Chapter 2 The Role of Government and China s Policy System for Circular Economy

Transcription

1 Chapter 2 The Role of Government and China s Policy System for Circular Economy 2.1 Why Did the Chinese Government Facilitated the Circular Economy Development In China, circular economy has been heavily promoted with various laws, regulations and policies, but why? The backing of such developments by the Chinese government can be found in the history of its role in economic development. Different countries have different histories, as well as how different their paths can be to industrialization and modernization. Even models of economic development are different Free Market Economy in Britain: The First Generation of Industrialization Featured by the Difficulty in Resource Recycling Great Britain was the first industrial nation and a major birth place of modern science and technologies and industry. Its industrialization was spontaneously driven by the market in its early stages. Based on endogenous technological innovation, the country rapidly raised its labour productivity, seeing increased per capita income and considerably growing demands for industrial products. The expansion of its domestic market facilitated rapid industrial development, while technological innovation accelerated and production scaled up, leading to overproduction and shortage of raw materials. This led to foreign trade becoming an important way to expand production and accumulate capital. Industrial production was under the control of merchant capitalists, while enterprises raised money through direct financing, and the government and banks played a relatively minor role. Resource Social Sciences Academic Press and Springer Science+Business Media Singapore 2016 J. Qi et al., Development of Circular Economy in China, Research Series on the Chinese Dream and China s Development Path, DOI / _2 21

2 22 2 The Role of Government and China s Policy System allocation was decided by the market, and enterprises, as the major players in resource allocation, wanted to maximize their profits. To maximize direct economic benefits through resource utilization quickly became the only standard for enterprises to choose their ways of resource utilization. Therefore, environmental concerns were not important and only when wastes could bring more economic benefits than alternative resources, would they be recycled. Yet, for most industrial wastes, the ability to reuse them could only generate low economic benefits directly. Therefore, the country s first generation of industrialists did pay much attention to circular economy Free Market Economy in the United States: The Second Generation of Industrialization in Which the Government Played a Role The US is the most powerful country in the modern world, but its industrialization started about 1800, a few decades later than in Britain. After the Treaty of Paris between Britain and the US was signed in 1783, the later was recognized as an independent nation. The US was still featured an agricultural economy at that time. As a second-generation industrialized nation, the US was sharply different from Britain in its model of industrialization. Its technologies and business models were apparently exogenous or can be duplicated. It heavily depended on Britain, in terms of technology, capital and market. Enterprises primarily depended on the market to accumulate capital or acquired capital to develop the manufacturing industry. In order to support the indirect financing of manufacturing enterprises, the government established joint stock banks in which the government took a stake through issuing national bonds, making undeniable contribution to American enterprises development. Especially since the 19th century, the financing sector has played an increasingly great role with the support from the government, and seen gradually increasing proportions of indirect financing from enterprises. In particular, state governments of the US have offered all kinds of policy support for the development of the manufacturing industry. For example, the federal government imposed tariffs on imported manufactured goods; Massachusetts, New York, and New Jersey provided tax exemption for the manufacturing sectors; governments bought the stocks of manufacturing enterprises; in some states, employees in the manufacturing sector were granted exemption from military service. 1 These incentive policies played an important role in promoting the development of the manufacturing industry in the early days. It can be seen that the government s tangible hands had played a part, but in terms of economic development in the 1 Zhang (2006).

3 2.1 Why Did the Chinese Government Facilitated the Circular Economy 23 US, the government s major role was to create the conditions for pooling resources together in the manufacturing sector rather than achieve the goal through the intervention of resources where they can be utilized. Therefore, the US second-generation industrialization was non-circular, similar to the first-generation industrialization Capitalist Market Economy in Japan: The Third Generation of Industrialization Under the Leadership of the Government There was not much consensus among economists over when Japan s modernization started. Some people thought its modernization or industrialization was initiated when the Meiji Restoration was unveiled in In terms of applied technology, the gap between Japan and those industrialized countries such as the US was extremely wide near the end of World War II. In the field of national defense and military technology, Japan did not fall far behind the US. It could be said that the Japanese model was invented after the Meiji Restoration rather than in the 1960s. The Japanese miracle of industrialization was also created at that time. But it was shortly interrupted after the country changed its path to imperialism. As for its industrial structure, the primary industry accounted for 22.4 % of its GDP by 1952, but available jobs provided to the labor force accounted for 54.6 % of the total, which is strikingly similar to what had happened in China in the 1990s. This also happened to developed countries in the 1980s, which made Japan lag for about 70 years behind them. From the perspective of development economics, Japan was featured by an obvious dual economic structure in the early 1950s. 2 As the Meiji government was established, Japan lagged over 100 years behind Britain in terms of technology. So the country had to start its industrialization with the introduction of advanced production technologies from developed countries. Because the private sector sorely lacked experiences in industrial production, the government, mostly functioned as the major player in industrialization at the beginning, taking the lead in finding modern machinery factories, establishing transport authorities, organizing mining operations, and offering special protection and support to private enterprises. 3 Firstly, the government nationalized the arsenals of the Shogunate government and seigniors, which considerably strengthened Japan s military industry. The government set up the Ministry of Industry in 1870, taking over most of civilian industries. It also established a large number of new enterprises which covered all industries, including agriculture. Meanwhile, the government offered generous support to the enterprises founded by merchants 2 Qi (2001). 3 Kajinishi and Ooshima (1963a).

