January/February 2006
China has big—and very particular—plans for building its “recycling economy” and managing its international scrap trading activities, as Chinese officials noted at a recycling conference in Guangzhou last fall.
By Adam Minter
In the past three years, China has hosted several important forums focused on its rapidly evolving scrap metal trade. Until recently, though, it was unclear to international participants whether or not these events were one-time occasions or recurring events akin to ISRI’s annual convention and the biannual meetings of the Bureau of International Recycling (BIR) (Brussels, Belgium). While important information was exchanged at the Chinese forums, more often than not they had the feel of impromptu gatherings, not regular summits for major participants in the Chinese scrap trade.
That is changing.
The Fifth Secondary Metal International Forum, held last November in Guangzhou, made a case for being the most important of all Asian scrap metal forums. The forum, organized by the China Nonferrous Metals Industry Association (CNMIA) and its Metal Recycling Branch (dubbed CMRA), moved beyond being a platform for dry government presentations and instead engaged delegates and officials in lively dialogues, well-organized tours, and an exhibition area. The event also gave delegates the chance to interact with an unprecedented array of high-ranking Chinese government officials with oversight of that nation’s scrap metal trade.
The presence of these officials and the liveliness of the forum can be attributed, in part, to the Chinese government’s new five-year plan that calls for sustainable development policies and creation of a “recycling economy.” This is a major policy shift from the Chinese government’s previous policy of development at any cost. As part of the shift toward sustainable priorities, government officials are increasingly looking to CNMIA and CMRA to provide expert policy recommendations. This general-to-specific path of policymaking was readily apparent at the forum. There, government officials described national statistics and priorities, then left the specifics of fulfilling those priorities to speeches by CNMIA and CMRA officials most familiar with the scrap metal trade.
For example, Zhao Changyi, vice director general of the Department of Environment and Resource Conservation of the National Development and Reform Commission (NDRC)—which promotes the efficient development of China’s economy—observed that Chinese aluminum and copper producers use 40 percent and 50 percent more energy, respectively, than their counterparts in the developed world. Likewise, secondary aluminum and secondary copper production account for only 21 percent and 22 percent, respectively, of total Chinese production of those metals compared with 40 percent and 37 percent in more developed countries. He also noted disapprovingly that China produces more than 100 million mt of mining wastes each year, of which only 10 percent is recycled, leaving China with more than 2 billion mt of accumulated tailings and “red muds.”
“Developing the recycling economy is the only way for the nonferrous metals industry to achieve sustainable development,” Zhao concluded. Though he did not provide specifics on how China will develop its recycling economy, he made it clear that NDRC would actively support demonstration projects, technologies, tax policies, and private efforts toward that end. He also set goals, stating that he expects to see secondary aluminum, copper, and lead reach 25, 35, and 30 percent of total Chinese production by the end of the five-year plan in 2010.
Speakers also used high-level generalizations to critique the status quo. For example, Sun Youhai, director of the Bill Office for Environment and Resources Protection Commission, candidly examined the factors inhibiting the orderly development of China’s recycling economy. He pointed to a lack of coordination among Chinese government departments as well as among different levels of government that may have different agendas. “Some businesses with serious pollution and energy consumption are the essential local taxpayers and thus are ‘in the same boat’ as the local governments,” he explained. “They ‘join hands’ to fight against the supervision of environmental protection.”
In a dense, multipoint section of his speech, Sun detailed the specific legal priorities he foresees being included in a national recycling law to combat collusion among private enterprises and local governments. The priorities include better coordination between governments, stronger enforcement of laws, and “setting down the basic orders of utilizing and treating raw materials and scrap resources by producing enterprises.”
Sun’s list is ambitious, and he gave no indication as to when he expects any or all of its goals to be met. Nevertheless, he noted that the government’s Environmental Assets Committee has established a “law drafting group” to focus on promoting China’s recycling economy. At the same time, relevant departments of the State Council are “making or revising relevant laws.” Notably, these are the same mechanisms and legislative bodies used in all major policy changes in China, so their collective impact promises to be significant.
Tax policies related to recycling will likely be among the first policy changes made under the new five-year plan, following CMRA’s successful 2005 campaign to eliminate a 5-percent export tariff on secondary aluminum. That change “shows that the government attaches great importance to the secondary metal industry and that China is supporting the development of the secondary metals industry,” said Jiang Song, vice chair of CMRA.
