Note: In 2008 China embodied a watered-down concept of the Circular Economy in a Circular Economy Promotion Law (see Update 09). Nevertheless, the vision described in the this page and its downloads is worth considering seriously as we seek economic recovery in the global economy. No economic leader can afford to continue the illusion that we have infinite resources.

China’s leadership, inspired by Japanese and German Recycling Economy Laws, has formed a Circular Economy (CE) initiative that has major strategic importance for the whole world, not just China. China’s rapid economic growth demands major supplies of all basic industrial commodities, in competition with other nations. China’s emissions cross boundaries and oceans, impacting Korea, Japan, and North America. Its contribution to greenhouse gases is rising rapidly, even as its energy crisis becomes more acute.

If China achieves its goal of increasing efficiency of resource utilization by a factor of 10, this will have global impacts. One critical factor will be the success or failure of Chinese leadership in convincing their citizens to follow a Chinese model of quality of life before a US style consumerist lifestyle fully emerges.

A US level of consumption would quickly overwhelm gains in productivity through the rebound effect. (The rebound effect occurs when higher rates of efficiency and lower pollution are overcome by overall increases in industrial output. The total resource depletion and pollution continue to increase.)

For foreign producers, China’s success in the Circular Economy effort would set a new level for competitiveness in the world economy. The issue of competitiveness gained through resource optimization is synergistic with rapid development of regional trade alliances and networks of joint ventures.

China is buying mineral and oil processing facilities in Southeast Asian countries, contracting for major energy and mineral purchases, and creating supply chain joint ventures. Long term commodity contracts extend China’s reach to Brazil and Latin America. China’s regional supply and production chains assemble more sophisticated components from South Korea, Taiwan, Japan and Singapore with low-cost labor in China and Southeast Asia. To reinforce the trade alliances, China is now supplying bi-lateral development aid to neighbors such as Burma and Sri Lanka.

The laws of both thermodynamics and economics make a completely “Circular” Economy or closed-loop system impossible. At some point in any system it becomes too costly to get the last gains in efficiency of resource use. Many substances we use, such as paint, metal plating, and lubricants are inherently dissipated through their use. However, it is possible to move toward a more circular economy. In China it is vitally important that this rapidly growing country succeed in achieving more efficient use of resources and less pollution.

The awareness motivating the Circular Economy

China’s rapid industrialization in the last decades has engendered serious problems of depletion of natural resources, degradation of major ecosystems, and pollution extending far beyond its borders. (Economy 2004, Pan Yue 2004) Projections by the country’s top leadership have persuaded key officials that continuing this unsustainable model of development is simply not possible. The resources are not available to provide a growing population with higher standards in a Western lifestyle of consumption. The challenge for the Chinese government and people is to create an alternative to Western economic development models. This alternative must enable social and political stability in a time of economic dislocation and growing expectations.

The State Environmental Protection Administration of China (SEPA), and the China Council for International Co-operation for Environment and Development (CCICED), have directed the attention of the top leaders of China, at both national and local levels, to a hard reality: the development target set by the government will not be achieved unless alternative models of economic development are identified and applied.

This ambitious development target is to raise the majority of China’s population into “the all-round well-being society”. This means that by 2050 a larger population of 1.8 billion would reach a per capita GDP of US$ 4000 per year, five times the current level. Some estimate that this increase could occur within the next 30 years. This demands a tremendous increase in production and multiplies pressure on natural resources and the environment. Research by the State Environmental Protection Administration indicates that China’s economy will need to achieve at least a seven-fold increase in efficiency of resource use to achieve the goals set for 2050, while maintaining environmental quality. The CCICED states that an increase as much ten-fold will be required (Lei and Qian 2003).

The need for the parallel objective of reducing pollution is directly experienced in the provinces, cities, and countryside. Five decades of aggressive industrialization has seriously degraded all natural resources. The Natural Capital accounts for current and future generations show the massive debits of polluted rivers, cleared mountains, depleted soil, and coal and steel mine sites full of toxic materials.