4 24 2 The Role of Government and China s Policy System close to the government. Despite their low operating profits, government-run enterprises had accelerated Japan s efforts to introduce advanced technologies from foreign countries, and sped up its capitalist primitive accumulation. On the one hand, the government made efforts to develop basic industries, including railway and communication trunk. On the other hand, it formulated various laws and regulations to protect and support the enterprises founded by merchants close to the government. Mitsubishi was one such enterprise that was supported by the government. Japan s industrialization was directly driven by the government and heavily dependent on foreign technologies in the early days. The government did not only establish enterprises themselves, but also provided the industrialization with financing through facilitating the development of Japanese banks. Specifically, Japan received a large war indemnity after the First Sino-Japanese War from 1894 to The war indemnity, which was obtained in a disgraceful way, played a very significant role in infrastructure construction. With the participation of the government, Japan made great efforts to develop industrial banks after 1894, which helped facilitate the rapid capital accumulation. The government had defined the policy of production development and industrial rejuvenation. To be specific, it would first set up banks, and then support industries through the banks. Entrepreneurs would also set up banks in the first place to raise money for their enterprises. 4 It could be seen that Japan s industrialization started with the model integrating the government, banks and enterprises. The government played the biggest role, while banks and enterprises closely related to and interacted with each other under the government s protection and support. Sharply different from those adopted by Britain and the United States, this was the typical model adopted by late starters. It was this model that enabled Japan to accomplish the process within 30 years, which took Britain years. The characteristics featured by Japanese capitalism and related to above-mentioned backwardness could be seen from the development achieved in the dramatically shortened time frame. For example, specialized departments had witnessed considerably imbalanced development, in which monopoly capital then appeared, and finally Japan was ushered into the stage of imperialism. 5 The third generation industrialization was featured by the government s direct intervention to the industrial organization model in the manufacturing industry. By virtue of the government s effort, resources were pooled together in the manufacturing industry faster, the system of mass production, which was internationally competitive, quickly took shape with high utilization efficiency of initial resources. However, the government aimed at the competitiveness of its 4 Kajinishi and Ooshima (1963b). 5 Kajinishi and Ooshima (1963c).

5 2.1 Why Did the Chinese Government Facilitated the Circular Economy 25 manufacturing industry, and decided waste disposal for resource utilization was not economically beneficial. So, its economy was non-circular. The first three generations of industrialization models had been progressive in terms of economic efficiency, but they were all featured by non-circular resource utilization and discharge of massive pollutants, which led to severe environmental pollution. By the time they accomplished industrialization in the 1970s, developed countries have already felt the devastating consequences from ignoring the environment with issues such as severe environmental pollution, as well as the world s eight major pollution incidents. In the 1970s, US communities across the country began a movement to raise public awareness about environmental issues brought by industrialization, and introduced programs that helped other countries learn more about such issues. By the end of the 1970s, the United States and other developed countries enacted laws and regulations for environmental protection requiring producers to carry out waste disposal in a proper way. This kind of endof-pipe management on pollution had become an important signature of the conventional industrialization. In the 1990s, Germany enforced the Closed Substance Cycle and Waste Management, signaling its circular economy development and appearance of a new model of environmental protection Socialist Market Economy in China: The Fourth Generation of Industrialization Dominated by the Government China had seen foreign invasions and civil wars intermittently for over 100 years since In addition to territorial loss, the country was forced to pay an indemnity every time it lost a war. Therefore, the country s technologies and primitive capital accumulation was simply not ready for industrial development when the People s Republish of China was founded in According to the data provided by The World Economy: A Millennial Perspective, by Angus Maddison and published by the Organization for Economic Co-operation and Development (OECD) in Paris in 2001, 6 and estimates given by the author, Fig. 2.1 describes the changing position of China s economy in the global economic system. China had been the world s leading country in the agricultural era of the global economic development history, and its economy had accounted for 32.9 % of the global economy by However, the Chinese economy declined rapidly after the First Opium War broke out in It fell far behind developed countries in the process of global industrialization and China s share in the global economy dropped to 4.5 % by Angus Maddison, The World Economy: A Millennial Perspective (Organization for Economic Co-operation and Development, June 12, 2001).

6 26 2 The Role of Government and China s Policy System The declining China, as a country with a long history and splendid culture, also dreamt of living in a modernized economy. Since the People s Republic of China was founded in 1949, it has embarked on a path to national reconstruction. Before 1949, China, as a semi-colonial and semi-feudal society, didn t have an independent industrial system. It was a typical agrarian economy, and its rural population accounted for more than 95 % of the total. After the founding of the People s Republic of China, the government was eager to consolidate the new regime, so it gave the highest priority to developing a powerful industrial system, especially a powerful system for its national defense industry. Due to the Cold War at that time, the new regime, under the leadership of the Communist Party, was not recognized by western countries. It had to join the Soviet-led socialist camp. As a country that needed to be rebuilt, China barely had any technologies and capital accumulation for the development of an independent industrial system. During China s First Five-Year-Plan period, the former Soviet Union had offered help to China s 156 major industrial projects, which became the seeds of China s industrialization. However, China failed to continue its industrialization along the path opened by the first Five-Year-Plan. Around 1958, China fully accepted the model of highly-centralized socialist planned economy, which was adopted by the former Soviet Union dominated by Stalin. However, because of the ideological differences between the two countries and China s dissatisfaction with Soviet Union s hegemony, an irreparable rift occurred to the Sino-Soviet relationship, leading to a transition from close cooperation to open confrontation. In this case, China was then forced into an isolated industrialization path featured by independence and self-reliance with no external technologies and capitals. More unfortunately, internal political struggles and fierce disagreement within the Communist Party about the future development direction led China into a maelstrom of political struggles in the 1960s. China had undergone a spasm of violence known as the Cultural Revolution from 1966 to It had an urgent desire to develop its own independent technological and industrial systems, so as to build a powerful national defense. But amidst the chaos, state leaders imposed extremely confusing and unreasonable policies. On the one hand, the country needed to gather scientific and technical personals to develop its science and technology sectors. On the other hand, intellectuals and scholars, who were supposed to be the backbones of technological innovation and economic development, were politically demoted to the bottom of society, and were sent to rural areas to work as agricultural labourers. From 1949 to 1978, China s industrialization had stumbled forward in abnormal upheaval for nearly 30 years. Eventually, China established its own independent industrial and technological system in 1978, yet its economic development had an improper structure and was nearly deficient. Data from China s National Bureau of Statistics stated that the rural population accounted for 82.1 % of the total, while the urban population accounted for only 17.9 %. Consequently, China s plan for industrialization did not progress as it had expected, and it remained a typical agriculture-based society. As the gap between China s technology and economic status and those from developed countries widens, Deng Xiaoping chose a new development path and

