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China Has Had Enough of Your Garbage

China is sick and tired of taking rubbish from America.

That sentence may or may not be true in a metaphorical sense, but it is absolutely true in a literal sense. According to a flurry of recent reports in the U.S. media, a decision last year by China’s government to ban waste imports has triggered an American trash catastrophe in which thousands of cities and towns have been forced to cancel recycling programs, dump mountains of additional trash into hazardous landfills and, in the worst cases, incinerate more waste—all with devastating consequences for the quality of U.S. air and water.

The New York Times, in a recent report, quotes California treasurer Fiona Ma as warning that “we are in a crisis moment in the recycling movement right now.” Boston’s WBUR reports that, in Massachusetts, where cities and towns are required to offer recycling services, municipal officials are “scrambling to figure out how to pay for something that used to turn a profit.” An investigation by WIRED finds that, while the “conscientious citizens of Philadelphia continue to put their pizza boxes, plastic bottles, yogurt containers, and other items into recycling bins…half of these recyclables have been loaded onto trucks, taken to a hulking incineration facility, and burned.” The Wall Street Journal, observes that “from Australia to Japan, New York City to Hong Kong, garbage collectors are being forced to make a mockery of those curbside recycling bins we’ve all been trained to fill.”

All these analyses attribute the chaos in recycling to “National Sword,” a January 2018 decision by China to ban the import of nearly all plastic and papers. Prior to that policy shift, “some 70% of the world’s plastic waste went to China – about 7 million tons a year,” according to NPR.

The recycling trade, in which Chinese companies paid top dollar for the world’s plastic and paper trash, minted some of China’s largest fortunes—including Nine Dragons founder Zhang Yin, China’s first female billionaire. Shipping containers that brought Chinese-made products to the U.S. and would otherwise return empty were stuffed with refuse from American cities, which companies like Nine Dragons then combed for recyclable materials using low-cost Chinese labor.

The more I learn about the bizarre dynamics of the recycling industry, the more it reminds me of the 19th century opium trade, in which Britain offset its own addiction to Chinese tea by stoking Chinese addiction to a drug grown in its Indian colony.

But, over the past five years, the economics of the recycling trade have broken down. One problem, as NPR notes, is that much of the plastic imported to China was contaminated with elements that made it difficult and expensive to recycle—paper, food waste and plastic wrap. Often plastic that couldn’t be recycled was dumped illegally in China, adding to the nation’s already considerable pollution challenges. Chinese labor costs increased, making waste more expensive to sort. And, as the Journal notes, an unexpected culprit was fracking: a sharp decline in the cost of natural gas starting in 2014 meant that suddenly it was cheaper for manufacturers to produce new plastic than use recycled materials.

China’s 2018 crackdown reduced trash imports last year to 1% of imports in 2016. Vox reports the ban has forced some of the world’s biggest companies—including Procter & Gamble, Unilever, Nestlé, and PepsiCo—to adopt reusable packaging, while grocery chains like Trader Joe’s are scrambling to eliminate plastic altogether.

All of this supports an argument we’ve often pressed at Fortune: the world’s most urgent challenges, especially those involving protection of the environment, can only be solved in collaboration with China. We’ll tackle recycling and a host of other environmental issues at the Fortune Global Sustainability Forum in Yunnan province in September. Details about the conference here.

Meanwhile, I’d urge you to read this insightful analysis of China’s electric vehicle industry by Stanford Law School lecturer Jeffrey Ball, who will join me as co-chair of the Yunnan forum. The forum is by invitation only but Jeff and I would welcome your nominations for speakers and participants.

More China news below.

Clay Chandler

Innovation and Tech

A new player has joined. WeChat has opened its Mini Games platform to global developers, allowing game designers around the world greater access to the platform’s 800 million-plus users. Mini Games are games that run within the WeChat interface; they’re a subsection of WeChat’s app store rival, Mini Programs, launched 2017. The Verge

Cash injection engine. Nio, one of the many electric vehicle companies dubbed “China’s rival to Tesla,” has denied rumors it inflated sales figures and is undergoing massive staff cuts but did say it is “optimizing its personnel structure.” Last year, Nio registered net losses of $1.4 billion, up 92% from the year before. Caixin

Tech poachers. In other EV news, Tesla has sued one of its former employees for allegedly taking trade secrets to his new employer, Chinese electric vehicle maker Xpeng Motors. Eight months ago a different Xpeng hire was indicted by the U.S. government for stealing secrets from Apple. Xpeng’s CEO called the latest lawsuit “questionable.” Nikkei Asian Review

Economy and Trade

Another dose of negotiations Talks on trade are set to resume next week. U.S. negotiators – Trade Representative Lighthizer and Treasury Secretary Mnuchin – are travelling to Beijing this weekend, but President Trump’s all-important meeting with Xi Jinping keeps getting pushed back. Trump says the deal is “coming along nicely” but has suggested that tariffs may remain in place even after a deal has been reached. “We have to make sure that if we do a deal, China lives by it,” he said. Bloomberg

Belt and Road in Rome. Xi Jinping kick started his mini European tour on Thursday, arriving in Italy, which is set to become the first G7 country to officially endorse China’s infrastructure investment scheme, the Belt and Road Initiative (BRI).  Italy’s economy has yet to recover from its crash over a decade ago and could benefit from BRI funding – although the BRI is often criticized for ensnaring weak economies in debt traps. But while Rome moves closer to Beijing, the E.U. is adopting new measures to limit China’s economic incursions into the trading bloc. The Guardian

Cross border banking. China approved a policy that allows residents of Hong Kong to apply for bank accounts in mainland China without having to cross the border. The accounts are tied to mobile payment options, such as WeChat Pay and Alipay, helping Hong Kong residents take advantage of the cashless economy that’s booming across the border but is woefully underdeveloped at home. It’s one step towards integrating Hong Kong, Macau and the cities of Guangdong into a larger economic zone called the Greater Bay Area. South China Morning Post

In Case You Missed It

Xi Jinping hopes that his trip to Italy will give the BRI a boost Week in China

After Mass Detentions, China Razes Muslim Communities to Build a Loyal City WSJ

China’s New Foreign Investment Law China Briefing

China Factory Explosion That’s Killed 62 Adds to Industrial Sector’s Dark History of Deadly Accidents Fortune

Taiwan president to visit US despite Chinese opposition FT

Politics and Policy

Hong Kong Policy Act. In its annual report on Hong Kong, the U.S. State Department warned that Beijing’s interference with the former British colony’s governance is testing the confidence of international industry. The yearly report assesses whether Hong Kong’s autonomy from Beijing is still sufficient to warrant a separate U.S. trade policy. This year, citing incidents such as Hong Kong’s expulsion of journalist Victor Mallet and the banning of a pro-independence party, the report concluded Hong Kong’s independence is “diminished” but “sufficient.” Reuters


This edition of CEO Daily was edited by Eamon Barrett. Find previous editions here, and sign up for other Fortune newsletters here.