With China’s opening up to foreign investment and increasing inequity in distribution of wealth and income, over a billion poor Chinese are demanding a better life: jobs and higher income as well as a better environment to live in. State ministers, provincial governors and city mayors are feeling the pressure for development. They are acutely aware of China’s regular periods of massive instability and unrest. They need to meet the demand for improved quality of life to assure political and economic stability.

To meet the needs for development while restoring the health of ecosystems, the only option is to follow a development path different from the industrialization model of the West. China’s leaders see that continuing the present massive exploitation of natural resources and inefficient production practices cannot continue. They also are aware that a US life-style emphasizing material possessions is simply not achievable. Their conclusion is to adopt the Japanese and German Recycling Economy approaches and set higher goals than either.  

A Chinese model of development?

“China can no longer afford to follow the West's resources-hungry model of development and it should encourage its citizens to avoid adopting the developed world's consumer habits . . . It's important to make Chinese people not blatantly imitate Western consumer habits so as not to repeat the mistakes by the industrial development of the west over the past 300 years." -- Pan Yue, Deputy Minister, State Environmental Protection Administration. (BBC and New York Times 2004)

Leaders at the highest level are creating a new vision of China’s future. National leaders such as Xie Zhenhua, Minister of SEPA, are charting a fifty-year plan to achieve sustainability. Several developments in recent years contribute to this planning:

• Growing recognition of the need to create a development path to meet the needs of a growing population at a higher standard of living without following the model of western consumerism, inefficient resource consumption, and pollution.
• Developing a Circular Economy model with high resource efficiency and low pollution.
• Passage and implementation of the Cleaner Production law.
• Commitment of US$1.2B in science and technology investment for sustainable development by the Ministry of Science and Technology.
• Entry to WTO and the need for China’s industry to become more competitive.
• Acceptance of the nearly universal consensus on climate change, reflected by China’s signing of the Kyoto Accords.

A Chinese alternative to the outmoded and unfeasible American development path will aim to achieve improved quality of life for the Chinese people. Quality of life includes having basic needs for food and shelter met. Access to education, health, and cultural resources are key to such quality. Stable and lively community life is an important context for the lives of families. A healthy environment is the basis for healthy families and a thriving economy. Guaranteeing these aspects of quality of life is the deepest purpose of any economy. Many people in the West are now realizing that economies driven by unsustainable material consumption do not achieve this purpose.

The Circular Economy (CE) concept has developed in China as a strategy for reducing the demand of its economy upon natural resources as well as the damage it causes to natural environments.  The CE concept calls for very high efficiency in resource flows as a way of sustaining improvement in quality of life within natural and economic constraints.

The Circular Economy Concept

The Circular Economy approach to resource-use efficiency integrates cleaner production and industrial ecology in a broader system encompassing industrial firms, networks or chains of firms, eco-industrial parks, and regional infrastructure to support resource optimization. State owned and private enterprises, government and private infrastructure, and consumers all have a role in achieving the CE. The three basic levels of action are:

• • At the individual firm level, managers must seek much higher efficiency through the three Rs of CP, reduce consumption of resources and emission of pollutants and waste, reuse resources, and recycle by-products. (Sustainable product and process design is important in German and Japanese recycling economy plans but is just emerging as a component of the Chinese CE concept.)

• The second level is to reuse and recycle resources within industrial parks and clustered or chained industries, so that resources will circulate fully in the local production system. (The Chinese use the term “eco-chains” for by-product exchanges.) 

• The third level is to integrate different production and consumption systems in a region so the resources circulate among industries and urban systems. This level requires development of municipal or regional by-product collection, storage, processing, and distribution systems.

Efforts at all three levels include development of resource recovery and cleaner production enterprises and public facilities to support realization of the CE concept. This adds a strong economic development dimension through investment in new ventures and job creation. So the CE opens opportunities for both domestic and foreign enterprises.

A logical extension of the third regional level of action would be integrating management of flows among urban, suburban, and rural resource recovery systems. An example would be bio-refineries utilizing discarded biomass from rural and urban sources. Such refineries would operate with a range of technologies for converting these resources into bio-energy, bio-fuel, and bio-materials. 

