In today's Finshots, we talk about trash... and China


The Story

In 2017, China proclaimed that it was sick of being treated as a global trash bin and asked countries like the US, UK, and Japan to simply recycle their garbage elsewhere. But now, 3 years later, the Red Dragon seems to be re-evaluating this policy.

But before we get too ahead of ourselves — some background.

During the 1980s and 90s, small Chinese manufacturers had a rough time sourcing key raw materials — including metal, paper, and plastic. Most of the country’s natural resources were diverted to large state-owned companies and small businesses were left to fend off for themselves. A few industrious entrepreneurs, however, saw a market opportunity here — converting trash to treasure. They began importing large quantities of old boxes, newspapers, plastic bottles, fast food containers and metal scraps from countries like the US and sold them at a discount to small Chinese manufacturers.

In the meantime, China’s growth rates exploded. There was a growing demand for TV, refrigerators and new clothes. Initially, manufacturers chose to produce these items using fresh, untouched input raw material. However, with increasing competition, they had to find a way to optimize cost and so they began using the stuff people were throwing away. Soon there was enough scrap material in China to justify going into business to recycle them. They were also being aided by foreign countries who simply chose to ship their waste to China instead of recycling them. And before you knew it China had transformed itself into the trash capital of the world.

Unfortunately, the arrangement didn’t last.

In 2017, China’s Ministry of Environmental Protection notified the World Trade Organization that it would no longer accept imports of 24 types of solid waste including several kinds of plastics, certain textiles and mixed waste paper. And in 2018, they banned another 32 items including stainless steel and metal scraps.

They believed foreign waste simply wasn’t clean and safe enough. They said it contained harmful pollutants and contaminants that leached into China’s landmasses and waterways. They said it was bad for the environment. They said it was bad for the people. So, they banned it. All of it.

And the trash hit the fan.

As we wrote in one of our issues early this year —

Japan, for instance, was hit hard. They were shipping most of their plastic waste to China. When these doors closed, they tried to redirect it to countries like Thailand and Malaysia. But these countries have higher quality standards. They weren’t going to deal with the trash as is (like China did). Eventually, though, the Japanese just decided to buckle down and process it domestically.

The British on the other hand simply resorted to burning trash. What they couldn’t burn, they shipped off to Malaysia and Vietnam. The US struggled too. Mainly due to the costs involved in recycling. Labour in the US isn’t as cheap as it is in China. So they started doing the same thing as everyone else — they turned to countries like Malaysia, Vietnam, and India.

But more importantly, the ban also hurt China.

When the restrictions went into effect, recycled paper constituted 67% of China’s fibre needs — and 41% of this stuff was still being imported. Costs began to soar and some paper mills had to shut shop completely.

And then there’s metal. When China restricted the import of scrap iron, steel, and copper, the supply crunch slowly started pushing raw material prices higher. Restricted imports coupled with a 40% tax on exports meant very little scrap made its way in or out of the country. And inevitably scrap metal prices in China slowly fell out of sync with global prices and at one point was trading at a premium of $100/MT when compared to Japan.

Oh, and we most certainly cannot forget copper. China was one of the leaders in processing copper scrap. It even accounted for 10% of the country’s own copper consumption (in 2018). But when the restrictions took force, trading copper scrap became unviable. According to some estimates, 3,00,000 tonnes of copper went to waste, simply because there was nobody willing to recycle them. Anyway, this hit the global industry. But it also hit China.

In fact, China’s copper industry has been lobbying to reclassify higher-grade scrap as valuable raw material. Steelmakers have been doing the same, and since the pressure has been rather overwhelming after the whole COVID situation, China has finally relented.

Last month, the country launched a new reclassification scheme and it notified that imports of certain grades of metals including brass, copper and cast aluminium were to be treated as “recycled material”, not waste. Which brings us back to the headline. Despite going on the offensive in a bid to restrict waste imports, the red dragon finally seems to have softened its stance considering the precarious economic conditions plaguing the country.

And now you know why…

Until next time...

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