Dynamics of Integration between Chinese and International Waste Paper Markets

ABSTRACT

China is the largest importer of waste paper in the world and is highly dependent on the international market. Thus, the relationship between Chinese and international waste paper markets affects the supply of fiber materials in China’s paper industry. This study examined the dynamic relationship between the two markets and the impact of newly implemented policies on both markets. We used unit root tests, cointegration test, vector error correction model (VECM) and frequency-domain Granger causality test to investigate the integration between Chinese and international waste paper markets and identify which of the two markets is the price leader. The results revealed that the two markets were integrated after controlling for structural breaks, and the Chinese market acted as the price leader. Since the supply of waste paper and wood pulp is insufficient in China to meet the fiber demand of the paper industry, waste paper import restrictions have significantly affected the supply of fiber materials in China’s paper industry. Therefore, the Chinese government should fully consider the benefit of market integration and make full use of international waste paper resources to satisfy the large domestic demand for paper products.