Journal of Cleaner Production 74 (2014) 161e171

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Impact of subsidy policies on recycling and remanufacturing using

system dynamics methodology: a case of auto parts in China
Yixuan Wang a, Xiangyun Chang a, *, Zhigao Chen a, Yongguang Zhong b, Tijun Fan a
a
School of Business, East China University of Science and Technology, P.O. Box 114, 130 Meilong Rd, Shanghai, China
b
Department of Management Science and Engineering, Qingdao University, Qingdao, China

a r t i c l e i n f o a b s t r a c t

Article history: The aim of this paper is to explore the impact of subsidy policies on the development of the recycling and
Received 15 June 2013 remanufacturing industry in China using system dynamics methodology and by simulating Chinese auto
Received in revised form parts industry. Firstly, we introduced four subsidy policies e initial subsidy, recycling subsidy, R&D
10 March 2014
subsidy and production subsidy e and established system dynamics models to characterize the rema-
Accepted 11 March 2014
Available online 5 April 2014
nufacturing dynamics system considering government subsidies. Then we analyzed the impact of four
subsidy policies and mixed-subsidy policies individually and comparatively based on Chinese auto en-
gine remanufacturing on recycling and remanufacturing activities. The results showed that varied sub-
Keywords:
Auto parts
sidies have different incentive objectives and characteristics. The initial subsidy plays an active role in
Remanufacturing improving remanufacturing activities and is suitable to be used at the initial stage of industry devel-
Subsidy policies opment. When the remanufacturing industry develops to a certain extent, the production subsidy or R&D
System dynamics subsidy can reasonably control the quantity of remanufacturers and maintain remanufacturing industry
scale and stability. The recycling subsidy plays a significant role in overcoming the bottleneck problem of
“lack of cores”. The mixed-subsidy policies have the better positive effects on remanufacturing promo-
tion than single subsidy policies, but involve higher costs.
Ó 2014 Elsevier Ltd. All rights reserved.

1. Introduction In China, the main focus of remanufacturing is auto parts

Remanufacturing is the process by which used products are
recovered, processed, and sold as like-new products in the same or
separate markets (Guide and Wassenhove, 2001; Thierry et al.,
1995; Fleischmann et al., 2000). As an important part of closed-
loop supply chain, remanufacturing has gained more attention
because the economic and ecological benefits of striving for a cir-
cular economy are clear (Guide et al., 2006; Atasu et al., 2008; Seitz,
2007).
Many countries and regions are concerned with remanufactur-
ing industry, and have enacted a range of laws and regulations to
support recycling and remanufacturing. For example, European
Union (EU) enacted End-of-Life Vehicles (ELVs) Directive (Directive
2000/53/EC) in 2000 and Electronic Equipment Directive (2002/96/
EC) in 2003 (Mazzanti and Zoboli, 2006). In the state of Maryland
and California in US, the legislation assigns recycling fee on elec-
tronic products (SBE, 2009). The subsidy fees have been imple-
mented in Canada and Japan (Hicks et al., 2005).
* Corresponding author. Tel.: þ86 21 64250973.
E-mail address: xychang@ecust.edu.cn (X. Chang).
remanufacturing, which officially began in 2008 when the National
Development and Reform Committee of China (NDRC) announced
14 enterprises as pilot remanufacturers of auto parts. However,
Chinese enterprises do not actively participate in recycling and
remanufacturing activities due to the low level of consumer
acceptance, and the lack of used auto parts and advanced rema-
nufacturing technologies (Zhang et al., 2011, Wang and Chen, 2011).
So in this initial stage of growth, government incentives are
important driving forces for remanufacturing activities in China.
Actually, the Chinese government has been playing an impor-
tant role in the promoting and formation of remanufacturing in-
dustry. In order to accelerate the development of remanufacturing,
the government starts to use a range of subsidies, which are rela-
tively common in some other industries in China, to promote the
development of remanufacturing industry. For example, the gov-
ernment of Liuyang in Hunan province provided a one-time subsidy
to motivate enterprises to launch remanufacturing activities
(LMCMI, 2010), and the government of Wuhan in Hubei province
gave Sevalo Construction Machinery Remanufacturing Co. Ltd. 1
million RMB as an R&D subsidy (IRDRI, 2013).
A number of studies have explored the close relationship be-
tween government incentive policies and remanufacturing.

