China's recyclers look at Latin America, Caribbean

National Harbor, Md. — Crackdowns on plastic recycling imports in China and Southeast Asia over pollution worries are prompting some Chinese companies to actively look at Mexico, Central America and the Caribbean for new factory locations.

In what could become the latest migration for Chinese recycling companies after their government's National Sword and Green Fence policies, industry officials said at a recent conference that they see factories in the Americas helping maintain access to recycled plastic scrap collected in the United States.

They say they're searching for low-cost locations for processing that scrap into pellets or other usable raw materials, as they did in China before Beijing shut the door on scrap imports last year.

Steve Wong, the executive president of the China Scrap Plastics Association, said in a speech at the Plastics Recycling Conference and Trade Show that Chinese companies have been casting a wider net in the Americas, after Malaysia, Vietnam, India and other Asian nations followed China's lead and cracked down on imports.

He told the audience that governments are interested, too. Wong said he met with Haitian Prime Minister Jean-Henry Céant on a trip there earlier this year, after Haiti's government contacted him to talk about how China used plastics recycling as an economic development tool starting in the 1980s.

Another factor, he said, is that operations in Latin America look more attractive as the industry talks about processing scrap closer to the source of the materials, rather than shipping them around the world.

"What I would see is there would be recycling at source, and in the [United] States, the nearest place you can recycle is probably Mexico, Central America, South America and Caribbean island countries," Wong said. "Those countries have less labor costs and also those countries can develop downstream industries."

In an interview after his speech, Wong said his Hong Kong-based plastic recycling and injection molding company, Fukutomi Co. Ltd., recently began operating a recycling plant in Monterrey, Mexico, for other Chinese investors.

Wong, who is managing director of Fukutomi, said the firm is also scouting locations in the Southeastern United States for its own recycling plant.

Recycling that can be done with more automation and fewer workers could be handled in the United States, while more labor intensive work could go to nearby nations, Wong said.

"Since America has a lot of neighboring countries with cheap labor, a lot of low end materials will be recycled in those countries," Wong said.

Wong said his industry understands the environmental concerns around plastic waste and is searching for business models to meet what's expected to be rising demand for recycled content from consumer product companies.

"All these challenges we face every day, especially regulatory changes and environmental controls as well as customs control for importation, makes it very difficult for our industry to focus on what we're going to do for the future," he told the conference.

Other industry officials at the conference said they see interest from Chinese companies to invest in recycling operations in Mexico and Central America.

Chris Cui, the director of China programs for the New York-based recycling investment firm Closed Loop Partners said some Chinese companies are attracted to Mexico's free trade agreement with the United States.

"For Chinese companies, they are coming to the U.S. to look for sites for plastic or paper [recycling]," she said. "And for some of them, they're also looking at Mexico instead of the U.S."

Cui said motivations for the companies differ.

"Everyone is very different," she said. "The companies we talk to, some of them might prefer Mexico because of the labor costs and also the trade agreement between Mexico and the U.S. It's another good option."

In the wake of China's National Sword crackdown, she estimated that about one-third of China's 90,000 recycling companies — across all materials, not just plastic — have been looking to invest outside of China.

One-third are putting more focus on China's domestic market and one-third have closed or consolidated, she said.

The push into the Americas is not without risk, though. Wong said there are more challenges for Chinese companies in Central America than in Asia because of language barriers and unfamiliarity with local business conditions.

As well, Asian countries can remain attractive locations because some have lower tariffs on their exports to China, compared with countries in the Americas, Wong said. That's an important consideration if a business plan calls for exporting recycled pellets to feed China's factories, he said.

Hamilton Wen, director of the plastics division at trading firm Newport CH International LLC in Orange, Calif., said in a panel at the conference that recyclers face complex questions as they analyze where it makes business sense to recycle and also react to governments worldwide limiting imports of scrap.

"It's definitely cheaper in these other countries, but how long are they going to let you do it," he said. "I think eventually, end game, it probably will come back here [to the United States]. Whatever we're creating probably we should recycle it here."

"It's always kind of a red light if you're importing somebody else's waste; nobody likes to do that," Wen said, but added that the business case can make it too expensive to do some types of recycling in higher-cost countries.

Adina Adler, senior director of international relations for the Institute of Scrap Recycling Industries Inc. in Washington, said Chinese companies are investing in plastics recycling operations in the U.S.

"The intent is to get at a feedstock that they can no longer get directly because of their government's policies," Adler told the conference. "They are taking in material, they are hiring workers, they are processing it down to pellets or another form that can be exported."

She also noted that scrap trade is growing between the United States and Mexico, and she said that "the business opportunity is definitely there" for Mexico to process U.S. recycled materials.

In his speech at the event, Wong showed a picture of himself meeting with Haitian Prime Minister Céant and other officials.

He said that officials contacted him after seeing him quoted in media reports on China's crackdown on recycling imports. He said Haiti's government is interested in how China has used imports of recycling scrap to get raw materials for its industrial base and develop other industries.