The Executive Interview: Yuan Xiaoyu, Director Corporate Relations, UPM, China

Yuan Xiaoyu copyWhen UPM entered China nearly 15 years ago they brought with them a wealth of experience drawn from more than a hundred years of paper production in Europe. Their China operation now has an annual production capacity of 900 thousand tonnes which, along with their label production facility, represents approximately 14 per cent of UPM’s total worldwide business. Following a newly announced investment of EUR 390 million in 2012, Ms Yuan Xiaoyu, who has been working for UPM for nearly 12 years, spoke with us about how sustainability is at the core of UPM’s philosophy.

What are some of the daily challenges that UPM faces?
I think one of the biggest challenges we face in China is the overcapacity of paper production. It has caused very serious market competition. During the past ten years, the Chinese paper industry has developed very rapidly with a huge amount of investment in modern papermaking technology.

Some of the investments have clearly exceeded the market growth, therefore leading to over capacity. In the past we didn’t see so much but nowadays the domestic Chinese companies have introduced similar scales of machinery, so their capacity has grown very rapidly.

Is the over capacity forcing out smaller companies?
Sharp competition has forced smaller companies out, however, at the same time more and more smaller companies are consolidating with each other or being merged and acquired by the bigger local Chinese companies, so they are able to compete with international paper production companies like UPM.

We have seen that the other major challenge for SMEs is financing from banks, while on the other hand SOEs are able to get a huge amount of credit and support from the government bankers.

Can you tell us about UPM’s environmental initiatives in China?
In China environmental protection is a very big challenge. UPM has paid a lot of attention to this. We have been applying the same standards here as we do in Europe, so we can meet the national, local and provincial standards of environmental protection, and we can operate at a very, very low level of waste discharge.

One hundred per cent of our solid waste is treated and reused for our in-house power plant to supply energy to our company. In China we use less than ten per cent of the recommended standard for water consumption per ton of paper, which makes us an industry leader in this respect.

Does UPM’s strict supplier code give you a competitive advantage in China?
It does, not only in China but in the Asia-Pacific region as a whole. We aim to strictly control our supply of raw materials to ensure we only use certified forestry resources.

We also try to ask all of our suppliers, such as coal, to provide certification to prove that the raw material is coming from legal and official channels. The same goes for chemicals and other materials that we use.

This helps us when we compete with some other companies who are neither able to prove that their raw materials are coming from 100 per cent certified forests, nor to provide necessary certifications to meet the required chain of custody.

UPM is at the forefront of developing wood-based biodiesel for transportation, with the first global bio-refinery in Finland. What are some of the advantages of this fuel?
This has very big future potential as we aim for sustainable development and to tackle climate change. It is a global issue. We believe that biodiesel will help to alleviate the pressure on fossil fuel consumption and we can use less crude oil products and other non-sustainable energy sources.

When would you estimate a product of this nature will be available and ready for commercialisation in China?
We have just started to investigate this. First of all, you need to develop a large plantation of forestry before you can see if it is possible to sustainably support mass production. Also, even if there are many forestry plantations, the availability and access to those materials is another consideration. So I can’t say it will happen soon, it will take a few years.

Do you believe it would be welcomed by the Chinese economy?
Definitely, our products have drawn attention in China. Some science and technology, as well as energy administration, departments are very interested in it. Also some big companies, like China Petroleum and Sinopec, are interested in developing in this sector, so they are looking to learn from abroad from new and advanced technologies, and also see our practices.

We hope that it can be introduced into China in the future, but from UPM’s point of view we need to make sure that we properly prepare and ensure the market is ready for our product.

So do you think this an area where UPM could be a leader?
If UPM can secure a large and consistent supply of the raw material at a reasonable price, and meet relevant criteria, I think it is possible that we would be the leader because we have unique technologies.

The Chinese Central Government realises that it needs to find sustainable-development methods for industries like paper production, like chemicals, like steel, like all industries.

Back to UPM operations, we should stick to our own development in China, and wait for new opportunities to present themselves.