http://dx.doi.org/10.1016/j.jclepro.2014.03.023
0959-6526/Ó 2014 Elsevier Ltd. All rights reserved.
162 Y. Wang et al. / Journal of Cleaner Production 74 (2014) 161e171
Webster and Mitra (2007) and Atasu et al. (2009) studied the effi-
ciency of recycling regulations. Mitra and Webster (2008) used a
two-period game-theoretic model to research the affect of gov-
ernment subsidy policies on remanufacturing activities. Zhao and
Chen (2011) compared the laws for ELVs and discussed strategies
for developing the recycling industry in China. Simic and
Dimitrijevic (2012) established a linear program to formulate the
optimal processing for vehicle recycling factories in EU legislature.
Wang and Chen (2013) classified the policies and regulations about
China’s ELVs recycling industry and indicated that an appropriate
old-for-new subsidy standard could motivate vehicle owners to
return ELVs. Ma et al. (2013) focused on how consumption-subsidy
influenced dual-channel closed-loop supply chain. However, these
studies mainly used game theory or optimization methods which
have more assumptions. Actually, remanufacturing system with
government incentive policies is a complex dynamic system.
System dynamics (SD) approach is closely related to agent-
based modeling and can be used to study highly complex systems
based on the foundation of feedback control theory. (Forrester,
1958, 1961). Some studies have established SD models of reverse
logistics and production recovery (Sterman, 2000; Spengler and
Schroter, 2003; Georgiadis and Vlachos, 2004; Georgiadis and
Besiou, 2008). Schaik and Reuter (2004) discussed the effects of
time on engine recovery with system dynamics. Georgiadis and
Besiou (2008) established a SD model to research the effects of
environmental regulations, ecological motives, and technology
innovation on recycling and remanufacturing behavior. Zhao et al.
(2011) selected Chongqing in China as a case and used SD model
to evaluate alternative types of recycling center under low profit,
low revenue, and low cost policies. Dong et al. (2012) used an SD
model to analyze the effects of cleaner production policies on
electroplating enterprises in Shenzhen of China. Farel et al. (2013)
adopted an SD approach to investigate the costs and benefits of
ELVs recycling and economic balance in various scenarios.
While valuable research has been carried out there remain
gaps in the literature: (1) the existing literature mainly employed
methods of game theory or optimization modeling, and were
based on simple policy assumption without taking the interplay
of decision-makers into account. Actually, there are multiple
decision-makers, such as recyclers, remanufacturers, consumers
and government, in remanufacturing system. The interplay be-
tween these decision-makers results in a complex dynamic sys-
tem; (2) few literature explored the impact of different subsidy
policies on the development of remanufacturing industry in
China from the view of system engineering. Remanufacturing
industry in China is different from that in many other countries,
so there must be some distinctive features with regard to the
problems of remanufacturing. It is clear that subsidy policies are
being used to motivate a wider use of recycling and remanu-
facturing in China, but the effectiveness and efficiency of different
subsidy policies need to be verified and the reasoning behind the
policies is unclear.
In this paper, we focus on the government subsidy policies,
which are relatively common in China, and use SD methodology to
explore the impact of different subsidy policies on the development
of recycling and remanufacturing in China. The purpose of this
study is to answer the following questions: How do single subsidy
policies or mixed-subsidy policies affect the recycling and rema-
nufacturing activities of enterprises in China? What kinds of pol-
icies are effective at improving the development of recycling and
remanufacturing in China?
The paper is organized as follows. Section 2 describes the sub-
sidy policies and presents system dynamics models. Section 3 de-
scribes the data and core equations. Section 4 analyzes the impact
of the subsidy policies individually and comparatively. Section 5
presents the results and discussion. Finally, Section 6 presents the
most relevant conclusions.
2. Subsidy policies and model description
2.1. Subsidy policies
The subsidy policies in this paper are government financial
subsidy policies. For example, China established the “Waste Elec-
trical and Electronic Products (WEEE) Collection and Use of Man-
agement Practices Fund” on July 1, 2012. The government uses this
fund to give enterprises a fixed subsidy in accordance with the
amount of WEEE dismantled.
In light of a few subsidy policies that have been proposed or
implemented in cities like Wuhan in Hubei province and Liuyang in
Hunan province in China, we will classify subsidy policies into four
types.
2.1.1. Initial subsidy
Initial subsidy is a one-time subsidy and allocated by the gov-
ernment to the new remanufacturers who start to launch rema-
nufacturing activities. The main purpose of the initial subsidy is to
attract enterprises to make greater investment in remanufacturing
and accordingly promote the development of remanufacturing
industry.
For example, the government of Liuyang in Hunan province
provided a one-time subsidy to motivate enterprises to launch
remanufacturing activities, which covered 20% of the total invest-
ment of remanufacturing construction and equipment (LMCMI,
2010).
2.1.2. Recycling subsidy
Recycling subsidy means that the government gives recyclers a
fixed subsidy per collected used part. The purpose of a recycling
subsidy is to help recyclers to buy back more used products.
The acquisition price is a powerful control in remanufacturing
systems (Guide and Wassenhove, 2001). Acquisition price and
profitability directly affect the quantities of gained used parts.
Unfortunately, as governmental supervision over the disposal of
scrapped and damaged cars is weak in China, repair shops usually
prefer to sell collected used parts to chop shops at higher prices.
These parts are then illegally refurbished or reassembled and sold
at discounted prices. This kind of illegal activity makes it difficult
for legal remanufacturers and legal recyclers to gain used parts
from the after-sales markets. So an important issue faced by the
Chinese Pilot Automotive Parts Remanufacturers is to ensure a
sufficient supply of cores to support remanufacturing operations.
Now NDRC are planning to make a new recycling subsidy to help
the pilot remanufacturers obtain sufficient cores.
Recycling subsidy policies are often used in China. As shown in
Table 1, the Ministry of Commerce of China issued an old-for-new
Table 1
The old-for-new subsidy standards of per scrapped vehicle in China (2009 and
2012).
Type of Description 2009 2012
vehicle (RMB) (RMB)
Bus in 6year  Life Time<15 year, 10,000 11,000
Rural Area 4.8m  Length<7.5 m
Bus in 8year  Life Time < 15 year, 15,000 18,000
Urban Area Length  6 m or Seats  20
Length < 6 m or 10 < Seats < 19 10,000 11,000
Heavy truck All 5000 18,000
Source: Ministry of Finance of the PRC, Announcement No.20, 2009; Ministry of
Commerce of the PRC, Announcement No.27, 2012
 Y. Wang et al. / Journal of Cleaner Production 74 (2014) 161e171 163

