780 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
The 1987 International Conference of the System Dynamics Society
Control and Administration of the Investment
Hanger and Consiming Expansion
by Zhang : Jue
The Economic Research Institute
Guizhou Academy of Social Sciences
The People's Republic of Chaina
Februnry 1987
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 781
Control and Administration of the Investment
Hanger and Consuming Expansion
1. Introduction
Since the Third Plenary Session of the Eleventh Central Committee
of the CCP,there have been great achievements in the development of
economy in our country and the living standard of the people has been
raised year by year, However, at this moment of great boom,there app-
eared two protound contradictions in macroeconomy;One is the investa-
ent hanger and the other is the consuming expansion.This is a univer-
Sal persistent ailment in developing cotries.
The investment hanger,i.e expansion of investment infixed asset
is an outstanding contradiction in the development of national economy.
The speed of growth in investment infixed asset greatly exceeds the
speed of growth in production and finacial revenue and the investment
scale exceeds the vossible amounts that financiala and material reso-
urces can provide. The investment infixed asset in 1984 reached 116,000
million yaan, which is 20,s00 million yuan more than that of the year
before. The growth rate is 21.85%,which greatly exceeds the tate of
financial revenue, 14.5%, andthe rate of social total value of output,
12.84%, of the corresponding period, This is an important factor re-
sulting in excessive distribution of nayional income,shortage of sup-
vlying goods and materials,a sharp increase of consuming fund
and going up prices.
The other outstanding contradition in the development of nation-
al economy is consuming expansion,that is,a sharp increase of consum-
ing fund. The speed of growth is consuming fund and the average cons-
uming standard of the residents exceeds that of growth in national: in-
come. In the years of 1980-1984, the average speed of growth in nati-
onal incomeis 8.14%,bit the average speed of growth in consuming fund
is 11.4%, and the average speed of growth in consuming standard of per
ca pita is 10.22%.The speed of growth in total wages and various inc-
ome of staff and workers greatly exceeds the speed of growth in total
value of industrialoutput. In the years of 1980-1984, the average sp-
eed of growth in total value of industrial output is 9%, but the aver-
age speed of growth in total wages of staff and workers is 12.9%, the
average speed of growth in bonus and payment for overfulfilled work-
pieces is 30.74%. The speed of growth in labour production rate for all
782. THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
the staff and workers and that in wages and bouus are out of proportion,
because former »xart is merely at a rate of 3.74%, The speed of growth
of the peasants' net income of per capita exceeds that in total value
of agriculture output by a big imargin.In the years of 1980-1984, the
average speed of growth in total value of agriculture output is 9.1%,
while the speed of growth in peasants net income of per capita is 17.34%.
The investment hanger and the consuming é¢x»ansion lead to serious
consequences of intlation and unbalance in national economy. The total
demands of the people in the society become more than the total supply
by the society,In 1984 the total demands of the people who can afford
to pay is bigger than the total supply of finished produsts sold by
153,500 million yuan. Because of a sharp increase consuming fund of
supplus purchasing power is expended’ greatly and in 1985 it reached
260,000"tiillion yuan.According to the calculation of input-output coe-
fficient 2.03 from consuming structure in 1983, this surplus purchasing
power corresponds to 500,000 million yuan's worth of toyal value of in=
dustrial output.
Excesive financial distribution. In the years of 1979-1984 the am-
ount of financial deficit reached 44,640 million yuan. Im order to make
up for the deficits, the state government borrowed a lot of debts, up
to be end of 1984, they, borrowed from the inside and the outside, re~
ached 72,650 million yuan, which is equal to 50% of the financial rev~
enue that year.
Out of control of credit and currency issue. Accumulation and co-
nsuming fund exceed the national income, which causes excessive distr-
bution, Apart from this, the financial overdrowing and borrowimg from
banks, and the reckless issuing of loans by the bank forced the state
to issue more currency, In the years of 1979-1984 the issaing currency
reached as high as 57,900 million yuan, Resulting from the excessive
issuing of currency, a sharp increse in circulation of currency happe-
ned. It greatly exceeds the market demand.
The goingu up prices. Owing to the excessive issuing currency, th-
ere is sharp increase of currelcy circulation im the markets. Inevita~
bly, it cause inflation, going up prices, and currency devalution. Co-
mporing 1984 with 1978, we can find that ptices of farm ptoducts and
sideline products have gone up by 53%, imdex number of cost of living
of staff and workers has gone up by 19.9%, and index number of retail
price by 17.7%. The going-up of retail prices in the markets means that
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 783
the value of money for purchasing has fallen down, and the currency
devalued.According to calculations, in 1984 currency value of 100 yuan
for purchasing equals only to that of 69.8 yuan in 1952.
