China Kills Recycling! Waste Monster Keeps Growing!
One of the things that has always fascinated me about microeconomics is how imperfectly it can track the macro picture. For example, on the macro level, we might hear of a country experiencing negative growth, but on the micro level, this means some companies might still be growing at 20 percent a year.
During the Asian crisis of 1997, my firm represented a company that sold what I would call "luxury fruit" into Korea. Korea imports a large percentage of its fruit and the old axiom is that food does okay during recessions because people still need to eat. I'm guessing (but do not know) that fruit consumption probably declined a bit in Korea in 1997, but probably not all that much. I recall (but please don't anyone hold me to this statistic), that fruit imports that year declined around 20%. But Korean sales for my client fell from $2 million a year and rising to $20,000. In other words, his products were pretty much wiped off the Korean map.
And yet there will also be companies that can thrive in difficult times. Our fishing company clients are actually doing quite well right now. Fish sales have generally not declined, but the cost of catching fish has. It has become easier and cheaper to find crew and, most importantly, the cost of fuel has been cut in half.
I mention all of this today because I just read an article in Plastics News (I know it sounds boring, but trust, me it isn't), entitled, "Worldwide Recycled Plastics Trade Plummets." And it is not just plastics. My law firm represents a number of companies in the recycled paper, plastics, and metals industry (a/k/a the scrap business), all of whom sell mostly into China. Until around three months ago, we typically would have at least one recycling deal pending at any given time, many times two. In the last three months, we have received a couple calls from our clients telling us they might have a deal, but not a single one has gone through. The only calls we get from our recycling clients these days are those where they want to discuss how they might seek to collect from their buyers who have stopped paying.
About a month ago, the largest recycler in one of Asia's largest cities told me it "was losing big money on every paper and plastics sale" and the price of metals had fallen so much it would soon be losing money on every metals deal as well. The Chinese companies to whom it sells its product are renegotiating deals after the product has shipped or they are just flat out not paying at all. Like many in the recycling business, this company has a comparatively long term contract with its city and it must continue to pick up recyclable materials. It has had to secure additional warehouse space to store it. This situation is repeating itself across the world. Recycling companies are getting squeezed.
What China related industries are thriving right now and which are really hurting?
Comments
Actually, the recycling picture is even worse than you've described. Some Western firms are out tens of millions. If the situation doesn't correct the effects are going to reverberate in US export numbers, job losses, tax revenue shortfalls and in the breakdown of some long-standing US/China business relationships. It may sound like an exaggeration, but many aren't aware of how substantial recyclable commodity exports are from the US to China.
Posted by: Mr Bill | December 3, 2008 10:09 AM
On a micro-micro scale - that is, in the part of Queens where I live, I was surprised this evening as I walked out of my apartment building. One of the maintenance men was taking all the garbage and recyclables out of my 13-story building for pick-up in a big plastic wheelbin. When he got to the curbside, he was literally swarmed by about 6 or 7 people who fought amongst themselves for the valuable bits of recyclable garbage. I don't know how much of what they wanted was plastic though...
Posted by: Matt | December 3, 2008 2:53 PM
Interesting! I don't know much about recycling but I am guessing it is not a big part of the Chinese economy. In the end the loser yet again will be: the environment.
PS. I like the title of your post
Posted by: Uln | December 4, 2008 4:40 PM
"One of the things that has always fascinated me about microeconomics is how imperfectly it can track the macro picture."
That's why we have Macro Economics.
Aside, the scrap plastic market in Dalian has slightly re-bounded. Three months ago I could get 2 jiao for an empty plastic bottle from a man at the entrance to my building. A month and a half ago it crashed to 2 fen (he stock piled, said there was no market at any price), now back up a bit to 1 jiao, he is selling them on himself for 2 jiao.
Posted by: Alex | December 4, 2008 6:19 PM
Uln - In fact, recycling is a massive industry in China, employing well over 10 million people. A couple of additional statistics to keep in mind:
A) Recycled metals accounted for 22% of all Chinese metal production in 2007 - and China is the world's largest metal producer.
B) The highest volume export from the US and Europe, into China, is recyclable metals, paper, and plastic.
Posted by: Adam Minter | December 5, 2008 4:19 AM
China has a big problem with the illegal dumping of electronic and plastic waste. Ocean vessels pass off the junk onto smaller coastal boats that bring it into China to be sorted by the poor and uneducated in what amounts to open air smelters, pools of acid to digest circuit boards and rivers of pure toxins and metals flowing out of these areas. The laborers and the surrounding villages are case studies for every kind of cancer and endocrine disruption case you can think of.
The proper channels for selling recyclable material in China are not much cheaper in the US or Europe, especially after shipping costs, and those companies are more or less compliant with CEPA regulations.
So again, the companies and investors that thought they had China (and India) over a barrel are now finding themselves on the receiving end. Africa is pretty far behind and catching up and all of these dodgy companies and dodgier managers are going to find themselves having to pay through the nose to have their waste handled anywhere on the planet.
Posted by: Greg | December 5, 2008 10:10 AM
Greg - You are correct that China still receives a very large volume of electronic waste from the developed world, but nearly everything else in your comment is provably false.
First, there's absolutely nothing illegal about the export of plastic waste to China. The recycling of secondary plastics is a major industry supported by the Chinese government, and it accounts for a very significant percentage of the plastic used in new Chinese products.
Second, "the proper channels for selling recyclable material in China" ARE provably cheaper in China. That's why China is the world's largest importer of this material. For example, non-ferrous automobile scrap used to be sorted in US$25 million "flotation" plants in the US and Europe before China began importing it. Today, it's hand-sorted by trained laborers who make prevailing wages, and can do it far more efficiently than mechanized means. There's a story like that for nearly every scrap recyclable that China imports. And, almost to a case, the different examples point to bigger profits, but - most importantly - better, more efficient recycling.
Finally, your comment about companies having China and India over a barrel is bizarre. After all, it's the US and Europe who are exporting their legal, recyclable resources to China, instead of keeping them at home. Meanwhile, China and Europe re-manufacture them into new products. So who's exploiting whom?
There's plenty of good resources out there to help you learn about the nature and scale of this immense industry. I recommend that you look into them.
Posted by: Adam Minter | December 5, 2008 6:15 PM
There is a bit of a butterfly effect about all of this. A few thousand people in Nevada buy homes on ridiculously cheap credit. A few years later, housing prices plunge and suddenly many homeowners owe more on their mortgages than the houses are worth. The mortgage rates begin to rise (apparently, no one read the fine print) and homeowners begin to default. At the same time, we realize that the geniuses on Wall Street have bundled these mortgages into complex investment vehicles, and nobody knows what they are worth today or, even worse, what they will be worth tomorrow. Banks begin to fail. The economy craters. Commodity prices drop. And our little recycling centre on Galiano Island is unable to sell scrap metal anymore.
Posted by: Peterbart | December 8, 2008 5:14 PM