subsidy policy for scrapped vehicles in 2009, and updated the
subsidy standards in 2012.
2.1.3. Research and development (R&D) subsidy
R&D subsidy is a type of subsidy provided annually by govern-
ments to remanufacturers so that they can conduct R&D to improve
detection, surface treatment, and assembly technologies. For
example, the government of Wuhan in Hubei province gave Sevalo
Construction Machinery Remanufacturing Co. Ltd. 1 million RMB as
an R&D subsidy (IRDRI, 2013).
We will consider two types of R&D subsidy: equalization and
stage subsidies. An equalization subsidy means that the govern-
ments provides a fixed subsidy each year, while a stage subsidy
means that the governments provides a low subsidy before 2020
and a higher subsidy in the following years.
2.1.4. Production subsidy
Production subsidy is a type of subsidy provided annually by the
government to the remanufacturers for improving the quality of
remanufacturing products and production efficiency.
A production subsidy will fulfill both incentive and protective
functions. First, it can be used to guide remanufacturers to increase
productivity and production capacity. For instance, in Liuyang
Remanufacturing Industrial Park in Hunan province in China, re-
manufacturers can get annual production subsidies ranging from
10,000 RMB to 100,000 RMB according to their different annual
production (LICB, 2013). Second, it can be used to control the
quantity of remanufacturers thus guaranteeing ample development
space for existing remanufacturing enterprises.
The definition and purpose of four subsidy policies are sum-
marized in Table 2.
Since our classification of subsidy policies is purely theoretical,
it’s possible that the boundaries of the different subsidies are not as
well defined in the real world. In addition, the names of the four
subsidies are also convenient for description in this paper. The
actual subsidies may be called different names in practice, but their
essence remains the same.
2.2. The conceptual framework of the model
Activities like recycling, manufacturing and remanufacturing,
product sales and other processes constitute a complex system.
There is complex interaction between entities and subsystems.
In a typical remanufacturing closed-loop supply chain, both of
new products and remanufactured products are sold in market.
Then when a product reaches the end of life stage, there will be
three ways to deal with the used product in China: discarding, legal
recycling and illegal recycling. Subsidy policies have the impact on
both remanufacturing process and recycling activities.
Fig. 1 shows the conceptual framework of a typical remanu-
facturing closed-loop supply chain with subsidies. The framework
is put forward based on the current situation of auto parts market
and subsidy policies in China. It contains three subsystems: a
manufacturing/remanufacturing subsystem, a recycling subsystem,
and a subsidy policy subsystem.
2.2.1. Manufacturing/remanufacturing subsystem
The manufacturing/remanufacturing subsystem consists of two
activities: manufacturing and remanufacturing. Manufacturing
activity uses new raw materials to produce new products, while
remanufacturing activity produces remanufactured products out of
used products.
We assume that the quality of the remanufactured products is
lower than that of the new products, and the cost of the remanu-
factured products is 40%e65% of the new ones (Giuntini and
Gaudette, 2003). The remanufactured products and the new ones
can be sold in same or different markets. Some consumers would
prefer remanufactured products with low quality and low price,
whereas others would prefer new products with high quality and
high price, which will create competition between the two types of
products.
2.2.2. Recycling subsystem
The recycling subsystem is an important part of a closed-loop
supply chain. When a product has reached end of life, there are
three ways to deal with the scrapped product: legal recycling,
illegal recycling, and discarding. Through legal recycling, the re-
manufacturers get the cores they needed to support their rema-
nufacturing production.
In China, lack of used parts is one of the main factors which
hinder the development of auto parts remanufacturing. More than
30% of used parts are recycled illegally in China and another 29.4%
of vehicles that should be scrapped are still in use (CRRA, 2011). Due

Table 2
Description of subsidy policies.

Subsidy Definition Purpose

policies

Initial A one-time financial subsidy To attract enterprises to make

subsidy provided by the government
to the new remanufacturers
who start to launch
remanufacturing activities
Recycling A type of subsidy provided
subsidy by the government to the
recyclers for every collected
used part.
R&D A type of subsidy provided
subsidy annually by the government
to the remanufacturers for
R&D activities.
Production A type of subsidy provided
subsidy annually by the government
to the remanufacturers for
remanufacturing
production.
greater investment in
remanufacturing and accordingly
promote the development of the
remanufacturing industry.
To acquire sufficient used auto
parts from users to support
remanufacturing operations.
To improve the detection,
surface treatment, and
assembly technologies
To guide remanufacturers to
improve the quality of
remanufacturing products and
production efficiency.
Fig. 1. The conceptual framework of the model.
164 Y. Wang et al. / Journal of Cleaner Production 74 (2014) 161e171

