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2020 – A breakthrough year for remanufacturing in China?

Author William Schwarck
Date 12/06/2019

For years, there has been a gap between theory and practice in remanufacturing in China, one of the world’s largest economies and its largest and most rapidly expanding automotive market.

The “theory” in this case is the Chinese government’s oft stated commitment to remanufacturing against “practice”, i.e. how “reman” is playing out in the markets, through import and trade restrictions and by varying interpretations of laws and regulations by different governmental bodies and even local authorities.

For years this has been a source of much confusion – and frustration – for foreign remanufacturers. Now, however, there are signs of a new willingness to ease past restrictions on the use of and trade with remanufactured goods.

It’s part of the Chinese leaderships increasing desire to shift towards a more sustainable growth pattern, deal more efficiently with the country’s environmental problems and meet the world’s demands for doing so. Together these factors may well make 2020 the most important year in the history of remanufacturing in China.

What, then, are these signs?

One particularly significant development is a remanufacturing law that China’s State Council passed in June 2019. The so-called ‘Administrative Measures for Recycle of End-of-Life Motor Vehicles’ removes some of the last legal impediments to the development of reman in China, potentially transforming the industry into an investment hotspot.

Important New Law

The law stipulates for the first time that used car parts – engines, steering wheels, gearboxes, front/rear axles, and chassis – can now be sold to remanufacturers.

Prior to the introduction of the new law, old components had to be disposed of as scrap and delivered straight to smelters. The old regulations – aimed at eliminating the illegal vehicle assembly business – had stunted growth of the reman industry for decades.

For Chinese remanufacturing, the consequences of this are wide-ranging.  With the law in effect, China’s vehicle recycling industry can now link up with remanufacturing businesses, spurring the development of the industry. Moreover, the new law also requires recycled products used for remanufacturing to adhere to rigorous standards, with code identification, traceability, and certificates of origin “in order to preserve product quality.”

In the mid-term, this ought to ensure a higher understanding and, therefore, awareness for the benefits of remanufacturing among Chinese consumers, which include millions of motorists and transport businesses. According to China’s state media, with the new remanufacturing law ‘the potential of the industry is vast.’

Gap between China and Developed Countries

This was aptly summarised by one leading official earlier in the year. “‘In China, remanufacturing has had a fine beginning. But we must clearly recognise that remanufacturing in China is still at an exploratory stage and there is still a large gap between China and developed countries“, Ma Rong, a former Chief of the Environment and Resources Bureau at the government’s hugely influential National Development and Reform Commission told a conference of remanufacturers.

Mr. Ma Rong also pointed to factors impeding the development of remanufacturing in China:

  • As a new concept, remanufacturing has not been recognised by most people in China
  • Remanufacturing in China is still in an exploratory stage. It is not a fully-fledged industry and its technological and management level is still quite low.
  • Today’s laws and regulations still restrict the growth of remanufacturing.
  • Technical standards, supervisory bodies and market mechanisms are still lacking.

Earlier in the year another ranking official, Tao Juncheng, a senior official in China’s Ministry of Commerce, detailed further advances for the reman industry when emphasising that the new law will resolve existing barriers to the remanufacturing of car engines, promote the circular economy in China, and promote the management of disassembly and recycling of scrapped car engines.

495 Million Cars

According to a state-run think tank, China’s car ownership will peak at 495 million in 2035. Similarly, in a 2019 report by McKinsey & Company, China’s car market will grow 10%-15% annually from 2019 to 2035, peaking at 440 million vehicles in 2035.

Such figures highlight the potentially enormous opportunities for remanufacturing under the changing regulations.

As a leading observer of China’s internal development, Professor Nicholas Stern of London School of Economics and a former chief economist and vice-president of The World Bank, pointed out in a recent report:  “China’s transformation has seen it rise from lower income to upper middle income status in just under four decades’. The signs of this are clearly visible to anyone who’s visited China’s large cities in recent years – many of which boast 10-20 million inhabitants.

Of even greater note, as Professor Stern points out, is that the next stage in China’s economic development will be characterised by a fundamental shift in China’s policies. „After 30 years of high speed economic growth, the next stage will be all about well-being, quality and sustainability.“

Next 5 Year Plan

This is no empty prediction. In October 2020, China will reveal its next 5 year plan – its fourteenth – thus setting China’s course for a good part of the next decade. Although still under preparation, key elements are already clear –  and they point towards a further support for the circular economy and sustainability.

At the centre of the plan is a commitment to a zero-carbon economy within a time frame of 30-50 years – perhaps not as ambitious as the figures under the Paris Agreement but certainly a major advance from only a few years ago.

Overall the plan is to move China from its current export and investment-led economy to a consumer-led growth pattern. This requires greater efficiency in labour and productivity as well as resources. Concurrently, Chinese consumers can be expected to switch their traditional focus on price to “quality.”

Benefits from Changes Underway in China.

The EU-China Summit, scheduled for September 2020 in Leipzig, will see both sides trying to reach agreement on shared climate goals. ‘Climate change and biodiversity are at the heart of our common multilateral agenda,” French president Emmanuel Macron said during a joint press conference with President Xi Jinping earlier this year.

A further important agenda item in Leipzig will be the signing a long-awaited EU-China bilateral investment agreement. After extensive negotiations, experts suspect that Beijing may offer concessions on issues that have irritated European governments and businesses for years: market access, intellectual property protection, and room for European businesses to bid for Chinese government tenders. Strict demands for Chinese partners‘ share of joint ventures with foreign companies may also be relaxed.

The knock-on effect for the remanufacturing sector could be significant: clearer laws and regulations at home, a new focus on sustainable growth, and a more open trade and investment climate point to greater opportunities for both Chinese and Western remanufacturers.

Whichever market prediction turns out to be the more accurate, one thing is clear. China is set on a course towards further sustainability, further environmental advances – and laying the groundwork for more remanufacturing.