A Quantitative Model for Infrastructure and Basic Industry and Its Application to Shanghai Facing 21st Century

Qifan Wang Bo Xu Jianguo Jia

School of Management Fundan University

Shanghai, 200433, CHINA

ABSTRACT

The infrastructure and basic industries of a region or a state is a fundamental factor in its development. A system dynamics model of infrastructure and basic industries in Shanghai was set up in this paper. Then, by simulating the model, we analyzed problems about them. At last, some basic views on coordinately development of the infrastructure and basic industries with economy in Shanghai were put forward, and the policy suggestions were also given.

INTRODUCTION

Shanghai, as an economic, trade and financial center in China, is now becoming more and more famous in the world. The director of the Special Economic District of Chinese State Council once said: "If a national or international economic center in China is bound to grow up someday, it must be Shanghai not other places."

To face the coming 21st century, three grand strategies are now being actively performed in Shanghai-establishing the infrastructure, adjusting the industrial structure, and applying the high technology to industry. In this paper, we mainly studied the issues about the infrastructure and basic industries.

THE SYSTEM DYNAMICS MODEL

The economic development of a region or a state depends on the effect of two forces. One is the push from supply, another is the pull from demand. Here, we assumed that the real output YA is determined by potential output Y, the regulating rate of work R, and the limitation of infrastructure LF. Then the following equation can be given.

YA = Y * R * LF (1)

Using the Cobb-Douglas production function we can calculate potential output Y. The regulating rate R is the ratio of total demand to total supply. Lf is also the ratio of the infrastructure demand to its supply. According to the modern economy theory, the total demand is the sum of investment, net import, net inflow, and the middle-demand; the total supply is the sum of all industries.

The demand of the infrastructure is an inner product of output vector with infrastructure (such as energy) cost vector of per output. The supply of the infrastructure is determined by the sum of its output and its net inflows. We supposed a limitation fuction of per unit output as following:

Lij = fij(SDRj) (2)

Where Lij is Partial limitation of infrastructure j on industry i; SDRj is the supply-demand ratio of jth infrastructure.

At last, we use CES (constant elasticity of substitution) functions to achieve the limitation function in two stages. The first stage is to synthesize the kindred infrastructures, eg., to synthesize electricity, coal and oil, to obtain a limitation of "Energy". The second is to synthesize the different kinds of infrastructures, i.e, to synthesize limitation of energy, of transportation, and raw material to obtain a comprehensive limitation. Therefore, a complete SD model is set up. A simplified flow-diagram can be seen as follows:

Figure 1. The simplified flow diagram of the limited economy

SIMULATION AND SUGESTIONS ON POLICY

1.Base run

Considering the basic situation of Shanghai, we simulated the SD model. The results of the base run are the following:

Table 1. Results of GDP in base run (100 Million, 1992 prices)

 Year GDP GDP I GDP II GDP III 1992 1114 34 677 403 1995 1620 41 911 668 2000 3034 48 1598 1388 2005 5148 58 2380 2710 2010 9693 72 3923 5698

Note: I, II, III refers to Primary, Secondly and Tertiary industry respectively.

We can see in the future 15 years or so, the annual growth rate of GDP (in real term) of Shanghai will be 12.77% on average. The GDP of primary increases by 4.26%, secondly 10.25% and tertiary 15.85%. The tertiary industry of Shanghai will increase more rapidly. This accords with the development plan of Shanghai. For in 1990s, a development strategy of "Tertiary-Secondly-Primary" growth series has been performed. In 1992, the Annual output of the tertiary was only about 60% of the secondly. With the efforts in the following 10 years, the output of the tertiary industry is expected to exceed that of the secondly in 2003(at constant price in 1992).

2.The forecast of the transportation and communication

Table2: a forecast of the transportation and communication in Shanghai

 Year 1995 2000 2005 2010 Tertiary GDP 668 1388 2710 5698 Tran.& Comm.GDP 160 371 788 1702 Ratio1 24.0% 27.6% 29.1% 29.9% Ratio2 10.0% 12.2% 15.3% 17.6%

Notes: Ratio1: The percentage of transportation and communication in the tertiary.

