Housing Starts Finally Rebound in October
Despite positive earnings, results from the prior quarter and an annualized GDP rate of 2.6% between July and September, Japan’s economy showed a deteriorating trend between September and November.

Bank of Japan Governor, Toshihiko Fukui, held the banks key rate at 0.5% due to darkening global financial markets, persistently weak consumer spending and worsening prospects for exporters. During the past quarter, the Nikkei Index languished around the 15,000 level, hammered by the sub-prime market fallout and yen’s appreciation versus the US dollar. Mizuho Financial Group’s earnings were down 24.7% in the three months ending in September due to exposure to sub-prime mortgage backed securities losses.  Earnings forecasts for Japan’s exporters were also cut due to diminishing US consumer spending expectations and a rise in the yen to an 18 month of Y110 versus the US dollar. Due to expectations of slowing exports and stagnant consumer spending, the World Bank trimmed Japan’s growth outlook for 2008 to 1.8% from 2.4%.

Rising inflationary pressures appeared to be gaining momentum, undermining consumer confidence. Prices at the gas pumps hit a new record high of 150 yen per litre in November. Pulp and paper jumped 5.5% and wholesale prices increased 2.4% in October. Wages fell 0.2% in October and unemployment increased from 3.6% July to 4.0% in September. Consumer confidence fell 5.4% in October, hitting a 3 1/2 year low.

Declining consumer spending was manifested in the sales of big ticket items. Domestic new car sales plunged 8.1% in the first nine months of 2007 to hit their lowest level in 27 years. Condominium developers such as Mitsubishi Estate and Sumitomo Realty & Development cut their fiscal year supply forecasts due in part to fallout from the June 20th BSL revisions but also in part to sidelined homebuyers. Potential homebuyers are losing confidence in the timing to purchase and are facing growing affordability issues as condominiums have tellingly risen 17.9% year over year in Tokyo. Total housing starts finished down 44% in September - wooden housing starts declined 23% year over year.

Post & Beam

October Post & Beam starts were 34,624 units: a 6.9% decrease over October 2006, but a substantive improvement over the -23.8% shortfall the month prior.  Average floor area was 103.69m2, roughly on par with the same results a year prior.

Pre-Fabricated Housing Starts

Pre-fab wooden housing starts were 1,585 units; down 7% over the same period last year.

2x4 Housing

2x4 housing starts showed their first year over year increase in 7 months, finishing at a healthy 9,721 units. Although overall 2x4 numbers were up 0.3% over the year prior, average floor area finished at 80.55m2, pointing to a more pronounced recovery in multi-family housing as opposed to single family and spec housing.

(Sources: MLIT, The Nikkei Weekly, Nikkan Mokuzai Shimbun, Mokuzai Kenzai Weekly, The Japan Times)

The COFI SPF Group, in cooperation with the Tokai Branch of the Japan 2x4 Home Builders Association, completed another successful tour mission to Western Canada.  Nineteen construction and design experts from Japan participated in a comprehensive study tour from October 21 to 27. The participants held in-depth discussions with Canadian architects, engineers and contractors to review designs, construction details, and materials specifications for wooden structures in British Columbia. While on Vancouver Island, the participants stayed in a three-storey wood frame 2x4 structure at the Westin Bear Mountain Resort. The group visited three and four-storey elderly care facilities being constructed from wood. The focus of this year’s mission was to get a better understanding of how SPF dimensional lumber is used in a variety of multi-family and non-residential wood frame 2x4 structures. The group also visited two condominiums, a townhouse and a housing development.

Nineteen construction and design experts from Japan participated in a comprehensive study tour from October 21 to 27.	The group visited three and four-storey elderly care facilities being constructed from wood, the focus of this year’s mission.

As a result of the significant downturn of construction activity in the wake of the implementation of Japan’s Building Standards Law Revisions on June 20th, Canadian concerns were presented to senior ranking government officials from MLIT, Japan’s Ministry of Land Infrastructure and Transportation which is responsible for the BSL, at the Building Experts Committee Meeting held in Quebec City on October 4th. Canada Wood Japan collaborated with the Canadian Embassy in Tokyo and Industry Canada to develop a joint Canadian position outlining concerns on how the BSL revisions had negatively impacted prospects for Canadian forest product exporters as suppliers of the Japanese housing market.

