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Getting the Private Sector to Work for the Public Good

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Getting the Private Sector to Work for the Public Good Getting the private sector to work for the public good Instruments for sustainable private sector forestry in China March 2002 Lu Wenming, Chinese Academy of Forestry Natasha Landell-Mills, International Institute for Environment and Development Liu Jinlong, Chinese Academy of Forestry Xu Jintao, Center for Chinese Agricultural Policy Liu Can, Forestry Economics and Development Research Centre A component of the international research project steered by IIED: Instruments for sustainable private sector forestry Copies of this report are available from:. Earthprint Limited, Orders Department, P.O. Box 119, Stevenage, Hertfordshire, SG1 4TP. e-mail: [email protected] http://www.earthprint.com For enquiries – Tel: +44 1438 748111 Fax: +44 1438 748844 e-mail: [email protected] Copies of the sub-studies listed on pages xvi – xvii are available from: Forestry and Land Use Programme, International Institute for Environment and Development, 3 Endsleigh Street, London, WC1H 0DD, UK. Tel: +44 207 388 2117 Fax: +44 207 388 2826 e-mail: [email protected] http://www.iied.org Correspondence should be addressed to : Lu Wenming, Assistant Director, Research Institute of Forestry Policy and Information, Chinese Academy of Forestry, Wan Shou Shan, Beijing 100091, China. Tel: +86 10 6288 9727; Fax: +86 10 6288 2317; E-mail: [email protected] or Natasha Landell-Mills, Forestry and Land Use Programme, International Institute for Environment and Development (IIED), 3 Endsleigh Street, London WC1H 0DD, UK. Tel: +44 20 7388 2117; Fax: +44 20 7388 2826. E-mail: [email protected] Citation: Lu Wenming, N. Landell-Mills, Liu Jinlong, Xu Jintao and Liu Can. 2002. Getting the private sector to work for the public good: instruments for sustainable private sector forestry in China. Instruments for sustainable private sector forestry series. International Institute for Environment and Development, London. Design: Eileen Higgins Illustration on cover and chapter pages : © Christine Bass Print: by Russell Press, Nottingham, UK. Printed on Sovereign Silk 115gsm, 100% chlorine free Instruments for sustainable private sector forestry is a project co-ordinated by the International Institute for Environment and Development (IIED) and is supported by the UK Department for International Development and the European Commission. The Instruments for sustainable private sector forestry publication series derives from this project. Other studies in the series to date are: ! Foreign portfolio investment and Sustainable development: a study of the forest products sector in emerging markets. Maryanne Grieg-Gran, Tessa Westbrook, Mark Mansley, Steve Bass and Nick Robins. 1998 ! Privatising sustainable forestry: a global review of trends and challenges. Natasha Landell-Mills and Jason Ford. 1999 ! Economic instruments for tropical forests: the Congo Basin case. Alain Karsenty. 2000 ! Certification’s impacts on forests, stakeholders and supply chains. Stephen Bass, Kirsti Thornber, Matthew Markopoulos, Sarah Roberts, Maryanne Grieg-Gran. 2001 ! Raising the stakes: impacts of privatisation, certification and partnerships in South African forestry. James Mayers, Jeremy Evans and Tim Foy. 2001 ! Production, privatisation and preservation in Papua New Guinea forestry. Colin Hunt (ed). 2002 ! The new foresters: the role of private enterprise in the Indian forestry sector. Sushil Saigal, Hema Arora, S. S. Rizva. 2002 Forthcoming reports in this series will include: ! Company-community forestry partnerships: from raw deals to mutual gains. James Mayers and Sonja Vermeulen. 2002 ! Instruments for sustainable private sector forestry in Brazil: an analysis of needs, challenges and opportunities for natural forest management and small-scale plantation forestry. Virgilio Viana, Peter May, Lucineide Lago, Olivier Dubois and Maryanne Grieg-Gran. 2002 ! Silver bullet or fools’ gold? A global review of markets for forest environmental services and their impact on the poor. Natasha Landell-Mills and Ina T. Porras. 2002 These studies are available from Earthprint Limited at the above address. Contents Executive summary i Acknowledgements ix Acronyms x 1 Introduction 1 1.1 Background 1 1.2 Aim of study 2 1.3 Defining the private sector in China 4 1.4 Methodology 5 1.5 Structure of this report 6 2 Setting the scene 7 2.1 Brief profile of China 7 2.2 Forestry in China – getting to grips with a vast resource 9 2.3 Identifying the main players and their functions 16 2.4 History of increasing private sector participation – key legal and policy milestones 28 2.5 Summary 34 3 Making the most of forest tenure reform and contracting out 35 3.1 A history of forest tenure reform 36 3.2 The current status of forest land tenure reform 38 3.3 Key drivers for change in collectives 42 3.4 Emerging ‘best practice’ in contracting out 43 3.5 Impacts of tenure reform in collective forests 47 3.6 Constraints to reform in collectives 50 3.7 Summary 55 4 Rethinking forestry taxation 57 4.1 The current state of affairs – an