Market-Mechanisms-Oriented Conservation group, Forest-Trends, has just published a report concerning China's growing demand for both new wood pump and recycled material from wastepaper.  On the one hand, China has created an enormous capacity to recycle and resell waste paper from the first world.  This both saves landfill space, boosts global shipping, and takes the pressure off of virgin forests, especially in nearby Indonesia, which are threatened with either clear-cutting or replacement with tree-farms. 

That's the good news.  The bad news is that not all grades of paper products can be made with recycled material because of the deterioration of the cellulose fibers, and since China also produces and consumes an increasing quantity of there higher grades of material, the net result is likely an increased demand for lumber which overcomes the benefits of China's recycling industry.  China has been accused of turning a blind eye to illegal logging which may put some forests at serious risk and make certain timber species extinct.  The government has responded by "urging" its logging companies "to act responsibly overseas", but without any official action.

I recommend that you read the report, because as is typical with any story about China and/or the Environment requiring some balance and subtlety - headlines go all over the place. ChinaDaily and puts a good spin on it "China's paper recycling industry protects forests".  So does USAToday, with "Study praises China's Paper Recycling"  On the other hand, United Press International says "China's pulpwood needs may hurt forests"

ScienceDaily get it about right, "Blessing and a Curse":

... The Forest Trends report, Environmental Aspects of China's Papermaking Fiber Supply, notes that today about 60 percent of the fiber used to manufacture paper and paper board products in China is derived from wastepaper—a substantial portion of which comes from the US, Europe, and Japan. In the last ten years China's wastepaper imports increased by more than 500 percent—from 3.1 million metric tons in 1996 to 19.6 million metric tons in 2006—with most of that growth occurring between 2002 and 2006.

But the report warns that wastepaper alone is not sufficient to keep up with China's production demands, as high quality pulp and pulpwood are also being used to supply international buyers with high quality paper. The report finds that the same explosive growth that's created such a strong market for wastepaper is also boosting China's demand for pulp and pulpwood from developing countries already struggling to contain illegal and destructive logging. For example, China today buys some of its pulp and pulpwood from Indonesia and Eastern Russia where illegal, environmentally rapacious logging is widespread. And any increase in demand could exacerbate problems in those regions.

... At the same time, producers in the US, claiming that government subsidies give Chinese producers an unfair advantage in the world paper market, recently convinced the US Department of Commerce to place trade sanctions in the form of higher import duties on glossy paper manufactured in China.

... it's not unusual for Chinese container ships to off-load goods at US ports and then return to China loaded up with US-collected wastepaper. According to an article earlier this year in The New York Times, Zhang Yin, the owner of China's largest paper company, Nine Dragons Paper—and reportedly China's wealthiest woman—got her start in the business driving around the United States collecting wastepaper from landfills and shipping it to China.

The report notes that about three-quarters of the fiber China gets from wastepaper is used "to manufacture corrugated cardboard boxes to ship the great quantities of Chinese goods such as consumer electronics, clothing, and furniture to overseas markets."