Green means clean: Investing in China s Municipal Solid Waste Industry

Transcription

1 Antwerp Management School China Consulting Projects (CCP) Green means clean: Investing in China s Municipal Solid Waste Industry Zhi Yang Haiyan Zhang Daniël Van Den Bulcke

2 Green means clean: Investing in China s Municipal Solid Waste Industry

3 Green means clean: Investing in China s Municipal Solid Waste Industry 2011 Euro-China Centre at the Antwerp Management School, Antwerp, 2011 Corresponding author haiyan.zhang@ams.ac.be Authors Zhi Yang, Haiyan Zhang and Daniël Van Den Bulcke China Consulting Projects (CCP) China Consulting Projects (CCP) program offers participating companies the opportunity to have well-trained master students working on their China related projects under the supervision of Antwerp Management School faculty. For the past four years, Master of Global Management students of Antwerp Management School have successfully developed a number of consulting projects for organizations such as POM (Provinciale Ontwikkeling Maatschapij), Comdiam CVBA (a subsidiary of HRD), Sancta BVBA, Competence@ (Chinese subsidiary of CPM), A-Law, Antwerp Business Centre, Atlas Copco, bpost, Dynaco and so on. Euro-China Centre (ECC) The Euro-China Centre (ECC) is an expertise centre at the Antwerp Management School that provides knowledge learning and knowledge sharing as well as an exchange platform about China's economy, its business environment and Chinese management issues. The ECC brings together the vast experience about China of its academic staff with the extensive expertise in business and management education of the Antwerp Management School. The EEC offers education and training services, carries out research projects and engages in management consulting in the context of the Antwerp Management School.

4 Acknowledgements This report was initiated as a China Consulting Project at Antwerp Management School for The Antwerp Forum. Two master students, Nesa Deskandini and Yemin Chen, are acknowledged for their efforts in carrying out interviews and field visits. The following companies and organizations provided useful information, suggestions and insights about their experiences in the municipal solid waste industry. A number of local governments of the People s Republic of China (PRC) also took part in the interviews. China Environmental News: Shanghai Branch Harbin Eastern Environmental Solution Corporation Shanghai Chengtou Corporation Chang Ning Sewage Plant / Pudong Sewage Pumping Plant Jingdezhen Bureau of Land and Resources Jingdezhen Civil Affairs Bureau Jingdezhen Environmental Protection Bureau Flemish Environment Agency (VMM) INDAVER KEPPEL SEGHERS UMICORE VYNCKE Clean Energy Technology OVAM Flanders China Chamber of Commerce Jingdezhen Environmental Protection Office: Zhong, Shan District Jingdezhen Xiguazhou Sewage Treatment Plant Harbin Environmental Protection Bureau Harbin Civil Affair Bureau Harbin Solid Waste Management Bureau

5 Contents Executive Summary... 1 Chapter 1 Introduction... 1 Chapter 2 Importance of Municipal Solid Waste Generation and Treatment in China Current and projected Municipal Solid Waste (MSW) generation in China Treatment capacity of Municipal Solid Waste in China... 6 Chapter 3 Solid Waste Management in China MSW management hierarchy in China Cooperative potential between China and Belgium on waste management Chapter 4 Foreign Companies in China s Incineration Market Chapter 5 The Role of the Government in MSW Management in China Government structure in MSW management in China Legislation and policies toward MSW management Chapter 6 Entry Modes in China s Waste Management Sector Entry barriers in waste management sector Entry modes in waste management sector in China Common entry modes to China Public-Private-Partnership in waste management sector of China Conclusion Annex 1 Technical standards for MSW landfills Annex 2 Laws and regulations regarding MSW management in China Bibliography... 49

6 Executive Summary China in the last decade experienced a surge in municipal solid waste generation. In 2004, the MSW generated in China surpassed the United States and ranked 1 st in the world. With the rapid economic growth of China, the MSW generation will keep increasing with a considerable growth rate. The huge amount of MSW generated in China stimulates significant demand for efficient and effective waste management. Among all provinces in China, coast line regions including Pearl River Delta and Yangtze River Delta generate the most MSW. The three provinces in Northeastern China are also among the biggest MSW generators. Centrally-located provinces next to coast line regions generate moderate level of MSW, while western China regions produce least MSWs. Taking treatment facilities and capacities into consideration, centrally-located provinces which left largest amount of MSWs untreated can be the potential target for new investment in MSW sector in China for European or Belgian investors. Factors contributing to the ineffectiveness of the waste management system in China include poor infrastructure, unqualified labors, lack of managerial and technological expertise, insufficient local finance, low level of resident awareness and participation, etc. These leave space for potential cooperation between Belgium and China at different levels. European investors in China s incineration market are competing with players from Japan, North America, and Chinese indigenous manufacturers. When most MNCs agglomerate in Guangdong, Zhejiang, and Jiangsu Provinces, Chinese indigenous manufacturers dominate inland provinces such as Henan, Hebei, Sichuan, etc.. European investors need to be aware of the first-mover advantage of Japanese counterparts and the fast catching-up pressure of Chinese indigenous manufacturers who enjoy protective policies and technology development with government support. Chinese government structure and policies regarding MSW management are adapted toward green economy and environmental friendly orientation. There are several points in policies need to be noticed. First, technical policies have been getting more stringent in the past decade, and are more internationally comparable. Second, new laws and regulations were intensively enacted in the past decades and indicated a shifted emphasis to the development of green industries. Third, Foreign investment is still encouraged in the green industry. The amended Foreign Investment Catalogue pushed several additional green industries into the encouraged category. Public-private partnership is an alternative option for foreign investors to enter into China s MSW industry. There are several modes available in PPP for consideration: service contracts, management contracts, BOT, BOO, etc. Each presents different characteristics to be assessed.

