Background: The restoration of the degraded sandy grasslands in Hulun Buir is crucial for maintaining the local ecological balance and sustainable development. Caragana microphylla Lam., a shrub species widely employed in the restoration of sandy vegetation. It is essential to understand its impact on the understory vegetation and soil properties during this process. Methods: This study employed ANOVA, Pearson correlation, and redundancy analysis to systematically analyze the impact of C. microphylla on the three critical stages of desertified grassland vegetation recovery: semi-fixed dunes, fixed dunes, and sandy grasslands. It provided strategies for the restoration of desertified grassland vegetation and offered additional theoretical evidence for the role of vegetation in promoting the recovery of sandy lands. Results: (1) As the degree of vegetation recovery in desertified grasslands increases, the species richness of understory vegetation, Shannon–Wiener index, community height, and biomass also increase. Both the community height and biomass within shrublands are higher than outside, with species richness within the shrublands being higher than outside during the semi-fixed and fixed-sand land stages. (2) In both the 0~10 cm and 10~20 cm soil layers, soil water content showed an increasing trend, peaking in the sandy grassland stage (1.2%), and was higher within the shrublands than outside. The soil water content at 10~20 cm was higher than in the 0~10 cm layer. In both layers, clay and silt content gradually increased with the degree of vegetation recovery in the sandy land, and higher within the shrublands than outside, while the opposite was true for sand content. (3) In both soil layers, soil organic carbon gradually increased with the degree of vegetation recovery, peaking in the sandy grassland stage (4.12 g·kg−1), and was higher within the shrublands than outside. Total nitrogen increased from the semi-fixed-sand land stage to the fixed-sand land stage, with higher levels within the shrublands than outside at all stages. Soil pH within the shrublands decreased as the degree of vegetation recovery increased. There was no significant change in the total phosphorus content. (4) In both soil layers, soil physicochemical characteristics accounted for 59.6% and 46.9% of the vegetation changes within and outside the shrublands, respectively, with the main influencing factors being the soil particle size, total nitrogen, soil water content, and soil organic carbon. Conclusions: In the process of sandy grassland restoration, C. microphylla facilitates the growth and development of vegetation by enhancing the underlying soil physicochemical properties, specifically regarding the soil particle size distribution, soil water content, soil organic carbon, and total nitrogen.
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