China Stands at the Crossroads of E-Waste and Rare Earth Metals

The People’s Republic of China is considering an end to its ban on some imported electronic waste.  In a recent address to a recycling industry conference in Ningbo, Wang Gongmin, an industry leader who has participated in planning for the PRC’s Five Year Plan, called for the approval of importation of “circuit board scraps” among other e-wastes.  He reasoned that such materials are “valuable renewable resources” and that recycling technology “has matured, and the processing shall not result in secondary pollution.”

This policy shift is related to the PRC’s June establishment of a massive, nation-wide subsidized electronic waste recycling program.  Turning in e-waste, nets the Chinese consumer a voucher worth ten percent of the price of new electronics, while the old electronics go to a recycling center.  This program has worked so well that some people buy cheap e-waste from junk stores and sell it to the recycling program for a profit, resulting in more e-waste for the recycling centers.  The PRC’s ambitious efforts at tackling e-waste are certainly spurred by the massive growth of e-waste from their own domestic market, in addition to “salvageable” waste that has been shipped to the PRC from developed countries.  Often the waste lands in places like Guiyu, where recyclers burn circuit boards in the open air and wash electronics through dangerous acids to recover the precious metals inside.

Electronic waste is a dangerous thing to monetize across borders.  To govern the flow of e-waste, China and 174 other countries have adopted the Basel Convention, a United Nations treaty which entered into force in 1992.  The Convention prevents the export of e-waste from OECD states to developing countries unless those countries agree to allow its importation.  At the time of adoption it was in effect a toothless treaty, and even an implicit endorsement of e-waste dumping, since so many of the poorer countries of the world agreed to allow imports of e-waste in exchange for desperately needed money.  As a result, environmental organizations like Greenpeace in conjunction with the G-77 pushed for and adopted the Basel Ban, a landmark amendment to the Basel Convention.  The Basel Ban prohibits the wholesale dumping of e-waste into poorer nations, thus forcing OECD states to handle the the disposal of their own waste.  The United States is the only OECD country that has not ratified either the Basel Convention or the Basel Ban, largely due to corporate opposition to bans on any form of e-waste exports.  However, most e-waste entering the PRC is classified for refurbishment to avert the terms of the Basel Ban; once inside the country there is little guarantee of what happens to it.

The prospect of lifting the ban on these imported e-wastes does not mean the PRC is mulling a departure from the Basel Ban. Sarah Westervelt of the Basel Action Network explains that “There may be a possibility that [China] would open the door to circuit boards, as in Hong Kong, but the Basel Action Network does not anticipate that China will reverse its position on the Basel Convention, or the Amendment to the Convention, both of which they have ratified.  Trade between Basel Parties must first be determined to be legal, prior to then finding a ‘state of the art’ facility.”  Instead, the PRC can permit inclusion of materials not universally agreed as banned by the Basel Ban Amendment.  If the government wanted to permit importation of CRT monitors, a material that cannot be compromised on, that would be a different story.

One reason for the PRC’s policy shift appears to be an effort to control both sides of the supply chain for its manufacturing base.  This carries considerable implications for the world economy.  Mr. Wang’s policy recommendation focuses on circuit boards, which the domestic recycling industry covets for the copper and gold it can recover from them.  Adam Minter, a Shanghai-based writer who focuses on the PRC’s recycling industry, states that “China has a roughly 30% annual shortfall in domestic scrap copper reserves, and the only cheap way to fill that gap (recycled copper accounts for around one-third of China’s copper production) is to import cheap scrap copper to be processed by cheap labor.”  The recycling industry can fill a major economic need for the PRC’s electronics manufacturing in the south of the nation and make a considerable amount of money by narrowing this shortfall with recycled metal from circuit board scraps.  This in turn will provide more materials for the country’s transition from cheap manufacturing towards diversified high-tech production for both the global market and the rapidly growing domestic market.

