Taiwan-Funded Long Chen Paper: A Single Waste Import Ban, Three Years of Winter

In 2016, industrial paper leader Long Chen Paper posted record-high revenue and squeezed into Asia's top 10 in the industrial paper market. Yet in 2018, a single "waste import ban" sent Long Chen to rock bottom. How could Cheng Ying-pin turn the tide amid a shortage of raw materials?

Amid green rice paddies stands a reinforced concrete plant covering more than 40,000 ping - this is the Erlin, Changhua plant of Taiwan's industrial paper leader Long Chen Paper. This paper mill alone has a capacity of 850,000 tonnes, and the cartons of well-known e-commerce players such as momo and Shopee all depend on it.

During the pandemic, e-commerce grew substantially, driving demand for cartons and enabling Long Chen to deliver impressive results: consolidated revenue in the first half of this year reached 25.1 billion yuan, up nearly 51% year on year. Who could have imagined that not long before this, Long Chen had endured a three-year-long "winter" because of a single ban in mainland China.

"In the past 3 years of investment in mainland China, we lost USD 300 million in profit, but a day of joy is a day, and a day of sorrow is a day too." Wearing a well-tailored suit and black-framed glasses, Long Chen Paper chairman Cheng Ying-pin spoke in an even tone in a conference room during an exclusive interview with Business Today about the impact of mainland China's "waste import ban" on the company.

In 2017, Long Chen Paper's market value exceeded 57.5 billion yuan, surpassing fellow Taiwanese industrial paper makers Yuen Foong Yu and Cheng Loong. At the time, the company ranked among the world's top 20 and Asia's top 10 industrial paper mills, and its subsidiary Jiangsu Long Chen Environmental Protection Technology was planning to apply for an A-share listing on the Shanghai Stock Exchange.

But in 2018, mainland China launched the "Implementation Plan for Prohibiting the Entry of Foreign Garbage and Advancing the Reform of the Solid Waste Import Administration System (the waste import ban)", restricting the total volume and quota of imported waste paper, a key raw material for industrial paper mills, to only 40% of the previous level, sending Long Chen tumbling from its peak. That year, its Hubei and Wuxi plants alone lost NT$1.7 billion, causing the company's 2018 EPS (earnings per share after tax) to plunge to 0.82 yuan, with profit down 75% year on year, and even its plan to list on the mainland had to be called off.

Why did a single waste import ban deal such a heavy blow to Taiwan's industrial paper leader?

Waste paper is an important raw material for making industrial paper. Recycled paper from the United States, whose recycled fiber is of the best quality, has always been an essential raw material for making high-grade industrial paper. Once imported recycled paper is unavailable, industrial paper makers are highly likely to be able to produce only the lowest-grade industrial paper.

"The three major Chinese industrial paper mills - Nine Dragons, Lee & Man and Shanying - were allocated 60% of the (imported waste paper) permits in total, while Long Chen got less than 2%. It was simply pushed to a dead end." Peng Yuan-hsing, a professor in the Department of Forestry at National Chung Hsing University, used "dead end" to describe the situation at the time.

After the "waste import ban" was announced, Long Chen obtained only 130,000 tonnes of imported waste paper, less than 2% of the total quota; by contrast, Nine Dragons, China's largest industrial paper mill, imported waste paper amounting to 31.2% of all quotas each year, 16 times that of Long Chen.

Not only that, as mainland China's commodity exports rose substantially every year, demand for cartons surged, which also caused a local raw material shortage and rising prices; what is more, local Chinese waste paper prices actually surpassed those of imported US recycled paper. As a result, Long Chen could only watch as its peers used cheap raw materials to produce high-priced industrial paper, while it had to use expensive local waste paper to produce low-priced industrial paper.

"Commercial competition is unfair to begin with. Since the shortage of raw materials is already a foregone conclusion, we can only find a new path." Facing unfair competition caused by policy, Cheng Ying-pin chose to accept it calmly. He recalled that back then, for the sake of environmental protection, Long Chen had voluntarily cut its ratio of imported waste paper two years early; unexpectedly, when it had worked to reduce that ratio to the limit, the local government used the ratio at that time as the basis for allocation and planned to bring imported waste paper down to zero within 3 years.

"We acted too early and instead left ourselves with no way back. The policy was right; we can only blame ourselves for not being familiar with the rules of the game." Being punished despite being a good student did not shake his confidence. Cheng Ying-pin believes that successful companies treat unfairness as the norm; the key lies in whether they recognize the reality of their situation.

——This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-378141.html