On April 27, China National Statistics Bureau (CNSB) released its report on the country's economic performance in the 1st Quarter, showing a +137% growth of earnings from industrial enterprises at designated sizes (individual revenue at/above RMB20 million/yr.) in the Quarter over the corresponding period in 2020. Considering it as an unusual rebound from the pandemic hits in 2020, this was nevertheless a jump of +50.2% from the same period of 2019.
The strong performance included a +37.3% increase to RMB340.1 billion in revenue of the paper and paper products industry from that of 2020. And the industry earnings reached RMB24.76 billion, rising +112.7% and net after business cost of RMB287.12 billion (+35.9%). Because of this, superb performance by individual companies, such as Sun Paper who harvested a +106.71% growth in earnings to net at nearly RMB1.11 billion in the 1st Quarter, were no surprise to the market.
Market analysts hailed the performance of the paper and paper products industry, which serves more than 60 other industries in China's economy and benefits at the same time from the consistent policies of the government, including the proactive fiscal policy and a prudent monetary policy. It is expected that the industry will continue its positive performance along with the national economy as a whole throughout the year.
However, analysts caution at the same time the possible roadblocks to confront the industry, most troublesome could be cash flow tightness in business operation of not only mid-to-small companies, but also large players. For example, Chenming Paper, a top-5 paper company in the country. Like other large companies in the industry, Chenming Paper has also expanded its business from paper and board production to forestry, logistics and building materials, etc. Manacled by financial constraints, however, the company's overall business revenue in 2020 were only able to grow +1.12% from the previous year to RMB30.74 billion and net earnings up +3.3% to RMB1.71 billion, under low cash balance at RMB17.76 billion at end-December 2020 against RMB32.74 billion short-term debt! And falling from its peak at RMB3.77 billion, earnings of the company's paper business were only RMB1.71 billion during the year, in spite of the increase in production from 5.1 million/mt in 2017 to 5.77 million/mt in 2020.
