By Dezan Shira & Associates

As leadership in Beijing promotes a responsible and sustainable environmental policy, it will have to rein in and regulate its massive – but largely informal – recycling industry. China’s notorious pollution and frequent environmental scandals resulting from the country’s breakneck industrialization have given it a black eye at home and abroad.

Environmental concerns are the biggest cause of public protests in China and fodder for international criticism. However, the current regime’s  desire to be a global leader of climate change is a repeated mantra, most recently at the COP21 conference in December 2015and in the 13th Five-Year Plan  through 2020.

In order to make good on these commitments, Beijing must reform and regulate the country’s informal recycling industry, which operates with limited government oversight. Reform will require stricter government enforcement and investment in foreign technology and expertise to develop urban facilities and modern treatment and reprocessing practices. Standardizing the recycling industry presents considerable challenges, but is socially and economically essential for efficient and environmentally friendly waste renewal processes in the post-boom era.

The recycling market

In the West, recycling is generally thought of as a civic, responsible, and green activity. In China, however, recycling is a market-driven economic activity galvanized by securing cheap commodities for manufacturers.

China’s recycling industry employs more people than any other industry except agriculture. It is estimated that migrant workers collect over 90 percent of the recycled bottles in Beijing. This army of informal recyclers generally prefer to remain anonymous to avoid taxes. Often seen bicycling through cities with makeshift trailers collecting recyclables from garbage cans, recycling bins, and the streets, collectors regularly make arrangements with security guards from office buildings and owners of small businesses and restaurants to collect their recyclables. Although these collectors effectively fill the gap left by underwhelming public services, considerable amounts of recyclables still end up in the dump. Furthermore, when the price of oil and other commodities is low, there is less demand for recycled resources, and recyclables end up piled in landfills.

Once collected, recyclables are sold to workshops for reprocessing. While there are many large licensed reprocessing facilities, the industry is dominated by small family-run enterprises. The size of these smaller companies allows them to develop highly specialized, niche services, making them the go-to destination for specific recyclables. Further, their business costs are far lower than licensed facilities because they are often looser with safety and environmental concerns. Licensed companies must responsibly dispose of excess nonrecyclable waste, while unregulated firms burn anything that cannot be recycled or dump them in improvised landfills. These unregulated practices pollute heavily and often destroy local land and waterways while introducing serious health issues to workers and their communities.

China is turning to controversial incineration plants to deal with its enormous buildup of waste. According to the government, there is up to seven billion tons of waste buried around the country’s major cities. Shenzhen is tackling this problem by building the world’s largest waste-to-energy incineration plant. The plant is expected to burn 5,000 tons of waste a day, converting a third of that into useable electricity. Although the plant produces energy and adds a renewable component with its solar panel rooftop, incineration plants release vast amounts of CO2 into the atmosphere – and China plans to build 300 of them over the next three years.

Despite easing the burden, incinerators do not solve the root problem of inefficient recycling and waste management practices and continue to draw the ire of local populations worried about the environment. For example, plans to build an incinerator in Guangdong were scrapped after mass protests in April 2015. Nonetheless, Beijing seems to recognize the necessity to reduce waste, as it announced the creation of pilot urban mining facilities in dozens of cities to extract usable material from waste.

Stricter regulations on imported recyclables

The Chinese government has been making efforts to gradually clamp down on the biggest polluters and standardize the recycling process. In 2013, Beijing announced Operation Green Force, a campaign introducing regulations on imported recyclables. Because of China’s cheap labor, lax environmental safety standards and appetite for affordable commodities to supply its vast manufacturing sector, the country imports the most scrap and waste in the world. In fact, the US exports more scrap and waste to China than any other product.

Since Operation Green Force launched, China no longer accepts highly contaminated waste. This makes exporting dirty waste less beneficial, as countries can no longer dump their dirtiest refuse and must pay fees while containers are stored in port awaiting inspection. Minimum output regulations and the suspension of licenses for importers of dirty recyclables have also caused the closing of some small workshops reliant on inefficient dirty recycling.

Investment opportunities and market access

In addition to stricter regulations, Beijing is likely to invest heavily in promoting greener practices and cleaning the country’s environment. Efforts to allocate money to environmental protection projects could benefit several recycling-related industries including:

  • Development and manufacturing of recyclable building materials;
  • Recycling of building waste;
  • Manufacturing of plastic, electrical appliance, rubber, battery, and textile recycling equipment;
  • Development of unconventional water treatment and recycling equipment; and
  • Recycling of electrical and electronic products, automobiles, rubber, metal, and batteries.

Recycling and waste processing are an industry with huge growth potential in China, especially with r foreign technology and expertise. Only 5 percent of China’s construction waste is recycled, in stark contrast to 90 percent in the European Union and 97 percent in Japan and South Korea. In 2012, only 11 percent of China’s crude steel production and 21 percent of its aluminum production was from recycled material, compared to 59 and 57 percent in the United States, respectively. Greater efforts in these sectors could drastically cut emissions, reduce waste, and produce affordable commodities.

China will continue to be the world’s leading destination for waste in the short term, but  the slowed manufacturing, cheap commodities market, stricter rules, and more regulated domestic recycling program should reduce imported waste over time. In contrast, China’s demand for foreign technology and consulting in the recycling industry is poised to increase as leadership responds to pressure to address the country’s rampant pollution.

 

 

This article was first published on China Briefing. Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond. For inquiries, please email us at [email protected] Further information about our firm can be found at: www.dezshira.com

 

Posted by Dezan Shira & Associates