In the past 20 years,
China's economic expansion has taken the world by storm, bringing
prosperity to hundreds of millions and boosting demand for consumer
products such as tissue
By Jiang Manxia and Sun Jing
China's
economy continues
to grow rapidly.
Annual GDP
growthrate
has exceeded
10% for the
past five
years. In 2007, GDP reached ¥24.7
trillion ($3.58
trillion), up
11.4% from
2006. Percapita
discretionary income of urban and rural households increased
by 12.2% and 9.5% respectively. Retail sales of consumer products
reached ¥8.92
trillion, up
16.8%.
China's
tissue paper
market has
also grown at high speed, thanks to economic growth and the
rise in living standards. In 2007, the output of tissue paper
was about 4.1 million tons, up 8.1% from 2006, with a capacity
operating rate of 85%. Sales volume was about 3.94 million tons,
up 9.1%,with value of about ¥30.7
billion,
up 16.7%.
Consumption was about 3.57 million tons, up 7.3%, giving
annual per capita
consumption
of 2.7 kg.
The domestic market was about ¥34
billion,up
15.3%. The
growth of sales revenue is far higher than that of sales
volume, reflecting the rising price of tissue products
and the increased market share taken by high-grade products.
In 2007, converted products accounted for 83% of total
tissue paper exports in volume and 85% in value. Among imports,
parent rolls accounted for 82% in volume and 65% in value.
It shows that tissue converting products are mainly exported
and parent rolls are mainly imported. Because of some changes
in the national tax rebate, tissue parent rolls made from
imported market pulp will not fall into the prohibited category
which covers products made from imported raw materials.
But the tax rebate for parent rolls is still zero. The tax
rebate for tissue paper products has decreased from 13%
to 5%. Nevertheless, aggregate exports are still increasing.
Toilet paper is still the largest, accounting for 72% of
exports. Handkerchief and facial tissue account for 21.7%,
table tissue and paper napkins for 6.3%.
More than 100 companies export tissue products. The five
biggest (Vinda, Gold Hongye, Zhongshun, Huizhou Fook Woo,
Zhongshan Sanjiao) accounted for 33% of the total. Target
markets are above all Hong Kong, Australia, America, Japan
and Macao.
On 26 March 2008, the Australian government started investigating
alleged dumping of certain toilet paper exported from China.
It was the first time that the Australian government had
targeted Chinese exports. According to the Ministry of Commerce
of China, there was no proof of the alleged dumping. (In
early January, the Australian government found that dumping
had occurred. See news in this issue - Editor).
Costs of production have been rising. The market pulp
price rises of 2007 brought great pressure to bear on tissue
mills, particularly middlesized and small mills. Raw material,
fuel and power increased by 4.4% from 2006, according to
the data by the National Bureau of Statistics. Labour costs
also increased. All this pushed costs up over 15% in 2007.
Average producer prices rose 5%, but gross profits of paper
mills fell 8- 10%.
In the first quarter of 2008, the market pulp price continued
to soar. In March, the price of tissue products increased
8-10%. At the same time, the Chinese government strengthened
the policy of "energy saving and pollutants reduction".
Old and inefficient pulp and paper mills were closed, reducing
supply contributing to price rises.
China has an uneven economic development between east
and west. The eastern coastal areas, especially the Yangtze
River delta and Zhujiang Delta, have developed more quickly.
Shanghai and Beijing have the highest consumption of tissue
paper in China, estimated at about 9 kg, which is close
to that of developed countries. The growth rate in the two
cities is higher than that in China overall, notably in
facial and handkerchief tissue. In 2008, for the Olympic
Games, Beijing allocated toilet and seat tissue in the city's
public toilets in the central security zones. In 2010, Expo
will be hosted in Shanghai, where research is under way
on the idea of equipping public toilets with toilet tissue.
It is a trend that public toilets in the mega-cities are
equipped with toilet tissue and hand towel.
It should be noted that the markets in Beijing and Shanghai
differ significantly. According to research by AC Nielsen,
market growth in Beijing is higher than in Shanghai. The
market in Shanghai is mainly driven by soft draw-out tissue,
while the market in Beijing is mainly driven by draw-out
tissue in plastic packaging and handkerchief tissue. Although
the market share of non-roll tissue (draw-out tissue and
square tissue) in both cities is increasing, it is faster
in Shanghai than Beijing. In 2007, tissue rolls accounted
for 94% of toilet tissue in Beijing but only 36% in Shanghai.