7 Chapter 1 Introduction So far, the Chinese green sector appears to be a magnet for new capital investment unscathed from the financial crisis all over the world. According to the 2011 new energy finance report by Bloomberg New Energy Finance (BNEF) 1, China proved a dominant force in attracting new capital for clean power projects. In 2009, no less than 14 gw of new wind capacity was added in China, shattering the annual record for any country (USA recorded with 10 gw added). In 2010, BNEF recorded 19 of the IPOs were by China-based entities, while there were seven IPOs recorded in Europe. When no one doubts that China will be a leading force in green market and technology development in the coming years, and extensive discussion in China s green sector focus on solar power 2 or wind power 3 development, little attention has been paid on another green industry-municipal solid waste industry. Green industry consists of activities which produce goods and services to measure, prevent, limit, minimize or correct environmental damage to water, air, and soil, as well as problems related to waste, noise and eco-system (OECD, 1999). Municipal solid waste industry is one of the most important subsectors in green industry. Municipal solid waste (MSW) by definition is the nonhazardous waste generated in households, commercial establishments, institutions, and non-process-related industrial wastes (Agardy, etc, 2009). In 2004, China generated 190 million tons MSWs that made China the world s largest waste generator surpassing the United States for the first time (World Bank, 2005). China thus is facing substantial pressure on the waste problems. With the new Foreign Investment Catalogue pushing several additional waste management industries into the encouraged category and the 12th Five Year Plan ( ) declared the cleanest in history, municipal solid waste industry became under the spotlights of investors. But investing in China s MSW industry still faces a daunting array of challenges. This report is therefore prepared for the purpose of better understanding the opportunities and challenges in investing in China s municipal solid waste industry in particular. There are several obstacles that prevent investors from closer examination on the opportunities and challenges in investing in MSW industry in China. First, consistent and reliable data on MSW activities sometimes are not available. The lack of data makes it difficult to examine the market situation and the competitive position of the company. Second, waste management system in China is different from that of Europe. The differences may bias the understanding of business practice which achieved success in Europe but may fail in China. Third, the government role and legislation system in China which regulates the industry can be confusing for western investors. China is in the transition to a more environmentally friendly economy. Many relevant laws and regulations are newly enacted or amended in recent years, many government departments are re-structured with emphasis on MSW management as well. It can be difficult for investor to evaluate the effects of the laws, regulation, and the government responsibilities over MSW management. This report relying on reliable data and first-hand interviews will address the above problems and the following questions: What are the facts of China s MSW generation and treatment? What is the current waste management system in China? 1 The Green Investing 2011: Reducing the Cost of Financing is published by the World Economic Forum. 2 China has over 400 photovoltaic (PV) companies and produces approximately 23% of the photovoltaic products worldwide(dorn, 2008) 3 In 2010, China became the largest wind energy provider worldwide, with the installed wind power capacity reaching 41.8 GW at the end of

8 What about the existing foreign investment in MSW market of China? What role does the government play in the MSW industry of China? What are the relevant policies regulating MSW industry of China? How to enter the MSW industry? There are also some limitations for this report. First, our data comes majorly from China statistical yearbooks, first-hand interviews, and information collected by ourselves. There could be missing or contradictions in some numbers because of different measuring scales. But this does not weaken the validity of our analysis. Second, this report majorly focuses the analysis on China instead of on European countries because we assume that European investors know well the MSW system in Europe. But based on the detailed information on China s MSW industry, European investors can make the comparison by themselves using the data and information from this report to draw some conclusion on the difference between Europe and China in MSW management. The following chapter 2 will describe the facts of MSW generation and treatment not only in quantity but also in geographical distribution in China. Chapter 3 will discuss the MSW management system in China and propose some potential cooperation options between China and Belgium on MSW management. Chapter 4 following chapter 3 will illustrate the participation of foreign technology and equipment suppliers in China incineration market. Chapter 5 will discuss the role of Chinese government in MSW management, including the government structure in waste management and relevant legislation and policies as well. We conclude in chapter 6 with suggestion on entry modes of foreign investors into the MSW market. 2

9 Chapter 2 Importance of Municipal Solid Waste Generation and Treatment in China 2.1 Current and projected Municipal Solid Waste (MSW) generation in China China, with an average eight per cent annual growth rate of its economy, is experiencing an even higher expansion in municipal solid wastes. In 2004, China generated 150 million tons MSW in the urban areas and another 40 million tons in the rural parts of the country. The national total of 190 million tons of MSW made that China became the world s largest waste generator surpassing the United States for the first time. The most recent data from China and the United Nations reconfirms China s leading position in MSW generation ( Figure 1). In 2009, China collected 157 million tons of MSW in urban areas which was much more than the amount generated in most European countries. The level reached by China in MSW generation was 30 times higher than in Belgium, 15 times than in the Netherlands, and respectively five and three times for France and Germany. Figure 1 Municipal waste generated in selected countries (2009) Sources: China Statistic Yearbook 2010; UNSD/UNEP Questionnaires on Environment Statistics, Waste section; OECD Environmental Data Compendium, Waste section. Note: Data of China refers to the amount of municipal waste collected in urban areas, while data of other countries show the total generated MSW. Based on its large population and its relatively low GDP per capita compared to the developed countries, it is expected that China will continue to produce more MSW in the coming years, which may cause serious environmental, social, and financial problems. According to the latest China Statistic Yearbook, 3

