China Takes Out the Trash

For a country notorious for its lack of environmental resolve, China is sure putting a large stamp on the movement with its aptly named Operation Green Fence program.

Nowhere is that stamp felt more than on the largest segment of U.S. containerized exports to the Asian manufacturing giant: scrap paper, metals and plastics.

The message from China, and new President Xi Jinping in particular, is clear: We don’t want your trash.

Or is it? The Green Fence program — ostensibly intended to restrict contaminated waste from entering the country — was part of 2006 legislation mandating that China Customs inspect at least 3 percent of containers entering the country. The problem, as Francis Veys, director general of the Bureau of International Recycling, recently told Waste & Recycling News, is that “many customs officers were not doing their work properly, and some hazardous waste and rubbish materials had been recently found in containers at some ports.”

The resulting crackdown on inspections means China is refusing and returning shipments found to be contaminated, creating delays and confusion for scrap exporters.

That’s bad news for companies such as recycled-paper supplier America Chung Nam, the perennial leader on The Journal of Commerce’s ranking of Top 100 Exporters, and the other scrap-related companies that dominate the list.

It likewise should be bad news for container carriers operating in the westbound trans-Pacific, where China is by far the largest market for U.S. scrap products, accounting for more than 1.2 million TEUs last year. Indeed, JOC research points to a sharp deceleration in U.S. wastepaper shipments to China, from 14.3 percent growth in February to 3 percent growth in March.

But, in a twist of rare good news for global carriers this year, rates in the westbound trade have climbed as agricultural products and other higher-value exports have plugged some of the gap.

It is, as we’ve seen time and again throughout global supply chains, counterintuitive. Trends just aren’t always what they seem. And that may be the case with Operation Green Fence in China, a country that ranked 116th in the world on Yale University’s 2012 Environmental Performance Index.

Is the program a legitimate environmental effort? Some have their doubts, including Russ DeLozier, director of sustainability for carpet manufacturer J&J Industries, who suggested to Waste & Recycling News that China is trying to drive down prices for scrap materials. Others speculate it’s the beginning of a larger protectionist program to tighten controls on China’s imports.

The latter, of course, would be a significant blow to exporters in the U.S. and worldwide. The full impact of Operation Green Fence comes, after all, as concerns increase that China’s economy, the world’s second-largest, is losing momentum — the latest evidence being May’s contraction in factory activity for the first time in seven months, according to the HSBC/Markit Purchasing Managers’ Index.

Are exports to China going to collapse? Of course not. But any slowdown in the country’s trade — inbound or outbound — in a shaky global recovery arguably driven by China’s strength is a scenario no one needs.

How it plays out could be the story of the second half of the year. Exporters beware.   

Contact Chris Brooks at cbrooks@joc.com and follow him at twitter.com/cbrooks_joc

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