While China has made progress in agricultural plastic film recycling in recent years, persistent challenges remain, including widespread use of ultrathin films, limited adoption of biodegradable alternatives, and insufficient corporate participation. This study develops a system dynamics model of China's mulch recycling system comprising three subsystems: farmer cost‒benefit analysis, enterprise recycling-utilization operations, and performance evaluation. The model simulates three subsidy policy scenarios (standardized film subsidies, degradable film pilots, and infrastructure subsidies) and their combined effects on economic and environmental outcomes, aiming to optimize subsidy levels. The results indicate that the policy combination yields the most significant improvements: compared to the baseline, the recycling rate increases by an average of 12.1 percentage points, economic performance improves by 18.41%, and environmental performance loss decreases by 46.17%. This integrated approach promotes standardized film adoption, enhances circular utilization, and mitigates residual film impacts on ecosystems and crop yields.