Pulp and Paper Industry in China:
Current Status, Trends, and Implications for
International Producers
Haizheng Li
Center for Paper Business and Industry Studies
School of Economics
Georgia Institute of Technology
Atlanta, GA 30332-0615
U.S.A
E-mail: haizheng.li@econ.gatech.edu
Outline
ƒ pulp industry
ƒ paper and paperboard industry
ƒ demand for paper/paperboard product and
for imports
ƒ policies on tariff and foreign direct
investment
ƒ company performances
ƒ company case study
ƒ Conclusions
Pulp and Paper Industry in
China
ƒ One of the very few industries in
China that has been experiencing
shortages.
ƒ Import more than export
ƒ Limited wood resources
ƒ The advantage of low cost of labor is
not significant
ƒ Large modern mills vs. a large
number of out-of-dated small mills
Production and Consumption in the Pulp Market
Production and Consumption in Chinese Pulp Market (1991-2005)
Production
Consumption
(Unit: Millions of Mt)
30
25
20
15
10
5
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Year
Data Source: FAO
ƒ 1991-2005, Consumption growth - 4.5% (2005 – 24.1M
Mt.)
ƒ Production growth - 2.5% (2005 - 16.21M Mt)
ƒ Gap between consumption and production - 7.89M Mt
Pulp Used in Paper Production in 2001
ƒ Lack of forest
resources
ƒ Short supply of
wood
ƒ Wood pulp is
less than 1/4 of
total pulp
ƒ Recycled pulp
and other fiber
pulp accounted
for more than
3/4th of total
pulp
Quantity
(Million Mt)
Proportion
(%)
Total Demand
29.8
100
1. Total Demand for Wood Pulp:
6.9
23.1
2
6.7
Imported Wood Pulp
4.9
16.4
2. Total Demand for Non
Wood Pulp:
9.8
32.9
1
3.4
Bamboo Pulp
0.3
1.0
Kraft Bagasse Pulp
0.3
1.0
Grass and Straw Pulp
7.2
24.2
1
3.4
13.1
44
Domestic Recycled Pulp
8
26.9
Imported Recycled Pulp
5.1
17.1
Domestic Made Wood Pulp
Reed Pulp
Other Pulp
3. Recycled Pulp:
Data Source: Almanac of Chinese Paper Industry 2003
Production and Consumption in Chinese “Other
Fiber Pulp” Market
Production and Consumption in Chinese "Other Fiber Pulp" Market
Production
Consumption
25
Millions of Mt
20
15
10
5
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
19
73
19
71
19
69
19
67
19
65
19
63
19
61
0
Year
Data Source: FAO
ƒTotal amount of non-wood pulp dropped significantly in
1996 after increasing for more than 30 years. It dropped
from 40% in 2000 to 24% in 2005
Types of Pulp Used in Paper Production
(2000-2005)
Categories
Proportion
(%)-2000
Proportion
(%)-2001
Proportion
(%)-2002
Proportion
(%)-2003
Proportion
(%)-2004
Proportion
(%)-2005
Wood Pulp
19.2
23.2
21.3
21
21.8
22
Recycled Pulp
40.9
43.9
46.7
49.1
51.7
54
Other Fiber Pulp
39.9
32.9
32
29.9
26.5
24
Total
100
100
100
100
100
100
Data Source: Annual Report of Chinese Paper Industry 2001-2005
ƒWood pulp - stable at around 21-22%
ƒOther fiber pulp - dropped from 40% in 2000 to 24% in
2005
ƒRecycled pulp - increased from 41% in 2000 to 54% in
2005
Fiber Sources
ƒ Import woodchips
ƒ Import market pulp
ƒ Import waste paper
Import and Export of Woodchips (2000-2005)
ƒ Import of woodchip in
2003 was four times more
than in 2002
ƒ Export of woodchip in
2005 was less than half of
that in 2000
ƒ Before 2002 imported
small amount of woodchip
but exported much more
2000
(1,000 tonnes)
ƒ Imports from Vietnam and
Austria accounted for 76%
of China’s total imports
China: Import & Export of Wood in
Chips, Particles, 2000-2005
Import
Export
1500
1000
500
0
2000
2001
2002
2003
2004
2005
Wood Pulp Imports (2000-2005)
(Unit: Millions of Mt)
Import of Wood Pulp
Total Import of Pulp
8
7
6
5
4
3
2
