SPRU Electronic Working Paper
Number 199
The role of multi-level regulation in the transition
towards cleaner production and a circular economy
in China: the case of Bao’an District, Shenzhen under
the 11th Five Year Plan
Adrian Elya, Li Pingb, Fruzsina Kemenesc and Wang
a = SPRU -- Science and Technology Policy Research, The Freeman Centre, University of
Sussex, Falmer, Brighton, BN1 9QE, [email protected]
b = China Institute for Development Planning, Graduate School of Tsinghua University,
c = University of York, UK
August, 2011
SPRU -- Science and
Technology Policy Research
The Freeman Centre
University of Sussex
Falmer, Brighton, BN1 9QE
[email protected]
SPRU Website:
The “circular economy” first emerged as a movement in China in 2003, when Chinese
leaders began embarking upon a series of legislative initiatives that sought to address
the country’s worsening environmental problems. Led by the National Development
and Reform Commission, in cooperation with the State Environmental Protection
Agency (now Ministry) and other related ministries, the move towards a circular
economy in China is being promoted at provincial and sub-provincial levels through
policies focussing on firms, eco-parks and industrial areas.
This particular paper looks at Bao’an District in Shenzhen, a rapidly developing
industrial city in the Southern province of Guangdong, that is one of ten cities that
were selected for pilot “circular economy” projects nationwide within the country’s
11th Five Year Plan (2006-2010). Based on interview data and documentary analysis
from 2007 and 2008, the paper provides case studies of ways in which industry actors
are contributing to the transition towards cleaner production and a circular economy
in Bao’an District. It also investigates the role of municipal regulations in facilitating
and incentivising these changes, and contrasts these with other motivations for
investment in cleaner technologies.
The paper identifies cost-saving as the primary motivation for investments in cleaner
production technologies, and discusses technological upgrading as one of the
strategies that has led not only to environmental benefits and cost-saving, but also
enhanced long-term competitiveness. Avoiding formal censure through governmentenforced fines was less commonly cited as a motivation, raising questions as to the
role of such formal regulations in cleaner technology governance in Shenzhen. The
paper also highlights less important motivations that are nevertheless of interest attraction of government subsidies for cleaner technology projects, cultivation of good
relationships with government and brand recognition/ public image. The resulting
insights provide a better understanding of the decision-making context of Shenzhen’s
firms (including the role of regulation within this), and point to implications for
further government efforts towards encouraging cleaner production and the
development of a circular economy.
JEL Classification suggestions
O25 (Industrial policy), O29 (Development planning and policy; other)
Q55 (Covers studies about issues related to technological innovation that is used
to control environmental degradation)
P28 (Natural resources, energy, environment in transitional economies)
Keywords: Shenzhen, circular economy, cleaner production, environment,
1. Introduction
This paper represents an exploratory and initial attempt to try to understand some of
the motivations for the adoption and development of more sustainable innovations in
Bao’an district, Shenzhen, South China (see Figure 1). It contains a brief review of
the current regulatory framework for promoting cleaner production and the “circular
economy” at the national and local (provincial and municipal) levels. It also looks
beyond regulations to identify other incentives that lead to changes in firm behaviour,
especially in terms of their investment in energy and resource-efficient and lesspolluting technologies. In order to do this, it adopts a case study approach, focussing
on 6 firms, derived from a larger sample selected by the Chinese research team for
their success in implementing cleaner production technologies and for their prominent
reputation within the city. These in-depth case studies are taken from a wider survey
of firms in Shenzhen, the results of which are used as complimentary data to
understand the reasons behind differing investment decisions across a range of
industries. The paper identifies a number of factors promoting and constraining firm
behaviour in the transition towards a circular economy and puts forward a number of
possible areas for future research.
The paper draws on a number of insights from the innovation and environmental
policy literature, although does not adopt a strict analytical framework associated with
either one. As the following sections outline, there are clear parallels between the
idea of the “circular economy” and earlier Western ideas around ecological
modernisation1, industrial ecology2 and cleaner production3. In many of these cases,
problems of co-ordination between different actors within industrial systems have
been highlighted as an ongoing challenge.4 The European literature has more recently
highlighted the importance of wider system transitions towards sustainability, with
attention to both social and technological dynamics5, however these theoretical ideas
have rarely 6 been applied in the Chinese context. Rather than focussing on the
dynamics of system transitions, this paper focuses at the individual firm level,
drawing on earlier research on motivations7 to the adoption environmentally-efficient
Mol, A. P. J. & Sonenfeld, D. A. (Eds)(2000) Ecological Modernisation Around the World: Perspectives and
Critical Debates, London, Frank Cass Publishers
Graedel, T. & Allenby, B. (1995) Industrial Ecology. Englewood Cliffs, NJ: Prentice Hall
Clayton, A., Spinardi, G. and R. Williams (eds) (1999) Policies for Cleaner Technology, Earthscan, London,
Boons, F. & Baas, L. (1997) Types of industrial ecology: the problem of co-ordination, Journal of Cleaner
Production 5: 1-2, 79-86
Elzen, B. Geels, F.W., and Green, K., (eds)(2004) System Innovation and the Transition to Sustainability: Theory,
Evidence and Policy, Cheltenham: Edward Elgar
The authors are unaware of any research applying the socio-technical transitions literature to empirical case
studies in China.
Howes R., Skea J. and Whelan B.: Clean and competitive? Motivating environmental performance in industry,
Earthscan Publications Ltd, London, 1997.
The next section of the paper outlines the methodology employed with respect to
other work investigating the role of technology regulation in China. Following that,
sections 3 and 4 go into more detail on the ideas of cleaner production and the circular
economy, and on the industrial, political-economic and environmental history of
Shenzhen. Section 5 provides an overview of the regulations at multiple levels
relating to cleaner production and the circular economy under the 11th Five Year Plan.
Section 6 turns to the six case studies analysed in the paper, pointing to investments
and strategies that have delivered cleaner production impacts and the motivations
behind these behaviours. The following section discusses these in more detail, with
reference to other relevant literatures, and the final section puts forward some priority
areas for future research.
2. Methodology
This paper adopts the broad definition of regulation used previously by Van
Zwanenberg, Ely and Smith (2011) of “state attempts that shape the use and broader
governance of technology”. As such, it does not only focus on legal regulations, but
also on the institutions and norms that influence behaviour change among private
actors in their development and deployment of technology. Regulation (broadly
speaking) is thus seen not simply as instructions from above to be implemented by
local street-level bureaucrats, but more broadly as a way of ‘signposting’ preferred
pathways of socio-technical-ecological change. Translated onto the Chinese
governance system, this metaphor provides a way of understanding the relationship
between the slogans created in the political ‘centre’ (“‘serve the people’ in Mao’s time;
‘reform and opening up’ and ‘the four modernisations’ during the Deng Xiaoping
period; ‘the three represents’ of Jiang Zemin; and under Hu Jintao phrases like ‘the
peaceful rise’ and ‘the harmonious society’”)8 and the diverse ways in which they are
interpreted and implemented on the periphery.9
The ‘signposting’ metaphor also provides a way of understanding how directions set
in the centre combine with China’s incremental-experimental approach, which often
sees pilot policies in particular regions paving the way for the roll-out of wider,
national level initiatives. Whilst mandates from Beijing may seem clear and
unambiguous, the country’s highly diverse localities still needs to ‘cross the river by
feeling stones with their feet’ 10 when it comes to formulating and implementing
practical policy instruments and understanding their interactions with a dynamic
society. This study itself relies on data provided by firms as part of an experimental
programme supported by Bao’an district government between 2006-2010. Firms
were invited to apply to become experimental units within the programme 11 , and
Wilsdon, J. & Keeley, J. (2007) China: The next science superpower? London, DEMOS
This is discussed with reference to environmental policy-making in China by Economy, E. (2004) ‘The River
Runs Black: The Environmental Challenge to China’s Future’, Ithaca NY, Cornell University Press
This is a saying commonly attributed to Deng Xiaoping
The programme itself was linked to two of the regulations described in table X below: The Implementation
Scheme of Experimental Work of Circular Economy in Guangdong Province and the Short-term Implementation
Scheme of Shenzhen on Completely Promoting the Development of Circular Economy.
selected for inclusion on the basis of multiple technical and political considerations.
In order to encourage and fund enterprises to adopt cleaner technology, every
experimental unit was given subsidy of RMB 100,000 yuan. If they passed the initial
examination, selected cleaner production projects were further funded with RMB
50,000 yuan. After evaluation by the team organized by the government (consisting of
researchers and officials), 5 of the 100 projects were awarded RMB 50,000 yuan as
“excellent projects”.
100 firms were briefly interviewed in the meeting room of the Trade and Industry
Bureau of Bao’an District Government in the summer 2007. 89 were selected as
experimental units by officials of Bao’an district government, engineers and
researchers from Shenzhen graduate school (according to their willingness to adopt
cleaner production practices and technologies). The case studies below are drawn
from this sample, and based on documents submitted by the firms to the district
government. In addition, a number of in-depth interviews were carried out at industry
sites by one of the authors (Li Ping) later the same year.
The earlier research was supplemented by a series of semi-structured interviews with
both firms and local officials, conducted by a Chinese researcher (Li Ping) and SPRU
post-graduate student (Fruzsina Kemenes) in 2008. Documentary analysis and
writing up continued to 2011. In order to provide the background to the case studies
and subsequent studies, it is first necessary to outline the context of debates around
cleaner production and the circular economy in Shenzhen.
