As you may have noticed, that RISI has for the first time nominated an institution, not an individual, at the top of its annual Power list for 2018, that is government of China. Partly it is relating to China’s ban policy on the imported waste paper which has brought significant impact not only to Chinese producers but also to the global paper industry. NC Partnering is experienced partner in doing business in China and out of China. In our partnering network there are several experts working in China for Chinese entities. NCP can be a gateway to bridge you to China and on the other hand help Chinese entities reaching out rest of the world.
As the world 2nd largest economy also the biggest paper producer and consumer, China is trying utmost effort to strengthen its macro policies to guide its Pulp & Paper players. This article is aimed to update you the latest development in Chinese Pulp & Paper Industry and hopefully it gives some help to those who are doing business or have the intention to do business in China.
1. Pulp & Paper Industry 13th 5-year plan
China has a 5-year plan system for its macro economy development, currently it is under the 13th 5-year plan (2016–2020), the guidelines for Pulp & Paper industry are:
- Implement innovative development strategy to accelerate the transition of the paper industry to high-tech and high-value added direction;
- Further promote industry integration, make full use of domestic and overseas resources and improve the structure of raw materials.
- Promote resource recycling, strengthen cleaner production, focus on energy saving and emission reduction, advocate green and low carbon consumption.
It is clear China is pursuing “upgrade” for its Pulp & Paper industry, meaning more from improving quality aspect and not quantity for healthy industry development.
2. Tighter environment protection policies
Chinese president Mr. Xi Jinping pushed hard to build a beautiful China and no doubt China is fighting against pollution seriously. Statistics show that the paper industry is the second largest source of waste water, and the discharged COD is the highest among all industries in China. Correspondingly, the paper industry’s economic contribution is only 2.2%, and this 2.2% brings 14.4% of wastewater and 33.0% of COD emissions, naturally this results in the policy makers to set tighter emission limits towards paper industry, e.g.: in sensitive regions the emission limit for COD could be lower to 40–50 mg/l.
Waste paper import ban started in July 2017 and will definitely continue, the purpose is also to limit the environment impact from paper industry. The imported waste paper in 2018 was 21 million tons, which is 60% of 2017, the acceptable contamination limit goes down from 1.5% to 0.5%. The latest information is China plans to stop importing any recycled paper by 2021, currently there is a clear gap between demand and supply since domestic waste paper classification system is not well established yet.
China government highly appreciates “clean technologies” to be introduced to Chinese Pulp & Paper industry, and has the great ambition to build waste paper classification system in society.
3. Capacity integration continues and new investment is slowing down
During the 12th 5-year (2011-2015) China has eliminated backward paper capacity of 40 million tons and target for new closure will be another 8 million tons during 2016–2020. The market share of leading players steadily increased, the CR10 increased from 28.7% in 2011 to 39.9% in 2017, and industry integration continued to increase. More consolidation foreseen mainly due to demanding environment requirement and competition. Target is to have top 15 players with over 2 million tons capacity annually by the end of 2020.
The assessment for new P&P investment has been more demanding than before, not only from emission mass loading control aspect, but also from raw materials source, land use, water and soil conservation, energy saving, social impact, etc., pulp or paper mill self-owned power plant is not permitted any more, the environment protection taxation is implemented, which finally increases the costs and lower the competitiveness, thus indirectly impact the new capacity adding.
4. Safe supply of raw materials has become a priority
It is fair to say China was the most active country in building up new paper capacities in last decade, yet it faces an embarrassing situation that it is lack of own raw materials, both for virgin fiber and recycled paper, it is interesting to know the 3rd largest foreign exchange use in China is to import raw materials for Pulp & Paper industry, there China’s action plans are:
- Develop and improve the structure of raw materials, to increase domestic plantation and pulp production as well as the proportion of wood fiber. Adequate commercial forest is an extremely difficult objective to achieve for China. There are two major reasons: Firstly, China’s raw material demand is too large; Secondly, China’s raw materials construction owes a lot of debts. From a realistic perspective: China has big challenges in balancing maximizing commercial forest land and the forest farmers’ income;
- Improve domestic waste paper utilization and recycling rate, strengthen the classification management of waste paper recycling
- Encourage to import logs, chips and wood pulp; to encourage Chinese companies to establish forest resources abroad, or invest large scale fiber base overseas.
An obvious phenomenon is that in order to ensure the safety of raw materials, in recent years, several Chinese pulp & paper industry giants have carried out production capacity overseas, including the construction of new pulp mills or the acquisition of second-hand pulp mills, as well as supporting paper mills. Despite of different risks of investment aboard, the trend may continue in coming years.
5. Main challenges for Chinese Pulp & Paper Industry
The biggest challenge for Chinese P&P industry is of course the serious shortage of domestic raw materials, especially for virgin wood pulp, it is estimated China has a deficit supply of 10 million tons of pulp annually today. Low recycling rate of waste paper (weak classification management system), together with waste paper import ban is another clear challenge. Other challenges are tighter environment protection requirement and increased different resources fees, which result in overall manufacturing cost is getting higher.
Going for more environment friendly, high-quality and value-added products, will and should always be the direction of Chinese Pulp & Paper industry, like in any other countries. How to secure the raw materials source, perhaps is an add -on challenge to most of the Chinese players in the industry. Overall speaking, as the inventing country of paper, China should still be optimistic to its future. One Chinese popular saying may match China’s determination on Pulp & Paper industry: “Pressure generates power, solutions are always more than difficulties”.
Challenges could sometimes be turned into business opportunities if you are sensitive and persistent enough, we as NC Partnering have broad connections to Chinese society, and if you would like our help to enter into Chinese Pulp & Paper field, we are ready to assist you.
Source: NC Parnering Newsletter, 2019-01-31.
Author: Jin Hailiang