Finnish paper company making more investments in China

When China's 22 listed paper mills reported sharp declines in first-half profit, Finnish forest-based bio-industry company UPM Group made two investments of more than 40 million euros ($44.3 million) in its paper plant in Changshu, Jiangsu province, mainly because of rising demand due to the boom in e-commerce and burgeoning economic activity, industry officials and sources said.

The investment will increase the production of label paper and copy paper, a company official said.

"The label paper finishing machine (specialty papers line) investment exceeds 30 million euros, and the copy paper machine (cutting line) was more than 10 million euros. They are the latest two," said Jaakko Nikkila, executive vice-president of UPM Specialty Papers.

Since entering the Chinese mainland by launching the Changshu mill in 1998, UPM Group has invested more than $2 billion in the country, Nikkila said. Currently, 20 percent of its revenue comes from Asia, where China is its largest market.

With the newly added capacity of 40,000 metric tons in specialty papers for early 2020, the Changshu paper mill's annual capacity will reach about 1.4 million tons.

UPM's expansion came along the 22 listed Chinese paper enterprises reported a combined net profit of 4.3 billion yuan ($615 million) in the first half, more than halving from the same period of last year's 8.96 billion yuan, statistics by Shanghai-based information provider Wind Info said.

One of the world's largest consumers of paper pulp, the Chinese domestic paper industry was plagued by overcapacity, which led to declines in both output and consumption in 2018, a report by Shenzhen-based Qianzhan Industry Research Institute said.

Newspaper printing volume tumbled 55.67 percent in 2017 from 2011, while magazine print volume decreased 29 percent during the same period, according to Zhu Min, vice-president of the Printing Technology Association of China.

At the same time, China's digital reading market expanded to 25.45 billion yuan, and 60 percent of digital readers polled said they would like to pay to read the e-version of newspapers, magazines or novels, said a white paper published in August by the China Audio-Video and Digital Publishing Association.

Internet literature alone has reached a market scale of 15.3 billion yuan in 2018, up 20.3 percent year-on-year, and this figure may exceed 20 billion yuan by 2020, said a report by the Securities Times, which cited the findings by a research center of Hangzhou-based RoyalFlush Information Network.

While traditional demand is shrinking, a new market is emerging and expanding in e-commerce, fueled by urbanization and a growing middle-income group. This has been felt by the Finnish company.

"Mainly, in copy paper, urbanization generates more business and more economic activity, and more printing work in those offices. Then for label paper, some of the main drivers are e-commerce, with more packages being transported which need labels. As a result of people moving to cities and buying their goods from supermarkets - there is more packed food, for example, as opposed to fresh markets where people are buying food not in a packed format," said Nikkila.

He added that due to the scarcity of raw materials and increasing consumption, the paper industry is turning to solutions to bring sustainable products such as producing paper out from renewable raw materials such as wood fiber, which reduces the pressure on the environment as much as possible.

The Qianzhan report noted that less qualified paper pulp enterprises were shut down one after another, and more than 20 percent of China's up to 100 million tons of paper pulp consumption was imported.

"China regulations are also so strict that in many cases, they are even more strict than in central Europe or Finland. It's good for the whole industry to have more firms operate in a sustainable way," said Nikkila.

Technological advancement and the changing market demand has given rise to green printing, specialty paper, packaging paper, and soluble tissue paper, said Zhu Min of the Printing Technology Association of China.