7 2.1 Why Did the Chinese Government Facilitated the Circular Economy 27 decided to initiate reform and opening up when he rose to power in China in Doing so led to the end of the long-term ideological struggle and the country began to focus on developing its economy during the industrialization period. Although China s social institutions were different from those of Japan, the international and domestic circumstances facing China had much in common with those facing Japan after the Meiji Restoration. Japan s industrialization was realized through the third generation model of industrialization which consisted of integrating roles of the government, banks and enterprises. However, while Japan only introduced foreign technologies, but rejected foreign capitals, China quickly caught up and adopted the fourth generation model of industrialization which integrated not only the roles of the government, banks, and enterprises, but also foreign capital. With such a model, the Chinese government directly established banks with national capital, directly invested in the industrialized basic and manufacturing industries, and led large-scale introduction of foreign technologies to China. Furthermore, it also encouraged nationwide capital accumulation, supported enterprises of all forms of ownership and offered super-national treatment to outside capital so as to attract them to be a part of China s industrialization. China soon integrated its industrialization into the global technological and economic systems dominated by developed countries through introducing foreign technologies, importing foreign products and exporting manufactured goods on a large scale. The national economy had maintained an average annual growth rate of 10 % for over 30 years, creating an economic miracle. Obviously, the model of industrialization of China, a fourth generation industrialized country, followed the evolution rule of global industrialization, which meant late starters were put into a process of catching up. In order to bring the advantages of a late mover into full play, the government had to help enterprises introduce advanced technologies through opening to the outside world and took part in, directly or indirectly, accelerated capital accumulation for industrialization, so as to improve the efficiency and speed of industrialization. The later a country starts industrialization, the more advantages a late mover will enjoy, and a bigger role the government will play. In the process of promoting industrialization, circular economy, as a new model to efficiently utilize resources, requires innovations in industrial structure and industrial organization of the conventional industrialization model. In this respect, it is a new model of industrialization, or the new techno-economic paradigm of the fourth generation industrialization model, to develop a circular economy to facilitate industrialization.

8 28 2 The Role of Government and China s Policy System 2.2 How Has China Promoted the Circular Economy As a matter of fact, China s industrialization didn t completely separate itself from the three generations of industrialization models adopted by developed countries, and also failed to avoid the development pattern of pollution before control. As mentioned above in the introduction, due to a serious shortage of primitive capital accumulation for industrialization, China had not only invited foreign capital but also made great efforts to develop village and township enterprises so as to accelerate the capital accumulation but at the expense of the natural environment, which made China suffer increasingly severe environmental pollution from the initial stage of the reform and opening up to China had not been aware of the significance of the problem until around 2000 when it began to implement harsher policies on environmental protection. In 1998, the Chinese government upgraded the State Environmental Protection Administration to a ministry-level agency directly under the State Council, in order to strengthen governmental control on the environment. A large number of administrative measures have been adopted for environmental control. For example, the central and local governments cooperated to shut down many heavily polluting small-sized enterprises. But it did little to help the environment. So the government had to make circular economy development the solution to the environmental issues facing China. The Chinese government has developed a circular economy not just to address environmental problems. The more important goal is to maintain high-speed economic growth while improving the environment at the same time. Some foreign scholars often fail to understand why China s governments at all levels and its people, especially the local governments are so obsessed with highspeed growth. According to them, China should slow down its economic growth by 1 2 % points and increase investments into environmental protection. Such doubts and advice make sense. Figure 2.1 can, to some extent, explain Chinese people s obsession with high-speed growth. China s share in the global economy had dropped from 32.9 % in 1820 to 4.5 % in During this period, China had suffered imperial aggression and humiliation and declined from a strong state to a weak one, which made China clear about the law of the jungle in world politics after the Industrial Revolution. Therefore, Chinese people have hoped to build a strong economy, narrow the gaps between China and developed countries and rejuvenate the Chinese nation through accelerated economic growth. Every Chinese wants to see this as soon as possible. This also makes sense. China s economic aggregate in the global economy had risen from 4.5 % in 1950 to 12 % in But its population accounted for 21 % of the global total, which meant China s per capita income was only 57 % of the world average. If the share of the Chinese economy could increase to 20 % in 2030, its annual per capita income would be close to the world average. This is a reasonable goal. In order to achieve it, China has to maintain an economic growth of 6.12 % in the coming 17 years as the global economy grows by 3 % annually. When appreciation of the renminbi is taken into consideration, China could contribute a 20 % share to the global economy in 2030 with a growth rate of 6 % for 17 consecutive years.

9 2.2 How Has China Promoted the Circular Economy 29 Fig. 2.1 Changes to the shares of China s economy in the global economy. Source Portion of the data comes from Angus Maddison s The World Economy: A Millennial Perspective (Organization for economic co-operation and development, June 12, 2001), and the other is based on the estimates and predictions of the author of this book It s not ambitious for China to bring its per capita GDP to the world average by But it s not easy to maintain an economic growth rate of 6 % for the next 17 years for a country which faces extremely low per capital resource availability, a fragile ecological environment and a population of 1.3 billion. The problem is that the energy consumption and waste generation per unit land-area are seeing continued increases, surpassing the enduring capacity of the nature. If this continues, the environment might collapse. There is only one way out to prevent such an outcome, which means the country should slow down the growth of its energy consumption and gradually decline the absolute volumes of discharged pollutants, while the economy has to increase by at least 2.75 times as against Obviously, it is hard to materialize this goal with the end-of-pipe management on pollution. Therefore, China has placed its hope on the circular economy development to achieve an economic growth rate of 6 % in the coming 17 years based on continuous reduction of waste discharges. Compared with developed countries, China has gone through higher-speed industrialization, causing excessively intense economic activities per unit land area. In terms of national territorial area, there is only a difference of about 50 km 2 between China and the United States. However, the United States has seen a highest output of crude steel of about 140 million tons, while China s crude steel output had already reached 780 million tons in 2013, 5.7 times that of the United States, and is expected to grow in the coming years. It took the United States about 150 years to accomplish industrialization, while its crude steel capacity had increased by one million tons every year. China s crude steel output stood at million tons in 2000 and 798 million tons in It had increased by 6.21 times within 13 years, with an average annual increase of 51.5 million tons, over 50 times that of the United States during the process of industrialization. Benefiting from the late mover advantages, China s industries are much more technologically-empowered for industrialization than the United States in its

