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China’s stance on remanufacturing and the automotive aftermarket

With a growing demand for circular economy solutions in China, William Schwark, founder of RemanWorld, provides his opinion on the country’s stance on remanufacturing and its plan for the future.

 

China’s stance on remanufacturing and the automotive aftermarket p one re a
photo courtesy of Encory

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. 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 leadership’s 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.

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 introducing 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 of remanufacturing benefits among Chinese consumers, including millions of motorists and transport businesses. According to China’s state media, with the new remanufacturing law, ‘the potential of the industry is vast.’

China’s stance on remanufacturing and the automotive aftermarket p two re a
photo courtesy of Encory

The 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.

Prior to this, 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.

China’s stance on remanufacturing and the automotive aftermarket p three re a
photo courtesy of Encory

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 characterized 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 revealed its next five-year plan – its fourteenth – thus setting China’s course for a good part of the next decade. It points out the importance of prioritising and supporting circular economy and sustainability.

At the centre of the plan is a change of prioritising quality rather than quantity growth and a pledge to become a carbon-neutral country by 2060. It is mentioned that China shall basically have an established circular economy by the end of 2025. By implementing a circular economy, the focus will lie on increasing resource efficiency, encouraging innovation and meeting global climate commitments. To succeed, China will promote recycling, remanufacturing, green product design and renewable resources. Another aspect will be supporting companies involved with waste management, green tech and recycling technology – affecting manufacturing companies using resources and generating waste negatively. Here remanufacturing will play a central role in maximizing resource efficiency and lifecycles of products.

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

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.

At Rematec Asia, the Asian remanufacturing exhibition held in Guangzhou, China, on the 5-7 November 2021, it was emphasized that the Double Carbon Target mentioned in the 14th Five Year Plan must be fulfilled. Thus Reman business is a strategic direction and will be strongly promoted from state level. Meanwhile, many governmental policies were issued accordingly.

China Reman Association has started issuing Reman Certificates, so far, seven Chinese remanufacturing companies have achieved them. It is not mandatory but quite helpful for promoting business. A key message is that the German Certificate company RWE GMBH will start issuing this certificate to Chinese companies in China, which would be much authoritative.

Although fewer reman companies participated at the exhibition compared to 2019 due to the COVID restrictions. It is clear that reman parts quality and related standards are improving.

This article was provided by Encory on behalf of William Schwark, founder of RemanWorld

About the author

RemanWorld is the premier journalistic source of news, contacts and communications services for the worldwide remanufacturing industry.

William Schwarck, the founder, publisher and editor, has long been recognized as a transformative force in the industry. Over almost two decades, his reporting on the news and the people of the industry has built a shared identity for an industry otherwise better known as a hidden giant.

About Encory

In September 2016, Encory was founded as a joint venture of BMW Group and ALBA Group. Their dynamic team of more than 60 colleagues in Munich, Germany and global operations in Europe, China, and the USA, enable them to realize innovative products and services for the aftermarket by acting as service providers, consultants and retailers.

Encory fully operates end-to-end solutions for the reverse supply chain with warehouses (ReLife Points) in Europe and China, supported by their global network of partners and intelligent IT solutions. By handling all types of returns, they qualify and identify parts for reuse, remanufacturing and secure recycling – processing and forwarding them to close the loop. With modern and own developed software tools, they support and eliminate inefficiencies and increase transparency for their customers throughout the entire reverse logistics process.

The certified product management teams help expand the aftersales portfolio by offering services for remanufactured products, 1-1 repair, core management and supplier qualification. Combined with demand management, they can steer and monitor the material flow of parts to adjust processing capacities and handling for the market.

Additionally, Encory globally purchases obsolete products and parts surplus, providing an alternative solution to scrapping – resulting in additional revenues and a positive impact on the environment.

Since 2019, their Chinese ReLife Point in Cangzhou – south of Beijing has processed more than 400,000 parts – provided a secure and efficient way to handle automotive parts intended for remanufacturing and recycling. In addition, Encory implemented new processes to verify and evaluate reported damages by dealers – supporting OEMs to save costs by rejecting inapplicable damages and saving fully functional parts from being unnecessary scrapped.

We see a growing demand for circular economy solutions in China, where innovation, waste management and recycling technology will play a key role. China aims to achieve a fully implemented circular economy by 2025 – encouraging green technologies and significantly improving resource utilization to meet global climate targets. Visit encory.com

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