to insufficient supervision and the lack of quality standards, the Causal line L1：Production of remanufactured
recycling system for ELVs in China is fairly under regulated. products [/ Remanufactured products sales [/ Products
population[.
2.2.3. Subsidy policy subsystem
L1 illustrates that as the production of remanufactured products
The subsidy policy subsystem includes four policies as described
promotes the sales of such products, the product population will
in Section 2.1. The recycling subsidy has impact on the recycling
increase accordingly.
subsystem while the initial subsidy, R&D subsidy, and production
subsidy affect the manufacturing/remanufacturing subsystem.
Causal line L2：Production of remanufactured
products [/ Production of new products Y/ New products
2.3. Causal loop diagram of SD model salesY.

In this section, we construct the causal loop diagrams of system
dynamics model based on conceptual framework.
2.3.1. Causal loop diagram of manufacturing/remanufacturing
subsystem and recycling subsystem
Fig. 2 shows the causal loop diagram including the
manufacturing/remanufacturing and recycling subsystems. It con-
tains two causal loops and two important causal lines. R stands for a
regenerative feedback loop, B for a negative feedback loop, and L for
a causal line.
In this paper we assume that the total production capacity is
limited, so remanufactured products and new products have a
competitive relationship in the market. L2 illustrates that the
remanufacturing production process can reduce the manufacturing
capacity of new products and accordingly the production of new
products and sales both reduce.
2.3.2. Causal loop diagram of subsidy policy subsystem
The subsidy policy subsystem contains seven causal loops as
shown in Fig. 3.

Causal loop R1：Legal recycling [/ Illegal recycling Y/ Legal
recycling[.
Because the sum of legal recycling quantity and illegal recycling
quantity must equal the available quantity of used recyclable
products, they constrain each other. R1 means that the illegal
recycling quantity decreases when the legal recycling quantity in-
creases, and the legal recycling quantity increases when the illegal
recycling quantity decreases.
Causal loop R2：Remanufactured products sales [/ Products
population [/ Used products [/ Used recyclable
products [/ Legal recycling [/ Collected remanufacturable
products [/ Remanufactured products sales[.
Causal loop B1：Recycling subsidy standard [/ Recycling
subsidy [/ Subsidy expenditure Y/ Recycling subsidy
standardY.
The recycling subsidy standard refers to the subsidy provided by
the governments to recyclers per collected used product. A higher
subsidy standard results in more cost of subsidy expenditure.
Causal loops B2, B3 and B4 in Fig. 3 are similar in principle to B1. All
of them are balanced loops which maintain a stable equilibrium
subsidy.
Causal loop B5：Initial subsidy
standard [/ Remanufacturers [/ R&D subsidy [/ Subsidy
expenditure Y/ Initial subsidy standardY.

Collected remanufacturable products can be remanufactured The initial subsidy causes an increase in the quantity of re-
repeatedly, so both new products and remanufactured products manufacturers. On this basis, R&D subsidy expenditure leads to the
will have a “scrapping-recycling-remanufacturing” process when decrease of subsidy expenditure. B6 in Fig. 3 has the same principle
they reach their end of life. R2 is an enhancing casual loop. as B5, only with production subsidy replacing the R&D subsidy.

Causal loop B7：Production subsidy

standard [/ Remanufacturers [/ Production
subsidy [/ Subsidy expenditure Y/ Production subsidy
standardY.

