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OPINION

China lays waste to western imports

China lays waste to western imports
March 28, 2018
China lays waste to western imports

Last Summer, China delivered a broadside to the global recycling industry when it abruptly banned 24 grades of solid waste, including mixed papers and consumer plastics. The ban came into effect at the beginning of the year, while a prohibitive contamination limit of 0.5 per cent (per tonne) on all other waste imports was implemented at the beginning of March. Authorities have increased the threshold of impurities China is willing to accept, effectively a supplementary ban, as most countries currently cannot meet the new standards.

You get some idea of the scale of the problem when you consider estimates from the US International Trade Commission (ITC), which show that the US exported 37m tonnes of scrap metal, paper and plastics in 2017 worth $17.9bn (£12.9bn), while the UK recycling industry ships around 480,000 tonnes of plastics and 1.3m tonnes of recovered paper to China every year. Even the European Union (EU), which sets great store by its environmental record, exports half of its collected and sorted plastics, 85 per cent of which goes to China.

Dealers in China have been buying up huge quantities of solid waste that can be transformed into valuable raw materials, but this trash also contains polluting, or even hazardous materials, which pose a severe environmental threat. The ban forms part of a concerted push by Beijing to limit (and reverse where possible) the damage caused by untrammelled industrialisation. A raft of government policy decisions indicates this has become a strategic priority; not a piece of Central Committee window dressing. Some operators have been looking at alternative export markets in response to the Chinese restrictions, with exports of waste products on the increase to countries like Turkey, Taiwan and Vietnam. But waste management companies, such as former Tip of the Year Veolia Environnement SA (EPA: VIE), are stepping up efforts to match increased demand (particularly in plastics) with reprocessing capacity in the UK and Europe.

Management at Veolia may well concur with the view of the European Commission that the Chinese ban represents “an opportunity”, particularly as the EU has embarked on a parallel mission to clean up its act in areas such as landfill usage and consumer (or ‘single-use’) packaging. Jean-Claude Juncker & co are right on the money; there is a real commercial opportunity in train. But the willingness of companies to address – and eventually exploit – increased regulatory strictures often depends on their ability to back a truly scalable enterprise, complete with a hefty capital base, and an ability to accumulate initial losses to ensure long-term gains.

It seems almost perverse that in a continent that has suffered years of chronic unemployment, we’ve dragged our feet in the creation of a circular economy and internal market for recycling. Admittedly, any European capacity build in response to China’s move will entail beefed-up environmental regulations of our own, together with increased near-term costs for a range of industries – but surveys show public opinion squarely behind the EU’s draft commitments on this score.

Curiously, some companies are already well placed to exploit Beijing’s new policy, specifically large-scale producers of polyethylene, as plastic producers and packaging firms in China will need to substitute recycled for new material in the production process. That’s good news for the likes of DowDuPont Inc (NYSE:DWDP), ExxonMobil (NYSE:XOM ) and BASF (BAS: Xetra), or even privately controlled entities such as Ineos.

Opportunities aside, the decision by Beijing to crack down on imported waste materials serves to highlight the short-sightedness of western policy-making; we have been content to engage in a globalised form of fly-tipping, rather than formulate an effective – and potentially lucrative – set of policies on recycling and waste disposal. Industry has been complicit, as it always will be, in pursuing the easy option and now we’re left scrambling to plug the gap following China’s decision.