BEIJING, Dec. 3 (Xinhuanet) -- China's paper-making industry is confronting fiercer competition from foreign counterparts as import tariffs for most categories of paper will be reduced to zero from January 1, 2005, experts say.

    Currently, the highest import tariff on some categories of paper remains between 12 per cent to 15 per cent, but it will be reduced gradually, China Daily reported Friday.

    Foreign paper manufacturers are stepping up their efforts to gain more market share in China's paper making industry.

    APP Group, Indonesia's leading paper making company, signed an agreement amounted 50 billion yuan (US$6 billion) with the government of the Guangxi Zhuang Autonomous Region in July. Asian brand name, Japan's Oji Paper Group also poured 1.25 billion yuan (US$150 million) into Jiangsu this August to expand its presence. Another paper making mogul, Finland's Stora Enso Oyj, is itching to expand its factory building in South China's Guangdong Province.

    "The considerable scale and the state-of-the-art technology of foreign competitors do impose a challenge for us," said Chen Siliang, director of China Technical Association of the Paper Industry.

    But China's domestic enterprises still enjoy advantages as they are more familiar with the market and boast comparatively low labour cost, according to Cao Zhenlei, dean of China National Pulp and Paper Research Institute.

    "We are not afraid of competition if our equipment is greatly improved," Cao added.

    In fact, domestic enterprises are not content with lagging behind and are striving to compete for bigger market share.

    Tralin Paper Co Ltd, one of the largest paper-making companies in China, increased its production capability to one million tons last December. Minfeng Special Paper Co Ltd issued another 15.6 million A shares recently, while Chenming Group launched 2 billion yuan (US$240 million) of convertible bonds.

    The strong demand in China's paper market is the underlying reason attracting so many investors, according to Chen.

    By 2003, China became the second largest paper-consuming country, just next to the United States.

    The skyrocketing development of the printing industry and the strong demand for packaging and paper for daily use have resulted in a serious shortage in China's paper supply, especially high-end products that use wood for paper pulp.

    China imported 18.74 million tons of paper, pasteboard, wastepaper and pulp in 2002, spending US$7 billion in foreign exchange.

    Paper has become the third-largest foreign exchange consuming industry after crude oil and steel.

    Moreover, the serious shortage of raw materials is also throttling the development of China's paper industry.

    As a country poor in forest resources, straw pulp has long been the major raw material in the domestic paper-making industry. The use of wood pulp in China is not up to 20 per cent overall, in stark contrast with more than 90 per cent in foreign countries.

    Because of low costs and simple technology, over 80 per cent of domestic enterprises are of limited scale.

    Meanwhile, serious pollution and poor quality are also the local paper industry's major concerns.

    To make Chinese paper making enterprises more competitive, the following measures may help, says Chen.

    First, speed up the introduction of the state-of-the-art technology and expand enterprises' scale.

    Second, step up the efforts to attract more foreign investment.

    According to the blueprint of China's paper-making industry, China needs an annual investment 40 billion yuan (US$4.8 billion) to 50 billion yuan (US$6 billion) in the next 15 years.

    Third, make the products more diversified. Single categories of products can hardly make domestic enterprises competitive as they lag behind their foreign counterparts in terms of technology and management.

    Fourth, adjust the structure of raw materials. Wood pulp, instead of straw pulp, should be the main raw material.

    While Chinese paper making enterprises are taking proactive measures to make them stronger, China's entry into the WTO also provides an optimum opportunity for foreign competitors, according to He Dequan, an expert specializing in Asian pulp and paper making analysis.

    Currently, China has about 6,000 paper-making enterprises, with an annual production capability of 2,000 tons to 20,000 tons, which can hardly satisfy the market's strong appetite.

    The demand for major paper categories and pasteboard in the next five years is expected to grow at an annually increasing rate of 8 per cent to 12 per cent.

    With the gradual reduction of import tariff, foreign enterprises' will emerge and may take the upper hand in the competition.

    China's dependence on importing paper will be 25 per cent by 2005 and will further increase to 30 per cent from 2006 to 2010.

    (China Daily)