Section B Connotation Framework of Conservation-oriented Economy

1 Main Patterns of a Conservation-oriented Economy

COE is a complicated economic pattern which involves social production, reproduction and the components of economy, namely, production, circulation, distribution and consumption. Production, circulation and consumption are integrated into the framework of the COE system.

1.1 Production

It means to achieve the maximum output by minimum investment, to increase efficiency and quality and to reduce consumption and waste. Industrial structure is going to benefit resource recycling and environmental protection. The products should be with low physical deterioration, added value, functional substitution and be recyclable. Promotion of clean production and elimination of backward process, equipment and technology be implemented to make green products while saving resources and reducing pollution.

1.2 Circulation

In this aspect, circulation and market establishment of renewable resources are mainly concerned.

Through recycling of the renewable resources, reasonable disposition of resources and change of economic growth mode can be realized. Through developing renewable resource market, distinction caused by imbalanced income and consumption between people in urban and rural areas can be dealt with.

Practices have proved that the circulation of renewable is very functional in aspects like resource saving and production promotion.

1.3 Consumption

Encourage green consuming and oppose wasteful behaviors. Green consuming advocates products that haven't been polluted and good for health. It also stresses on measurement about garbage without environmental pollution. What it contributes to COE is that the green concept determines consuming behaviors of people and their lifestyles. In consuming activities, demand fulfilling, safety and health of the generation are not only involved, so is that of the later generations. We should be aware of eco-protection and resource saving for sustainable consumption when chasing a comfortable life.

In this developing mode, the market entity in patterns above will definitely take steps of saving. Those who waste resources must get lower benefit and move to disadvantageous position in the competition. The traditional economic mode is extensive and with disposable resource utilization. It converts resource into waste to accumulate economic wealth. The COE mode is a mode based on constant recycling of resources in order to reduce exploitation and waste, which will lead economic development onto sustainable road.

2 Key Links of Cost Saving

Cost saving refers to resource saving and consumption reduction. According to the process of economic activities, the cost involves three costs, namely, production cost, transaction cost and opportunity cost.

2.1 Saving of production cost

Production cost is the cost in the production process of enterprises. Production is about exploitation, machining and manufacture of the natural materials. The saving of production cost is not only reflected in reduction of consumption in production, but also in reduction of disposal cost of the waste. From the angle of life cycle, the cost of production means life cycle cost (LCC), which involves research, design, manufacture, storage, transportation, utilization, maintenance and scrap disposal. Obviously, it has to be done under the control of whole link after fulfilling the demands of consumers.

2.2 Saving of transaction cost

Transaction cost is the cost incurring in trading activities. Trading activity, as an important component of market economy, takes the form of interactive process between persons and market entities. The saving of transaction cost is the saving in economic system and production structure. Cost of transaction is determined by scale and quantity of enterprises, external environment, domestic market and abroad market. Therefore, developing COS and COE is related to the Synthetically Dynamic minimization of both savings of production and transaction.

From the angle of economics, trading activities can be classified into three groups. They are managing transactions (or intra firm transaction), market transactions (or Buy and Sell) and government transactions (or rationing transaction). There are three corresponding arrangements of institutions. (shown in Fig.2-2).

In COE development, the saving of the three kinds of transaction has to be concerned. The saving of relevant cost and replacement cost must be involved, too. We should pay attention to the savings of developing costs in managing transactions, trading costs in market transactions and opportunity cost in government transactions. Marginal costs of production should be compared with marginal costs of transaction in the relation and replacement between managing transaction and market transaction. So it depends on both the scale and the level of enterprises as well as the scope and expansion boundary of the market. Cost in the relation and replacement between government transaction and market transaction depends on both the scope and level of government restriction as well as the style and variation of market structure. That between managing transaction and government transaction depends on the relationship between individual selection and public selection. Both of them should be analyzed with their cost-effectiveness. It is determined by the scope and level of public selection and will affect the variation of the structure of enterprises and market.

2.3 Savings of Opportunity Cost

Opportunity cost is the potential maximum benefit which is abandoned in the selection of application of resource which has several applications. It has taken place since the scarcity of resources while scarcity is an undoubted truth. Therefore, selection and analysis are necessary before utilization then resources can be used in places with the highest economic efficiency. In the case, the cost of opportunity gets lower. People should think about scientific distribution of resources from the angles of nations, areas, departments and enterprises. We can explicate the recessive cost of opportunity and propose more selectable stages for saving it in the process of the improvement of market economic system and the political system.