2. Model :
After my investigation of the great real problem in the sociea~
list construction, f have made system dynamic model, based on the vi-
ewpoint of systematic perspective, a study of the intricate relation-
ship socialist production,exchangimg,consumption, circulation,distri-
bution and so on.
1) Causal~loops diagram and the major variable.
Causal-loops diagram includes six: feedback loops(see figure 1),
of which four are positive feedback loops and two is a negative feed~
back loop.
FIGURE 1%
784 THE 1987 INTE!
RNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY, CHINA
<5,
HUE SY FH
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 785
(1) Negative feedback loop: cain irvia—ecy—-tsrsc—» spp—=
pin— wr ni-rcaie
(2) Negative feedback loop: ni—ecai—-—irvia—=cy—epin—= wre
nie
(3)Postive feedback loop: fo---wbl—-mi—- spp—=—pin-ewr—> ni—-
fc.
(4) (4) Postive feedback loopsfc—s pin wr—e ni—» fc.
(5)Postive. feedback loop: ni- cai. ecms. mpi. pin— wr
3 Postive feedback loop:ni—» cf——mpi—=pin—= wr—e ni.
2) Flow diagram and equation of dyhamic system.
For flow diagram of the model see figure 2. The equations wit~
hin the are:
Level equation 7
Intial value equation 16
Rate equation 10
Auxiliary equation 17
Tabhl function 16
constant equation 16
3) Model simulation
For the result of model simulation see figure 3,
RUAPERIN asvi9/a6
(CATH. CFE, PIN FO SS. THC
786 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
3. Concluions
Through system dynamic model for simulation, I have got a number
- of important conclusions to control and deal with the investment hang-
er and the consuming expansion as listed below:
1)Firmly control the amount of investment infixed asset. In order
to control and put right the imvestment hanger and consuming expansion,
it is imperative to reform the system of investment,turn grataitous
investment infixed asset into repaying investment, carry out strict ma-
nagement of each tiem as the World Bank does and make a concrete atudy
and demonstration of technology and economic teasibility item by item,
Once an item has been decided to be carried out, submit a tender with
the requirement that the project should be. completed on time and the
quility ensured. In this way,the construction cycle can beshortened,
the item can be put into production quickly and economic benefits can
be raised.
As shown in figure 4,aiver the control of the speed of growtn in
investment iniixed asset, tne finanviul can be wiped out rapialy, anu
national income develops steadily.
Be
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ry Ss eovoeoo tee
: ¥ wiudsderadaseovegeeeeseseocste
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j :
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FIGURE 4
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 787
2) Strictly control the speed of growth in consuming fund, In th-
is. way the speed of growth in total wages, bonus, labour insurance
and welfare will be corresnonding to the speed of growth in na-~
tional income, industry and agriculture.
As shown in tigure 5, after the control of the speed of growth
in consuming fund, surplus putchasing power goes down rapidly;fina-
noialfiericit fails down; price rises slowly;and national income dev-
elops steadily.
M ‘
i sideeulaggeoouza|gzeaeesstdasoevoese
i r :
Fi ‘ '
3 ' ' : H 4
t : ' ' 2?
peo : tooso22272t
Fit feos) j23992222277 rg
Ed EfGbiaaslagagg}3990999292222222 jc tecseesssthone
poe i i i i
FIGURE 5
3. Control the speed of development of national economy. In th-
is way it can develop with continuation, stability and coordination.
Otherwise, if we to seek for a high speed unilaterally it will cert-
ainly lead to the expanding of amount of invesyment infixed asset,
This will unvoidablly aggravate currency by way of tinance and credit.
The total demand in the society will be bigger than the total supply
by the society,and it will certainly lead to irfflation and price risi-
ng.
As shown in figure 6, when the speed of growth in national income
is nut under 6% both of the financial deficit and surplus pukchasing
power go down ahd the price rises up slowly.
788 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
Sevvvvee
°®g00,
'
'
'
att
cy
'
eou0ee n
gzensssttie
nrudusasevecede
Ciassee
22?
22 H
ppao222> te
i i
FIGURE 6
4y Firmly control exceessive financial distribution so as to keep
a good balahce of financial revenue and expenditure ind try to have a
slight surnlus of money. Otherwise, the bigger the financial deficit
is, the more currency will be put in, and the higher prices will be.
Conseguently, it leads to inflation.
- AS shown in figure 7, after the control of financial deficits the
surplus purchasing power goes down rapidly, the rice risegslowly, and
nationalfincome develops steadily.
