Shanghai Scrap

I have a friend from Hunan who tells me that in the small town where she was raised – children who don’t devote themselves sufficiently to their schoolwork will likely be told something along the lines of: Continue like that, and you’re going to end up a rubbish picker. That is to say: memorize those multiplication tables or you’re going to end up buying scrap computers on a street corner.

Now, I suppose, you could argue that the reason China has so many scrap peddlers is an insufficient devotion to homework. Or you could look a little bit deeper and recognize that there’s serious money to be made in buying, sorting, and selling the recyclable parts of what other people throw away.

And that’s precisely why – for at least a decade – perfectly intelligent Chinese bureaucrats and their recycling industry friends have been trying to devise ways to put China’s estimated 10 million scrap peddlers out of business. For many reasons, they haven’t succeeded, and they won’t so long as there’s a good living to be made doing the work that big companies can’t afford to pay people to do: sort through trash, strip valuable components from computers, or strip insulation from wires. There’s another factor at work here, too, and that’s the fact that China’s small-time peddlers – knowingly or unknowingly – are the primary suppliers for the environmentally damaging and illegal e-scrap processing operations that are so often blamed on e-scrap exporters in the developed world (who are still responsible for a significant trade in e-scrap in China- though much diminished over the last few years).

Environmentally unsound e-scrap recycling is – unquestionably – more profitable than the expense involved in doing it right. But if you’re a big company – say, Shanghai’s New Jinhua Recycling Group – you can’t very well promote environmentally-sound recycling on behalf of the municipal government and then send your e-scrap to illegal workshops Guangdong (well, you can, actually, but that’s for another post). So, for the last two decades China’s domestic e-scrap trade – the most profitable side of China’s domestic scrap trade – has belonged to the peddlers and those recycle in ways damaging to health and the environment. Big companies operating in legal (or semi-legal) ways just can’t compete with the underbelly.

Which is why many recycling industry observers were puzzled by last week’s announcement that New Jinhua has established a recycling “hotline” for Shanghai residents in need of home pickup of scrap recyclables. Currently, New Jinhua operates a large network of recycling substations throughout Shanghai (the blue trailers are a familiar sight to residents), where they buy – primarily – from peddlers.

So – what makes the company want to start competing with its primary suppliers? And what makes them think that they can compete in the first place?

As it happens, New Jinhua tried this home pick-up business before – way back in 2003, to be exact – when (for reasons known only to them and their gods) they set up an online-based recycling pick-up service. Unfortunately, I have no idea how that worked out for New Jinhua – they’ve never had much interest in talking about it (my line is always open, boys …). In either case, two things have changed since the internet pickup service, and they may account for why New Jinhua feels confident launching a telephone “hotline” at this late date.

First, China is generating more waste appliances and computers than it did five years ago. In April 2007, Liu Fuzhong, Deputy Director of General of the China Household Electrical Appliances Association, estimated that China generates 120 million individual waste electrical appliances (televisions, refrigerators, washing machines, PCs, and air-conditioners), annually. As China becomes more affluent, that number becomes bigger. And as that number becomes bigger, more and more businesses are going to be looking for ways to extract metals and other resources from those appliances. As in any business – volume tends to attract a crowd, and investors.

Second, and equally if not more important, China’s State Council will issue its long-awaited – and long-delayed – directive on e-waste recycling later this year (my sources indicate that it will come mid-summer). Among other provisions, the directive will include a licensing process for e-waste recyclers and a per-unit subsidy for individual appliances (so, for example, a subsidy for the recycling of an individual television based upon screen size, averaging out to roughly US$1/television).

In other words – licensed e-scrap recyclers are going to be armed with subsidies in the battle for China’s growing supply of domestic e-scrap. Though bad for the peddlers (and I have a serious soft spot for them), this is unabashedly good news for China’s environment. And, in the end, it may be good for the peddlers, too: according to sources close to the drafting of the directive, it will include provisions that encourage – and subsidize – the employment of scrap peddlers and former illegal e-scrap workshops [below, a photo of a former scrap peddler at work in a legal, government-supported e-scrap processing workshop in north China.]

This doesn’t mean that scrap peddlers will disappear from China’s streets. The e-scrap directive is just that – an e-scrap directive – and it has nothing to do with all of the other scrap recyclables (cardboard, cans, etc.) that China is generating – and the peddlers are collecting. Though the overall peddler trade might be a little less profitable with the loss of the e-scrap stream, there’s still plenty of cash to be made on everything else.

[I have a long, forthcoming feature on the specific steps that the Chinese government and several companies are taking to handle the increasing volume of domestic Chinese e-scrap. So if this post leaves some questions, that piece should answer them. More soon!]