The upgraded version of the "Plastic Restriction Order" was officially implemented on the first day of the new year.

During the New Year's Day holiday, in a chain store in Pudong, Shanghai, the reporter of Yicai.com found that the former PE plastic bags had been replaced by degradable and non-woven shopping bags. Most of the consumers who entered the store put the items into the backpacks they carried with them. Only a small number of customers chose to buy shopping bags because the items they bought were too large.

As a once convenient invention, plastics now bring obvious negative externalities to the world, but it also brings development opportunities for biodegradable materials. Relevant research reports show that global biodegradable materials have a rapid growth trend. It is estimated that China's biodegradable plastic production will reach 4 million to 6 million tons in 2025, and the entire market size will be nearly 70 billion yuan.

Although the market is promising, in the early stage of the implementation of the upgraded version of the "Plastic Restriction Order", plastic companies still face problems such as shortage of raw materials and price increases in transformation.

The market for degradable materials is promising

In 2019, China's plastic product output reached 81.84 million tons, accounting for a high proportion in the world, while the consumption of biodegradable plastics was only 520,000 tons.

In fact, in order to reduce plastic emissions and promote green production and lifestyle, the General Office of the State Council issued the "Plastic Restriction Order" as early as 2007.

In January 2020, the National Development and Reform Commission and the Ministry of Ecology and Environment issued the "Opinions on Further Strengthening Plastic Pollution Control". The new version of the plastic restriction order points out that by the end of 2020, China will take the lead in banning and restricting the production, sale and use of some plastic products in some regions and fields; by the end of 2022, the consumption of disposable plastic products will be significantly reduced, and alternative products will be promoted.

In the middle of last year, the National Development and Reform Commission, the Ministry of Ecology and Environment and other nine departments jointly issued the "Notice on Solidly Promoting the Work of Plastic Pollution Control", requiring that from January 1, 2021, the use of non-degradable plastic shopping bags will be prohibited in shopping malls, supermarkets, pharmacies, bookstores and other places in the built-up areas of municipalities, provincial capitals and cities with independent planning status, catering take-out services and various exhibitions, but roll bags, fresh-keeping bags and garbage bags will not be prohibited for the time being.

According to incomplete statistics, as of November 13, 2020, 30 provinces (autonomous regions and municipalities) in China have issued measures to implement the new version of the plastic restriction order.

For example, on February 10, 2020, Hainan Province took the lead in issuing the "Regulations on the Prohibition of Disposable Non-degradable Plastic Products in Hainan Special Economic Zone", which is also the first local regulation in China for disposable non-degradable plastic products after the new version of the "Plastic Restriction Order". Recently, Hainan Province has studied and formulated the "Implementation Plan for the Comprehensive Prohibition of the Production, Sale and Use of Disposable Non-degradable Plastic Products in Hainan Province", which proposes 21 key tasks in 7 aspects.

Shanghai issued the "Shanghai Implementation Plan for Further Strengthening Plastic Pollution Control" in September 2020, requiring that by the end of 2020, shopping malls, supermarkets, pharmacies and other places will be prohibited from using disposable plastic shopping bags, and catering take-out and take-out services will be prohibited from using non-degradable plastic shopping bags. Violators will be investigated and dealt with according to law.

Zhejiang Province's "Implementation Measures for Further Strengthening Plastic Pollution Control" clearly states that with non-degradable plastic bags, disposable plastic tableware, disposable plastic products in hotels, and express delivery plastic packaging as the focus, the use of related plastic products will be banned and restricted in steps and fields.

Henan Province's "Action Plan for Accelerating White Pollution Control and Promoting the Construction of Beautiful Henan" mentioned that by the end of 2020, Zhengzhou shopping malls, supermarkets, pharmacies, bookstores and other places, as well as catering take-out services and various exhibitions and activities, will be prohibited from using non-degradable plastic bags; the city's catering industry will be prohibited from using non-degradable disposable plastic straws.

The intensive release of plastic restriction measures has given the degradable industry development opportunities.

Data show that the degradation process of environmentally degradable plastics mainly involves biodegradation, photodegradation and chemical degradation. These three main degradation processes have synergistic, synergistic and coherent effects on each other. According to Tianyancha Professional Edition data, as of now, there are nearly 8,400 degradable-related enterprises in China whose business scope includes "biodegradation, photodegradation, chemical degradation, and degradable", and whose status is in operation, continued, moved in, or moved out.

In the past ten years, the annual registration number and growth rate of China's degradable-related enterprises (all enterprise status) have shown a steady upward trend. As of now, based on industrial and commercial registration, China has added nearly 2,300 new degradable-related enterprises in 2020, a year-on-year increase of 38%. In terms of geographical distribution, China's degradable-related enterprises are mainly distributed in Yunnan Province, with nearly 5,000 related enterprises, accounting for nearly 60% of China. Guangdong Province ranks second with more than 670 related enterprises, and Anhui Province and Shandong Province both have more than 300 related enterprises.

Zhong Huaining, director of the National Key Laboratory for Food Contact Materials Testing (Guangdong), said in an interview with the First Financial reporter that due to the strong promotion of the plastic restriction policy, the market for raw materials of biodegradable plastics is temporarily in short supply. However, Chinese companies have stepped up the research and development, layout and production of biodegradable plastics, especially the most widely used polylactic acid (PLA) and polybutylene adipate/terephthalate (PBAT).

