January/February 2014
Although the “Green Fence” customs enforcement initiative ended in November, China’s nonferrous scrap industry will continue to face stepped-up environmental protection and anti-smuggling efforts, according to reports at this year’s CMRA conference.
By Adam Minter
In the year since Xi Jinping assumed control of China’s ruling Communist Party and became the country’s president, environmental protection has become a top policymaking priority of his new government. For scrap recyclers, this shift has had profound consequences both inside and outside of China, putting environmental protection center stage at the 2013 China Nonferrous Metal Industry Association’s annual convention Nov. 6-9.
Formerly known as the International Metals Forum, the convention, organized by CMRA’s Metal Recycling Branch (Beijing), is now in its 13th year. For the first time it was held in Chongqing, the de facto capital of western China, where more than 30 million people live in a metropolitan area that stretches across nearly 32,000 square miles, which is roughly the size of South Carolina. Despite the new location—a city that has yet to see much in the way of scrap imports—and the uninspiring markets, conference attendance was strong, numbering 1,300 delegates, according to CMRA. At all hours, they could be found in the lobby of the convention hotel, the newly built Kempinski Hotel Chongqing, or milling about the many exhibitor booths in the adjacent Chongqing International Exhibition and Convention Center.
As usual, business was the primary topic of conversation, though the location reportedly impeded the conference’s typical intense deal-making. But regulations—in particular, “Operation Green Fence,” the unofficial name for a customs enforcement initiative China launched last February—was a close runner-up. At the time of the forum, Green Fence was coming to an end, and there was palpable relief throughout the conference as numerous attendees reported restrictions were loosening at key scrap-importing ports.
Also despite the conference’s location, western China’s booming economy and scrap processors were hardly mentioned in the conference hall. Instead, many of the speakers—most of whom were either government officials or had some other relationship to the Chinese government—spoke about the catastrophic air pollution that continues to choke Shanghai, Beijing, and other Chinese cities. Though the scrap industry might be responsible for only a very small proportion of that pollution, the speakers were adamant that it has a role to play in the cleanup. To be sure, past forums have included scathing criticisms of China’s environmental problems, but never before had the scrap industry been connected so directly and so frequently to high-level concern about China’s broader environmental conditions.
This was most clear in comments by Li Xinmin, a former inspector with the Chinese Ministry of Environmental Protection’s Pollution Control and Prevention Department (Beijing), who noted in his speech that China’s central government has compiled a list of polluting industries, and the scrap recycling industry is on it. He made clear the list is not just for show: “If you can’t clean up, you’ll be shut down,” he warned. “If this sector doesn’t improve, it’ll go out of existence.” Just in case the authority for his warning wasn’t clear, Li invoked the 18th National Congress of the Communist Party of China, which in 2012 raised Xi Jinping to China’s most powerful office. “We should never sacrifice the environment for our economic progress. That was the theme of the 18th Congress,” he said.
Green Fence’s Results
The environmental focus carried through this year’s convention speeches, the most important of which was from Cao Dayou, formerly with the Supervision Department of the General Administration of Customs, now a member of Customs’ Department of Legal Affairs (Beijing). Cao spent most of his speech recounting the various enforcement actions that made up the Green Fence initiative, which included efforts against smuggling, imports of mixed wastes, and the trading of import licenses in China. His address had a few surprises, however. First, in a moment of bureaucratic pique, he pointedly said that all of the Green Fence-related actions were based on laws and regulations that had been on the books for some time—and had been in his CMRA speeches in prior years. A central government order that originated above the ministry level, reportedly from the most senior Politburo level, is what created the coordinated effort that became known as the Green Fence, he said.
One of the initiative’s most important legacies will be increased criminal penalties for violators of China’s scrap import regulations, Cao emphasized. The administrative penalties that have characterized enforcement actions to date will continue, but they likely will be harsher, and he expects more violators will be caught. “Customs has a police force to combat smugglers,” he told the audience, “and we are [focusing on] large-scale smuggling activities.” Cao wasn’t clear about which activities Customs would target, but in a startling claim that clearly echoed President Xi’s year-old anti-corruption campaign, he took clear aim at his own agency and its allegedly cozy relationships with scrap importers, saying, “At Customs we will need to implement an accountability measure to prevent collaboration between customs officers and importers.”
Cao was unambiguous in his praise of the Green Fence program, which he called “very effective.” As proof, he offered data showing that from January to September 2013, on-site Customs investigations had uncovered 934 cases of illegal waste imports totaling 830,000 mt that were worth RMB 3.27 billion ($538.5 million as of late December). During the same period, the “anti-smuggling authorities,” as he referred to them, “inspected over 2,000 enterprises and found that 400 of them have problems with commodities,” Cao said. Those inspections reviewed an unspecified number of “prior year declarations and documents” and turned up problems with 2.4 million mt of imported commodities worth RMB 2 billion ($329.4 million). “We transferred these investigations to the Public Security Department,” he added.
