New world order

Features - International Trade

China’s National Sword policy and its future ban on certain types of plastic scrap are affecting global markets.


Launched in February of this year and expected to last through year-end, China’s National Sword customs clearance program was put into action to fight against the smuggling of various items, such as guns and food, that are deemed by the Chinese central government to be harmful to the lives of China’s people. The campaign also targets other items, such as solid waste, particularly from the plastics industry.

Recently, the people of China have focused more attention on the worsening environmental conditions affecting the country’s air, water and soil, which are threatening many lives. This has caused mounting pressure on Chinese government leaders to make improvements. With the media drawing much attention to these issues, the plastics recycling sector has been reported to be one of the core sources of the pollution. Two main areas that National Sword is focused on are the small, family-run workshops that do not have environmental control measures in place and “foreign waste” that is causing imported plastic scrap to be the main focus at the moment.

In fact, imported plastic scrap long has been used by Chinese manufacturers as raw material in their production processes for cost reasons and to reduce carbon emissions. The use of imported plastic scrap also can help to balance the quantity and quality gaps that exist in the country’s domestic scrap supply.

Action to uphold pollution controls

Under existing solid waste import control systems in China, only those businesses that hold import permits legally are allowed to import plastic scrap. Those business without such permits that import plastic scrap are regarded as smuggling and are deemed illegal. According to a market estimate, an average of 80 percent of users of plastic scrap now must rely on third-party import permit holders to bring in the material for them. They must then pay high costs to logistic companies to provide services that include customs clearance.

The National Sword campaign seeks to curb such illegal activities while also penalizing those recycling operations in the country without the proper pollution control equipment and measures.

Alongside the environmental protection department, factory inspections and subsequent nonstop monitoring are being carried out vigorously, causing devastating effects for those facilities operating illegally. Given that most of the processing operations in China do not have qualified pollution control measures in place, many factories were unable to pass inspection and were forced to stop operating. Those who attempted to resume their operations following inspection likely were pinned by the environmental protection task force team during a follow-up inspection. The only sure way to shut down factories that did not comply with these standards and regulations is to disconnect their electricity along with their water supplies.

The high-profile implementation of China’s General Administration of Customs (GAC) work plan coupled with environmental protection inspections of factories on a regular but unannounced schedule have demonstrated China’s determination to improve environmental conditions. With the number of detailed actions released after initial inspections at certain ports by the GAC; the Ministry of Environmental Protection; the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ); and the State Administration for Industry and Commerce, the action was expanded nationwide Feb. 24. The value of the 85,000 tons of goods seized in the June 14 crackdown may be as high as 1 billion renminbi (RMB, or $151.6 million), leading to devastating effects. These actions consisted of inspections into the illegal use of import permits to eliminate smuggling and the arrest of suspects who did not follow regulations.

Policy enforcement

President Xi Jinping reinforced the country’s focus on environmental issues related to foreign “waste” during the 34th meeting of the Reform Enforcement Task Force in April. The discussion of the “prohibition on import of (selected) solid waste in promotion of reform on solid waste imports management” led to import restrictions on “solid waste” by category and by quantity.

Although the Chinese government said the policy was not to be enforced before the end of 2018, the market already has felt the pinch. A number of plastic scrap items consisting of household “waste” can no longer be imported, leaving thousands of containers stuck in the Hong Kong port waiting to be rerouted to alternative markets.

Furthermore, China notified the World Trade Organization (WTO) July 18 that it intends to ban additional “solid waste” imports by year-end. Effective Sept. 1, 2017, 24 plastic scrap materials have been banned. Shipments containing these banned materials must be onboard vessels before Sept. 1, and customs clearance must be completed before Dec. 31, 2017. Because plastic “waste” from “living sources” is one of the materials prohibited from being imported into China, a major review of these import categories was taking place in August to determine what items can be imported in 2018 and perhaps in 2019.

It is perceived that import volumes will be slashed substantially. In fact, the action of factory inspections conducted by China’s Central Environmental Protection Department (EPD) during July on all the licensed importer factories aimed to achieve this objective.


Impacts within China

Supply streams have been slowed, and domestic plastic scrap cannot cover demand within China. Prices have become very inconsistent. Some materials are seeing increased pricing in light of the shortage in supply; however, these increases in pricing also are caused by the recent increases in customs clearance costs in China. Some of the recycling factories that have relied heavily on imported plastic scrap have been forced to downsize or even to close. This is going to cause drastic effects on factories that consume recycled plastics because these manufacturers are no longer able to source replacement supplies of the same quality and quantity. Even if these plastic scrap consumers are able to source these materials, it will be very difficult to do so within the short window given for shipments. Additionally, the use of alternative raw materials may not be tolerated by overseas buyers.

China is using the approval of import permit applications as a temporary way to reduce import volumes. It is stated that a formal approach to lessen import volumes will be adopted in the approval of the 12th batch of scrap import permit applications by middle of August.

Other countries in Southeast Asia, such as Indonesia, may provide initial processing of some recycled plastics ultimately destined for China.

Market shift

With the probable import ban of plastic scrap in place by the end of 2019, many recyclers in China must rely on the domestic market to supply their operations, if, that is, they continue to operate.

Some of the country’s recyclers are choosing to head south to set up plastics recycling factories in Vietnam, Malaysia, Thailand and other Southeast Asian nations. Others are trying to explore the possibilities of shifting to locations of upstream supply to establish recycling operations or even manufacturing operations to produce end products, aiming for domestic market sales.

Nevertheless, some of the Southeast Asian countries also are stepping up their import control parameters because of National Sword. This is causing uncertainties in the alternative processing points outside of China. In fact, plastic scrap items considered to be contaminated, such as household waste and low-yield agricultural films, are risky to ship because of the cherry-picking attitude on the part of some customs inspectors in addition to the looming threat of policy change.

Additionally, it will not be easy for those recyclers looking to shift their recycling process to upstream locations in western countries, as government policies may not be supportive of the recycling of certain plastic scrap items. Besides, government subsidies may be an essential factor to the growth and competitiveness of a foreign investor.

Recycling industry concerns

There are now concerns that end-of-life plastics will be dumped into landfills and will worsen the ocean debris situation of the exporting countries.

On the other hand, a twisted supply-demand situation for these raw materials may cause price fluctuations to occur in prime materials.

With the apparent mismatch in supply and demand from a geographical perspective, how the world market will eventually be reshaped as a result of National Sword remains to be seen.

Steve Wong is chairman of Fukutomi Co. Ltd., executive president of the China Scrap Plastics Association and a member of the Bureau of International Recycling Plastics Committee and Waste Electrical and Electronic Equipment Committee. He can be emailed at