A confluence of factors is driving smartphone recycling to new highs, as government and private bodies work together toward greater sustainability by boosting the "circular economy." While much of the effort starts at the top with government-led initiatives, companies and industry groups are also taking more initiatives as they seek to become more responsible corporate citizens.

The latest remarks by President Xi Jinping during the recent meeting of the Communist Party's Central Commission for Financial and Economic Affairs reinforced the importance of the circular economy, calling for more equipment recycling and consumer goods trade-ins as a means to further lower logistics costs. We view this as an advocacy to boost consumption and circularity of consumer durables, including consumer electronics, home appliances and passenger vehicles.

At the same time, an increasingly sophisticated infrastructure to facilitate such activity is taking shape, bringing standardization and quality assurance that are critical to maintaining the market's growth. Last but not least, the recent economic situation has also added momentum to the movement, especially in China, as increasingly budget-conscious consumers look for ways to do more with less.

While the global market for new smartphones has been contracting for more than two years, the opposite is true for used products. Global new smartphone sales fell 3.2% last year to about 1.17 billion units, even as used smartphone sales actually rose nearly 10% for the year to 310 million units, according to IDC. Such used smartphone trading is expected to continue growing at a compound annual rate of 8.8% over the next five years.

As a recycling specialist, ATRenew Inc. ( RERE ) has been tapping this trend and recycled and facilitated the recirculation of about 32.3 million used devices last year. Our recent partnership with Apple ( AAPL ) reinforces our belief in the potential of the circular economy, adding 330 million yuan to our sales in the second half of 2023, which we believe is just a start. We have faith that the partnership brings primary sources of supply to our ecosystem and could benefit us along with Apple's ( AAPL ) continuous business development in China.

Both local and national governments are helping to drive the trend towards more smartphone recycling and trade-ins in China. At the national level, China's Ministry of Ecology and Environment released guidelines in 2021 on recycling for nine types of electronic waste, including smartphones. Research cited in the government's most recent 14th Five-Year Plan also emphasized that many of the 6 billion smartphones likely to be discarded between 2021 and 2025 contained materials like gold, silver, copper, platinum, palladium and rare earth metals that can and should be recycled. Most recently, China's State Council in March issued a notice on promoting mass-scale trade-ins of consumer products, demonstrating its determination to pursue a circular model of consumer goods use at a national level.

Carbon-reduction financing

China's central bank has also encouraged such recycling by launching a voluntary program where banks and other financial institutions disclose carbon-reduction information associated with their lending activity, according to a 2022 report from the World Economic Forum. It added that the China Development Bank has pledged 4.55 billion yuan ($633 million) to finance construction of China's first resource recycling base and zero-waste city national pilot project in the city of Xuzhou.

At the local level, the southern economic center of Shenzhen rolled out its own pilot program providing guidelines for repair and refurbishment of used phones in 2022 - a template that could eventually be followed by other cities in the drive to bring more standardization to smartphone recycling.

Industry groups like the Global Battery Alliance, a partnership of more than 150 businesses, governments and industry players, are getting involved as well with their own recycling initiatives. Those include the alliance's "battery passport" that encourages "responsible sourcing, management, recycling and use of a battery across its full lifecycle," according to its website.

Such efforts have helped to fuel the rise of a growing number of platforms that facilitate smartphone trading, including not only general used-product marketplace operators like Xianyu, but also a growing number of specialists like ATRenew ( RERE ) and Shanhuishou. Such platforms can play a critical role by reassuring buyers that they are getting quality products and providing a reliable venue to express concerns when those products fail to meet expectations.

As those factors work together to promote recycling, a new variable has also entered the mix with China's economy. A growing number of retailers are reporting growing consumer caution as buyers increasingly look for better value for their money. At the same time, the demand for premium smartphones remains strong, making trade-ins a more popular option with Chinese consumers.

The confluence of all those factors bodes well for everyone. Governments and world bodies are protecting the environment and fulfilling their role as responsible players through greater promotion of the circular economy. The trend is also bringing economic activity by creating a new generation of trading platforms to assure quality through standardization. And last but not least, consumers are feeling increasingly comfortable buying secondhand phones, getting good value for their money while also being more environmentally responsible.

While ATRenew ( RERE ) is already the largest pre-owned consumer electronics equipment transaction and services provider in China, we have also moved into other areas like second-hand luxury goods, gold and even vintage liquors. This extension was rooted in our strong consumer touchpoints of over 1,800 physical stores and the top-of-mind AHS Recycle brand which, in Chinese, echoes consumer passion for recycling idle goods. We strongly believe that we are creating a positive impact on the environment as we encourage users to give a second life to their idle goods through responsible recycling, reselling, and reuse, and have embraced ESG as a key part of our corporate philosophy.

Kerry Xuefeng Chen is chairman and CEO at ATRenew ( RERE ). You can reach him at [email protected] for investor inquiries or [email protected] for media contact.

This commentary is the views of the writer and does not necessarily reflect the views of Bamboo Works