From east to west, a chain collapses

Millions to lose their jobs as world's largest importer of waste hit by collapse in demand for packaging

• Tania Branigan in Dongxiaokou
• The Guardian, Friday 9 January 2009

A worker sorts out plastic waste Photograph: Dapei Xin/EPA

The scrap trader was immovable, despite Wu Wenxiu's pleas. She would pay one yuan - roughly 10p - for a kilogram of plastic. Around the corner in Shi Yuhai's yard, the offer was no better. Wu shrugged his shoulders and began to heave bags from his tricycle on to the scales. "One kuai [yuan] here, one kuai there - everywhere's the same these days. This industry has broken down," he grumbled.

Wu is one of 160,000 collectors in Beijing who make a living from the detritus of urban life - plastic sheeting, office printouts, bottles, radiators and scraps of cardboard. Recycling has become a global industry and China is the largest importer of the world's waste materials, taking in as much as a third of Britain's recyclables for example. Then came the slump, decimating the Chinese recycling industry and leaving Britain, the US and others grappling with growing volumes of recycled waste and nowhere to send it.

"It's a canary in the coalmine: it's the front and back end of industry," said Adam Minter, who runs the Shanghai Scrap blog and specialises in the metal trade. "Until about eight weeks ago, for example, the entire [US] west coast paper market was sent to China and most of it was sent south. It was processed and made into packaging for products that then shipped back to the US ... But when US consumer demand dropped off, that broke the cycle."

Across the scrap trade, prices have halved or worse in a matter of months. Each link in the chain is disintegrating, from factories to scrapyards to collectors such as Wu, 56, a former farmer who now plans to return to Hubei province.

Official media reported that four-fifths of China's recycling units had closed and that millions will eventually be left without employment.

Dongxiaokou, on the outskirts of Beijing, is a village composed of scrap: blocks of crushed metal are stacked in a tower, heaps of plastic bottles glint in the sunshine and piles of newspapers and rags fill yards. But the merchants all have the same story - they have lost tens of thousands of pounds in a few months, wiping out years of hard work.

Shi puffed on a cigarette as he counted out notes for Wu. "I've been in this business for 15 years and it's been bad before, but never this severe. Everyone's lost a huge amount of money and some can't sell their stock," he said. "Usually we sell to factories and they recycle them into plastic chips. But the price of chips has dropped so it's had a knock-on effect on us."

This area deals in domestic waste rather than imports, but Shi said every part of the industry had been affected.

Beijing dealers have taken a particularly hard hit. They stockpiled large quantities of recyclables because prices were soaring, but as the market began to soften, the Olympic security clampdown prevented trucks from entering the capital. The merchants could only watch as the value of their holdings plummeted.

"In a good year we can earn about 50,000 yuan but this year we lost 200,000," said Gong Rongchuan, 45, whose yard lies across the rutted alley from Shi's. "We came here more than 10 years ago and at the beginning we collected ourselves. Then we managed to start the business. We were too poor to get loans but we managed to borrow 100,000-200,000 from friends and relatives and we work from morning to night every day. But we haven't paid them all back because of our losses."

Minter says the predicament is typical of the trade. "People would borrow money from relatives and buy a container of scrap and then throw all that money back in and reinvest it. Great if it goes up - but the moment it starts slipping, especially if it's slipping 20-30%, you're finished," he said. Gong said: "Once we have sold all this stock we'll leave. My son's sorting it because we can't afford workers any more. We haven't figured out what to do next. We have seven people in the family and only 2.5-3 mu [less than half an acre] of farmland. It's too many people and too little land, so even if we go home there's not much we can do. We have both old and young to support."

The effects can be felt across China. Most of Gong's customers were plastics recyclers in Wen'an, Hebei, where by one estimate 93% of income depends on the trade. Some are already bankrupt. Wen'an Dongdu Jiacheng Recycling Resources is clinging on. But Miss Han, a materials buyer, said all but three of the 26 production line workers had been sent home for the new year holiday more than a month early.

There is no longer demand for plastic granules from nearby companies such as Hongkai Plastic Products, which made items such as bicycle handlebars. Its owner, Mr Zheng, has sent 20 workers home. "My factory was hit by the economic crisis - it's been closed for two months already," he said. "We usually sell our products to a dealer and most of his business is exports. He didn't give us any more orders."

At a factory down the road, the response to queries was more brusque. "We've already gone bust," said a man, and hung up.