Sara Filbee, Director General of Industry Canada’s Resource Processing Industries Branch, delivered the Canadian position in her opening remarks, “MLIT has made a large volume of revisions to Cabinet Order, Ministry Order and Notifications related to the Building Standard Law dated June 19 as counter measures to the structural calculations scandal. The confusion resulted from the building application scheme changes are creating problems which are far beyond our expectations. This confusion is seriously impacting on suppliers of building materials to Japan, including both domestic and offshore suppliers. Canada is interested in hearing MLIT’s plan to rectify the confusion”. In closing remarks Ms. Filbee re-iterated that, “We remain very concerned about the difficult implementation of the new system. Canada encourages MLIT to carefully monitor the situation."

In separate meetings, Canada Wood Japan’s Shawn Lawlor also directly raised industry concerns with Mr. Hiroki Sunohara, MLIT Director for International Building Codes Confirmation as well as Mr. Tomiyoshi Ogawa, MLIT Housing Bureau Deputy Director for Building Administration at the Canada Japan Housing Committee Meeting in Ottawa on October 17th.Thanks in part to Canadian lobbying efforts, MLIT announced measures to facilitate and shorten the building permit confirmation process. Initial implementation of the BSL revisions required building permit applicants that failed to submit all required documentation to withdraw their applications and re-apply with all required documentation. This process was problematic as builders experienced significant delays to only find out that the applications were incomplete and would need to be re-submitted. Under the new process announced, applicants who failed to initially provide all required documentation are now able to add required information without the need of withdrawing and re-submitting their applications. These new measures are expected to speed up the building approvals process and will come into effect at the end of November.

In Japan, there is a growing interest in building livestock facilities from wood.  In a unique example, like-new thirty year old preservative treated telephone poles combine with Canadian wood products to form innovative farm structures in Kanagawa Prefecture. 

Mr Mitome of Mitome Cattle Farm in Kanagawa Prefecture recognizes the benefits of using WFC for his livestock facilities, rebuilding new structures with wood.

Wood reduces stress levels of animals, lasts longer and fits into the surroundings of the farm environment.

According to Mr. Mitome, the owner of the farm, the main advantages of building with wood are that:

• Steel corrodes when it is exposed to ammonia gas from the cattle manure, which does not happen with wood.
• Wood reduces the stress levels of the animals, making them easier to raise and fatten, which contributes to a better quality of beef.
• Wood is more attractive and natural looking, and fits into the surroundings of the farm environment better.

Lowgrades Account for Export Boom
In 2007, who could have ever predicted low-grade shipments increasing 500%, the Russian export tax hitting 25%, or the Central government’s call for tighter energy efficiency requirements for new construction? Small victories like increased shipments are great, but as is so often the case, these ‘victories’ come from external factors well beyond our control. So if we aren’t in control of our success in China, why are we there? Well, let’s go back nearly forty years ago to Japan, prior to Japan’s era of platform frame construction (PFC). Very simply put, two events were directly responsible for the success of PFC and the demand for Canadian forest products.

The first event (beyond our control) was the decision by the Japanese Ministry of Construction (MOC) to adopt PFC as a “new,” lower cost and safer form of wood housing. The second event, which was within our control, was Canada’s decision to launch the Cooperative Overseas Market Development Program (COMDP), a joint initiative of the federal and provincial (BC) governments and COFI. The combination of these two events together led to the tremendous growth; in 1995, forest products represented 42% of total Canadian exports to Japan. While China is definitely no Japan (the Japanese have always revered wood), China will present us with opportunities—opportunities that no one can predict; opportunities that can only be capitalized on if we are in the right place at the right time.

In the first three quarters of 2007, China’s wood product imports grew 24.3% to 17.8 billion dollars. China’s log imports grew 18% in volume (43% in value) from the same period in 2006. Softwood log imports grew 62% in volume (44% in value) 8.81 billion dollars. China’s log imports were still mainly from Russia (69% volume) and saw an 18% growth in volume from the same period in 2006. Log imports for January to September 2007 for the main suppliers are listed in Table 1 below.

