Circular economy in China: six examples
“Seek truth from facts”
- Book of Han
In the medieval period, practical technology from China such as the compass, gunpowder, papermaking, and printing travelled along the Silk Road to Europe. These important technologies would support the flourishing of European culture, exploration and state-building.
In the 16th and 17th century, knowledge flowed back to China in the form of insights and techniques from Europe’s ‘scientific revolution’, providing a set of mental tools, for example Euclidean geometry and the ‘scientific method’, that would help Chinese scholars understand the physical universe.
Later on, trains, electricity, internal combustion engines, the microprocessor and other fruits of European science and technology also travelled east, allowing China to modernise and ultimately become the industrial giant that it is now.
Today, the mature economies of Europe and China feel pressure from some common trends: rapid population growth, growing affluence and consumption, the expansion of degraded land, a dwindling stock of finite resources, high volumes of waste, and environmental and social externalities.
Throughout Europe and China, people in business, government and academia have reached a similar conclusion: an economy that relies on the continual extraction of finite minerals and the degradation of natural systems, by definition, cannot last.
So is it time for a new era of ideas exchange, that supports the transition to a circular economy?
China and the circular economy
In the 1990s, Chinese scholars proposed a circular economy as a new model to help China make better use of resources and energy. Since then, the model has become an integral part of the national economic strategy, and has been built upon throughout the last three Five Year Plans. The adoption of the Circular Economy Promotion Law in 2008 marked China out as a frontrunner in circular economy legislation.
Early efforts to implement the circular economy revolved around the transformation of industrial parks, by creating ‘symbiotic relationships’ in which the waste from one process is used as input for another.
Today, there are four main components to China’s circular economy strategy:
- Circular production — to embed reduce, reuse and recycling into whole production processes
- Circular systems of industry, agriculture and services — to follow the principle of optimising industrial processes, greatly supporting circular production
- Growth of recycling industry — to recycle and reuse urban waste streams, focusing on remanufacture and renewable energy
- Green consumption (‘circular values’) — to guide citizens towards smart, healthy and safe consumption.
The following case studies of Chinese companies and initiatives demonstrate each of these four priority areas. They also reflect the new economic reality in China: the transformation from manufacturing giant into the world’s largest consumer market.
Remanufacturing is a closed loop industrial process that intentionally recaptures the value-added component of a product so that it may lead additional useful lives rather than being landfilled or recycled.
Nabil Nasr, A New Dynamic 2: Effective systems in a circular economy, 2016
The market potential for remanufacturing, as opposed to manufacturing, the 16 million cars, fridges, computers and TVs that go out of warranty each year in China, is estimated at USD 30 billion. Furthermore, using Renault’s Choisy-le-Roi remanufacturing plant near to Paris as a reference point, the potential resource savings are significant — 80% less energy, 88% less water, 92% less chemicals and 70% less waste production.
Guangzhou Huadu Worldwide Transmission is a Southern Chinese remanufacturing company that provides services around gearboxes and other automotive transmission systems. Guangzhou Huadu owns a number of repair and service centres that produce 35,000 remanufactured units each year. The main driver for success has been the development of an ecosystem that allows for the smooth collection and distribution of parts, key partners include 21 auto companies and the large 4S automotive spare part franchise.
Huadu’s technicians typically go through thousands of hours of training to give them the skills to undertake the complicated repairs. The remanufactured products are insured by Pingan, one of China’s largest insurance companies.
At the state level, the National Development and Reform Commission (NDRC), responsible for the planning and coordination of the circular economy in China, oversees a scheme called ‘Trade Old for Remanufactured’, along with other ministries. Customers get a 10% discount if the trade in their old equipment for remanufactured items; and the Ministry of Industry and Information Technology (MIIT) support in other ways including administering an official remanufacturing certification scheme and publishing an annual seven-volume catalogue of official certified parts.
While reuse, remanufacturing, and repair are central to the circular economy, when products have a short use period or can no longer be kept in service, it can make sense to recycle the materials.
GEM Co. Ltd, a Shenzhen based company, is a market leader in the area of material recycling in China and was recognised as a finalist in the prestigious Circulars Awards 2018. GEM recycles materials from a number of industrial sectors including electronics, automobiles, batteries and wastewater.