10 China currently produces 253 kg MSW per person a year in urban areas 4.However, this is much less than that of the OECD countries, as Belgium produces 489 MSW kg/person/year, the Netherlands 611 kg/person/year, France 535 kg/person/year, Germany 587 kg/person/year, and United Kingdom, and the United States respectively 526 and 760 kg/person/year. Every Chinese urban resident produces only half of the amount of MSW for the average Belgian inhabitant people, and less than one third of MSW left by an American. Taking the GDP per capita into account, the estimation function in Figure 2 indicates a significantly positive relationship between MSW generation and GDP per capita. One unit increase in GDP per capita will induce a unit of MSW generation per person per year. If China would had a GDP per capita as high as in the United States, China would generate 8 times more MSW than what it produces today given the same size of its population. While China is gradually catching up with the level of development of the developed countries, it is at the same time creating new challenges such as the significant increase in MSW. It has been estimated that the amount of waste generated by China will grow to at least 480 million tons in 2030, which is more than twice the amount that will be generated in the US (World Bank, 2005). Figure 2 The relation between GDP per capita and municipal waste generation per capita per year for selected countries (2009). When one looks at the MSW generation within China across regions, the Pearl River Delta (mainly in the Guangdong Province) and the Yangtz River Delta (including Shanghai, and the provinces Zhejiang and Jiangsu) generated most MSW in China, i.e million tons MSW, taking up 29 per cent of total MSW in China. Guangdong Province alone produced 19.6 million tons MSW in 2009, and ranked first among all provinces in China with a level of production that was nearly double the amount of MSW in the Shandong province. The Shandong and Jiangsu provinces respectively generated 9.6 million tons MSW in 2009, ranking second and third of the largest MSW generators in China. Zhejiang province followed Jiangsu and produced 9.3 million tons MSW, ranking fourth on the list. Shanghai and Beijing generated 7.1 and 6.6 million tons MSW, and were ranked seventh and eleventh largest MSW generator in China. 4 Since the total MSW data released from China Statistic Yearbook refers to the solid wastes collected in urban areas, the urban population is used as the denominator to calculate the annual MSW generation per person. If the total population is used as the indicator, it would be even smaller. 4

11 Heilongjiang, Liaoning and Jilin, the three provinces in Northeastern China are also among the largest MSW generators in China, and were respectively responsible for 9.1, 8.1 and 5.2 million tons MSW in 2009, ranking 5th, 6th, and 13th on the list. Together these three provinces generated 22.5 million tons MSW, amounting to 14.3% of total MSW in China. On the contrary, the West and Central provinces produced less MSW in China. For instance, Qinghai, Ningxia and Tibet achieved very low levels, i.e 0.9, 0.7 and 0.2 million tons MSW in 2009, and are ranked at the bottom of the provincial list of waste producers. Jiangxi, Chongqing, Guizhou produced 2.8, 2.2 and 2.1 million tons MSW in If these latter three provinces are taken together, the amount of generated MSW equals the total for Shanghai, but falls short of the level for Guangdong province. It can be concluded that in general the Northern part of China produces more MSW than the Southern regions, while the coastal provinces produce more MSW than the inland regions, and developed regions generates more MSW than developing regions in China. Of course these findings are determined by the concentration of the population, the economic activity and the type of industries located in these parts of China. Figure 3 shows the regional distribution of MSW generation in China in There are three-tier belts of MSW generation in China. The first tier belt regions, which produce most MSW cover most coastal provinces from North to South, including the three provinces in Northeastern China, Shandong, Jiangsu, Shanghai, Zhejiang and Guangdong (the darkest blue regions in Figure 3); The second tier regions which generate moderate levels of MSW consist of the centrally located provinces next to the coast line, and include Beijing, Hebei, Henan, Hubei, and Sichuan. Other regions producing least MSW constitute the third tier region, including Guizhou, Yunnan, Guangxi, Shaanxi, Gansu, etc. Most of the third tier provinces are located in the Western t part of China or are under-developed regions. Figure 3 MSW generation in the Chinese provinces in 2009 Source: China Statistical Yearbook

12 2.2 Treatment capacity of Municipal Solid Waste in China Although China has taken efforts to expand its MSW treatment capacity especially since the beginning of the 21 st century, there still was a significant gap between the amounts of MSW generated and those that were treated (Figure 4). In 2003, there were million tons MSW left untreated (about 200 thousand tons per day). In 2006, these non-treated amount declined to million tons (about 191 thousand tons per day). And in 2009, the gap shrunk to million tons (123 thousand tons per day) or two thirds of the level in In figure 4, the dark blue area in the background shows the MSW generation over the years 1990 to 2008, while the light blue area indicates the change in the treated MSW in China between 2003and 2008 according to available data. The light blue line shows the change of MSW treatment facilities from 2003 to Though the number of MSW treatment facilities experienced a sharp fall between 2003 and 2006, the treated MSW did not drop so much and kept moving upwards during the years. In fact, the newly built facilities which replaced the older ones have a higher treatment capacity. From 2006 onwards, a new wave of expansion in both the number of facilities and the treatment volume was stimulated via the government s eleventh 5-year plan for economic and social development. The 11 th 5-year plan was a blueprint for the period 2006 to 2010 development and put a great deal of emphasis on the renewable energy and environmental friendly industries. Figure 4 A comparison of MSW generation and treatment in China Source: China Statistical Yearbook from 1990 to 2010 So far, there are 567 waste treatment facilities in China in They have a total MSW treatment capacity of112 million tons (China Statistical Yearbook 2010). Most of those facilities are located in the developed provinces, such as Shandong, Zhejiang and Jiangsu. The three provinces host respectively 54, 52, and 41 treatment facilities, and represent one quarter of China s total capacity. Guangdong has 31 treatment facilities, ranking the fifth among the provinces. Figure 5 shows the distribution of those facilities across provinces. Large scale waste treatment facilities, in most cases, require large amounts of investment funds that underdeveloped regions can rarely afford. Therefore, most capital-intensive waste treatment facilities, like incineration plants, have been established in developed provinces. Consequently the distributioin of these facilities is imbalanced in China and results in sometimes huge differences in the treatment ratios among the provinces ( Figure 6). 6

