This paper explores Shanghais comprehensive waste classification policy, highlighting its impact on waste reduction, recycling, and the economy. The policy engages citizens in waste sorting at the source and leverages a combination of regulations, incentives, and penalties. This study examines the policys outcomes, including increased recyclable recovery, reduced hazardous waste, and conversion of waste to valuable resources. Economic benefits such as job creation and a recycling-driven economy are discussed as government investment has boosted the recyclable sector. Growing customer demand under the new policy also creates more jobs. However, challenges such as economic strain and impacts on informal waste collectors should also be acknowledged. Environmental and social concerns, such as plastic bag usage and public dissatisfaction are also addressed. Drawing lessons from waste classification policies in Tokyo and Germany, potential solutions are suggested, including regulatory enhancements, charging mechanisms, stakeholder cooperation, and expanded recycling channels. The abstract underscores the need for continuous evaluation, adaptation, and collaboration to ensure the policys success in fostering a sustainable urban environment.