Department of Social Science
Tsinghua University
Beijing, 100084, P.R China
A System Dynamics Model of Socio-Bconomic
Development of Harbin in China
Wang Yanjia
ABSTRACT
A system dynamics model of socio-economic development of Harbin in
China has been presented in the framework of the integrated economy-energy-
environment system planning.
The mode] simulates the activity mechanism of national economy of
Harbin by taking the fixed capital of each industrial sectors as a major
variable and controls the system behaviour by taking the gap of energy
supply and the gap of energy investment as feedback signals. Therefore the
pre-established development targets of nationa) economy can be reached by
readjusting the investment allocation and production structure towards
elimination of the energy and investment gaps.
Through a series of policy simulation, several socio-economic
development planning scenarios of Harbin for year 2000 have been compared
with each other by examining some key issues, such as growth rate,
investment ratio, investment allocation tenency and production structure
readjustment as well as improvement of scientific, technical and
managenental level, etc. The resulted policy suggestions were proposed with
much attention being paid by dicision maker authority.
this model can run on the personal computer under the support of the
Professional DYNAHO Plus software, and try to connect SD model to other
technical model, such as energy forecasting model, multi-object optimun
+ energy supple model, etc. An idea which is about SD co-operated with other
methods has been presented and that is the direction of the system dynamics
method development.
1. Socio-Economic System Analysis in Harbin
Genera] situation:
+ Geographic location: Harbin is situated in the Southern part of
Heilongjiang province, the northernmost province in China, on the middle
reaches of the main stream of the Songhuajiang River. Harbin covers an area
of 7000 square kilometres, which include 7 administrative districts named
Dao Li, Dao wai, Tai Ping, Dong Li, Xiang Fang, Nan Gang and 2 counties
named Hulan, Acheng.
+ Political position: Harbin is the provincial capital of Heilongjiang
province. Harbin is also the economic, transportation and cultural centre
of the province.
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System Dynamics '90 1278
. Natural condition: Although Harbin as an industrial center, has no
own natural resources, the area around the city is rich in natural
resources, such as petroleum, natural gas, coal, iron, forest and
agricultural products. These natural conditions are very favourable for
econony developaent in Harbin.
Social and Economic Situation in Harbin
In 1985 Harbin has 3.81 million of population, of which 2.63 million
are in urban area. With the rapid growth rate of 11.1% in industrial and
agricultural production, as an industrial city where there are 3632
industrial enterprises, its gross output value of national product per
capita is 1400 Yuan in 1985, and 1925 Yuan in 1987, which are much higher
than national average level (793 Yuan in 1985 and 1023 Yuan in 1987).
Similar to the "overheat" of economy growth over the country the growth rate
of industry in Harbin is also too fast, as to cause much unfavorable
consequences such as over large scale of investment in capital construction
beyond allowed level financially, tight shortage of energy, raw material and
extremely heavy burden of railway traffic investment, as well as inflation.
The main characteristics and problems existed in the current economic
system of Harbin.
- Industry structure
The composition of industry product value by sector in Harbin is shown
in Table 1, it can be seen that mechanical industry, the core of which are
three large scale well-known power equipment manufacture plants (Electric
generator, Boiler and Turbine), forms the "pillar" of the whole economy of
Harbin.
For machinery industry its output value amounted to 40.9%, much higher
than national level (about 22.5%). As an important energy equipment
manufacture base in China, the amount of the electric equipment produced in
the city account for one-third of the total production in China. However on
other hand, this heavy industry- dominated industrial structure causes
higher demand for energy and raw material, but lower net output, and there
are much potentials to be brought into play for light industry.
+ Aged equipment with low production efficiency
Most key industrial enterprises, equiped during 50’s-60’s year have
already aged without renewal. The technical backward equipments are still
in production line with low efficiency. This situation becomes worse for
those middle and small scale factories. The extent of equipment aging can
be measured by’ ratio of net value after depreciation to original value of
fixed assets in industrial sectors, as shown in Table 2.
From the table, it can be seen that due to depreciation the net fixed
assets remained for some industrial sector are only 57.6%. Asa result,
their productive efficiency are lower than average level over the whole
China.