10 30 2 The Role of Government and China s Policy System industrialization. But China s economic growth had caused continuous high-speed increases of resource and energy consumption, leading to increasing waste discharges, which largely offset the advantages brought by technological advances. It is hard to achieve continuous economic growth and reduce waste discharges by purely depending on the market mechanism. Furthermore, environmental regulation will make enterprises suffer increased costs for environmental protection, which will finally lead to rises of the general level of market prices. If the government could implement incentive policies and administrative policies to reduce enterprises costs of resource recycling, increase the comparative advantages of the utilization of used resources, and motivate the whole society to change the techno-economic paradigm of resource utilization while strengthening its environmental supervision, enterprises could be encouraged to improve their efficiency of resource utilization, recover and recycle as many wastes as they could be based on clean production and consumption. As such, fewer wastes will be generated and pollutant emissions will be reduced despite rising resource consumption. This is fundamentally why the Chinese government has made circular economy development its national strategy. Developed countries have already accomplished industrialization, and transferred their manufacturing industries consuming massive resources and energies to developing countries. They have developed the circular economy for the comprehensive utilization of household wastes. As the world factory, China is currently in the process of industrialization. The manufacturing industry is the major contributor to China s economic growth. Manufacturing enterprises also constitute the major source of wastes in the country, so the circular economy has placed its focus on establishing a sound industrial system which enables the manufacturing industry to recycle resources in an efficient way. Comprehensive utilization of household wastes is the next. Therefore, China s circular economy features three hierarchies of resource recycling. The first hierarchy: resource recycling within an enterprise. The circular economy at this level is reflected by large-sized process-oriented enterprises, such as metal smelting enterprises, chemical enterprises, and thermal power generating enterprises which consume massive volumes of energies and water. This category of enterprises could recycle water resources within enterprises through establishing the wastewater recovery system and the advanced treatment system. They could also achieve cascaded utilization of energy through establishing the energy recovery system and the comprehensive utilization system for excess pressure, waste heat and exhaust gas containing energies. For example, seaside Tianjin Beijiang Thermal Power Plant is a new type supercritical thermal power plant which has taken advantage of the local solar salt fields. The city of Tianjin faces a serious shortage of land and fresh water. The thermal power plant needs lots of fresh water, while a large amount of fly ash will be generated from burning coal, and a great deal of gypsum will be generated during desulphurization. Therefore, the enterprise has established a five-in-one model of circular economy-oriented development (as shown in Fig. 2.2). The thermal power plant has utilized the waste heat from power generation to desalinate

11 2.2 How Has China Promoted the Circular Economy 31 Fig. 2.2 Efficient circular economy-oriented industrial chain of Tianjin Beijiang Power Plant. Source Implementation scheme of the circular economy-oriented pilot project at Tianjin Beijiang power plant seawater, while the concentrated seawater generated from the process has been used as the raw material to make salt and develop salt chemical industries. The fresh water has been used by the power plant as cooling water, and transferred to neighboring enterprises to be used for production and domestic life. The fly ash and desulfurized gypsum from burning coal have been used as the raw materials to produce building materials. This has totally changed the former model of conventional thermal power plants, which would generate power only through consuming coals and fresh water, and discharge a great deal of wastes including fly ash. This five-in-one model has made the thermal power plant a comprehensive producer of power, building materials, sea salt and fresh water. By virtue of this model, salt production has been industrialized, which makes it unnecessary to use huge tracts of land to evaporate sea water in the sun to make salt. The residual heat would be utilized to produce salt and fresh water from sea water, while the solid wastes would become building materials. Meanwhile, water has been recycled within the enterprises. Based on power generation, the enterprise has formed a land-saving five-in-one industrial chain: power generation-sea water desalination-salt making from desalinated sea water-salt chemical engineering a new type of building materials. As such, coals have been saved, while no fresh water resources have to be appropriated, and the production would discharge no waste water, zero solid wastes and less exhaust. The second hierarchy: resource recycling in different enterprises of diverse industries. The circular economy at this level is reflected in the industrial parks. An industrial park often houses hundreds of enterprises, and most of them are technologically unable to reuse the wastes generated by themselves

12 32 2 The Role of Government and China s Policy System again in production. Even though it is technologically feasible, wastes might not be recycled on a considerable scale. This requires a certain mechanism which can organize different enterprises into a complex for resource recycling. It is hard for enterprises themselves to form such an inter-enterprise and inter-industry complex for waste reutilization within an industry park. Administrative departments or local governments need to get involved to help the enterprises build up a platform for the exchange of information on wastes. Alternatively, the governments can make direct investments into infrastructure construction for resource recycling in the park and enable all the enterprises to share the information on circular economy and the infrastructure. For example, an industrial park can establish a centralized system for waste water recovery and disposal as well as reuse of reclaimed water and enable the waste water which can not be recycled within an enterprise to be recycled in the whole industrial park. Here is another example. Fly ash from thermal power plants and waste slag from metal smelters can be reclaimed for cement production, thus constituting an inter-industry complex for resource recycling. China has built thousands of industrial parks since the 1990s. Aiming at highspeed economic growth in those years, many industrial parks failed to construct infrastructure and house enterprises in line with the principles of industrial ecology, which led to concentrated production and concentrated pollution in the parks. In order to resolve the contradictions between economic development and environmental protection in industrial parks, circular economy pilot projects, led by the National Development and Reform Commission, in industrial parks have been carried out since 2005, and worked very well. The National Development and Reform Commission and the Ministry of Finance issued the Opinions on the Circular Economy-oriented Upgrade of Industrial Parks in March, 2012, requiring 50 % of state-level industrial parks and over 30 % of provincial-level industrial parks to finish the cyclic upgrading during the 12th Five-Year-Plan period ( ). The central government will cultivate 100 demonstration industrial parks for circular operations during the period. A total of 75 industrial parks, including Golmud Industrial Park in Qinghai province, have made themselves onto the list by June, Figure 2.3 reveals the roadmap for the circular economy-oriented upgrading of the ecological science and technology industrial park located in Zhangye, Gansu province, which has been specialized in agricultural product processing. The industrial park is situated in an ecologically fragile area featuring various natural landscapes such as desert, Qilian Snow Mountain, Danxia landform and plateau wetland. The area is a very important ecological barrier in northwest China. If it fails to develop the local economy on the premise of environmental protection, damages will be caused to the ecological environment. The local economy primarily depends on the industrial park, the enterprise layout inside the park was chaotic in its initial establishment. Pollution-generating enterprises were intermingled with agricultural products processing enterprises, leading to severe pollution and low efficiency. The industrial park began its circular economy-oriented upgrading in line with the principles of the industrial ecology in The central government approved to finance the implementation scheme in June, 2014, making it the state-level demonstration industrial park for circular economy-oriented upgrading.