This success has encouraged CMRA to submit additional proposals to NDRC and the Ministry of Finance, including an “application for abolishing the import tariff on copper and aluminum scrap.” Jiang offered no details or timeline on the elimination, but he did provide the biggest news of the conference when he added, “It is said that these proposals and application are expected to be approved.”
A Look at the Numbers
Like past Chinese scrap metal forums, last year’s event gave attendees a detailed statistical portrait of the Chinese primary and secondary metal industries. In the first three quarters of 2005, China produced 5.7 million mt of aluminum, 1.8 million mt of copper, and 1.7 million mt of lead, up about 18, 22, and 29 percent, respectively, from the same period in 2004, reported Jiang Song. Of that total, the output of secondary aluminum, copper, and lead was 1.5 million mt, 1 million mt, and 210,000 mt, up around 23, 12, and 17 percent, respectively. During the same period, China imported 1.2 million mt of aluminum scrap, 3.6 million mt of copper scrap, and 48,000 mt of zinc scrap, Jiang said.
On the ferrous side, China consumed 51 million mt of steel scrap in 2004, of which 10.2 million mt—or 20 percent—was imported, said Zhai Xin, vice secretary general of CMRA. In 2005, those numbers were expected to grow to 55.2 million mt and 13 million mt, respectively.
Zhai explained that 20 to 25 percent of China’s domestic steel scrap is generated by steel producers, while 50 to 60 percent is generated by other businesses and individuals. Scrap automobiles generate about 3 million mt of steel scrap each year, and imported hardware and electric motors provide an additional 2.6 million mt. Finally, China’s shipbreaking business provides an additional 300,000 to 500,000 mt. According to Zhai, the nation’s ferrous scrap recycling industry currently employs 1.6 million people, while its recycling industry as a whole has more than 10 million employees.
Though Zhai and other policymakers at the conference extolled the recycling industry’s contributions to China’s employment picture, they were concerned about the disorder that large numbers of employees in numerous dispersed networks cause the industry. For example, Zhai noted that there are 480 licensed scrap importers in China and that, on average, “only 10,000 mt of scrap are imported and dismantled by each importer [presumably on an annual basis].” Similarly, he observed that there are 356 licensed auto dismantlers spread across 30 provinces who managed to dismantle only 900,000 automobiles in 2004.
Wang Gongmin, vice president of CNMIA, cited the relatively small size of many Chinese secondary metal producers as the primary issue inhibiting the proper development of its secondary industry. “The mainstream of China’s secondary metals industry,” he stated, “is small enterprises with low production capacity, unstable production, no guarantee of product quality, and inefficient environmental protection measures.” According to Wang, there are more than 2,000 Chinese secondary aluminum producers, but only four have annual production capacity exceeding 50,000 mt while 26 have capacity between 10,000 mt and 50,000 mt. Similarly, six of China’s secondary copper producers have capacity between 50,000 mt and 100,000 mt, while only two have capacity in excess of 100,000 mt.
In recent years, China has explicitly supported, encouraged, and forced consolidation in its primary and secondary metal industries. Several speeches strongly indicated that consolidation will continue to be a policy goal.
Furthermore, officials stated a strong preference for consolidation to occur in one of the designated recycling parks that have been developed—or are under development—throughout China. These designated areas provide scrap importers and processors with a centralized customs inspection system, enhanced environmental controls, guaranteed logistics, and ready markets. There are five such parks in China’s coastal area, and more are planned, said Jiang Song.
Statistically, these highly regulated parks are becoming important centers for scrap metal imports. Currently, for example, the Tianjin Ziya park is home to 43 scrap importers who bring in about 480,000 mt a year—nearly half of all scrap imports into the Tianjin port. The Ningbo park in southern Zhejiang province is home to 47 scrap buyers who, according to Jiang, were expected to import nearly 1 million mt in 2005. In nearby Taizhou, imports were expected to reach 1.2 million mt in 2005.
This movement toward parks and consolidation could soon accelerate, several Chinese officials suggested. CNMIA’s Wang Gongmin asked for further consolidation in the secondary metal industry, calling for five secondary copper producers and 10 secondary aluminum producers with annual production in excess of 100,000 mt by 2010. He also encouraged ferrous scrap users, processors, and traders to be organized into “one or two” scrap distributing bases for the purposes of “large purchase, centralized processing, and unified distribution.”
That proposal was not new. It was first announced at the China International Metal Recycling Forum in March 2005. Though Wang provided no additional details in November, the trend toward consolidated buying and distribution—at least in ferrous scrap—appears to be supported by influential Chinese regulators, trade groups, and importers.