System Dynamics '90
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Table 1 The Composition of Industrial Product
Value in Harbin 1985 (in 100 milton Yuan)
Code Sector . “output value %
1 Food, Drinks & tobacco 11.33 12.8
2 Textile (incld.synthetic fabric) 5.70 6.4
3 Electric and thermal power 1.50 1.7
4 Petroleum Processing 1.81 2.0
5 Coking, gas etc. 0.13 0.1
6 Chemicals 3.30 03.7
7 Medicine 3.10 3.5
8 Building Materials 3.35 (3.8
9 Machinery manufacture (incld. Electrical Equipment) 36.20 40.9
10 Electronic products 0.77 (0.9
11 Other . 21.37 24.1
Total 88.56 100
Table 2. The Ratio of Net Value to Original Fixed
Assets in Industrial Sectors in Harbin
(in 100
Sector Net Original Ratio
value value %
Food, Drinks & tobacco 305 «=398 78.6
Textile (incld.synthetic fabric) 264 37470.
Electric and thermal power 300 510 -58.8
Petroleum Processing 66 100 66.0
Coking, gas etc. . 32 39° 82.1
Chemical 134 216 «62.0
Medicine 97 = «137 70.8
Building Materials 303. 420-721
Mechanica] manufacture (incld. Electrical Equipment) 2007 3483 57.6
Electronic products 39 59 66.1
Other 818 1443 56.7
Total 4365 7179 60.8
+ Lower investment effect
To improve the aging problem of industrial equipment, such investment
have been input to increase the fixed assets in Harbin during recent years.
But many advanced production lines introduced with the investment do not
bring obvious. economic return as much as expected for some reasons such as
lower management’ level,poor technical skill, shortage of energy and raw
material supply, and their prices rising. Table 3 illustrate the investment
effect indicated with the output rate of per unit value of fixed assets, and
as a whole industry.
. High expense during productive process and low net output
Table 4 gives the comparison between gross output value and net output
value in industrial sector in Harbin in 1985. Inspite of the rapid growth
System Dynamics '90 1275
rate in gross output value these years, the growth rate in net output value,
‘in comparison, is lower than the former. It means during productive
process the expense increase over time resulting lower value-added.
Table 3. The Output Rate of Per Unit Value of Fixed
Assets in Industrial Sectors in Harbin
(in 100 Yuan 1987)
Sector Output rate Output rate in
in Harbin _ average in China
Food 154 235
Textile 127 200
Electric and thermal power 30 33
Petroleum Refinary 171 212
Coking, gas etc. 22 71
Chemical 170 115
Medicine 292 -
Building Materials 79 89
Machinery manufacture 91 106
Electronic products 144 172
Other ca =
Industry Total 94
Table 4 The Comparison Between Gross Output Value and Net
Value in Industry in Harbin, 1985 in real price
(in 100 million Yuan)
Gross Net
Sector output output Ratio
value value x
Food, Drinks & tobacco 1084 272 25.1
Textile (incld. synthetic fabric) ATT 139 29.1
Electric and thermal power 149 69 46.3
Petroleum Processing 216 69 31.9
Coking, gas etc. 18 2 11.1
Chemical 301 17 25.6
Medicine 257 18 30.4
Building Materials 276 96 34.8
Machinery manufacture (incld. Electrical Equipment) 3334 1057 31.7
Electronic products 51 18 35.9
Total 8159 2423 29.7
The reason for that is related with technical processing condition and
unreasonable price system.
+ Shortage of energy supply
A great amount of coal are needed in Harbin for space heating in winter
season which lasts longer than six months. In 1985, the fuel consumption for
space heating was: coal 370.5 10KTon and fuel oil 46.22 10KTon, that
accounted to 60% total fuel consumed in Harbin. This additional energy
1276 System Dynamics '90
consumption, which is not the case in southern China, aggravate the existed
shortage of energy supply, which has occured with dramatic growth of
econony. In winter many factories have to stop productive activities in
order to keep space heating. The estimated economic losses would be 6
billion Yuan during the 6th Five-year-plan period (1981-1985).
