Impact of subsidy policies on recycling and remanufacturing using system dynamics methodology: a case of auto parts in China

The aim of this paper is to explore the impact of subsidy policies on the development of the recycling and remanufacturing industry in China using system dynamics methodology and by simulating Chinese auto parts industry. Firstly, we introduced four subsidy policies – initial subsidy, recycling subsidy, R&D subsidy and production subsidy – and established system dynamics models to characterize the remanufacturing 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 engine remanufacturing on recycling and remanufacturing activities. The results showed that varied subsidies have different incentive objectives and characteristics. The initial subsidy plays an active role in improving remanufacturing activities and is suitable to be used at the initial stage of industry development. 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 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 promotion than single subsidy policies, but involve higher costs.