Report | Trade and Globalization

No paper tiger: Subsidies to China’s Paper Industry From 2002-09

Briefing Paper #264

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In 2008, China overtook the United States to become the world’s largest producer of paper and paper products. In 2008, China had been poised to become a net exporter of paper and paper products; but, the fall in global demand led to greater than expected inventories for Chinese producers. In November 2008, China’s National Bureau of Statistics (2003-09b) reported that the industry’s output had increased to 83.9 million metric tons, up 9.6% from the previous year. In 2009, China produced over 17% of the world’s total output in the paper industry; with exports of $7.6 billion in paper and paperboard, China consolidated its position as a lead exporter in the industry. Since 2000, China has increased paper production three-fold to assume a leading role in the global paper industry.

Yet China has no competitive advantage in this capital-intensive industry and lacks the natural resources to fuel it. With saturated domestic markets, proportionately much smaller per capita than in developed countries, exports have served, and are expected to continue to serve, as the primary engine of growth for China’s paper industry, adversely aff ecting the U.S. and global economies.

In 2010, China has by far the fastest-growing paper industry in the world. Yet, China also has among the smallest forestry resources in the world to support this industry’s expansion. Consequently, it imports the bulk of its raw materials at world prices — yet, paper in China generally sells at prices much lower than in the United States or European Union.

Globally, and in China, labor constitutes a very small part of the costs of the paper industry—high capital investments play a major role. In China, government subsidies and loans have provided strong support for the paper industry’s expansion. Combined with saturated, domestic product  markets, the expansion has lead to enormous overcapacity in China and a meteoric increase in China’s paper exports.

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