Summary: Although a great progress in economy has been achieved during past
ten years, the economy system of Harbin appears relatively somehow
“heavier”, "elder", "slower", comparing with several other large cities. So
the municipal government has been finding ways to make the economy system
full of activity and steady growth.
2. Model Introduction
The system dynamics method is selected for modeling of social economic
development,.which could sisulate the economic development and comprehensive
analyze the relationship between social economy and the energy demand, in
macro-level.
Why I select SD method
Comparing to econometrics and mathematical programming the SD method
has its own advantages:
First of all, SD method has directly perceptible sense to describe the
system, and has strong. capacity to present the insight of the systrm
structure. So it is sore suitable for studying the system which have
complex structures and much coupling relationship. The economic development
of such larger industrial cities as Harbin is not only restrained by the
energy supply and the environment pollution, but also connected with such
factors as scientific technology, education, population, etc. As to the
internal of economic system, it has the relationship of complex restraint
and influences among various branches. The economic structure and relation
among various factors determine the overall behaviour of the system of
Harbin. From methodlogy point of view, the way of thinking that SD provides
for system analysis, make it selves much suitable as a powerful means to
simulate the structure of system distinctly.
The second, the model established by using SD method is a structure
simulated model. Once the model can more accurately represents the
structure of actual system, many kinds of policy testing can be done with
the SD wodel, and it can offer convenient means to search for the better
ways of the city development and the policy of energy and environment.
The third, SD method put emphasize on description the of system. Of
cause the data also plays a very important role in the model, but the
requirenent for data accuracy and data sample length is far less strict than
other methods. Therefore it is more suitable for the area where the
statistical work is not perfect, especially where the statistical standards
changes frequently.
The fourth, the SD method is convenient for making dialogues between
the model and decision makers.
The logical flow chart of SD model is shown as Fig. 1.
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Fig. 1. Logical flow chart of SD model
Quantitatively Studying the Other City’s Economic
Harbin’s Economic Development Development SD Model
fei ———_—_—,
Cause-and-effect
Information-feedback
Diagram Collection
of Data
| Flow
Analysis and
Processing of Data
DYNAMO Programping
L
[Regression of Model Paraneter |
Test of Structure of Model
Sisulation
Resw: It Output]
[result Analysis and Policy Suggestion
« The thinking of model designing
The feedback loop structure of socio-economic system in Harbin is shown
in Fig. 2. :
Main idea is to guarantee the Harbin’s national income (total product
of society or gross production value of agriculture and industry) as
prerequisite, and refering to the development programme of every department,
we adjust the input and output of different departaent to menimize the gap
1278 System Dynamics ‘20
of energy supply and the gap of energy investment.
Fig. 2. The feedback loop structure of socio-economic system in Harbin
of science
& educatio
Science
& education
investment
Residential
non-heatin
building
investment
heating
energy
demand
Harbin, as a system, should achieve its overall goal of . developrent.
There are many ways to be chosen to achieve the goal. Economic development
faces two important restraint factors. One is investment, the other,
energy. So we can take the gap of energy supply and the gap of energy.
investaent as a feedback to control the behaviour of the whole system. On
the other hand the ratio of input to output and the energy consuaption per
unit of product are quite different from each other among defferent branches
of industry. $o by adjusting the allocation of investment in different
branches, we can control the readjustment of production structure that can
give negative influentces on the gap of energy supply and gap of energy
investment (i.e. elimination), and then, in return, promote the economy
System Dynamics '90
1279
development along this way to its goal.
On other hand, fixed capital and quantity of labour employed can
represent the production scale of each department, and the fixed capital per
capita reflects the intensity of capital and the intensity of technique.
Therefore we use the fixed capital of branches as a main variable in the
model. So by increasing the fixed capital transformed from investment and
by improving the fixed capital output rate due to scientific technology
progress, we can forecast the output value of every branch.
3. Development Targets
As Harbin is a large scale socio-economy system and an urban ecological
system, the long term development planning should be formulated base of on
correct strategies and policies.
During 1985-1987, the municipal planning authorities proposed a document
"Socio-econoay development strategy for year 2000 in Harbin", in which the
me socio-economic development scenarios can be classified as shown in
Table 5.
