Domestic paper companies have been asked to invest in new production lines to save long term costs and improve quality as a number of larger foreign firms have recently entered the industry.

The sector faces many common difficulties due to the struggling economy, which has resulted in several enterprises going bankrupt or ceasing operations.

However, the Ministry of Industry and Trade (MoIT) says that the sector still has potential for development, despite the ongoing difficulties.

The ministry said in the first five months of this year, the industry produced 860,000 tonnes of paper, a year-on-year increase of 5 percent. Its exports also rose by 15 percent to reach nearly 70,000 tonnes.

The MoIT has forecast that paper consumption this year will be around 3 million tonnes, while currently domestic capacity is just 2.18 million tonnes.

Imports of paper have been on an upward trend over the past few months.

The ministry's figures revealed that paper imports this month are estimated at 130,000 tonnes, costing 114 million USD.

Paper imports in the first half of this year are 691,000 tonnes with a total value of 640 million USD, representing a 114 percent year-on-year rise over the same period last year.

Indonesia , Taiwan and Singapore have been the main suppliers to Vietnam 's paper market.

However, Vu Ngoc Bao, General Secretary of the Vietnam Paper Association said that pulp production by domestic enterprises has seen a relatively high growth.

Bao said that several companies have invested in modern production lines, and pulp production last year reached 484,300 tonnes, an increase of 30 percent over 2011. However, this only met half of the demand.

The sector lacks pulp and has to import it for 900-1,000 USD a tonne, while Vietnam has ranked first in the world for exporting woodchips (used in pulp production) over the last two years.

Last year, the country exported 6 million tonnes of woodchips which could produce 2.7 million tonnes of pulp for the lower price of 110-120 USD per tonne.

The association said that in the first six months of the year, several foreign investors have launched projects to produce pulp in Vietnam .

The world largest packaging producer, Nine Dragons Paper, announced it will build a new production line for the Chanh Duong Paper Company, with the annual capacity of 350,000 tonnes.

Lee&Man Paper Manufacturing Ltd has also built a paper production plant in southern Hau Giang province.-VNA