Gift Recycling: China’s Not-So-Underground Economy

As China celebrated the Mid-Autumn Festival this past week, countless gifts were exchanged by friends, families, and co-workers in homes and offices all across the country. In the days following the festival, many gifts changed hands once again, this time behind store counters and in narrow back alleys. These second exchanges were part of a twice-yearly phenomenon whose name is spelled out in a simple four-character phrase appearing in every corner of China’s cities, from crude cardboard signs to glittering light displays: 回收礼品 – gift recycling.

Let’s make a deal

Simply put, gift recycling is the selling of presents by recipients who neither want nor need them. The majority of such exchanges take place inside the countless cigarette and liquor stores found along any Chinese city street. Indeed, high-end cigarette brands such as Chunghwa and Panda, along with the famous baijiu labels Moutai and Wuliangye, are among the items most frequently brought in by customers and bought by store owners. But many recyclers accept a wide range of gifts. More exotic presents such as birds’ nests, shark fins and sea cucumbers are also typically welcome.

There are limits, though, to what recyclers are willing to trade. One Guangzhou store owner declared that he refused to buy back Double Happiness brand cigarettes – a favorite gift at weddings – because they don’t fetch a high enough price.

A customer with unwanted gifts to sell can frequently get a decent price for their goods, but naturally any deal favors the recycler on the other side of the counter. An investigative report conducted in February by a local newspaper in Jiangxu found that on average, cigarettes are bought for twenty to thirty percent less than the usual market price. Liquor, on the other hand, is typically bought for as little as half the market price. Purchased goods are then resold at or slightly less than full price. A similar survey in Henan found local customers getting a far worse deal, being offered an average of seventy percent less than the store price.

While most shop owners are willing to bargain, one long-time recycler in Zhengzhou told a local reporter that the sellers usually just aren’t interested. “Some people who come in, they’re not poor, and they don’t really care. If I give them a low price, as long as they see there’s money to be made, they’re ok.”

“People like this are becoming more and more common,” he added.

Open for one week, eat for a year

Even with a customer willing to bargain, a single exchange will almost always bring the recycler a bigger profit than an ordinary sale. But it is the volume of such transactions which makes gift recycling such a lucrative business.

Almost all of the recycling that takes place in a given year centers around two holidays: the Spring Festival at the start of the new year, and the Mid-Autumn Festival in September. One recycler in Jiangsu boasted that in the week following the Spring Festival he could make enough to see him through the end of the year.

Typical estimates put the average gift recycler’s profits for a single holiday in the hundreds of thousands of yuan, or tens of thousands of US dollars. Such numbers far exceed the country’s per capita income of 4,260 USD, according to the World Bank.

A rapidly transforming business

While cigarettes and liquor have traditionally been the mainstay of the business, in some cities they are quickly being overtaken by a popular new gift item. A gift recycler in Zhengzhou told the Henan Legal News that since 2009, her business has primarily dealt in gift cards. Another Zhengzhou recycler explained the process: a card worth 200 RMB might be purchased by the recycler for 178, and then resold for 189 RMB.

But the market for second-hand gift cards is relatively small. Most individual gift recyclers resell the cards to larger outfits, who in turn resell them in bulk to the store which originally issued the cards. Occasionally, recyclers simply use the cards themselves, buying still more liquor and cigarettes to sell in their own stores.

In recent years, gift recycling has expanded beyond its brick-and-mortar beginnings and established a rapidly-growing presence on the internet. A search for “recycle gifts” on Baidu brings up over thirty million results. The growth of online gift recycling can be explained, not surprisingly, as an issue of convenience.

“A lot of customers don’t particularly enjoy taking their gifts to the actual store to sell them,” one recycler explained to Guangzhou’s Southern Daily newspaper. “Trading on a website is more convenient.” After a transaction is completed online, the two sides schedule a time for pick-up at the seller’s home or another place of their choosing.

Hidden costs

But gift recycling can be a risky business, for both customers and store owners. As an off-the-books, underground enterprise, gift recycling is often linked to organized crime, particularly the flourishing trade in counterfeit goods. According to Chinese law, gift recycling itself is an illegal activity, as it involves businesses engaging in activities not authorized by their state-issued licenses.

But one official with China’s State Administration for Industry and Commerce told the Henan Legal News that prosecuting the trade is all but impossible. “If questioned, shop owners will insist that the gifts they buy back are simply for their own personal use, not for reselling,” he said. The widespread lack of any bookkeeping further means that the physical evidence required to bring charges against recyclers is almost impossible to find.

Not only is the practice difficult to prosecute, but officials have little incentive to do so.  Indeed, many of the most frequent and large-scale patrons of gift recycling businesses are government employees eager to unload the cartons of cigarettes and bottles of baijiu presented to them by ambitious underlings.

And so one of the most frequent ways that experts and cadres describe gift recycling is to simply call it a “gray area.”  Indeed, with such a name it joins a long list of other activities that make up a crucial part of China’s economy.  And as such, it is likely to remain a regular presence in Chinese society for years to come.