Sustainability and Waste Imports in China: Pollution Haven or Resources Hunting

Abstract

Motivations behind a country’s importation of waste are categorized into the pollution haven hypothesis (PHH) and the resource hunting hypothesis (RHH). The importation of wastes can lead to environmental sustainability concerns, requiring governments to intervene when the market fails to reduce the negative externalities by strengthening and implementing environmental regulations. Motivated by China’s position within a rapidly growing but environmentally damaging sector of trade, this paper has three goals: (1) to classify the primary hypothesis that governs China’s flow of traded wastes; (2) to verify the heterogeneous impact of the pollution paradise motivation and resource demand motivation of waste imports from developed and developing countries, and across industries; (3) to assess the impact of domestic environmental regulations on the motives behind China’s waste imports. Using 28 imported waste-varieties from 20 of China’s major trade partners across 24 years, findings indicate that the flow of Chinese waste imports is relatively unresponsive under the pollution haven effect. However, the resource hunting effect from developing countries is significantly greater than what originates from developed countries, despite the laws of 2011 and 2017 established to restrict resource hunting activities. These results have important implications for improving the efficiency of China’s waste sorting and recycling systems.

Impact of China’s National Sword Policy on Waste Import Margins: A Difference-in-Differences Approach

“…First, we constructed a quasi-natural experiment and empirically analyzed the impact of the NSP on the category, quantity, and price margins of Chinese imports for the first time. Second, we further confirm, based on Li et al [3], that the NSP mainly suppresses the motivation of developed economies to seek a "Pollution Haven" for exporting highly polluting waste to China but does not affect China's access to intermediate input resources from developing economies. Third, we discussed the heterogeneity in national environmental policies and demonstrated that the waste market of economies that actively implement product environmental impacts and encourage waste classification and recycling policies will not be significantly impacted.…”

“…China's dominance is evident in its once over 50% share of global wastepaper and waste plastic imports, underscoring its pivotal role in the international waste recycling and reuse market [9]. Li et al [3] utilized a gravity model and panel data on 28 waste categories imported by China from 1995 to 2018 to analyze its drivers. Their findings suggest China's strategy to procure cost-effective intermediate goods from the global market, leading to substantial imports of scrap metal from developed nations and diverse waste types from developing countries.…”

“…The research also indicates a "Pollution Haven" incentive for China's importation of waste plastics and textiles from advanced economies. After the global financial crisis, a suppressed international market curtailed China's industrial capacity and resource demand [3]. Consequently, the Chinese government has heightened scrutiny over the import and illegal trafficking of low-quality waste and its associated environmental hazards from inadequate sorting processes [1].…”

“…According to statistics, the world produces 7-10 billion tons of waste annually, of which approximately 10% is traded across borders through international trade, raising profound externalities [1]. The resource-hunting hypothesis suggests that there is a direct correlation between the wealth of a country and its per capita waste production, notably, more affluent developed countries generate more waste [2,3]. The recycling departments of developed countries are unable to fully digest the supply of these solid wastes, so they package and sell these wastes to developing countries [4].…”

“…Although using waste as a cheap intermediate input to meet the needs of domestic and international markets, China confronts persistent obstacles. These include the inefficiencies in waste management systems and the rampant issue of illegal waste trafficking, which pose significant challenges to the country's environmental and public health objectives [3,10].…”