China has identified circular economy as a key strategy to transform economic growth patterns and mitigate or solve resources and environmental problems including pressure on water resources. Results show that the promotion of circular economy reduces national resources requirement pressures. Circular economy in China is practiced by individual firms, by consortia of firms and at the regional level. Factors that provide supports in promoting circular economy are law, economic policy and planning.

Introduction

Water plays a central role in all life, both public and private aspects, and at all levels from international waters to the household level. However, it continues to be wasted and treated with little respect despite its economic importance. In China there are some problems that are worsening; for example, a gap between water supply and demand, low water utilization efficiency, worsening pollution and aquatic ecosystem deterioration (MWPRC, 2004). Improved water resource management and prevention of shortage is very important. However, we put too much emphasis on remediation approaches for contaminated groundwater and sediments, and ignore other factors that can improve water utilization efficiency.

The ‘circular economy’ concept was put forth by Boulding, an extraordinary economist (Boulding, 1966). This concept organizes economic activities into a feedback process of ‘resources-production-regenerated resources’ to reduce negative impacts on the natural environment to a minimum (Boulding, 1966). More and more governments, including the Chinese government, believe that circular economy can benefit the economy and relieve environmental pressures.

In this paper, a new perspective and new solutions to problems are presented. Basic concepts, practices of circular economy are introduced. Characteristics including practice levels, motivations and supporting factors of circular economy in China are analyzed.

Circular economy: basic concepts

In recent years, many scholars have studied the concepts of circular economy, but there has emerged no common conceptual framework so far. Here we are concerned with three aspects of circular economy: Physical flow, roundput and diversity, and evolution.

Physical flow

The physical flow of matter and energy in economic systems, that is, the flows between and within the industrial systems and ecosystems, aims to control and reduce the negative impacts generated during the use of the resources (Ayres and Ayres, 1996; Erkman, 1997). Wolman conceived of a material model of a hypothetical city in which he applied the law of conservation of mass to human systems (Wolman, 1965). In 1966, Boulding first conceptualized the idea of circular economy and further thrust the role of material flows into the fore (Boulding, 1966). Ayres and Kneese (1969) put forth an argument for material recycling and eventually proposed that we ‘view environmental pollution and its control as a materials balance problem for the entire economy’.

Roundput and diversity

The objective of circular economy is to address the problem of industrial society's linear ‘throughput’ of material and energy in which resources are used up and wastes and emissions accumulate (Frosch and Gallopoulos, 1989; Graedel, 1996). Circular economy terms these flows of material and energy as roundput (Korhonen, 2001, 2004), that is, cyclical and cascading flows. Roundput may be described by the basic principles of the natural ecosystem material and energy flow model. Waste utilization between manufacturing systems of economic system using the food web model (Frosch and Gallopoulos, 1989) has been considered similarly. Recycling and cascading, when implemented successfully, reduce inputs of scarce resources and the outputs of harmful wastes and emissions.

Diversity contributes to circular economy such that when one actor departs from the recycling system, the system recovers another actor(s) who fulfills the recycling or waste raw material supplying role. The concept of diversity requires a system or network approach of analysis (Pizzocaro, 1998). Ecosystems either adapt to their internal scarcity by optimizing the use of the scarce resources through diversity or are flexible and able to adapt to changing environmental conditions. It should be pointed out here that economic systems and markets operate according to monetary information.

Evolution of economic systems

Economic systems are complex systems, and they are self-organizing (Allenby and Cooper, 1994; Desrochers, 2002), that is, they evolve. Application of evolutionary principles to industrial industries systems has been compared to application of these principles to natural ecosystem models (Allenby and Cooper, 1994; Graedel, 1996; Connelly and Koshland, 2001; Korhonen, 2003), but ecosystems cannot rely on global flows in the way that economic systems currently do, because there exists no such technologies or transportation systems or fossil fuel use in ecosystems as in industrial systems (Ring, 1997; Wackernagel and Rees, 1997). Understanding systems evolution over time is important both for environmental performance analyses as well as for future planning of policy and management of eco-industrial parks (EIPs). It should be useful to attempt to identify the long-term development and the evolutionary path of a certain successful industrial ecosystem to learn how this path would develop in similar systems. But one must note that all industrial ecosystems are different with their own economic, social, cultural and ecological characteristics, which makes comparison and learning difficult.

