A robot model made from hundreds of used cell phones on display in a post office in Beijing last year. [Photo/China Daily]

However, since the discount policy ended in December, the company has witnessed an "extremely sharp drop" in supply.

Yuan said that for the moment, it gets equipment only from universities, businesses, government departments and State-funded institutions, and that is "far from enough".

The company is trying to continue cooperating with large appliance retailers, such as Suning, to encourage residents to trade in used appliances through discounts on new ones, he said.

"However, it's nothing compared with years ago and most of the used electronic devices still end up in informal workshops," he said.

In addition to disposing of e-waste with vendors, Beijing resident Wang said many turn to informal groups of merchants for the higher prices they pay.

"Some of the merchants offer a price even higher than what the large appliance retailers did under the trade-in policy," he said.

Yuan said there is no way that licensed companies, where the government would like to have the e-waste end up, can compete with the individual vendors without government subsidies, to balance out the operational costs of the machinery they must operate, which far exceeds the value of their output.

"We started our business with more than 150 million yuan ($23.6 million) invested in the facilities to prevent secondary pollution, while they simply head out with a hammer and ax," said Yuan.

In China, most e-waste is recycled informally, by scavengers who sort trash by hand. Most electronics contain toxic substances and pose serious threats to health, soil and groundwater when collected and sorted and incinerated outdoors, he said.

The illegal reclamation chain and nonstandard channels, according to Shi Jianhan, a volunteer with the action network and author of the report, make considerable profits.

"Most of the illegal workshops dismantling electronic products don't have pollution treatment facilities, so their operating costs are much lower than those of licensed enterprises, making them more competitive than the legal factories," he said.

"They simply break down used electronic equipment without taking any precautions, in total violation of national standards," Yuan said.

Yuan's company invested more than 10 million yuan in a facility for dismantling refrigerators, which, without proper care, could leak fluorine, polluting the environment, he said.

In addition to facilities for dismantling televisions, air conditioners, personal computers and washing machines, the company will further introduce machines to break down cell phones and MP3 players, Yuan said.

"The electronic gadgets ending up in the hands of the waste collectors do not turn into precious metals, but serious pollution, yet people keep going to them," he said.

Mao Da, an expert in solid-waste management at Beijing Normal University, said that all cell phone components contain hazardous substances, including lead, chromium and mercury. When buried in a landfill or incinerated with other household trash, they seriously pollute soil and groundwater with the dioxin and mercury contained in the batteries.

The devices sold to the secondhand electronic markets, where the majority of used electronic appliances end up, are even more polluting than those that are simply buried underground, he said.

More than 170,000 people in Beijing earn a living collecting trash, and they have their industry chain of collection, processing and marketing.

Because they are small workshops, they do not have the necessary pollution treatment facilities.

"The country will face rising environmental damage and health problems if e-waste recycling is left to the vagaries of the informal sector," he said.