China’s astonishing growth has been accompanied by a massive printing of money. The country prints roughly one-third of the world’s paper currency, which greases the wheels of its growing economy.
But the renminbi is under constant threat from those seeking to counterfeit the currency. A quick internet search brings up dozens of websites dedicated to detecting fake yuan. Yet many still fall victim to counterfeiters. A Belgian consulate in Guangzhou unknowingly accepted RMB 5,000 in counterfeit money during a charity drive late last year.
In terms of how difficult it is to copy, the renminbi is above average, as are China’s efforts to pursue counterfeiters, said Chad Wasilenkoff, CEO of Fortress Paper, a company that makes the paper that currency is printed on, among other specialty paper products. During his tour of China, Wasilenkoff took time to discuss with China Economic Review how China’s currency compares to other countries, what can be done to make it safer and the company’s growing business supplying specialty wood pulp used in China to make clothes.
What brings you to China?
I am here for almost two weeks covering most of our business positions. On the bank note side, we have several very high level, state of the art security features for bank note substrates that we are in talks with and discussing with the Chinese national bank about potentially implementing. Nothing imminent, these types of projects take many, many years to implement. We have been working on this for many years, and it is going very, very well, but we also don’t expect to have anything commercial for probably several more years. On our other division, where we make bank note threads, we have bought some equipment and a lot of intellectual property off the Bank of Canada. We have already done some work with threads with the Chinese and that continues to go well. Our third business, which is dissolving pulp, which is a very specialized pulp used to make rayon and viscose, which is a substitute for cotton, and it a strong growing business for us. We sell all of our dissolving pulp here to China. So I was here meeting with customers and also having some discussions with government officials, because recently the Chinese have implemented some anti-dumping initiatives. They have not imposed a tariff, but they are going through an evaluation process. So we wanted to make sure that our voice was heard, that they understand our side of what is really going on, obviously in an effort to avoid any tariffs.
How exactly are you working with the Chinese government?
We specialize in the bank note paper, or the substrate itself, and China represents approximately one-third of the annual production of bank notes for currency paper bills. China, similar to every country in the world, does have counterfeiting issues. Every seven to ten years, a national bank will change out its currency, so it will come out with a new design, look, feel, and that is when they implement new security features. So we are working with them on some of our new, innovative security features within bank notes, and within the substrate, which we remain confident can be utilized in the next series of bank note production for China, for the next renminbi … We are looking at potentially a new and novel substrate, which is a combination of paper, which is made of cotton, and then plastic or polymer, which will increase the durability and dramatically increase the security of the bank note.
How does the current renminbi stack up against other currencies in terms of security?
I would say it is probably in the middle, in terms of international standards on security features. Maybe even slightly above the middle or the average. That’s strictly on the bank note side. There are multiple parts to warding the counterfeiters. Another big part of it is, obviously, government support, law enforcement, tracking these counterfeiters, ensuring that there are very strict and harsh penalties to do everything you can to deter the counterfeiting. When you take all those aspects into consideration, I would say China is in the top quartile, very aggressive as far as law enforcement and penalizing the counterfeiters.
Any specific examples of countries with currencies that are more or less secure?
Canada is definitely not as secure a bank note as China’s. They have gone to a polymer or plastic. It is known in the industry that these polymer bank notes – so Canada, Australia, and a few other currencies around the world – they get more durability out of it but less security … I would say that the current series of the US dollar would be less secure than the Renminbi, with the exception of the new one hundred dollar bank note, which has a new security feature. It has a moving hologram image within it … Switzerland is known to be sort of a Holy Grail for the industry standard. [The Swiss franc] has more security features than any other bank note in the world … I would say [the Hong Kong dollar] is more secure than the renminbi. It is not necessarily the colors. A counterfeiter can access any of the colors as well through the printing process. It is some of the embedded, inherent security features that make it more secure.
If you were given free reign, how would you improve security on the renminbi?
I would put a foil on the outside, a holographic foil. I would put a transparent window, so it eliminates the color photocopiers and scanners and things like that. It dramatically increases the complexity, because now you have multiple substrates that you are working with, not only cotton, but also these polymers or plastic. The transparent or see-through window is obviously very visible, it is a level-one security feature so it’s easily recognizable by the general public, and it’s going to have built-in detection devices, where utilizing these windows can help. It’s basically like a self-detection mechanism. Having something hidden within the transparent window that is not visible to the naked eye, and putting that over the top of another hidden image that will only become visible through various technologies embedded within these transparent windows.
You mention dissolving pulp used to make rayon is a major part of your business in China. When I was a kid, I think I had a Hawaiian shirt made out of rayon. Are you telling me it was basically made out of paper?
Rayon has been around for decades, and it used to be a replacement product for silk. It was dry-clean only, and it was not very durable. It has gone through numerous, very incremental changes. It is actually produced from a chemical process, so they can tweak and modify these chemicals, and they are rebuilding it at the cellulosic level. Through these minor modifications, it went from trying to replace silk, to trying to replicate and replace cotton. So now it has double the dryability of cotton, double the arability of cotton, it holds dyes better than cotton, so it really is a substitute product. Unfortunately, they didn’t change the name rayon or viscose, so a lot of people have some concerns with it, thinking it is dry-clean only and a silk replacement. So hopefully someone will branch off, and go through the pain and suffering of rebranding a brand new fabric or textile.
How has your dissolving pulp business developed in China?
The largest consumer of thi
s dissolving pulp product is China, and they continue to grow. They are probably growing north of 10% in terms of increase in viscose demand. They are constantly putting up new machines, new lines and requiring more and more dissolving pulp. China has recently, within the last few years, tried to make dissolving pulp within the country. It has a few operations. Some of them have started and then had to shut down because China is known for being a low-cost producer, but, when it comes to dissolving pulp, it is actually the world’s highest cost producer. They don’t have enough domestic wood for fiber, so they have to import most of their wood chips, and they are doing that from Vietnam, Malaysia, Indonesia, even as far as Africa. We, as our mill ramps up [in Canada], will be a low-cost producer. We think by this time next year we will be able to have the finished dissolving pulp product here in China for $700. The Chinese cost right now is typically in the $1,100 per ton range, which puts them in the highest quartile.
You said you came to China, in part, to deal with a dumping issue. What is at issue?
Chinese dissolving pulp industry, which are high cost producers and is going through a lot of financial pain, and operating at a loss right now, have petitioned the Ministry of Commerce (MofCom) to do an anti-dumping investigation. Their claim is against Canada, the US and Brazil. Focusing on the Canadian one, which is where our operations are, they are claiming that the Canadian industry is selling domestically dissolving pulp at $1,600 and dumping into China at $1,000, leaving a $600 dumping margin. So that is what they are claiming. [Essentially, a similarly named product is sold at that higher price in Canada, but it is a different type of dissolving pulp than what Fortress Paper produces] … There is no dumping, there is no margin, or anything like that. We are over here trying to defend that and make sure the story is told properly and understood correctly by MofCom so it will get thrown out over time, but unfortunately it is a distraction that we have to go through.