Developing the circular economy in China: Challenges and opportunities for achieving 'leapfrog development

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Developing the circular economy in China: Challenges and opportunities for achieving 'leapfrog development
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  Developing the circular economy inChina: Challenges and opportunities forachieving ‘leapfrog development’ Yong Geng  1 and Brent Doberstein  21 Institute for Eco-planning and Development, School of Management Building, DalianUniversity of Technology, Dalian, China 2 Department of Geography, Faculty of Environmental Studies, University of Waterloo, Waterloo, Ontario, Canada Key words: Industrial ecology, eco-industrial development, ecological modernisation, recycling, capacity building SUMMARY  China is pioneering a new sustainable development model which has the ability to over-come current environmental and resource management problems, while achievingimprovementsinresourceproductivityandeco-efficiency.Thismodel,formallyacceptedin 2002 and termed the ‘circular economy’, is understood to mean the realisation of aclosedloopofmaterialflowsintheChineseeconomicsystem.SuccessfulimplementationofthismodelisseenasonewayinwhichChinacan‘leapfrog’pastenvironmentaldamagethatistypicallyseenaseconomiesindustrialise.Thispaperintroducesthedevelopmentof the model in China, and presents the current situation of circular economy practice inChina. The paper describes current measures being implemented in China for thelong-term promotion of a circular economy, including the formulation of objectives,legislation, policies and measures, so that the country can ‘leapfrog’ its way fromenvironmentally-damaging development to a more sustainable path. The paper thenidentifies a series of barriers and challenges to the implementation of the concept inChina.Finally,conclusionsonthefutureofthecirculareconomyconceptaredrawn.Data were derived primarily from an analysis of secondary sources (i.e. previously publishedpapers). Additional primary data derived from the main author’s personal involvement in several circular economy initiatives were also employed. INTRODUCTION The concept of industrial ecology or eco-industrialdevelopment (EID) has become globally popular,both academically and practically. Perhaps themost famous application of the concept is theKalundborg industrial complex in Denmark(Desrochers 2001; Jacobsen 2006). Although EIDhas been most vigorously pursued in industrialisedcountries such as Japan, Belgium, Germany,Sweden, Denmark and the former USSR (Erkman1997; Yuan  et al  . 2006), industrial ecology is at least asrelevantfordevelopingcountries.Inmanycases,eco-industrial development is seen to be more International Journal of Sustainable Development & World Ecology 15 (2008) 231–239  DOI 10.3843/SusDev.15.3:6 Correspondence:YongGeng,NationalInstituteforEnvironmentalStudies,16-2Onogawa,Tsukuba,Ibaraki305-8506, Japan. E-mail: ecoplan@dlut.edu.cn231  urgentlyneededandeffectivelyappliedindevelop-ing countries, many of which are facing severe con-straints on the availability of resources (Erkman2001; von Hauff and Wilderer 2000). China, as themost populous developing country, is now facingmany resource supply and waste assimilation chal-lenges,includinglanddegradation,desertification,acid rain, deforestation, water resource depletion,greenhouse gas emissions, and loss of biodiversity (JieandNianfeng1995;SEPA2005).Withthepros-pect of further rapid urban and industrial growthunderChina’scurrentmodelofeconomicdevelop-ment, environmental conditions are expected to worsen in the near future. Under these circum-stances, China urgently needs a new sustainabledevelopment model which has the ability to over-come the current dilemma and ‘achieve improve-ments in resource productivity and eco-efficiency’(Yuan et al  .2006:7).Thismodel, formallyacceptedin 2002, has been termed the ‘circular economy’(Ren 2005; Yuan  et al  . 2006), and is seen as one way China can ‘leapfrog’ past the environmentaldamage typically seen as economies industrialise.The circular economy concept has its srcins inEID, which is based on the idea that a healthy economy and environmental health can coexist.EID offers an ‘invitingly concrete’ way to integrateenvironmental management and meet environ-mental, economic and community development goals (Chertow 2000). EID provides strategies toachieve greater efficiency through ‘economies of systems integration’, whereby partnerships be-tweenbusinessesmeetcommonservice,transporta-tion and infrastructure needs, and the concept adds value to businesses and communities by opti-mising theuse ofenergy, materials andcommunity resources (Ayres 1994; Levine 2006). At a theoreti-cal level, the circular economy model fits closely  with ecological modernisation theory which is‘centrallyconcerned withtherelationship betweenindustrial development and the environment’(Murphy and Gouldson 2000: 33). With the prom-ise of EID understood, and with a significant array of conceptual and theoretical guidance already available, the Chinese Government has decidedto adopt the circular economy as the nationaldevelopment model piloted across the country.TheChinesepeoplehavechosentousetheterm‘circulareconomy’astheworkinglanguageofEID.The terminology may not be very familiar to Western readers, but in China it is understood tomean the realisation of a closed loop of materialsflow in the whole economic system. Different fromthe traditional linear production model, a circulareconomy approach encourages theorganisation of economic activities with feedback processes whichmimic natural ecosystems through a process of ‘naturalresources  → transformationintomanufac-tured products  →  byproducts of manufacturingused as resources for other industries.’ In essence,the circular economy approach is the same as themore familiar terms EID and ‘industrial ecology’,and fits comfortably within a broad range of eco-logicalmodernisationinitiativespioneeredaroundthe world.This paper introduces the development of thecircular economy concept in China. Data werederived from an analysis of secondary sources (i.e.previously published Chinese and English papers),andadditionalprimarydatawereobtainedthroughthe main author’s personal involvement in severalcircular economy initiatives. The paper first pres-entsthecurrentsituationofcirculareconomyprac-tice in China; it then identifies barriers andchallenges to the implementation of a circulareconomy. The main focus is to describe how decision-makers in China make appropriate plansfor long-term promotion of a circular economy,including formulation of objectives, policies andmeasures, so that the country can ‘leapfrog’ its way from environmentally-damaging development to amore sustainable path. Finally, several conclusionson the future of the circular economy concept aredrawn. CURRENT PRACTICE:IMPLEMENTING THE CIRCULAR ECONOMY IN CHINA  TheChinesecirculareconomyconceptcomesorig-inally from Germany and Japan, where there was adesire to form a more closed loop society (Wang et al  . 2004). It advocates that economic systemscould and should operate according to thematerials and energy cycling principles that drivenatural systems. These include ecosystemic self-sustaining properties, through the recycling of essential materials and energy, the capacity for oneorganism’s wastes to be used as a resource by another organism, and through self-organisationcapacities. Competition between different speciesis intense, and, in part, helps in the dynamic  Developing the circular ecomony in China Geng and Doberstein  232 International Journal of Sustainable Development & World Ecology   development and change of ecosystems. Such anatural metaphor can and should be applied toeconomic ecosystems, where different companieslocate within the same geographical area, sharecommon infrastructure and services, and competeforresources and,ultimately,economic survival.Inimplementing the circular economy concept,industrial ecosystems can be created which featurebyproduct exchanges between different firms,increased business interdependencies, reducedbusiness risks, reduced pollution and, possibly,improved public images. This concept has special value in China, where resource waste and un-intended environmental outcomes have impededthe country’s rapid development. Consequently,thecircular economy concept hasbeen adopted by theChinese Government asamainpartofnationalscientificdevelopmentstrategy(Yuan etal  .2006:5). Academically, research activities related to thecircular economy have been widely implementedsince the formal acceptance of the concept inChina in 2002. With funding provided by govern-ments at various levels, both theoretical andapplied studies have been undertaken. For exam-ple, scholars have published their research out-comes on how to stipulate appropriate policies topromotethecirculareconomy(Gao etal  .2006;Ren et al  .2005;WangandWu2004;Xie 2004;Yuan et al  .2006). These studies suggest that governmentsshould play a leading role in promoting theconcept by reforming existing laws, enacting new regulations, promoting the application of new environmentaltechnologies,andorganisingpubliceducation. Research and development effortsrelated to the circular economy have been sup-ported by both government and the corporate world.AreasofR&Dapplicationincludefuelcells,clean and renewable energy, water and energy saving technologies, eco-industrial park planning,process integration, green building, reverse logis-tics, waste minimization, eco-design and others(Gao  et al  . 2006; Zhao  et al  . 2003). Moreover, inorder to measure the performance of circulareconomy applications, research projects related tothe development and use of quantitative indicatorshave been carried out. By measuring separately quantitativemeasures of economic, environmentaland social performance (Li  et al  . 2004; Lu  et al  .2003), practitioners will be able to create a road-map towards overall eco-efficiency and a circulareconomy.In a practical sense, the circular economy isimplemented throughso-called‘threecircles’.Thefirst circle includes a suite of corporate-level(micro-level)initiativessuchaseco-designofmanu-facturing plants, waste minimisation, cleaner pro-duction and environmental management systems(EMS). To date, cleaner production has been themost significant and successful activity at themicro-level of the circular economy. With theenactment of China’s Cleaner Production Promo-tion Law in January 2003, the cleaner productionconcept has been accepted as a new reality by corporations across the country. To date, cleanerproduction demonstration projects have beenimplemented in 24 provinces, involving a diverserange of industrial sectors, including chemical,construction materials, petrochemicals, pharma-ceuticals, machine manufacturing, mining, tex-tiles, power plants, metallurgical industry, light industry,transportationandelectronic industry.Inorder to promote this concept, one nationalcleaner production centre, four industrial sectorcleaner production centres (i.e. petrochemicals,chemicals, metallurgical industry and plane manu-facturing),and11localcleanerproductioncentreshave been established. Such centres have hosted550 training programmes and over 16,000 personshave been trained (Wang 2004a). In addition, theamended law on pollution prevention and controlof solid wasteshasbeen in effectsince April 1 2005.This law further required companies to managetheir solid wastes and to minimise total wastes(Yuan  et al  . 