With the acceleration of China's urbanization process, construction activities have led to a substantial increase in construction waste. However, as China's construction waste recycling rate is low, it is difficult to convert construction waste into valuable products for the sustainable development of waste resources. The biggest reason for this is the construction waste industrial chain, which is imperfect and has many problems. In this study, a simulation model is established using system dynamics software Vensim PLE. The analogue simulation shows that (1) China generates a large amount of construction waste every year. If construction waste source reduction measures are implemented, it will inhibit 50% of the waste generated. Upstream enterprises in the industry chain should actively develop waste reduction technology and improve waste reduction management; (2) marginal effect exists in the single waste reduction measure, but the government should implement more portfolio reduction measures to enhance the reduction effect, which is often three times that of the single policy; (3) the middle stream recycling enterprises in the industry chain cannot solely rely on government subsidies to reduce the cost of waste recycling. It is necessary to create synergistic linkages with more responsible entities upstream and downstream of the industry chain, thus creating a new model in construction waste management. (4) Government policies tend to drive the purchasing power of building material market. The government should actively exert its subjective initiative, supervise and provide policies to help the downstream enterprises that supply recycled building materials in the industry chain, and change the rigid understanding of contractors and owners about recycled building materials. The research conclusions can provide theoretical guidance for industry chain-related enterprises and government management departments in policy formulation, so that construction waste is sustainably developed.