Development of circular economy in China

Since 1992, China has focused her endeavors on circular economy, which integrates cleaner production and industrial ecology in a broader system to support resource optimization.

Cleaner production

China's strategy includes the identification of 10 cities, three rivers, three lakes and five industrial sectors for special priority. Moreover, manuals outlining cleaner production methods have been published in Chinese. These manuals have given great help to companies. They include ‘Cleaner Production Audit Manual for Enterprises,’ ‘Guide for Cleaner Production’ in the pulp and paper industry, the brewery industry, the organic chemical raw materials industry, electroplating industry, silk dyeing and the printing industry (Qian and Lao, 2004). From 1995 to 2000, various small enterprises have been banned and closed down, including 58,000 small coal mines, 85 steel works, over 6000 local oil refinery sites, 111 small oil refineries, 3894 cement plants and 238 glass production lines. At the same time, the government has made the investment of 10 billion US dollars to support research and development of cleaner production technologies such as clean coal burning, and waste water-into-resources (Qian and Lao, 2004). These activities have greatly enhanced the ability of enterprises to reduce input of fresh water, materials and energy, and polluting emissions, and to increase efficiency of resource use.

Eco-industrial parks

The State Environmental Protection Agency (SEPA) has attached increasing importance to promoting the development of EIPs in China since 2001. The SEPA has supported the set-up of 14 EIPs in China from 2001 to 2005. The Guitang Group, a state-owned sugar company, leads in the development of EIPs in China. To deal with high levels of emissions generated by low-profit sugar production, the company has created a cluster of facilities to reuse and recycle its by-products and thereby reduced pollution in an economically viable manner (Duan et al., 2004). The cluster includes an alcohol plant, a pulp mill, a toilet-paper plant, a calcium carbonate plant, a cement plant, and a power station. These EIPs are located respectively in Guizhou, Neimenggu, Hunan, Shandong, Tinajin and Liaonin Province in China.

Regional circular economy

To achieve a sustainable development of regions, it is essential to leave unpolluted ecosystems to future generations. Officials and planners in China aiming at regional sustainable development have to adapt the management objectives of resources and waste to the regional requirements. Thus, circular economy is gradually being practiced at the regional level (Yu, 2004). Some provinces or cities such as Shanghai, Chongqing, Beijing, Tianjin, Liaoning, Guiyan have begun to consider circular economic development, by integrating cleaner production and eco-industrial parks in order to manage regional resource consumption (Qian and Lao, 2004).

Characteristics of circular economy in China

Practice levels of circular economy in China

Levels of practice of circular economy in China can be categorized as on the individual firm level, the inter-firms level and the regional level. At the individual firm level, the Chinese government seeks much higher efficiency through cleaner production, reduction of the consumption of resources and emission of pollutants and waste, reuse of resources and recycling of by-products. The second, or inter-firm, level seeks reuse and recycling of resources within industrial parks and clustered or chained industries, so that resources will circulate fully in the region. It is here, rather than at the level of the firm, that ‘significant, systemic industrial change’ is important (Van et al., 1997). In reality, the Chinese government realizes that this is probably unattainable, but nevertheless worth pursuing as a goal. The third level (regional), is being enthusiastically pursued by the Chinese government at present. In the level of practice, different production and consumption systems are integrated and resources circulate among industries and urban systems (Li et al., 2005). This level places emphasis on development of municipal or regional by-products collection, storage, processing, and distribution systems.

Stimulating circular economy in China

Reducing the pressure of the national resources requirement

From the point of view of resources requirement by the national economy, rapid industrialization in the past decades in China has engendered serious problems, including depletion of natural resources and degradation of major ecosystems. In future, China's development target is to raise the majority of China's population into ‘the all-round well-being society’. In other words, a population of 1.8 billion would reach a per capita GDP of US$ 4000 per year by 2050, five times the current level. However, it is unavoidable that great pressures will be imposed on natural resources. The China Council for International Cooperation on Environment and Development states that an increase as much as ten-fold will be required. Moreover, in China, resources are not available to provide a growing population with the standards of a Western lifestyle. The challenge for the Chinese government is to find an alternative to attain sustainable economic development. Hence, circular economy can be directed at controlling the wider burden of the resources throughput, which can be, at least, sustained without jeopardizing the quality of economic growth.

