By Annie Zhu, Associate Editor, Pulp & Paper International magazine
BRUSSELS,
June 30, 2009
(RISI) -
It is no longer news that the Chinese pulp and paper industry on the whole has bottomed out this year. It seems there is a recovery taking place in general of the country's economy, and in the pulp and paper industry we are seeing a resumption of negotiations for new projects, higher rates of operation at most mills, as well as increasing finished pulp prices and product prices.
"China's paper and board production reached 26.74 million tonnes during January to April 2009, up 2.1% compared to 2008," says Fan Jianping, chief economist, China's State Information Center (SIC), at the 2009 Paper Industry Sustainability Forum: Paper Contract with China, held in Suzhou, Jiangsu Province on June 18, 2009. SIC is a Chinese government policy making think tank affiliated to the National Development and Reform Commission (NDRC).
Bad image
When growth is not in question, then its "whether China's pulp and paper industry can see sustainable growth" that becomes a key topic, which was also well discussed at the one-day forum, among government officials, associations, universities, and also paper producers.
China's paper and board industry traditionally doesn't have a good image from an environmental point of view.
"The pulp and paper industry's waste water discharge accounts for 10-12% of China's total waste water discharge, ranking top among all industries. What's more, COD discharge in the industry accounts for 40-50% in the country, also ranking top among all industries," says Feng Bo, Department of Science and Technology Standards, Ministry of Environmental Protection.
However, the data can't reflect the whole industry, especially the new and large scale mills with high technology and big investment in environmental protection, as the pollution is caused mainly by many inefficient, outdated pulp and paper mills.
"Out of China's 3,494 paper mills in 2008, the number of small mills was counted as 3,081 while the number of the medium and larger scale mills is 413. However, the 413 mills account for 80% of the total production, but contribute less than one third of pollutant discharge in the industry," says Zhao Wei, secretary general of China Paper Association.
Government restrictions
Already, the country has launched serious measures to shut down inefficient, outdated pulp and paper plants across the country, to reduce pollution, conserve water resources and save energy.
Back in 2005, the country's State Council mandated the closure of 6.5 million tonnes of capacity as part of its eleventh five-year plan, covering the period 2006-2010. PPI Asia reported in May 2009 that the country is now aiming to shut 7.5 million tonnes by the end of 2011. Some reports even say that the country will close 8 million to 10 million tonnes of capacity by then.
As part of its policy of mandated closures, in 2007 the Chinese government ordered the shutting of all nonwood pulp lines with an individual capacity of 34,000 tonnes/yr or less.
Also targeted for closure were wood pulp lines with capacities of 17,000 tonnes/yr and below, as well as small paper and board machines and recovered paper processing equipment with capacities of 10,000 tonnes or below, that failed to meet environmental standards.
Most of the capacity in the firing line was and is integrated, with mills using nonwood fiber (such as straw, reed, bamboo and bagasse) and local wood (like poplar) as furnish to produce low quality grades, mainly printing/writing paper, tissue and chipboard.
"China closed 2,018 mills in 2006 and 2007, with a total capacity of 4.5 million tonnes. While in 2008, China shut 1 million tonnes capacity in the paper industry," adds Zhao.
In addition, the country launched a new Discharge Standard for Water Pollutants in May this year, with an aim to tighten restrictions on COD discharge of both existing mills and new mills, and to shut non-compliant businesses, which in turn will benefit the sustainable growth of the industry and those companies with good environmental track records. The standard will be further tightened in July 2011.
"China aims to reduce the COD discharge from 2005's 1.6 million tonnes, to 1.4 million tonnes by 2010," says Feng.
Feng also believes that the financial crisis will not only accelerate changes to the country's industrial structure, but also promote the development of a new economic model.
"However, insufficient enforcement, small penalties for pollution breaches, and also local government protection of polluting mills, are the challenges we face in implementing the regulations," says Zhao.
From APP's point of view, their investment in environmental protection has helped the company to save costs on the whole. "Gold East has spent RMB 1.15 billion ($168.4 million) on environmental projects, accounting for 5% of the company's total investment. However, the company gets more than RMB 100 million ($14.6 million) annually in return for the investment, for example, on energy and water saving, waste water recycling," comments Seng Fong Wu, president of Gold East Paper.
