Dancing with the dragon.

China is rapidly becoming the 500-pound gorilla--or rather dragon--of the global paper industry. Having already subsidized a vast increase in papermaking capacity through loans to various companies, the Chinese government is set to spend US$ 24 billion over the next six years to fund new virgin pulp mills. Is this fair under international trade rules? Hard to say, but the rest of the world does not seem to be doing much about it. In the next 20 years or so, China may become the biggest producer of pulp and paper in the world. That means paper industries throughout the world must learn how to do business in a radically remade marketplace. In other words, in the future we'll be dancing with the dragon.

I saw some of that future first hand when I visited mills in China in September with a group of fellow editors. We saw three mills, each of which illustrated an important aspect of the Chinese pulp and paper industry:

Jiangxi Chenming mill, Nanchang, a greenfield LWC mill. The brand new Metso paper machine appears to be running well and has a capacity of 350,000 metric tons/yr of 48-70 gsm LWC, a relatively new grade in the Chinese market. The paper being made is of extremely high quality. The mill, a partnership involving Chenming Paper Co., Sappi, Shinmoorim, and an investment firm, is a good example of the joint ventures common in the Chinese paper industry that bring in foreign capital while maintaining control in Chinese hands. Significantly, the mill is located in Nanchang, a relatively underdeveloped city southwest of Shanghai. China's ability to develop inland cities like Nanchang is critical to bringing the headlong Chinese economic expansion--now focused largely on coastal areas--to the rest of China.

APP Ningbo Xiaogang. APP, an Indonesian company, has extensive operations in China and is building more, despite continued legal wrangling over its massive debt run up in a previous expansion. APP is known for thinking big, which makes it a good match for China. The machine hall for this world's largest containerboard machine is well over half a mile long. The five-headbox, two-shoe press, five-coating station Metso board machine produces rolls of 250-400 gsm paperboard that are about 15 feet high. The machine is 410 meters from headbox to winder. Design production is 2045 metric tons/day and 700,000 metric tons/yr. The site has room for four board machines and APP has the ambition to create the world's largest papermaking city on the mill site.

UPM Changshu, near the mouth of the Yangtze River. This is an utterly modern mill, producing about 800,000 metric tons/yr of coated and uncoated printing papers and copy paper on two machines. The mill was established in December 1995 in a joint venture with what is now called PM2. UPM later gained complete ownership of the mill, making it something of a rarity--a mill wholly owned by a foreign multinational. In May 2005, UPM started up a new paper machine (PM1). The older PM 2 produces 350,000 metric tons/yr and PM 1 produces about 450,000 metric tons/yr. PM1, a Metso OptiConcept paper machine, is running well, and the mill is very close to its aggressive start up curve. The mill operates the world's largest cut size sheeter (15 pockets). There is room for additional paper machines on site.

Today, these three mills are producing paper largely for Chinese markets and other Asian countries, but it's not hard to imagine these mills--and future Chinese mills--being major players in export markets around the world.

Richard Pratt, chairman of Australia-based Visy Industries, explained this point extremely well during his keynote address at TAPPI's Corrugating Packaging Conference in Las Vegas September 26-27: "For what it is worth, one of the dominant themes for our industry and many others will continue to be China," he said. "Indeed, having re-visited China last year I came to the conclusion that it's impossible to underestimate the impact that China is having--and will have--on the world in general and our industry in particular in the next decade or so.

"I'm not just talking about the obviously apparent impact on demand for waste paper and pulp," he continued. "I'm talking about the fact that some of the world's most modern and efficient paper machines and box factories are already running in China. Many, many more are coming on stream. The rate of growth and modernization of the Chinese paper and packaging industry is nothing short of staggering."

In next month's column I'll discuss more of Pratt's insight into the Chinese marketplace and some of the "rules" for doing business there. In the meantime, if you would like to read my travelogue from the China trip, email me at [e-mail].

ALAN ROOKS

Editorial Director

Contact Alan at [phone], or by e-mail at: [e-mail]

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