3. Cleaner Production and the Circular Economy
Cleaner production (清洁生产) is defined by the United Nations as:
“the continuous application of an integrated preventive environmental strategy to
processes, products, and services to increase overall efficiency, and reduce risks
to humans and the environment. Cleaner Production can be applied to the
processes used in any industry, to products themselves and to various services
provided in society.”12
Importantly, cleaner production focuses on the minimisation, rather than abatement,
of pollution, entailing a shift from “end-of-pipe” pollution management technologies
to the prevention of toxic emissions13. It is often associated with “win-win” solutions
that provide environmental sustainability without denying economic growth, or a
“double-dividend” associated with both environmental sustainability and economic
UNEP website, accessed 23/2/2008
Clayton, A., Ryan, B. and R. Williams (1999) Chapter 1: ‘Cleaner technology and the greening of industry’ in
Clayton, A., Spinardi, G. and R. Williams (eds) Policies for Cleaner Technology, Earthscan, London, pp.1-18
Porter, M. E. & C. van der Linde (1995) ‘Green and competitive: ending the stalemate’, Harvard Business
Review, Sept/Oct 1995, Vol. 73 No 5, pp. 120-134
Whilst cleaner production focuses on advocating an environmentally-friendly
production model, the circular economy extends this notion to the entirety of
economic activities by focussing on closing resource flows, and carries and implicit
recognition of high growth and progression to a moderately well-off ‘xiao kang’
Society’ (小康社会)– which describes a society in which people are all modestly well
off and economic growth has been balanced with environmental and social goals
(Yong, 2007).. The “circular economy” (循环经济) emerged as a movement in China
following its use by former President Jiang Zemin at the Members’ Assembly of the
Second Global Environment Facility (Beijing, October 2002). Since then it has
appeared frequently in leaders’ speeches from the administration of Hu Jintao15 and
featured as an aspect in the 11th Five Year Plan16. The circular economy is a new
pattern of economic development that is related to the ideals of promoting sustainable
development (可持续发展) and building a harmonious society (和谐社会), with its
fundamental features of high-efficiency and recycling of resources.
The working definition for the CE provided by the NDRC website clarifies that:
“The theme of the CE concept is the exchange of materials where one facility’s waste,
including energy, water, materials - as well as information – is another facility’s input.
By working together, the community of businesses seeks a collective benefit that is
larger than the sum of the individual benefits each enterprise, industry and community
would realize if it intended to optimize its performance on an individual basis”.17
While traditional economic systems are conceptualised as ‘linear’ (with material
flows from resources to goods/services and wastes), the circular economy focuses on
cyclical flows of resources such as water – vital in a country where water availability
is a serious national concern. For example, under the eleventh five year plan, the
government targets included reduced water consumption per unit of industrial added
value and an increase in the “coefficient of effective use of water for irrigation”, as
well as an increase in the use of solid industrial waste. At the centre of the circular
economy are the “3R” principles of “Reduce, Reuse, Recycle”18, and the alternative
names “recycling economy” and “recycling society” are sometimes used. Here we
will use the term “circular economy” throughout.
In practice the circular economy has been initiated at three distinct levels:
Yong, Ren (2007) The circular economy in China, Journal of Material Cycles and Waste Management 9: 121129
DfID (2006) China: Country Assistance Plan 2006–2011, Department for International Development, London
NDRC (2006), quoted in Pinter, L. (2006), ‘International Experience in Establishing Indicators for the Circular
Economy and Considerations for China’, Environmental and Social Development Unit, Asia Pacific Region, The
World Bank,, page 2. Accessed from ,
Qian Yi (2006) ‘Cleaner Production and Circular Economy: Conception, Methodology, and Cases’, Beijing,
Tsinghua University Press
 Big Cycles – Various policies have been set at the provincial or city level in
10 pilot areas “to promote energy saving and an environmentally friendly
 Medium Cycles – industrial symbiosis has been encouraged via the
establishment of 25 eco-industrial parks and eco-industrial networks20. Here
infrastructural systems ensure common resource supplies of water, gas,
electricity etc and common waste treatment sites. Wastes from one enterprise
serve as a resource for another firm on-site.
 Small Cycles – at the micro-level of the firm, enterprises are required or
encouraged to practice Cleaner Production (CP). Firms in the seven industries
with the highest energy consumption and pollution emissions are targeted in
the pilot project. They are committed to squander less energy, reduce their use
of toxic materials and reduce waste21
China’s environmental woes are not only of immediate concern to the Beijing
administration, but a global challenge, viewed with increasing urgency by the
international community22. China recently became the world’s number one
greenhouse gas emitter, due primarily to increases in coal consumption and cement
production. A reduction in the carbon intensity of the Chinese economy is a national
objective for the government (with a long-term goal of 40-45% improvement
recommended in the 12th five year plan for 2011-2015)23, to be tackled both through
energy efficiency and promotion of low carbon generation technologies.24 The moves
towards an innovation-based society and the promotion of indigenous or independent
innovation (自主创新), especially in areas of cleaner technology25, combine with
government policies in these regions to foster the uptake of such innovations in its
technology-based industries. Key areas such as the Pearl River Delta including
Shenzhen and the Yangtze River Delta (around Shanghai) are amongst the most
Kuhndt, M., Villar, A., Guomei, Z., Wei, Z., Lizhen, X. (2006), ‘Policy Reinforcement for Environmentally
Sound and Socially Responsible Economic Development in China (PRODEV) : Policy Framework Study’, UNEP,
SEPA Online, page 9. Accessed from , 28/ 6/2008.
Pinter, L. (2006), ‘International Experience in Establishing Indicators for the Circular Economy and
Considerations for China’, Environmental and Social Development Unit, Asia Pacific Region, The World Bank,,
page 2. Accessed from , 02/8/2008
Yong, R. (2007), ‘The Circular Economy in China’, Journal of Material Cycles and Waste Management, Vol. 9,
pp. 121–129
Economy, E. (2004) ‘The River Runs Black: The Environmental Challenge to China’s Future’, Ithaca NY,
Cornell University Press
KPMG (2011) China's twelfth five-year plan: Sustainability, accessed from, 23/7/2011.
Ning Zeng, Yihui Ding, Jiahua Pan, Huijun Wang, Jay Gregg (2008) “Climate Change – the Chinese Challenge”
Science 319, 730-731. According to Premier Wen Jiabao, China has “established a goal that our GDP [gross
domestic product] growth every year must be accompanied by a 4% decrease in energy consumption and a 2%
reduction in COD [chemical oxygen demand] and sulfur dioxide emissions every year” (in Science 322, 362-364
Tyfield, D., Jin, J. & Rooker, T. (2010) Game-changing China: lessons from China about disruptive low carbon
innovation, London, DEMOS
threatened by potential sea-level rise resulting from global climate change26 and are
among the worst emitters.
4. Shenzhen and Bao’an: historical overview and current situation
4.1 Status of Shenzhen within the Chinese Governance System
In August 1980, Shenzhen was officially designated its status as a Special Economic
Zone by the National People’s Congress (NPC). From a small fishing town of a few
tens of thousands, it has grown to a city with an estimated average population of
thirteen million27. For the first time in the history of the PRC, a city was promoted to
prefecture level and entrusted with the task of running the local economy rather than
simply subscribing to the investment decisions dictated by central ministries (Sz.Gov.
2008, Ng 2003). The NPC passed a draft resolution on April 4th 1989, and a decision
authorizing Shenzhen’s Municipal Government to draw up its own laws for the City
on July 1st 1992.28 Shenzhen City became the first region with local autonomy in
decision making within China. With the change in the City’s political status came
economic, institutional and constitutional reform. The model the city has provided has
spread in various forms and to different extents throughout the country. In the 28
years since the special economic zone was established in 1980, Shenzhen has
illustrated the potential pace of China’s industrial development and modernization.
Shenzhen was approved as one of the original 16 sub-provincial cities on February 25,
1994 by the State Commission for Public Sector Reform (中央机构编制委员会). A
sub-provincial city ( 副省级城市; fù shĕng jí chéng shì) in the People's Republic of
China is an administrative unit that is ruled by a province, but has some political and
legislative autonomy. In addition, Shenzhen is one of the five cities that are listed
separately in the national five-year and annual plans (on a similar level to provinces
and national ministries). These cities (计划单列市; ji(4) hua(4) dan(1) lie(4)
shi(4)) which are administered independently with regard to economy. The mayor
of a sub-provincial city is equal in status to a vice-governor of a province. Its status is
below that of municipalities (such as Beijing, Tianjin, Chongqing and Shanghai),
which are independent and equivalent to provinces, but above other provincial capital
cities, which are completely ruled by their provinces.
Ning Zeng, Yihui Ding, Jiahua Pan, Huijun Wang, Jay Gregg (2008) “Climate Change – the Chinese Challenge”
Science 319, 730-731
The official population of the sub-provincial city is 8.9 million (Shenzhen Municipal Statistic Bureau. 2010-0426., however this is bolstered by
migrant labourers
People’s Daily (2000) ‘全国人大授予深圳立法权’,,
accessed 23/8/2011
Figure 1. Location of Shenzhen in relation to Guangdong province and the People’s
Republic of China29
4.2 Industrial Development
Over the past 30 years, Shenzhen’s overall GDP has grown phenomenally at an
average annual rate of over 25.8%.30 Today ties with international markets are strong.
