Russian counterparts.

However, most of the projects have low technology contents, which hampers further business exchanges between Chinese and Russian forestry firms.

The Russian government has released a series of policies to curb log exports and encourage the development of the deep wood-processing industry.

Accordingly, 50 percent of Russia's wood products are expected to be manufactured in Russia by 2010.

The official website of Shanghai Co-operation Organization cited the Russian Information Agency (RIA) as saying that Russia is drafting amendments of the forestry law to improve the utilization efficiency and evaluation accuracy of forest reserves.

Russian insiders proposed that authorities formulate a detailed plan for felling quotas, forest restoration, fire prevention and infrastructure construction.

According to RIA, satellites are employed to monitor 23 forest areas in Russia, aimed at controlling illegal felling.

Current policies indicate that Russian authorities are revving up for an increase in deep-processed wood products and a reduction in log exports, said Huang Qing, professor with Northeast Forestry University.

He added that Chinese companies would find it hard to survive if they are unable to adjust to the new challenge.

Setting up ventures and operating forestry farms in accordance with modern corporate governance in Russia will contribute to long-term cooperation between both sides, he said.

Song Kui, chief of the Institute of Northeast Asian Studies of the Academy of Social Sciences of Heilongjiang Province, suggested Chinese firms should shift from wood logging and rough processing operations to deep processing and comprehensive use of forestry resources.

Song also stressed investment increases and efficient capital management, adding that expansion of the scale of operations will bring about a win-win result.

Foreign investment

The forestry industry, ranked fifth in the Russian economy, received US$825 million of investments in 2003, rising from about US$300 million a couple of years ago. Foreign direct investment (FDI) contributed US$270 million.

Investment in the Russian forestry sector grew 14 percent in 2005 and FDI increased 0.5 times.

Russia's local governments are vying for foreign capital. Their efforts in attracting foreign investors have drawn attention from abroad.

For instance, Harvard Management Co (HMC), a renowned endowment fund, visited Krasnoyarsk in 2004, exploring co-operative possibilities.

HMC has so far invested US$2 billion in forestry and wood processing operations around the world and has managed about 520,000 hectares of forests.

Among other investors, businesspeople from China, a neighboring dynamic economy, enjoy a distinct geological advantage in developing business in Russia.

Governments of the two countries have signed related framework agreements.

At present, Russian and Chinese governments are jointly advancing 20 projects, including the establishment of a paper pulp plant in Khabarovsk, Russia.

Under the framework agreements, Chinese firms will rent one million hectares of forests in Siberia for deep processing operations.

Meanwhile, Russian authorities plan to invest US$20 billion in building infrastructure facilities and revamping up equipment in forest regions. It is seen as a move to facilitate inflow of foreign capital.

Analysts said Russia is now applying for access to the World Trade Organization (WTO).

When Russia becomes a WTO member, a great number of foreign investors are predicted to flock into the Russian market, which will result in enhanced competition in the forestry sector.

(China Daily August 31, 2006)