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| Special Reports | Center News | China Events | Vol. 4, No. 1, Winter 2005 | |||||||
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ECONOMIC TRANSITION AND PRODUCT DEMAND PATTERN IN CHINA --Evidence from China’s Paper and Paperboard Industry by Haizheng Li ,Jifeng Luo & Patrick McCarthy In 1979, China initiated a landmark economic reform and opening-up policy with the aim of transforming a centrally planned to a market-oriented economy. Since then the nation has sustained a high economic growth, averaging 9% annually. However, not until 1992 when Deng Xiaoping gave several speeches on the market economy during a tour of south China, did China clearly articulate that the goal of economic reform was to establish a socialist market economy. His remarks brushed aside deep-rooted prejudice over market economies and opened a new chapter for China's reform. China possesses a huge market potential for paper and paperboard products. Chinese total paper and paperboard consumption is currently ranked second in the world, only behind the U.S. The consumption of paper and paperboard products in 2001 reached 42.6 million metric tons, increasing at an average annual rate of 10.4% over the last 20 years. By comparison, the average growth rate of the U.S. paper and paperboard consumption over the same period is 1.85%. China’s imports of paper and paperboard products grew at an average annual rate of 12.7%, and the share of imports in consumption increased from 9% to 17% for the same period. In 2001, China imported 5.57 million tons of paper and paperboard products, almost double the amount in 1995. Recognizing that there are quality differences in products produced domestically versus those imported, we estimate two separate demand functions, i.e., the demand for domestic products and the demand for imports. As implied by economic theory, Gross Domestic Product (GDP) has a significant impact on the demand for domestic products and for imports in China. Our results show that the demand for domestic paper and paperboard in China grows at almost the same rate as GDP. On the other hand, the elasticity of import with respect to GDP is 0.89 (and is significant at the 5% level). More specifically, when GDP increases by one percent, paper and paperboard imports increase by 0.89 percent (also statistically indifferent from one). Therefore, as the Chinese economy continues to grow, the demand for paper and paperboard products will grow rapidly. (Continues to next page) Dr. Li is an Associate of the Center, and all of the authors are affiliated with the School of Economics, Georgia Institute of Technology. This article is based on a research project "Price Behavior in the Pulp and Paper Industry", sponsored by the Center for Paper Business and Industry Studies (CPBIS), one of Sloan Funded Industry Centers, Atlanta, Georgia. All of the opinions expressed in this paper are attributable to the authors and are not those of CBPIS or the Sloan Foundation. An earlier version of this paper was presented at the International Conference of the Integration of the Greater Chinese Economies Hong Kong, June 2002, and Chinese Economists Society Annual Conference in Atlanta, 2004. We thank Jim McNutt, CPBIS' Executive Director, for providing helpful information. DISTRESSED ASSET MARKETS IN CHINA: AN INTERVIEW WITH PHIL GROVES A major part of China’s current reform efforts involves strengthening the financial system and re-structuring and re-capitalizing, or selling, most of the companies still owned by various levels of government. Estimates of the number of remaining state-owned enterprises (SOEs) varies from 30,000 to 50,000 depending on the percent of state ownership involved. Non-performing loans (NPL) held by the commercial banks in China are estimated to be about 13% of total lending. Center Director, Penny Prime, talked with Phil Groves, President of DAC Management, LLC., a distressed asset management company. Mr. Groves has been involved in evaluating and participating in the market for these companies and NPLs in China for the last several years. PP: You have experience in distressed assets around the world. What changes in China motivated you to participate in this new market? PG: The single biggest factor is, of course, the decision by China to focus great attention and resources on reforming its banking system. In 1999, four new entities were created to address the large amount of non performing loans held by the Big 4 state owned banks. The new entities, the four Asset Management Corporations (AMC’s), received nearly $200 billion in NPL’s from the state owned banks. In 2004, they received another batch of NPL’s. The AMC’s have been the primary source for Chinese NPL’s over the past four years. A second factor has been China’s entry into the WTO at the end of 2001. As part of the negotiations, China agreed to improve its banking system and also open it up to foreign banks by 2006. This has created an impetus to address the large amounts of NPL’s and distressed assets in the banking system. A third factor has been the conscious effort to privatize state owned entities (SOE’s) during the past few years. This has created great opportunities for investors as the amount of potential