2006).The second circle is at the inter-firm level(meso-level), where eco-industrial parks (EIPs)have been initiated in order to capitalise on thetrading of industrial byproducts such as heat energy, wastewater and manufacturing wastes(Yuan etal  .2006).Inordertopromotethedevelop-ment of EIP projects, the State EnvironmentalProtection Administration (SEPA) has releasednational guidelines on EIP (Wang 2004b). Thisoutlines the Chinese method of planning EIPs,emphasising the establishment of integratedmaterial, water and energy management systems at the industrial park level. This integrated approachencourages the creation and maintenance of eco-industrial networks among tenant companies.By supporting green supply chain management and reverse logistics (i.e. everything from recyclingorredesigningpackagingmaterialstoreducingthe  Developing the circular ecomony in China Geng and Doberstein  International Journal of Sustainable Development & World Ecology 233  energy and pollution caused by product delivery (Rogers and Tibben-Lembke 1998)), industrialparkmanagerscanachievetheirtargetsofminimis-ing overall wastes, while maximising the efficiency of resource use.It should also be noted that China’s industrialparks have dual functions as both production andresidential areas. A typical Chinese industrial parkhas an industrial production area, a scientificresearch area, a residential area and a business andservice area, which is different from the North American model where industrial parks are pre-dominantly manufacturing-based (Geng and Côté2003).Consequently,theEIPguidelinesencourageEIPplannerstoincorporatebothindustrialandres-idential considerations into their plans, advocatingthat an EIP proposal should include an emergency response plan and a community eco-educationplaninordertoincreaselocalcapacitiestorespondto emergencies. The guidelines also require estab-lishing a specific EIP working group to coordinatetheimplementationofEIPplansandcreateforums where all stakeholders can reflect their opinions.Following the release of the new guidelines, theEIP concept has become popular nationally. Yuan et al  . (2006) found that over 100 industrial parkshave been guided by EIP principles. Out of these,16 EIP projects have been chosen as national EIPdemonstration projects by SEPA, in order to pres-ent a variety of development models for otherregions and industrial sectors, and to summariserelevant experiences and lessons.Thethirdcircleofthecirculareconomyconcept is at the social level (macro-level). Typical activitiesinclude the development of eco-cities and eco-provinces. City governments, including Shanghai,Hangzhou,YangzhouandGuiyang,andtheprovin-cial governments of Liaoning, Hainan, Jiangsu and Jilin have established their plans for constructingan eco-city or an eco-province (Lowe and Geng2003). Different from the first two levels, this levelattends to both production and consumption con-cerns.Fromaproductionpointofview,thecirculareconomy concept encourages the establishment of regional eco-industrial networks, and seeks tocreate a circular society by optimising material useeco-efficiency. ‘Scavenger’ companies, which per-form waste recovery, reuse, repair and remanufac-turing functions, and ‘decomposer’ companies, which enable recycling by breaking down complex wastes into reusable organic, metal, plastic andother components (Geng and Côté 2003), arebeingpromotedbylocalgovernments.Preferentialindustrial recruitment and financial policies (suchas low rents for land and low interest loans) arebeingdraftedinordertofacilitatetheoperationsof such companies. From a consumption viewpoint,the circular economy concept encourages thecreationofaconservation-orientedsociety,seekingto reduce both total consumption and waste pro-duction. Both individuals and governments areencouragedtoreducetheimpactsofconsumption,aiming to guide consumers away from wastefulformsofconsumptioninfavourofenergypreserva-tion and environmental protection in their daily life.Forexample,urbanresidentsarenowgiventhechoiceofhavingagriculturalproductsinthesuper-market that have not been sprayed with pesticides.Someindustrialproducts,likerecycledpaper,havebeen labelled as ‘green products’, while the pro-duction of environmentally unfriendly products,suchasrefrigerationequipmentwithCFCs(chloro-fluorocarbons), will have been phased out by 2007(World Bank 2005). BARRIERS AND CHALLENGES  Although many achievements have been made,there are still many barriers and challenges to thepromotion of a circular economy in China. Suchbarriers and challenges may be categorized intothreegroups:1)policy;2)technologyand3)publicparticipation. Policy barriers and challenges From a policy perspective, China’s legal system as a whole does not currently create a unified platformfor promoting the circular economy. The frag-mented regulation system often works against suchinnovations. For example, some of China’s current taxregulationsdiscourageenterprisesandthepub-lic