Light industry | Paper industry » Guo Yongxin - 2016 China Paper Industry Development Situation and Strategic Measures

Source: http://www.doksinet 2016 China Paper Industry Development Situation and Strategic Measures Guo Yongxin Deputy Director of China Light Industry Information Center June 2016 Source: http://www.doksinet Summary  Macro environmental impact  Operation analysis on Paper Industry  Future trends  Strategic measures Source: http://www.doksinet Macro environmental impact Chinese economy has entered a period of adjustment of structure optimization, and the growth is slowing, but the growth potential is huge. China 2015 GDP growth is 6.9%, with the growth rate less than 7% for the first time since 1990. The total GDP reaches RMB 67.6708 trillion, and China’s economic growth is far better than the world average. China’s per capita GDP ranks 90th in the world, and the future development space is large. 16 14.2 14 12 中国GDP增速 Chinese GDP growth rate 世界GDP增速 The world's GDP growth rate 12.7 10 9.6 8 10.4 9.2 9.3 7.8 7.67 7.35

6.9 2.2 2.17 2.47 3 6 4 4 4.34 3.94 2 2.73 1.33 0 ‐2 ‐4 2006年 2007年 2008年 2009年 2010年 ‐2.25 2011年 2012年 2013年 2014年 2015年 Source: http://www.doksinet Macro environmental impact  Chinese authorities predict that long-term trends in China's economic development will show a L-type situation, indicating that the economy will not have a big shock.  Premier Li Keqiang： - Since this year, the Chinese economic operation is overall smooth, and structural adjustment and transformation and upgrading appears a good momentum. - The comprehensive deepening reform and active opening up can keep the economic operation at a reasonable range and towards a long-term and good orientation.  Chinese government “Thirteen Five-Year" plan puts forward economic growth of not less than 6.5% Chinese economic overall good development momentum forms a strong support for the development of the paper industry. Source: http://www.doksinet

Macro environmental impact With the impact by rigid demands, the light industry develops well in the first quarter and is thriving among the national industries. The profit growth of the light industry is higher than the revenue growth of main businesses, and the operation quality improves. 35.0 29.2 30.0 27.9 利润增长% Growth of profit (%) Growth of revenue of main 主营收入增长% businesses (%) 23.5 25.0 18.3 20.0 17.5 15.3 15.0 13.2 9.4 10.0 6.2 5.0 4.1 10.4 7.5 4.9 13.5 12.5 12.5 12.1 8.7 6.3 5.9 5.1 0.4 0.0 Toy 乳品 玩具 Daily 日化 Drink Light 轻工业 Dairy 饮料 Chemical industry products Products Food 食品 Furniture 家具 Plastics 塑料 Appliances 家电 自行车 Bicycle Agrifoods 农副食品 Consumer goods industry has a good momentum of development, increasing the demand for packaging and leading the development of the entire paper industry. Source: http://www.doksinet Operation analysis on Paper Industry In recent years, the

paper industry enters into the era of great change. Results of the change and adjustment in the industry have been initially apparent. Since this year, in the dual role of markets and policies, the overall development of the paper industry is good. - Rapid growth of paper output From January 2016 to April 2016, the national large-scale machine paper and paperboard enterprises has completed an output of 38,806,800 tons, with a yearon-year growth of 5.13% and a “good start” for the first time in recent years - Tissue and packaging paper maintains a strong growth The output of tissue increases 3.24%, and the output of containerboard increases 5.19% - Graphic paper is still accelerating the structural adjustment The output of uncoated printing paper is 2.4879 million tons, reducing by 403% on a year-on-year basis. The output of newsprint is 1.0732 million tons, reducing by 1176% on a year-onyear basis The output of coated printing paper is 2.1321 million tons, reducing by 389% on a

year-on-year basis. Source: http://www.doksinet Operation analysis on Paper Industry The industry profitability has an overall rapid growth, but the profitability varies. 40 17 20 0 Pulp Manufacturing 纸浆制造 ‐20 ‐6 6 Papermaking 造纸 主营增长% Growth of main businesses (%) 利润增长% Growth of profit (%) 7 7 Paper Products 纸制品制造 Manufacturing Pulp industry loss; the profit declines 74% ‐60 Paper industry enjoys the policy support of waste paper material products VAT refund of 50% since July 1, 2015, and the profit surges 17%. ‐80 The revenue and profit of main businesses of paper products industry increase 7%. ‐40 ‐74 Comparison of revenue and profit growth of main businesses of industry in the first quarter of 2016 Source: http://www.doksinet Operation analysis on Paper Industry Paper Industry increases the degree of concentration As the market survival of the fittest and the government forcing out backward