acquisitions has grown substantially over the past several years. A fourth factor has been the steps taken by the Chinese central bank to address the economy’s growth. Credit tightening, interest rate hikes and other regulatory mandates have had a significant impact upon the distressed market in China. PP: Could you tell us about your companies and what business you are doing in China? PG: We have a group of companies that focus exclusively on investing in China. The main entity is DAC Management but we have a variety of entities inside and outside of China. The group was formed in 2002 to source, invest in and manage Chinese distressed assets, with a primary focus on China’s banking system and state owned enterprises. With offices in Beijing, Harbin, Hong Kong and Chicago, the DAC companies are pioneers and leaders in acquiring and managing non-performing loan portfolios (and other state owned assets and entities) from China’s four state owned Asset Management Companies (AMCs), banks and various governmental entities. The firms employ twelve professionals in China and the United States, with broad experience in alternative investments and China’s distressed debt and asset market. Prior to creating DAC, I represented and co-invested with the first foreign investors to acquire a portfolio of China’s NPLs in 2001 and the first foreign investors to repatriate dollars from China through the successful management of a NPL portfolio in 2002. (Continues to the next page) SAVE
THE DATE! CENTER'S "MEET THE AUTHORS " EVENT, APRIL 17TH CRC Associates Rong Cai and Fei-ling Wang both recently published books on China. They will share their key findings and lead a discussion on related issues. This event will be co-sponsored by the U.S.-China People’s Friendship Association and hosted by Agnes Scott College.
Rong Cai’s book is The Subject in Crisis in Contemporary Chinese
Literature, University of Hawaii Press, 2004. Fei-ling Wang’s
book is Organization through Division and Exclusion: China’s
Hukou System, Stanford University Press, 2005. Dr. Wang also
has recently published an The event will begin at 4:00 in the lower level of Evans Hall. Light refreshments will be served, and all are invited to Dutch-treat dinner at the New Century Chinese Buffet right afterwards. MS. GUO-HUA WANG OF EMORY JOINS THE CENTER
Guo-hua was born in Xuzhou, Jiangsu Province of China and received her B.A. from Anhui University in Hefei, Anhui Province. She came to the States in 1984 for graduate studies. Her research interest is in China’s high education and its academic libraries in particular.
MISS. JOY GUAN JOINS THE CENTER AS AN INTERN
Joy Guan was born in China and moved to California when she was eight, where her mother was studying for her Ph.D. Joy is currently a junior at North Cobb High School, where she is also participating in the school’s new International Studies Program (ISP). She is active in Model United Nations at North Cobb and will be attending an international Model UN conference in New York in March. She plans to major in Economics in college. The Center is fortunate to have Joy helping with research for the website and other projects.
CHINA AND ITS NEIGHBORS: AN OPEN FORUM TO BE HELD AT AGNES SCOTT COLLEGE ON FEB. 27, 2005 The Atlanta Chapter of the US-China Peoples Friendship Association will hold a forum on China's interactions with its neighbors, entitled "China and Its Neighbors." The forum is Sunday, February 27 at 4:00 p.m., in lower level of the Evans Hall at Agnes Scott College in Decatur. Forum participants will be John Garver of Georgia Tech, Baogang Guo of Dalton State College, and Chien-pin Li of Kennesaw State University. After introductory comments by the panelists, the audience will be encouraged to join the discussion. These forums are held for educational purposes, and all are welcome. Agnes Scott College is located on College Avenue in Decatur. Evans Hall is the College Refectory on the east side of the campus near the circle drive; small yellow signs will indicate the way to Evans Hall. All are invited to join a Dutch-treat dinner at the New Century Chinese buffet restaurant, located on Scott Boulevard, a 5-10 minute drive from the Agnes Scott campus. This is a regular feature of these forums; it provides opportunity to continue the discussion and to visit. TALKS ON TIBET AND CHINA TO BE HELD Dr. Lobsang Sangay, from Harvard University Law School, will be speaking on Wednesday, February 23 from 1:00 - 2:30 p.m. in the Zaban Room at the Carter Center on "Negotiations Between the Dalai Lama and Beijing: A Path to Reconciliation or a Dead End?" He will also speak at GSU on Thursday, February 24 from 5:30-6:45 in the Troy Moore Library (General Classroom Building 9th floor) on "Key Issues in Tibetan Conflict: Their History and Present Situation". Both talks are free and open to the public. For further information, please contact the Director of GSU's Asian Studies Center, at 404-651-1825 (swalcott@gsu.edu). RURAL SUSTAINABLE DEVELOPMENT IN WEST CHINA: Second Annual Conference of the Consortium for Western China Development Studies The Ningxia Academy of Social Sciences and will co-host this conference of the Consortium for Western China Development Studies on June 21-22, 2005 in Yinchuan, Ningxia, China.
