China's National Sword and Recycling Import Ban: Responding to Market Changes

China's changing national policy on raw recycling imports is creating serious new challenges in the U.S. recyclables market. Bales of paper and plastic scrap, which would typically already be on ships bound to China's many recycling processors, are now building up in stockpiles across the United States. Materials recovery facilities (MRFs) are on a desperate hunt for new end users.

Until recently, China was the dominant importer of waste plastics, consuming 56 percent of the world's plastic recyclables by weight. Every day, the U.S. exported almost 4,000 shipping containers packed with recyclables to Chinese recycling processors, who then passed that raw material on to on Chinese manufacturers. These materials eventually returned to the U.S. and other countries in the form of electronics, toys, clothes, and other consumer goods. This back-and-forth has been mutually beneficial. But — recently — a string of Chinese policy changes aimed at improving environmental conditions in China rewrote the rules for global recycling markets.

Here's the good news: In addition to seeking new trade partners, there are concrete steps that municipal recycling programs, U.S. MRFs, and recyclable exporters can take to hold onto access to the Chinese market. In this article, we'll look at the specific policies that the ruling Chinese Communist Party (CPC) has implemented. We'll discuss new standards for cleanliness and purity in U.S. export recyclables. Finally, we'll share the latest intelligence on how exporters of recyclables can move toward meeting China's stringent new requirements, bridging the gap between the old way of working and the global recycling market of the future.

New Chinese Trade Rules that Affect U.S. Recyclable Exports

The CPC has had its eye on recyclable imports since at least 2006. That year, and again in 2010, the government passed import regulations aimed at keeping low-quality scrap out of the country. These restrictions were meant to ensure that bales of reclaimed materials were free of non-recyclable contaminants, but customs officials in China were fairly lax on enforcement, at least at first.

Weak enforcement ended in 2013, when Chinese President Xi Jinping announced a program called Operation Green Fence. Customs officials would investigate almost every shipping container before allowing recyclables into the country; they would refuse bales with contamination levels of 1.5 percent or more.

Operation Green Fence lasted for less than a year, but it sent a powerful message to exporters of reclaimed goods abroad: The Chinese market demands clean recycling.

In 2015, China's Environmental Protection Bureau (EPB) fired another shot across the bow of recyclable exporters. The EPB called for a two-month investigation into imported waste plastics at the facilities that process them for reuse. The government shuttered any facilities that didn't meet their environmental standards, severing business ties between unlucky exporters and their buyers.

The big change arrived two years later, with a policy called National Sword 2017. The one-year campaign tightened customs security at docks, in an effort to end smuggling and keep unusable solid waste from entering the country in the interest of public health and environmental stewardship. Then came the ban.

China sent a string of trade notifications to the World Trade Organization (WTO) in late 2017 detailing an outright ban on many recyclable imports, as well as strict contamination limits for allowed post-consumer materials. Over time, analysts in the west began to use the term National Sword to describe the entire host of trade policies that block the flow of scrap to China. These include:

• An outright ban on imports of 24 post-consumer materials, including mixed paper, mixed plastics, and key plastic resins: PET, PE, PVC, PS, and "other" — resin codes 1, 2 and 4, 3, 6, and 7, respectively. This took effect January 1, 2018.

• Post-industrial plastics may still be allowed into the country, but they will likely be carefully inspected for quality.

• Strict contamination limits of 0.5 percent for recyclables not covered by the ban. These limits began March 1, 2018.    

• Close inspection of recyclable shipments into the country, reminiscent of Operation Green Fence.

• A great reduction in the number of permits issued to importers of waste paper and waste plastic.

There may be more to come, too. China's environmental protection minister, Li Ganjie, said at a November 2017 press conference that the government would enact National-Sword-like campaigns every year through 2020. Unfortunately, the CPC is operating without much transparency. Companies are left to guess what will happen next in a market that's been thrown into chaos.

Responding to China's National Sword Policies

So where does this leave American exporters of post-consumer waste materials? There are several approaches that MRFs and their partners can take to adjust to this demand-side upheaval. Note that none of these are mutually exclusive; exporters of recyclables will probably have to enact some combination of all of these strategies to transition to the new market realities.

1. Clean Recycling Campaigns

   In 2016, the Massachusetts Department of Environmental Protection (MassDEP) worked with the Recycling Partnership to develop a pilot program aimed at reducing contamination in the state's recycling stream. They found that simple education wasn't enough. In order to encourage the members of a community to keep non-recyclables out of curbside bins, you need direct feedback as well as more traditional outreach methods, like mailers and signage.

   In the end, MassDEP created a step-by-step guide called the Recycling IQ Kit. It details a complementary set of strategies to keep contaminants out of the recycling stream in the first place. First, municipal employees must form a coalition with haulers and MRFs. (Alternately, the hauler or the MRF could reach out to local government; the point is that all parties must work together to identify problems and solutions.)

   Traditional mailers explain which materials are eligible for the bin, but the real power of this program is in its direct feedback to residents. City staff or, better yet, volunteer groups check curbside recycling bins before the hauler reaches them on their route. If they spot a non-recyclable in the bin, they leave a card identifying the error — and the hauler passes the residence without picking up the recycling. When residents realize they have to keep their recycling clean in order to retain service, they tend to correct problems quickly.

   Programs like this can help to produce clean bales of recycling. For eligible post-consumer goods, this could help to reach the 0.5 percent limit set by the Chinese government.

2. Slower Sorting Lines

   The bad news for MRFs is that improving bale quality is almost always associated with more expenses on the processing side. Many MRFs are hiring new workers and slowing sorting lines, giving staff more time to spot and remove contaminants before they make it into bales.

   Investments in new equipment — additional sorters, laser-identification for plastics — may also cut down on contaminants, especially in single-stream operations.

3. Seeking Other National End Markets

   Many U.S. exporters are already finding new end markets for their goods in countries outside of China. According to a 2018 Recycling Market Update by Jerry Powell of industry journal Resource Recycling, post-consumer paper shipments to India went up by 24 percent in 2017. These exports also rose by 16 percent to Indonesia and 22 percent to Vietnam. Meanwhile, paper bales bound for China sunk by 18 percent.

   The numbers are even more startling for post-consumer plastics. In 2017, plastics exports to Thailand went up by 400 percent, shipments to Vietnam rose by 105 percent, India accepted 34 percent more bales, and Malaysia took in an additional 295 percent. When China denies U.S. recyclable exports, other markets begin to open up.

4. Boosting U.S. Processing of Recyclables

   The U.S. recycling industry has long depended on China to process reclaimed materials into raw materials for the manufacturing industry. Container ships transport great numbers of goods from China to the U.S., but thanks to a trade deficit, they don't have much to bring back on the return trip. Recyclables have traditionally filled that void, driving shipping prices down dramatically.

   This has had the unintended effect of limiting the growth of U.S. recyclable processing capacity. It was cheaper to simply ship reclaimed goods to China. That is no longer the case. It's likely that we'll see new processing plants rise up on U.S. soil as a result of National Sword policies.

   The irony is that Chinese companies are at the vanguard of this growth. Processors from China are looking into partnerships with U.S. companies to build new operations to wash, flake, and extrude post-consumer plastics in the hopes that the CPC will not ban processed materials.

The key to resilience in an industry thrown into chaos is diversification. By improving the U.S. capacity for processing its own recyclables; by seeking new trade partners, and by cleaning up recyclable bales to compete against virgin materials, the U.S. recycling industry can stay as robust as it has been in the past, National Sword or no National Sword.

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