Table 1	Table 2

Sawnwood imports grew 5% to 1.32 billion dollars from the same period in 2006. Sawnwood imports were mainly from Russia (1,155.0 thousand m3), the US（ 803.5 thousand m3), Thailand (512.3 thousand m3), Canada (489.8 thousand m3) and Malaysia (239.2 thousand m3). Other countries whose exports to China exceed 100,000 m3 are listed in Table 2.

Guangzhou Imported Timber Market Prices

Canadian Softwood & SPF
Canadian softwood shipments increased 93% in Q3 to 66,831 MFBM compared to the same period last year. This increase came mostly from SPF shipments which increased 390% in Q3 to 39,801 MFBM compared with the same period in 2006. SPF shipments consisted of mostly lower grades (economy & utility) to be used for remanufacturing, furniture and formwork applications. 

Russian Softwood Log export taxes:
On November 30, 2007 the Russian Federation (RF) Government approved the schedule of increasing log export duties, according to which from January 1, 2009 each cubic meter of exported unprocessed timber will cost the exporters up to EUR50. According to Russian Forest Ministry specialists, in 2009 the RF budget could get additional RUR18.2 billion only from the introduction of restrictive duties for round timber export. Currently exporters pay USD1.9 in Russia while they pay USD51 in Finland. According to Rosleshoz, exports of unprocessed timber will total 52 million cu. m in 2007.

The Russian Softwood Export Tax—A Quick Review
• 2005-Russian government announced 6.5% tax on logs.
• July 1, 2007-increased to 20% and minimum export tax amount is 10 euro/m3
• April 1, 2008-will increase to 25% and minimum export tax amount is 15 euro/m3
• Jan 1, 2009-will increase to 80% and minimum export tax amount is 50 euro/m3

As I packed my bags on the heels of four fascinating months working in Shanghai, I reflected on the challenges facing Canada in developing new Chinese markets for our wood products.  On one hand, I was filled with optimism for our mission - due to crisis conditions facing China: excessive energy use, pollution and crumbling housing stock. Conversely, realities such as lack of knowledge and skills, a propensity to stick to familiar – if outdated – approaches and institutional prejudices tempered this optimism.

China is hurtling towards a cross-road where development will either transition to a more sustainable footing or an environmental catastrophe will be spawned by unbridled growth.  Already public sentiment is beginning to push heavy on government in terms of unwillingness to live in an environment which has been degraded due to the excesses of capitalism.  Over 50,000 acts of environmental protest were recorded in 2006 related to public opposition to developmental excesses.   Moreover, given its unhappy ascension to the world’s #1 ranked oil importer, China acutely realizes its shortcomings with regard to building performance. 

At a Canada Wood sponsored forum on Nov 4-5 in Beijing, western partners from Canada, USA and Europe met with counterparts from China to discuss attitudes impeding expanded wood use.  This strategic feedback will frame a campaign to persuade policy officials and others that wood can be part of the solution to China’s sustainable development.  The discussions led to some interesting findings:

On the right track: Paul Newman reports Canadian style WFC is gaining acceptance and recognition in China, but continued success depends on sustained efforts to keep programs running and Canadian products and technology in the minds of Chinese consumers.

• Chinese thinking is clouded by concerns over self-sufficiency; a hold-over from past eras and at odds with China’s trading position in the world.
  
• Wood construction is not necessarily seen as relevant to China’s needs.
  
• China considers costs from short-term perspectives only.  Long-term impacts and savings are poorly understood.  
  
• The environmental repercussions of China’s economic miracle are perceived as a serious problem, even by the public. Curbing of high polluting industries and building systems is inevitable.
  
• Chinese government may play less of a key role than we think.
  
• Energy efficiency is the issue of day. 

In order to succeed under these circumstances Canada needs to focus on:

• The contribution of wood to a sustainable society must be effectively articulated and communicated.
  
• The accommodation of Chinese forestry and forest products in any ‘pro-wood’ strategy.
  
• Successful concepts must be localized and seen as Chinese.

‘Selling’ government is important but the private sector more so.

