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Approaching circular economy
By Zhang Jianyu (China Daily)
Updated: 2004-10-01 10:19

Circular economy -- loosely defined as one which balances economic development with environmental and resources protection -- has been the buzz word of late. And a conference held earlier this week, dedicated to this new concept sealed its importance. Organized by the National Development and Reform Commission (NDRC), the gathering heard Commission Minister Ma Kai emphasize the importance and urgency for China to develop a circular economy as the nation's insufficient and diminishing resources create ever greater difficulties.

He is apparently not alone. A day earlier, Minister Xie Zhenhua of the State Environmental Protection Administration (SEPA) expressed similar sentiments when outlining environmental development prospects for China at a United Nations function. The concept was also endorsed by Vice-Premier Zeng Peiyan on the same occasion.

So what exactly is a "circular economy" and how did it come to receive unprecedented inter-ministerial support and also win over China's most senior leaders?

There are a number of ways to define the term. The accepted working definition is that interlinked manufacturing and service sector businesses seek the enhancement of the economy and environment by collaborating in the management of environmental and resource issues. The theme of the concept is the exchange of materials where one facility's waste, including energy, water, materials as well as information is another's input. Working together, the business community seeks a collective benefit that is larger than the sum of the individual benefits.

The first definition of a circular economy with legal bearings was offered by a decree issued by Guiyang, capital city of Southwest China's Guizhou Province, the first of its kind, and promulgated by the local people's congress on September 25th, 2004.

The context under which the concept was advanced is both obvious and alarming. Over the past 25 years, China has enjoyed an average annual growth rate of 8.7 per cent. With this rapid economic growth, materials and energy consumption per unit gross domestic product (GDP) in China has been far higher than that of developed nations.

This not only detracts from the remarkable growth rate, but also places China at a competitive disadvantage with oil imports witnessing a sharp increase, water resources depleting, and mineral resources over-exploited. Despite the tremendous efforts put into environmental protection, the overall situation has not improved significantly and the recent controversy over the results of the Huaihe River clean-up are testimony to the worries on the part of both the general public and environmental professionals.

To achieve the goal of developing a xiaokang - moderately prosperous - society and solving these problems, China needs to modify its economic development pattern. To that end a more efficient, even "circular economy" is called for by academics and politicians alike.

Under the NDRC's proposal, a circular economy will be achieved through a score of legislative, political, technical and financial measures, many of which are very powerful policy instruments, such as government subsidies and tax breaks. Positive results are expected from this new package of policies, which will gain the attention of business and encourage more environmentally friendly behaviour.

Ma Kai says measurable results are expected by 2010, some 10 years ahead of the planned goal of establishing a xiaokang society.

On the environmental side, much is rooted in the Cleaner Production Promotion Law, which was put into effect in the summer of 2002.

Cleaner production is regarded as the first and most vital step to achieving a circular economy and many years of practice, and still field and legal work are needed to provide a solid base for the new concept.

In China, if closely examined, the essence of the circular economy can also be found in many of the existing environmental legislative and political initiatives, which are best manifested in a policy called Total Emission Control (TEC). This dictates a gradually decreasing amount of pollutants discharged, coupled with economic development, the ultimate aim of a circular economy.

In order to change the environmental behaviour of companies, so as to change the economic development pattern of society, government can either encourage them to adopt new practices, or impose stringent requirements, backed by strong enforcement, but coupled with flexibility as to the specific approaches companies choose to meet the requirements.

Strict conditions provide a mechanism that can facilitate the government in deciding how fast and how far emission reductions need to go in order to protect both society and precious natural resources. The control level is key to this kind of policy. How much enterprises can emit and how much they have to reduce demonstrate the level of priority government places upon solving the problem.

It is important to note that if we do not send the right signals to the economic players in society they are unlikely to act. Those signals can be a TEC, a discharge standard, energy or raw material consumption of every unit economic output, or effective penalties for noncompliance. But to be effective, they must be strong enough to change the behaviour of business. We need to make the right thing easy and the wrong thing hard.

In additional to a fixed and strongly enforced environmental target, the implementation of a circular economy should also be able to work with existing economic and environmental policies, while the approaches taken should be in line with the overall transformation from a planned to a market economy.

Circular economy is a powerful concept and can help propel the environment into the forefront of leading issues addressed by society. Perhaps the most important and immediate value of this approach is its systematic introduction into investment decision-making.

If the concepts are to be effective in decision-making, it must be orientated to provide information that is timely and useful to those making them.

The integration of a clear target with strong enforcement and a good selection of supporting policies will undoubtedly lead us to an earlier attainment of a circular economy.

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