Abstract: The rapid development of science and technology makes the government’s subsidy policy meet the demand of energy saving and the development of circular economy, and the change of product upgrading will have a significant impact on its closed-loop supply chain. This paper focuses on how the replacement influence the closed-loop supply chain with different grades of products, and reaches a series of propositions: (1) The prices of the new products increase after the government subsidizes the replacement, and the government subsidy can promote the closed-loop supply chain to a bigger scale; (2) After the government provides subsidies, the primary consumers are sufferers, and the replacement consumers are beneficiaries; (3) "After the government subsidizes the replacement,the unit profits of the manufacturers have increased,and the impact of low-end manufactures's decision on the high-end manufacturer's profit is strengthened."

Key words: Government subsidy, Closed-loop supply chain, Replacement