The city is like a magnet for foreign direct investment (FDI); in 2006 FDI totalled
US$ 3.269 billion, up 10.1 percent over the previous year (SzGov., 2008). Scarce
commodities as well as capital are channelled into this region from all over China
because of the promise of higher return on investment (Lu M. & Hsieh, 2004, p 114).
Shenzhen has the highest total value of exports of any city in China (Bruton et al
2005)(US$ 136. 1 billion in 2006 - SzGov., 2008). There are 160, 000 firms operating
in Shenzhen, around 50% are export orientated (SzGov., 2008), the other half cater for
the home-market. Goods are no longer simply ‘made in Shenzhen’ but ‘designed in
Shenzhen’ too as local companies are moving on from contract manufacturing to
knowledge production (Cyranoski, 2007). The value of high-tech merchandise with
Map courtesy of, accessed 3/4/2008
Speech by Guo Yonghang at the second press conference of the fifth CPC representative conferences of
Shenzhen, 23rd May 2010. Source: Shenzhen government online.,, accessed 2/8/2011
independent intellectual property rights made up 58.9 percent of the city's total
industrial output in 2006 (SzGov., 2008).
Ming Xia has described the “Shenzhen revolution” as an example of central-local
synergism in the Chinese multi-level governance system 31. Xia reports that Deng
Xiaoping, who he dubs “the midwife of the reform”, encouraged the officials in
Guangdong (the provincial capital under which Shenzhen is governed) and Shenzhen
“to conduct bold experiments, to innovate creatively, and to break through a bloody
path (for China)”32.
Xia also highlights that many crucial components for a market economy were first
developed in Shenzhen, such as stock-ownership, stock issuing firms, the stock
exchange, enterprise groups, the sale of land use rights, the contract system for cadres
and labourers, the social security system, insurance for labourers, and the open
bidding process for government procurement, and quotes a Shenzhen official as
telling him “if you want to see the China of the past, look at Beijing; the China of the
present is Shanghai; but Shenzhen is the China of the Future”.33
Over the past thirty years Shenzhen has moved through periods of industrialisation
based on low labour/land costs/environmental standards, from basic manufacturing
towards higher value-added production as capabilities in the IT sector developed.
“Shenzhen speed” (深圳速度) is a commonly-used term in China 34 and the cost
efficiencies that initially attracted FDI from Hong Kong and elsewhere make the city
host to 161 Fortune 500 companies.35
Many of the industries of Shenzhen still display the extensive growth style
characterised by low labour and environmental standards and a shortage of innovative
products. In the eleventh five-year plan (2006-2010), Shenzhen began its “third
industrial transition” which focuses on intensive sustainable development and industry
structure optimization. The proportion of tertiary industry will be increased while
finance, logistics, culture and the high-tech industry will be promoted as four leading
4.3 A focus on Bao’an District
Officially established on 1st January, 1993, Bao’an, as one of the six districts of
Shenzhen, has a land area of 733 km2, a coastline length of over 30 km and with a
total population of over 5 million. In 2005, Bao’an received foreign direct investment
Xia, M. (2000) “The dual development state: development strategy and institutional arrangements for China’s
transition”, Aldershot, Ashgate
Xia, M. (2000) page 183
Xia, M. (2000) page 191
Xia, M. (2000) “The dual development state: development strategy and institutional arrangements for China’s
transition”, Aldershot, Ashgate, page 189
Shenzhen Bureau of Trade and Industry, advertisement in Financial Times China Special, November 24th 2008
page 3
of USD 0.846 billion, 36. As China’s first city for exports for almost the last two
decades 37, it generated export revenues of USD 42.902 billion and had a GDP of
RMB 116.345 billion38 (which is claimed by the city’s Bureau of Trade and Industry
to be the highest per capita of any city in mainland China 39 ). Although specific
figures for Shenzhen or Bao’an are not available, Wang and Watson (2007) estimated
that in 2004 net exports accounted for 23% of China’s overall CO2 emissions; For
Shenzhen’s industrial sector, with its focus on high energy-intensive exports, the
percentage can be expected to be higher.
Recently the Bao’an district government has been actively promoting circular
economy, especially through encouraging cleaner production in enterprises. On the
one hand, they severely punish the enterprises that do not abide by environmental
standards and produce serious pollution, such as medium-small electroplate factories,
and force them to carry out cleaner production auditing. The case studies below
describe some of the firm behaviours that such policies have been trying to promote.
4.4 Environmental pressures
This rapid growth can not be sustainable if the city continues to keep the original style
of economic growth characterized by high input, high consumption, low efficiency,
and low output. The internal obstacles to hinder the city from keeping sustainable
rapid growth are becoming more and more evident, such as limited space, serious
shortage of energy and water resources, and the ceaselessly swelling population.
Despite being lower than most other cities in China, energy intensity in Shenzhen is
much higher than that is most OECD countries. In 2005 energy intensity in Shenzhen
was 0.59 ton standard coal per 10,000 yuan GDP. Shenzhen’s improving electricity
generation system relies entirely on imported energy resources. In 2005 water
consumption per 10,000 yuan GDP in Shenzhen was 33.8 m3, efficiency of which is 12
times China and is 30% of Japan. 40 Because Dongjiang river, the external water
resource, is soon to reach its limit of exploitation, it will be impossible to extend the
scale of industrial water use in the future. 41
According to present consumption levels and the development pattern thus far, a local
leader has estimated that if Shenzhen wants to realize 10,000 billion yuan annual GDP,
it will use 90% of the city’s land, and consume water, electricity and environmental
resources equivalent to 3 times that of the present. 42 Along with the high
Bao’an district government Website, accessed 27th November 2008
Shenzhen Bureau of Trade and Industry, advertisement in Financial Times China Special, November 24th 2008
page 3
Shenzhen Government (2006) Eleventh five year plan of Shenzhen for Development of Circular Economy’
Shenzhen Government (2006) Eleventh five year plan of Shenzhen for Development of Circular Economy’
Speech of Liu Yingli, deputy mayor of Shenzhen municipal government, on video conference on the
development of a circular economy held by the State Council (21 Dec, 2006)
environmental standards in countries to which Shenzhen exports, the above
environmental constraints require Shenzhen to shift quickly to a more ‘circular’ form
of economic development.
5. Shenzhen government regulation and the interplay between national,
provincial and municipal levels
As described above, government regulation at the municipal (Shenzhen) level enjoy
significant freedom from those set in Beijing for the country as a whole, and to a large
extent have pioneered those promoting cleaner production and circular economy
ahead of other Chinese regions. Although a national level law promoting cleaner
production (2002) sparked the development of legislation in Shenzhen, solutions
experimented with in the SEZ have fed back into both national level policy and
impacted on more local – district level administrations. The various multi-level
regulations are outlined in Table 1 below. The regulations (treated in a broad sense)
covered here focus on laws, but also include the adoption of political slogans and
party incentive structures as well as practical education programmes and
demonstration projects.
5.1 Brief overview of selected laws and regulations related to cleaner production
and the circular economy
After the national law of promoting cleaner production was issued in the year 2002,
Shenzhen started to take a series of actions to draft and put forward further laws and
regulations around cleaner production and the circular economy.
Level at
Name of law/ policy initiative
Enacting Body
Law of the People's Republic of China on
Promoting Cleaner Production (中华人民共和国
The Experimental Work of Green National
Accounting for GDP (绿色国民经济核算试点工
National People's
Accounting system for energy consumption per
unit of GDP (单位 GDP 能耗考核体系任务)
Comprehensive Working Scheme of Energy
Saving and Discharge Reduction (节能减排综合
The Implementation Scheme of Experimental
Work of Circular Economy in Guangdong
Province (广东省开展循环经济试点实施方案)
Date (that
came into
June 2002
(National Bureau
of Statistics of
China's State
Council General
China's State
leading group
office for
Mar 2006
Nov 2007
May 2007
Regulation on Promoting Circular Economy in
Shenzhen Special Economic Zone (深圳经济特
Shenzhen Government Policy on Completely
Promoting the Development of Circular Economy
Short-term Implementation Scheme of Shenzhen
on Completely Promoting the Development of
Circular Economy(2006-2008)(深圳市全面
The Eleventh Five-year Plan of Shenzhen for
Development of Circular Economy (深圳市循环
The Comprehensive Evaluation Index System of
Circular Economy (深圳市循环经济综合评价指
Regulations of Shenzhen Special Economic Zone
on Architectural Energy Saving (深圳经济特区
Regulations of Shenzhen Special Economic Zone
on environmental protection of construction
programs (深圳经济特区建设项目环境保护条
Regulations of Shenzhen city on comprehensive
use of resources (深圳市资源综合利用条例)
Regulations of Shenzhen city on saving water (深
Bao’an District Government Policy on Promoting
the Development of Circular Economy (中共深
The Plan of Bao’an District for Development of
Circular Economy (2006-2020) (深圳市宝安区
循环经济发展规划 2006-2020)
society and
recycle economy
CPC Shenzhen
Municipal Party
Mar 2006
Apr 2006
Apr 2006
Bao’an district
Dec 2006
CPC Bao’an
District Party
Bao’an District
Jan 2007
Dec 2006
Jul 2006
Jul 2006
Feb 2003
Dec 2004
Jul 2006
Table 1. Multi-level regulations associated with the circular economy and cleaner
production in Bao’an
Those laws referring directly to cleaner production circular economy in their title are
introduced below:
Law of the People's Republic of China on Promoting Cleaner Production
This national level law was adopted on the 29th June, 2002 at the 28th meeting of the
Standing Committee of the Ninth National People's Congress. It entered into force as
of January 1st, 2003. The law mostly references the definition of cleaner production
from United Nations Environment Programme (UNEP) “Cleaner Production is the
continuous application of an integrated, preventive strategy to processes, products and
services to increase efficiency and reduce risks to humans and the environment”
(UNEP, 1990) 43 . Consisting of 6 chapters and 42 articles, the law specifically
regulates promotion and implementation of cleaner production in industrial
production and sets out the principles for the implementation of cleaner production in
agriculture and services. The law provides incentives in the form of capital grants,
preferential loans, tax relief and other measures to encourage enterprises to implement
cleaner production. The law mainly focuses on the establishment of mechanisms to
encourage and guide enterprises to promote clean production, rather than compel
enterprises to do so. Nonetheless it provides rules on the legal liability for enterprises
that fail to meet statutory obligations. The objective of the law is to mobilize all fields
of the community to promote and implement cleaner production across the nation.
