The increasing importance of environmental issues to China’s future development have led to a boom in its solid waste treatment and recycling industry. China’s unprecedented economic growth over the past 30 years has been accompanied by a tremendous amount of environmental problems, which affect quality of life and slows down future urbanization and economic development. As urbanization and industrialization continue to accelerate in China, so has the volume of waste, including agricultural waste at the rural-urban continuum, requiring immediate integrated solutions.
As other countries have scaled back or reduced their commitments under the Paris Accords, China has emerged as a leader in climate change and green technology and has signalled its determination to be a leader in green technology and emission reduction.
Current Market Driver
In 2019, the Ministry of Housing and Urban-Rural Development held a national conference on setting a goal and timeline for creating a national waste sorting system, which will significantly impact development in the waste management and recycling industries as well as generating significant new demands. Key milestones pursuant to this conference include
starting from 2019, cities at prefecture level and above should start building a waste sorting system;
by the end of 2020, 46 major cities should complete systems for waste sorting;
by the end of 2025, all the cities at prefecture level should complete the construction of waste sorting systems.
The basic sorting categorizations for waste are hazardous waste, recyclable waste, wet and dry waste. These categorizations will provide demand for various specialized waste treatment providers to increase the rates of recycling. Garbage incineration will play a smaller role in the waste treatment market, although the absolute garbage incineration volume will still increase for some time.
China’s solid waste treatment and recycling market has a￥1000B (CA$ 200B) space for new investment
By 2020, the kitchen waste treatment market will reach ￥150B (CA$ 30B)
By 2020, the hazardous waste market will reach RMB ￥200B (C$ 40B)
Kitchen & hazardous are two of the fastest-growing segments of the solid waste treatment and recycling industry.
Instead of working with multiple companies to safely handle different types of wastes, local government with responsibility for sorting and treating waste in their respective areas of jurisdiction often prefer to have contracts with a single service provider that provides an integrated waste treatment solution.
Efficient waste disposal solutions are driven by advanced technology; however, companies will also have to consider if their technology and operating model is sufficiently scalable to treat waste volumes in China. An ability to treat a minimum of 500 tons of waste per day is generally considered a minimum.
Economical business model. While governments use subsidies to assist companies’ business development in the early stage, businesses have to develop a self-sustainable operational model. China is gradually suspending subsidies to wind and solar power panel companies as this segment matures, and it may happen to waste treatment companies in the future.
Where are the opportunities for foreign companies?
The trade war between China and the US is having a huge impact on China-Canada relations and underlines the risk to Canadian firms about their traditional reliance on the US market. Diversifying trading partners is the key to Canada’s future economy. The fast-growing Chinese solid waste treatment industry provides an avenue for Canadian companies that own scalable, proven technology to find Chinese partners and gain access to the local market.
Canadian investors can investigate private Chinese firms that have signed PPP (public-private partnership) contracts with Chinese municipalities and are looking for finance to start new projects. Given the growth in demand and local government preferences for a single integrated solution provider such investments could provide long-term, utility-like returns. Eventual market consolidation and access to a new stock market board (Science and Technology Innovation Board was announced in 2018) will provide additional exit opportunities in the long run.
Author – Renyuan Luo, Consultant, Guangxi Shenzhou Environment Industry Holding Group Co., Ltd, Schulich School of Business IMBA 2017