China: Paper dragon

The Chinese paper packaging products sector is in a state of change. Until a few years ago China was a net importer of packaging material. Now, it is a net exporter in a range of packaging product grades such as linerboards, in which the volume of the exports has almost doubled in recent years. In other areas, such as SBS (solid bleached sulphate) liquid packaging products, China is still a significant importer, but beginning to export reasonable volumes of some SBS grades with greenfield production plants coming online in the not too distant future.

China is expanding. Growing internal demand is marching along at 9% and new equipment is being installed to meet the changing needs of the Chinese local market. The future impact on Europe is that China is quickly becoming the most important packaging market in the world and, therefore, will most likely become the source of a wide range of paper packaging products.

In the last two years, China has passed Japan as the second biggest paper packaging market in manufacturing, consumption and export. It only trails behind North America, which is now a shrinking market.

There is a general perception that products made in China are somehow either inferior in quality or manufactured with scant regard to environmental standards that we would take as the norm in western countries. The case of the pulp and paper industry is a classic case in point where the Chinese industry has been characterised as one with old equipment and poor standards.

The truth is that the Chinese industry is in a period of volume and ecological transition that has been occurring over the past decade or even less. The Chinese economic growth period really began in earnest at the turn of the century. China was given a massive kick along by the International Olympic Committee announcement in 2001 that Beijing would host the 2008 Olympic Games. At that single point in time the Chinese government made the commitment that China would have world standard business organisations by the time the Olympics came around.

Up until that date the pulp and paper industry in China was the archetype developing country industry model: one that was based on cheap labour and relatively easy to set up business partnerships. The goal of western firms setting up operations in China was that the products would be cheap and would target the global export markets. Companies were not generally worried about the quality of the products coming from China at that time, so long as they worked and were cheap. If customers wanted quality products they would have to pay more from existing European or North American manufacturers. It was how western companies could have their cake and eat it.

There was an interesting development about two years after the Olympics in China when the government announced that the future focus would be on the internal demand of the Chinese economy and there would no longer be a single-minded attention to exports. China would not be a “cheap factory for the west”.

Hand in hand with this announcement, was the requirement to make industry cleaner, profitable and more efficient.

The Chinese government has been putting in place a number of strategies to deal with an industry in transition. One of the most controversial is the forced closure of what is termed “backward” capacity. Effectively the government aims to compel aggressively the closure of old, polluting and inefficient paper making operations in both regional and city areas. In the current set of targets the government aims to shut down about six million tonnes of backward capacity over the next couple of years. The point that should not be missed is that the demand for Chinese paper is growing at around four million tonnes per year. So to satisfy the growth imperative and at the same time replace the polluting backward capacity, the Chinese industry needs to install about 15 million tonnes of capacity over the next few years. Manufacturers of paper making equipment, almost all in Europe, are rubbing their hands together with joy.

European customers who had traditionally sourced paper packaging products from Europe and North America are now seeing the Chinese manufacturers as a possible alternative. The fact the speed of shipping, product quality and environmental values are all at levels that would be suitable for a sophisticated market, such as Europe, is certainly providing a more competitive market place – which can only be a good thing for the industry as a whole.

Views expressed on this page are those of the author and may not be shared by this publication.