Three Years in the Doldrums: How Taiwan-Funded Long Chen Paper Faced a Waste Import Ban and Raw Material Shortage

In 2016, industrial paper leader Long Chen Paper posted a record revenue high and joined the top 10 of Asia’s industrial paper market. Yet in 2018, a waste import ban drove the company to rock bottom. With raw materials scarce, how did Cheng Ying-pin turn the situation around?

Amid green rice paddies in Erlin, Changhua, stands Long Chen Paper’s reinforced concrete plant of more than 40,000 ping. As Taiwan’s industrial paper leader, this single mill has a capacity of 850,000 tonnes; the cartons used by well-known e-commerce players such as momo and Shopee depend on its supply.

During the pandemic, e-commerce expanded rapidly, lifting carton demand and helping Long Chen deliver strong results: consolidated revenue in the first half of this year reached 25.1 billion yuan, up nearly 51% year on year. Yet not long before that, the company had endured a three-year “winter” caused by a single mainland China ban.

Wearing a tailored suit and black-framed glasses, Long Chen Paper chairman Cheng Ying-pin told Business Today in an exclusive conference-room interview that mainland China’s waste import ban had hit the company hard. He noted that three years of investment in mainland China cost the firm USD 300 million in profit, though he chose to take good days and bad days in stride.

In 2017, Long Chen Paper’s market value exceeded 57.5 billion yuan, surpassing Taiwanese industrial paper peers 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, while its subsidiary Jiangsu Long Chen Environmental Protection Technology planned 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. Long Chen then fell from its peak. That year, its Hubei and Wuxi plants lost NT$1.7 billion, causing 2018 EPS to plunge to 0.82 yuan, with profit down 75% year on year; its mainland listing plan also had to be halted.

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 industrial paper. Recycled paper from the United States, with the best recycled fiber quality, has long been essential for making high-grade industrial paper. Once imported recycled paper is unavailable, industrial paper makers are highly likely to produce only the lowest-grade industrial paper.

Peng Yuan-hsing, a professor in National Chung Hsing University’s Department of Forestry, said the three major Chinese industrial paper mills—Nine Dragons, Lee & Man and Shanying—together received 60% of imported waste paper permits, while Long Chen got less than 2%, calling it being forced to a dead end.

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 equal to 31.2% of all quotas each year—16 times Long Chen’s share.

Moreover, as mainland China’s commodity exports rose sharply year after year, carton demand surged, causing local raw material shortages and higher prices. Local Chinese waste paper prices even exceeded those of imported US recycled paper. As a result, Long Chen could only watch peers use cheaper raw materials to make higher-priced industrial paper, while it had to use costly local waste paper to make lower-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 policy-driven unfair competition, Cheng Ying-pin chose to accept it calmly. He recalled that Long Chen, motivated by environmental goals, had voluntarily lowered its imported waste paper ratio two years early; unexpectedly, after it cut the ratio to the limit, the local government used that usage ratio as the allocation benchmark and planned to reduce imported waste paper to zero within three years.

“We acted too early and instead left ourselves with no way back. The policy itself was right; we can only blame ourselves for not knowing the rules of the game.” Being punished despite acting like a good student did not shake his confidence. Cheng Ying-pin believes successful companies treat unfairness as normal; the key is whether they can clearly recognize the reality.

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