Single use plastics in China: an evolving landscape for downstream participants

We recently published an article on this page highlighting the challenges and opportunities downstream plastics producers face as the world looks at ways of closing the loop on plastic waste (link). In that article, we described some of the emerging technologies to address the issue, as well as took a brief look as some of the regulatory measures that jurisdictions such as the EU, US and Russia have taken or are planning to take. As the leading downstream producer, manufacturer, and consumer of single use plastics, no examination of this issue can be complete without looking at how China is responding to these issues.

Of the 63 million tonnes of plastic waste produced in China last year, only 30% was recycled with the remaining amount ending up in landfills, being burnt or abandoned. China has however been actively looking at how to address the use of single use plastics and the response to the challenge has been seen across the board with the introduction of government regulations, producers looking for solutions as well as industry based initiatives emerging.

Regulatory Landscape

China made global headlines when it banned the importation of foreign waste in 2018 and this regulatory change has had a significant impact on how a number of other countries deal with their plastic waste as we explored in our previous article. As well as restricting foreign waste imports, China has announced significant domestic regulatory initiatives to close the loop on plastics, mainly through implementing bans and restrictions. By the end of 2020, a ban on the production and sale of disposable foamed plastic tableware, straws and plastic cotton buds was to take effect. China has also announced a phased approach to banning plastic bags which will be phased in from now until 2025. Under the plan, non-degradable bags will be banned in major cities by the end of 2020 and all cities and towns by 2022. Businesses and markets selling fresh produce, couriers using non-biodegradable plastic packaging and hotels using free disposal plastic products will have until 2025 to comply with the policy.

These plans were solidified in a key regulation passed earlier last year by the National Development and Reform Commission and the Ministry of Ecology and Environment (《关于进一步加强塑料污染治理的意见》) which contains China’s most concrete directions so far on the reduction of single use plastics, including dates by which time actions must have been taken.

The key milestones are in the table below:

Another noteworthy and related regulation is the 2020 Solid Waste Law introduced by the Standing Committee of the National People’s Congress, which in relation to non-disposable plastic bags and other disposable plastic products, calls for:

• a prohibition and restriction on their production, sale and use; and
• goods retail sites, e-commerce platform enterprises, express delivery enterprises and food delivery enterprises must report the use and recovery of disposable plastic products such as plastic bags to the relevant departments.

A breach of this can lead to a penalty of between 10,000 to 100,000 yuan.

These regulations have been followed up by a number of notices from the National Development and Reform Commission and the Ministry of Commerce^[2] which place the emphasis on local government responsibility for enacting plans and methods of enforcement.

China is therefore attempting to restrict the use of single use plastics both through regulating their use and production.

This is not China’s first attempt to ban single use plastic bags with a previous attempt in 2008 to ban ultra-thin plastic bags having more limited success due to a lack of implementation at the local level. This time however it is expected that China’s regulatory measures will be enforced with provinces already being asked by the central government to submit their plans on how they will implement the directives and this will create significant pressure on producers and users to find alternative solutions in a short space of time.

Closing the loop

Many Chinese companies who rely on the use of single use plastic products have already proactively introduced initiatives to try and tackle the plastic challenge. For example, Meituan Dianping, the largest e-commerce platform for services in China has set out the “Qingshan Plan” to reduce its plastics footprint by building an environmental value chain for takeaway delivery and promoting the upgrade of the packaging recycling industry. This has included  encouraging customers not to use plastic cutlery, establishing a plastic food container recycling system in more than 20 provinces of China, and providing all platform service providers with solutions for recyclable or repetitive-use packaging. Likewise, Cainiao Network, the logistics unit of Alibaba is using a smart-packaging algorithm to improve packaging efficiency which can dramatically reduce the amount of over packaging (by up to 15%) and therefore reduce waste. Another major Chinese company, JD.com has cut down on its packaging waste by using slimmer tape, lighter plastic bags and recycled boxes.

Industry response and future direction

As the world starts to move past the COVID-19 pandemic, despite demand for chemicals typically benefiting from such a recovery as manufacturing ramps up, the new restrictions on single use plastics will likely impact any such demand with plastic packaging alone accounting for more than a third of current plastic demand in China. With a number of global oil majors having invested significantly in developing petrochemical plants in China to tap into the demand for plastic packaging, downstream market participants need to ensure they are examining the impact of the changing market and regulatory environment for plastics in China, and a number of companies are already taking such steps. Further complicating the issue, the Chinese government has employed strict requirements for market entry into the recycling sector with a number of barriers to entry exist for foreign companies. For foreign companies looking to close the loop, one solution can be through partnerships with local Chinese companies. For example, DOW has entered into a strategic partnership with Chinese recycling company Luhai whereby DOW will work with Luhai to give plastic waste collected by Luhai a second life to increase the circularity of plastics in China. Likewise, in 2019, Veolia, a French company, acquired an interest in a top Chinese PET recycling company (浙江华菲再生资源有限公司). Furthermore, Germany-based Scholz Recycling Group is in the process of setting up a joint venture with China Hongqiao for a recycling-focused industrial park in Shandong province, China.

Conclusion

As the Chinese government increases the regulation of single use plastics, and as more Chinese companies and consumers adopt initiatives to limit their exposure to virgin plastics, it is becoming imperative for downstream participants exposed to the Chinese market to consider how they can proactively exploit the opportunities presented, whether through partnering with a local company further along the value chain or looking at developing new products or technologies that can close the loop on plastics.

How HSF can assist

HSF is already assisting a number of clients with their transition through many of the measures outlined above, such as through strategic mergers, acquisitions and divestments, greenfield developments, through entering into joint ventures for research and innovation, and through navigating the complex and multitudinous regulatory frameworks in different jurisdictions. We have experts on the ground in China in our offices in Beijing, Shanghai and Hong Kong. We also provide quality PRC law advice to our clients through our Herbert Smith Freehills Kewei Joint Operation.

We also have the preeminent downstream energy team based in key locations across Asia, Russia and Europe which possesses a deep sector knowledge and is able to collaborate with clients to exploit opportunities in an increasingly disrupted market.

HSF therefore is ideally placed to assist downstream market participants as they look to embrace the opportunities in the changing plastics market.

^[1] This sub-table is translated from the “禁塑料阶段任务” issued by Ministry of Commerce.

^[2] For example: 《关于扎实推进塑料污染治理工作的通知》and 《商务部办公厅关于进一步加强商务领域塑料污染治理工作的通知》

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