1
0
2000
2001
2002
2003
2004
2005
Year
Data Source: Chinese Paper Industry (J)
ƒImport of wood pulp increased from 3.3M Mt to
7.5M Mt
ƒGrowth rate of wood pulp imports - 19%
ƒDomestically produced wood pulp increased at a
rate of 1.9%
Wood Pulp Imports
ƒ Imported wood pulp is the major
source of wood pulp used in China
ƒ Percent of imports in total wood pulp
used:
962% - 2000
974% - 2004
966% - 2005
World Market Share of Imports and Consumption
of Chemical Wood Pulp (1961-2005)
World Market Share of Chinese Import and Consumption
of Chemical Wood Pulp(1961-2005)
Market Share of Import
Market Share of Consumption
20.000%
18.000%
16.000%
14.000%
12.000%
10.000%
8.000%
6.000%
4.000%
2.000%
20
03
20
00
19
97
19
94
19
91
19
88
19
85
19
82
19
79
19
76
19
73
19
70
19
67
19
64
19
61
0.000%
Year
ƒ Share of import has been twice the share of consumption
since early 1980s
ƒ Wood pulp consumption was less than 7% of world total by
2005, but its imports accounted for about 18%
ƒ Canada, Indonesia, Russia, Chile, USA – main
exporters to China
Recycled Pulp
ƒ China’s recycled pulp usage reached 28.8M Mt in
2005
ƒ Recycled pulp has accounted for over half of the
pulp used in paper and paperboard production
Import of Waste Paper and Paperboard
(2000-2005)
China: Import of Waste Paper & Paperborad,
2000-2005
Million tonnes
20
15
10
5
0
2000
2001
2002
2003
2004
ƒ Import of waste paper increased at an
average rate of 35.6%
ƒ Growth from 3.71M Mt to 17.03M Mt
2005
Sources of Imported Waste Paper and
Paperboard to China (thousand tons)
ƒ USA, Japan, UK and
Netherlands - 78% of total
in 2005
ƒ US imports - 44% of total
imports in 2005
ƒ Imports of waste paper
from Japan, Netherlands
and UK grew at a rate of
more than 100% per year
between 2003 and 2005
Source
2000
2001
2002
2003
2004
2005
USA
2598
4060
3978
5769
6233
7480
Japan
52
555
966
948
1915
3063
United
Kingdom
5
94
167
362
802
1545
Netherlands
139
343
254
385
781
1191
Source: UN Comtrade Database
Production and Consumption in Paper and
Paperboard Market (1961-2005)
Production and Consumption in Chinese Paper and
Paperboard Market (1961-2005)
Production
Consumption
70.00
60.00
50.00
40.00
30.00
03
20
97
00
20
19
94
19
91
19
88
19
85
19
82
19
79
19
76
19
73
19
70
19
67
19
64
19
61
20.00
10.00
0.00
19
(Unit: Millions of Mt)
ƒ Production in 1979 was
6.32M Mt, and 56M Mt in
2005
ƒ The gap between
domestic production
and consumption was
2.50M Mt in 1995 and
reached 6.39M Mt in
1999 at the peak
ƒ Since 1999, the gap has
declined due to
increased capacity in
China; the gap became
3.30M Mt in 2005
Year
Data Source: FAO
World Market Share of China’s Consumption
World Market Share of Chinese Consumption(Paper and
Paperboard)
World Market Share of Consumption
18.000%
16.000%
Percentage
14.000%
12.000%
10.000%
8.000%
6.000%
4.000%
2.000%
19
6
19 1
63
19
65
19
67
19
6
19 9
7
19 1
73
19
75
19
77
19
7
19 9
8
19 1
8
19 3
8
19 5
8
19 7
8
19 9
9
19 1
9
19 3
95
19
9
19 7
9
20 9
0
20 1
0
20 3
05
0.000%
Year
Data Source: FAO
ƒ Production of paper and paperboard increased to 15% of world
market share in 2005
ƒ The share of total consumption was close to 17% in 2005
World Market Share of Chinese Imports
(Paper and Paperboard)
World Market Share of Chinese Import(Paper and Paperboard)
World Market Share of Import
14.000%
Percentage
12.000%
10.000%
8.000%
6.000%
4.000%
2.000%
19
6
19 1
6
19 3
65
19
67
19
69
19
71
19
7
19 3
75
19
7
19 7
7
19 9
81
19
8
19 3
8
19 5
8
19 7
8
19 9
9
19 1
93
19
95
19
97
19
99
20
0
20 1
0