The law indicates a major change in strategy for environmental protection in China as
well as cleaner production in China entering into a new historical period of
environmentally-friendly development patterns.
The Implementation Scheme of Experimental Work of Circular Economy
in Guangdong Province (广东省开展循环经济试点实施方案)
The implementation scheme was issued by the Guangdong leading group for building
a circular economy on Mar 22th, 2006. The work operated at three levels: enterprises,
industry zones and cities. Several demonstration unites (enterprises, industry zones
and cities) were selected and supported as “cleaner production enterprises”, “ecoindustry zones” and “resource-saving cities” over a period of 5 years. Meanwhile, 24
important demonstration programmes (similar to those described in this paper) were
carried out in five fields - energy-saving, water-saving, efficient utilization of
resources, pollution-control and cleaner production.
Regulation on Promoting the Circular Economy in Shenzhen Special
Economic Zone (深圳经济特区循环经济促进条例)
UNEP, Resource Efficient and Cleaner Production, (Accessed: 24/07/2011)
This regulation was adopted on the 14th March, 2006, at the fifth meeting of the
Standing Committee of the Shenzhen Municipal People's Congress, and entered into
force as of July 1st, 2006. As early as in May 2005, the in-coming regulation was
listed as one of the most important annual legislative programs to be introduced to
Shenzhen Municipality. The introduction of Regulation in Shenzhen SEZ actually
pioneered applying the principles of the Circular Economy for the PRC. In Dec 2006
Dr. Sun Youhai, a member of the working group responsible for drafting the "Law of
the People's Republic of China on Circular Economy" recommended that the NPC
Standing Committee should reference to Shenzhen's legislative experience to enact
the national law on the Circular Economy.44
Shenzhen SEZ has been at the forefront of pioneering environmental policies within
the PRC for some time. For example, since 2003, Shenzhen Bureau of Trade and
Industry (SZBTI), Shenzhen Environmental Protection Bureau (SZEPB),
Development & Reform Bureau of Shenzhen Municipal Government (DRBSZ) and
Shenzhen Bureau of Science and Information (SZBSI) began to promote cleaner
production at the city level. In 2005 SZBTI selected and financed for 15 volunteer
demonstration firms in 5 different industries (energy, printing and dyeing, electronic,
chemical, and plating) to practice cleaner production auditing. From 2005 to 2006,
SZEPB also organized cleaner production auditing in several demonstration heavypollution firms. Shenzhen SEZ municipal Government had also experimented with
using environmental performance indices in the evaluation of political cadres before
some aspects of it were incorporated into national policy in 2008 (via the
‘Implementing the Accounting system for energy consumption per unit of GDP’
policy explained above).
The Municipal level regulation for ‘Promoting the Circular Economy in Shenzhen
Special Economic Zone’ used lessons learnt from policy experiences in environmental
regulation from within Shenzhen, the PRC and abroad. It stresses the dominant status
of the government in developing cleaner production and focuses on adopting new
policies to guide and incentivise industry to foster environmental protection. The
regulation consists of 7 chapters and 55 articles covering general principles of the
Circular Economy, systems and measures, incentives and penalties, demonstration
and popularization of measures.
Decision of Shenzhen Government on Completely Promoting the
Development of Circular Economy (深圳市委、市政府关于全面推进循环
The decision was maded by Communist Party of China Shenzhen Municipal Party
Committee and Shenzhen municipal government on 20th Apr, 2006. It set a target of a
modern, international and recycling eco-cityThe decision highlights a number of areas
深圳循环经济条例可成全国立法借鉴. 深圳特区报. 2006 年 12 月 05 日.
that require more attention in order to realise this target such as: a perfect local system
of policies and regulations for promoting a circular economy; a good technology
innovation system for promoting a circular economy; adjusting industrial structure
and distribution according to the 3Rs; strengthening the organizational ability of the
government for promoting a circular economy.
Short-term Implementation Scheme of Shenzhen on Completely
Promoting the Development of Circular Economy (2006-2008) (深圳
The Implementing Scheme was issued by Shenzhen Municipal government in March,
2006. In order to promote a circular economy across the whole city, 8 tasks were
planned in the short term (2006-2008). These tasks were: perfecting the system of
policies and regulations for promoting a circular economy; water-saving; energysaving and developing new renewable energy sources; intensive utilization of land;
cleaner production and eco-industry; classification and recycling of solid wastes and
utilization of renewable resources; eco-consumption; demonstration projects and
education/awareness programmes for firms, citizens and .
The Eleventh Five-year Plan of Shenzhen for Development of Circular
Economy (深圳市循环经济发展“十一五”规划)
Promulgated in 2006, this Five-year Plan incorporated the ‘Regulation for Promoting
the Development of the Circular Economy’, required that Shenzhen city must reach
many key targets related to the circular economy in 2010, it also set out a vision for
2020. The five-year plan included a list of criteria upon which cadres would be
evaluated on at the end of year for their promotion or career progression prospects,
known as “The Comprehensive Evaluation Index System of Circular Economy”
(described below). Many of these criteria were vague, however the mere fact that
such developments were being made to the evaluation system (which previously
focused primarily on GDP) was a step forward.
Bao’an District Government Policy on Promoting the Development of
Circular Economy (中共深圳市宝安区委深圳市宝安区人民政府关于全面
Bao’an District government is one of the divisions of local government responsible
for establishing and implementing a circular economy system at the district level
within Shenzhen. Bao’an District government policy aims to reduce environmental
pollution and realize the transition of industry from being low value manufactureoriented to becoming increasingly high value research and development-oriented. The
district polices set out to drive technological leapfrogging and indigenous innovation
and focus on firms, industrial clusters/ parks and also extend to covering society more
The Plan of Bao’an District for Development of Circular Economy (20062020) (深圳市宝安区循环经济发展规划 2006-2020)
Bao’an District government identify district level targets that need to be attained
through implementing their local Circular Economy development measures. Utilising
the criteria set out by the Municipal Government of Shenzhen in “The Comprehensive
Evaluation Index System of Circular Economy” Bao’an District was mandated to
reach the following key indices by 2010:
- electricity consumption per ten thousand yuan GDP must be reduced by 15%
(1574 kwh per ten thousand yuan GDP in 2005)
- water consumption per ten thousand yuan GDP must be reduced by 15% (43.5
m3 per ten thousand yuan GDP in 2005),
- industrial water consumption per ten thousand yuan industrial value added must
be reduced by 5% (35.9 m3 per ten thousand yuan GDP in 2005),
- resourceful treatment of waste water must increase to being equal to or greater
than 20%,
- utilization of industrial solid waste must increase to being equal to or greater
than 92% (64.5% in 2005),
- resourceful treatment of domestic refuse must increase to being equal to or
greater than 45% (20% in 2005).
5.2 ‘Greening’ the Cadre Evaluation System
Beyond the role of legally-mandated laws and regulations, a key lever used in China’s
dirigiste governance tradition is the evaluation system for cadres within the
Communist Party. Development of the circular economy became a more important
element in the evaluation of political cadres from the initiation of the 11th Five Year
Plan period (2006) and as early as 2004 the leaders of Shenzhen openly endorsed the
“green GDP” and “social net welfare” approaches (which include environmental and
welfare indicators) as a way of appraising cadre performance at various levels. Local
governments have applied the ‘green GDP’ concept in different ways and the
evaluation system and its scientific foundation has been contentious.45 Despite these
regional differences and the failure at settlement on a standard national framework,
local ‘experiments’ have led to national-level debates and Shenzhen’s efforts at the
vanguard of bringing broader sustainability goals into party incentive structures has
contributed valuable experience to the green GDP campaign.
