Lee & Man Paper Manufacturing Ltd, China's leading containerboard and pulp manufacturer, said it will raise its annual capacity to 5.4 million tons to meet soaring demands.

The company, which has been making a decent profit, will add five more world-class paper production lines and two bleached hardwood kraft pulp production lines within the next 18 months.

In the first half of the 2007-08 fiscal year, the firm recorded a net profit of HK$718 million, representing a 75 percent growth year-on-year.

"The rising profits are a result of a substantial expansion of our production capacity and improved operational efficiency," Raymond Lee, chief executive officer of Lee & Man, told China Daily.

The firm sold 1.18 million tons of containerboard and 58,000 tons of pulp during that period and generated HK$3.9 billion in turnover, an increase of 61 percent.

Its success story is a staggering contrast to many paper mills in China that are struggling to stay afloat as a result of the government's effort's to reduce resource-intensive industries.

Smaller mills with a capacity of less than 2.3 million tons will be closed, and those with a capacity under 6.5 million tons will be phased out within the next five years, according to the National Bureau of Statistics.

"Because paper manufacturing consumes large quantities of water and electricity, the central government has made it a top priority to cut it back," Lee said.

The National Development and Reform Commission, China's top economic planner, has demanded that all paper mills be equipped with state-of-the-art technology and each production line must have a capacity of no less than 300,000 tons.

"This will translate into a higher cost of capital and threshold for investors to get into the industry," said the 37-year-old founder of Lee & Man.

China used to have at least one paper manufacturer in nearly every city, but now the big players are snatching up market shares.

The top five are Nine Dragons, Lee & Man Paper, Guangzhou Wan Li Da, Dongguan Jinzhou and Shanghai Cheng Long, which have a combined capacity of 10.2 million tons annually, or over 40 percent of the country's 25.1 million ton market.

Lee & Man has grabbed 12 percent of the market share. "Even so, I am always worried that I may lose out to competition," said Lee.

To secure its leading position, Lee & Man employs the latest technology, using recycled papers as raw material and consuming only 1.8 tons of water per 1 ton of products.

This compares with 100 tons of water for 1 ton of products by many other paper mills, the company says.

The market for containerboards, the most flexible and cheapest packaging solution, has enormous market potential in China.

The country's economy has been growing at a double-digit rate and generates over 3 million tons of new demand for containerboard each year. But China's per capita containerboard consumption is a meager one sixth of that in the US.

(HK Edition 01/14/2008 page1)