Grappling With AQSIQ
For many forum delegates, the most interesting presentations dealt with AQSIQ’s supplier registration system and preinspection procedures at foreign ports. Though these topics have been covered at other Chinese conferences, the Fifth Secondary Metal International Forum gave attendees the first opportunity to engage the actual architects and enforcers of the AQSIQ policies. It was no surprise, then, that the forum hall was packed when Yu Qunli, director of inspection and supervision at AQSIQ, began his presentation on the supplier registration system.
From the beginning, Yu presented an unapologetic, aggressive defense of the system. His speech—directed at overseas scrap suppliers and Chinese importers (who must also register with AQSIQ)—began by reviewing AQSIQ’s role in China’s import regulatory infrastructure. He then turned to the topic of registration, noting that 1,200 enterprises had applied for registration since Aug. 1, 2004, but “only ten actually understood the application and filled it out correctly.” The others,
Yu claimed, “relied upon fraudulent documents.”
Yu then discussed the 17 documents a scrap shipper must have to obtain a registration, including “a complete blueprint of the office.” Suppliers who don’t comply with Chinese legal requirements could face sobering consequences. “When we go overseas to inspect suppliers, and you are not in conformity,” he explained, “I will have to say ‘I’m sorry.’ I hope you can understand.” When Yu completed his speech, he reluctantly submitted to some aggressive questions from the audience on the burden imposed by the AQSIQ regulations.
The next official was Pang Xiang, deputy chair of China Entry-Exit Inspection and Quarantine Association, Reused and Recycling Branch and an official with Pre-inspection Control of Import Recycling Scrap Certification and Accreditation Administration. In short, he has significant oversight of China’s preinspection requirements. Many of the problems that China’s preinspection rules seek to prevent, he said, come from countries that are not Basel Convention signatories. “The U.S. is not a Basel signatory,” he said, “and most of the problems come from the U.S.”
Next, he justified preinspection by pointing out that the costs of returning illegal shipments to exporters are often prohibitive. Then he added candidly, “We know that the preinspection system has not had a good effect because we cannot supervise the overseas import companies.”
According to Pang, there are several efforts underway to improve the system, including an attempt to computerize it and, thus, make it more efficient. Also, improved training of inspectors has already had a noticeable effect: In 2005, 9,000 mt of scrap cargo was not allowed into China. On another point, Pang expressed a strong desire to set up a communication protocol for dealing with misunderstandings related to AQSIQ preinspections.
Building Relationships
Despite the raw feelings incited during the AQSIQ and preinspection presentations, the Fifth Secondary Metal International Forum was notable for the comity between Chinese and international delegates. Unlike past Chinese scrap metal forums, most of the international participants were not first-time visitors to China. Nevertheless, there are always new levels of understanding and cooperation that can be bridged.
Toward that end, CMRA and James Li of First America Metal Corp. and Chinascrap.com jointly hosted a small gathering of scrap suppliers and importers on the first night of the forum.
It was an unusual event. Chinese importers sat on one side of the room; foreign suppliers sat on the other. Moderators included Li and Wang Jiwei, secretary general of CMRA. After brief introductions, Wang encouraged the importers and suppliers to ask each other questions. Though both sides were reluctant at first, soon the inquiries were moving back and forth across the room. “Is it possible for a Chinese scrap company to set up a business in the United States?” “How come the price of American scrap is sometimes more expensive in China than the United States?” “Is there anything we can do about the AQSIQ registration system?”
As the answers flowed, so did the sense of community and understanding. Afterward, participants exchanged business cards, and at least one container of wire was sold. It was an important event that, in various permutations, has occurred at international scrap meetings for years. That it happened at a Chinese meeting suggests a new level of maturity not only for Chinese scrap conferences but also for the Chinese trade in general.
There is little question that, in 2005, the Secondary Metal International Forum established itself as the most mature and international of China’s scrap conventions. In terms of organization and programming, it raised Chinese scrap conventions to a new, international standard while presenting an issue-focused agenda that will influence the international scrap trade throughout the new five-year plan and, quite likely, much longer.
When BIR holds its spring convention in Beijing in May 2006, it may very well find that its agenda was set by the presentations given in Guangzhou in November. Whatever questions are left unanswered by BIR’s landmark meeting will certainly be taken up at the Sixth Secondary Metal International Forum in 2006.
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for U.S. and Chinese publications.