enterprises, the number of machine paper and paperboard companies reduces by 216 compared to 2014, namely 8.3% of paper companies are forced out 2700 2600 2500 2400 2300 2200 2603 2430 End of 2014 2014年底 End of 2015 2015年底 2387 March 2016 2016年3月 Change of the number of machine paper and paperboard companies Increased industrial degree of concentration can help the paper industry to give play to the scale economics effect, reduce pollution emissions, enhance the brand profitability and establish a good market order. Source: http://www.doksinet Future trends Recalling the past and looking to the future, look at the future trends based on the following rules:  China's paper industry has entered the era of strategy. Entrepreneurs should learn to summarize the rules of industrial development and guide the development of enterprises with the rules rather than experience.  The current two important industry rules must be noted. - Paper output growth rate and

GDP growth rate is not consistent - Paper production and consumption are saturated in stages At present, the total amount of paper is saturated, the output increases slowly, and some grades of paper have been saturated. Source: http://www.doksinet Future trends Over the years, many research institutions have always thought that paper output is positively related with the GDP growth rate, but from the current perspective, the paper output growth rate deviates from GDP growth rate and the GDP growth rate can not be used to measure the paper output in the future. 18 GDP% 16.1 16 14 12 13.1 11.3 12.7 Paper output % 纸产量% 14.2 13.1 10 12.1 9.6 8.7 8 13.2 11.4 10.5 9.2 9.2 7.7 7.7 7.4 6 4.7 4 2.8 2 1 0 ‐2 6.9 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ‐0.1 2015 Source: http://www.doksinet Future trends Paper production and consumption are saturated in stages. Since the beginning of this century, the paper industry in the United States

and Japan has experienced the trend from slow growth of output, reaching the highest point, and then to negative growth. Paper output trend in the United States 美国纸产量走势 Ten thousand tons 8600 8400 8200 8000 7800 7600 7400 7200 7000 6800 6600 6400 8397 8095 8168 8061 8389 8289 8366 7996 7588 7164 7508 7435 7375 73197260 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: http://www.doksinet Future trends Paper日本 output trend in Japan 纸产量走势 Ten thousand tons 3200 3100 3000 3072 3067 3046 3089 3095 3111 3127 3063 2900 2800 2736 2700 2600 2627 2661 2607 2624 26472619 2500 2400 2300 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: http://www.doksinet Future trends Paper 中国纸产量走势 output trend in China Ten thousand tons 13000 12000 11034 11000 10036 10000 9389 9000 8391 8000 7787 7000 6804 6000 5600 5000 4950 4000 3000 11375 11786 11515 11774

3780 4300 3200 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: http://www.doksinet Future trends In 2015, paper output is 117.74 million tons, appearing a turning point for the first time. Papermaking output in China (Ten thousand tons) 中国造纸产量（万吨） 13000 12000 11034 11000 11774 10036 10000 9389 9000 8391 8000 7000 11375 11515 11786 7787 6804 6000 Rapid growth period Steady growth period 5000 4000 2006年 2007年 2008年 2009年 2010年 2011年 2012年 2013年 2014年 2015年 In 2013, it was predicted that 120 million tons was the output ceiling of China Paper Industry. Obviously, the forecast is still valid Source: http://www.doksinet Future trends Some grades of paper are saturated in China Negative growth of the output of newsprint in 2010 Negative growth of uncoated writing paper in 2011 Negative growth of the output of containerboard in 2012 Negative growth of coated writing paper in 2013 1800

1600 1391 1200 883 931 1183 876 600 200 1330 1202 1000 400 Newsprint Uncoated writing paper 涂布书写印刷纸 Coated writing paper Containerboard 箱板纸 未涂布书写印刷纸 1579 1400 800 新闻纸 1669 401 443 264 274 462 204 490 877 862 741 842 768 1019 1044 815 709 809 649 777 663 369 359 350 563 429 369 390 221 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: http://www.doksinet Future trends Paper production in China is saturated, so the future investment will become more rational.  In the first quarter of 2016, total investment in fixed assets of paper and paper products industry is RMB 42.4 billion, with an increase of -11.7% on a year-on-year basis, forming a sharp contrast with 64% of total investment growth of national manufacturing industry.  Chairman of Huatai Paper Industry said recently that the Company would not expand largely in the paper industry in the future, with emphasis on the upgrading