Guangdong Province is the key tissue paper manufacturing
area and consumption market. Facial tissue/handkerchief
tissue and paper napkin are very popular here. The annual
per capita consumption is above 6 kg. The eastern and southern
coastal area accounts for more than 60% of the national
total consumption of tissue paper. The annual per capita
consumption in the developing middle and western areas is
less than 1 kg. However, the consumption of toilet tissue
based on low-cost straw, bagasse, bamboo and waste paper
is gradually increasing.
In 2007, the living standard of urban and rural households
continued to increase. But there was still a big difference
between town and country. According to the data by the National
Bureau of Statistics, the average per capita net income
of rural households was ¥4140 in 2007, up 9.5% from
2006. compared to ¥13786, up 12%, in urban households.
The urban population was 45% but it used 80% of the tissue.
In addition, the consumption of middle and high-grade
tissue is concentrated in cities and towns, while the consumption
of middle and low-grade toilet tissue is concentrated on
country. In 2007, the population of poor people in rural
areas (the average per capita net income below ¥785)was
14.8 million, down 6.7 million from 2006. In the underdeveloped
rural areas, about 50% of people are too poor to use tissue.
MANUFACTURERS AND BRANDS
There are 1066 tissue manufacturers registered
by the CNHPIA, among which 380 tissue parent roll manufacturers.
They are mainly located in Hebei, Guangdong, Shaanxi, Shandong,
Sichuan and Guangxi. The main national brands include Vinda,
Mind Act Upon Mind, Virjoy, Scott, May Flower, Jierou, Clear
Wind, Hygienix, etc.
In 2007, concentration of the tissue industry increased
significantly. The output of the top 15 tissue paper manufacturers
accounted for 35% of the total and their sales for about
39%.
In 2007, the top four tissue paper manufacturers were
Hengan, APP (Gold Hongye), Vinda and Zhongshun, each with
capacity of over 230,000 tons/yr. Their combined capacity
was 1 million tons and their output was about 880,000 tons.
Capacity and output both increased about 50% from 2006,
accounting for 22% of the total. Their aggregate sales reached
about ¥7.6 billion, up 27%, accounting for 25% of the
total.
Today the tissue market is mainly supplied by domestic
companies. The main foreign enterprises are Gold Hongye,
Kimberly-Clark, Oji Paper Nepia, Shanghai Potential etc.
Taiwan-based companies are Yuen Foong Yu Paper and Orient
Champion Paper. Hengan Group is one of the listed companies
in Hong Kong. In March 2007, SCA bought a 20% share in the
stock of Vinda Paper. That fell to 14% when Vinda Paper
became a listed company in Hong Kong but in February 2008
SCA increased its share 19%, becoming Vinda's No 2 shareholder.
Although large chain retailers have developed quickly
in cities and eastern developed areas of China, the market
below county still rely on dispensers. Compared to multinationals,
domestic companies enjoy certain advantages in distributing
their products. New foreign companies will face many difficulties
to large-scale market entry.
INDUSTRY READJUSTMENT
While a few companies dominate China's high-grade tissue market,there are many
players in the middle-to-low end. Many difficult problems face the small mills,
such as overmanning, low efficiency, unstable quality, pollution, etc. In 2007,
raw material and energy cost increases, the imposition of strict environmental
requirements and demand for higher product quality emphasized these problems.
As a result, some small tissue mills have stopped or closed. Many small straw
or waste-based mills in Shaanxi, Shandong, Henan, Hebei, Anhui, etc have been
shut down.
In 2005, the State Quality Supervision and Inspection
Administration announced that the China Famous Brand Strategy
Advances Committee had put tissue paper in the evaluation
list of China's "famous brand products". To qualify
for this label, applicants must have annual sales of more
than ¥800 million. From the outset, brands such as Hengan's
Mind Act Upon Mind, Vinda's Vinda and Guangdong Zhongshun's
Jierou obtained the award. At that time (September 2005),
the period of validity was three years but that has since
been extended to five, so no reappraisal will be required
until 2010.
Seven companies have requalified for inspection-free status,
while a further three have been accepted for the first time.
For this the period of validity is three years.
PRODUCT STRUCTURE
Toilet tissue is the dominant grade with 86% market share. Next is facial tissue,
handkerchief tissue and paper napkin, which account for 13%. In its pattern of
use, China is similar to Japan and other countries of the Asia-Pacific area,
with handkerchief use relatively higher than in other regions. Kitchen towel
is used only by foreigners and returned overseas Chinese and has a very small
market share. Hand towel is mainly used in the AfH market but usage is increasing
and exports are significant.
