China’s decision to ban the import of 24 categories of solid wastes by the end of the year was a major development and it is clear that the impact is likely to be severe, and not just for the UK. But there could be bigger consequences of the growing affluence of the Chinese population.
Market reaction to the announcement to the World Trade Organization in July has ranged from an acknowledgement of the profound implications this could have for global scrap trading, to an assertion that it will act as a stimulus for increased investment in domestic infrastructure.
The extent of over reliance on the Chinese market for scrap plastics, across all territories, dictates that the impact of the import ban will be felt globally. In 2016, around 52% of the world’s plastic exports went to China, with a further 17% of exports reliant on the Hong Kong Special Administration Region.
Global competition for export to China and Hong Kong in terms of volume comes mainly from the United States (1.4Mt) Japan (1.3Mt) and Germany (768kt). The UK exports 441kt to the region in comparison.
The tidal wave of credit and a booming economy which has stimulated growth, and an ever expanding and increasingly prosperous middle class, is in our view the key threat
The extent of reliance on China/HK from these large exporters is again, of significant concern. The USA (74%) and Japan (86%) have large volumes that are very much reliant on the Chinese import market, which will need to find alternative outlets. Competing European exporters have also been highly dependent although only Spain (66%) has been more reliant than the UK (61%). Germany (58%) and Belgium (55%) are also somewhat reliant on the Chinese/HK markets.
The short to medium term risks to the UK of China’s statement are manifold. Not only will our single biggest counterparty for waste plastics trade be closed for business, the current hubris of greater global trading options appears to be just that. Alternative trading routes for waste plastics to Indonesia, Malaysia and Vietnam are likely to be subject to the same market disruption – so highly dependent are they on Chinese trade.
Others may point to impending free trade deals with Japan and the USA but, as we have shown, these countries will also face the same issues. The current trade with EU partners such as Germany, Netherlands and France could continue, but this looks more and more likely to be hampered by Brexit, at least in the short to medium term. Indeed, the German waste plastics market has an aggregation model that does not necessarily require UK materials to operate, where consolidation of smaller nations such as Switzerland, Luxembourg and Denmark gives Germany greater trading strength in volume terms than any of its European neighbours.
The bigger risk to the global trade of plastics waste is a wave that is yet to fully break. The tidal wave of credit and a booming economy which has stimulated growth and an ever expanding and increasingly prosperous middle class is in our view the key threat. Consumer credit in China has reached unprecedented levels in the last five years and consumer spending has more than tripled in less than 10 years. But this is not just a China phenomenon. In India, disposable household income is at an all-time high and consumer spending continues to grow.
The longer term risk to global trade in waste plastics is that the growth of the middle class in the developing nations, whilst rightly heralded as a saviour by driving higher demand for quality goods, results in the plastic resource from those goods being consumed domestically. Indeed should the Chinese or Indian population come even close to the waste per capita of developed nations such as the UK, USA or Germany then this could feed manufacturing growth without the necessity of imported waste feedstocks.
In the short term the UK will need to find new markets for existing material streams, whilst trying to improve quality for ongoing global export in the medium term. In the long term however, our view is that this will likely prove unsustainable without some financial support for recyclers when material prices inevitably fall.
So where does this leave the UK? The answer depends on what we want to see as a nation and as a society. Less plastic on our shelves, or more investment in infrastructure.
Simon Glen is the founder of Natural Capital Analysis