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Japan has maintained, as noted, a higher volume of trade in paper converting machinery than in basic pulp-making and papermaking machinery. Its leading export markets have typically been in Asia, especially South Korea, Taiwan, and Indonesia which, as yet, possess little domestic paper machine building capacity. The United States, however, has sometimes been the leading market as in 1985 for cutting, bag-making and box-making machinery and in 1983 for machinery for making or finishing paper-paperboard. U.S. trade figures, using a somewhat different base than the Japanese figures shown in Table 41, have also shown a reasonably close ‘balance of trade. For 1985, U.S. figures show exports of papermaking and paper converting machinery to Japan exceeded imports $28 million to $24 million. However, the 1986 trade balance favored Japan by a 2-1 ratio with $58 million of imports compared to $29 million in U.S. exports. In 1987, U.S. paper machinery exports to Japan were unchanged at $29 million, while U.S. imports from Japan Fell by 17 percent to $48 million.

In addition to Mitsubishi's investment in Beloit noted earlier, there are several licensing agreements between Japanese suppliers and the major International producers, primarily covering top formers. Other licensing agreements include Ishikawa-Harima-Voith, Sumitomo-Valmet, and Kobayashi Engineering Works, Ltd. with Ahlstrom (Finland), the latter agreement pertaining to headboxes.

Precise data on mill capital spending plans and R&D expenditures are not available. An industry source estimated that a medium-sized 500 employee firm spent around 200 million yen on R&D in 1985, or approximately 1.5 percent of the firm's total sales. The firm estimated that 90 percent of industry R&D expenditures could be attributed to firms of 25,000 or more employees. With respect to capital expenditures, such expenses ranged from 3 to 15 percent of turnover over the past 5-years. In general, firms specializing in paper machinery appeared to be devoting a larger percentage of capital to new capital expansion.

People's Republic of China. The People's Republic of China, the world's most populous country, ranks fourth worldwide in paper and paperboard production, manufacturing 11.4 mmt during 1987. It's pulp production, seventh worldwide, totaled 7.2 mmt. Overall per capita consumption is only 22 pounds, just over 3 percent of the 640 pounds per capita used in the United States during the same year.

Mills and machinery in China are primitive in comparison to Western standards. There are an estimated 1,600 paper and paperboard Mills in China and an unknown number of pulp Mills. However, few of these operations approach Western standards; recently it was estimated . that 70 percent of the Mills should be closed or upgraded so that each Mills can produce at least 10,000 tpy of paper product. According to estimates only 30 of the paper Mills were capable of producing over 30,000 tpy of paper while another 100 Mills produce between 10,000 and 30,000 tpy. The remaining small, inefficient Mills account for 55-60 percent of Chinese paper production. Most

mills use non-wood fibers such as bagasse, bamboo, waste paper, and straw as pulp furnish to produce low-quality printing and writing papers for local consumption.

Approximately 400 fourdrinier machines are estimated to be in operation in China. Many of these are of U.S. origin, some dating before World War II. The Chinese market for paper machinery has proved attractive in recent years to both U.S. and foreign suppliers as major machine rebuilds and Greenfield Mills have gone forward. Projects were recently reported under way at 7 of the country's 10 leading paper Mills.

Major rebuild projects were divided among leading suppliers, especially Beloit and Voith (West Germany). Beloit Italia rebuilt the fourdrinier and press sections of a paper machine of the Qingzhou Paper Mills in Fujian Province. The expanded capacity will allow production of 300 tpd of kraft paper for bags and sacks. Another Beloit project was to rebuild a fourdrinier at the Yueyang Paper Mill in Henan Province. The mill now produces 160 mtpd of printing paper. Beloit, through Mitsubishi, its Japanese licensee, also provided a rebuilt fourdrinier at Jiamusi Pulp and Paper Mill in Heilongjiang Province, a mill which produces kraft and writing papers. In addition, Beloit has provided stock preparation equipment for the Hausheng Paper Mill in Hangzhou, Zhejiang Province. Voith has supplied a twin-wire for Paper Machine No. 5 at the Jincheng Paper Mill in Liaoning Province. Tampella (Finland) is currently supplying a $23.4 million paperboard mill to Xing Huo of Shanghai. Scheduled for delivery at the end of 1990, the project will include stock preparation equipment, four fourdriniers, calenders, sheet cutters, a sheet packaging line, and auxiliary equipment. Black Clawson recently announced the sale of three Chemi-WasherTM brownstock washers to Chinese pulp Mills with application to both sulfite and soda pulps. The Chemi-Washers.TM were supplied from the United Kingdom. As this and other sales indicate, purchase of U.S. nameplate equipment has not necessarily meant U.S. production of the equipment. Competitive pressures have required that foreign subsidiaries or licensees in the United Kingdom, Italy, and Japan provide the equipment. In 1984, Beloit delivered an estimated $10 million of paper machinery to China, largely from its European subsidiaries. In contrast, total U.S. dimestic exports of paper machinery to China totaled only $842, 000 in 1982 rising to $4.3 million in 1988.