13 As mentioned before, in the first tier belt along the coastal line of China are the provinces producing most MSW, while the second tier belt in the central provinces next to coastal regions register more moderate MSW, and the other provinces composing in third tier belt generate least MSW. However, the situation changes when the treatment capacity is taken into account. the first tier belt regions, Shandong, Jiangsu, Zhejiang, Shanghai, due to their economic strength and large treatment capacity, leave fewer untreated MSW as most surpass the 90% treatment ratio (the treatment ratio of Shandong, Zhejiang and Jiangsu are 90.5%, 97.6% and 91%). Yet, Guangdong province and the three provinces in Northeast China are exceptions in the first tier belt. They not only produce most MSW, but also leave most MSW untreated. Guangdong province did not treat 6.8 million tons MSW in 2009, which identified that province as first on the list for untreated MSW and representing 15 per cent of the national total untreated MSW. The provinces Heilongjiang, Liaoning, and Jilin, come immediately behind Guangdong ranking 2nd, 3rd, and 4th with respectively 6.4, 3.3, and 3.2 million tons of untreated MSW. These three provinces together generated 12.9 million tons untreated MSW in 2009, or 29 per cent of the total untreated MSW in China. All of the four mentioned provinces register a below average treatment ratio of MSW compared to the national average of 71 per cent. Guangdong has a treatment ratio of 65.5 per cent, while for Heilongjiang, Liaoning, Jilin this ratio is even lower with percentages of only 29.9, 59.9, and Figure 5 MSW treatment facilities across regions Source: China Statistical Yearbook 2010 The centrally located provinces which produce moderate MSW, have above-average degrees of untreated MSW because of the limited availability of treatment capacity. From Hebei, Henan to Hubei and Hunan, on average 2.1 million tons untreated MSW are left in these provinces. Hubei comes immediately after Jilin, and produced 3 million tons untreated MSW which resulted in a below-average treatment ratio of 55.7 per cent. Though provinces in this central belt produce moderate MSW, they still lack sufficient facilities to treat those MSW. The shortage of treatment facilities makes them a 7

14 potential market for MSW industry development. The Western provinces in the third tier belt though generate less MSW per year, they also have fewer facilities to treat the MSW. For example, in Tibet, there are no treating facilities for MSW according to the China Statistical Yearbooks. Though these regions have only moderate untreated MSW, they may not be able to afford the economic, environmental and social costs of establishing new facilities there. Figure 6 Gap between MSW generated and treated across regions Source: China Statistical Yearbook

15 Chapter 3 Solid Waste Management in China 3.1 MSW management hierarchy in China The ideal model of integrated sustainable waste management strategies are usually based on the waste management hierarchy which advocates the best approach to first and foremost try to prevent and minimize waste generation, and separate potential recyclables at source to improve the quality of materials for reuse (World Bank, 2005).The hierarchy follows that what cannot be reduced should be reused if possible, and what cannot be reused should be recycled, what cannot be recycled should be recovered through decomposition technology. The least favored option is considered to be waste disposal. The aim of waste management hierarchy is to reduce the amount of waste produced and to recover a maximum value from the recycling of the wastes. These waste management options are often represented in a reversed pyramid with a broad foundation in waste prevention and minimization leading to a decreasing amount of waste to be dealt with through disposal (see Table 1 for more details). It is based on this fundamental approach that the European Union released The Waste Framework Directive in 2008 to regulate waste management in European countries. Table 1 Aspects of waste management Aspect Content Advantage Waste Prevention and Minimization Waste Recycling Waste Processing Waste Disposal - Waste avoidance by individuals - Waste minimization in industry - Waste minimization by local governments - Aggregates and concrete: to be collected from demolition sites and put through a crushing machine along with asphalt, bricks, dirt, and rocks - Batteries - Biodegradable waste - Electronics disassembly and reclamation - Printer ink cartridges and toners - Ferrous metals - Non-ferrous metals - Glass/Paper/Plastics/Textile - Anaerobic digestion - Biomass technique - Composting - incineration - Dumping - Ocean dumping - Landfill Managing waste from the original sources and focusing on a sustainable solution to the waste problems. The benefits of recycling do not lie solely in a diversion of waste from disposal but consists of the reduction of the amount of natural resources that need to be harvested and processed for the manufacture of new products. More effective use of resources; employment opportunities in the waste to energy industries; better protection of products as durable and robust packaging ;changes in attitudes towards disposable products; and energy generation source alternatives. The advantage of waste disposal is minimal because this is the least interesting option for treating waste. 9

16 Contrary to the above sketched approach for MSW, the practice in China looks more like a regular pyramid. In China insufficient efforts have been made to control the waste generation and recycling, as too many resources are used in waste disposal programs. Box 1. Waste collection and recycle in China Estimates show that there are around 1.3 million people formally employed in the urban waste collection system in China, while there are 2.5 million people working in the informal sector. When the formal sector of waste collection is designed to provide stable supply for waste recycling utilities, the informal sector competes with the formal sector and collects comparable volume of waste for informal recycling business in China. Participants in the informal sector of waste collection majorly consist of waste pickers who make a living by selling the collected wastes in secondary material markets. The informal waste pickers are usually the poorest group of people from neighboring country-sides who are loosely organized and lack legal standing in those cities. They are sensitive but also vulnerable to the prices of secondary material market. The prices of secondary material market significantly affect the flow of recyclable wastes. Small-scale workshops which can pay waste pickers in more flexible way and at higher prices distorted the secondary material market and collect large portion of recyclable wastes. They recycle or re-sell the wastes with preliminary treatment which cannot fully recycle the wastes. The distortion makes the formal sector a shortage in waste collection and insufficient supply to formal high-tech recycling utilities. Many formal recycling utilities find it difficult to survive with the insufficient waste supply and under-development of the recycling market. The waste recycling market in China has not yet developed a well-organized, regulated and sustainable system, and has a recycling rate lower than most other countries. For instance, China s waste paper recovery rate is around 30% and much lower than other Asian countries, e.g. Korea is 66% (World Bank, 2005). Without waste re-use and recycle, most of MSW in China are directly treated or disposed. According to the latest statistics, there are 567 waste treatment facilities in operation in Among them, 447 landfill sites treated 89 million tons MSW, which represented 80 per cent of the total treated MSW. The incineration and composting take up only 20 per cent % of the treated MSW. Clearly there exists a sharp contrast between European and Chinese approaches. Most Preferred Europe China Least Preferred Figure 7 MSW management hierarchy 10