Table 5 Socio-Economic Scenarios
Iten 1985 1990 1992 1995 2000
« Total Product of A:105.4 175.6 250.9 380
society B:105.4 204.2 320
(in 100 million Yuan) C:105.4 115.5 320
. Growth rate of A: 10.7 1.4 8.9
total product of B: 9.91 5.94
society (%/a) C: 1.56 1.97
. Gross output value A: 76.3 131.1 190.8 299
of industry B: 76.3 153.5 250
(in 100 million Yuan) C: 76.3 130.3 250
« Living floor space G 6.0 8.0
per capita A 6.0 8.0
(sq.m/man) C: 6.0 8.0
Here scenario A called Economic benefit oriented scenario, means a
higher growth rate strategy, at which the total product of society will
reach 38.6 billion Yuan in year 2000. Both scenario B and C means lower
growth rate strategy. The annual growth rate between 1985-2000 would be
7.71 % lower than. 9.02 % of higher one. However, on the other hand, there
are difference in the growth rate between scenario B and C in 1992, when the
current session of the municipal government will be at the expiration of its
term of office. The former scenario tries to pursue a higher growth rate
than the latter in 1992 to see what influences would happen on the future.
Of cause there are some other scenarios may be taken into account, such
as energy saving oriented scenario, etc.
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To realize these ambitious targets that need great efforts to be made,
the following strategical factors would be considered:
Integrated equilibreum: including materials, finance, market,
labour, foreign trade and so on. .
. Harmonized (coordinated) and synchronized development pattern
associated with economy, energy and environment.
+ Reasonable growth rate and proportion of consumption to accumulation
over the time horizon.
. "Tilted" allocation of limited investment among variety of
industrial branches in order to guide the direction of adjustment of
industry structure.
+ Full use of advantage of industrial base in Harbin. For example,
machinery and electric equipment manufacture, food processing, chemical,
textile, medicine and building material industry should contribute more to
the national economy.
These scenarios can be input in socio-economic development SD model with
which a series of policy simulation can be run through interactive way in
order to investigate some key issues that the municipal authorities much
concern, such as economy growth rate, industrial structure and investment
rate as well as investment allocation. During the simulation running, three
policy factors, which affect actively the economy development of Harbin,
i.e. investment rate, output rate and STH level* for respective sector, were
taken into account in order to examine the system behaviour. Thus the
detailed pattern of the scenario, for instance, the composition of the
industrial product by branch, can be generated in this way.
No’ STM level means Scientific, Technical and Managemental level, that
is a relative index to measure the quality of an economic sector and to
coordinate the system development.
4. Policy Simulation
. Economic growth rate
The SD simulation for those three scenarios A, B, C, resulted in three
different economic growth curves respectively that are shown in Fig. 3.
According to the current real economy situation in Harbin, the economy
development is undergoing a transition stage from growth speed oriented to
economic benefit oriented.
Neverthless keeping a certain steady growth rate is still one .of key
focus for the economy development. With this point of view, it can be found
that sceranio B that tries to pursue a higher growth rate in 1990-1992
period through, will remain a “over heat" status during the period that has
proven to go against the laws of healthy development of economy and is being
overcome by the current econowic adjustment-policy, and then will fall down
System Dynamics '90
to a much slower status which does not make sense and cause unfavourable ©
consequence for future development.
On the other hand however, scenario C appears a steep slope of
reduction in economy growth rate after 1987 that seems-unrealistic in real
case because of inertia of economy development. Nevertheles scenario C,
after all, is a receptible option in the case that limited accumulation of
system Dynamics ‘90 1281
investment funds can not weet the demand for high speed arowth of economy.
Therefore scenario A which avoids both shortcomes is thought to be more
reasonable.
Fig. 3. Growth Rate of Total Product of Society in Harbin
Scenario A, B, C
GQ Scenario A
+ Scenario B
& Scenario C
Growth rate (4)
For scenario A, the SD simulation can output the corresponding
messages on requirement for output rate of fixed assets (also for STM level)
and investment rate as well as its allocation, as shown below in Table 6,
Fig. 4.
