China's recent announcement that it will spend $24 billion in the next six years in a forestation and papermaking program is the largest investment in the history of papermaking. Has anyone noticed?
The above news came from the official Chinese news agency, Xinhua, on 20 February (www.chinaview.cn). This magazine (PaperAge) reported the item on its Web site, but few other journals did so. Those that did failed or were unable to make any sensible comment. History is happening here, not only in China but also in the US.
The facts and the numbers are startling, and the implications awesome. Will the US lose its primacy in the forest industry to a developing country with a population of 1.2 billion, but whose economy is only the size of Italy's? The US trade deficit with China is around $500 billion.
China says it plans to:
- Plant 5 million hectares of fast-growing trees in south-east coastal areas
- Build a number of large-scale paper mills near those plantations
- Build three or four large scale pulp mills in the southeast, each with a capacity of 500,000 tpy, or more
- Build several bamboo pulp mills in southwest China, each with an annual production of between 100,000-500,000tpy
China needs this capacity. It says the investment is aimed "...at meeting the rapidly growing demand of paper consumption and easing mounting industrial pressure on the ecological environment." In 2003, China consumed 48 million tonnes of paper, which is about 16% of the world's total consumption. It currently produces about 33 million tpy and its net imports are around 5.3 million tpy. By 2010, paper consumption will reach 70 million tpy. By that time China hopes to add 5.5 million tpy of wood pulp capacity, which will still not be enough.
Modernization
As part of the modernization process, existing paper mills in north and northeast China will be upgraded. But around 1,800 mills with capacity of less than 17,000 tpy will be closed.
British consultants, Hawkins Wright (www.hawkinswright.com), state that these headline figures only scratch the surface of the Chinese market and disguise the fact that two distinct markets have developed over the last five years. One consists of "international quality" paper and board using wood pulp or high-grade wastepaper. The second consists of paper from non-wood fibers, i.e. straw, bagasse, etc., or locally sourced wastepaper.
Production of paper and board is migrating rapidly towards the modern, world-scale mills built since 1997. Their output has risen 250% in that time.
The "Old China" industry, mainly vast collectives, is being brutally dismantled. But its production still represents a significant proportion—about 45%—of China's production, and will do so for many years to come.
The demand for higher quality paper and board is growing from a low base. In 2002, the market for uncoated woodfree paper made from imported pulp was around 900,000 tonnes—only slightly more than in Belgium. Imported fiber, i.e. market pulp and wastepaper, provided nearly 80% of the "New China" industry fiber needed in 2002.
Finance
Expansion projects amounting to 75% of current New China production are financed or are already under construction. A similar number of projects are awaiting approval or finance. China's contribution to the most recent investment is a miserly $2.5 million. It assumes, probably correctly, that the balance will come from foreign investment.
The incentives for such investment improved last month at the annual meeting of the ruling Communist Party, where it was agreed that entrepreneurs and private property are vital to the economy (author's emphasis). This is a dramatic move towards a more capitalist China and reflects the massive social and economic changes after 25 years of free market reforms. So, foreigners, their money and resources are welcome and will enjoy legal protection.
Suppliers
Metso's annual report for 2003 says that China is now its largest single market—it supplanted the US for the first time. Metso already has three service and manufacturing sites in China and will soon have two more. Its orders from Asia jumped last year to 39% from 10% in 2002 and sales rose 24% from 15%.
Voith Paper also cited Asia (China and India) as one of its strongest markets. It reported that its weakest was North America.
I've blown hot and cold over China in the past. I still can't make up my mind. My problem is trying to predict, at this historic moment, if China will be the eternal consumer? No matter how much domestic capacity is in place, it will still not be enough to satisfy demand.
So my guess is that it unlikely for China to be a quality exporter to the West or a threat to North American or European market shares...for the moment. But keep watching.