13 2.2 How Has China Promoted the Circular Economy 33 Fig. 2.3 The roadmap for the circular economy-oriented upgrading of the ecological science and technology industrial park. Source The implementation scheme for circular economy-oriented upgrading of Zhangye (Gansu) Ecological Science and Technology Industrial Park (2014) The third hierarchy: waste recycling in a city or even a larger area. The circular economy at this level is reflected in the construction of a circular economy-oriented society. This is a circular economy-oriented strategy, to be implemented under the leadership of local governments. Cities can combine industry with agriculture as well as rural areas with urban areas to constitute a composite circular economy-oriented industrial chain of the primary, secondary and tertiary industries according to their own resource endowment, industrial structure and regional characteristics, in order to bring the industrial agglomeration effect and ecological effects into play, strengthen the buildup of a green transport system, establish an intermediate service system for the circular economy, consummate the system of renewable resource (including wastes) recycling, and improve the coordination in resource recycling between different industrial parks and different communities. In the inner city, priority shall be given to green and low-carbon buildings, while efforts shall be made to facilitate resource recycling, comprehensive utilization and clean production, and to cultivate the awareness of resource conservation and environmental protection in the field of circulation. The concept of green consumption shall be proposed for the public to put it into practice, to

14 34 2 The Role of Government and China s Policy System create an atmosphere for green production, green life and green consumption. The country had made positive efforts to set up circular economy demonstration pilot cities and circular economy education bases. Till now, 40 regions have been recognized for building 2013 state-level circular economy demonstration pilot cities (counties), while 16 circular economy education bases have been established. 2.3 Legal and Regulatory Policy System for Circular Economy Development in China As stated above, the circular economy-oriented model has transformed enterprises production modes, changed the industrial structure, and required enterprises to pay more attention to the environmental impacts brought by their production and operations and shoulder social environment responsibility. This will internalize enterprises external environmental cost, and change their cost and pricing mechanisms. Especially when enterprises are required to recycle waste, their profitability may be weakened. Therefore, not all enterprises are willing to shoulder social environment responsibility at the expense of their profitability. Circular economy development involves every citizen s behaviors of consumption and waste disposal, and requires everyone to raise his environmental awareness and voluntarily take part in the activities of household wastes recycling. But it takes a very long time to cultivate the environmental awareness. Furthermore, a scientific and reasonable system of waste collection, classification, storage and transport needs to be established to recycle increasing volumes of household wastes in urban areas. It could not be accomplished by enterprises or individuals alone. As to China, the transition from a typical agricultural society to a new industrialized society based on circular economy is a major economic and social revolution. If the governments and legislators fail to join hands to formulate the laws, regulations and policy system aligned with the transition, it is almost impossible to smoothly accomplish the transformation History of China s Legal and Regulatory Policies on the Circular Economy The Chinese government, citizens and enterprises did not have the environmental awareness in the early days of China s reform and opening up. In 1982, the State Council set up the Ministry of Urban and Rural Construction and Environmental Protection chiefly in charge of urban and rural construction, under which an Environmental Protection Commission was established. In 1984, the commission was renamed the State Environmental Protection Bureau, still subordinate to the Ministry of Urban and Rural Construction and Environmental Protection. In 1988,

15 2.3 Legal and Regulatory Policy System for Circular Economy Development 35 the Bureau was separated from the Ministry, and became a vice-ministerial-level department directly under the State Council. Environmental concerns have become increasingly prominent along with economic development. The State Council upgraded the Bureau to the State Environmental Protection Administration in 1998, which was still directly under the State Council instead of a component department of it. It was in 2008 that the State Council formed the Ministry of Environmental Protection as a component department. Its major responsibilities include implementing environmental protection plans, polices and standards, organizing the standard formulation for division of environmental function zones, supervising the prevention of and control on environmental pollution, coordinating the efforts to resolve major environmental problems, formulating and implementing environmental policies, supervising and enforcing related laws, and coordinating efforts on environmental issues across administrative regions. Such a changing course directly reveals the process how the Chinese government has recognized the significance of environmental concerns. The term circular economy was already in use in the Chinese language before And practices related to circular economy had already existed, and were referred to as the comprehensive utilization of resources. Before 1998, related laws and regulations had not been yet formulated, and there had been only polices on environmental protection. Scholars introduced the concept of circular economy to China in 1998, and circular economy got continuously intensive theoretical researches and practices afterwards. The State Environmental Protection Administration was established in the same year, and began to devote major efforts to resolving environmental problems and shutting down heavily polluting enterprises. But it didn t work well. More enterprises were established as some were closed down, leading to increasingly severe environmental pollution. In order to cope with the challenge, the State Environmental Protection Administration accepted the concept of circular economy and tried to prevent environmental pollution from the origin through circular economy development. The Administrative had adopted a series of incentive measures in a couple of years, and began to carry out circular economy-oriented pilot projects in China according to the model of Kalundborg Eco-Industrial Park and in combination with clean production to help enterprises develop the circular economy, which worked very well. However, there had emerged some problems in practice including tax and fiscal policies for the comprehensive utilization of wastes, technical standards, market access for related products, and changes to industrial structures across regions and industries. Beyond the responsibilities of the Administration, all these problems could not be resolved. In 2004, the State Council decided to make circular economy development an important solution to the contradiction between economic growth and environmental concerns, while it became the responsibility of the National Development and Reform Commission to promote and manage circular economy development. A series of laws, regulations and polices have been formulated since 2005 to step up the development of circular economy. China s laws, regulations and policies on circular economy promotion will be introduced chronologically in three stages.