Beloit, as the market leader in China, has also entered into a joint venture with the Ministry of Light Industry to produce rubber roll coverings. Known as Xi-Be Roll Covering Company, the firm is located in Xian, Shanxi Province. Rubber roll coverings are used on paper machine rolls. If successful, the joint venture May be expanded to include production of other types of paper machinery.

2 See Pulp and Paper, August 1988, pp. 48-57. For a summation of the condition of the Chinese paper industry and of the major projects being undertaken to upgrade Chinese paper machinery, see Seto, May and Sensenbåenner, Julia S., "Upgrading Paper Production, " The China Business Review, January–February 1986, pp. 39-44.

CHAPTER VI
OUTLOOK FOR THE U. S. PAPER MACHINERY INDUSTRY
Outlook for 1989 and Beyond.

The U.S. paper machinery industry appears headed for its best period of growth since the 1982–83 recession. After years of "running on yellow" as mill operators cautiously approached new expansion plans, forecasts of new capital spending hint at a substantial jump in shipments during 1988-89. If the forecasts are met, product shipments for 1988 should show an increase of better than 18 percent over 1987 with a further increase of about 13 percent likely in 1989. Such increases should bring product shipments from an estimated $1.44 billion in 1987 to approximately $1.71 billion in 1988 and $1.94 billion in 1989.

The expansion of the domestic industry should be accompanied by increases in foreign trade, both in U.S. exports and imports. United States paper machinery exports in 1988 should increase by approximately 39 percent to a record high of $428 million. United States imports of paper machinery, including closely related equipment, should show a further increase of 41 percent in 1988, to a record level of $780 million. Based on announced purchases likely to be delivered in 1989, increased mill capital spending is almost certain to be translated into increased U.S. paper machinery imports, even as domestic product shipments also rise.

The U.S. paper machinery industry, the largest in the world, will continue to face strong challenges by foreign rivals in the U.S. market as well as in markets abroad. A closer look at the future of the U.S. paper machinery industry May be cast in terms of three dimensions: (1) internal capability of the sector, (2) market prospects, and (3) external climate that MAY require U.S. Government action.

Producer Capabilities. The capability to produce turnkey systems from a variety of equipment suppliers will continue to be an essential component of the United States' ability to compete in the now globalized paper machinery market. As the producer of the broadest range of paper machinery, this U.S. paper machinery industry sector has the capacity to maintain a competitive edge in these systems.

Furthermore, U.S. firms will continue to advance technologically and will continue to produce state-of-the-art equipment. Major U.S. suppliers manage extensive R&D activities required to keep their firms competitive. Although cut back from former levels, leading U.S. suppliers continue to operate foreign subsidiaries and maintain licensing agreements.

Market Prospects. As noted earlier, demand for paper machinery in the United States is a function of projected capital expenditures by paper Mills. Growth in capital expenditures is expected to be quite substantial in the near term, a dramatic change from the sluggish growth which has prevailed since the 1982-83 recession. The U.S. Commerce Department, Bureau of Economic Analysis (BEA) annual survey of plant and equipment expenditures for 1988 showed an increase of 2 percent to $8.77 billion in 1986 paper industries capital spending, followed by a further 2.8 percent increase in 1987 to a spending of level of $9.01 billion. Based on the July-August 1988 survey, paper Mills planned a whopping 23.1 percent capital spending increase in 1988 to a fourth quarter 1988 level of $12 billion. If carried out (and fourth quarter 1987 spending had reached a level of $9.9 billion annually), this spending would set a post recessionary record and likely fuel substantial new paper machinery shipments in 1988-89.

Also according to an annual survey by Pulp & Paper, published in the January 1989 issue, projected U.S. capital spending by the paper industries for 1988-90 period was up 70 percent from the previous year's estimate for the 1987-89.2

Thus, prospects in the U.S. paper machinery market are probably better than at any time since the 1982 recession. Many good immediate opportunities for U.S. suppliers seem likely in the 1988-90 period as a backlog of domestic mill jobs, postponed by the recession, get under way. Grounds for optimism include brighter prospects for such key segments of the paper industry as coated papers, fine writing papers, and linerboard.

Planned expenditures by paper Mills, according to the Pulp & Paper survey, include $3.8 billion for new machines and $2 billion for machine rebuilds. The survey reported 34 major mill expansion projects currently under way in the United States. Only two Greenfield mill projects were started up during 1987 and none in 1988. Four Greenfield Mills will enter service in 1989 with five more scheduled for 1990 startup. Five Greenfield mill projects were in various planning stages at the start of 1989.

Mills started operating six new paper machines at existing sites in the U.S. during 1988. Three of these were tissue machines, with two for coated and one for uncoated free sheets. Beloit supplied the

1. "Business Plans 10.6 Percent Increase in 1988 Capital Spending," Bureau of Economic Analysis (BEA) News Release BEA 88-42, September 8, 1988, Washington, DC. Also see, Plant & Equipment Expenditures, Survey of Current Business, April 1988, pp. 26-30, and following LSSUleS •

2 see Pulp & Paper, January 1986, 1987, 1988, and 1989 for results of the annual survey.

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