China’s Circular Economy: Understanding the New Five Year Plan

Posted by Written by Alexander Chipman Koty Reading Time: 4 minutes

Beijing is prioritizing the development of China’s circular economy, with planned goals to maximize resource use and the lifecycle of products. These will have direct consequences for businesses engaged in the manufacturing sector and create new market opportunities for green enterprises.

China recently released a new multi-year plan to develop the country’s circular economy, with the hopes of increasing resource efficiency, spurring innovation, and meeting climate commitments.

On July 7, 2021, the National Development and Reform Commission released the Development Plan for the Circular Economy in the 14th Five Year Plan Period (the “Plan”). The Plan, which covers the broader 14th Five Year Plan period of 2021-25, aims to develop the circular economy through various initiatives, such as promoting recycling, remanufacturing, green product design, and renewable resources.

What is a circular economy?

The circular economy is an economic model that stresses the importance of maximizing resource use and the lifecycle of products, with emphasis on integrating these concerns at the product design phase. This is in contrast to the ‘linear economy,’ where resources are extracted to make single-use products or products that are disposed after use.

China’s sustainable goals

The development of the circular economy – now a national priority during the 2021-25 period – will be important for China to clean up the country’s environment, meet its international climate goals, and encourage green innovation.

The circular economy will impact virtually all companies doing business in China, but especially manufacturers that use resources for production and create waste.

The Plan also stands to increase opportunities for companies involved in areas like green tech, waste management, and recycling technology.

China’s circular economy targets for 2025

The Plan contains a number of targets for China to meet by the end of the 14th Five Year Plan period in 2025.

By then, China should have a fully implemented circular production method, widely promoted green technology and production, and significantly improved resource utilization.

Further, China should have its circular economy be “basically established”, improved its resource recycling system to cover the whole country, and increased the use of renewable resources.

Additionally, the Plan sets a number of hard numerical targets for the government to reach by 2025. These include:

  • Increasing resource productivity by 20 percent compared to 2020 levels.
  • Reducing energy consumption and water consumption per unit of GDP by 13.5 percent and 16 percent, respectively, compared to 2020 levels.
  • Reaching a utilization rate of 86 percent for crop stalks, 60 percent for bulk solid waste, and 60 percent for construction waste.
  • Utilizing 60 million tons of waste paper and 320 million tons of scrap steel.
  • Producing 20 million tons of recycled non-ferrous metals.
  • Increasing the output value of the resource recycling industry to RMB 5 trillion (US$773 billion).

Key tasks China will undertake to achieve a circular economy

Besides the development targets, the Plan lists three key tasks to accomplish over the course of the period. These tasks are largely directives for regional governments to interpret and implement according to local conditions. The key tasks are mentioned below.

Building a resource recycling industry system and improving resource utilization efficiency

  • Promoting the green design of products, including by improving green design policies, guidelines, and classification;
  • Strengthening clean production, including through mandatory and voluntary audits, accelerating clean production innovation and upgrading, and establishing incentives and punishments;
  • Promoting the circular economy in industrial parks, including by encouraging higher resource utilization, the construction of green factories, and the creation of eco-industrial demonstration parks;
  • Strengthening the comprehensive utilization of resources, including by promoting efficient extraction and utilization of resources, increasing research and development in utilization of various wastes, and utilizing reusable materials in industries such as ecological restoration, green building materials, and transportation engineering; and
  • Promoting the co-processing of urban waste, including by improving policy mechanisms and regulatory standards, developing market-oriented payment methods waste processing, and coordinating disposal of low-value organic waste.

Building a recycling system for waste materials and fostering a recycling-oriented society

  • Improving the recycling network of waste materials, including by integrating recycling facilities in land planning, standardizing construction of the recycling network system, and improving rural recycling networks according to local conditions;
  • Improving the level of processing and utilization of renewable resources, including by developing a renewable resources industry cluster, standardizing the recycling of various products, such as for electronic products and scrap vehicles, and increasing environmental regulatory supervision;
  • Standardizing the development of the second-hand commodity market, including by improving relevant laws and regulations, encouraging internet trading, and increasing regulation of offline markets; and
  • Promoting the development of the remanufacturing sector, including in industries such as auto parts, construction machinery, robotics, and others.

Deepening the development of the agricultural circular economy and establishing circular agricultural production

  • Strengthening the utilization of agricultural and forestry waste, including for products such as crop straw, livestock manure, and other forestry waste;
  • Strengthening the recycling of agricultural waste, including by guiding farmers to participate in recycling, building recycling facilities in villages, and establishing regional waste disposal and utilization facilities; and
  • Promoting a circular development model for agriculture, including by building ecological agriculture industry consortiums, encouraging clean energy use, and integrating disparate agricultural processes.

Other targeted projects in tandem with the Plan

In addition to these key tasks, the Plan describes several more limited or targeted projects to accomplish by 2025. These projects are generally more industry-specific, affecting sectors like automobiles, electronics, e-commerce, and logistics.

The Plan commits to action on the following projects:

  • Urban waste material recycling system construction
  • Recycling park development
  • Comprehensive utilization of bulk solid waste
  • Resource utilization of construction waste
  • Key technology and equipment innovation
  • High-quality development for the remanufacturing sector
  • Improving recycling and utilization of electrical waste and electronic products
  • Managing the lifecycles of vehicles
  • Plastic pollution controls
  • Promoting green packaging for shipping and logistics
  • Recycling used batteries

Beyond these various action items, the Plan calls for strengthening the legal and regulatory environment and policy enforcements. Specifically, it calls for improving circular economy laws, regulations, and standards, as well as statistics collection, tax and financial support, and industry supervision.

China’s ambitious climate goals

The Plan forms an important component of China’s broader climate strategy, as the government has made it a priority to develop a cleaner environment after decades of breakneck economic growth.

In September 2020, Chinese President Xi Jinping announced that China would hit peak carbon emissions before 2030 and become carbon neutral before 2060. Accomplishing these goals will require a society- and economy-wide transformation, as China emitted 27 percent of the world’s greenhouse gases in 2019 and has more installed coal capacity than the rest of the world combined.

Chinese policymakers hope that the Plan will contribute towards this transformation, along with other environment and climate change policies included in the 14th Five Year Plan. Nevertheless, while the Plan puts forward a wide variety of priorities for the development of the circular economy, it will largely be up to regional governments to form their own policies to reach these goals.

Accordingly, foreign investors should keep apprised of upcoming policy announcements in the jurisdictions where they operate as local governments implement the tasks described in the Plan.

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