17 There are several factors that contribute to the practices applied in China (Shukor,e.a. 2011): Table 2 Factors contributing to China s inefficient waste management practices Factors Contents Poor management factors Poor management of the local authorities handling the wastes Financial constraints Insufficient monitoring and supervision of thel activities related to waste management Inexperienced managers Lack of skills, knowledge and equipment Poor infrastructure Low skilled workers Absence of reasonable systems and applied methods Lack of waste management education, knowledge and experience Inadequate law enforcement No specific laws enacted specifically for waste management Lack of community participation Bad littering habits and attitude of the population Lack of awareness about waste issues among communities Insufficient support and public interest in waste management Other factors Fast growing urban population Rapid economic growth Lack of expertise for infrastructure development, Scarcity of land for waste disposal Increasing migration to large cities In general, the economically most developed provinces rely on better waste management system and treatment facilities. For instance, of the 93 incineration plants in China in 2009, 21 are located in Zhajiang province, while 14 are found in Jiangsu, and 3 in Shanghai. The Yangtz River Delta region alone has 40 incineration plants on its territory and takes up half of the total incineration capacity of the country. In Guangdong 17 incineration plants are established which represent 18 per cent of the incineration capacity of China. Since the investment expenditures for incineration plants are high and their operation requires efficient waste classification and management systems, only those more advanced regions can afford this. The least interesting disposal method of landfill is still much in use.. Figure 8 compares MSW treatment between China and a number of selected countries. In 2009, 56.6 per cent of MSW is disposed of via landfill in China. Only 13 per cent of MSW is incinerated to recover energy. Only a negligible percentage is recycled in China. By contrast, countries with a sound waste management system have a low landfill ratio and much higher incineration and compost ratios. For example, Belgium brings only 5 per cent of MSW to landfills, while 34 per cent is incinerated, 24 per cent is composted and 36 per cent is recycled. 11

18 The Netherlands do even better with MSW proportions for landfill, incineration, composting and recycling, of respectively only 0.7, 33, 23 and 27 per cent. Figure 8 Comparison of MSW treatment facilities between China and selected countries Sources: China Statistic Yearbook 2010; UNSD/UNEP Questionnaires on Environment Statistics, Waste section; OECD Environmental Data Compendium, Waste section. Besides, most landfill sites face serious problems. First, they most often do not satisfy the national pollution standards (Huang, Wang, e.a., 2006). According to the standards for pollution control on landfill sites for MSW, the chemical oxygen demand (COD), biologic oxygen demand (BOD) and NH4+-N level should be respectively lower than 1000mg/l, 600mg/l and 25 mg/l. Most MSW landfill sites in China do not meet these requirements. Secondly, there are very few landfill sites equipped with gas collection facilities which are required by the new standard. The new standard stipulates that landfill sites with a capacity higher than 2.5 million tons should be equipped with a gas recovery system. The absence of gas recovery system causes problems in emission control and inefficiency in energy recovery. Thirdly, it is becoming difficult and expensive to find new landfill sites when the older ones are approaching their capacity limits. The rising costs and constraints of land in urban area in China makes it difficult to develop new landfill sites in or around cities. Realizing the adverse impacts of landfilling, the government is becoming more cautious to approve new waste landfilling projects, and is applying stricter requirements for the newly established landfill sites. As a result, the Chinese government is turning to alternative ways of waste disposal. For example, between 2003 and 2006 (China Statistical Yearbooks, ), there was a sharp drop in landfill establishments, compared to a steady expansion in incineration plants. From 2003 to 2009, the number of incineration plants nearly doubled from 47 to 93 during this period. (Figure 9). The newly-built waste treatment facilities typically have more capacity than before to handle MSW. Because of the higher capacity of the new installations, the total number of facilities in 2009 did not exceed the number in 2003 (China Statistical Yearbook, ), but still 36 million tons more waste was treated in 2009 than in 2003, which was nearly twice as high as in

19 Figure 9 The evolution of MSW treatment facilities in China ( ) 3.2 Cooperative potential between China and Belgium on waste management Having experience in waste management under the stringent EU waste control requirements, Belgium develops extensive managerial and technological expertise in waste management. Flanders as one of the good example has considerable potential to cooperate with China on waste management. There are several aspects that both China and Belgium governments and related stakeholders can contribute to the cooperation. First, at government level, Belgium can help China establish a more integrated sustainable waste management system with focus on introducing managerial expertise in waste prevention and minimization. For example, the OVAM, the Public Waste Agency of Flanders (Belgium), has developed an effective and well-organized waste management system from policy perspective to promote sustainable management of waste and material. OVAM can cooperate with China s counterparts providing consultancy on: mapping and analyzing material cycles; policies and measures to prevent leakage of materials from these cycles; policies of encouraging material saving and waste-use; campaigns to encourage sustainable consumption patterns; The cooperation can be carried out though conference, seminar, workshop, and project-based campaigns. For instant, the pay-per-bag scheme in Belgium which effectively reduces waste generation and helps sort waste at household s source can be introduced to Chinese municipal government who may learn and adapt it to Chinese local situation. Meanwhile, project-based campaigns may directly illustrate the economic or environmental effects and push the development of an effective waste management system. OVAM has the experience of such cooperation with developing countries, such as South Africa where the Flemish government helped build Buy-Back Center in Peri-Urban Duran, Integrated Waste Management in Jozini, etc. The cooperative projects in the effort of waste 13