Consumers have a role at the household and neighborhood level in applying the CE concept. The majority of the Chinese people still fail to meet all of their basic material needs, including potable water for drinking and sanitation, affordable and good quality food, basic housing, and household equipment. The Circular Economy must support families in achieving these requirements of life. At the same time local initiatives must offer citizens education in the practices of reduce, reuse, and recycle at the home level.

Once basic needs are met, CE leaders are aware of the challenge involved in shifting to less material consumption patterns, one that improves quality of life and avoids the Western lifestyle of wasteful consumption and “throw-away habits”. However, given the present level of poverty, the main focus is on meeting basic needs through maximum efficiency of resource-use.

The Circular Economy concept brings together cleaner production and industrial ecology with its application as eco-industrial development. Circular Economy plans, such as ones completed in Liaoning and Jiangsu Provinces, call for development of  eco-industrial parks and networks as central strategies. However, a very partial definition of EIP usually limits it to "one company uses the wastes of another." This misses the systems understanding of how such parks can support the achievement of the Circular Economy in a region. A separate page on this site makes the case for the broader understanding of EIPs in the context of the CE.   

Issues with the Circular Economy

Bi Jun, a researcher at Nanjing University, has identified key problems with the Circular Economy, based on his review of national policy, pilot projects, and his own participation in development of provincial and local CE plans. Some of the key points he and his colleagues make include:

• The high expectations of the central government are not matched by the knowledge and experience of local officials and citizens.
• The CE is taking a top-down approach, essentially in the style of China’s planned economy.
• However, guidelines for planning are weak or lacking. People attempting to implement CE projects are unclear as to the how this approach differs from standard environmental protection planning.
• The concept is reduced to rigid solutions in some cases, such as company to company exchange, rather than maintaining a broader view.
• Market-based solutions have not been adequately integrated.  (Bi Jun 2004 and Bi Jun et al 2004)

One has only to travel through any wealthy province to see the issues manifested in concrete. In November 2004 Roy Sagnik and Ernie Lowe visited two sites in Shandong for a potential agro-eco-industrial park. One site was in a semi-mountainous region of Boshan district and the other at the foot of a mountain 150 kilometers to the east in a district of Jinan City. We traveled on four and six-lane expressways with sprawling strip development lining the roads along much of the distance. Clusters of commercial high rise buildings often showed little sign of occupancy. Conventional industrial parks and facilities were under construction. Sites for some factories were claimed by excavating the lower slopes of mountains.

The very large increase in resource efficiency the Circular Economy requires will not be achieved through Los Angeles style sprawl development and its dependence upon road vehicles. Yet this is exactly what 100s of billions of yuan are creating. The interrelated crisis in energy (fuel), water, and food supplies will soon make this "solution" an urgent problem. We discuss the many reasons why this US model of road dominated urban land use is impossible for China to apply when there is so little land available at China's Car Crash.

Circular Economy plans in Liaoning and Jiangsu Provinces have linked eco-industrial development with cleaner production as major strategies for achieving a ciruclar economy. Unfortunately,  those implementing CE plans are tending to define an EIP as only an "eco-chain" of companies utilizing each others' waste streams. Indigo has prepared a paper for the Chinese State EPA arguing for a full systems definition of eco-industrial park and linking it to integrated resource recovery systems. This broader view contributes much more to the achievement of a CE on a regional basis.  Defining EIP paper.

The System for Achieving a More Circular Economy in China

China’s Circular Economy initiative has set a highly ambitious goal of improving the county’s productivity of resource use by a factor of seven to ten, while reducing pollution (Qian Yi and Shi Lei 2003). The goal also includes a redefinition of quality of life that goes beyond dependence upon increased consumption and material through-put. What is true quality of life in Chinese terms? How can China avoid the distorted and counter-productive version of quality of life modeled by the US and most other "developed" countries?

Initial provincial and municipal pilot projects, usually implemented by Environmental Protection Bureaus, have tended to focus on industry, primarily heavy industry. These efforts have also tended to emphasize infrastructure for recovery of resources and company to company exchanges of industrial by-products. This heavy industry focus and emphasis on end of cycle solutions is a necessary part of the strategy, but only a part. (NDRC 2004) The four major projects of the 11th five-year research plan begin the expansion of scope.