16 36 2 The Role of Government and China s Policy System The Embryonic Stage ( ) From the 1970s to 1990s, China accelerated its pace to make laws on the environment and resources along with the emergence of the environmental problems triggered by economic growth. In this stage, the Chinese government faced the resource restraints caused by the future high-speed economic growth, so it began to switch its focus from the comprehensive utilization of resources to both resource utilization and environmental protection. When the Constitution of the People s Republic of China was amended in 1978, environmental protection was covered for the first time the state shall protect the environment and natural resources and prevent and eliminate pollution and other public hazards. This provided the legislative basis for China s legislation for the protection of the environment and natural resources. In 1985, the State Council approved and issued the Regulations on Strengthening the Comprehensive Utilization of Resources drafted by the former State Economic Commission, putting forward a series of preferential policies and measures for enterprises to comprehensively utilize resources. In September 1979, the Environmental Protection Law of the People s Republic of China (Trial) was passed in principle at the 11th session of the fifth National People s Congress, which was the first national basic law on environmental protection. On October 30, 1995, the Law of the People s Republic of China on the Prevention and Control of Solid Waste Pollution (hereinafter referred to as the Law on Solid Waste Pollution Control ) was passed at the 16th session of the Standing Committee of the eighth National People s Congress. Furthermore, the central government also introduced a number of other major laws and regulations on environmental protection in this stage: Law of Marine Environmental Protection of the People s Republic of China (1982), Water Pollution Prevention and Control Law of the People s Republic of China (1984), Forest Law of the People s Republic of China (1984), Fisheries Law of the People s Republic of China (1986), Land Management Law of the People s Republic of China (1986), and Water Law of the People s Republic of China (1988). In 1989, the Environmental Protection Law of the People s Republic of China (Trial) was made official. Other related laws and regulations had been enacted in succession: Circular of the Ministry of Finance and State Administration of Taxation on Preferential Policies in Respect of Enterprise Income Tax (1994), Circular on the Publication of the Notes of Taxation Items and Rates of Comprehensive Resources Utilization and Warehousing Facilities of the Regulatory Tax for Fixed Assets Investment Direction (1996), Circular on the Continued Implementation of the Preferential Policy in Value-added Tax for Enterprises Operating in the Collection of Waste and Used Materials (1996), Water Pollution Prevention and Control Law of the People s Republic of China (amended, 1996) and Law of the People s Republic of China on the Coal Industry (1996) etc. In 1996, the State Council officially issued the Decision of the State Council on the Issues Concerning Environmental Protection. The document required to adopt certain procedures through which administrative officials shall be held responsible

17 2.3 Legal and Regulatory Policy System for Circular Economy Development 37 for environmental quality, carefully solving regional environmental problems, resolutely controlling newly-generated pollution, accelerating the fight against previously-generated pollution, maintaining ecological balance, protecting and exploiting natural resources in a reasonable way, increasing investments in environmental protection, imposing strict law enforcement, strengthening supervision and management on the environment, carrying out researches on the environmental science, making great efforts to develop environmental protection industries, enhancing public awareness and education, and raising the environmental awareness of the whole society. On August 9, 1996, the former State Economic Commission, the Ministry of Finance, and the State Administration of Taxation jointly issued the Opinion on Furthering the Comprehensive Utilization of Resources with the approval of the State Council. Preferential policies on taxation, investment and financing were formulated in the document for comprehensive utilization of the waste resources. These polices should apply to the exploitation and proper utilization of the paragenetic and associated minerals in the processes of mineral resource exploration, recovery and proper utilization of waste slag, waste water, waste gas, residual heat and residual pressure from production, and recovery and recycling of various wastes from production and consumption. It also put forward a detailed Catalogue of Resources for Comprehensive Utilization. The Energy Conservation Law of the People s Republic of China was officially enacted in The High-Speed Development Stage ( ) The concept of circular economy was officially introduced into China in The theoretic researches into and practices about circular economy have been continuously intensified since then. It was in the same year that the environmental pollution caused by rapid economic development attracted high attention of the central government. We should say the government stayed ahead of the public in terms of environmental awareness. In order to cope with the increasingly severe environmental problems, governmental supervision should be strengthened. Therefore, the State Council upgraded the State Environmental Protection Bureau ( vice- ministerial level) to the State Environmental Protection Administration (ministerial-level) comprehensively responsible for environmental protection. In this stage, the Administration had brought the concept of circular economy into the formulation of related laws and policies, accelerating the legislation for circular economy. Under the auspices of the State Environmental Protection Administration, the Cleaner Production Promotion Law of the People s Republic of China was approved by the National People s Congress in 2002, and came into effect in It was the first time that the concept of circular economy was mentioned in 7 Zhu Dajian, The Rise of Circular Economy and the Corresponding Countermeasures of Shanghai, Social Sciences, Vol. 10, 1998.

18 38 2 The Role of Government and China s Policy System a Chinese law, which made the law a landmark in the course of legislation for circular economy and signified that circular economy-related policies began to have a legal basis in China. In order to better protect the environment and prevent pollution, the central government has enacted and revised a series of specific laws: Law of the People s Republic of China on the Prevention and Control of Atmospheric Pollution (2000), Grassland Law of the People s Republic of China (2002), Water Law of the People s Republic of China (revised in 2002), Environmental Impact Assessment Law of the People s Republic of China (2002), Government Procurement Law of the People s Republic of China (2003) and Law of the People s Republic of China on the Prevention and Control of Solid Waste Pollution (re-revised in 2004). In order to enforce the Cleaner Production Promotion Law, the State Council endorsed the Opinions on Accelerating Cleaner Production Promotion drafted by the National Development and Reform Commission in In the same year, the State Environmental Protection Administration began to establish pilot eco- industrial parks in order to speed up the circular economy development. Furthermore, the authority issued the Regulations on Application for, Naming of and Management on State-Level Demonstration Eco-Industrial Parks (Trial) and the Guideline for Planning of Demonstration Eco-Industrial Parks (Trial) etc., which have effectively promoted and standardized the construction and development of eco-industrial parks. Meanwhile, it also initiated the national demonstration areas for circular economy, and issued Guideline for Planning of Demonstration Areas for Circular Economy (Trial). In 2003, the State Environmental Protection Administration issued the Regulations on Application for, Naming of and Management on State-Level Demonstration Areas for Circular Economy (Trial) and the Guideline for Planning of Demonstration Areas for Circular Economy (Trial) etc. At that time, a circular economy demonstration area was defined, in term of its functions, as a demonstration area which starts from pollution prevention, features material recycling, and aims at sustainable social, economic and environmental development. Applying ecological principles, it organizes the social and economic activities within the area into several feedback processes resourcesproducts-renewable resources. It tries to control waste generation from the sources of production and consumption, recycle reusable worn-out products and wastes, and properly dispose the wastes which are not reusable, achieve less exploitation, more utilization and lower emission in production and consumption, maximize the efficiency of resource and energy utilization, reduce the discharge of pollutants, and facilitate the harmonious development between economic growth and environmental protection The All-Round Promotion Stage (2004 Now) In 2004, the National Development and Reform Commission took over the responsibility to impose management on circular economy development. Since then, the central government has announced a series of laws and regulations as well as major policies.