20 3
05
0.000%
Year
Data Source: FAO
• China accounted for more than 12% of the total world
import of paper and paperboard in 1997
• Sine then, the share of imports has been declining, and
become less than 9% in 2005
World Market Share of China’s Export
(Paper and Paperboard)
World Market Share of Chinese Export(Paper and
Paperboard)
World Market Share of Export
5.000%
4.500%
4.000%
3.500%
3.000%
2.500%
2.000%
1.500%
1.000%
0.500%
0.000%
19
6
19 1
6
19 3
65
19
6
19 7
6
19 9
71
19
7
19 3
75
19
7
19 7
7
19 9
81
19
8
19 3
85
19
8
19 7
89
19
9
19 1
9
19 3
95
19
9
19 7
99
20
0
20 1
0
20 3
05
Percentage
ƒ Small world market
share of paper and
paperboard exports
ƒ Negligible share
before 1990s
ƒ Since 1992 market
share has stabilized
at 4%
ƒ Steady increase of
exports since 2000
ƒ Magnitude is much
smaller relative to
imports
Year
Data Source: FAO
Biggest Exporters of Paper to China
(1,000 tonnes)
Country (Area)
USA
South Korea
Japan
Indonesia
2000
2001
2002
2003
2004
2005
898
607
685
686
733
658
1166
1073
895
854
849
601
469
457
476
432
468
413
755
495
652
561
478
375
Source: UN Comtrade Database
ƒ United States was the biggest exporter to
China in 2005, followed by South Korea
ƒ Declining imports since 2003, except for
linerboard
Demand for Paper and paperboard
ƒ Estimated income elasticity of demand for
domestically made paper and paperboard is about
1 - demand increases at the same speed as the
economic growth
ƒ Domestic demand responses to international
price, shows elasticity of about 0.6
ƒ Demand for imports is not sensitive to domestic
price, indicating that domestically made products
may not be used as substitutes for imports
ƒ Demand for imports is about unitarily elastic to
economic growth
ƒ Estimated own-price elasticity is -0.6
Tariffs on Pulp and Paper Products
Grade
Jan. 1 2002
Upon WTO’s
Accession
(%)
2002
(%)
2003
(%)
2004
(%)
2005
(%)
2006
(%)
Newsprint
12.0
11.0
8.5
8.5
7.5
5.0
Printing & Writing
Paper (Uncoated &Light
Weight)
9.0
7.5
7.5
7.5
7.5
7.5
Printing & Writing
Paper (Uncoated
&Heavy Weight)
8.5
6.8
5.0
5.0
5.0
5.0
Household & Sanitary
Paper
11.3
9.4
7.5
7.5
7.5
7.5
Data Source: http://fuwutong.asiaec.com/fuwuzixun/bzys/fgbz/345746.html
ƒ Prior to WTO accession import tariffs were
lowered to 15-20% in 2001
ƒ Based on the WTO requirements, the tariff
continued to decrease to 10-15%
Tariffs on Pulp and Paper Products
Continued
ƒ In 2006 tariffs reached 5-7.5% for most products,
and 2% for some products
ƒ Market pulp and waste paper, no tariffs from 1999
ƒ However, to protect domestic paper market,
Chinese Ministry of Commerce:
9 Imposed 4%-71% anti-dumping duties for 5 years on art
paper imported from Japan and Korea – 2003
9 Levied 55%-78% anti-dumping duties for 5 years on
newsprint imported from Canada, Korea, and the USA 2004
Government policies to attract
foreign investment
ƒ
ƒ
Normal profit tax rate is 33%.
For foreign investment, tax-free in the first two years, plus
half-tax reduction for the next 3 years
ƒ Another 15%-30% tax reduction in the subsequent 10 years,
if business is in the forestry
ƒ Generally preferential tax rate for foreign investment is 1524% (for domestic firms, 18-27%.)
ƒ However, proposed unified tax rate for all firms is 25%.
ƒ foreign investors can invest:
9 300,000 Mt or more annual capacity of chemical wood
pulp
9 100,000 Mt or more annual capacity of mechanical wood
pulp
9 high quality paper and paperboard
Capacity in China
ƒ New and advanced machines are
built rapidly in China.