1985 2000 increase rate
output rate of 1.75 2.19 1.5%/a
fixed assets
Table 6 Investment allocation for Scenario A
Sector 1985-2000 Investment percentage (%)
(100 mln Yuan)
Industry 175.5 40.9
Other material sectors 63.2 14.7
non-material sectors 87.8 20.5
(exeld, residence)
Residential construction 102.4 23.9
Total 428.9 100
Fig. 4 shows that after 1989 the investment rate will be lower than
that level in 1988 and keep relative lower level during "Eighth-Five-year
plan" until "Nighth-Five-Year plan" with average value of the rate being 36%
1282 . System Dynamics '90
during 1985-2000. This trend is consistent with the current economy policy
which intend to slow down the growth rate by adjustment. Therefore the
feasibility of those requirement may guarantee the realizability of Scenario
Fig. 4. The Investment Rate for Scenario A
(Ratio of Investment to National Income)
Investaent rate (%)
- The role of STM level improvement
There are two ways of expanded reproduction. One is called intensive
{connotative) way by improving the STM level of enterprises, another is
called extensive way by simply increasing investment in fixed assets.
In the past the first way was usually ignored. It was the case in
Harbin, For instance, the investment in fixed assets in industry sector in
Harbin from 1980 to 1985 reached 3.37 billion Yuan. However the industrial
production value increased from 4.97 to 7.5 billion Yuan only within the
same period, that led to decrease in output rate of fixed assets from 1.78
to 1.75 and even decrease more for some particular industry sector.
To identify the role of STH level which plays in economy development.
two policy simulation runs have been carried out one of which simulated the
industry development in Harbin for year 2000 by setting different STH leve}
and remain the investment rate constant (36%). The results are shown in
Table .7.
It can be seen from Table 7 that under the constant investment rate.
the increase of STM level enhances the "intensive" capability of output for
the fixed assets and hence increases the gross product value of industry
obviously, especially in the case when STM level is lower.
Another policy simulation examined the substitution between investment
input and STH level, when keeping the industry production value at the
constant planned target (29400 min Yuan).
system Dynamics '90
1283
The results are shown in Table 8.
Table 7 SD Simulation on STM Level
(constant investment rate 36%)
STM Output rate of Gross product value
fixed assets of Industry
Level 1985 2000 increase 1985 2000 growth
rate (%) rate (%)
0.9 1.75 1.97 0.79 15 253 8.4
0.95 1,75 2.08 1.16 15 = 274 9.02
1.0 1.75 2.19 1.5 15 296 (9.6
1.05 1.75 2.29 1.81 chy 319° 10.1
1.10 1.75 2.40 2.14 vc) 343.5 10.65
1.15 1.75 2.52 2.46 15 368 «(11.2
Table 8 SD Simulation on Substitution
Between Investment Rate and STM Level.
Investment STM Output rate Total investment Investment
rate (%) Level of fixed assets in industry intensity(*1)
———__-____--___ (100 mln Yuan)
1985 2000 _% 1985-2000
33 1.15 1.75 2.52 2.46 148 60
35 1.05 1.75 2.30 1.84 168 91
36 1.0 1.75 2.19 1.5 176 17
37 0.95 1.75 2.07 1.13 189 167
38 0.90 1.75 1.96 0.76
199 262
Note *1: Investment intensity per unit of increase rate of output rate of
fixed assets
It is clear to see the role of substitution of STM Level for investment
rate by comparing two cases, which are in the top and bottom row,
respectively, in Table 3.5. When STM level is only 0.9, the output rate of
fixed assets is also lower, 1.96. So the investment rate must be 38% high
which requires near 20 billion yuan of total investment in industry in order
to realize 29.4 billion Yuan of planned target of industrial product value
for year 2000. In the case the total investment intensity per unit of
increase rate of output rate of fixed assets would be 26.2 billion Yuan
high. . :
While on the other hand, when STM level increase up to 1.15 the output.
rate of fixed assets hence increase to 2.52. So the investment rate would
be decrease down to 33%, which requires near 15 billion yuan of total
investment in industry sector in order to realize the same planned target.
Therefore the total investment intensity would go down to 6 billion Yuan.
It led to the conclusion that increase in STM level by 0.25 might substitute
about 5 billion Yuan of total industrial investment.
