I have never used that bedding myself. From the picture it does look a lot like a dishcloth, I would recommend putting a little in some water before using it to see if it breaks down in the water - as paper will break down/go mushy in water.
As my brother once used a similar nesting material which was made from dishcloth (
https://www.petscorner.co.uk/small-a...ble-in-2-sizes) and his past hamster accidentally swallowed a piece and he had trouble trying to pass the piece of bedding which caused him to stop eating and he to go to the vets to help get the piece removed (luckily without surgery as he was in the process of passing it himself) - his hamster was completely fine afterward but I always been really careful myself to what I use myself for my hamsters nesting material.
Personally I would recommend just using shredded up white unscented toilet paper/tissue instead.