Industry grows thanks to government subsidies, report says
By Peter A. Buxbaum, AJOT
China has emerged in recent years as a global leader in paper production. In 2008, is overtook the United States to become the world’s number one producer of paper and paper products.
According to China’s National Bureau of Statistics, the domestic industry’s output increased to 83.9 million metric tons in 2008, up 9.6 percent from the previous year. In 2009, China produced over 17 percent of the world paper industry’s total output and exported $7.6 billion in paper and paperboard. Since 2000, China has tripled its paper production capacity, far outstripping domestic demand and necessitating aggressive export programs.
Despite the rise in domestic demand for paper, thanks to a booming economy, China had been poised to become a net exporter of paper and paper products in 2008. Only the global recession and the fall in global demand curtailed that development.
Still, in 2010, China has by far the fastest-growing paper industry in the world. But China also has among the smallest forestry resources as a percent of land to support this industry’s expansion, lower than India, for example, which had a paper production industry comparable to China’s a decade ago. According to statistics provided by the U.S. International Trade Commission 2010, India ranked 24th in exports of paper to the United States, while China has emerged as and the second-largest exporter to the U.S., only behind Canada.
Meanwhile, the U.S. trade deficit with China on paper products has increased dramatically since 2002. In February 2010, the annualized growth rate of Chinese paper and paper-product imports into the United States reached 22 percent. Imports of paper from China are rising faster than those from any other country.
What makes these facts remarkable is that China has no competitive advantage in the paper production industry and lacks the natural resources to fuel it. China also has among the smallest forestry resources in the world to support the industry’s expansion, necessitating the importation of the bulk of its raw materials at world prices. But Chinese paper producers sell at prices a good deal lower than those in the United States or European Union and growing numbers of Chinese paper producers are losing money.
What has enabled Chinese paper producers to achieve this state of affairs has been a multifaceted regime of government subsidies, the subject of a report recently released by the Washington-based Economic Policy Institute entitled, “No Paper Tiger: Subsidies to China’s Paper Industry From 2002 to 2009.” According to the report, government subsidies to China’s paper industry amounted to $33.1 billion from 2002 to 2009.
The investments in paper production capacity in China is not exactly a stellar case study. The EPI report demonstrated that China’s paper industry has limited economies of scale and scope, has no natural competitive advantage in paper making, lacks natural resources, and presents no inherent cost advantages.
Over 88 percent of China’s paper producers are small and the remainder are medium-sized. “The top 10 companies in China control about 20 percent of the total domestic market with the balance spread across a range of small, inefficient companies,” the report noted. “The industry is geographically fragmented as well, operating in 30 provinces.”
China’s forest base is among the smallest in the world per capita. With 432 million acres, China ranks fifth in the world in terms of total forest reserves. The United States, with almost twice the total forest reserves of China, ranks fourth. With respect to forest land per capita and forest coverage as a percentage of land, China falls 40 percent below the global average.
“Consequently, the country is the largest importer in the world of pulp and recycled paper,” said the report.
Labor makes up about 4 percent of the costs in China’s paper industry. Imported recycled paper and pulp comprise over 35 per