and transformation of the paper industry towards the papermaking research and intelligent manufacturing. Source: http://www.doksinet Future trends Reflection: When tissue, packaging paper and boxboard with a substantial investment and rapid growth will have a turning point? 生活用纸 Tissue 包装纸 Packaging paper Boxboard 1600 白纸板 1400 1340 1050 1000 1395 1120 790 780 795 830 510 436 520 470 530 520 560 550 580 575 620 600 730 620 640 635 650 885 665 200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 ？ ？ ？ 1400 1150 940 600 400 1360 1250 1200 800 1390 2015 Source: http://www.doksinet Future trends  Product structure is optimized and the proportion of high-grade paper further increases. With the progress of living standards and improvement of technology, the proportion of high-grade paper further increases, high-grade paper will force out mid-grade paper, mid-grade paper will force out low-grade paper and

low-grade paper will be eliminated in the future.  The industrial chain of paper enterprises extends and will provide consumers with personalized, customized and high value-added products. - Develop from the industrial paper to tissue - Develop from the production of pulp paper to the downstream paper packaging - Develop from bulk industrial goods to daily necessities of consumers Source: http://www.doksinet Future trends  From paper making to fiber comprehensive utilization, the biomass project develops rapidly. Papermaking can utilize the plant fiber. With the advancement of science and technology, paper enterprises are entering the biofuels industry. Finnish companies have become the leaders in the trend. Paper production may slowly grow, but the comprehensive utilization on the plant fiber will be explored and is very important for social progress.  Trend: China Paper Industry enters a balanced and optimization period. The total output of China Paper Industry enters a

balanced development period. The structure of China Paper Industry enters an optimization period. Source: http://www.doksinet Strategic Measures In face of the future development trend of the industry, the paper industry should take the initiative to respond, to consolidate strengths and to enhance competitiveness through quality manufacturing, product cost improvement, corporate M & A and global distribution and other strategic measures, so as to cope with future challenges.  Quality manufacturing strategy  Cost performance strategy  M & A strategy  Global distribution strategy Source: http://www.doksinet Strategic Measures  Quality manufacturing strategy The new high-end products can make huge profits in the paper industry. According to market demands, the production of high-grade paper is an important measure to improve product profitability. China imports large quantities of paper and paperboard every year, remaining at around 2.6 million tons in

recent years, so it is necessary to produce high-end domestic products to replace import. 700 600 500 400 300 200 652 597 562 637 635 614 524 441 401 358 334 336 331 311 257 255 260 100 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: http://www.doksinet Strategic Measures  Cost performance strategy Under the premise of ensuring product quality, lowering investment and operating costs and increase production. - Optimization of equipment, saving investment - Process optimization, saving energy and increasing yield - A revolutionary brand-new technology in the slurrying and environmental protection, significantly reducing investment costs Source: http://www.doksinet Strategic Measures  M & A strategy In next period, enterprises will expand through M &A instead of the investment in new projects. - M & A between the upstream and downstream of the industry chain - M & A between domestic and foreign companies -

M & A between the industry and other industries Source: http://www.doksinet Strategic Measures  Global distribution strategy - “One Belt and One Road” area is the key area of global distribution of Chinese enterprises China currently exports about 4 million tons of paper and paper products to One Belt and One Road area, and the import amount is about $ 7 billion. In 2015, China papermaking machinery and equipment export amount was $ 1.222 billion, with an increase of 1551%, mainly in Vietnam, Indonesia, India, the United States, Belarus, Malaysia, Iran, Taiwan, Turkey, South Korea and other areas, including $ 146 million in Vietnam, $ 141 million in Indonesia and $ 105 million in India. Vietnam Indonesia India The United States Belarus Malaysia Iran Taiwan Turkey South Korea Other areas Source: http://www.doksinet Strategic Measures - Countries with market and resource superiority are also the key area of global distribution  Chinese enterprises are actively walking

out. Shandong Quanlin Paper Industry is investing $ 2 billion in Virginia to construct the 600,000 tons of wheat straw papermaking project.  Shandong Sun Paper Industry invests in building a bio-refinery project with an annual capacity of 700,000 tons in Arkansas, with the total investment about $ 1 to 1.3 billion  Nine Dragons Paper (Holdings) Limited and Lee & Man Paper Manufacturing Limited built a packaging paper factory in Vietnam. Source: http://www.doksinet Conclusions  Chinese government puts forward the “innovation, coordination, green, opening and sharing” development concept as the guiding ideology of “Thirteen Five-Year” period.  Paper industry stems from the use of green fiber and is one of the most potential industries with green features in “Thirteen Five-Year” period.  Facing the new situation in Chinese “Thirteen Five-Year” period, the paper industry should seriously sum up the rule of industry, scientifically make strategic plans,

assess the situation, achieve a strategic breakthrough for the Chinese paper industry and make a brilliant contribution to the global pulp paper industry