The most pioneering of their activities is in the area of battery recycling, a sector of great strategic importance to China due to the growth of electric and plug-in hybrid vehicles. Electric vehicles are key component China’s plans for a smart and clean mobility system, as a way of relieving congestion and the high levels of air pollution in China’s growing cities. Shenzhen’s public buses are already fully electrified; by 2020 the Chinese government plans to roll out 5 million additional electric vehicles, including the electrification of Beijing’s entire fleet of 70,000 taxis. To support this, GEM china have achieved the highest rate of battery re-utilisation, processing more than 10% of all used batteries, extracting nickel and cobalt to create chemicals that can be used to manufacture new batteries, from brands like Samsung and Ecopro.
China is still by far the world’s largest consumer of raw materials. In 2015 its factories and industries accounted for about 50% of steel, copper, nickel and aluminium demand. To protect against supply and cost fluctuations requires a shift to a circular use of materials, an approach which GEM Co Ltd have adopted for almost two decades. In 2016, the company processed 3 million tons resources that would otherwise have been wasted, saving energy equivalent to 14 million barrels of fossil fuel.
JD reuse platform
According to a 2017 Bain and Co survey, Chinese consumers account for purchasing 32% of worldwide luxury items. This category is characterised by high cost and quality, but also high turnover, on account of changing fashions and rapid technology advances.
For customers that want the newest gadget but may not be able to afford a new item, China is seeing the emergence of marketplaces that specialise in second hand luxury items, a market that has been estimated as USD 125 billion in 2017. Although online marketplaces for secondhand products have been around for many years, the scaling up of these platforms has been hindered because of uncertainty in the quality of the products being traded. A company called Jingdong (JD) hopes to overcome these trust issues by incorporating a number of features that instil customer confidence and create a seamless resale/purchase experience.
JD plans to invest USD 150 billion in the next three years to develop their reuse platform, with the immediate focus on high-end smartphones. To provide their ‘premium quality guarantee’, they have partnered with Aihuishou, an experienced player in the digital product recycling market. The technology partner checks each phone that comes in, undertakes technical and cosmetic repairs, and awards a quality classification. The guarantee is underpinned by a seven-day refund if the customer is not satisfied. JD e-commerce is already a huge player in the online retail world, so the reuse platform also benefits from rapid and frictionless logistics.
There are direct benefits from platforms such as Jingdong, for example material resource savings as products are kept in use for longer. But also customers benefit as they are incentivised to take care of their smartphones, to maximise the size of the cashback contribution for their next upgrade. There are also indirect benefits. According to the US luxury resale platform The Real Real, its customers are favouring more durable brands in the primary market, knowing that they will be able to get a better resale price. This can have a knock on effect on the brands, encouraging them to shift away from flimsy, throwaway manufacturing, instead prioritising quality and durability.
Bike sharing did not start in China, but the version that Mobike offers has many uniquely Chinese characteristics, that have earned it the label as one of the ‘four great new inventions’ of modern China.
Mobike launched in April 2016, and within a year its customers had cycled over 5.6 billion kilometres. Starting in its hometown of Shanghai the company has expanded into 160 cities including Santiago, Chile and Manchester, UK. The rapid expansion of Mobike can be attributed to social and environmental factors, notably the need for an urban mobility solution that addresses the congestion and air pollution that affects many Chinese cities. However the key drivers that have allowed Mobike to scale outside of China and what makes it very different from European bike-sharing schemes lies in its development and application of technology, including 28 individual patents.
The most obvious distinction is the dockless parking feature, enabled by GPS tracker technology, so that customers can park in places more convenient to them and can locate bikes using their smartphone. Bikes are hired by scanning a QR code, which identifies the customer, unlocks the bike and charges through one of many mobile payment apps. A social credit scheme tracks the habits of the customer, rewarding and penalising good or bad usage patterns. Internet of things technology monitors the condition of the bike, telling the company when components need to be repaired or maintained. This also feeds into Mobike’s big data platform to help predict demand, providing advice to commuters, integrating with other public transport systems and incentivising customers to pick up remotely parked bikes.
Chinese bike-sharing has experienced a frenzied growth in the last decade, reaching a peak in 2015 when over 60 companies operated around the country. The evidence of oversupply could be seen scattered in striking photos of mountains of bikes scattered over the city’s sidewalks and parks. By 2017, most of the smaller bike rental players had folded and now two companies control 90% of the market.
