A Chinese Paper Maker Commits to Green Production in Virginia

Tranlin’s investment marks the largest greenfield investment in the United States to date from a private Chinese company. But more significant than the size of the deal was this distinguishing factor: where most US-China greenfield investments tend to involve export of US technology to China, in this instance the Chinese investor actually played the role of the technology exporter, rather than technology acquirer.

The vast majority of paper mills, including Chinese ones, have shifted to (wood) pulp production processes, in part because pulp has been relatively abundant and because it tends to be less polluting than straw-based paper production. But Tranlin has taken a different approach—it claims to have developed a leading straw pulping technology that simultaneously turns agricultural waste into high-quality paper products and the waste runoff into organic fertilizer. According to the firm, this process has less of an impact on the environment.

Tranlin decided to invest in Virginia for several reasons. First, in the mature US paper market, consumers generally attach greater value to environmentally friendly products and are more tolerant of a price premium. Second, siting a factory close to the straw supply and final consumers can cut costs. Third, Tranlin sought access to an advanced capital market that offered more financing options for future expansion. And ultimately, Tranlin viewed the US market as a strategic play to establish a more reputable brand and prepare for competition in the global marketplace.

Despite the eye-catching $2 billion price tag, the US operation represents only a small portion of Tranlin’s ambitious expansion. Since early 2010, as the company’s technology has matured, Tranlin has announced four projects— three in China and one in the United States—totaling $7.8 billion, an investment amount that is more than six times its total apparent assets. How it will finance the subsequent phases of its US expansion remains a question mark.

At the time of writing, Tranlin’s Virginia operation is still years from its full completion by 2020. Yet even in its current, partially completed form, the investment offers some notable lessons that can inform and shed light on future Chinese direct investments in the US market.

In addition to available public sources, this reconstruction of Tranlin’s Virginia story is the result of numerous interviews over a period of many months with people involved in the deal, including regional and municipal leaders in Virginia and Chesterfield County.