evolving forestry taxation system 59 4.2 Identifying problems with forestry taxation system 67 4.3 Impacts of forestry taxation system 75 4.4 Underlying causes 78 4.5 Summary 80 5 Promoting company-community deals – letting the private sector take the lead 81 5.1 Company-community deals – an emerging phenomenon 82 5.2 Deals between Asia Pulp and Paper and local communities in Guangdong Province 85 5.3 Identifying the benefits 91 5.4 A preliminary assessment of constraints 94 5.5 Summary 98 6 Encouraging private financing of forest environmental services 99 6.1 Forest environmental services – a history of market neglect 100 6.2 Payments for forest environmental services – an emerging picture 101 6.3 Emerging challenges 116 6.4 Summary 118 7 Forest certification – a new market-based policy tool? 119 7.1 Forest certification in China – the current state of play 121 7.2 Assessing the potential benefits and constraints 125 7.3 Summary 128 8 An array of policy opportunities 129 8.1 Establishing a fair balance between risks and rewards 129 8.2 Investing in social and environmental benefits 133 8.3 Learning lessons from experience and dissemination of guidance 135 8.4 Next steps 137 References 139 Annexes 147 Executive summary Within the space of two decades, China’s forestry sector has been transformed. As part of a broader effort to implement its ‘socialist market experiment’, China has sought to negotiate a shift in responsibility for forest utilisation and management away from the state sector towards the private sector. While reform has progressed step-by-step, the cumulative change has been significant. As early as 1985 it was estimated that over 50 per cent of the increase in forest area was accounted for by private entities. By 1995, an estimated 95 per cent of all collective households were involved in some form of contract tenure arrangement in forest land. While China contains the fifth largest area of forest in the world, against most measures China is forest-deficient. Set against its population China has only 0.1 hectares per capita, considerably less than the world average of 0.6 hectares (FAO, 1997). China’s forest resources are not only small relative to its area and population, but are also small relative to demand. China is the second largest timber importer in the world. Reform was set in motion by the extension of the ‘Household Responsibility System’ from agriculture to forestry in the late 1970s. Under the new system rural households, who had not previously been permitted to generate private returns from forestry investment, were offered new opportunities to lease forest land and own planted trees. Subsequent efforts to liberalise the forest products market in the 1980s, and more recently, to lengthen leases and permit leases to be auctioned and traded have provided critical boosts to the emergence of a private forestry sector. While the changes underway in China’s forestry sector are significant, any attempt to paint broad pictures in such a large and diverse country is fraught with difficulties. Although reform at the national level has provided a framework to guide change, local level implementation is inevitably more complicated. Provinces, prefectures, counties and even Townships and Villages have adopted their own approaches to negotiating the changing roles and responsibilities between the private sector and government. The wealth of experience generated by local level experimentation makes evaluations complicated. However, it also offers a crucial opportunity for learning lessons. After two decades worth of experiences, it is time to take stock. This paper seeks to make a start at the enormous task of lesson learning by improving our understanding of the nature of private sector participation in forestry, the associated costs and benefits, and identifying constraints and opportunities for the private sector to become a major force for improving forest management. The paper looks back as well as forward for guidance. In looking back, the aim is to learn from experience, both negative and positive, generated within China over the past twenty years on forest land tenure and contracting-out systems, as well as forestry taxation schemes. In looking forward, the paper seeks to identify emerging policy opportunities that are being tentatively explored by local and national authorities. Three stand out: company-community deals; payments for forest environmental services; and forest certification. Key insights offered by this paper are summarised below. Making the most of forest tenure reform Efforts to contract forest land use rights to private households has been a critical component of broader economic and social reforms underway in China since the late 1970s. However, reform has not been smooth or uniform. Forest tenure varies from province to province, from county to county and even from township to township. Moreover, efforts to ‘decollectivise’ forestry come against a backdrop of frequent policy reversals and high levels of tenure insecurity. This insecurity poses one of the most difficult challenges for policy- makers wishing to promote increased private investment.
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