How to overcome the challenge of China’s “Green Fence” in the scrap plastic trade

China’s long economic boom has made that country a major market for scrap plastic, with many U.S. scrap plastic traders selling plastic scrap to Chinese trading partners. However, in response to what some Chinese authorities were seeing as excess poor quality scrap plastic, the Chinese government has instituted a crackdown on scrap plastic imports known as China’s “Green Fence.”

China’s “Green Fence” is creating havoc in the scrap plastic trading business. Chinese customs reported a 5.5% decrease in scrap plastic imports from January-April 2013 – this decrease is almost unheard of, after years of growth and a seemingly unlimited demand in China for scrap plastic materials. The decrease in Chinese imports has led to an oversupply of scrap plastic in the U.S. market, where prices have dropped as much as 15% during 2013.

Many scrap plastic traders working with Chinese buyers have seen a series of frustrating and costly delays in getting their products through customs, if at all – and some exporters have seen a higher incidence of material rejections, which is always a costly situation to be avoided, especially when dealing with international trade.

Here are a few ideas for how scrap plastic traders can deal with China’s “Green Fence” to maintain profitable and efficient operations:

  • Know your product: China’s increasing concerns about scrap plastic quality mean that scrap plastic traders need to be more diligent and accountable than ever before about maintaining the quality, weight and specifications of every shipment. As we discussed in this article on how to avoid scrap plastic rejections, it’s more important than ever to verify the quality of bale sizes, weights and consistency, and generally clarify expectations prior to doing a deal.
  • Know your trading partners: Due diligence is more important than ever for international scrap plastic trades, and especially when there is uncertainty in the market related to customs inspections and possible delays. In the scrap plastic business, every trade is only as secure as each trading partners’ operations. Do a renewed round of due diligence for your trading partners – talk with them to make sure they are aware of the new restrictions in China and are taking steps to ensure that their products are maintaining an acceptable level of quality.
  • Look to expand in other markets: China might be tightening its restrictions on imported scrap plastic, but many other countries are open for business. The Indian market for scrap plastic is doing well, according to this article. One major American scrap plastic exporter announced recent plans to expand its operations in the U.S., with the expectation that they will do more business with U.S. companies even if the Chinese scrap plastic market does not loosen up again anytime soon. Annual global consumption of scrap plastic is still expected to reach 45 million tons by 2015 (up from 15 million tons in 2007).

China’s “Green Fence” may not be a permanent situation – the authorities may loosen restrictions once they feel that they have sent a message and discouraged some bad actors in the industry from dumping low quality scrap plastic on the market. But along with holding out until conditions improve, every scrap plastic trading business needs to look for proactive ways to make things better right now – by exploring new markets, double-checking your product quality, and being even more diligent about trading partners.

What do you think about China’s “Green Fence?” How can scrap plastic trading firms minimize their risk and find new opportunities?