Fig. 2. Causal loop diagram of manufacturing/remanufacturing subsystem and recy-

cling subsystem. Fig. 3. Causal loop diagram of subsidy policy subsystem.
 Y. Wang et al. / Journal of Cleaner Production 74 (2014) 161e171
Fig. 4. General causal loop diagram of SD model.
When the production subsidy standard improves, re-
manufacturers can maintain a high production to guarantee the
benefit, therefore the quantity of remanufacturers doesn’t decrease
to make ends meet.
2.3.3. General causal loop diagram for the SD model
In summary, the general causal loop diagram for the SD model is
illustrated in Fig. 4.
2.4. The stock and flow diagram of SD model
A stock and flow diagram is drawn based on the causal loop
diagram. A causal loop diagram is used to reflect the correlation
between elements and the feedback process of the system, whereas
a stock and flow diagram can be used to deepen understanding of a
system’s feedback and control process.
Fig. 5 shows the stock and flow diagram of the SD model. Five
state variables are set in the model: new products inventory, rema-
nufactured products inventory, products population, quantity of used
products and number of remanufacturers. In addition, this model
also includes eight rate variables and several auxiliary variables.
3. Data and equations description
The data sources mainly include China Association of Automo-
bile Manufacturers (CAAM) statistics data, industrial reports, pa-
pers and newspapers on auto parts industry of China. We also set
some input data and equations based on the current situation of
auto parts industry in China. There are thousands of types of auto
parts, our research mainly focuses on automobile engines because
they are high-value parts which Chinese remanufacturers are
interested in. In Section 3 and Section 4, parts can be understood as
engines, and the word “product” in the SD models described in
Section 3 refers to an engine.
The input data between 2000 and 2011 of new production speed
and new products sales speed are real data of vehicle production
and vehicle sales, respectively. These real data come from CAAM
statistics data between 2000 and 2011 and are showed in Table 3.
According to the relevant industrial reports from CAAM, the con-
sumer demand for vehicles will continue to increase by 10% every
year, and the annual production of vehicles in China will reach 75
million by 2030. These input data after 2011 was simulated based
on these predictions.
The current scrapped and recycled ratio in China in recent years
is 4%e4.2% (Scrapped and recycled ratio ¼ Scrapped ratio * Recycled
ratio). We set the scrapped ratio to 0.06 and the recycling ratio to 0.7
165
Fig. 5. The stock and flow diagram of the SD model.
using the current scrapped vehicle situation in China as a reference
(Yu, 2011).
The setting of subsidy standards is based on the subsidy policies
that have been proposed or implemented in cities like Wuhan in
Hubei province and Liuyang in Hunan province.
For initial subsidy, based on the one-time subsidy provided by
the government of Liuyang in Hunan province to motivate enter-
prises to be engaged in remanufacturing, we set the standards for
the initial subsidies to 0 RMB, 1 million RMB, 2 million RMB, and 3
million RMB.
As described in Section 2.1, NDRC are planning to make a new
recycling subsidy to help the pilot remanufacturers obtain suffi-
cient cores, the unit’s subsidy is 10% of sale prices of remanu-
facturing engine. For example, the sale price of a remanufacturing
EA888 auto engine is 30,000 RMB in China, which means that the
recycling subsidy per a used EA888 auto engine will be 3000 RMB.
Thus, for recycling subsidy, we set the standards for the recycling
subsidies to 0 RMB per unit, 1000 RMB per unit, 3000 RMB per unit,
and 5000 RMB per engine.
For R&D subsidy, as described in Section 2.1, we consider two
types of R&D subsidy: Equalization and Stage subsidies. The
Equalization subsidy policy was set at a constant annual rate of
40,000 RMB between 2013 and 2030. For the Stage subsidy, we set
the standard to begin at 0 RMB per year during 2000e2013, increase
to 30,000 RMB per year during 2013e2020, and finally to 50,000
RMB per year during 2020e2030. The total amount of the Equal-
ization subsidy equals approximately that of the Stage subsidy.
We define two types of production subsidy: Growth subsidy and
Back slope subsidy. Growth subsidy is defined as an annual subsidy
whose subsidy standard increases linearly from 0 RMB to 200,000
RMB with annual production. Back slope subsidy, based on the new
energy vehicles subsidy policy in China, is defined as an annual
subsidy whose subsidy standard increases linearly to 200,000 RMB
when the annual production is below 50,000 units, and decreases
to 100,000 RMB when the annual production is above 500,000
units. Similarly, the total amount of the Growth subsidy equals
approximately that of the Back slope subsidy.
The equations of R&D subsidy and production subsidy we set in
the SD model and their curves are shown in Table 4.
The core system equations contained in the SD model are pre-
sented as follows.
New production speed ¼ Forecast of products need
 Remanufacturing production speed
(1)
166 Y. Wang et al. / Journal of Cleaner Production 74 (2014) 161e171

Table 3
Vehicle market statistics data in China from 2000 to 2011.

Variable Year

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
4
Vehicle production (  10 ) 206 233 328 444 523 571 719 888 935 1379 1827 1842
Vehicle sales (  104) 208 237 325 439 507 576 722 879 938 1364 1803 1859

Sources: China Association of Automobile Manufacturers (CAAM, 2000e2011)

Remanufacturing production speed Recycling subsidy

(8)
¼ IF THEN ELSEðCollected remanufacturable products ¼ Legal recycling  Recycling subsidy standard
> ¼ Remanufacturers*Average production capacity; (2)
Remanufacturers*Average production capacity; R&D subsidy ¼ R&D subsidy standard  Remanufacturers
Collected Remanufactured productsÞ (9)

Production subsidy
Products population ¼ Remanufactured products sales speed (10)
¼ Production subsidy standard  Remanufacturers
þ New products sales speed
 Products scrapped Speed
(3) 4. Simulation analysis

Based on the data described in Section 3, we use system dy-

Products scrappedspeed ¼ Products populationScrapped ratio
namics methodology to analyze the impact of all subsidy policies
(4) on recycling and remanufacturing activities in this section. The
special system dynamics software Vensim PLE is used for simula-
Legal recycling tion analysis. It is visual software to help conceptualize, build, and
(5) test system dynamics models.
¼ Legal recycling ratio  Used recyclable products
We choose three indicators e the quantity of collected remanu-
facturable products, remanufacturing production speed and the
quantity of remanufacturers to analyze the impact of different sub-
Remanufacturers ¼ Annual increased remanufacturers
sidy policies.
 Annual decreased remanufacturers The reason why these three specific indicators are picked up
(6) here is as follows. The quantity of collected remanufacturable prod-
ucts is an important indicator to reveal the adequacy of cores which
a remanufacturer depends on to start the remanufacturing activ-
Initial subsidy ities. Remanufacturing production speed reflects directly the effi-
ciency of remanufacturing activities while the quantity of
¼ Annual increased remanufacturers  Initial subsidy standard
remanufacturers represents the scale of remanufacturing industrial
(7) development.

