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August 2004

Significant Chinese Subsidies Identified by U.S. Forest Products Industry

Washington— Subsidies and other government intervention underlie the massive expansion of pulp, paper and wood processing manufacturing capacity currently underway in China, according to a report issued by the American Forest & Paper Association (AF&PA), the national trade association of the U.S. forest products industry.

The 77-page report, China’s Subsidization of its Forest Products Industry, details how the Chinese government is employing an array of industrial policy tools - especially subsidies - to finance the huge growth of its industry. China is propping up state-owned enterprises, promoting the introduction of new technology and encouraging foreign investment in order to build and maintain a world-class paper and wood processing industry.

“Subsidies for capacity additions and other financial incentives to support China’s forest products industry put U.S. producers at a disadvantage in global markets,” said AF&PA President and CEO W. Henson Moore. “This is not free or fair trade.”

The Chinese government has set “ambitious capacity expansion targets” for its pulp, paper and wood processing industries, the report said. To achieve these targets, a series of “aggressive development policies” have been set in motion, backed by central government policy directives and funding.

Government financing and loan interest subsidies totaling $1.67 billion (USD) were granted for technology renovation of 21 state-owned paper mills across China from 1998 to 2002, according to the report. In addition, government capacity expansion targets included 10 wood processing projects planned for completion by 2005, representing a total capacity increase of 2.72 million cubic meters of wood products.  

The report found that Chinese government policies promote exports of value-added wood and paper products through value-added tax rebates, protect debt-ridden state-owned enterprises through government soft loans and loan forgiveness, and devolve decision-making power for approval of new investment to local governments.

The effect of the latter policy has been to give local governments a free hand in attracting investment to their regions by offering development aid, including tax breaks, attractive bank financing and preferential trade measures. 

Moore said “AF&PA will work with U.S. trade agencies in addressing China’s market distorting policies and practices to ensure that our industry has a fair chance to compete, both at home and abroad.”

AF&PA represents more than 200 companies and related associations that engage in or represent the manufacture of pulp, paper, paperboard and wood products. The U.S. forest products industry accounts for approximately 7 percent of total U.S. manufacturing output, employs 1.5 million people and ranks among the top ten manufacturing employers in 42 states.

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