1284 System Dynamics ‘90
T
- Readjustment of industrial structure
If the investment allocation be readjusted, when keeping the investment
rate at the constant (36%), what’s to happened? The 5% investment (called
readjustment funds) has been taken to some industrial sectors which are
efficient, the results are shown in Table 9. I designed aC program to
connect the DYNAMO prograr which compared the efficiency of each industrial
sector with the conditions of market, supply of materials, etc.
Table 9 SD Simulation on Readjustment of Investment Structure
(for year 2000)
Item Scheme 1* Scheme 2%
Total product of society (in 100 million Yuan) 380.0 403.9
National income (in 100 million Yuan) 129.1 137.1
Gross output value of industry (in 100 million Yuan) 296.0 318.4
Living floor space per capita (sq.m/man) 7.44 7.84
Output rate of fixed assets 2.19 2.30
Scheme 1: no readjustment of industrial structure
Scheme 2: readjustment of industrial structure
It can be seen from Table 9 that under the constant investment rate, if
we only readjust the structure of investment, the gross output value of
industry, national income and total product of society would have increased.
The conditions of living floor improve because of the municipal finance
increasing. At same time, the investment on energy production, education,
science and technology would also increase. I have done a series of
simulation under different market condetions.
Summary:
I. It is feasible to select scenario A that pursue 38 billion Yuan of
total product of society for year 2000, as target. This argument is
supported by the following point of view that.the investment rate will be
all lower than 44% of 1988 in after years.
It seems that scenario A may enable the econoay in Harbin to develop at
a relative higher growth rate provided that investment demand can
ensured, and meanwhile may prevent from “over heat" status.
II. The output rate of fixed assets is a key issue concerning the
economic strength of Harbin. The marginal utility of output rate of fixed
assets will diminish year by year with improving of STM level. Therefore at
the present stage, in which the STM Level is rather low the emphasis should
be put on-<raising the output rate of fixed assets by improving the STH
level, such:°as.fully making the most of capability of existing industrial
equipment, speeding up the update of backward equipment, improving
productive processing technique, skill and management training, and so on.
On the other hand for long term the strategical measures to be taken
should be adjustment of product composition, increase of the value added of
products, reduce the processing losses and 50 on.
System Dynamics '90
III. There are substitution role between improving of STH level and
increasing of investaent in fixed assets in order to realize future target
of product value. 80 it is suggested that part of investaent budget for
fixed assets should be shifted to the budget for scientific technology and
managenent. The significance of the suggested shifting will not only appear
by the end of 2000, but also has historical influence on the development in
21 century.
5. Model System
To achieve those socio-econoray, living standard and environment
targets, there are several planning alternatives, each of which may put
emphasis on certain strategical factors mentioned above. Therefore the
Problem to be solved is a multiple objectives, multiple criteria decision
problem for a large scale socio-economy system of Harbin, that should be
solved by using model system approaches.
Although the SD method has a lot of advantages, it’s most inefficient
on some technical studies. To give the comprehensive assessment and policy
analysis for these alternatives, the systematic analysis by using model
approaches is necessary also. For the purpose a completed model system has
been developed (See Fig 5). These technical models can reserach carefully
on energy demand, eaergy supply, pollution, etc, and counteract SD method's
weaknesses. I think that SD co-operated with other methods is the direction
of the system dynamics method development.
Fig. 5. Model System
Socio-Economic Energy Quantity & Air Pollution
Developing Variety of Dispersion
Development Demand Gaussion
° Schene Energy Dispersion
8D Model Forecasting Demand Equation
y : Model &
Supply of Model Unified
Energy Pollutant Transport
= Investment [Gap of Energy Concen- Model for
Ae Investment tration Toxic
Materia
+ . Demand of Energy-Environaent
Bi-Linking,Mulitiple
Energy Goal Programming
Investment Model.
References:
Donella H. Meadows. 1989. System Dynamics Meets the Press. System Dynamics
Review 5(1):69-80
D.R Drew, Lee D.Han. 1987. System dynamic Model of Infrastructure Induced
Development on TAIWAN. Proceedings of the 1987 International Conference
of the System Dynamics Society, Shanghai, China:151-179