Table 4
Design of R&D subsidy and production subsidy.

Policies Type Independentedependent variable Curves of subsidies Equation

R&D subsidy Equalization Time e R&D subsidy standard R&D subsidy standard ¼ WITHLOOKUP (Time,([(2000,0)-(2030,10)],(2000,0),
subsidy (2013,0),(2013,4),(2020,4),(2020,4),(2025,4),(2025,4),(2030,4)))

R&D subsidy Stage Time e R&D subsidy standard R&D subsidy standard ¼ WITHLOOKUP (Time,([(2000,0)-(2030,10)],(2000,0),
subsidy (2013,0),(2013,3),(2020,3),(2020,5),(2025,5),(2025,5),(2030,5)))

Production Growth Average production capacity e Production subsidy standard ¼ WITHLOOKUP (Average production capacity,
Subsidy subsidy production subsidy standard ([(0,0)-(15,50)],(0,0),(5,10),(15,20)))

Production Back slope Average production capacity e Production subsidy standard ¼ WITHLOOKUP (Average production capacity,
Subsidy subsidy production subsidy standard ([(0,0)- (15,50)],(0,0),(5,20),(15,10)))
 Y. Wang et al. / Journal of Cleaner Production 74 (2014) 161e171 167

4.1. Simulation analysis of single subsidy policies recycling and remanufacturing activities, and it is not good for the
balanced development of remanufacturing industry. Therefore,
4.1.1. Initial subsidy taking the marginal effect and balanced development of industry
We simulate four initial subsidy standards: 0 RMB, 1 million into consideration, it is better to set the initial remanufacturing
RMB, 2 million RMB and 3 million RMB. Fig. 6 shows the simulation subsidy to 1 million RMB per year for engine remanufacturing in
results. China now.
As illustrated in Fig. 6, remanufacturing production speed and
the quantity of remanufacturers increase with initial subsidy
4.1.2. Recycling subsidy
standard, however, the change of the quantity of collected rema-
Fig. 7 shows the simulation results of four recycling subsidy
nufacturable products is not obvious. When comparing the growth
standards: 0 RMB per unit, 1000 RMB per unit, 3000 RMB per unit
trends of remanufacturing production speed and the quantity of
and 5000 RMB per unit which we refer to as “No subsidy”, “Low
remanufactures in Fig. 6, we fail to observe a significant facilitating
subsidy”, “Medium subsidy” and “High subsidy” respectively.
effect of initial subsidy of 2 million RMB and 3 million RMB on
From Fig. 7, it is clear that the quantity of collected remanu-
remanufacturing production speed. Instead, they result in an
facturable products and the remanufacturing production speed
obvious increase in quantity of remanufacturers.
Therefore, an excessive initial subsidy will mainly lead to
redundant remanufacturers and over capacity instead of promoting

Fig. 6. Effects of initial subsidy. Fig. 7. Effects of recycling subsidy.

168 Y. Wang et al. / Journal of Cleaner Production 74 (2014) 161e171
increase with recycling subsidy especially after 2020, while the
quantity of remanufacturers remains unchanged.
The quantity of collected remanufacturable products and
remanufacturing production speed show a slight increase over time
between the cases of “No subsidy” and “Low subsidy”, whereas
these two indicators both show an obvious increase in the case of
“Medium subsidy”. Additionally, “High subsidy” policy can promote
remanufacturers to buy back most of the used products, so after
2025, the remanufacturing production speed under “High subsidy”
policy is higher than that under “Medium subsidy” because the
remanufacturing production speed under “Medium subsidy” policy
is limited by the quantity of collected remanufacturable products.
So a higher recycling subsidy is better to recycle more rema-
nufacturable products, reduce waste, and promote the develop-
ment of remanufacturing industry. It’s best to set the value of
Fig. 8. Effects of R&D subsidies.
recycling subsidy higher than a certain threshold and keep its value
at a moderate level (Medium or high). In China now, it’s best to set
the value of recycling subsidy higher than 3000 RMB per unit for
used auto engines.
4.1.3. R&D subsidy
We analyze the effects of three types of R&D subsidies: “No
subsidy”; “Equalization subsidy” and “Stage subsidy” here. As
shown in Fig. 8, the R&D subsidy has a positive impact on the
quantity of collected remanufacturable products and remanu-
facturing production speed, but has hardly any effect on the
quantity of remanufacturers which means that R&D subsidies are
good in maintaining remanufacturing industry scale and stability.
Fig. 9. Effects of the production subsidies.
 Y. Wang et al. / Journal of Cleaner Production 74 (2014) 161e171 169

Table 5
Simulation results of mixed-subsidy policies.

