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Mobile Phones Recycling Goes Mainstream as More Mainlanders Upgrade

In China, the sale of secondhand or unwanted mobile phones has graduated from shady backstreet market stalls to becoming a respected business sector, complete with IPOs, sophisticated operational models and franchise opportunities.

Photo: Handset handling: One of Aihuishou’s phone recycling points.
Handset handling: One of Aihuishou's phone recycling points.
Photo: Handset handling: One of Aihuishou’s phone recycling points.
Handset handling: One of Aihuishou's phone recycling points.

Thanks to widespread internet access and increased efficiency on the part of the logistics sector, recycling mobile phones and other consumer-electronics items has grown into a considerable market sector in its own right. A truly diverse industry, operators can vary from being small off-line businesses to sizable chain companies, while their specialties can range across B2B, B2C, C2C or even a fusion of elements of all three.

Traditionally, barely legal mobile-phone recyclers operated in a number of shady locales, most notably Shenzhen's Huaqiang North Road, and Zhongguancun, home to many of Beijing's electronics markets. Now, although the sector has expanded in line with greater public interest in sustainability, the mainland's used mobile-phone recycling market is still far from saturated.

Huge Surge in Unwanted Mobile Phones

According to recently released Ministry of Industry and Information Technology figures, the number of mainland mobile-phone users grew by 50.54 million in 2016, taking the total to 1.32 billion. Although this shows an average penetration rate of 96.2 phones per 100 people across the mainland, in 10 provinces and cities – including Beijing, Guangdong, Shanghai and Zhejiang – there are far more than 100 phones for every 100 residents.

Photo: Privacy promise: Handset data deletion.
Privacy promise: Handset data deletion.
Photo: Privacy promise: Handset data deletion.
Privacy promise: Handset data deletion.

Figures from the National Bureau of Statistics show that 2.05 billion mobile phones were sold in 2016, with export sales over the first 11 months of the year accounting for 1.17 billion units. Although there are no official statistics relating to the number of unused handsets on the mainland, there is clearly a huge discrepancy between the per-annum unit sales and the net increase in mobile-phone users. Even taking into account export sales, it is clear that a huge number of users are upgrading their handsets, suggesting there is now a huge and growing reservoir of unwanted and obsolescent mobile phones on the mainland.

Interviewed recently, Lin Hanzhong, Deputy Secretary-General of the China Electronic Chamber of Commerce (CECC)'s Consumer Electronics After-sales Service Committee, identified the three factors that lead to consumers replacing and upgrading their handsets – the availability of superior models with enhanced features, a desire to own the latest and most fashionable handsets and the high repair costs of out-of-date models.

In line with this, figures jointly compiled by the CECC and Aihuishou ("Love Recycling"), one of the mainland's leading recycling platforms, show that individual handsets typically have a useful life of between eight and 16 months before owners look to upgrade. Similar findings came in a report released by the 360 Internet Security Centre with regard to the recycling of mobile phones. This showed that, in 2014, about 50% of users replaced their handsets within 18 months, while 20% did so within a year.

Thanks to the excessive demand for many of the new models released by the most popular brands, mainlanders tend to replace their handsets more frequently than the global average. In line with this, on the 18 September last year, two days after the launch of the iPhone7, more than 25,000 phones were sent to be recycled across the mainland. Tellingly, the figure was more than double the number of phones sent for recycling three days earlier.

Another CECC survey, conducted in association with Lingdian Youshou (www.idataway.com), the Beijing-headquartered market-research group, showed that 65.4% of consumers had unused mobile phones at home. Lin believes that growing environmental awareness among consumers, coupled with the emergence of a convenient second-hand recycling service, could soon see this figure drop to as low as 55%.

Resale Value Driving Recycling Platforms

At present, Aihuishou, Huishoubao and Lehuishou are pre-eminent among the growing number of phone-recycling platforms on the mainland. Users can call upon the services of such platforms to resell their mobile phones by mail, at physical recycling points or via a door-to-door collection service. Unsurprisingly, the widest range of options are available in the mainland's tier-one cities, while the compensation they receive has emerged as the driving force behind the willingness of many mainlanders to recycle their unwanted handsets.