TECHNOLOGY ADVANCES
With the importing of tissue machines and launching of new projects, the tissue
equipment level in China has advanced greatly. In large projects, high-speed,
wide tissue machines with converting machines have been imported. They match
the best in the world and make premium products. China has now imported 25 new
crescent tissue machines, including those under installation. Among them, there
are nine machines from Andritz and seven from Metso Paper. The country has also
imported 40 BF tissue machines from Japan's Kawanoe Zoki.
At the same capacity, the price of homemade tissue machines
is about one-tenth that of the imported ones. In addition,
it takes a short time to put domestic tissue lines into
production. Such machines are therefore still the first
choice for middle- and small-size tissue mills. In China,
most of the tissue parent roll manufacturers have capacity
of about 5000 tons/yr. They mainly use tissue machines of
1092 mm, 1575 mm, 1760 mm and 1880 mm width and with speeds
of 150-180 m/min. For new projects, the width is mostly
above 1575 mm and can be up to 2800 mm. In recent years,
some progress has been made in the performance of homemade
tissue machines. Many new machines with design speed of
250 m/min have been put into production and they normally
run at over 200 m/min. In 2006, Orient Champion Paper started
a homemade inclinedwire tissue machine with maximum design
speed of 500 m/min and real operating speed of more than
300 m/min. In 2006-2008, Gold Hongye Paper started six homemade
long-wire tissue machines with design speed of 600 m/min.
Their real operating speed was up to 550m/min. There is
still a big gap in comparison with imported tissue machines.
Now some equipment suppliers are also developing vacuum
cylinder former tissue machines and new crescent former
machines, but there is no R&D breakthrough. Still today
machines of above 30-50 tons/day still have to be imported.
Now APP Paper Machinery Co plans to manufacture high-speed
new crescent tissue machine, based on introducing key parts
of machine. In addition, since 1 January 2008, the Chinese
government has cancelled the tax free policy for imported
paper machines below 3 m. Metso Paper and Andritz both plan
to manufacture the components of machines except key parts
in China. Kawanoe Zoki also plans to establish a plant in
Zhejiang.
Converting machines have made great progress in China.
Not only have the needs of domestic medium- and small-size
tissue mills been satisfied, but export volume is also growing.
They still lag in efficiency, converting precision, stability,
automation, etc, particularly for rollwinding, roll and
handkerchief packaging machines, etc. There are growing
varieties of tissue paper in China, including toilet roll,
draw-out tissue, square or folded tissue, facial tissue,
handkerchief tissue, paper napkins, kitchen towel, hand
towel, etc. AH tissue accounts for 90% of market share,
AfH for the rest. The AFH market is growing very fast, though.
In quality, the main advances are twofold. First, improvement
of the softness, strength and absorbency. High-grade tissue
using 100% wood pulp as materials is growing faster than
low-end products. Major tissue manufacturers are all launching
three or even fourply products. Second, the introduction
of differential products, eg with added balm, lotions, aloe,
vitamins, etc. Some new products have faint scents or better
body-care functions. In 2007, Hengan launched "Tea
Language" series, Gold Hongye "Super Feel" series.
Vinda Paper "Sports" series. Zhongshun launched "Face" series,
Kimberly-Clark a Disney cartoon series. All these products
gained good market acceptance.
On the whole, in comparison with North American and European
countries, Chinese consumers do not have strict requirements
for tissue softness. In addition, the tensile indicator
required by the product standard in China is an obstacle
in developing super soft tissue. So even large tissue manufacturers
will not adopt TAD technology, with its associated high
investment in equipment and high energy consumption, before
2010. It is reported that Gold Hongye will adopt the ATMOS
technology by Voith Co. to produce tissue paper, which has
similar quality with TAD product.
RAW MATERIAL BOTTLENECK
China has scarce wood resources and is one of the world's main importers of woodpulp.
High-grade tissue is generally based on imported pulp. But the use of domestic
wood pulp will increase, with the completion of some pulp projects such as Hainan
Jinhai Pulp and Paper Plant of APP with the capacity of 1 million tons. The
integration project of forest, pulp and paper has been stepped up but China
will continue to import woodpulp. Except Gold Hongye and Phoenix, other companies
manufacturing highgrade tissue need imported pulp, making them vulnerable to
international supply and demand. High prices could become a key factor in restricting
industry development. But there are also positive factors. Tissue mainly uses
hardwood pulp, whose short supply and high price will be eased with the start-up
of new capacity South America.