NO. Mixed-subsidy policies Quantity of collected Remanufacturing Quantity of Subsidy

remanufacturable products production speed remanufacturers expenditure (million)

1 IS þ RS þ DS þ PS 12,699 10,432 1284 436.56

2 IS þ RS þ DS 12,563 8968 1069 265.08
3 IS þ RS þ PS 9376 8363 1284 383.33
4 IS þ DS þ PS 4742 4154 1284 392.74
5 RS þ DS þ PS 12,335 5526 740 155.79
6 IS þ RS 9317 7885 1069 221.77
7 DS þ PS 4727 3948 740 113.30
8 RS þ DS 12,196 3428 525 59.72
9 IS þ DS 4738 4111 1069 22.176
10 IS þ PS 3583 3086 1284 339.77
11 RS þ PS 9164 5526 740 128.33

For equivalent subsidy amounts, the stage subsidy policy out-
performs the equalization subsidy policy. Under the stage subsidy,
enterprises are able to collect a substantially greater number of
remanufacturable products and achieve a substantially faster
remanufacturing production speed than under the equalization
subsidy. Of course, both the stage subsidy and equalization subsidy
outperform the no subsidy policy, as expected. Therefore, the stage
subsidy policy is clearly more appropriate for auto parts
remanufacturing.
4.1.4. Production subsidy
We analyze the effects of three types of production subsidies:
“No subsidy”; “Growth subsidy” and “Back slope subsidy”. Fig. 9
shows the simulation results.
In Fig. 9, we observe that the remanufacturing production
speeds under “Growth subsidy” policy and “Back slope subsidy”
policy are higher than that under “No subsidy” policy, and the
figures of the quantity of remanufacturers have similar features. So
the production subsidy has positive impact on remanufacturing
production and the quantity of remanufacturers. Additionally, the
number of remanufacturers does not increased significantly under
the production subsides. So the production subsidies are good
policies on maintaining reasonable remanufacturing industry scale
and stability.
4.2. Simulating analysis of mixed-subsidy policies
There are 11 mixed-subsidy policies when allow combinations
of two, three or four subsidies. The initial, recycling, R&D, and
production subsidies are abbreviated as IS, RS, DS and PS respec-
tively. The mixed-subsidy policies are represented by combining
these abbreviations. For example, IS þ RS þ DS represents a mixed-
subsidy consisting of an initial subsidy, a recycling subsidy, and an
R&D subsidy.
The results of 30-year-span simulation can be seen in Table 5.
The result shows the mixed-subsidy policies have the better posi-
tive effects on promotion of recycling and remanufacturing than
single subsidy policies.
We sort the 11 mixed-subsidy policies according to three in-
dictors: remanufacturing production speed, quantity of collected
remanufacturable products, and quantity of remanufacturers,
respectively. Table 6 shows the sorting results of the top five.
Subsidy policies require the government to provide a lot of
money each year to remanufacturers, saving on subsidy costs and
controlling the subsidy expenditures are important issues for policy
makers. If the total subsidy expenditure is limited, which subsidy
should be given priority? Thus, we also sort the mixed-subsidy
policies according to the amount of expenditure and the top 5
can be seen in the last column in Table 6.
From Table 6 we can see that the mixed-subsidy policies,
IS þ RS þ DS þ PS, IS þ RS þ DS, IS þ RS þ PS, IS þ RS and
RS þ DS þ PS, have more obvious impact on recycling and rema-
nufacturing production. The IS þ RS þ DS þ PS mixed-subsidy
policy has the best effects on remanufacturing promotion in all
three aspects. However, we also observe from the last column of
Table 5 that the IS þ RS þ DS þ PS mixed-subsidy policy occurs the
highest cost. In practice the government need a balance between
the cost and benefits overall. With the consideration of the cost
related to policy implementation and the positive effects on recy-
cling and remanufacturing promotion, IS þ RS þ DS is more prac-
tical and economical than other mixed-subsidy policies.
Additionally, we know from Table 6 that recycling subsidy is a
very important policy in that most of mixed-subsidy policies in top
5 lists contain it. So if the subsidy expenditure is not enough to
support all subsidies, recycling subsidy should be given a high
priority.
5. Results and discussion
Subsidy policies play a significant role in guiding and promoting
the recycling and remanufacturing activities. The objective of this
paper is to evaluate the effectiveness of different subsidy policies
on the development of the recycling and remanufacturing industry
in China using system dynamics methodology and by simulating
Chinese auto parts industry which is a typical remanufacturing
industry in China. The main results of our study are as follows.

Table 6
The ranking results of mixed-subsidy policies.

NO. Quantity of collected Remanufacturing Quantity of Subsidy expenditure

remanufacturable products production speed remanufacturers (million)

