Will China become Asia's next major containerboard exporting country?

By  Alex He, Economist, Asian Packaging Service, RISI

SHANGHAI, June 19, 2008 (RISI Economists) - Numerous hot topics were addressed at the recently completed RISI Asian Pulp & Paper Outlook Conference in Shanghai including: the high price of oil and coal, the weakening US dollar and the seemingly non-stop rise in prices for recovered paper. But one additional topic I frequently heard from both Chinese containerboard producers and major international paper traders was how difficult it has become for Chinese mills to export their containerboard, especially since April 2008 when the Chinese government announced their latest policy on the so-called "process trade" practice.

Process trade, a very popular practice adopted by many Chinese containerboard mills, especially in the Pearl River Delta area, is divided into two forms of practice. The first is for those mills that import recovered paper/pulp, make it into containerboard and then sell their board to consumer products companies, who use the board to package their products for export. The other form is for those mills that import recovered paper, make it into containerboard and then directly export the containerboard in reels or sheets. According to the latest policy, this latter form of practice has been simply banned since April 2008. Of course, Chinese mills could always export their board under regular trade practice. However, under regular trade practice, mills have to pay 17% VAT for imported materials (OCC and pulp). Containerboard producers have needed to increase their export prices to cover this additional cost, making them uncompetitive on the international market.

Let us shift our attention back to Chinese containerboard exports. Compared with the other major Asian containerboard exporting countries (South Korea, Taiwan, Indonesia and Thailand), China's recycled containerboard exports (which includes both recycled liner and medium) grew from a very low base of only 20,000 tonnes in 2002 to 400,000 tonnes in 2007. This yielded a five-year (2003-2007) compound annual growth rate of 77%. RISI estimates that from 2002 to 2005, recycled liner and medium claimed an equal share of China's overall containerboard exports. However, a shift began in 2006, and by 2007, recycled medium exports accounted for more than 85% of China's total recycled containerboard exports.

This is an excerpt from a full story that is available in RISI's PPI News Service.

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