Achieving a more Circular Economy in China demands a whole systems guidance framework for policy setting, methods of planning, economic sectors, and stages of the production-consumption cycle. The sectors that must play a major role include:

• Heavy and light industry, ranging from small to medium enterprises to large scale extraction and production facilities.
• Urban master planning, including transportation infrastructure and open space for ecological services.
• Municipal infrastructure for energy, water, discarded materials, transportation, and communications.
• Planning, construction and management of the built environment.
• Farming, food processing, and agribusiness suppliers.
• Environmental management of military facilities.
• Households, where critical choices are made impacting resource utilization and resource recovery.

This list reminds us that land is a critical resource, along with energy, water, and materials. To achieve a more Circular Economy, profound change in all six sectors is required, since all are major consumers of resources with responsibility for resource recovery as well as efficient first use.

A systems framework for integrating these sectors requires participation by the following disciplines and professions:

• Eco-industrial development optimizes performance of industry, commerce, and public infrastructure.
• Green urban planning & architecture optimizes performance of the built environment and utilization of land.
• Integrated transportation planning optimizes movement of people and goods.
• Sustainable farming and food processing optimizes use of rural land and increases productivity.
• Consumer education and action optimizes performance of households.
• Ecosystem restoration renews the natural capital all human systems depend upon for their existence.
• Capacity development optimizes performance of public and private management systems.

Achieving a more Circular Economy in China demands advances within each of these fields and interaction among them. For instance, the long-term damage of a road-based transportation system in China would be its enormous use of scarce land and other material and energy resources. Auto, truck, and bus air emissions are now seen as the major environmental cost of transportation, but new equipment design and energy sources will cut these impacts in the next decades.

In the US one third to one half of urban land is used by streets, roads, freeways, parking structures, and service stations. Even with this enormous investment, roads are parking lots for too many drivers stalled in rush hour traffic. China does not have the land base needed for a US style transportation infrastructure. So urban planning, transportation planning, industrial development, and consumer education have to collaborate in a search for transportation solutions that succeed within these major resource constraints. This is a basic issue for the Circular Economy, especially given the rapid rate of job creation coming from a growing auto and track manufacturing industry. A road-based transportation system is inherently low in resource efficiency, especially given its massive land requirements. But it is proving a very effective means of expanding employment. How will China's leaders resolve this issue in creating a circular economy?

The Swiss researcher, Walter Stahel, has developed a conceptual and methodological framework of great value to planning and implementing a more Circular Economy in China: product-life extension and the Service or Functional Economy. This  approach offers a  systems framework for gaining the multi-factor improvements required by the CE. The Service or Functional Economy

It is strategically very important to recognize the economic benefits of the Circular Economy, not just its costs. Market-based mechanisms are crucial to the success of this initiative. They enable the transformation to tap the creative entrepreneurial spirit of the new economy in China, while still utilizing public planning mechanisms to assure balanced development. If the movement toward a more Circular Economy succeeds, China’s companies will be more competitive. China’s cities and development zones will develop new housing and commercial space in a more affordable way. Entrepreneurs will create new ventures, offering many new jobs. Households will enjoy improved quality of life.

The Economics of the Circular Economy

The most profound socio-economic challenge to achieving a circular economy is creation of a strategy for meeting basic needs of the Chinese people, improving quality of life, and moving beyond ever growing material consumption as the measure of quality of life. This challenge is intertwined with policies for achieving more equitable distribution of wealth and income, instead of supporting the deepening gap between haves and have-nots.

However, Circular Economy research has focused heavily on technical means and some institutional changes to move the Chinese economy toward a closed-loop system of resource use. Such a major change in resource utilization has profound economic issues and implications. The Liaoning Province CE plan calls for developing a new economic model but offers little detail on what should be included or how to go about this. The Circular Economy and Cleaner Production task force of the China Council for International Cooperation on Environment and Development (CCICED) research agenda has not explicitly included economic issues.

There are two basic sets of economic issues:
1) how can China address the economic requirements of a CE production and consumption system and
2) how should the CE fit within a full sustainable economy model.

