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:
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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 Ill]
[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: |, Il, Ill 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 l 1995 l 2000 I 2005 l 2010 |
[Tertiary GDP_ |[ 668 |[ 1388 || 2770 | 5698 |
Tran.&
Comm.GDP 160 || 371 || 788 || 1702
[ Ratio1 |[24-0%4[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 |['995__ [2000 [2005 [2070 |
[electricity [743 [1869 |[4303 [10080]
[coal #965 _ [9890 [181715 ][39080]
cement 370 [652 |[780_—(|[1175 |
[steel |B19__jf455 699. [es |
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 |[#995][2000 2005 [2070 |
[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 anda
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.
REFERENCES
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2.Yang Wanzhong eds. (1994): Regional Research and Shanghai Economic Zone. Shanghai: East China Normal
University Press
3.Yao Xitang eds. (1994): Research on Opening of Pudong and The Economic Development of the Yangtze River.
Shanghai: Social Science Academy Press
4.Cheng Tianquan eds. (1995): Open and Cooperation: China's Infrastructure. Shanghai: Xue Ling Press
5.Shi Yuequn eds. (1995): Yangtze River Zone Economic Development Report (1990-1994). Shanghai: Fudan
University
6.Qifan Wang and Bo Xu: "Coordinate Development of Infrastructure in a regional Economy". Proceeding of the
1995 International System Dynamic Conference, p930-936, 1995
7.Qifan Wang & Boxu: "A dynamic Quantitative Study of the Limits to Regional Economy and Impacts of
Coordination in Infrastructure Development". Processing of the 1996 International Conference on Coordination in
Regional Infrastructure Development along the Yangtze River Basin, P18-24,1996.
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