Circular Economy Promotion Law of the People's Republic of China

As China's economy has developed rapidly over the past several decades, the country has struggled to figure out how to maintain a healthy environment. At China Law Update, we have periodically covered legislative efforts to address this important issue, such as the Circular on Enhancing the Environmental Monitoring of Export Enterprises (December 2007) and the PRC Law on the Prevention and Control of Water Pollution (May 2008).

In August, the Standing Committee of the Eleventh National People's Congress passed China's most comprehensive environmental legislation of recent years, the Circular Economy Promotion Law of the People's Republic of China (Circular Economy Promotion Law). It will take effect on January 1, 2009.

The term "circular" essentially equates to Western use of the words "green" or "sustainable." While most if not all the provisions of this law have already been codified elsewhere (for example, in China's Energy Conservation Law), the Circular Economy Promotion Law is nevertheless an important piece of legislation, if only because it highlights government efforts to encourage development of a sustainable economy in China. It is in many respects new territory for China; indeed, the Standing Committee added the word "Promotion" to the law's title in its third and final reading as a way of stressing this point, and emphasizing the role of the law in encouraging sustainable economic development.

The law is, however, relatively brief—seven chapters and 58 articles, some of them only a single sentence—and leaves many details to be addressed in enabling rules and regulations. Agencies such as the General Administration of Quality Supervision, Inspection and Quarantine have already held hearings to discuss such matters as the packaging of commodities. Similarly, the Circular Economy Promotion Law mentions several as-yet-unpublished catalogues (for example, a catalogue of articles subject to compulsory recycling; another lists "encouraged, restricted and eliminated techniques, equipment, materials and products") that will help determine the law's impact.

If fully implemented, the Circular Economy Promotion Law will surely have a profound impact on foreign-invested companies and the entire Chinese economy.

General Principles

The stated purposes of the Circular Economy Promotion Law are: to promote development of the "circular economy"; to promote the more efficient use of resources; to protect and improve the environment; and to realize sustainable development. The law uses the term "circular economy" to refer to "reducing, reusing and recycling activities conducted in the process of production, circulation and consumption." This definition has prompted reference to the "three R's": reduce (consumption), reuse (products or components) and recycle (raw materials).

The development of China's circular economy, the law says, "shall be propelled by the government, led by the market, effected by enterprises and participated in by the public." According to this law, that mandate is to be factored into industrial, economic and social planning at every level of government.

Management and Administration

The Circular Economy Promotion Law does not specify which agency or agencies are responsible for its administration, but responsibility is expected to fall to the National Development and Reform Commission (NDRC). In addition, the law directs governments at virtually every level to establish policies and procedures for encouraging, managing, and taking responsibility for all aspects of the law. Even individuals are told to "consume resources in a reasonable way and save resources." Industrial associations are encouraged to provide technical guidance and service.

Under the guidance of the State Council, government agencies are charged with developing a national development plan for China's circular economy. Lower-level governments are similarly charged with developing plans for industry to accomplish the goals of the Circular Economy Promotion Law. Construction projects, for example, are supposed to take into consideration pollution, land use and water consumption.

Government agencies at the national level are supposed to develop extensive evaluation, monitoring and reporting systems.

Reduction, Reuse and Recycling

The law's mandates for reduction, reuse and recycling are extremely broad, and encompass virtually every facet of the Chinese economy. The Circular Economy Promotion Law touches, in principle, upon building demolition, water use in the hotel industry, the use of tap water for road cleaning and planting, the planning of industrial parks, and myriad other topics.

Specific industries mentioned in the law include architecture and construction; product and packaging design; mining; agriculture; engine and motor vehicle manufacturing; energy production; forestry; and many others.

In accordance with the Circular Economy Promotion Law, businesses that produce products or packages which are listed in a yet-unpublished catalogue will be required to recycle or reuse specified products or materials.

The law identifies "key enterprises" in industries (such as steel and coal) that use large amounts of energy or water, saying they are subject to special supervision and administration. As with much of the Circular Economy Promotion Law, the applicable rules are codified elsewhere (in this case, the Energy Conservation Law).

Progress will be monitored in a variety of ways, including a statistical measuring system, national standards, and product labeling.

The law also mandates regular publication of a catalogue listing techniques, materials, equipment and products that are "encouraged," "restricted" and "eliminated." Enterprises are supposed to "give preference" to materials that are recyclable, biodegradable or otherwise environmentally friendly. Eventually the Circular Economy Promotion Law will encompass rules for product packaging.

Conservation of water is broadly mandated, as are desalination and the use of seawater in coastal regions. Energy conservation, too, is broadly encouraged, and in some cases (for example, motor vehicle manufacturing) mandated.

The Circular Economy Promotion Law directs governments and government agencies at every level to "take the lead in using energy-saving, water-saving, land-saving, material-saving and environment-friendly" products, equipment and facilities.

The Circular Economy Promotion Law restricts the production and distribution of "one-off" goods, although the details of such restrictions are as yet undetermined. A directory of restricted one-time-use goods will be published, with various government departments responsible for developing tax, import, and related rules.

Specific (albeit, again, extremely general) provisions also call for the efficient use of energy; the use of various biofuels; the development of environmentally friendly timber harvesting; an information exchange system concerning industrial waste management; and improved sewage treatment.

Incentives

As an incentive to foster development of China's sustainable economy, the Circular Economy Promotion Law directs provincial and municipal governments to establish funds to support development of the circular economy, including funds for research and development of new technology and information products.

Tax preferences will be given to industries and activities that promote the conservation of energy, water and materials.

Financial institutions, the law says, shall give priority to loans and businesses promoting the policies outlined in the Circular Economy Promotion Law.

The state is further directed to establish pricing policies that encourage conservation and the "reasonable" use of resources.

Other economic incentives include fees for waste disposal and deposits for recycling.

In procurement and other programs that disburse government money, preference is supposed to be given to products that reflect the priorities contained within the Circular Economy Promotion Law.

Legal Liability

The Circular Economy Promotion Law holds governments and government agencies accountable for enforcement of the law, with higher levels of government being authorized to punish individuals.

Enterprises that produce or sell prohibited equipment or products can likewise be punished. Enterprises can be assessed fines of RMB 50,000 to RMB 200,000. In the case of "serious" violations, businesses can be shut down.

Businesses that import prohibited materials or equipment may be fined as much as RMB 1 million, with a minimum fine of RMB 100,000.

The law also provides for a variety of other fines and the possible revocation of business licenses.

Where "a crime is constituted," the Circular Economy Promotion Law provides for criminal punishment.

Summary

The Circular Economy Promotion Law is an extremely broad and potentially far-reaching attempt to direct and shape China's economic development in ways that conserve energy, water and materials, and that protect the environment. Whether the law accomplishes those stated goals, of course, depends both on the enacting regulations and enforcement.