BROWSING my phone, an app’s advertisement caught my eye as it promised a door-to-door collection service for used goods. I was glad I could wait at home to have my used appliances and furniture recycled rather than hunting for an agent to help.

But tracing the link to visit the app, I was told its services had been suspended “as the company needs to adjust its business.”

“We have to find some other work which can make profits, planning to put forward new services such as clothing and book recycling later this month,” said founder Xu Liang, general manager at Shanghai Tianying Environmental Technology Co. “We can’t hold on after four months’ losses.”

Unfortunately, that scenario might be common with China’s online recycling startups.

Before Xu’s Shanghai-based app, named Duansheli — a Chinese transliteration of the Japanese word Danshari, which means to separate from useless goods — suspended its services at the end of last year, its rivals such as 9beike in Hangzhou went bankrupt in 2016 after one year’s operation, while Zaishenghuo in Beijing had struggled into an online housekeeping service provider from a recycling business to stop losses.

“We haven’t seen a successful case by now,” said Zhang Chu, vice president at Leading Capital who is specialized in environmental industry investment. After five years’ work there, Zhang has not invested in any project relevant to recycling, “as there hasn’t been a practical profitable model, let alone trials among startups.”

Two to three years ago, the Internet seemed to be a savior for China’s stagnating waste sorting and collecting industry, with online service providers emerging across the country in line with the soaring number of computer users.

Tan Biao, founder of 9beike.com, the “poster child” winning US$5 million of angel investment when it was created three years ago, said: “We’ve met the right time for recycling and waste sorting” after the fundraising.

Misread or too early?

But after falling apart in such a short time, did those recycling “geeks” misread China or were they just too early?

Xu would disagree he misread China.

Teaming up with five colleagues six months ago to work on waste sorting and recycling, they were sure “our products need to adopt digital technologies as a way to reach young people,” said Lu Jingxuan, Xu’s partner specialized in marketing and communications.

They do have some reason, given that their platform attracted 15,000 users in two months.

9beike was also applauded for attracting 100,000 users in three months when it started.

“Because it helped me treat my used goods in an easy way with some rewards, both materially and spiritually, rather than throwing it away,” said one of its users in an interview.

While in the old days junkmen had to stay in one spot at a fixed time to collect used goods, “nowadays we can gather enough orders before sending workers to pick up goods at different communities,” Xu said. “And it turns out they like this way.”

Apart from being able to place orders anytime at any place rather than looking for a waste collecting station, smartphone apps also made users more interested as they could be repaid either in cash or “credits” to exchange for goods such as movie tickets and supermarket coupons.

Meanwhile, they broke with the traditional publicity which the government has used for a long time to educate residents, normally in collaboration with local communities to put up some posters or to broadcast some videos.

“That has limited influence as such measures only affected old people and kids who can stay at home in the day time, not the young people working day and night in office buildings,” Lu said.

“Only the young are the main force to change the whole society’s mentality, and this time we’ve reached them by delivering messages on mobile phones and websites,” he added.

But what made things go wrong even after such apps reached their target audience?

“They can’t even break even if there is no source of fundraising,” Zhang said. “The recycling business itself can hardly make a profit, dragged by costly logistics and treatment expenses.”

One common conundrum of these platforms is the high operational cost due to scattered, small-scale goods.

In 9beike’s case, their workers had to collect goods every time the platform received orders across the city, “leading to high logistics costs,” said Yang Gaoxiao, its marketing director. “But the value of every order was too low, as citizens have limited goods to throw compared with firms and shops.”

Meanwhile, many online recycling startups such as 9beike are more Internet companies than waste disposal companies, and lacked the ability to treat waste, “thus having to partner with companies which are willing to treat the waste, causing another large sum of expense,” Yang added.

Costly logistics

Xu’s startup, by contrast, has treatment support from parent company China Tianying Inc, one of China’s largest waste disposal and energy groups. It had 1 billion yuan (US$159 million) in sales last year in its main business of incineration — which makes a profit by burning waste to produce electricity.

But still, Xu found the logistics expensive “if you receive all kinds of used goods.”

“But if you narrow it down to some specific lines such as household appliances, you will receive too few orders to maintain business,” he said.

One possible measure to lessen the logistics costs is to collaborate with local community centers, “thus able to summon residents to hand in goods in a batch rather than letting them place orders separately.”

But the question is: “How to persuade community centers, namely government? Do they have the budget to support such work?” said Zhang.

The subsidy the government needs to cover includes not only rewards for residents to hand in goods, but also the expense of teaching them how to sort goods.

In Shanghai, over 57 tons of waste paper and 87 tons of plastics were wasted every day on average in 2014 as citizens mixed them into kitchen garbage, said the city’s greenery and public sanitation bureau in a report.

“Citizens are still confused about how to sort waste after the government changed sorting standards four times in 17 years,” said Zuo Yan, Chairperson of Huangpu District Committee of the Chinese People’s Political Consultative Conference. “The government is also mulling how to build a wholesome recycling system.”

Whether online recycling companies can succeed relies far more than how good they are at such business, Zhang said.

“If you aim to make profits from the business itself, you’d better recycle some high-value goods such as precious metals; they can turn into higher prices after processing,” he said. “But most of the recycled goods can only sell at lower prices even though you put higher efforts to realize their new use.”

The next question is, how to persuade the public into paying for the additional efforts?

Nantong in eastern Jiangsu Province, the city where China Tianying is based, has proposed to allocate 20 yuan for every household per month to sort their waste and used goods and hand in them to the company.

“That’s one of the ways to address the issue,” Zhang said. “And after all, the recycling forerunners may have to wait until the whole society realizes that it has to pay for their business, rather than simply enjoying what the digital technologies have brought to daily life.”