It is hoped that now that the bubble has burst and the rusting bikes are being removed, the remaining players grow in a more sensible way, supported by policy. If this happens, bike sharing companies like Mobike can continue to play a major role in easing congestion and improving quality of life in cities, not only in China but around the world.
Clothes are an everyday necessity, and for many an important aspect of self-expression. The habits of city working and socialising demand a greater variety and number of clothes, and retailers have responded by offering cheaper clothes offered in constantly changing styles.
The result is ever expanding-wardrobes found in homes around the world. Between 2000–2015, global clothing sales doubled from 50 to 100 billion units, while at the same time utilisation rates, the number of times an item is worn in its lifetime, have fallen on average by 36%. More clothes are being purchased, and they are being discarded earlier.
On top of this, the way clothes are made and used today is extremely wasteful and polluting. Each second, a truckload of clothes is landfilled, representing USD 460 billion of discarded value annually, as well as a huge loss of material, energy and water resources.
A Beijing based startup called Y Closet offers an alternative business model for clothes, that addresses both increasing demand as well as the more disposable (‘fast fashion’) habits, particularly in the fast growing office, party and dating wear segment. Y Closet customers pay a monthly subscription of $75, for this fee they can access up to 30 individual items selected from a catalogue of more than 150,000 different garments.
Y Closet’s business model relies on technology and strategic partnerships. Mobile technology links the clothes company to e-Commerce platforms such as Alibaba, thus reducing friction on transactions. Payments are streamlined through existing Alipay accounts, which can also be used to apply loyalty discounts or other benefits.
Strategic relationships have also been vital, for instance with fashion brands like Kenzo and Acne studios, as well as commercial laundromats. Not everyone is sold on the idea of wearing other people’s clothes, but clearly new approaches are needed. Even if a small proportion of China’s huge and growing office worker population adopts such a model, it could have a positive economic and environmental impact.
Suzhou organic waste policy
Food and other organic waste makes up to 55% of municipal solid waste in Chinese cities, and presents a significant challenge. Of course, the priority should be to avoid waste being produced in the first place, but a proportion is always unavoidable. Current approaches to deal with the problem, like incineration or landfilling, loses valuable nutrients, requires land and generates greenhouse gas emissions.
Policymakers around the world are starting to realise that effective management of organic material begins with a change in mindset. While untreated biowaste can be a hazard; if sorted and treated separately, it can benefit the economy and the environment. The Chinese government has recognised the importance of dealing with urban organic waste and is playing an active role in developing better, more circular solutions.
The city of Suzhou is an example of a highly successful waste collection and processing program. The city’s municipality has mandated all restaurants send food waste to a nominated processor, Jiangsu Clean Environmental Technology, in order to secure their operating licence for the following year. Through this mandate, the city not only increased collection rates significantly, but also solved the issue of inconsistent feedstock flows to Jiangsu’s processing equipment, that include biogas plants, biofuel conversion and composting.
There are many challenges to implementation, including competition with illegal gutter oil producers. But the benefits include cost savings and new revenue generation, leading Jiangsu to the file over 20 separate waste valorisation patents. The company is using food waste to grow insect protein, which can then be sold at USD 1200/ton to aquaculture and other facilities. The revenue streams have allowed Jiangsu Jiejing to be less dependent on government subsidies, which has made it a leader in the field.
In the book Decoding China, Diego Gilardoni argues that Chinese culture is oriented to the longer term. He believes that this reduces the risk of rushing into decisions without considering the wider context, and provides a clearer perspective on the future.
What’s more, it has been said that while the Western mind focuses on ‘things’, the Chinese mind focuses on the ‘relations between things’. Gilardoni argues that in the Western tradition, people tend to analyse the parts separately, while the Chinese mindset tends towards systems thinking, in not separating the parts from the whole. After all, the whole is not made of the mere sum of the parts, but of the relationships between them.
As well as an exchange of innovation and enterprise, perhaps it is this systems thinking and patience that will be the most valuable assets to share and develop, as we shift towards a global circular economy.
Case research for this article provided by Vigil Yu, Ellen MacArthur Foundation.