20 minimization and recycle set up a good example and passed on the Belgium successful experience to local community and government effectively. Second, from technological perspective, governments between China and Belgium may want to build up a platform for technology exchange in waste management. On the one hand, attracting scientists globally to develop solutions to waste problems is essential for the success of achieving a green world globally. For instance, the Flemish Institute for Technological Research (VITO) counts approximately 600 highly qualified scientists all over the world including China to develop innovative products and process in the fields of energy, environmental protection, etc. for both public and private entities. For a knowledge center as VITO, internationalization is not an option, but the only path to follow. On the other hand, governments can make bilateral agreement to break down the barriers that prevent the transfer of technology and expertise between countries. Tariff cutting, intellectual property right protection or investment rules can be mutually established to allow both China and Belgium to benefit from the on-going research into things like clean technology. Third, financial cooperation between China and Belgium may also be on the agenda to promote the development in MSW industry. Waste management projects require huge amount of initial capital investment which may not be affordable for some Chinese municipal governments at current stage. However, the public attributes of waste management sector in China provide a kind of collateral for stable cash flow for financing the projects. China s strong desire for clean technologies and equipment in waste treatment or new energy generation, and the China s commitment to developing green industry as indicated in its 12 th 5-year development plan (2011 to 2015)) provides an opportunity for financial sector to tap the green land which may pay back enormously in the future. It is beneficial for both China and Belgium to actively participate into the waste management projects. Finally, bilateral culture and business programs can be launched by both governments to promote understandings on the host business and culture context. Though there are many Belgian companies have developed high-tech equipment in niche markets for material recycling or waste treatments, they may fail to understand the business in China, therefore are intimidated by the culture and business distance between Belgium and China. The bilateral programs can provide those companies with a common platform to understand each other and ease the difficulties of entry into the new market. 14

21 Chapter 4 Foreign Companies in China s Incineration Market With regard to the three major waste treatment options,, the incineration technology is the most sophisticated. This is also the case because incineration projects are always related to waste-to-energy solutions which are encouraged by the Chinese central and local governments. As a result equipment and technology suppliers from all over the world are attracted to the Chinese incineration market. The following comments will therefore focus on the incineration technology suppliers in the Chinese MSW market. Only recently did China start to develop waste-to-energy technology. Unlike EU countries and Japan which apply strict environmental controls and sound recycling systems, China relied too long on lowtech solutions for waste. In the late 1980s, China introduced technology or equipment from Japan and Belgium to build waste incineration plants on a trial basis. Because of the highly specialized technology and sophisticated equipment, at that time Chinese companies were not able to afford and apply this technology. Therefore international MSW technology suppliers started to tap China in this sector since the early 1990s. After nearly 20 years, there are now four major nationalities of players currently operating in China s incineration equipment market: i.e. companies from Japan, Europe, North America and Chinese indigenous firms. Table 3 lists the major incineration equipment or technology suppliers in China and their established capability for daily waste disposal. Table 3 also indicates the suppliers project sites and illustrates their geographical locations in this market. Table 3 Major incineration equipment or technology suppliers in China (2007) Company/Institution Country Daily Type of cooperation Projects sites Disposal Capability Foreign Mitsubishi Japan 5215 Equipment Export Guangzhou firms Construction-Service Zhongshan Technology transfer Hanzhou Takuma Japan 4400 Distributorship Equipment Export Ebara Japan 2500 Equipment Export Distributorship Hitach Zosen Corp. Keppel Seghers Corp. 5 Tianjin Beijing Angaotun Zhangjiagang Taiyuan Dalian Japan - Distributorship Nanchong Dalian Shanghai Tianjin Belgium 5150 Equipment Export Distributorship Joint venture Technology transfer Shenzhen Suzhou Changzhou Jingjia Changshu Tianjin Guanzhuang Noell-KRC Germany 1050 Equipment Export Ningbo 5 Seghers was a Belgium-based company providing environmental technology and services. It was acquired in 2002 by Singapore Keppel Integrated Engineering (KIE) group, and became Keppel Seghers as a subsidiary of KIE group. 15

