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Cablegate: "We Feed Waste, Not Oil"

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DE RUEHGZ #0888/01 2190723
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R 070723Z AUG 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6351
INFO RUEHOO/CHINA POSTS COLLECTIVE
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UNCLAS SECTION 01 OF 02 GUANGZHOU 000888

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SENSITIVE
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E.O. 12958: N/A
TAGS: WTRO ECON PGOV CH
SUBJECT: "We Feed Waste, Not Oil"


(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. IT SHOULD NOT BE
DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN ANY PUBLIC FORUM
WITHOUT THE WRITTEN CONCURRENCE OF THE ORIGINATOR. IT SHOULD NOT BE
POSTED ON THE INTERNET.

1. SUMMARY: Guangzhou GISE-MBA New Plastics Technology General
Manager Eric Wang and MBA Polymers Operations Manager Ron Rau told
Special Envoy to China and the Strategic Economic Dialogue
Ambassador Alan F. Holmer during a visit to their factory that the
economies of scale have made them an efficient reprocessor of
plastics in China. Nearly 95% of what GMP recycles becomes new
products, with GMP turning plastic waste into resins and GMP's
partner, Guangzhou Steel recycling non-plastic waste in its plant.
There are difficulties operating in China (VAT, tariffs, energy
shortages) but with China the largest consumer, and tenth largest
producer, of plastics and planning to begin a plastics recycling
program, the logic of location was obvious. END SUMMARY

Background
----------

2. (U) Guangzhou GISE-MBA New Plastics Technology Co., Ltd. (GMP),
a joint venture between U.S. electronics waste recycler MBA Polymers
Inc (MBA) and steel recycler Guangzhou Iron & Steel Enterprises
(GISE), went into operation on November 2005. The $12 million
plant--located in Guangzhou's Nansha Development Zone -- is MBA's
first attempt at large scale recycling of consumer electronics and
household appliances. It has a forty thousand ton reprocessing
capacity, producing 26,000 tons of recycled plastics.

One's Trash is Another's Goldmine
---------------------------------

3. (U) Wang told Ambassador Holmer and his delegation (including
the Consul General, SED Managing Director Dan Wright, Embassy
Beijing Financial Attach David Loevinger and Congen officers) that
many consumer electronics and household appliances, which are
cheaper to dispose of than to repair, can be recycled and the
plastic resins captured used in the production of new products.
GMP's business is to recycle the sixty percent of consumer appliance
waste that most metal recyclers, which want to extract just the rare
and precious metals, simply dispose of in landfills. GMP's ability
to extract the three most common plastics from these products -
polypropylene (PP), high impact polystyrene (HIPS), and
acrylonitrile butadiene styrene (ABS) - has attracted interest from
large consumer appliance and electronics firms like GE, Flextronics,
and OEMS in south China.


Cleaner, Greener, and Cheaper:
Feeding Waste, Not Oil
-----------------------------

4. (U) According to Rau, there are almost 10,000 plastic recyclers
in China. These small and medium sized recyclers use a
labor-intensive process to retrieve different types and grades of
plastic from mixed plastic waste. Wang remarked that this process
brings laborers into frequent contact with dangerous chemicals and
results in pollutants that are often dumped into the environment.
Rau added that this process allows recyclers to pick out only a few
types of plastic and is very inefficient. In contrast, GMP uses a
revolutionary technology that amounts to "above-ground mining."
Developed by MBA after $30 million in investment and thirteen years
of research, the process uses a combination of density separation
and MBA's proprietary technology to separate plastics waste from
non-plastics waste. GMP then cleans the plastics and processes it
into BB-sized pellets that consumer electronics and appliance makers
inject into molds to make keyboards, computer monitor shells, and
other plastic parts. Rau said that nearly 95% of what GMP recycles
becomes new products. GMP's partner, Guangzhou Steel, recycles the
non-plastic waste in its plant.

5. (U) Aside from being greener, this process has other advantages.
Traditional production of "virgin" plastic requires refining crude
oil and using chemicals to create the final product - a process that
is energy intensive and polluting. GMP only uses 10% of the energy
used by a virgin plastics producer. GMP representatives' boast that
"we feed waste, not oil" to make plastics.

6. (U) Wang told Ambassador Holmer that production of GMP plastics
is cheaper than virgin plastics. GMP imports treated plastics waste
from the European Union and Japan. (Note: Japan and the European
Union mandate that all consumer appliance and electronics be treated
before disposal. Consumers pay for this waste to be collected,
washed, and shredded before disposal.) While the vast majority comes

GUANGZHOU 00000888 002 OF 002


from Japan and the European Union, 10 percent still comes from the
United States. GMP usually buys the plastics for as little as $100
a ton or may even get it free. The low cost of the raw materials
and plant start-up - an MBA plant is about half the price of a
virgin plastics plant - enables GMP's products to be an economical
alternative to virgin plastics.

Any Color You Want As Long As It Is Black
-----------------------------------------

7. (U) There are drawbacks to using recycled plastics. As distinct
from virgin plastics which can take on a variety of colors, GMP's
plastics can only be in black or gray as the mixture of colored
plastics prevents the use of different tints. Recycled plastic is
also slightly lower in quality. However, Rau noted positively, most
of the properties of the original plastic are maintained.

Why Locate a Recycling Plant in China?
--------------------------------------

8. (U) In response to Ambassador Holmer's question about why MBA
chose China to start its first plant in China, Rau responded that,
to be economical, MBA must be close to Original Equipment
Manufacturers (OEM) and others that utilize plastic. In addition,
China is the largest consumer and tenth largest producer of plastics
and plans to begin a plastics recycling program. Rau and Wang added
that GMP's entire output is sold within China.

9. (U) Was MBA planning to operate a large scale plant in the
United States? Rau said this would prove too costly; there are only
a few plastics recycling programs in the U.S. and these programs
supply little of the raw material needed for MBA's plant to be
cost-effective. At the same time, collecting, washing, and
shredding the plastic waste would be expensive and difficult for MBA
do on its own. On top of that, adding to the expense are labor and
regulation compliance costs. As a result, Rau said, MBA's
California plant remains only a pilot program.

Of Course, Issues Remain
------------------------

10. (U) As for difficulties operating in China, Wang and Rau said
that, while local government officials do not present too many
problems, Chinese Customs officials have arbitrarily declared each
ton they use to be worth $430 or roughly 4 times the actual value
when they assess the value-added tax (VAT), 17.8%; an additional
tariff of 8.6% is also added. COMMENT: Using the values above, a
rough calculation shows that this raises GMP's pre-production costs
to 21.4 cents a pound not including transportation costs. The 2007
spot price for a pound of Colored Pre-consumer PS Regrind is 66
cents a pound. END COMMENT.

11. (U) Energy shortages are also problematic. GMP may receive as
little as an hour's notice before power is cut off; this can happen
3-4 days/week and the situation is likely to persist into the
future. Unlike many companies in south China, GMP has yet to
purchase a generator. Rau also remarked that he thought the Chinese
government could enforce regulations more uniformly. To achieve
that end, he suggested trying to get the Environmental Protection
Bureau to be more active in enforcing standards with the smaller
recyclers which frequently pollute.

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