According to incomplete statistics, the production capacity of biodegradable biological projects announced by China in 2020 is about 4.5 million tons, and about 1 million tons have completed the preliminary work, and the polylactic acid industry is working hard to break through the core lactide synthesis technology. Therefore, China's existing biodegradable plastic production capacity may be insufficient in the short term, but with the gradual advancement of policies, it should be able to meet market demand within 3 to 4 years.

What are the problems with enterprise transformation

Although the market opportunities brought by the "plastic restriction order" are promising, how should material companies transform under the current low profit situation?

Tongcheng, Anqing, Anhui Province, known as the "hometown of plastics", accounts for more than half of the plastic bag production in the Chinese market. Facing the upgraded version of the "plastic restriction order", local companies have many concerns.

"Our factory's annual output value of traditional PE plastic bags is about 10 million yuan." Mr. Dai, the head of a small and medium-sized plastic packaging company in Tongcheng City, told reporters that there are thousands of plastic companies of varying sizes in the East China Plastic City where the company is located.

Mr. Dai has been engaged in the plastic production industry for 12 years. The company has a total of 17 people. It mainly produces non-degradable plastic bags made of PE material, which are also the key plastic products restricted under the new "plastic restriction order". However, since there is still a large demand for plastic bags in low-tier cities, their factory is currently maintaining the production of PE plastic bags.

"Conversion is inevitable, and companies in the Plastic City are all converting. We still have some raw materials that have not been completed this year (until the Lunar New Year). After the last batch of raw materials is completed, we will start to convert to degradable plastic bags. In 2021, the ratio of PE and degradable will be half and half." Mr. Dai said.

He did some calculations for the reporter. Due to the large number of companies in the plastics industry, the industry's profits have long become meager. "The profit margin of this industry may be 12%, which is the ceiling. Generally speaking, the profit is only about 7%, and it is already very good to maintain this profit."

Under the new round of "plastic restriction order", he is most worried about the problem of raw materials, such as polylactic acid.

Polylactic acid biodegradable materials are made from crops such as corn and sugarcane through a series of complex processes. They are also one of the main raw materials for degradable plastic bags and straws.

Mr. Dai told reporters that the price of one ton of polylactic acid raw materials is between 19,000 and 21,000 yuan, while the price of PE materials was 8,000 or 9,000 yuan per ton before. "The production of polylactic acid plastic bags, whether in terms of equipment or production links, is not much different from the previous production of PE plastic bags. After running-in, the production capacity should be able to catch up quickly. The biggest pressure for switching production is still the problem of raw materials. The raw material plate is only so big. If more companies enter the market of degradable plastic products, I am a little afraid that polylactic acid will see the same price increase as meltblown cloth at the beginning of the year." He also said that since the plastic bags in the factory are mainly supplied to milk tea shops, whether it is PE or converted to degradable plastic bags, the revenue should be acceptable. "If shopping malls and supermarkets use degradable plastic bags, consumers can accept it because the price of the goods is higher. The most difficult ones are small shops and vegetable markets, where the price of goods is originally low." Tianyancha Professional Edition data shows that there are nearly 200 polylactic acid-related companies in China whose business scope includes "polylactic acid" and whose status is in operation, continued, moved in, or moved out. As of now, based on industrial and commercial registration, China has added about 48 new polylactic acid-related companies (all company status) in 2020, an increase of nearly 129% year-on-year.

Zhong Huaining told reporters that at this stage, due to the tight supply and demand relationship, the price of polylactic acid remains high, and China's downstream plastic manufacturing industry has a large number of small and medium-sized enterprises, so it will face greater cost pressure. "Through the role of market mechanisms, the scale effect and cost reduction brought about by the expansion of upstream production capacity, the overall industry will gradually enter an orderly and standardized state."

For enterprises in the industrial chain, he suggested that upstream enterprises can further develop and utilize green resources to meet the sustainable development strategy, such as using cellulose (non-food carbon sources) such as straw to synthesize degradable biopolymers. And mid- and downstream enterprises can do a good job in quality control of biodegradable materials to ensure that they meet the requirements of biodegradable performance, and enhance the scale effect of the industry to reduce costs. In addition, public education can be strengthened to promote consumers to correctly understand and use biodegradable materials, while increasing the high added value of degradable materials, such as developing high-performance degradable materials that can be used for fine processing.

In response to the plastic restriction order, various companies have also begun to take action.

Starbucks China told reporters that starting from April 2019, stores in some cities stopped providing plastic straws on a trial basis and replaced them with direct drinking cup lids and paper straws. By the end of 2019, Starbucks China stores had completed the full replacement of plastic straws 100%. The use of about 200 tons of plastic can be reduced each year.

Hema Fresh also told reporters that in cities that have issued plastic bans, including Beijing, Shanghai, Guangzhou, Changsha, Wuhan, Xi'an and other stores, Hema will replace them with degradable shopping bags, environmentally friendly non-woven bags, paper bags, etc. from January 1, 2021; disposable straws and tableware used in stores will also be replaced with degradable or recyclable materials.

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