We are on the right track in China. CW is cooperating with other supplying regions such as the USA and Europe. CW programs have expanded beyond ‘villas’ to roofing systems for apartments and infill walls and floors for concrete structures (see article). CW delivers job-site tech transfer to builders and users of structural wood. CW offers innovative courses and training. Key codes are in place. ‘Guan xi’ with key government agencies is good.

Our ability to maintain our programs, to carry on despite naysayer’s and slow initial uptake is the key factor for success. The counsel of Chinese participants on Nov 5th was that events are moving in our favour and only time, patience and ingenuity is required to attain our goals. It is thus critical that Natural Resources Canada’s Canada Wood Export Program (CWEP) is renewed beyond March 31st, 2009. This seven year, $55 million program has been central to our ability to concept and execute development plans for emerging markets. CWEP enabled the locating and staffing of offices in target markets. CWEP funded front-end work such as the codes and standards, has provided Canadian expertise to avoid building quality failures and market research designed to target and fine-tune programs. Together with funding from BC’s Forestry Innovation Investment (FII) program, CWEP has given the industry the wherewithal to tackle new markets. Without CWEP backing none of this work would have been possible. Industry must sing its praises and show politicians that we value these investments: without them the future looks bleak.

Canada Wood makes a major splash at the 6th China International Exhibition on Housing being recognized as among the top 10 new building technologies to promote in China.

Canada Wood personnel worked hard to answer questions, and handed out over 1500 literature packages to enthusiastic developers, builders and architects.

On Nov 14th in Beijing, Canada Wood launched a major promotion on wood roof trusses and infill systems by participating in the 6th China International Exhibition on Housing. This is the only home show hosted by Ministry of Construction, P.R.C. each year and the most influential. Paul Newman of CW and Lisa Dou of FII outlined the campaign to 15 journalists assembled at a media event held during the event’s press conference. Coinciding with the show, the China Real Estate Association held its annual conference making it easier for the developers from all over China to visit the displays. The Canada Wood display focused on wood trusses placed on concrete structures and wood infill wall systems as an alternative to brick infill for concrete frame buildings.

There were an incredible amount of interest in our Canadian products and technology as large numbers of developers, builders, designers and architects visited our booth. The building envelope concepts exhibited at the show (wood truss and infill wall system) were recognized by the show organizers (The Center for Housing Industrialization Ministry of Construction, P.R. China; China Real Estate Association, and China Architectural Culture Center) as one of the top 10 new building technologies to promote in China.

Canada Wood Beijing Staff (L to R) Haiyan Zhang, Shino Zhou, Leonard Mao are grateful recipients of the MOC Certificate

MOC Awards Canada Wood Certificate Another milestone achievement for Canada Wood was its recent certificate issued by the Ministry of Construction in China. The Chinese government now recognizes "the wood-frame construction, wood-truss roof and light building envelope system”, certifying it as “Key Recommended Building Technologies” in China.

This is an important recognition that indicates progress being made to bring Wood Frame Construction into the mainstream in China.

Community contributions are an effective way for an international organization to develop a positive reputation with local people and government officials in China. This is what motivates Canada Wood to seek out both large and small community support and charity programs. There was recently an opportunity to help a school in Shanghai complete the landscaping at their newest elementary campus. Canada Wood’s Technical Department occasionally creates nice wooden structures for trade shows and seminars. Once a structure has served its purpose as a demonstration piece, it is not always practical to store it. One good option is to make the demonstration projects available for donation to carefully chosen recipients. In the last week of September, Greg Hoing, Deputy Managing Director for China, decided to do just that.

Good Neighbours: Canada Wood donates a large, versatile, landscaping deck display, made from pressure treated SPF, to the grateful staff and students of Yew Chung School in Pudong, Shanghai.

Canada Wood donated a large, versatile, landscaping deck display, made from pressure treated SPF, to the Yew Chung School in Pudong, Shanghai. David Daly and Brad Spencer volunteered their time on a sunny Saturday to modify and assemble the deck next to the school’s athletic field.