from reusing or recycling resources. Resourcetaxes in China are very low, which means in many casesthatrawmaterialsaresocheapthatindustriesprefer to purchase virgin raw materials rather thanrecycled alternatives that sometimes require addi-tional, sometimes costly, processing. Such a reality does not provide an economic incentive forcompanies to purchase ‘second hand’ materials.Other policy-level problems exist. For example,all Chinese companies need to pay a corporate  Developing the circular ecomony in China Geng and Doberstein  234 International Journal of Sustainable Development & World Ecology    value-added tax. In some cases, where recycledmaterials are actually   cheaper   than virgin resources,production costs are relatively low, yet the propor-tionofvalue-addedishigherthanothercompanies,resulting in the need to pay higher corporate value-added tax (Mao and Kang 2005). Under thisscenario, companies again prefer to use virginmaterials. Another example comes from China’scurrent industrial pollution emissions policy.Currently, the fees charged for effluent dischargesare too low to compensate for or mitigate environ-mental losses. Consequently, most companies pre-fertosimplypaytherequiredfeestodischargetheireffluent directly to local ecosystems, rather thaninvestinginanti-pollutioncontrols.Inaddition,theenforcement of environmental regulations is not  very efficient due to a lack of qualified personnelandbudget.Manylocal officialsarefocused mainly on short-term economic benefits and regard rapidindustrial development as their main political con-tribution. Under such circumstances, companiestypicallydischargetheirwastesdirectly,ratherthanseeking potential buyers of waste byproducts orinstalling pre-treatment equipment, thus furtherreducingcorporateenthusiasmtodevelopenviron-mentally friendly technologies and products. Another policy challenge relates to ‘consump-tion taxes’ which have been used by the ChineseGovernment to regulate and control consumptionbehaviour. Currently, only 11 items are subject toconsumption taxes (e.g. petrol, diesel and auto-mobiles) and thus the ability of such taxes to havedirect or indirect impacts on reducing pollution islimited. By contrast, many other products whichalso pollute the environment are exempt fromconsumption taxes (e.g. batteries, coal, fertilisersand pesticides) (Ren  et al  . 2005). These tax loop-holes discourage the development of a nationwideand systematic public attitude toward greenconsumption.Scavenger and decomposer companies do not currentlyhavethecapacitytodevelopnewfields,inpart because stimulative policies (such as govern-mentsubsidiesandlow-interestloans)arenotavail-able. Also, due to lack of detailed policies onofficially permitted reused and recycled materials,many emerging recycling enterprises have createdenvironmental concerns even though they areostensibly ’recycling’. The well-publicised environ-mentalproblemscausedbyChina’slargelyunregu-lated e-waste recovery sector (Pucket   et al  . 2002;Tong and Wang 2004) is perhaps the best knownexample of this (e.g. heavy metals leaching intogroundwateranddioxin/furanreleasefromplasticincineration for copper wire recovery). From theexamples given above, it is clear that policiesencouraging green production, technologies andconsumption are still lacking. Technology barriers and challenges Science and technology are key components of acircular economy. New academic achievements inenvironmental science and environmental techno-logies, such as those which have contributed to thefields of eco-design, cleaner production and lifecycleassessment,willhelprevolutionise therelatedfields of biotechnology, information technology and materials science (Chen and Bacareza 1995).This revolution will then help to green industry by achieving the same industrial output while usingless energy and fewer raw materials at reasonablecost while producing less pollution. Without theapplication of such state-of-the-art technologies, it is unlikely that enterprises will be able to improvetheir eco-efficiency and reduce their total emis-sions. However, this will not automatically happenin China. Demand for environmentally superiortechnologies is still weak, and both technical cap-abilities and financial resources are inadequate, with the result that levels of pollution and energy consumption are outpacing economic growth(Banks1994).Whiletransfersoftechnologiesfromdeveloped countriestoChinaarepossible, theyareunlikely to be implemented or sustained because,typically, there is a lack of appropriate training andfinancial resources (Geng and Wu 2000).In particular, when developing the circulareconomy, information is needed for effective plan-ning and management, including the creation of scenarios for optimal reduction, reuse and re-cycling. Every corporate enterprise, from a smallbusiness to a large multinational corporation, ispart of a larger economic system or web. Compa-niesareinterlinkedviaincreasinglycomplexsupply chains.Therefore, aninformation systemadoptinga systems approach is required if decision-makersare to find more environmentally and financially beneficialwaystoplanandmanagetheirresources.However, such systematic information systems arerare in China. In most cases, accurate informationis not available to decision-makers, or is not   Developing the circular ecomony in China Geng and Doberstein  International Journal of Sustainable Development & World Ecology 235
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