Curiously, Cao noted Customs’ active cooperation with China’s state-run news media to promote the Green Fence initiative within China, and he expressed pride that the initiative “has drawn great interest.” Specifically, he was pleased that China Central Television, the state-run national news network, had produced a segment on the discovery and subsequent punishment of those responsible for importing 7,000 mt of “foreign garbage.” He also pointed to the extensive foreign news coverage—including a lengthy piece on Green Fence in The Christian Science Monitor—as proof of the program’s success, legitimacy, and its potential to “change China.”
Despite the Green Fence program’s alleged successes, Cao acknowledged it was scheduled to end in late November. Then he offered up a surprise to those in attendance: The official Green Fence initiative might be ending, but “Customs and the Ministry of Environmental Protection aren’t going to end it.” (He made no mention of the third agency that participated in Green Fence, the General Administration of Quality Supervision, Inspection, and Quarantine.) This new collaboration will focus on “anti-smuggling, illegal transfer of permits and imports, penalties in a series of important cases, and blocking the smuggling chains and channels,” Cao said, singling out the illegal imports of “e-waste,” medical waste, and construction waste as well as smuggling routes that run through Hong Kong and Vietnam.
Despite the ominous tone of his speech, Cao insisted that Customs’ first goal is to encourage, not inhibit, scrap imports—but in promoting scrap imports, it would focus on good importers, not bad ones. “We want to see good companies remain in the market,” he said. “We hope the good boys won’t be affected by the
bad boys.”
Imports and Production Down
Historically, some of the most valuable and illuminating information presented at CMRA conferences is data, and the 2013 event was no different. Unlike past years, however, the most comprehensive data presented at this year’s conference came from Customs, and much of it was information that might be of interest to regulators.
Cao presented some of the most compelling data during his nearly hour-long speech, touching on almost every kind of scrap commodity. His most comprehensive data, unsurprisingly, related to imports. According to his statistics, during the first nine months of 2013, China imported 8.49 million mt of nonferrous scrap, worth $15 billion. Imports were down 9.7 percent by volume and 9 percent by value compared with that period in 2012. Out of that, copper imports totaled 3.19 million mt, worth $10 billion, and were down 10.9 percent by volume and 7.6 percent by value, year on year. Aluminum imports totaled 1.81 million mt, worth $2.85 billion, down 6.5 percent by volume and 8.8 percent by value. In a rare admission, Cao conceded that his figures weren’t complete. “Of course there [are] some smuggled wastes, but they are not included in these figures,” he said. “These are just normal imports.”
The United States remains the top exporter of scrap materials of all kinds to China, Cao said, exporting 12.77 million mt of scrap worth $6.2 billion to China in the first nine months of 2013, down 2.4 percent by volume and 7.3 percent by value compared with that period in 2012. The European Union was second, with 9.31 million mt exported, worth $5.6 billion, down 17.6 percent by volume and 21 percent by value, year on year. Japan was third, with total exports of 6.86 million mt worth $3.6 billion, down 7.3 percent by volume and 6.3 percent by value in that period. Notably, in a subsequent speech, Wang Jiwei, CMRA secretary general and vice president, attributed the decline in imports to several factors, including the Green Fence initiative and the rising costs of labor, energy, and regulatory compliance. “All of these factors contribute to downward pressures on profitability,” Wang said.
The most surprising revelation in Cao’s speech was that Southeast Asian countries, as a group, are now the fourth-largest supplier of scrap to China, and the volume of their exports is growing quickly. In the first nine months of 2013, when exports from Western countries and Japan were facing steep year-on-year declines, exports from countries in the Association of Southeast Asian Nations were up 47.7 percent by volume, to 2.39 million mt, and 68.2 percent by value, to $2.4 billion. Though Cao didn’t explain ASEAN’s sudden export strength, much of it can no doubt be attributed to the increasingly tight economic relationship between those countries and China—a relationship Xi Jinping’s government encourages.
Cao also listed the Chinese customs districts that receive the greatest volume of scrap imports. Topping the list, surprisingly, was Nanjing, the capital of Jiangsu province in eastern China, which is on the Yangtze River about 200 miles inland from Shanghai. “There are several big importers headquartered there,” Cao said, without further explanation. It was followed by Guangzhou, the capital of Guangdong province, located on the Pearl River about 118 miles northwest of Hong Kong. That province is the world’s low-grade scrap processing heartland, so it was interesting and perhaps revealing when Cao said Shantou, a port in northern Guangdong, was not in his rankings “because we don’t have very good data.” As many in the conference hall surely knew, Shantou is a smuggler’s hub that supplies Guiyu—a nearby town notorious for its primitive electronic scrap processing—as well as other locales.