Table 2 below illustrates the “Comprehensive Evaluation Index System of Circular
Economy” – the quantitative and qualitative targets for cadres to aim for within their
jurisdictions. Evaluation is on the basis of meeting these targets by the end of the
planning periods. However, at the same time, GDP growth retains the dominant
criterion upon which cadre’s performance is judged. As will be discussed later in this
Zheng, Y. & Chen, M. (2006) China promotes green GDP for more balanced development, University of
Nottingham China Policy Institute Briefing Paper 16
paper, these evaluation criteria are linked indirectly to the factors driving firm
Social life
Core index
Details of index
Complete degree of organization construction
Complete degree of law and regulation
Level of information management and technology R&D
Proportion of environmental protection investment in GDP
Proportion of CE investment in GDP
Rate of urban centralized sewage treatment
Standard-reaching rate of sewage treatment
Repetition rate of industrial water use
Water circular Rate of industrial waster water emission below standard
Utilization rate of rain and flood
Online control rate of key pollution sources
Recycle rate of sewage treatment
Ability of seawater utilization
Optimization rate of energy structure
Rate of energy utilization and conversion
Energy system
Utilization rate of renewable energy
Utilization of industrial solid waste
Utilization of renewable resources
circular system
Resourceful treatment of domestic refuse
Harmless treatment of domestic refuse
Length of intercity electrification railway
Proportion of tertiary industry added value in GDP
Decline rate of export loss influenced by Green Barriers
Rate of import standards corresponding to international
Decline of disposable product consumption per capita
Popularization of energy and water saving apparatus
Green purchase
l benefit
Popularization of saving-type community
Proportion of Green purchase in government purchase
Energy consumption per ten thousand yuan GDP
l per day
per capita
Main pollutants discharge (SO2, COD)
Safe disposal rate of hazardous waste
Rate of tap water quality reaching international standards
Rate of drinking water source quality reaching standards
Rate of urban river quality reaching standards
seawater quality reaching standards
reach 2
Reach target
Excellent rate of air quality
public green space per capita
Forest coverage
Percentage of ecological land
Water consumption per ten thousand yuan GDP
Construction land per ten thousand yuan GDP
Domestic water consumption per capita
pollutant load
Land utilization
Table 2. The Comprehensive Evaluation Index System of Circular Economy46
Shenzhen Government (2006) The Eleventh Five-year Plan of Shenzhen for Development of Circular Economy, 95-97
6. Cleaner technology adoption: case studies and motivations for change
Of 100 interviewed enterprises, 25% adopted “cleaner production” approaches,
including energy management, technology retro-fitting and investing in new and
upgraded technologies. A further 60% of firms interviewed adopted “end of pipe”
approaches (i.e. incompatible with cleaner production concepts), and 15% did not
make any environmental improvement (as illustrated in Figure 2 below).
100 enterprises interviewed
adopted “cleaner
adopt “end of
pipe” approaches
did not make any
Figure 2. Behaviours of enterprises interviewed with respect to cleaner production
Although comparative data for previous decades is not available, it is clear to
researchers that investment behaviour amongst firms in Bao’an district is beginning to
focus more on cleaner technologies. Their motivation for these investments, and
methods through which they were implemented will now be discussed, with reference
to 6 case study firms that fit within the 25% of firms found to have adopted ‘cleaner
production’ approaches. Following this, drawing on the wider survey, a comparison
of the relative importance of each of the motivations highlighted by firms will lead to
a discussion of the role of municipal regulations in encouraging moves towards a
circular economy.
The six case study firms here are drawn from the sample of 25 firms that invested in
cleaner production approaches. They have been selected to illustrate the range of
technologies and methods adopted, as well as to illustrate the three main drivers for
investment in cleaner production. Their product focus, motivation and methods for
adopting cleaner production are described in Table 3 below.
product quality
product quality
Avoiding being
Avoiding being
Planning, management and technology
construction focussing on energy saving,
Sony green partner, ISO14001
Environmental management system,
ISO14001, energy management contract
Introduction of SIEMENS modular
production and environmental standards
Introduction of ROHS standard,
Sony green partner certification
Introduction of ISO14001
End-of-pipe pollution treatment
Table 3. Overview of firms covered by the case studies in this paper
The case study firms are organised according to their primary motivation for investing
in cleaner production technologies. In order of decreasing importance, firms were
found by the broader survey to be motivated by the following drivers:
- Saving costs on raw materials and energy resources
- Upgrading technologies not solely based on cost-saving, but for product
quality and ongoing enhanced competitiveness. In many cases this led to firms
complying with international private standards or regulatory requirements.
- Avoiding fines levied for exceeding pollution limits
In many cases, the history of firms highlighted a number of these criteria. These
motivations are thus not mutually-exclusive, but the categorisations here reflect those
identified as being the primary motivations by the respective managers interviewed.
Almost all the firms interviewed stated that cleaner production techniques were
introduced in order to save costs and thus increase profit. The two case studies below
illustrate different ways in which this was achieved.
6.1 Firm A
Firm A specialises in the production of printed circuit boards. At the time of the
interviews, the company ranked 5th in terms of output volume in the world and 1st
among Chinese corporations in this field.
In order to save costs, the firm has centered its adoption of cleaner production on
energy-saving management and technological innovation. The energy-saving plan was
made ahead of construction of the current factory, using energy-saving construction
materials and equipment. An energy-saving committee was also set up, whose target
was more than 15% reduction of both electricity and water use. Several internal rules
to penalize resource inefficiency and encourage efficiency were put forward, while
the company also focussed on retrofitting energy-intensive equipment with energysaving features. More information is given in Table 4.
energy saving
factory set up
Using fireproofing partition boards to reduce the loss of air-conditioned air.
Use of energy-saving equipment. e.g. "TRANE" centrifuge with heatreclaiming functionality. "ELLIOTT" centrifuge with gas storage capacity to
reduce undulation of air pressure and consumption of electricity.
Request suppliers to provide special designed energy and water saving
equipment. e.g. Machines cut off the supply of electricity and water
automatically, when raw material supply is paused for a certain time.
Main water and electric equipments are installed with water meter or electricity
meter for the convenience of analysis and management of water and electricity
Implementation of internal rules controlling high concentration liquid discharge
and water wastage
Implementation of internal rules for energy saving (air condition and lighting)
Transducers are installed on pumps of water chillers. 35%-50% electricity
reduction is achieved.
Global self-motion cleaners are installed on condensers of water chillers to wipe
off water scale and insure the efficiency of heat exchange. 10% electricity
reduction is achieved.
Fluorescent lamps and T8 Lamps were replaced with T5 Lamps. 25%-30%
electricity reduction is achieved.
Water recycling devices are installed on brushing machines. Along with
production increase, this results in a water consumption decrease from 320 ton
to 120 ton per month in average: a 62.5% saving.
Water meters are installed on all water devices for monitoring and management.
Water savings of 30 ton per day result.
Discharged water is reclaimed and used in waste gas scrubber. This results in
water-saving of 210 ton per day.
Waste acid is reclaimed and used in place of vitriol in waste water disposal. As
a result, cost of vitriol and sodium hydroxide are reduced by RMB 31000 per
Table 4. Details of actions taken by Firm A in order to foster cleaner production
The firm successively passed ISO14001 international environmental management
system certification, as well as the Sony green partner certification and "Pengcheng
(鹏城 namely Shenzhen) waste reduction" example certification.
In 2006 Firm A saved 527,000 ton water. Combined cost savings from tap water and
water disposal was about RMB 3,690,000 yuan per year. Electricity use was reduced
by 19,100,000 kWh per year, the cost of which represented RMB 13,850,000 yuan.
Profit increases due to of internal recycling of solid waste were RMB 9,110,000 yuan
and recycling of liquid waste RMB 250,000 yuan per year. In July 2007 Firm A
received recognition from Shenzhen Bureau of Trade and Industry for taking the lead
in achieving energy saving targets.
6.2 Firm B
Firm B is a joint venture between a Chinese brewery three Japanese partners.
in, The firm established an environmental management system accordance with
ISO14001: 2004 standards to focus on monitoring, pollution prevention and energy
saving. It developed a series of new cleaner production processes and pollution
controls. For example, adjusting boiler temperaturesand optimizing the cooling
system to decrease energy consumption; cleaning and desulphurizing boiler dust
before emission; and reclaiming carbon dioxide produced in the fermentation process
beer-carbonation (greatly reducing carbon dioxide emissions).
In August 2006 the firm initiated an energy management contract (EMC) with
Honeywell, the internationally renowned energy management firm. According to the
agreement, Honeywell formulated the overall energy saving solutions, with energy
management decentralization and optimization for the entire plant cutting 17% of the
energy consumption annually. After implementation of the contract, crude oil
consumption dropped 17% compared to the 2005 baseline and electricity consumption
index fell 15%. Based on standard production of 150,000 tons of beer annually after
2007, this translates to a saving of 1,100 tons of crude oil and 2.2 million KWH of
electricity - a cost-saving of RMB 500 million yuan. In addition, pollution controls
will reduce annual atmospheric emissions by 75,175 kg of SO2, 6,600 kg of nitrogen
oxides, 220 million kg of CO2, and over 330,000 kg of dust and ash. This example is
interesting as the lack of expertise and technological capabilities in Shenzhen
represents an important barrier to the implementation of cleaner production
approaches. Institutes and intermediary organizations for R&D and information
consultancy services in cleaner production technologies are rare, and some of these
technologies cannot be applied quickly due to this absence of know-how. The energy
management contract arrangement above overcomes this barrier.
Technological upgrading
Under the increasing pressures of market competition, some firms invested in ,
upgrading to advanced technologies purchased from leading international firms or
developed in-house. These often delivered higher quality products and enhanced
competitiveness. In doing so, they found that they realized win-wins: improved
environmental performance and increased profits.
