Shanghai’s mandatory waste classification law came into effect in July 2019, making it compulsory for individuals and companies to sort and recycle their household waste, otherwise facing heavy financial and social penalties. In China, this is only the beginning. Across the country, companies have jumped on the bandwagon of this social change in the hope of striking gold.
One company ahead of the curve is tech platform Xiaohuanggou (XHG), which was founded as early as 2017. Over the years, XHG has set up an army of intelligent waste-management recycling bins across China with the aim of incentivizing people to pre-sort and recycle their waste in exchange for rewards. The rewards can then be spent on products from the company’s app, online games, or donated to select charities identified by the company.
KrASIA spoke to Wang Yiru, board secretary of XHG, to shed light on how the firm is moving forward from its troubled past and confronting opportunities ahead.
The following interview was translated and adapted for publication purposes.
KrASIA (Kr): XHG has had a long and winding journey since its inception. Can you give us an overview of what inspired the founding of XHG?
Wang Yiru (WYR): We have a complicated history. As a company, the original organization, Bengege, was originally founded in 2017 as a pioneer in the industry, but Tang Jun, an original co-founder, led the company into bankruptcy and eventually went to jail, despite being a successful entrepreneur in more than just the recycling industry, but also the peer-to-peer (P2P) lending industry. However, we underwent very extensive reorganization and re-established ourselves in July as Xiaohuanggou (XHG).
Everyone in our current team is fully committed to sustainability and to bring the company back stronger than ever. Our leadership team has a strong background and hails from China’s top universities, such as Tsinghua University, in addition to experience in Fortune 500 companies and investment firms such as Blackrock. Personally, this is what drew me to join the leadership team, as my peers’ values are aligned with my own life goals, which is to contribute meaningfully to the community.
Aside from this, we also have a very strong and experienced operational team, most of whom hailed from OFO and Mobike [two of China’s bike-sharing companies]. This is because the operations behind our business model and the bike-sharing model are very similar: the team needs to identify high-density areas to situate our smart management bins, and also, optimize routes for rubbish collection and facility maintenance.
Kr: In recent years, China has seen the rise of many enviro-tech companies, such as Aihuishou and Aifenlei. What do you think sets XHG apart?
WYR: We were established very early in 2017, even before the government started offering incentives and strongly encouraging private companies to enter this sector. This gave us a three-year headstart over most of our competitors when it comes to operational experience and market connections. We are the market leader in terms of the number of users (5 million), as well as city coverage (39 cities). We are present in almost all of China’s Tier 1 cities and we are now looking to lower-tier cities, although this may be more difficult because of lower population density in these cities.
Second, established competitors like Aihuishou have a different focus from us. They target electronics, which have higher value but lower collection frequencies. Most people do not throw away their smartphone or laptop after only one year of use. We focus on daily rubbish, such as plastic, glass, cardboard, and clothes, which are of lower value, but which are generated daily.
Importantly, we are able to incentivize our customers through good prices, user-friendliness, and attractive facilities. Our smart waste bins are very easy to use and consumers just need to use our app to scan a QR code on the bin before disposing of their items. The intelligent bin will weigh their trash and give them points accordingly. We cannot overemphasize the importance of attractive smart bin facilities in influencing the environment and achieving our desired goals.
Once customers have accumulated over RMB 10 (USD 1.50) in our app, they can use this money in our in-app store to buy daily products such as detergent and recycling bags. We have a comprehensive selection of items in our store. Young people might sometimes think that this is too little money to do anything, so we offer them in-app games. For example, like a Tamagotchi, they can buy items to feed their virtual pets.
Alternatively, users are offered the option to donate the money to charitable causes that we, together with the government, are in partnership with, such as poverty alleviation and farming assistance in impoverished counties. The company is committed to improving society. Interestingly, in Chinese, Xiaohuanggou means small yellow dog, and we similarly want to be human’s best friend as well. In line with our name, our customers can choose to donate their points to organizations helping stray dogs too.
Kr: Picking up on that point, what sort of challenges and opportunities for monetization does XHG see?
WYR: Although we have not broken even yet, we have a steady revenue stream from in-app advertisements and commercials on our smart waste bins. Aside from maintaining our strong focus on high-frequency daily rubbish, we are also optimizing our ability to collect rubbish efficiently and at a lower cost. Previously, our smart bins were more scattered across residential areas, so our collectors would first have to wait for a bin to be filled, going to collect it, and returning it, and then repeating the process for each bin, which was very inefficient. However, we now work closely with government administration to centralize previously scattered facilities, so one collector can now be in charge of 10 more different residential areas. Greater collection efficiency means that in the future, there may be potential to raise these fees.
Importantly, we also cooperate deeply with our partners. At the moment, we are in the process of finalizing a cooperation partnership with one of the largest e-commerce companies in China [name can’t be disclosed for confidential purposes]. This means that our customers will be able to spend their XHG points on a partner e-commerce platform.
In addition, we are also finalizing another partnership with one of the largest logistics operators to explore the possibility of door-to-door collection of rubbish. This can be helpful for scenarios where customers need to throw bulky waste like cardboard boxes after purchasing a new refrigerator. Strong partnerships both upstream and downstream are integral to us.
Kr: Do you think this recycling model will succeed in other countries or is this something that could only fit Chinese society?
WYR: I lived and worked in the US for a number of years. It will be difficult for this business model to succeed in countries like the US, as they operate a very different trash disposal culture. First, most of the population live in individual houses, not Xiaoqu (residential complexes) as in China. People put their bins on the sidewalk for collection. This makes communal collection very difficult because of the lack of density and community management facilities.
Second, in Asian countries like China and Singapore, we are used to selling our trash to rubbish collection aunties and uncles for money. This is an established habit, long before our business model arose. In western countries, cultural expectations are the opposite. People are used to paying others to collect their trash, not the other way around.