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA789
RIERA
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pratt, coa7 PING ene. SPS. HOTA
Beet
i i
FIGURE 7
5) Strictly control putting money into circulation in order to keep
a balance of credit, firmly extinguish ‘financial deficits and control
the amount of money in circulation so that the purchasing power can be
in balance with commodity supply. The smaller surplus purchasMing power
is, the easier it will be to control inflation.
As shown in figure 8, after the control of amount of money put in-
to circulation, the financial deficits goes down, the surplus purchasi-
fig power is reduced and price rises up slowly, but the national income
develops steadily.
790 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
{ E380
88
ipitttelittnmnlnein Reteee teehee
H
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Srstastecadaggoocoogdozgearoseastoe
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2932339777? =
scldnnanabananene 2222 ehees asec an
os er re ii
CaTAH. CFT. PIN, POU, SOS, HPT=C
eae?
FIGURE 8
6) Control pricess. So long as there is a control of the scale of
investment infixed asset and consuming fund, there will be a balance be-
tween the vurchasing power and commodity supply, between the income and
the expanditure of finance and crédit. If the money put into circula-
tion is in steability prices will be steable and national ecolomy will
surely develop in a healthy ways
References:
1. Forrester,Jay w ..1968 " Principles of system ".
2. Qifan Wang, March, 1984 "Principles of Dynamic Systems " ,
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS. SOCITY. CHINA 791
SIGNS FOR DEFINITION
INVESTMENT INFIXED ASSET
THE FORMATION OF INVESTMENT ASSET
INDEX NUMBER FROM THE RESULT OF INVESTMENT INFIXED ASSET
DEPRECIATION OF INFIXED ASSET
DEPRECIATION BATE OF INFIXED ASSET
CONSUMING © FUND
INCREASING RATE OF CONSUMING FUND
INCREASING RATE OF WAGES
INCREASING RATE OF LABOUR INSURANCE AND WELFARE
INCREASING RATE OF BONUS
INDEX NUMBER OF COST OF LIVING OF STAFF AND WURKERS
INCREASING RATE OF INDEX NUMBER-OF PRICE
INCRESING RATE OF INVESTMENT INFIXED aSSET
INCREASING RATE OF SURPLUS PURCHASING POWER
SURPLUS PURCHASING POWER
INCREASING RATE OF FINANCIAL DEFICITS
EQUIPMENT CREDIT FOR A SHORT OR MEDIUM PERIOD
FINANCIAL DEFICITS ;
FINANCIAL EXPENDITURES
FINANCIAL INCOME ;
TOTAL AMOUNT OF RETAIL SALES OF CUNMODITY
MONETARY INCOME
INCREASING RATE OF MONEBARY INCOME
MONEY PUT INTO CIRCULATION
NATIONAL INCOHE
CASH CHARGES
REVENUE OF COMMODITY SALES
REVENUE OF RURAL CREDIT
REVENUE FROM BANK SAVING CITIES aND TOWNS
, REVeNUE OF CASHES
EXPENDITURES ON WAGES AND INDIVIDUALS
EXPENDITURE ON FARM*SIDE PRODUCTS
EXPENDITURE ON RURAL CREDIT
TOTAL VALUE OF AGRICULTURE OUTPUT
EXPENDITURE FOR BANKINGS IN CITIES AND TOWNS
CREDIT
a
792 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
RCAI
RCAU
OPG
OocG
RATE OF OUTPUT VALUE OF INVESTMENT INFIXED ASSET
RATE IN INVESTMENT INFIXED ASSET COMPLETED AND MADE AVAIBLE
TO THE USERS
OUTPUT OF PRODUCER GOODS
OUTPUT OF CONSUMER GOODS
WAGE REQUIREMENT
TOTAL VALUE OF INDUSTRY AND AGRICULTURE OUTPUT
COMMODITY
ACCUMULATE “
WAGES, BONUS, LABOUR INSURANCE AND WELFARE
BUSINESS INCOME
TAX OF INDUSTRY AND COMMERCE
TAX OF AGRICULTURE
BUILD
TRANSPORT, POST AND TELECOMMUNICATIONS
COMMERCE
ADADDOZFADPANOZCOAAOZLZAPOADZAZBOZCAPAPAPANZ-NQZAODAOZL
THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA 793
PROGRAM
CAI. K=CAI. J+ (DT) * (CAIG. JK-CAD. JK)
CAT=CAIL
CALI=6. 6872
CAIG. KL=CAI. K#INRCI.K
INRCT. K=IRNTI+#IRFC
IRFC=1. 281
CAD. KL=CAT. K*DRCA
CAD=CARI
CADI=0. 2675
DRCA=0. 04
CF. KSCF. J+ (NT) * (TNCF. JK)
CF=CFI
CFI=18. 88
INCF. KL= (PIN. ik) # CLTW. IK) & CBONUS. K) #+WAGES. K
WAGES. K=TABHL. (WAGEST, NI.K, 0,7; 1)
WAGEST=070. 191/0..195/0. 209/0, 21/0. 226/0.195/0. 205
LIW. K=TABHL. (LIWT, NI.K, 0,6; 1)
LIWT=2. 63/0. 69/0.53/0. 50/0. 39/0. 4070.30
BONUS. K=TABHL (BONUST, NI. K> 0,5, 1)
RONUST=0. 4446/0. 3643/0, 3186/0. 2349/0. 2737/0. 2661
PIN. K=PIN, J+ (DT) # CIRPIN. JK)
PIN=PINI
PINT=0. 01447
IRPIN. KL=PIN. K*IRCAL*IRSPP. K+ IRFD. K+ IRMPI. K
TRCAT=TABHL CIRCAIT, IRVIA, 0,6, 1)
IRCAIT=0. 1087/0. 0879/0. 0992/0. 0855/0. 11170.102/0.111
IRVIASS6. 34 .