Plantation-Pulp-Paper integration
Other topics the forum touched upon included the "Plantation-Pulp-Paper integration" model that the country has promoted over the years. China, which heavily relies on wood pulp imports with up to 10 million tonnes/yr imports, is exploring a new model in pulp and paper production.
However, the new model has aroused concerns and controversy across the country, in terms of damaging the natural environment and polluting local water resources and so on.
"China has the world's largest planted forest, however the production is among the lowest, due to lack of investment and high tax, which is a potential area for further development. The forest industry needs a further 8,600 workers," says Xu Da Ping, Institute of Tropical Forestry, Chinese Academy of Forestry.
China officially launched the "National Plantation Pulp & Paper Integration Project five year plan" in 2004. The country aims to add 5.55 million tonnes of pulp (wood pulp at 4.35 million tonnes, bamboo pulp at 1.2 million tonnes), to add 5.6 million tonnes of paper capacity, and to add 3 million hectares of planted forest for paper making (wood at 2.64 million hectares, bamboo at 360,000 hectares) by 2010, compared to 2005.
So far, many big industry players, both local and also foreign, have joined the project, with an aim for further expansion and to secure resources in the long run, including APP, though it will take years to harvest the plants.
"APP has planted 4.69 million mu (310,000 hectares) of forest in Guangdong, Guangxi, Hainan, Yunnan, Henan, Hunan, Jiangxi and Liaoning in China, since 1990, in 13,370 plantations, with an aim to protect species diversity and also local environment," says Jiang Guoshen, general manager of APP China Forestry.
APP's investment is obviously welcomed by local governments, for example, Qinzhou city in Guangxi province. According to Xu Huiyao, director of Guangxi Qinzhou Forestry Administration, APP plans to build 3.1 million tonnes of cartonboard lines and 1.8 million tonnes of pulp lines at a greenfield site in Qinzhou. The first phase is 600,000 tonnes of cartonboard and 300,000 tonnes of pulp.
"The project will hugely benefit our local economy, and will bring RMB 1 billion ($146.5 million) revenue for us when the project is finally completed, while our city's current revenue is RMB 2 billion ($292.9 million) to RMB 3 billion ($439.4 million)," says Xu.
There are other options for solving the bottleneck of China's pulp resources. One option is to invest abroad, in the view of some officials.
"China has high foreign reserves, and I think it might be wise to buy an integrated mill in Brazil, for example, as a strategy to help our own industry," says Xu.
Another issue related to forestry is certification. So far, China hasn't established an official forest certification system and doesn't recognize other certifications in the country, though some companies in the country have acquired FSC and PEFC certifications for export purposes.
In March 2009, the country launched its "China Forestry Certification Practice Regulation" as part of the initial steps to regulate the local industry.
"China plans to start its own forestry certifications next year, based on FSC and PEFC. We plan to start a conversation among 30 countries in April 2010 about the issue," says Shi Feng, vice general secretary, China National Forestry Industry Association.
New investment
Additionally we visited Gold Hongye and Gold Huasheng, as a show case on APP's achievements in environmental protection in the country.
Various resources during the forum and during the visit show that most of APP's big projects in China have resumed construction and the industry giant is on the track for further expansion again, in Hainan, Sichuan and also Guangxi. Many of its projects were put on hold last year amid the world financial crisis as well as uncertainty about the country's economy.
In addition to the resumed construction work for a new 1 million tonne/yr fine paper machine, PM 2, at its mill in Hainan, APP's China tissue business head, Hsu Hsi Tuu, says that APP plans to expand its current tissue capacity at 500,000 tonnes to 800,000 tonnes in two years' time.
"The expansion will locate in Northeast China, Sichuan Yaan (60,000 tonnes), Shenyang (60,000 tonnes), mid- China (60,000 tonnes) and also Suzhou (120,000 tonnes)," says Xu.
What's more, Gold East's IPO has just been approved by the Chinese government, confirms Wu. "The company is expected to list either at the end of this year or early next year, depending on the Chinese market," adds Wu.
APP seems to be taking a lead role in China to communicate with the public to promote a new image of the paper industry, and the company is clearly supported by the country's officials and local government. A company that has had an incredible and rapid rise like APP is bound to attract some criticism and it is no stranger to controversy, especially over its fiber supply which is monitored, analyzed and scrutinized on an almost daily basis by every environmental group in the region and beyond.
"We welcome every party who is interested in our business to come to our forest and are ready for any challenges," says Jiang.
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