Photo: Conditional offers: Trade-in prices.
Conditional offers: Trade-in prices.
Photo: Conditional offers: Trade-in prices.
Conditional offers: Trade-in prices.

According to a recycling report by Aihuishou, the annual update of the iPhone spurs consumers to buy new models, while also stimulating the growth of a secondary market where Apple users can resell their old handsets in a bid to exploit their residual value. Although Apple has long offered a trade-in deal to its user base, its relatively poor terms have failed to woo consumers.

As an illustration, a gold 64GB UK-sourced iPhone6 could be sold for about RMB1,335 on Aihuishou. However, iFengPai, an Apple authorized reseller, will only pay up to RMB1,290, although even this is attractive compared with what an official Apple Store is likely to offer. On the mainland, Apple will only offer a recycling deal on the iPhone5, and only then if it were both sold and manufactured on the mainland. Even after navigating these hurdles, owner will only be offered a discount on the future purchase of an iPhone or iPad, rather than be paid cash.

With many of the official recycling channels failing to appeal and a high level of distrust towards the unlicensed sole traders who, at one time, provided the only alternative, it was perhaps inevitable that a more formal, regulated and orthodox phone-recycling sector would eventually emerge. Now, in a sure sign of their acquired respectability, a number of recycling platforms have secured venture-capital support, with one or two even undertaking a public listing.

Turnover at Aihuishou, one of the true giants of the sector, exceeded RMB1.7 billion in 2016 following its successful recycling of some five million handsets. On the back of this, the Shanghai-based company, announced in December last year that it had successfully secured RMB400million worth of Series D Round financing, a development that has now triggered the start of a planned IPO process. Earlier in the year, Huishoubao, another of the sector's leading lights, received Series A+ Round financing from SMC Capital China, one of the mainland's top 50 private-equity investment houses.

Diverse Profit Sources and Co-operation Models

Typically, mobile-phone recycling platforms work closely with handset manufacturers, e-commerce companies and the secondary trading market in order to collect relatively recent models – those that still retain a certain cachet for users. These are then cleaned and repaired where necessary, with all previous user data purged before being resold at hugely competitive prices.

Photo: Re-used range: Model gallery.
Re-used range: Model gallery.
Photo: Re-used range: Model gallery.
Re-used range: Model gallery.

In the case of badly damaged – but still current – models, these will be dismantled, with any intact components sold on for reuse. At the very bottom of the scale, entirely obsolescent models are simply sold en masse for metal extraction.

According to Chen Xuefeng, Aihuishou's Chief Information Officer, his company's primary source of income comes from revenue sharing with recycling bodies – including supermarkets and factories. Typically, such an arrangement yields a gross profit margin in excess of 10%.

A 90%-new 128GB jet black China edition iPhone7, for example, sells for about RMB5,399 via Aihuishou, while the resale price of a branded China edition iPhone7 of the same colour and configuration – entirely unused, but without the complete packaging – is RMB3,865. If its case were slightly damaged, however, the price would drop to RMB3,345. Compared with Aihuishou, Huishoubao generally offers on average RMB200 less for a handset.

While not every business has the resources to develop into a mega-platform, along the lines of Aihuishou or Huishoubao, smaller operators have the option of franchising as a way into the sector. Such an arrangement would allow small and medium-sized business owners to work under licence with one of the existing platforms to source or distribute second-hand or unwanted new handsets.

In Aihuishou's case, it is specifically looking for would-be franchisees as it seeks to extend its activities into China's tier-three cities.  Addressing the opportunities on offer, Zheng Fujiang, a Senior Partner in the business, said: "It would be unrealistic for us to directly operate recycling points in all China's tier-three and below cities, despite the fact that the need is there. As a result, we are looking to off-line recycling channel franchisees to fill this gap. As the investment costs are not high, this could prove a lucrative opportunity for the owners of small and medium-sized businesses."

Zhao Jia, Special Correspondent, Beijing

Content provided by Picture: HKTDC Research
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