John Drummond, the Headmaster at Yew Chung said, "This week saw the official handing over of the wooden walkway that has been donated to our campus by Canada Wood. This walkway will be the foundation for a relaxation area where in future we hope to add a trellis with vines growing over it to provide shade for students in the summer months and shelter in the winter months. We are very grateful for this generous donation from Canada Wood that all students will be able to enjoy. "

This donation is an example of a small deed producing positive results. The staff at Canada Wood felt good about helping the kids and they enjoyed being a good neighbour. The students and teachers at the Yew Chung School now have a nice new wood deck to compliment their new school grounds and they subsequently got to learn about Canadian wood products through a story that was run in their school paper. This was really a win-win transaction.

What's on the Mind of One of China's Leading Wood Frame Builders
Mr. Pu is leading a well-known local WFC building company in China. He used to work for Canadian companies like CRB, Plastic Homes and Clark Co. He started building wood frame construction in 1984 when he was assigned to a WFC project by chance. He gained his WFC building experience from 2 Canadian experts on a training course. To date, he manages 100 employees and builds around 30 houses each year.

Q: Do you have trouble finding skilled labour capable of building with wood?
A: No, I think the skilled labour situation is better right now compared to what it was before. Every year Canada Wood experts help the industry train skilled workers and that really helps the labour pool grow. However, sometimes it depends on how much the developer is willing to pay the workers.
 

First-Hand Information: Mr. Pu, prominent WFC builder offers his valued insights on the China construction market and Chinese attitudes on building with wood.

Q: What are the biggest challenges for WFC as an industry?
A: I think it still comes down to how to manage people’s perception of wood as construction material. A lot people are still concerned about the fire issue, durability and environmental impact of deforestation.  
 
Q: How do you think WFC compares to traditional construction methods?
A: It is no doubt that WFC is much more energy efficient, built much faster and poses less damage to the environment. However in China, the industry is quite concerned about decisive factors like cost, design capability and appearance.
 
Q: What are the best uses for WFC in China?
A: I think in China WFC is good for tourist areas and rental houses. It's also good for the countryside areas where detached homes are more common.

Haiyan attributes her affection for Canada to her previous work at the Housing Industrialization Promotion Center (HIPC) of the Ministry of Construction. In 1997, the Ministry of Science and Technology of China (MSTC) partnered with the Canadian International Development Agency (CIDA) to conduct a joint research project on energy efficiency in buildings. The project lasted seven years and the HIPC was assigned by the MSTC as one of the Chinese participants. During that period, Haiyan experienced advanced Canadian approaches in the field of structural energy efficiency. Haiyan was impressed by the Canadians’ friendly, straightforward demeanour which made her decision to join Canada Wood, on a summer day four years ago, an easy one. She saw it as an opportunity to tackle a new career challenge as well as a chance to absorb more Canadian culture. Haiyan currently works in Canada Wood’s Beijing office where she is responsible for code acceptance and government relations. Although Haiyan had a good deal of experience promoting new materials and products to target markets at the HIPC, she soon realized that wood frame construction presented unprecedented challenges in China such as overcoming the technical barriers from lack of building and fire codes, incompatible design tools and construction processes, and low awareness of WFC among Chinese government officials, industry leaders and consumers.

Haiyan currently works in the Canada Wood’s Beijing office where she is responsible for code acceptance and government relations.

Haiyan is enjoying the professional development that goes along with meeting these new challenges. Her diligence, patience and meticulous approach have produced positive results. Haiyan has made significant contributions in establishing The Truss Code, The Timber Construction Technique Standard and the updated GB50206. Her goal on all these initiatives was to reduce the technical barriers for WFC in China. Haiyan is also active in a university outreach project that adds a wood frame design component to the architecture curriculum at Tsinghua University. Currently, Haiyan is working on a fire research program and performing research on the Tsinghua Energy Efficiency report.

Haiyan believes that wood frame construction will gain a foothold in China not only because of the benefits of wood but also as a result of consistent, effective marketing strategies. Timber structures once prevailed in China. This fact can be used to help contemporary Chinese home buyers understand and accept the general concept of wood frame houses. Another important marketing focus is to educate Chinese developers about opportunities to use wood in hybrid building systems. Meanwhile the demand for wood in interior finishing and landscape applications is really taking off”. As we chip away at the market barriers, we have many reasons to believe that WFC will eventually win the hearts of Chinese people. Apart from work, Haiyan enjoys spending time with her 7 year old son and her husband who is a nuclear power engineer (and whose job is still a mystery to Haiyan).