1) How can China address the economic requirements of a CE production and consumption system?

How do the goals of a CE open opportunities for economic development, creation of new enterprises, and new jobs?

• What policies, R&D, financing, and incentives will best enable CE business development? What is the role of market-based mechanisms?
• What should be the balance between State involvement and market dynamics in financing the investments required by industries to gain high resource efficiency in both public and private sectors?
• Increased resource efficiency may lower demand on public infrastructure such as land-fills and water treatment plants. How can deferred public investments in such facilities be used to support resource recovery business development and basic resource efficiency in business?
• After a certain degree of improvement, investment in further resource efficiency is unlikely to continue to provide an adequate return. Is the answer government subsidy, increased R&D, or accepting the economic limits to resource optimization?
• Now that the Kyoto Treaty is in effect, how effective can economic instruments, such as greenhouse gas trading credits, be in providing incentives for CE implementation.
• What methods of environmental and ecological economics and industrial ecology should be applied by public and private organizations to calculate true costs and benefits of the CE? Total cost accounting? Lifecycle analysis?
• What system of economic, social, and environmental indicators will provide appropriate feedback to the actors creating the CE in any city or region?

The goals of the Circular Economy must be achieved within the unyielding constraints of resource availability, environmental carrying capacity, and the limits of eco-efficiency. Many non-renewable natural resources have limited reserves regionally, nationally, and globally. The capacity for renewable resources to regenerate is compromised by pollution and over use, as with ocean fisheries. There are natural limits to eco-efficiency in human systems, including the energy demand of resource recovery, the number of cycles through which materials can be recycled and maintain value, and dissipative uses of materials where they become unrecoverable by the nature of their use (e.g. particles from the surface of tires dissipate along roadways).

2) How does the Circular Economy fit within a full sustainable economy model?

The literature of administrative and academic papers shows an inadequate sense of the boundaries of the CE concept and how it fits within a full sustainable economy planning process. To become a more complete sustainable economy approach it needs to encompass more aspects of the economic system, such as the following:

• CE research and projects focus on resource use in the production system, with marketing, distribution, and consumption systems very secondary.
• Transportation, urban planning, building design, and construction are important elements in a full CE model, but are not usually mentioned as such.
• Discussion of energy is weak, except for efficiency targets and mention of energy cascading between processes and firms.
• There is little discussion of renewable energy as a contributor to CE systems.
• Energy and water requirements of resource extraction or recovery are important constraints to consider.
• Renewal of natural capital through ecosystem restoration must be a part of the CE model. 

A sustainable economy demonstrates relatively equitable distribution of wealth and income and access to the goods and services providing quality of life. The social issues of worker health and safety and healthy communities are also important to sustainable development. The CE concept does not usually address these important issues.

Update

In 2008 the Standing Committee of the 11th National People’s Congress (NPC) formalized aspects of the Circular Economy concept in a Circular Economy Promotion Law. The text in English and Chinese is available at this link:
http://www.chinaenvironmentallaw.com/wp-content/uploads/2008/09/circular-economy-law-cn-en-final.pdf

• The government to closely monitor energy consumption and pollution emissions in heavy consuming and polluting industries including the steel and non-ferrous metal production, power generation, oil refining, construction, and printing industries;
• Government departments to promote recycling and improve energy-saving and waste-reutilization standards and develop policies to divert capital into environment friendly industries;
• Industrial enterprises to introduce water-saving technologies, strengthen management, and install water-saving equipment in new buildings and projects;
• Crude oil refining, power generation, steel and iron production plants to stop using oil-fired fuel generators and boilers, in favor of clean energy, such as natural gas and alternative fuels;
• Enterprises and government departments to adopt renewable products in new buildings, such as solar and geothermal energies;
• Enterprises to recycle and make comprehensive use of coal mine waste, coal ash, and other waste materials; and
• Encourages farmers and rural administrators to recycle straw, livestock waste, and farming by-products to produce methane.

