Then there is daily news, a selection of which reports that:

• The British paper industry has cancelled its biennial October tradeshow due to lack of support;
• China's economy will overtake those of North America and Europe;
• Voith has downsized its US operations;
• California is technically broke
• The US deficit has risen to just over $450 billion and is rising.

I'm interested in all of these, but mostly in China's expansion and the US deficit. Readers of this magazine may choose differently. Please mail me with your choice.

Chinese Expansion
Paper production is now around 33 million tons per year (tpy) and consumption is nudging 38 million tpy. It is number one in Asia and has parity with the US and Europe. The country has moved from being a nation of bicycle repairers to become a leading member of the world's industrial and financial club.

Western manufacturers have moved their operations to China, and all the leading paper and board manufacturers and suppliers have serious investments there—it's cheaper than manufacturing at home.

At first, western paper companies seem mainly interested in building their mills and selling their products in China's domestic market, which with more than one billion people seems insatiable. But in time, when that market has been met, will those mills start exporting to other parts of Asia, North America and Europe?

Despite the shipping distances and costs, these Chinese-based, but western-owned mills may still find it profitable to sell in those markets. For example, will an IP or G-P mill, based in China, be able to profitably serve the markets of Pacific America? It seems to work in other industrial sectors like white goods, clothing, children's toys and shipbuilding. But I'm a skeptic of the Chinese "miracle." I've been there twice in the last eight years, visited nine mills—some with foreign investment—toured nursery plantations, and met with Chinese bureaucrats in the association. The effort to modernize is immense, the capital stratospheric, and the drive for efficiency ruthless.

I question whether: (a) Chinese mills can ever grow enough forests, (b) achieve western-style quality, and (c) remain a cheap place to make paper. The Chinese currency, the renminbi, is fixed at present, about eight to the $1. But there are demands for the renminbi to be floated on the world's exchanges. That will make the currency more expensive and will erode China's low-cost attraction.

Many industries, including paper and board, still get state aid, which in many ways is now illegal. It is also unfair competition. In addition, the playing field is not level; it tilts in China's direction at present. It joined the World Trade Organization (WTO) 18 months ago and has yet to comply with the rules of free trade. Import tariffs on a wide range of goods remain in place.

And I have not yet met any paper industry CEO who says he's making money there. So for all these reasons, I don't think China will be the outboard motor that will propel the world's quality-led, value-added manufacturing base.

US Deficit
This is something I don't fully understand, but it is an unsettling background for an economic "bounce." However, the paper and board industry has downsized, stripped out layers of management, started to make grades that people want, and is getting more out of its workforce and machinery. The industry still needs massive investment to phase out old machinery and to modernize to European levels.

But all the elements for a recovery in the US paper and board industry are in place. For that recovery to begin certain markets, mainly China, India and Japan, must play by the rules of free—and fair—trade, and allow US paper and board companies to compete on equal terms. Then the investment needed to power-up new US paper and board production will start to flow. The AF&PA is already on the case, so do what you can to support it.