No Paper Tiger: Subsidies to China’s Paper Industry from 2002-2009
Usha C.V. Haley
The EPI report, No Paper Tiger: Subsidies to China’s Paper Industry from 2002–2009, says that China’s rapid rise in the global paper industry has been fueled by more than $33 billion in government subsidies from 2002 to 2009.
Heavily subsidized by the Chinese government in violation of global trading rules, the Chinese paper industry has tripled production over the past decade, killing jobs throughout the United States and driving up the massive U.S. trade deficit with China, according to a report written by Dr. Usha C.V. Haley, Chaired Professor of International Business at Massey University in Auckland, New Zealand, and an EPI research associate.
The U.S. paper industry is large and highly competitive, employing 474,000 workers in nearly 5,000 plants in the 2005–2007 period. However, thousands of U.S. paper producers, and the roughly 400,000 remaining jobs, are at risk due to the rapid growth of highly subsidized paper exports from China. Almost every state has workers in the paper sector. Among the highest are California, Georgia, Illinois, Ohio and Wisconsin.
China’s export-driven paper industry has added 26 percent of new production capacity on average every year from 2004, increasing the U.S. trade deficit with China. Imports from China’s paper industry to the United States are rising faster than those from any other country. In February 2010, the report estimates, the annualized growth rate of Chinese paper and paper-product imports into the United States was 22 percent.
China has no natural competitive advantage in papermaking and lacks the natural resources to fuel the industry. China’s forest base is among the smallest in the world per capita. Consequently, the country is the world’s largest importer of pulp and recycled paper.
Despite the explosion in new China paper mills, the country’s paper industry uses outdated, obsolete and polluting machinery and technology, contributing to China’s growing status as one the world’s leading polluters, according to the report.
The EPI report estimates that subsidies to China’s paper industry have included:
• $25 billion for pulp;
• $3 billion for coal;
• $1.7 billion for recycled paper;
• $778 million for electricity;
• $442 million in subsidy income reported by companies; and
• Loan-interest subsidies of $2 billion.
China’s strategy of dominating the global paper market through illegal subsidies is especially evident because it has no inherent cost advantages in the capital-intensive paper industry. Labor makes up only about 4 percent of the costs in the industry; in contrast, imported recycled paper and pulp comprise more than 45 percent.
“Raw materials, which make up three-fourths of the costs of producing Chinese paper, as well as electricity, coal and transportation, have nearly doubled in price over the last decade,” Professor Haley said in the report. “Yet, Chinese paper sells at a substantial discount compared to U.S. or European paper.”