Mixed market pulp, bagasse, bamboo, wheat or rice straw
pulp, etc could be used to manufacture middle-grade tissue
paper. But pollution treatment is very difficult. In recent
years, chemical recovery, oxygen delignification and totally
chlorine-free bleaching have made great progress. Water
use per ton of pulp and pollution discharge have been reduced
substantially.
China has rich nonwood fibers. Tissue paper mills are
expected to make good use of them. In the last two years,
tissue capacity based on bamboo (mainly Sichuan) and bagasse
(Guangxi) has increased. But most of the mills are very
small and do not have chemical recovery or water treatment
systems. They have been targeted by local communities because
of the pollution they cause.
In addition, it is becoming imperative to manufacture
tissue from wastepaper. In 2006-07, when some small tissue
mills using straw pulp were closed, some tissue mills converted
to use wastepaper. But for many small mills it will be very
difficult to use wastepaper to produce facial tissue and
paper napkins, considering environmental and product quality
concerns.
A 2003 state regulation stipulates that facial tissue
and paper napkins must use only virgin fibres such as wood,
straw and bamboo as raw material. Recycled fibre is not
allowed for hygiene and health reasons. In America, Japan
etc recycled fibre can be used in high-grade tissue thanks
to the technology available. In China, too, wastepaper will
in time become accepted as raw material for tissue. Shanghai
Potential Paper and Huizhou Fook Woo Paper already use wastepaper
and some other companies are also considering large deinked
pulp lines.
DISTRIBUTION CHANNELS
Tissue belongs to FMCG, which has high logistics costs and requires heavy cash
flow. Mid-sized and small manufacturers generally distribute the products locally.
There are few national tissue brands. They generally distribute their products
through many channels, including wholesalers, distributors, supermarkets, shopping
malls, conventional retail stores and convenience stores.
Since China's entrance to the WTO, shopping malls and
chain stores have reached every town and village. Marketing
is becoming more important and big changes have taken place
in distribution channels. Tissue sales in modern outlets
such as supermarkets, malls etc, are increasing. But the
conventional channels are still necessary and cannot be
replaced by the modern channels. They enjoy the advantages
of low threshold fees, quick balance and high profits, etc.
They have strong complementarities with modern channels.
In the secondary and tertiary markets, wholesale and distribution
still play the dominant role but some changes have taken
place. According to AC Nielsen, in 2006 modern channels
accounted for 45% in China: 80% in key cities, 68% in first-class
cities, 45% in second-class cities, 31% in third/fourth
cities, 18% in villages and towns. This shows that there
is still great development potential in lower-class cities.
Modern sales channels can expand sales volume, reduce
the role of middlemen and offer prompt information feedback.
But between the shopping malls and manufacturers, threshold
fees are always the biggest conflict topic. The increasing
threshold fee benefits multinationals and big companies
at the expense of many middle-sized and small companies,
which cannot afford it. In 2006, the Chinese government
published the 'fair deal rule' between retailers and suppliers.
But large supermarket chains still draw up contracts, which
threaten even the largest companies.
It is widely believed that the consumption of tissue enjoys
breakthrough growth at GDP levels of $5000. Today, the GDP
for most of cities in China is below this (Shanghai and
Beijing aside). Per capita GDP is still below the level
of middle developed countries. In 2007, per capita consumption
of tissue paper in China was 2.7 kg, still far lower than
that of developed countries. Hence, there still exists a
great potential market and scope for China's tissue paper
development, promoted by positive factors such as steady
economic growth, increasingly improved living standards
of people and the further opening up of the market. Tissue
still has tremendous market potential.
It is forecast that through 2010 the GDP growth rate in
China will remain at 8%. Based on positive factors such
as economic development and negative factors, such as the
gradually declining population growth rate, annual tissue
consumption growth will be the same as or slightly below
GDP. In 2010, it is estimated that the per capita consumption
of tissue paper in China will reach the world average.
In 2008-2010, it is estimated that the output and consumption
will grow at a compound annual rate of 7% and 6.5% respectively.
New production capacity will be 1.4 million tons, while
old capacity of 300- 400,000 tons will be eliminated. TW
The article above is an edited version of a longer paper
by the two authors.