The organizers expect more than 100 participants from universities, research institutions, government agencies and business sectors within and outside of China to attend this conference. Many well-known economists from China, the U.S., Canada and other countries have been invited to participate. The coverage of the conference this year will focus on rural and sustainable development issues. The following topics are suggested but others will be considered:
International Advisory Committee: Co-Chairs: Jinglian Wu, Development Research Center, the State Council of China Jeffrey D. Sachs, Earth Science Institute, Columbia University Secretariat: Co-General Secretaries:
Deputy Secretaries: · Yeqian Wang, Sichuan University (China Office) · Yulong Shi, Institute of Spatial Planning & Regional Economy, the National Development and Reform Commission (China Office) · Shuming Bao, University of Michigan (the U.S. Office) · Penelope B. Prime, Kennesaw State University (the U.S. Office) Abstract Submission Interested participants should send an abstract of no longer than 250 words to the Program Committee at westchina2005@umich.edu along with the name, title, affiliation, and contact information of the author (s), or use the online submission form at http://chinadatacenter.org/westchina2005/. Proposals for whole panels (3-4 papers) are welcomed. Deadlines
April 10, 2005 - Deadline for abstracts April 30, 2005 - Notification of paper acceptance June 10, 2005 - Deadline for completed papers Registration Fee for the Conference Registration before May 15, 2004: US$60.00. Registration after May 15, 2004: US$80.00. Full-time student: US$30.00. Contact:
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In this article, we investigate product demand patterns in China and
explore the impact of structural changes associated with China's
economic reforms and integration into the world market. Our analysis
focuses on the paper and paperboard segment of the pulp and paper
industry, a traditional industry that has undergone significant
transformation during the economic transition and globalization in
China. Continuing economic reforms are dramatically changing the
Chinese economy. These changes are having a great impact on
traditional industries. Additionally, traditional industries are
facing increasing competition from international producers as China
gradually opens its markets. Given the combined effects of
increasing international competition and market reforms, the demand
dynamics for paper and paperboard products have important
implications for other traditional industries. 
edited volume with Yong Deng entitled China Rising: Power and
Motivation in Chinese Foreign Policy, Rowman & Littlefield,
2005.
Guo-hua Wang has been the East Asian Studies librarian at Emory
University since 1997. Before coming to Emory University, she
worked in the libraries of Boston University, Harvard University and
the University of Wisconsin-Madison. She earned her Specialist
Certificate in Library automation from the University of
Wisconsin-Madison and her Master's degree in Library and Information
Studies from Rosary College in the Chicago area. She is also a
member of Beta Phi Mu, an honorary Society of International Library
and Information Science. 
The Consortium for Western China Development Studies was established
in Chengdu in December 2003 by a number of universities and research
institutions located in Western China with the support of the Office
for Western China Development in the State Council of China, Sichuan
University, Columbia University, the University of Michigan, and the
University of California at Davis. The Consortium is a
non-governmental organization dedicated to fostering research
cooperation among universities, research institutions, and
government agencies to promote sustainable development in the
western provinces. The Consortium will work to raise funds to
support research on Western development issues, to facilitate
information exchange on development within the western provinces, to
boost collaboration on western studies between domestic and foreign
institutions, and to improve education in the western region. 