TRSPP. K=TABHL (IRSPPT, IRMI, 0,6, 1)
IRGPPT=0. 9351/1. 155/1.515/2. 696/72. 25/1. 808/1. 463
TRMPT: 10
IRFD. K=TABHL (IRFDT.FD.K, 0,7, 1)
JIRFDT=1,. 1/1. 65/2. 2/2. 75/3. 3/3. 85/4. 4/4. 95
IRMI=1. 109
FD. K=FD. J+ (DT) (FC. IK-FR. JK)
FD=FDI
FRT=1.15
FC. KL=FD. K¥IRCAT
FR. KIL=FD. K* I TSRSC. K
ITSRSC=1. 138
SPP. K=GPP. J+ (DT) * (MI. JK-TSRSC. JK)
SPP=SPPI
SPPI=5. 146
MI. KL=16, 0294L IW. K#BONUS, K*WAGES. K
TSRSC. K=TABHL (TSRSCT, CF.K, 0,6, 1)
TSRSCT=0. 925/0. 9290. 964/0. 937/0. 927/70, 93/0. 964
MPI. K=MPI. J+ (DT) * (CC. JK-CR. JK)
MPI=MPIT
MPII=1. 7924
CC. KL=MPTI.K#*RCS. K#SRCT. K#RRO. K
RCS. K=TABHL (RCST. CF. K, 0.4, 1)
RCST=0, 50570. 508/09, 539/70. 567/70. 579
SRCT. R=TAPHI_(SRCTT, MT, 0, 4, 1)
SROTT=0. 19970. 115/70, 12470. 137/70. 164
794 THE 1987 INTERNATIONAL CONFERENCE OF THE SYSTEM DYNAMICS SOCITY. CHINA
MI=16. 029
RRC. K=TABHL CRRCT; AL, 0,45 1)
RRCT=0. 61570. 5351/0. 625/0. 776/71. 162
AL=ALT
ALT=102
CR. KL=MPI. K*CWP. K#CPFOP. K#CRO. K
CWP. K=TARHL. (CCWPT. CF.K, 0,4, 1)
CWPT=0. 327/N. 3352/0. 354/N. 34670. 342
CPFSP. K=TARBHL (CPFSPT, TSA, 0,4, 1)
CPFSPT=f. NAB/0. 1153/0. 16670. 16070. 171
TSA=TSAT.
CRC. K=TABHL (CRCT. CRED, 0,4, 1)
CROT=0. 157/N. 16470. 172/0.176/0.191
CRED=CREDI
CREDI=15. 36
NI. K=NI, J+(DT) CIRNI. JK)
NI=NIT
NIT=29. 75
TRNI. KL=NT. K*#RCAT+#IRVIA
RCAT=RCAU+*NICA
RCAU=TABHL (RCAUT: CAT. K, 0,6, 1)
RCAUT=O. 111/70. 12/0. 10670. 1239/0. 088/70. 18/0. 06
NICA=TABHL<NICAT; CAT. K, 0,5, 1)
NICAT=f. 525/0.562/0.572/1.592/0. 628/0.63
IRVIA=TABHL CIRVIAT, IRCAI, 0,6, 1)
IRVIAT#=0. 92/1. 138/1. 008/1, 169/0. 3/0. 978/0.5
LENGTH=2000 ‘
PLTPER=0.5
TIME=1978
SPEC DT=0.5
PILOT CAT=H. CF=I/PINSU. FD=U/SPP=S, MPT=C/NT=A (1, @
OPT PR; SC
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