By Lai Youwei

Research Report No 089, 2006

I. The Main Obstacles in the Development of the Recycle Economy

The development of the recycle economy has seen a boom in recent years all over the country as well as in some relevant industries. Many good experiences have been summarized. Although both the central and local governments have attached great importance to the strategy, there still exist some factors that hinder the development of recycle economy.

1. There lacks an effective operation pattern for the development of recycleeconomy

The recycle economy must be developed on an effective market mechanism. But the current development aims at solving the problem of the shortage of resources and pollution, namely the maximization of social benefits. These problems can hardly be solved through the market mechanism itself. The solution lies in the joint efforts of the government, enterprises and market. Therefore it is important to sort out the operation mechanism and develop an effective pattern for the recycle economy. In this regard, we should solve the following problems:

First, the hindrance in costs must be overcome so that the recycle economy would operate effectively. It must be noted that the resource reduction and recycling as the part of the way of production of the recycle economy are not the inevitable choices under the current market conditions. The reused and recycled raw materials are not advanced in their performance, or price, making it hard for the way of production of the recycle economy to develop on its own under the current market economic conditions. In addition, the fees paid by the enterprises and consumers for the wastes and pollutant discharges are much lower than the compensation for pollution damages, even remarkably lower than the cost of pollution treatment. Therefore it is hard for the funds to play the role of pollution prevention and control. As the discharge of the wastes is of obvious negative externality, if the external costs would not be internalized, the costs at the links of recycled production can hardly be recovered. For instance, in southern Jiangsu province, many textile enterprises have built the system for the use of middle water, but they cannot be put into use. It is because the cost on the treatment of each ton of polluted water is around 2.2 yuan if the water is up to the standard of reclaimed water. But a ton of tap water is only 0.8 yuan while the waste water treatment fee is also 0.8 yuan. This means that, under the current pricing system, there is no economic return from saving water. So it is natural for the water recycling system to lay idle.

Second， how will an operation system be established which is guided by the government, based on the market and driven by the public? Recycle economy is a complicated systems engineering, which requires the joint effort of various departments, enterprises and consumers. At present, there has not been a universal mechanism that drives the effective operation of recycle economy and share the interest. Although much work has been done in theoretical and practical probe, and a fairly good basis has been laid, this is just a beginning. Much remains to be done.

2. The policy system for advancing the recycle economy is not complete

The current policies have in some aspects hindered the development of the recycle economy.

First, there has not been an incentive policy that promotes the development of recycle economy. Much important work can be done in this regard. For instance, responsibilityextension system for the producers, classification and recycling of renewable resources and the pricing mechanism for the recycling of waste materials that are not easily to be collected or treated. These are the fields that the market mechanism has not effectively covered and the enterprises are not enthusiastic about. Therefore, the government policy should be in place to effectively guide and boost the recycle economy.

Second, the financial and taxation policies are not complete enough and have not offered sufficient support to energy- and water-saving products as well as the low oil-consumption and low-emission automobiles and energy-saving buildings. There has not yet been a taxation policy to restrict the waste of resources. Although the plan on the reform of the oil consumption tax has already been made, the government departments concerned have been claiming that the tax will be adopted at an appropriate time. The absence of such a tax is not conducive to energy saving as well as the development of the recycle economy.

3. The understanding for the development of recycle economy should be deepened

Recycle economy is a new mode of economic development. It takes a long time for us to understand and deepen it. But at present, localities and departments concerned still have misunderstanding about it.

(1) Some local governments and enterprises have not really been aware of the significance of the development of recycle economy

In the first 20 years of this century, China will be in a stage of accelerated industrialization and urbanization. It will face severe shortage of resources and harsh environment situation. We must take various effective measures to vigorously develop recycle economy. But some local governments and enterprises have not been fully aware of its significance. As they do not expect that it would yield practical results, they would not have the strong desire for the development of recycle economy. For instance, some enterprise leaders have not combined the recycle economy with the sustained development of enterprises. Inadequate awareness has resulted in a poor sense of environmental protection for enterprise leaders who are profit-driven. This would greatly impair the promotion of clean production and recycle economy in the enterprises.

(2) Some local governments and departments have not been fully aware of the urgency of developing recycle economy

They only think from the perspective of their own interest and gains, not from the national level and strategic perspective, which has led to inadequate awareness of the urgency of developing recycle economy. For instance, some local governments do not care about energy consumption reduction. Instead, they wish the enterprises could contribute more to local GDP and employment. Energy saving is a matter that the central government should think about.

(3) Some local governments and departments do not have a deep understanding of recycle economy

They have little knowledge of the concept, connotations, functions and way of implementing the recycle economy, which to them is just a vague idea. Some local governments include all the ideal goals of socio-economic development into the framework of recycle economy; some regard it as merely recycling wastes. As a result of a lack of understanding, government departments would not be able to create a sound environment for the development of recycle economy. The functions the governments should perform in the course of this development would naturally become hard to be performed.

4. A legal system has not been established and completed to promote the development of recycle economy

Many countries in the world have pushed for the development of recycle economy through legislation. Japan, Germany, Northern European countries, France, UK, Italy, Spain, Singapore and South Korea have also promulgated laws on the development of recycle economy, either in terms of overall development or specific industries or the recycling of resources. The practice of Japan and Germany shows that a sound legal system is very important for the development of recycle economy. At present, China has not had a legislative and legal system for the development of recycle economy. The main law on the recycled economy is Law on Promoting Clean Production. This law has not specified the responsibilities and obligations of enterprises, therefore is not operable enough. The Energy Saving Law, Law on the Assessment of Environmental Impact and the Renewable Energy Law have all placed demands on the development of recycle economy, but they are not quite systematic. The current laws on environmental protection focus on pollution control and end-of-pipe treatment. But they cannot meet the needs of the recycle economy under the new situation. Problems also lie in the lack of coordination and supporting measures among laws and regulations. In addition, the country also needs specific laws and regulations or compulsory technical rules. China should make the basic law on recycle economy so as to form and improve a legal system for the development of recycle economy.

5. The pricing mechanism for resource-based products has not been complete

There has not been a complete pricing mechanism to reflect the scarcity of resources and supply and demand relationship, leading to unreasonable resource-based products. And the prices of many resource-based products have not reflected the resource and environment costs. Resource shortage and waste exist at the same time. A basic way out to alleviate the pressure from resource scarcity is to improve the pricing mechanism for resource products and let prices really play their role.

6. The technical support system for the recycle economy needs to be strengthened

Currently, China has achieved some breakthroughs in the technologies to better use resources. But in general, the research and development of the technologies in recycle economy has obviously lagged behind. The country badly needs the generic and core technologies that support recycle economy. Many enterprises, especially small and medium-sized enterprises do not have strong technical strength as well as the platform and channels to know about relevant technological information. A strong technical support system is very important to recycle economy.

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