22 Chinese firms Steinmuller Germany 1500 Equipment Export Shanghai Alstom France 2295 Equipment Export Shanghai Distributorship Chongqing VonRoll Switzerland 675 Equipment Export Xiamen Richway Canada 1750 Technology transfer Shenyang Huizhou BISIC USA 1950 Technology transfer Foshan Tsinghua China 1000 Partnership Puyang, Henan Technology Transfer Xuchang, Henan Weiming China 3025 Partnership Wenzhou Built Operate Transfer Suzhou Zhejinag Uni. China 3000 Partnership Hangzhou Technology transfer Zhenzhou Cooperation Hezhe Wuhu Zhongke China 4205 Partnership Technology transfer Cooperation Source: Author collect the data based on various information in 2007 Dongwan Ningbo Jiaxing Wuxi According to the available information about the disposal capacity in China, the Belgian-Singaporean company, Keppel Seghers, and the Japanese group Mitsubishi, have the largest market shares. Keppel Seghers takes about 10 per cent of the market while Mitsubishi only scores slightly higher with 11 per cent. These two companies were early birds in China s incineration market and consequently benefited from the so-called first mover advantage. Mitsubishi equipped the first incineration plant in Shenzhen in 1988, while Seghers which at that time was still Belgian owned - in 2000 helped Shenzhen Energy Group build the first incineration plant that met the EU environmental standard the largest plant at that time. Both firms enjoy an excellent reputation for their high-tech equipment and their highly efficient incineration systems. In 2010, Keppel Seghers secured two contracts from repeat customers to supply waste-to-energy (WTE) solutions, totaling US$53 million in China. One has been attributed by the Shenzhen Energy Environmental Engineering Company Ltd, and is intended to expand an existing incineration furnace in Shenzhen, Guangdong, while the other is from China Energy Conservation Investment Corporation (CECIC), for the supply of technology for the furnace, boiler and flue gas cleaning components for a Waste-To-Energy plant in Chengdu. However, Seghers is the only Belgian legacy in the market, while there are three more Japanese equipment providers competing together in China market. Takuma Corporation and Ebara Corporation from Japan are also active players in the incineration equipment supplier market in China. With 9 per cent of the market, Takuma closely follows Keppel Seghers as the third largest equipment supplier in this market in China. Ebara acquired 5 percent market share which is equal to the French supplier Alstom. Two German companies, i.e. Steinmuller. and Noell-KRC, have only lower market shares in the incineration equipment market, i.e. respectively 3 and 2 per cent but present a strong potential of growth. 16

23 Figure 10 Major players in China incineration market Next to their global competitors, the China indigenous manufacturers are growing up fast. You can never stop Chinese counterparts to learn, imitate, and manufacture the equipment themselves, remarked the CEO of Mitsubishi in an interview, therefore, market share is important for us because after-sale maintenance can earn us sustainable profits through selling the components and technology services which Chinese competitors cannot replicate. Yet, there are several Chinese institutions that developed up-to-date incineration equipment. Tshinghua University, Zhejing University and the China Academy of Science are involved in developing incineration technology and equipment. Apart from these institutions there are also indigenous equipment suppliers, such as Zhejinag Weiming Corporation. Because the government s procurement policies require propriety to domestic suppliers, Chinese manufacturers grow fast and hold a favorable position against foreign competitors. Incineration plants that are equipped with domestic installations take up 23 per cent of the market and their share is still growing. With respect to the choice of location, Keppel Seghers is strongly concentrated in Shenzhen where four out of the seven incineration furnaces use Seghers equipment. Shenzhen is the first city that introduced foreign incineration technology and equipment in China. In 1988, Shenzhen set up the first incineration plant by importing equipment from Japanese Mitsubishi. With its seven incineration plants Shenshen has currently more incineration furnaces than any other city in China. Besides Seghers, there is one incineration plants in Shenzhen that has been equipped by Mitsubishi, while two other furnaces were provided by domestic suppliers. Not far from Shenzhen, another seven incineration furnaces are established around Guangzhou, Foshan, Huizhou, Zhongshan, Dongwan, all in Guangdong province. Yet, none of these seven incineration plant in these cities are based on technology from Seghers. Two of these rely on technology transferred by BISIC (USA), while Mitsubishi and a Canadian firm (Richway) provided each one of such installations. The rest comes from domestic suppliers. 17

24 Figure 11 Incinerators with technology from different country origins Keppel Seghers has two other incineration plants in Changshu and Suzhou in Jiangsu province which is one of the richest regions where many incineration projects have been carried out. However, in the Jiangsu and Zhejiang provinces, Seghers does not dominate its rivals. Takuma, another Japanese company is present in three of the eight incineration plants, while Keppel Seghers, equipped two plants. All other plants in Jiangsu province were set up by domestic suppliers. This domestic-made ratio is higher in Zhejiang province than in the other provinces because of the impact of the local major Chinese equipment supplier Weiming Corporation, founded in Zhejiang province. In addition, Zhejiang University as the major Chinese incineration technology developer is also located in this province. Consequently, of the 9 incineration plants in Zhejiang, only two plants are equipped by foreign suppliers (one from Mitsubish, the other from Noell-KRC Germany). The other seven plants were installed by domestic suppliers, in particular, Weiming Corporation. In the inner land provinces and cities, domestic suppliers dominate the market. On the one hand, they offer relatively lower prices for the equipment. On the other hand, they are better able to deal with government-business relations in those markets where most of the incineration projects belong to the public utility sector and are highly regulated by government policies. Box 2. Keppel Seghers in Guangdong Keppel Seghers has extensive cooperation with China s provincial and local governments, and actively participated in in public tenders in waste management projects. Keppel Seghers firstly opened a small office in Shanghai with sales team, project execution team, site management, and administration staff. In 2004 Keppel Seghers entered into a strategic alliance with China Everbright International (CEI) which was a public company listed on the Main Board of Hong Kong Stock Exchange. With this strategic alliance, Keppel Seghers continued to penetrate into China market by forming partnership 18

