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Peak of scrapped cars is approaching. Can auto recycling and dismantling survive the transformation pains?
Release time:
09 Oct,2015
Since entering the 21st century, the number of cars in China has steadily increased, leading the automotive industry into a period of explosive demand growth. The typical lifespan of a car is 10-15 years. It is therefore expected that China will enter a peak period for car scrapping after 2015. A recent report, "2015-2020 Market Prospect and Investment Strategy Planning Analysis Report of China's Scrapped Vehicle Recycling Industry," predicts that the number of scrapped vehicles in China will reach 9-12 million in 2015 and 12-16 million in 2020.
Against this backdrop, will China's scrapped vehicle recycling and dismantling industry experience a period of rapid development? What was the state of the industry in 2014, and what challenges did it face? Liu Qiang, executive vice president of the China Association of Material Recycling, answered these questions at the 2015 China Recycled Resources Recycling Industry Conference.
Significant Increase in Scrapped Vehicles, Rapid Industry Development
Q: What was the state of China's scrapped vehicle recycling and dismantling industry in 2014?
Liu Qiang: In 2014, China's scrapped vehicle recycling and dismantling industry saw steady progress. The number of enterprises with dismantling qualifications reached 597, a year-on-year increase of 3.65%. Recycling collection points covered more than 80% of county-level administrative regions nationwide, with over 30,000 employees. The scrapped vehicle recycling and dismantling network has taken initial shape, with an increase in the number and overall quality of recycling and dismantling enterprises. However, the recycling rate of scrapped vehicles remains low.
Although both the quantity of scrapped vehicles recycled and the total sales of dismantled materials increased in 2014, and production output value showed rapid year-on-year growth, most provincial and municipal regions still saw only slight growth in production output value. This is mainly due to two factors: firstly, insufficient implementation of national measures for the early elimination of yellow-label vehicles, resulting in low vehicle collection volumes; and secondly, the continued weakness in China's steel market, leading to a further decline in scrap steel prices. Therefore, China's scrapped vehicle recycling and dismantling industry is currently a low-profit industry facing operational difficulties.
Q: Why was the growth rate of scrapped vehicle recycling relatively high in 2014?
Liu Qiang: The relatively high growth rate of scrapped vehicle recycling in 2014 is mainly due to several factors: firstly, the increasing number of vehicles in society; and secondly, the implementation of national policies to accelerate the elimination of yellow-label vehicles, which is a major factor.
To promote the accelerated elimination of yellow-label vehicles, the Ministry of Environmental Protection, together with five other ministries (National Development and Reform Commission, Ministry of Public Security, Ministry of Finance, Ministry of Transport, and Ministry of Commerce), issued the "Implementation Plan for the Elimination of Yellow-Label and Old Vehicles in 2014." From the second half of 2014, a monthly dispatch system for the elimination of yellow-label and old vehicles was implemented, with monthly reports on the progress of the elimination tasks in various regions. Various regions have introduced relevant supporting policies and measures, effectively promoting the elimination work.
Uneven Development of Enterprises, Industry Disorder Remains to be Solved
Q: What are the main challenges facing China's scrapped vehicle dismantling and recycling industry?
Liu Qiang: The first problem is low recycling rates and disorder. China's scrapped vehicle recycling rate has remained consistently low. Due to the low prices of "near-scrap" vehicles and insufficient regulatory enforcement, used car dealers and illegally operating enterprises use flexible methods to purchase scrapped vehicles at high prices, fueling the demand for scrapped vehicles in the used car market. The cumbersome scrapping procedures and subsidies lower than market purchase prices make it more appealing for owners of old vehicles to find buyers in the used car market rather than voluntarily scrapping their vehicles.
The second is the relatively low overall level of enterprises. Although China's scrapped vehicle recycling and dismantling industry has seen rapid development in recent years, compared with developed countries, the overall development level of China's scrapped vehicle recycling and dismantling industry is still relatively backward. Many enterprises still adopt extensive management practices, with outdated management methods and technologies, rudimentary equipment, and non-standard, non-environmentally friendly, and wasteful recycling and dismantling operations.