Although smuggling was a common topic of the conference’s speakers, they did not agree on how much China’s nonferrous scrap industry is involved in it. In his speech, Cao made it clear that he believes much of the Chinese scrap industry is tainted by smuggling. CMRA’s Wang, however, in a strongly worded passage, not only denied the involvement of the secondary nonferrous trade but also suggested that smugglers had disrupted legitimate scrap trade by causing increased scrutiny of declarations. “Currently, I can say that there are no scrap metal smuggling cases. Scrap copper and aluminum are not smuggled into China,” he said. “There are no law violations committed by the recycling industry. However, we were affected by the smugglers, and our customs declarations were slowed down.”
Even with this obstacle, Wang was optimistic about the prospects for the secondary nonferrous industry, noting that China’s total production of secondary nonferrous metals had exceeded 10 million mt in 2012 and would likely do so again in 2013 despite a rough first three quarters. Total Chinese production of secondary nonferrous metals in the first three quarters of 2013 reached 7.22 million mt: 3.5 million mt of aluminum, 1.8 million mt of copper, 1.1 million mt of lead, and 820,000 mt of zinc. “Growth of the sector has been restored in the fourth quarter,” he said.
Higher Standards for Processors
Despite criticism of the scrap processing industry’s environmental record throughout the conference, several speakers also noted the significant progress made in cleaning up China’s lead recycling industry. This is no small matter: China is now the world’s largest automobile market, and the recycling of lead-acid automobile batteries and, to a lesser extent, electric bicycle batteries, has become a major environmental issue in recent years, leading to high-profile and embarrassing media stories in China and abroad.
Li Xinmin cited President Xi’s interest in environmental protection as the partial inspiration for his ministry’s yearlong investigation into lead recycling and a crackdown on “family workshop” businesses, which resulted in 80 percent of these businesses being “shut down, restructured, or sent into other businesses,” he said. Wang offered an even more detailed accounting of the restructuring of the lead recycling sector, saying that in two years, the total number of lead recyclers in China has shrunk from more than 300 to about 60. Of those, half are capable of recycling more than 100,000 mt per year, he said. Meanwhile, on June 8, 2013, the government approved new market-entry requirements for lead recyclers that took effect immediately. Though Wang didn’t describe the requirements, he claimed China’s lead recyclers “had caught up to the international standard.”
Wang and other speakers explained that similar market-entry regulations for recycling other nonferrous metals were both necessary and imminent. Draft market-entry regulations for aluminum recycling have been written and are being reviewed, Wang said; Li reported that copper recycling market-entry requirements are next.
Other agencies and officials described their plans for how those requirements might be implemented. Lei Wen of the Chinese Ministry of Industry and Information Technology’s Department of Energy Saving and Comprehensive Utilization (Beijing) announced that his agency would be cooperating with “key companies” to construct “large-scale” demonstration projects for copper and aluminum recycling as well as a “metal recycling demonstration base,” though he gave no further details.
Lei’s comments might sound like a continuation of China’s decade-long program to move the country’s recyclers into concentrated resource recycling parks, but there seems to be a limit to China’s appetite for centralized recycling. Not all of China’s 39 recycling zones have achieved the planned 1 million mt of volume for which they were designed, Wang said, though he didn’t specify how many had not met that goal. As a result, CMRA is recommending that the government’s once-stated goal of 50 recycling parks be lowered.
Finally, in a development that will certainly interest companies and trade associations in China and abroad, Wang announced that CMRA is supporting a proposal to “create a kind of procurement alliance” for the purchase of imported nonferrous scrap. The rationale, he explained, is that China’s nonferrous industry is still dominated by “small and medium-sized enterprises that can’t speak foreign languages and who are in a weak position during negotiations and claims.” Though he did not provide any further details about the proposal, he said he was confident the alliance would receive a positive reception from the government.
Indeed, despite the recent increase in regulatory oversight of the nonferrous scrap industry, Wang remained confident of its strong future and relationship with Xi Jinping’s government. As he noted at the end of his speech, regulatory oversight “is a good thing—it will help our industry develop.”
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for a range of publications, and author of Junkyard Planet, published in 2013 by Bloomsbury Press.
Although the “Green Fence” customs enforcement initiative ended in November, China’s nonferrous scrap industry will continue to face stepped-up environmental protection and anti-smuggling efforts, according to reports at this year’s CMRA conference.