6.3 Firm C
Firm C is one of China’s backbone enterprises of the power distribution equipment
industry. It maintains close cooperation with multinational firms such as SIEMENS.
Because the traditional production mode in this firm not only produced enormous
pollution, but also could not effectively deal with the intense pressures of market
competition, the firm adopted international advanced standards by introducing the
SIVACON product line from SIEMENS in 2003 (in line with SIEMENS quality
indicators). SIVACON products use standardized modular design, which can greatly
increase material use efficiency. . In this case, the utilization rate of armor plate in
galvanization was reported to increase from the traditional 80-85% to 98% efficiency
following introduction of the new system.
Furthermore, through adoption of SIEMENS’ advanced design concepts and
technologies, the firm enhanced its product quality and staff capabilities. Sales
increased steadily year by year. Up to October 2006, the factory had produced a total
number of 1,180 SIVACON products and achieved output value of RMB 72.67
million yuan. As a result of incremental innovation, its products currently compete
with foreign firms, including SIEMENS.
In 2006 the firm was awarded the "national product quality exemption" certification
(国家免检产品) by the General Administration of Quality Supervision Inspection and
Quarantine (AQSIQ) of the People’s Republic of China. In 2006 it implemented the
ISO14001 environmental management system and OHSAS18001 occupational health
and safety management system certification, leading the industry in Guangdong
Province. The main people responsible for the firm take the idea that the enterprise
did not understand circular economy regulations at the beginning, however they later
found out that the behaviour of the enterprise was in line with circular economy and
cleaner production requirements.
6.4 Firm D
Firm D is a sino-foreign joint venture and a high-tech enterprise specialising in
passive components including multilayer chip inductors, wire wound chip inductors,
common mode chokes, varistors, NTC thermistors, LC filters, chip antennae, ASM,
transformers and Tantalum capacitors.47 In order to improve its competitiveness, the
firm increased investment in upgrading its production equipment. As a result, the use
of raw materials and non-renewable resources reduced by about 10% per individual
product annually. Products using recycled materials increased and lead-free products
were developed.
The firm is certified by the "Green Partner" scheme of SONY Corporation in Japan,
and is one of a few domestic electronic components suppliers for which products
comply with ROHS standards of the European Union Directive. Since April 2004,
this has greatly increased the firm's competitiveness in the European and international
markets. In 2006 the firm completed a clean production audit in Guangdong province,
Company website, accessed 26/7/2011
and achieved the "Guangdong clean production enterprises award from the provincial
Avoiding being fined
A minority of firms identified as having invested in cleaner production technologies
cited ‘avoiding being fined’ as their primary motivation. This raises questions about
traditional conceptions of China’s ‘command-and-control’ mode of governance, and
casts doubt on the importance of formal regulations in driving more environmentallyfriendly patterns of development, at least in those firms interviewed.
6.5 Firm E
Firm E was established in 2001, as a larg-scale Taiwan-funded enterprise. Its main
products are double-sided and multilayer printed circuit boards. Before cleaner
production approaches were applied, this firm was infamous for high consumption of
water and energy. Water consumption was 130,000 ton per month. Electricity
consumption was 8,000,000 kWh per month. Cost of water disposal and electricity
reached RMB 5500,000 yuan per month. Because the water and gas discharged did
not reach the environmental standards specified in local pollution discharge
regulations, the company was penalized by the then Environmental Protection
Administration (now the Ministry) several times.
The firm decided to remedy this situation by investing in environmental management
certification and implementing a waste reduction plan. Management systems from the
ISO14000 scheme were introduced in March 2002 and the firm was certified in
Feb.2004. Auditing of ISO14001 and OHSMS118001 (Occupational Health and
Safety Management Systems Specification) was conducted in December 2006.
At least 75 ton water was wasted per day on the firm’s 50 production lines. The firm
funded RMB 30,000 yuan to install water saving devices- in 27 product lines, saving
at least 2,500 ton water per year. According to the firm’s report, the firm saved RMB
5,020,000 yuan by the application of cleaner production in the last year. 320,000 ton
water and 3,000,000 kWh electricity were saved, and in one year 297 ton solid waste
was reduced.
Marking a significant turn-around in its relationship with government and its public
image, in 2006 Firm E obtained the title of "Excellent Cleaner Production Enterprise",
(as an excellent project being awarded 50,000RMB, as per the description of the
programme above) and was named "Pengcheng ( 鹏 城 namely Shenzhen) waste
reduction" example by Shenzhen municipal government.
6.6 Firm F
Firm F, a Taiwan-funded enterprise, mainly produces computer chassis and peripherals.
All products are exported to the United States, Japan, Europe and other countries,
with profits of about RMB 100 million yuan annually48.
Firm F is a large resource consuming firm in Bao'an District, which has also been
fined for poor environmental performance. Wastewater emissions are as high as 12-13
tons per day. The firm has in the past been fined on the basis of the pollution it has
produced. In addition, the firm uses large amounts of energy, especially in the
operation of stamping machines. Although the firm invested RMB 500,000 yuan and
took a number of measures such as energy conservation, waste water-recycling, there
was little achieved in terms of energy-saving. In order to achieve environmental
standards by further lower energy consumption, the firm replaced automatic
production lines with semi-automatic production lines and hired more workers. With
the number of workers increased, the whole plant saved more than RMB 2,000,000
yuan on energy in 2006.
On the surface, Firm F reduced environmental pollution through an alteration of its
production process, and has achieved economic benefits, just as Firm C did. In effect,
however, their approaches are fundamentally different. Through upgrading to
advanced high-tech production processes, Shenkai Firm C achieved more energyefficient and production without raising other costs. In this instance by comparison,
Firm F substituted energy costs for cheap labor costs. If labor costs increase, the
enterprise will still face the dilemma of choosing between improving economic
benefits and complying with environmental protection standards. Therefore, Firm F’s
actions are not a good example of socially-sustainable, cleaner production methods
and do not represent a solution to long-term sustainable development. Based on
considerations of avoiding strict punishment or saving energy, other factories in
Shenzhen have adopted labour-intensive processes rather than more energy-efficient
7. Discussion - Influence of regulation, along with other motivations for firm
Through this investigation of enterprises adopting cleaner technologies, we find that
the various drivers of changes, ranked according to their importance by researchers
are: costing saving (most important), technological upgrading, avoiding being fined,
attraction of subsidies, good relations with government, brand recognition and public
relations. Formal regulation therefore plays a small but significant role (through the
threat of fines), however ‘softer’ forms of regulation also appear to drive change,
especially through the possibility of maintaining good relationships with government
by acting in the interests of specific local plans and more general cadre evaluation
criteria. However, these factors influence firm behaviour less than traditional profit48
Interview with employee of Weixun Computer Company, date, place
oriented motives, which have driven innovation and upgrading and had positive
environmental benefits (especially in terms of resource use) as an indirect side-effect.
7.1 Costing-saving
Enterprises can be seen within a neoclassical approach as rational actors with an aim
of minimising costs, and the induced innovation hypothesis originally put forward by
Hicks 49 has often been applied to explain technical change in environmental
economics. 50, 51 Within the environmentally-stressed locality of Shenzhen (described
above), it is clear that limited resource pressures are likely to act to drive innovation
in directions that promote efficiency. Whilst it is difficult to provide conclusive
evidence of the relationship between investment and savings, given the limited scope
of this particular study and the absence of clear, longitudinal data, there is no doubt
that in the cases covered, enterprises have saved on resource costs as a result of
investing in cleaner production approaches.
The economic interest of cost-saving can be seen as the first and most important
objective identified by firms, and as shown most clearly by the case studies of Firms
A and B,. In both cases, firms used both investment in environmentally-conscious
technologies (e.g. in firm A’s development of a new factory), as well as management
techniques (e.g. introduction of ISO14001 by both firms A and B, and firm B’s EMC
with Honeywell) and retrofitting (e.g. firm A’s replacement with energy efficient
lightbulbs and fitting of water recycling components). There was limited evidence of
indigenous/ independent innovation for cleaner production in the cases outlined here.
Apart from direct cost-saving, the evidence points to additional benefits from these
kinds of investments. For example, Firm A’s resulting receipt of the ‘Sony Green
Partner’ award acts as a powerful signal to other potential clients wishing to focus on
a more environmental supply chain.
7.2 Technological upgrading for product quality
Technological upgrading is often highlighted in Chinese policy statements as a route
to increased competitiveness, key to the process by which domestic firms are
gradually ‘going out’ to become multinationals in their own right. In the study in
question, firms C and D instigated upgrading programmes in order to improve the
quality of their products. At the same time, this led indirectly to cleaner production,
with resource-efficiency, cost-saving and pollution reduction coming as an additional
Hicks, J. (1932) The Theory of Wages, London, MacMillan
Newell, R. G., Jaffe, A. B. & Stavins, R. N. (1998) ‘The Induced Innovation Hypothesis and Energy-Saving
Technological Change’ NBER Working Paper 6437, Cambridge MA, National Bureau of Economic Research
Frans Oosterhuis (Ed) (2006) ‘Innovation dynamics induced by environmental policy’, IVM Report E-07/05,
Amsterdam, The Netherlands
In the case of Firm C, more advanced technologies were imported from the European
Union, where environmental controls have traditionally been more stringent. As
shown in other sectors52, ‘transfer of technology’ from foreign firms has traditionally
one of the key routes to raising environmental performance.