Providing an approach to mitigating environment pollution

Generally, the residuals at the end of the physical flow are determined by all materials entering that flow as well as by all transformation processes in production and consumption activities. Therefore, the entire physical flow is at the core of explaining environmental degradation whose feedback effects on the economy take the form of large-scale multi-party externalities due to missing markets (Ayres and Kneese, 1969). Moreover, environmental degradation cannot be adequately assessed unless the complete economic and physical flow is envisioned with regard to the Materials Balance Principle, which is an accounting of material entering and exiting a system (Ayres and Kneese, 1969). But, according to the view of Kneese, it is effective to discriminate and solve the key factor from many other pollution factors with respect to integrating the entire physical flow analysis and economic analysis in circular economy. Considering the circular economy physical flow process, the pollution prevention concept is used widely through source reduction or on-site recycling, in order to avoid or minimize the generation of waste and emissions. Moreover, some waste and emission, which cannot enter on-site recycling, may be useful in off-site recycling. In sort, circular economy can provide an idea about mitigating environment pollution, and reducing waste and emission. Realizing the deterioration of environment pollution and advantages of circular economy in mitigating environment pollution, the Chinese government had made a decision for promoting circular economy.

Supporting circular economy in China

Regional circular economy planning

Regional circular economy planning is the most characteristic supporting factor in China. In 2004, the central government directed local governments to integrate the concept of circular economy into regional economic development planning (2005–2010). According to the central government requirements, local governments should make circular economy an important guiding concept in regional economic development planning, including Economic Development Planning and City Development Planning. Moreover, water resources and energy planning must be included. Thus, regional circular economy planning will impose long-term effects on the development of circular economy in China. Because of the central government, local governments have to change linear economic development patterns to meet the requirement of economic sustainable development.

Laws

In China, law plays a key role in the development of circular economy. Since 1997, the legislative body of the government in China has promulgated various laws about circular economy, including the Law of the People's Republic of China (PRC) on Conserving Energy (1997), the Law of the PRC on the Environmental Impact Assessment (2002), the Law of the PRC on the Promotion of Clean Production (2002) and the Law of the PRC on Reproducible Energy (2005). They profoundly influence the economic behavior of resource utilization by local government, enterprise and the consumer. Some laws for recycling material, for example, tires, application electronics, building materials, agricultural wastes, will be enacted according to Extended Producer Responsibility Principles.

The Japanese recycling laws have inspired China's laws about promoting circular economy. In terms of the legal system, Japan has established more comprehensive laws for promoting circular economy than has China. However, compared with Japan, the motivation of China's law is more broad-range, including not only consumption and recycling but production processes as is seen in the Law of the PRC on the Promotion of Clean Production, whose primary objectives are to regulate enterprises to make their production and products more environmentally benign.

Economic policies

In the beginning of circular economy in China, the central government mostly took a top-down approach to guide local governments, enterprises and consumers. Since 2004, government has given attention to some economic incentive policies. Firstly, the State provides some in financing of investments required by industries. Secondly, projects supported by the State must be generally or universally applicable in China. Thirdly, government can provide interest-free or low interest loans for some projects. Fourthly, projects must take full advantage of the role of market-based mechanisms in pricing natural resources including water, energy, electricity and so on. In order to improve the utilization efficiency of water resources, on the one hand government may increase the price of water used by enterprises, but on the other, because of different demands, the government may provide different prices for household consumption. This policy enormously promotes the recycling of water. Moreover, the central government adjusts current tax policies to make changes. However, some problems should be further considered in economic policies; for example, economic policies should show less variability, and should provide more incentives.

Conclusions

In China it is vitally important that this rapidly growing country succeed in achieving more efficient use of resources and less pollution. Because of resources shortage and environment pollution, including water resources scarcity and aquatic ecosystem health, circular economy is attractive to the Chinese government. Compared with other countries such as Japan, China not only supports cleaner production and EIPs but the use of circular economy at the regional level. Laws, economic policies and regional planning provide important support for circular economy development in China. In particular, regional circular economy planning plays a vital role in practice, which may be attributed to the special political system of China.

Acknowledgements

We would like to thank two anonymous reviewers for their valuable comments and feedback on this paper. This paper is funded by National Center for Circular Economy Study, NanKai University (985 Project).

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