This behavior exhibits the flexibility the PRC takes with its Basel obligation.  “Under Basel, the importation of lead is strictly prohibited.  But China regularly imports thousands of tons of scrap copper cables on an annual basis... Without fuss from the international community, China adjusted its list of approved materials to allow cables (which are often lead-lined).  They do this kind of thing all the time, in part because the approved list is so strict in its guidelines that scrap exporters from the developing world simply can not economically meet its guidelines.  This is a fairly typical China approach to things. They allow small violations of the law until they have a good reason to do otherwise - and economically speaking, they don’t have a good reason to do otherwise with most imported scrap commodities,” Mr. Minter explains.  The official list of materials permitted for import tells the story of the PRC’s economic wiggling room within the Convention: in 1996 there were 29 materials legal to import to the PRC, and by 2010, the government has widened that list to include 71 materials.

While the current focus is on gold and copper, rare earth metals are a key reclamation goal for the PRC.  About 97% of the global supply of raw rare earth metals are mined in the PRC, mostly in Inner Mongolia Autonomous Region.  The PRC has a quota system for the export of raw rare earth metals, but not for products with rare earth metals in them.  The “China Price” of these rare earth metals is estimated to be about a quarter of what their actual market price should be, since there is heavy competition, low profit margins, and a general lack of environmental control among rare earth metal mining firms in the PRC.  Recently, the government revised these export quotas to levels below that of export demand - a move designed to increase domestic mining firms’ control over the export price of rare earth metals.  Thus, the price of rare earth metals will soon increase significantly, and those price rises will be felt in many places, especially the clean-tech industry which depends heavily upon rare earth metals to make their technology possible.

The e-waste recycling capabilities the PRC seeks are likely intended to further tighten the PRC’s control over rare earth metal export prices.  There is a reason China does not have a quota on finished goods containing rare earth metals: to prevent any rare earth-related ceiling for manufacturing growth.  When their e-waste recycling base is large and advanced in a few years, China will be able to minimize or thwart competition from similar efforts in places like Japan and Korea to recycle rare earth metals and find alternative sources.

It is the expanding domestic market, fueled by the explosive rise of the PRC’s middle class, that presents the most worrisome problem for the country’s environmental outlook.  E-waste reclamation could take a positive step forward if the PRC’s recycling base is up to the top standards of Western recyclers and grows fast enough to meet a large demand for recycling.  However, the recycling centers will not allow journalists to see what goes on inside, so there is no way to know if they are up to an environmentally friendly standard.  Furthermore, the PRC’s policy of “indigenous innovation” means they are not likely to promote international sharing of their recycling technology.  The key outstanding question for the recycling program is: will the industry process e-waste scraps, and the slag produced during recycling, in an environmentally sound manner?

Positive developments for the environment may arise from advanced high-tech manufacturing in the PRC.  It leads the world in clean technology investment, the manufacture of solar panels and wind turbines, and high-speed rail.  Although the government has shied away from actual carbon reduction policies, preferring instead to reduce “carbon intensity” and keep the lid off of its GDP growth, the road to clean technology adoption and carbon reduction for the West currently runs through more development of the PRC’s manufacturing base.  A more ready supply of rare earth metals should keep that process healthy, and would have the positive side effect of growing the efficiency and capability of the domestic recycling program.

However, If price increases curtail clean-tech innovation and market adoption, the PRC’s recycling advances could produce a significant medium-term negative effect on the environment.  By controlling even more of the rare earth metal supply after export, the PRC may consequently hinder the economic viability of many technologies required for an energy-efficient and sustainable global economy.  Moreover, as long as the recycling program is not transparent, there can be no real confidence in the environmental sustainability of China’s green rise.

More e-waste bound for the PRC presents a growing threat to the global environment, but also an opportunity for local clean-tech innovation.  One country should not corner the market on a crucial set of materials for an energy-efficient global economy.  Rare earth metals must be readily available to increase investor confidence in the viability of green enterprises.  Governments and industries should strengthen and expand domestic handling of e-waste to keep valuable minerals available for clean-tech manufacturers and reduce the amount of dangerous waste with which we pollute the planet.