25 with China state-owned companies in many cities and keeping good networking with local governments. For instance, Keppel Seghers entered the contract with Shenzhen Energy Environmental Engineering Company Ltd for the expansion of a waste-to-energy plant in Guangdong. Keppel Seghers technology for the furnace, boiler and flue gas cleaning components will enable the facility to treat an additional 3,000 tons to the existing 1,200 tons of municipal waste per day. The existing WTE plant s key components were also provided by Keppel Seghers in 1999.Besides the contract, a Memorandum of Understanding (MOU) was signed between Keppel Corporation Limited and Shenzhen Energy Group Co., Ltd to explore areas of strategic partnerships related to environmental protection. Both the contract and the MOU were signed in the presence of Mr Wang Rong, Standing Committee Member of Communist Party of China (CPC) Guangdong Provincial Committee, Deputy Secretary of CPC Shenzhen Municipal Committee and Acting Mayor of Shenzhen. However, Keppel Seghers also has difficulties in China market. The public procurement tender is hard. China s public procurement system is different than European countries. Since in most cases waste-toenergy projects are public utilities and financed or owned by the government, the tender is regulated by the government procurement law which gives more priority to domestic goods, project and services. In practice, this has led to a three tier system of market access (in decreasing order of ease): domestic products made in China by Chinese-owned firms; domestic products made by FIEs; and imported products. Keppel Seghers stated that a European company that runs in public procurement of China have common obstacles, such as difficulty in obtaining timely, accurate information about upcoming projects, lack of communication of detailed evaluation criteria for projects,, less transparency, unfair implementation of public procurement awards and unsatisfactory appeals procedures 19

26 Chapter 5 The Role of the Government in MSW Management in China 5.1 Government structure in MSW management in China Government structure in MSW management is complicated in China. One reason is that it is until recent decade that China began to take the waste management seriously. For a long time, MSWs were not formally managed. Realizing the sharp increase in MSW and facing the increasing pressure of environment pollution and resource constraints, government started to formally regulate the operation of MSW management ever since the new millennium and seriously blueprinted the development of MSW industry in the past 11th 5-year Development Plan. The other reason is that the government itself underwent several structural reforms that some departments were merged into one while some others disappear. In addition, some overlapping responsibilities in different government departments complicate the situation. Therefore, Chinese government structure in waste management is somewhat far from consistent and clearly defined framework. The complexities in administrative structure cause troubles for foreign investors to understand the administrative framework in the market. Figure 12 Government structure in MSW management in China Generally speaking, government in MSW management can be classified into three levels, central government, provincial government, and local municipal government. The central and provincial governments are at large responsible for enacting laws and regulations while local municipal governments are in charge of implementing those regulations. There are three major departments that are directly relevant concerning with the MSW management. The first one is the Ministry of Housing and Urban-Rural Development (MOHURD) and its subsidiaries in provinces and cities. According to the Ordinance of Municipal solid waste management which was enacted in 2007 and the recent Comments on promoting municipal solid waste treatment that was released in 2011 by the State Council, the Ministry of Housing and Urban-Rural Development is the major responsible department in government for MSW industry management. It will lead the coordination between ministries at central 20

27 government level regarding MSW management issues, and push performance-evaluation system on MSW management. The second relevant government department is the State Environmental Protection Administration (SEPA) and its provincial subsidiaries. It will be responsible for environmental evaluation on MSW treatment facilities, formulating technical policies and standards, and monitoring pollutant emission control. The third government department is the National Development and Reform Commission and its subsidiaries. It is majorly in charge of national or regional planning in MSW construction projects, and adjusting policies in cooperation with the former two departments. Every new project proposal cannot be proceed to next step unless it is approved by the Development & Reform Commission at municipal, provincial or state level according its scale and investment category. Other supporting departments include, but not limited to, Ministry of Science and Technology and its subsidiaries that are responsible for related technology and innovation issues, Ministry of Industry and Information Technology who are relevant for domestic-made equipment issues in MSW industry, Ministry of Finance and its subsidiaries who are responsible for relevant tax incentives and other fiscal policies towards MSW management, etc. Table 4 Government level and functions Government Central government (State Council) Provincial government Municipal government Function Enacting relevant laws and regulations Approving new projects regarding MSW treatment Supervision and coordination of MSW management Evaluation on provincial MSW management Promote international corporations Drafting local environmental protection regulations Implementing national policy, regulations, and laws Approving new projects regarding MSW treatment Supervision and coordination of MSW management at municipal level Evaluation on city level MSW management Promote international corporations Implementing relevant laws and regulations Evaluating new and established projects MSW management, including road cleaning, collecting household wastes, waste transfer, waste treatment, and waste monitoring Executing penalties to those whose behaviors are against the regulation 21

28 Figure 13 shows briefly the government departments that may be involved in different stages of the development of a newly established MSW treatment project. At the establishing stage, an investor has to go through the following steps: Prepare feasibility report together with some design & planning institute with at least B-level qualification. Submit the feasibility report to and be approved by the Development & Reform Commission The Bureau of Urban-Rural Construction commission checks the proposal and provides comments on the location choice of the project. The Bureau of city planning& land utilization approve the land usage by the project Bureau of Environmental Protection evaluates and approve the Figure 13 The role of government in MSW project from environmental perspective management in China Banking commitment for project finance Registering at Bureau of industry and business administration At the stage of MSW collection and transportation, the Bureau of municipal administration & enforcement (BMAE) is involved. All MSW collection and transportation activities are under the supervision of this department. In some cities, the function of MSW management in the BMAE is assigned to the department of environmental protection at district level. These charging departments will regulate the MSW collection sites, transportation route, or sometimes the price for the collection and transportation services, etc. In the everyday operation, a number of government departments are also involved in a MSW treatment project. For instance, a waste-to-energy incineration project has to obtain approval from the Development and Reform Commission and the Bureau of commodity price to sell their electricity at a favorable price. This price can differ from province to province, for example, the waste-to-energy electricity selling price in Zhejiang is RMB 0.666/kwh, while it is RMB 0.689/kwh in Guangdong. They are about 20% higher than the coal-to-energy projects where the electricity price is RMB 0.416/kwh in Zhejiang and RMB0.439/kwh in Guangdong, respectively. And of course, the Bureau of municipal administration and enforcement, bureau of environmental protection, and Monitoring and management center of solid waste are all involved in the supervision of the MSW treatment project. 5.2 Legislation and policies toward MSW management 22