The third is that the business model of enterprises is not adapted to social development. Due to historical reasons, China's scrapped vehicle recycling and dismantling enterprises have formed a business model that integrates recycling, dismantling, and shearing and crushing. This business model lacks focus, and enterprises still primarily aim to sell scrap steel, neglecting the added value of parts and resulting in low parts utilization rates.
The fourth is the need for improvement in relevant laws and regulations. The "Regulations on the Management of Scrapped Vehicle Recycling," promulgated in 2001, urgently needs revision. The capital determination work for recycling and dismantling enterprises needs to be legally clarified; the sale of complete assemblies such as engines and gearboxes from scrapped vehicles should be liberalized; and issues such as the extended producer responsibility system and the exit mechanism for dismantling enterprises need to be clarified.
The fifth is excessive tax burdens. In foreign countries, the tax rate for the automotive dismantling industry is generally 3%-5%, while in China, the various taxes and fees paid by the scrapped vehicle recycling and dismantling industry reach more than 20%, which is difficult for enterprises to bear.
Industry Development: "Indispensable" Supervision and Support
Q: What policy recommendations do you have to address these issues?
Liu Qiang: Undoubtedly, policy measures must first be improved. The "Regulations on the Management of Scrapped Motor Vehicle Dismantling" should be promulgated as soon as possible. It is recommended that relevant national departments (public security, industry and commerce, environmental protection, transport, and commerce) conduct joint law enforcement and establish a long-term mechanism. Strengthen joint law enforcement of road traffic operations and dismantling sites, and legally govern "black vehicles," assembled vehicles, modified vehicles, oversized vehicles (vehicles exceeding scrapping standards, without annual inspection), illegally operating vehicles, and illegal dismantling activities, and regulate the operation of recycling collection points.
Secondly, it is necessary to increase the intensity of upgrading and transformation. Due to the generally low volume of scrapped vehicle recycling, small production scale, and heavy tax burden on enterprises in the scrapped vehicle dismantling industry, most enterprises are in a low-profit state. The central government has decided to implement central-to-local special transfer payments for central government special funds starting from 2013. Local recycling and dismantling enterprises should actively create conditions to obtain financial support from national special funds for enterprise upgrading and transformation, promote enterprise upgrading and transformation, achieve standardized operations, and create a good business environment. In addition, relevant tax reduction and exemption policies need to be formulated. There are two main areas for improvement: implementing a fixed low tax rate support policy for recycled resource recycling enterprises; and implementing an immediate collection and immediate refund support policy for recycled resource utilization enterprises.
Thirdly, it is necessary to establish a recycling deposit system. To effectively improve the recycling rate of scrapped vehicles, it is necessary to draw on the successful experience of developed countries and adopt a corporate scrapped vehicle recycling deposit (also known as deposit) system. Implementing a scrapped vehicle recycling deposit system or establishing a vehicle recycling and disposal fund system is a common international practice and is imperative. It is recommended that this be implemented in China as soon as possible.
Finally, it is necessary to relax the market sales of the "five major assemblies" (engine, steering gear, gearbox, front and rear axles, and frame). The "five major assemblies" of scrapped vehicles are also commodities. The main body of illegal assembly of vehicles is the person, not the object. The law should severely punish the illegal assembly of vehicles, but should not restrict the attributes of commodities, so as to achieve a cure for both symptoms and root causes and achieve a good market order. With the annual increase in the number of vehicles in China, the scrapped vehicle recycling and dismantling industry will also develop rapidly. If the market sales of the "five major assemblies" of scrapped vehicles are restricted for a long time, it will inevitably affect the rational and effective use of resources. Therefore, it is recommended to improve and amend the relevant clauses.
The Precious Metals Recycling Special Committee cordially invites you to attend the China International Forum on Precious Metals Recycling, to be held in Hangzhou from October 26-28, 2015. For details, please visit www.cpmrc.org or call 010-57136966
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