1 IS þ RS þ DS þ PS IS þ RS þ DS þ PS IS þ RS þ DS þ PS IS þ RS þ DS þ PS
2 IS þ RS þ DS IS þ RS þ DS IS þ RS þ PS IS þ DS þ PS
3 RS þ DS þ PS IS þ RS þ PS IS þ DS þ PS IS þ RS þ PS
4 RS þ DS IS þ RS IS þ PS IS þ PS
5 IS þ RS þ PS RS þ DS þ PS IS þ RS þ DS IS þ RS þ DS
170 Y. Wang et al. / Journal of Cleaner Production 74 (2014) 161e171
First, varied subsidies have different incentive objectives and
characteristics. The initial subsidy plays an active role in improving
remanufacturing production activities and is suitable to be used at
the initial stage of industry development for increasing the quantity
of remanufacturers. When the remanufacturing industry develops
to a certain extent, the production subsidy or R&D subsidy can
reasonably control the quantity of remanufacturers and maintain
the scale and stability of remanufacturing industry. Then, it’s better
for the governments to adopt a production subsidy or R&D subsidy
instead of an initial subsidy. The recycling subsidy plays a signifi-
cant role in overcoming the bottleneck problem of “lack of cores”.
When the subsidy expenditure is not enough to support all sub-
sidies, recycling subsidy should be given a high priority. For the
subsidy standards for auto engine in China, the optimal subsidy
standards are (i) 1 million RMB for an initial subsidy, (ii) higher than
3000 RMB per used auto engine for a recycling subsidy, (iii) a stage-
increasing R&D subsidy instead of equalization subsidy, and (iv) a
production subsidy with a back slope mechanism.
Second, the mixed-subsidy policies have better positive effects
on improving the development of recycling and remanufacturing
than single subsidy policies, but involve higher cost accordingly. For
example, IS þ RS þ DS þ PS mixed-subsidy policy has the best
positive effects on recycling and remanufacturing promotion but
involves the highest cost. In practice it would also be very important
to consider the cost related to policy making and policy imple-
mentation. With the consideration of the cost related to policy
implementation and the positive effects on recycling and remanu-
facturing promotion, IS þ RS þ DS is more practical and economical
than other mixed-subsidy policies. The government should employ
proper subsidy policies by balancing between costs and benefits.
The impacts of the government subsidies for remanufacturing
(Mitra and Webster, 2008) as well as closed-loop supply chain (Ma
et al., 2013) were previously studied. Results showed that the
introduction of recycling subsidies increased remanufacturing ac-
tivity and was conducive to the expansion of closed-loop supply
chain. In China, the government should strengthen the subsidy
support to ensure that more ELVs are taken back legally (Wang and
Chen, 2013). Similar results were observed in present research.
However, few researchers focused on the comparative analysis of
different government subsidy policies in the field of remanu-
facturing. This paper allows us to analyze several subsidies indi-
vidually and comparatively. Additionally, the present work uses the
actual data of Chinese automobile industry to analyze and evaluate
the effectiveness of different subsidy policies, the proposed policy
suggestions are more feasible and practical in China.
The other focus of this paper is to dynamically evaluate the
impact of government subsidy policies. The existing papers mainly
employ methods of game theory or optimization modeling with
little focus on the dynamic interplay among government (policy-
maker), recyclers and remanufacturers. The SD proved to be a very
efficient simulation technique for modeling the complex dynamic
system, and is appropriate for research the closed-loop supply
chain (Schaik and Reuter, 2004; Georgiadis and Besiou, 2008; Farel
et al., 2013). The SD models developed in this paper can simulate
interactions among government (policy-maker), recyclers and re-
manufacturers. Three indicators, the quantity of collected rema-
nufacturable products, remanufacturing production speed and the
quantity of remanufacturers, are defined in this paper, and are used
to measure the real-time of subsidy policies’ performance.
6. Conclusions
The present study is the first attempt to evaluate the effective-
ness of different subsidy policies on the development of the recy-
cling and remanufacturing industry in China using SD
methodology. Dynamic SD models were constructed to charac-
terize the dynamics of recycling and remanufacturing system
considering government subsidies like initial subsidy, recycling
subsidy, R&D subsidy, production subsidy and their combinations.
The impacts of subsidies on recycling and remanufacturing were
investigated by using three indicators, the quantity of collected
remanufacturable products, remanufacturing production speed
and the quantity of remanufacturers. The comparison of the sub-
sidy policies shows that varied subsidies have different incentive
objectives and characteristics. The initial subsidy results in an
obvious increase in quantity of remanufacturers and is suitable to
be used at the initial stage of industry development. When rema-
nufacturing industry develops to a certain extent, the production
subsidy or R&D subsidy can reasonably control the quantity of re-
manufacturers and maintain remanufacturing industry scale and
stability. The recycling subsidy can be used to solve the problem of
insufficient cores. Additionally, the mixed-subsidy policies have
better positive effects on remanufacturing promotion than single
subsidy policies, but involve a higher cost.
In this paper, we assumed that 100% of the recycling subsidy fee
goes to the recycler. Actually, the recycling subsidy fee may go to
the remanufacturer or consumers in practice. In future study,
considering other forms of recycling subsidy modes with some
fraction of the subsidy fee paid to the remanufacturer or consumers
would be of practical interest also. Additionally, it would be useful
to explore what the best combination of the subsidy policies would
be given a certain budget.
Acknowledgments
The authors would like to thank the reviewers for their com-
ments, which improved the manuscript.
The authors would like to express sincere thanks to the National
Natural Science Foundation of China (71102068, 71273149), the
Natural Science Foundation of Shanghai (11ZR1408300), Shanghai
Planning Office of Philosophy and Social (2010BJB016), Program of
New Century Excellent Talents in University (NCET) of Ministry of
Education of China (NCET-11-0637) and the Major Program of the
National Social Science Fund of China (No. 13& ZD147) for financing
this research.
The authors would also like to acknowledge the support of all
participants in this research.
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