TITLE: PROPOSED DEMONSTRATION PROJECTS OF US BUILDING MATERIALS IN NORTHERN AND SOUTHERN CHINA

SUBJECT COUNTRY(IES): CHINA

POST OF ORIGIN: BEIJING

SERIES: INTERNATIONAL MARKET INSIGHT

ITA INDUSTRY CODE: CON

DATE OF REPORT: 1/5/99

DELETION DATE: 11/1/99

AUTHOR: THESSALONIKA T BENNY

APPROVING OFFICER: WILLIAM ZARIT

NUMBER OF PAGES: 4

RECENT COMMERCE MEETINGS WITH MINISTRY OF CONSTRUCTION OFFICIALS AND MEMBERS OF THE CHINA MAYORS ASSOCIATION ARE THE BASIS FOR THIS REPORT.

I. SUMMARY

Under the auspices of the US-China Housing Initiative, there is a strong possibility for housing demonstration projects in both northern and southern China. Participation in these housing demonstration projects as a way of entering the Chinese housing market should be viewed as a promotional expense; there is no US government funding available. More information will follow on these and other housing-related projects and opportunities.

II. THE TWO PROJECTS

China's Ministry of Construction has proposed two housing projects. One is in the north, and one in the south of China. They will demonstrate different designs and building materials needs for the different climates of the north and south. Presently, the Commerce Department (USDOC) is working with China's Ministry of Construction and the China Association of Mayors to select as sites two relatively small cities, (led by progressive, innovative mayors) near large population centers.

Although wood framed housing is rare in China, other types of wood products such as molding, floors, cabinets, stairs and railings are often used in the more expensive housing, and viewed as luxury items. (One demonstration project is already being organized by the American Plywood Association in Sichuan province, and will have considerable wood content. This is not the norm for China, and will not be the case in other demonstration projects. If you are interested in this, please contact the American Plywood Association directly.)

American-made products for the interior and exterior are planned for these two demonstration projects. The hope is to demonstrate not only the strength, efficiency, durability and environmental quality of US building materials, but also the style. Many of the existing homes in China look the same because, according to one US construction firm already successful in China, under the earlier regimes it was not a good idea to be different or to stand apart. That attitude still appears in the government's reluctance to try new methods, materials and styles. Builders and potential home owners, on the other hand, seem to be more easily convinced when they are shown the superior quality of a new approach to housing construction.

Educational demonstrations have been effective in bringing the message of higher quality and better results to both home builders and home buyers, according to a firm experienced with such demonstration projects. So demonstrating the high level of US quality should result in construction companies and consumers increased willingness to spend more for what they learn is better quality housing.

II. TRADE BARRIERS

Although the USDOC is working to reduce customs duty rates and other high trade barriers, the obstacles to trade persist. In many cases these high rates make US products cost-prohibitive even for wood products for which China does not have a domestic industry to protect. (There have been recent bans on cutting timber within China, due to the extensive flooding of 1998. According to a recent article in the Chinese press, the Chinese are not able to produce locally to keep up with demand. This may increase pressure on the Chinese to lower some duty rates.)

For the two proposed demonstration projects the building materials may be imported duty-free, according to the Ministry of Construction. However this will not be the case for purchases subsequent to the demonstration projects. US firms will have to evaluate their long-term business prospects to determine if they want to compete in this potentially large though difficult market before seeking an opportunity to participate in the proposed demonstration projects.

III. BEST PROSPECTS

Due to the Chinese government's concerns about the need for non-polluting, energy-efficient housing in China, any building materials meeting these criteria stand a better chance for success in the China market. According to Chinese government sources, there has been a particularly large problem in the use of locally-made bricks because production ruins farm land, pollutes the air and results in low quality construction as load-bearing capabilities are inadequate for the more desirable open living spaces. However, the Chinese government remains reluctant to use alternative materials. Again, the more new materials and their benefits can be demonstrated, the more people will know about their quality and be willing to use the new materials.

Of particular interest in China are double-paned windows. Not only do they help to keep out the cold, humidity and heat, they also help to keep out the ubiquitous dust, especially problematic in the north. Other products of noted interest include insulation, energy-saving roofing materials and lighting, better doors and framing, and decorative floors and cabinets.

IV. CONTACT INFORMATION

For more information on the US-Chinese Housing Initiative or the above-described housing demonstration projects, please contact Mr. Chris Twarok or Ms. Susan Lusi in the Trade Development Office of Basic Industries in Washington, DC, or Ms. Thessalonika Benny at the US Embassy in Beijing.