More than 70% exports of Shenzhen are electric and electronic products, and EU is
one of the most important household appliance markets of Shenzhen. On 13 Feb,
2003, the EU issued two directives: the Waste from Electric and Electronic
Equipment (WEEE) Directive was enforced on 13 Aug, 2005, whilst Restrictions of
certain Hazardous Substances (ROHS) Directive was enforced on 1 July, 2006.
Operators such as Firm D benefitted from accessing the European market (in terms of
compliance with the ROHS Directive) as a result of their upgrading. The ISO 14000
scheme represents the international standard for environmental management, and
compliance with standards within this scheme came as a result both of investment in
new hardware and management systems themselves in Firms A and E. As well as
overseas regulations, it is noticeable that the efforts of international firms to green the
supply chain (e.g. through the Sony and Siemens standards discussed above) have
played a significant role in driving improvements and upgrading. It is also notable
that similar requirements have not yet been put on these suppliers by domestic firms.
7.3 Avoiding being fined
The impacts of environmental regulation on firm competitiveness have been debates
for two decades, but notwithstanding considerable evidence for ‘win-wins’, there is
still ongoing debate around the purported relationship between tougher environmental
standards and enhanced competitiveness (described by the so-called ‘Porter
Hypothesis’ some twenty years ago53). Shenzhen’s environmental regulations take
many forms – by no means limited to those focussing on ‘cleaner production’ and the
‘circular economy’ described here. Although the motivations above appear to act
independently of formal regulation (in terms of environmental laws or standards),
some firms acted in order to avoid formal censure by the municipal government (i.e.
being fined)
Discussions of environmental regulations in China have often focussed on the
differences between Chinese ‘environmental law’ and that seen in Western countries,
and highlighted the difficulties of implementation by the State Environmental
Protection Agency (now Ministry) against a background of corruption and a
bureaucracy with fundamental structural limitations 54 , however the presence of at
Sims-Gallagher, K. (2006) ‘China Shifts Gears: Automakers, Oil, Pollution, and Development’, MIT Press
Ambec, S., Cohen, M.A., Elgie, S. & Lanoie, P. (2011) The Porter Hypothesis at 20: Can Environmental
Regulation Enhance Innovation and Competitiveness? Washington DC, Resources for the Future
Economy, E. (2004) ‘The River Runs Black: The Environmental Challenge to China’s Future’, Ithaca NY,
Cornell University Press
least some firms citing this motivation demonstrates that the Shenzhen government is
implementing regulations seriously. This does not remove the need for continuous
improvements in building good governance and the rule-of-law, however
demonstrates that in this geographical jurisdiction, at least, some progress is being
made. Other work in China has pointed to close relationships between local
government and firms, leading to a more collaborative approach than the sometimes
adversarial regulator-private sector relationships seen in the West.
The research methodology used in this study did not allow a systematic investigation
of regulatory compliance, or the interaction between compliance and competitiveness
in the longer term. Fines are necessary to guarantee the lowest environmental quality,
but are insufficient as policy instruments to promote ongoing improvements in cleaner
production (compliance-plus), which are necessary for the realisation of the circular
economy. If a firm’s behaviour no longer breaks pollution regulations, the firm is not
incentivised by fines to adopt further improvements towards cleaner production.
Furthermore, the command-and-control mode of regulation may impel enterprises to
seek eluding approaches. For example, in the case of Firm F, the costs caused by a
decline in resource efficiency are compensated for by low labour costs. In some
factories, workers’ living and working conditions are bad, so more intrinsic incentive
regulations are necessary to change the actions of firms from the more passive end-ofpipe mode to active and ongoing approaches to cleaner production.
7.4 Subsidies
Shenzhen has offered specific subsidies to encourage investment in advanced cleaner
technologies. However, only 20 of the 89 experimental units in Bao’an submitted
their cleaner production projects with applications for government subsidies.
Every experimental unit could attract almost 100,000 yuan in subsidies, which was
reported to be too little for it to make significant cleaner production investments. This
is evident from the scale of investments outlined in most of the firms described above.
Because the funds provided by government were limited and commercial banks rarely
provide loans for such risky investments, up-front costs remain a barrier to many
cleaner production projects with potentially high environmental benefit. Researchers
suggested to the government that subsidising a smaller number of high quality
projects would be a more effective use of government funds than offering smaller
volumes of support to many firms.
7.5 Good relationship with government or public image
In order to encourage more factories to adopt circular economy, the city and district
government provided demonstration enterprises titles, conferring awards and
awarding subsidies (e.g. Firms A, B, and D). Despite the publicity that such
programmes offered, these approaches were not cited as influencing the behaviour of
many firms. However, a number of firms cited the role of successful implementation
of cleaner production projects (especially as part of government programmes) as
contributing to an ongoing good relationship with the government. In the longer term,
this could in theory provide opportunities for firms to influence government policy,
circumvent bureaucracy and anticipate government decisions in order to plan more
effectively, again linking to the more ‘co-operative’ approach of firms and
government working together to realise shared aims.
7.6. Continuing barriers to the adoption of cleaner production
Despite the range of motivations for investing in cleaner technologies and practices,
several barriers to the adoption of cleaner production approaches exist, and have
hindered firms from improving their environmental performance in Shenzhen. One
reason is that directors of such firms are short-sighted, and do not recognize the
benefits brought by cleaner production such as saving cost and improving product
quality in the long run. The other reason is that the cost in promoting cleaner
production is high. Without help in funds and technologies, enterprises have no ability
to adopt cleaner production (with wastewater treatment as a good example). There are
many small-medium enterprise in Bao’an, each of which has an annual profit of just
hundreds of thousands or several million yuan. It is difficult for them to invest in
water recycling projects requiring tens of thousands to hundreds of thousands of yuan.
Regulation obviously has a broader role to play in overcoming these barriers, however
regulations are subject to framings that differ between regulators and various other
actors in the socio-techical system.55 In the case of municipal regulations in Shenzhen,
laws and regulations are more instructive and less directing. Taking the “Regulation
on Promoting Circular Economy in Shenzhen Special Economic Zone” as an example,
the regulation stipulates setting up special funds to finance circular economy projects.
But the process of setting up special funds is complex, and it is not certain that the
funds can operate effectively. Regulation indicates government purchase will favour
products and services according with circular economy principles. According to the
present bidding regulations for government purchase, more than 3 enterprises need to
participate. But in reality, enterprises according with the principles of the circular
economy are not abundant enough. At the same time, because the cost of investing in
cleaner production/circular economy – derived products is often higher, dealing with
government audits is also a problem.
In comparison to the enterprises described above, many firms in Bao’an district did
not adopt cleaner production at all, but left to relocate to inland China (e.g. Wuhan)
and South-East Asian countries. Most of them were enterprises focussing on lowertechnology industries, such as toys, moulded plastic and printed circuit boards. The
Van Zwanenberg, P. F., Ely, A. & Smith, A. (2011) Regulating Technology; Global Harmonisation and Local
Realities, EarthScan
main reason for enterprise migration was that environmental and labour costs are
cheaper and environmental controls relatively looser in inland China than in Shenzhen.
District government officials are usually not overly concerned about the migration of
traditional enterprises in this way, as it accords with the government’s longer-term
goals to upgrade industry and improve environmental quality. Regulation in this
sense is thus a tool for sign-posting and encouraging broad-scale shifts in the kinds of
directions of development deemed appropriate and attractive by the government. At
the same time, an awareness of multi-level impacts of these regulations and coordination between different countries and regions is necessary to prevent ‘races to
the bottom’ and ‘pollution havens’56 from appearing.
7. Future research priorities
Suggestions for future work include a more explicit focus on the interactions between
firms and other actors within society, attention to the role of technology in wider
socio-technical transitions, the requirements for building indigenous innovation
capabilities necessary to promote the circular economy and an appreciation of the
complex systems of multi-level governance within China (as highlighted by a number
of UK and Chinese scholars working in the area of innovation for sustainable
7.1 Understanding the interactions between firms and other actors in society
Because the market economy in China is still in the process of transition (although
this is more advanced in Shenzhen than in some other parts of the country), the
position of government in promoting the circular economy will remain dominant for
some time. Technological optimization and economic rationality is a prominent
assumption in policy-making by the Shenzhen municipal government, and negotiation
is neglected in that process. The roles of stakeholders and citizens will become more
significant as China’s governance reforms continue and policy approaches move from
a command and control mode towards a market-inducing/social shaping/ modulating
The current, linear process through which the government has supported projects for
the circular economy is described in Figure 3 below.
Eskeland and Harrison (2003) “Moving to Greener Pastures? Multinationals and the Pollution Haven Hypothesis”
Journal of Development Economics 70, 1– 23
Ely, A. (2010) Report on an international workshop on ‘UK-China Innovation for Sustainability and Equitable
Development’, held at Tsinghua University School of Public Policy and Management, 19th March 2010, Beijing
Berkhout, F. and A. Gouldson (2003) ‘Inducing, shaping and modulating: perspectives on technology and
environmental policy’ in Berkhout, F., Leach, M. and I. Scoones (eds) Negotiating Environmental Change Edward
Elgar, Cheltenham
Ask the
units to submit
Select projects
to fund
Supervise and
appraise these
Award and
publically honour
outstanding units
Figure 3. The linear ‘cleaner production’ policy process adopted by Bao’an District
Government during the 11th Five Year Plan
There is no feedback from citizens or enterprises about the effect of policies and no
recognition of the role of groups of stakeholders (industry organisations, research
bodies, consumer groups, users/citizens and environmental organisations where they
exist) in the process of technology selection or adoption. Future governmental
initiatives in this area could open up the process of project selection and appraisal to
broader perspectives, and also involve invite feedback from such stakeholders on
possible future policy approaches, enabling a more networked approach to governance
as illustrated in Figure 4 below.