ƒ For example: average annual growth of newsprint
(2001-2005):
9 Production - 19.35%
9 Consumption – 14.48%
ƒ Production (3.4M Mt.) exceeded consumption
(3.2M Mt.) in 2005
Capacity in China
ƒ 11 provinces produced 1M Mt or higher, and
together they contributed about 88.62% of total
paper production (2005)
ƒ Top 4 provinces in paper production were
Shandong, Zhejiang, Jiangsu, and Guangdong
ƒ Regional distribution of production:
9
9
9
Eastern region - 73.3%
Middle region - 21.5%
Western region - 5.2%
Consolidation in the Industry
Number of Listed Enterprises
30
Number
25
20
15
10
5
0
1998
1999
2000
2001
2002
2003
2004
2005
ƒ 4000 enterprises in China with average annual
capacity merely 8,000 Mt/year (2001)
ƒ Number of enterprises dropped to approximately
3,500
ƒ Increased number of publicly listed companies
Loss-making Listed Enterprises / Total
Listed Enterprises
Loss-making Rate
Rate of Loss-making Listed Enterprises
in Pulp & Paper Industry
0.25
0.2
0.15
0.1
0.05
0
1998
1999
2000
2001
2002
2003
2004
2005
ƒ Jump in the proportion of loss-making listed
companies
Revenue Growth
Growth Rate of Revenue from Main Products
120%
100%
80%
60%
40%
20%
0%
1999
2000
2001
2002
2003
2004
2005
ƒ Among listed companies, revenue growth is still
high, in the rage of 20-30% on annual basis
P rofit of M ajor O perations / Inc om e of M ajor
O perations
Profit Rate of Main Products
Profit Rate of Main Products
0.25
0.2
0.15
0.1
0.05
0
1998
1999
2000
2001
2002
2003
2004
2005
ƒ The profit rate is mostly in the rage of 20-25%
ƒ Slight down trend after 2002, and dropped to
below 25% in 2005
Labor Cost
Labor Cost / Total Cost
Rate of Labor Cost
0.1
0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0
1998
1999
2000
2001
2002
2003
2004
2005
ƒ Advantage of low labor cost is insignificant due to
the low proportion of labor cost in the total cost
ƒ 1998 - labor accounted for about 9% of total cost
ƒ 2005 – labor cost dropped to around 7% of total
cost
Trend of Average Wage
Average Wage
30000
25000
RMB
20000
15000
10000
5000
0
1999
2000
2001
2002
2003
2004
2005
ƒ Fast growth of wages
ƒ Increase in average wage from RMB 8,000 in 1999
to RMB 24,000 in 2005, two times higher in 6 years
RMB(Thousand)
Labor Productivity
Total Revenue from Main Products / Worker
￥500
￥450
￥400
￥350
￥300
￥250
￥200
￥150
￥100
￥50
￥0
1999 2000 2001 2002
2003
2004
2005
ƒ However, labor productivity increased almost at
the same speed as wage
RMB(Thousand)
Total Profit per Worker
Total Profit from Main Products / Worker
￥90
￥80
￥70
￥60
￥50
￥40
￥30
￥20
￥10
￥0
1999
2000
2001
2002
2003
2004
2005
ƒ Profit per work increased, while at a slower speed,
from 32,000 RMB to 82,000 RMB for 1999-2005
An Old and Small Paper Mill
ƒ
ƒ
ƒ
ƒ
Located in Hunan province
Annual output of paper is about 30,000 tons
September 2001 – the company was privatized
70%-75% of products are sold in China; 25%-30%
exported, mainly to Middle East
An Old and Small Paper Mill
Continued
ƒ Owned fixed assets of 52.8 million Yuan RMB
ƒ Annual revenue has reached about 120 million
Yuan RMB
ƒ There are about 500 employees, and about 173 of
them are production workers
An Old and Small Paper Mill
Continued
ƒ
ƒ
ƒ
Situated by the Dongting Lake
Because of the lake, the region has plenty of reeds
The local area can produce 120,000 tons of reeds
per year to supply fiber
A modern paper company in
China
ƒ Located in Hunan Province
ƒ Ranked 357 among 500 Chinese largest
enterprises (2005)
ƒ Production capacity
9 5 production bases
9 12 pulping lines with annual capacity of 800,000 tons
9 28 paper making lines with annual capacity of 800,000
tons
A modern paper company in China
Continued
ƒ Main products - newsprint, pigment paper, lightweight
coated paper (LWC), writing paper
ƒ Fibers are from wood and reed
ƒ Employees – 10,026; 1,200 engineers and technical workers
ƒ Products are sold in China, Asian and East African regions
ƒ Production in 2005 - 642,800 Mt of paper and paper board
(18.8% increase over 2004)
ƒ Revenues - 4.2 billion RMB (40% increase)
ƒ Profit - 0.19 billion RMB (15% increase)
ƒ Annual production projections – year 2020
9 Market pulp – 4 million tons
9 Paper – 4 million tons
9 Paperboard – 1.5 million cubic meters
Conclusions
ƒ Market potential for paper/paperboard
is huge
ƒ Imports will dominate exports for
foreseeing future
ƒ Rapidly increase in modern capacity
will raise China’s exports
ƒ Industry consolidation will continue