Ratio2: the percentage of transportation and communication in total GDP

The transportation and communication industry that belongs to the tertiary, as a basic section in economic development, will increase more rapidly than others. Table2 is a forecast of the output of the transportation and communication in future. It can be seen the percentage of transportation and communication in tertiary will increase from 24% in 1995 to 29.9% in 2010. Because the transportation and communication now have been regarded as a supporting industry in Shanghai's long run development, its objective is not a relaxation of the bottleneck effect, but also a new economic growth point in Shanghai's future economic development. The percentage of the production of the transportation and communication in total GDP will keep on increasing, and about the year 2010, a percentage of 17.6% can be tangible.

3. The demand of raw material and energy

Table 3. Demand of raw material and energy of Shanghai (10,000 ton, or 100 million kw/h)

 Year 1995 2000 2005 2010 electricity 743 1869 4303 10080 coal 4965 9890 18115 39080 cement 370 552 780 1175 steel 319 455 599 930

The above data indicate: with the development of economy, the demand of raw material and energy will go up quickly, by far beyond its own supply ability. We suggested the following ways to release these bottlenecks:

(1)The principle regional coordination. By reinforcing the coordination between the industrial base and the resource base in the form of commodity exchange, the supply of energy and raw material can be ensured.

(2) Seizing opportunities and being active in the development of raw material industry, so the shortage of raw material can be managed to support the economic development of the region, and the regional markets can be developed at the same time. The problem of competing raw material and markets with the inferior region can also be solved in this way.

In order to relieve the situation of energy and raw material shortage in the long run, Shanghai and other coastal developed areas should transfer high energy and raw material consuming products and industries to the inferior region, and develop the products and industries which are, to a high degree, technology-intensive, capital-intensive, and value added, with a low consumption of raw material and energy. Thus the division of labor among different areas can be formed and improved progressively.

4.The supply and demand of coal analysis in Shanghai

Table 4. The Demand and supply of coal in Shanghai (Unit:10000 ton)

 Year 1995 2000 2005 2010 Demand 4965 9890 18115 39080 Supply 4950 7276 10696 15724 Shortage 15 2614 7419 23356

The demand of the infrastructure in Shanghai will increase very rapidly, but its supply can not increase with the same speed. We can elaborate on this problem in the case of coal.

The coal used in Shanghai is mainly transported from Shanxi province, Anhui province and other coal producing regions, so the supply of coal will be greatly limited by the capability of the transportation. From table 4, we can find that though the greatest efforts would be made to manage the coal shortage in Shanghai, it would be impossible to satisfy the rapidly increasing demand. Except for too quickly economy growth, there are other causes. First of all, the industrial structure is unreasonable, and there are still many enterprises with low efficiency and high depletion of energy. Secondly, the high technology has not been adopted to improve the excessive consumption of the coal. Thirdly, the synthesized utilization of coal has not be performed, and a great waste of the coal still exists. Fundamentally, the cause is that the economic growth speed determined by present industries structure is based on the excessive consumption of energy and raw materials. Therefore, in order to keep a rapid growth speed and a sustainable development, the transition of economic growth method which is from the resource-depletion style to the intensive style have to be fulfilled, the industrial structure have to be adjusted, and the thrift and exploitation of resource must both be initiated.

CONCLUSION

With the development of Shanghai's economy, the demand of infrastructure is becoming greater and greater, but its supply is unable to catch up with the steps of the demand increasing steps. The causes for excessive demand doesn't only lie in a rapidly increasing economy, but also its low efficiency utilization, and a high consumption of energy and materials. In order to realize a rapid economic growth with a high efficiency and a sustainable development, we must fulfill the transition of the growth method from resource-exhausting method to the intensive one, and to adjust the industrial structure.

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