Figure 4. Interactions between firms and other actors in society
A similar focus on government-driven policy (at the expense of multiple perspectives)
also extends into the research process. The role of university researchers in the
programme that formed the basis for this study was just as technological consultants they only had a voice in the technology examination, rather in the selection of
candidate firms and methodologies for the project. At the same time, it would be
difficult for researchers to gain access to firms to study cleaner production without the
support of government, and thus research institutions are unable to conduct such
studies independently. Researchers at Tsinghua University believe that studying the
interactions between firms and other stakeholders in a more systematic way would be
an improvement. For example, the researchers think it is a good idea to investigate
the situation of all enterprises in adopting environmental protection technologies especially SMEs and not just large firms. If researchers’ ideas are accepted by
officials, the enterprises will cooperate with the researcher’s investigation, leading to
higher quality evidence for future policy-making.
Citizens, an important stakeholder, are missing in the current policy-making process.
The government’s approach to citizen participation is limited to environmental
education and popularization, a necessary first step but insufficient to enable citizens
to have an influence on the direction of technological development. Possible ways
forward could be to introduce consensus conferences or citizens’ juries around various
technological options (thus complementing the current educational approaches but
also allowing for two-way communication between the government and citizens)59.
Other scholars have pointed to the general failure of the Chinese government to
recognise the importance of social shaping of technology. 60 In the eyes of policy
makers and citizens, technology is a complicated black box which is in driven solely
by engineers from enterprises and experts from research institutes. Beyond the current
approaches of environmental education and popularization, the role of citizens in
selecting policy instruments and (directly or indirectly) technological options could be
enhanced, and this in itself could provide a rich focus for future research.
7.2 Investigating the role of cleaner technology in wider socio-technical
transitions in Shenzhen
As described above, the role of technology within system innovation61 and broader
socio-technical transitions has been a growing topic of research in the West
(especially in Northern Europe) over the past decade. 62 Drawing on theories of
evolutionary economic change63 scholars have used a number of (primarily historical)
case studies to illustrate the interactions between firms, industry, policy, technology,
culture, science, markets/ user preferences within socio-technical regimes.64 How can
such frameworks enlighten our understanding of transitions in Shenzhen, and what
lessons could the application of these kinds of theory provide for enhancing such
For example, Smith, Stirling and Berkhout present a heuristic typology (illustrated by
Figure 5 below) that differentiates transition contexts as a function of degree of
These are among a number of tools and methodologies discussed by Ely, A. V., Van Zwanenberg, P. F. &
Stirling, A. C. (2011) New Models of Technology Assessment for Development, STEPS Centre Working Paper 45,
Brighton, STEPS Centre
Shen and Williams (2005) A Critique of China's Utilitarian View of Science and Technology Science
Technology Society 10: 197-223
Elzen, B., Geels, F., Green, K. (Eds.), 2004. System Innovation and the Transition to Sustainability: Theory,
Evidence and Policy. Edward Elgar, Cheltenham.
Smith, A., Voß, J.-P. & Grin, J. (2010) Innovation studies and sustainability transitions: The allure of the multilevel perspective and its challenges. Research Policy, Vol. 39 (4) 435-448.
Nelson, R.R. & Winter, S.G. (1982) An evolutionary theory of economic change, Cambridge MA: Harvard
University Press.
Geels, F.W. (2002), Technological transitions as evolutionary reconfiguration processes: A multi-level
perspective and a case-study, Research Policy, 31 (8/9), 1257-1274
coordination to selection pressures and the locus of adaptive resources.65 Could it be
that the Shenzhen experience (or in other parts of China), taking place within the
state-led context described above, are more consistent with the ‘purposive transition’
context than less co-ordinated transitions based on internal resources? Or are the
findings of this study, that formal regulations (and perhaps to some extent government
action more generally) are barely significant as a driver for the transition towards a
circular economy, pointing towards a less co-ordinated ‘emergent transformation’
context? Targeted research looking at a number of case studies within the Chinese
context could help to clarify such questions, to hone and strengthen the transitions
frameworks used by primarily European scholars and to provide a shared theoretical
basis for sustainable transitions as analysed by researchers from both China and the
Figure 5. Transition contexts as a function of degree of coordination to selection
pressures and the locus of adaptive resources (from Smith, Stirling & Berkhout
Similar concerns were highlighted by researchers at a workshop held in Beijing in
March 2010, although to date further research projects this area have not been
7.3 Building indigenous innovation capabilities
Smith, A., Stirling, A. & Berkhout, F. (2005) The Governance of Socio-Technical Transitions. Research Policy
34, 1491-1510.
Smith, A., Stirling, A. & Berkhout, F. (2005) The Governance of Socio-Technical Transitions. Research Policy
34, 1491-1510.
Ely, A. (2010) Report on an international workshop on ‘UK-China Innovation for Sustainability and Equitable
Development’, held at Tsinghua University School of Public Policy and Management, 19th March 2010, Beijing
Bell (2009) has described the importance of innovation capabilities (by which he
simply means “the capabilities needed to imagine, develop and implement innovations
in the goods and services an economy produces and in how it produces them”) in
enabling moves towards more environmentally sustainable forms of development.68
Drawing on work by innovation scholars studying innovation primarily in Latin
America and South-East Asia, he outlines various ideas around different types of
learning, with a focus on those enabling what approximates to the idea of ‘indigenous
innovation’ goal central to China’s innovation policies. Similar studies of learning
within Chinese firms are rare, especially in the English language literature. Fu (2008)
has emphasized the importance of enhancing local absorptive capacity and
complementary assets in the local innovation system in order for Chinese coastal
areas to benefit from foreign FDI. However, he admits that his study “provides little
information on whether FDI has promoted the indigenous innovation capability of the
developing countries”, noting that many firms withhold world-class technologies due
to fears over lax enforcement of intellectual property rights.69 Shenzhen is responsible
for 40% of China’s invention patents and a centre of indigenous innovation in the
country70, however as illustrated in this study, the capacity for learning has not
translated to indigenous innovation in cleaner production technologies (whereas it
certainly has done in other specific ‘environmental’ technologies such as solar PV,
electric vehicles). The reasons behind these differences, and the ways in which
policies and can be put in place to enhance more diffuse learning in cleaner
production approaches are of vital research interest.
7.4 Investigating Multi-level Governance for Cleaner Production and the
Circular Economy - in China and Internationally
China, as a federal state, displays numerous levels of governance, inter-secting with a
separation of responsibilities between party officials and bureaucrats from different
From the outside, the interaction between policy-making and
implementation in the centre (Beijing) and that at provincial and sub-provincial levels
is mindboggling. Multi-level governance approaches (including the study of policy
networks and their influence on policy stability and change) have been employed in
the European Union, where scholars have argued that new theoretical approaches are
required due to the changing pressures on national regulatory systems brought by
globalisation. 71 Similar theoretical approaches might be applicable to studying
environmental or innovation policies in China, as well as their interaction with
international frameworks.
Bell, M. (2009) Innovation Capabilities and Directions of Development, STEPS Working Paper 33, Brighton,
STEPS Centre
Fu, X. (2008) Foreign Direct Investment, Absorptive Capacity and Regional Innovation Capabilities: Evidence
from China Oxford Development Studies, Vol. 36, No. 1, March 2008, pages 89-110
Shenzhen Bureau of Trade and Industry, advertisement in Financial Times China Special, November 24th 2008
page 3
Coleman, W.D. & Perl, A. (1999) Internationalized policy environments and policy network analysis. Political
Studies, Vol. 47 (4) 691-709
As well as understanding the interactions between multiple levels of governance, an
appreciation of the different interests, priorities and – more broadly - framings of
regulation at global, national and local levels is vital for informing workable policy.
For example, the use of green GDP measures within the cadre evaluation system
(described above) is an important step forward, however faced with problems of
poverty and unemployment, which could reduced by enhancing GDP growth from
environmentally-damaging industry, local governments are often pressured to forego
circular economy opportunities.72 Research in other areas has pointed to the need for
‘regulatory reach’ that does not only deliver well-implemented regulations on the
ground, but also policies that are flexible enough to cater for seemingly irreconcilable
framings in diverse contexts throughout the world.73 As China continues to open up
to the rest of the world – financially – technologically and politically, future
collaborative research on the interactions between these interlinked dynamics, and the
ways in which emerging economies including but not limited to China influence
global governance systems, will be a key contribution to the ‘peaceful rise’ and a
future of equitable, sustained prosperity in East and West.
Zheng, Y. & Chen, M. (2006) China promotes green GDP for more balanced development, University of
Nottingham China Policy Institute Briefing Paper 16
Van Zwanenberg, P. F., Ely, A. V. & Smith, A. G. (2011) Regulating Technology: Global Harmonisation and
Local Realities, London, EarthScan
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