19 2.3 Legal and Regulatory Policy System for Circular Economy Development 39 In 2005, the State Council officially issued the Opinions on Accelerating Circular Economy Development [No. 22 (2005) of the State Council], requiring to accelerate the efforts to establish and improve the laws and regulations system on circular economy in line with China s national conditions. The document was regarded as the guideline for China to develop the circular economy. According to its requirements, the National Development and Reform Commission, the State Environmental Protection Administration, the Ministry of Science and Technology, the Ministry of Finance, the Ministry of Commerce, and the National Bureau of Statistics jointly issued the National Action Scheme for Pilot Programs for Promoting Circular Economy, and decided to carry out the pilot programs in major industries, fields and industrial parks as well as some provinces and cities. The second round of demonstration trials for the circular economy was initiated in Guideline documents including the Provincial (Municipal) Evaluation Index System for the Circular Economy, the Guideline for Planning of the Circular Economy, the Evaluation Index System for Eco-Industrial Parks and the Guideline for Planning of Demonstration Eco-Industrial Parks were issued in succession, gradually standardizing the circular economy development. The Outline of the 11th Five-Year Plan for National Economic and Social Development of the People s Republic of China, unveiled in 2006, presented a plan for circular economy development, which was included as one of the major strategic tasks in the 11th Five-Year-Plan period. In December, 2005, the Standing Committee of the National People s Congress decided to cover the law on circular economy promotion into its legislation plan, which initiated the legislation process of this law. On August 29, 2008, the Circular Economy Promotion Law of the People s Republic of China (hereinafter referred to as the Circular Economy Promotion Law ) was passed at the fourth session of the Standing Committee of the 11th National People s Congress, and came into force on January 1, 2009, which marked that China had set its foot on the track of developing the circular economy according to laws. With totally 58 articles in seven chapters, the law focuses on the 3R principles (namely, reduction, reusing and recycling), defines the circular economy, and clarifies the objectives, details, guidelines and principles of circular economy development. It also stipulates clauses on penalty and liabilities for various categories of economies failing to fulfill the legal duties. By virtue of the law, six major fundamental systems, namely, the planning system for the circular economy, the total amount control system for resource consumption and pollutant emission, the evaluation and appraisal system for the circular economy, the extended producer responsibility, the system of supervision focusing on heavily polluting enterprises, and the guiding and incentive systems for environment-related industries etc., have taken shape. Throughout the drafting process of the Circular Economy Promotion Law and after it came into effect, the State Council and relevant departments had successively issued dozens of supporting regulations and normative documents. On February 1, 2008, the Administrative Measures on Pollution Prevention of Waste Electrical and Electronic Products officially came into force. The Regulation on the Recovery and Disposal of Waste Electrical and Electronic Products, promulgated in 2009, officially came into effect on January 1, 2011.

20 40 2 The Role of Government and China s Policy System On September 15, 2010, the National Development and Reform Commission, the Ministry of Environmental Protection and the Ministry of Industry and Information Technology jointly announced the Catalogue of Waste Electrical and Electronic Products for Disposal (the first batch), according to which the following five kinds of products, TV sets, refrigerators, washing machines, room air conditioners and micro-sized computers, would be included in the list of the waste products for recycling and subject to strict management since January 1, At the end of 2010, the National Development and Reform Commission issued the Guidelines for Making Plans for Circular Economy Development, suggesting that local governments should develop the circular economy according to their specific circumstances. On January 23, 2013, the State Council issued the Development Strategy and Immediate Action Plan of Circular Economy, setting goals for China s circular economy development in different stages. The following goals should be fulfilled by 2015: the advanced resource recycling technologies featuring Reduction, Reusing and Recycling are widely applied; over 72 % of industrial solid wastes are disposed for comprehensive utilization; a modern system has initially taken shape for the recovery of waste products; 70 % of waste products are recovered by virtue of advanced technologies; the recovery and recycling of important resources see remarkable improvements; the following goals should be accomplished by 2020: an industrial technology innovation system is built for reusing and recycling; there emerges a group of manufacturers of technical equipment and products for resource recycling with core competitiveness; a technologically advanced industrial system is built for resource recovery and recycling, covering urban and rural areas. In terms of policy support, the National Development and Reform Commission, the People s Bank of China, the China Banking Regulatory Commission and the China Securities Regulatory Commission jointly announced the Circular on the Investment and Financing Polices and Measures Supporting Circular Economy Development on April 19, 2010, making circular economy development a significant part of the sustainable development strategy. According to the document, the government would take advantage of a combination of policies and measures on planning, investment, industry, price, taxation and finance to create a sound market-oriented and investment and financing-based system and environment in favor of circular economy development. From 1973 to 2014, China had formulated a series of laws, regulations and administrative rules related to environmental protection and circular economy development, including more than 20 laws, more than 30 administrative regulations, more than 70 administrative rules, more than 900 local regulations and more than 400 normative documents. The country had scored some achievements in building a legal framework of the circular economy, signaling the initial formation of the system of laws, regulations and policies on circular economy. The major laws, regulations and policies relating to circular economy development promulgated in China have been listed in Table 2.1 in the chronological order.