Abstract: The critical issue of China’s modernization is whether it can free itself from the traditional modernization plan based on the relatively abundant natural capital, and innovatively create a developmental model of a large country under the scarcity of natural capital. This is why China is so keen on circular economy and economical use of resources. Focused on this issue, this paper summarizes the theoretical elements of the development under the scarcity of natural capital, points out that Plan C is the strategic choice for China’s future development, emphasizes that China needs to enhance the new industrialization, new urbanization and new modernization based on the restriction of natural capital, and discusses the technological and mechanistic support required to realize the development under the scarcity of natural capital.

Other Indigo pages on China

Paper defining Eco-Industrial Parks as strategy for Circular Economy, prepared for China's State EPA

An EIP recruitment strategy to support the Circular Economy through resource recovery, renewable energy, and water management.

Proposed Chinese agro-eco-industrial park

China's Coming Car Crash

EIP Handbook in Chinese


References:

I want to acknowledge the very important input by Ms. Zhao Wei to this paper. She was Environmental Affairs Officer, Production & Consumption Unit, UNEP Dept of Trade Industry and Environment and now directs the East Asian Office of UNEP.  She represented UNEP on the CCICED Cleaner Production and Circular Economy task force. Many discussions with her contributed to the analysis on this web page report..

Bi Jun. 2004. Development of Circular Economy in China, Presentation at Yale University Industrial Symbiosis Symposium, January 2004. New Haven.

Bi Jun, Yang Jie, Yuan, Zengwei, Huang, Juan. 2000. Circular Economy: An Industrial Ecology Practice Under the New Development Strategy in China. Center for Environmental Management & Policy, Nanjing University.

Economy, Elizabeth. 2004. The River Runs Black, Cornell University Press,  Council for Foreign Relations.  a critical view of China’s environmental crisis.

Elizabeth C. Economy. 2004. China's Environmental Challenges. Congressional Testimony: Subcommittee on Asia and the Pacific, US Congress, House International Affairs Committee, September 22, 2004. http://www.cfr.org/pub7391/elizabeth_c_economy/congressional_testimony_chinas_environmental_challenges.php

Lowe, Ernest. 2003. Report to the Dalian Development Zone On the Eco-Planning Process. (in support of the Zone’s response to the Liaoning Province Circular Economy Plan) 

Lowe, Ernest. 2004. Defining Eco-Industrial Parks: the Global Context and China. Report prepared for the Policy Research Center for Environment and Economy, State Environmental Protection Administration, China. Indigo Development, Oakland, CA.

Lowe, Ernest. 2004a. The System for Achieving a More Circular Economy. Paper prepared for the Policy Research Center for Environment and Economy, State Environmental Protection Bureau, Indigo Development, Oakland, CA.

Lowe, Ernest, Murray, Scott, and Weber, Ivan. 2004. An Agro Eco-Industrial Park: an opportunity to promote sustainable farming and food production in Shandong Province, China. The International Center for Sustainable Development (ICSD, a US-based NGO active in China) and the Environmental Education Media Project for China (EEMPC) in Beijing.

National Development and Reform Commission Cleaner Production web site (see Cleaner Production Concept page for Circular Economy discussion: http://www.chinacp.com/eng/index.html

Shi Lei, Qian Yi. 2003. Strategy and Mechanism Study for Promotion of Circular Economy in China. (manuscript received Dec 6, 2003) Department of Environmental Science and Engineering, Tsinghua University, Beijing, 100084. This summarizes recommendations of the CCICED Task Force on Cleaner Production and Circular Economy. Zhao Wei, Ernest Lowe. 2003. The Circular Economy in China: An Introduction. Prepared for the Professional Association for China’s Environment Circular Economy Forum

Zhao Wei, Ernest Lowe. 2003. The Circular Economy in China: An Introduction. Prepared for the Professional Association for China’s Environment Circular Economy Forum.
Ms. Zhao was Environmental Affairs Officer, Production & Consumption Unit, UNEP Dept of Trade Industry and Environment and now directs the East Asian Office of UNEP. Many discussions with her contributed to the analysis on this web page report.

Zhu Dajian. 2003. Circular Economy Theory and a Comprehensive Fairly-Well-off Society. School of Economics and Management, Tongji University, Shanghai 200092,China