21 2.3 Legal and Regulatory Policy System for Circular Economy Development 41 Table 2.1 China s major legal and regulatory policies on the circular economy The embryonic stage ( ) The transition stage ( ) The all-round development stage (2004 now) Title Issuing authority(-ies) Date Note Environmental Standing Committee Dec. 26, Basic law protection law of the of the National 1989 People s Republic of People s Congress China Law of the People s Republic of China on the prevention and control of solid waste pollution Water pollution prevention and control law of the People s Republic of China Temporary provisions concerning the questions relating to comprehensive resources utilization Cleaner production promotion law of the People s Republic of China Law of the People s Republic of China on the prevention and control of solid waste pollution (amendment) Opinions on accelerating circular economy development National action scheme for pilot programs for promoting circular economy Outline of the 11th five-year plan for national economic and social development Standing Committee of the National People s Congress Standing Committee of the National People s Congress The former State Economic Commission Standing Committee of the National People s Congress Standing Committee of the National People s Congress Oct. 30, 1995 May 11, 1984 Sept. 30, 1985 Jun. 9, 2002 Dec. 29, 2004 State Council Jul. 2, 2005 National Development and Reform Commission, State Environmental Protection Administration, Ministry of Science and Technology, Ministry of Finance, Ministry of Commerce, National Bureau of Statistics Oct. 27, 2005 State Council Mar. 16, 2006 Specific law Specific law Administrative regulation Basic law Specific law Administrative regulation Administrative regulation Administrative regulation (continued)

22 42 2 The Role of Government and China s Policy System Table 2.1 (continued) Title Issuing authority(-ies) Date Note Circular on the questions relating to encouraging cement production with carbide slag Circular economy promotion law of the People s Republic of China Regulation on the recovery and disposal of waste electrical and electronic products Opinion on the investment and financing policies for circular economy development Technical manual on domestic wastes disposal Circular on organizing the pilot efforts of recycling and safe disposal of urban kitchen wastes Opinion on facilitating the development of the remanufacturing industry Circular on building demonstration bases of city mining Outline of China s policies on resource recycling technologies Circular on carrying out pilot statistics on the circular economy National Development and Reform Commission Standing Committee of the National People s Congress Apr. 30, 2008 Aug. 29, 2008 State Council Aug. 20, 2008 National Development and Reform Commission, Ministry of Finance Ministry of Housing and urban-rural Development National Development and Reform Commission, Ministry of Finance National Development and Reform Commission, Ministry of Finance National Development and Reform Commission, Ministry of Finance National Development and Reform Commission, Ministry of Science and Technology, Ministry of Industry and Information Technology, Ministry of Land and Resources, Ministry of Housing and urban- Rural Development, Ministry of Commerce National Development and Reform Commission Apr. 19, 2010 Apr. 22, 2010 May 4, 2010 May 13, 2010 May 20, 2010 Jul. 1, 2010 Aug. 31, 2010 Departmental rule Promotion law Administrative regulation Departmental rule Technical policy Departmental rule Departmental rule Departmental rule Technical policy Departmental rule (continued)

23 2.3 Legal and Regulatory Policy System for Circular Economy Development 43 Table 2.1 (continued) Title Issuing authority(-ies) Date Note Administrative measures for eligibility license for disposal of waste electrical and electronic products Outline of the 12th five-year plan for national economic and social development Implementation scheme for supporting demonstration cities for recycling and safe disposal of urban kitchen wastes with the special fund for the circular economy Circular on adjusting and improving the value-added tax policies for products and labor services that comprehensively utilize resources Implementation scheme for comprehensive utilization of crop straws during the 12th five-year-plan period Guideline for comprehensive utilization of resources and implementation scheme for comprehensive utilization of massive solid wastes during the 12th five-year-plan period Opinion on facilitating circular economyoriented upgrading of industrial parks State Environmental Protection Administration Dec. 15, 2010 State Council Mar. 16, 2011 National Development and Reform Commission, Ministry of Finance Ministry of Finance, State Administration of Taxation National Development and Reform Commission, Ministry of Agriculture, Ministry of Finance National Development and Reform Commission National Development and Reform Commission, Ministry of Finance May 17, 2011 Nov. 21, 2011 Nov. 29, 2011 Dec. 10, 2011 Mar. 21, 2012 Departmental rule Administrative regulation Departmental rule Fiscal and taxation policy Departmental rule Departmental rule Departmental rule (continued)

24 44 2 The Role of Government and China s Policy System Table 2.1 (continued) Title Issuing authority(-ies) Date Note Provisions on the collection and management of funds for the disposal of waste electrical and electronic products Interim measures on management of special funds for circular economy development Administrative measures for the comprehensive utilization of coal ash Development strategy and immediate action plan of circular economy Regulation on the prevention and control of pollution from largescale livestock and poultry cultivation Opinions on facilitating the recycling of urban and industrial wastes to concert with production Ministry of Finance, Ministry of Environmental Protection, National Development and Reform Commission, Ministry of Industry and Information Technology, General Administration of Customs, State Administration of Taxation National Development and Reform Commission, Ministry of Finance National Development and Reform Commission May 21, 2012 Jul. 20, 2012 Jan. 5, 2013 State Council Feb. 5, 2013 State Council Nov. 11, 2013 National Development and Reform Commission, Ministry of Science and Technology, Ministry of Industry and Information Technology, Ministry of Finance, Ministry of Environmental Protection, Ministry of Housing and urban- Rural Development, National Energy Administration May 6, 2014 Fiscal and taxation policy Fiscal and taxation policy Departmental rule Administrative regulation Administrative regulation Departmental rule Source Official websites of the State Council and the National Development and Reform Commission

25 2.3 Legal and Regulatory Policy System for Circular Economy Development Characteristics of China s Legal and Regulatory Policies on Circular Economy According to the requirements of the Circular Economy Promotion Law of the People s Republic of China, a complete system of laws, regulations and polices on circular economy has been already formed, as shown in Fig Among China s legal and regulatory policies on circular economy, the provision in the Constitution, the state protects the environment and natural resources and prevents and eliminates pollution and other hazards to the public, provides the fundamental basis for circular economy development. As a substantive law and a basic law under the Constitution, the Environmental Protection Law provides a basis for circular economy development and is the basic law circular economy development must be subject to. In line with the Environmental Protection Law, China formulated the Cleaner Production Promotion Law and the Circular Economy Promotion Law. As the basic laws directly guiding circular economy development, they are not substantive laws, but extend a guiding hand for circular economy development in China. Under the Circular Economy Promotion Law, the State Council formulated and issued some regulations and governmental documents, providing exclusive and macro guidance for circular economy development. For example, before Fig. 2.4 The framework of China s legal and regulatory policies on circular economy