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The simulation and prediction of China’s economic growth in the medium and long term involves quantitative and qualitative methodologies pursuant of achieving the objective of accurate prediction results.
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Based on human-earth relationship system theory, system dynamics, and other related theories (Wu, 1991; Li et al., 2015; Liu, 2018), the supporting system of China’s economic development is composed of population, resources, energy, ecological environment, industry, urbanization, market, scientific and technological innovation, government, geopolitical economy, and ecological footprint. Each subsystem module is composed of its own subsystem, forming a network system with the characteristics of economic geography, such as aggregation, hierarchy, correlation, purpose, openness, dynamics, and environmental adaptability. The system model can be simply described as per Equation (1):
$$ CEGSS=\left\{\left[{Q}_{CEGSS},\left({\delta }_{CEGSS}\right)\right],\left[{\beta }_{Q}\right]\right\} $$ (1) where
$ CEGSS $ is the supporting system of China’s economic development,${Q_{CEGSS}}$ represents the subsystems of$ CEGSS $ ,${\delta _{CEGSS}}$ is the intra-relationship of the subsystems, and$ {\;\beta _Q} $ is the inter-relationship of the subsystems.According to the principle of system dynamics, the mathematical expression of the overall structure of the system dynamics prediction model of China’s economic development supporting system is as per Equation (2):
$$ CEGSS=\cup _{i=1}{S}_{i}\left[{S}_{i}=\left(L,R,A.\lambda ,t\right)\right] $$ (2) where
$L$ is the state variable,$R$ is the rate variable,$A$ is the auxiliary variable,$ \lambda $ is the parameter, and$t$ is the time variable. According to the principle of positive and negative feedback loop, the model equation is designed. When determining the reference behavior pattern and parameters, a variety of curve models are used to assist simulation. Therefore, this model can be referred to as the Integrated Prediction Model of Economic Geography-System Dynamics (EG-SD). -
(1) Causality in the EG-SD integrated prediction model
The EG-SD integrated prediction model constructed under the ‘three-dimensional target’ includes three subsystems and 11 subsystem modules. The operation of each system module depends not only on its internal structure, but also on its connection with external environment elements. Changes in one system module will be fed back to others, and each module will influence, restrict, and promote each other to realize the overall function of the system. Eleven subsystem modules and their causal feedback are described below.
1) Population system: original power of CEGSS. GDP growth cannot be separated from population, which is both the producer and the consumer. From the perspective of production, economic growth needs a labor force, and sufficient labor resources are conducive to economic development, otherwise they hinder economic development. The interaction forms a positive feedback loop: GDP → + total population → + labor resources → + per capita output → + GDP. From the perspective of consumption, the larger the population, the larger the final consumption expenditure, driving the growth of GDP and forming a positive feedback loop: GDP → + total population → + final consumption expenditure → + proportional contribution of final consumption to GDP → + GDP.
2) Urbanization system: driving engine of CEGSS. Increases in GDP promote the development of urbanization, which in turn promotes economic growth and improves the proportional contribution to economic growth (when the urbanization level < 70%, according to Northam (1979) ’s ‘S-curve of urbanization process’ model). It promotes GDP growth and forms a positive feedback loop: GDP → + urbanization level → + economic growth rate → + proportional contribution of urbanization level to economic growth → + GDP.
3) Market system: configuration platform of CEGSS. Economic growth is inseparable from domestic and international markets. The growth of GDP promotes the development of domestic wholesale and retail industries, which in turn promotes the growth of GDP, forming a positive feedback loop: GDP → + domestic wholesale and retail industries→ + GDP. GDP growth promotes the development of foreign trade in the international market, expands the scale of imports and exports, and promotes net exports. The larger the scale of net exports, the greater the proportional contribution to economic growth, and the greater the amount of economic growth, forming a positive feedback loop: GDP → + foreign trade → + GDP.
In fact, large net export trade surpluses (total exports > total imports) over a significant time period can easily cause friction with relevant trading partners, while a trade deficit (total exports < total imports) will affect the normal and effective operation of the national economy. A small trade surplus is conducive to the sustainable development of the national economy.
4) Driving system of science and technology innovation: endogenous power of CEGSS. GDP growth needs the support of science and technology. With the growth in GDP, R & D expenditure increases, and thus the scale and scope of scientific and technological innovation is enhanced. The greater the proportional contribution of scientific and technological innovation to economic growth, the higher the economic growth rate, forming a positive feedback loop: GDP → + R & D expenditure → + proportional contribution of scientific and technological innovation to economic growth → + GDP.
5) Government system: control center of CEGSS. The so-called ‘troika,’ namely investment, consumption, and exports, plays an important role in promoting economic growth. To optimize the structure of the ‘troika,’ the government’s scientific macro-control plays a leading role. GDP growth promotes the development of the ‘troika,’ which in turn promotes GDP growth, forming a positive feedback loop: GDP → + the ‘troika’ of economic development → + GDP.
6) Geopolitical economic system: international environment of CEGSS. With the growth in GDP, China’s international geopolitical and economic status has improved. The use of foreign capital is the catalyst which accelerates China’s economic development, improving the proportional contribution of economic growth, stimulating the economic growth rate, and promoting GDP growth, which forms a positive feedback loop: GDP → + use of foreign capital → + contribution rate of foreign capital to economic growth → + economic growth rate driven by actual use of foreign capital → + GDP. In addition, China’s international geopolitical and economic status has improved, the international market scale has been enlarged, and the import and export trade has expanded, which has promoted the growth of GDP and formed a positive feedback loop. This causal relationship is also reflected in the market system-configuration platform of CEGSS: GDP → + foreign trade → + GDP.
7) Natural resource system: material basis of CEGSS. Economic growth consumes mineral and water resources. Excessive consumption of these resources will cause supply shortages, which becomes a bottleneck restricting economic development and forming a negative feedback loop: GDP → + mineral and water resources consumption → − mineral and water resources supply → − GDP. Economic growth also needs land resources. The effect of land resources on economic growth will be discussed below in the context of the ecological footprint system.
8) Energy system: energy power of CEGSS. Economic growth consumes energy. Excessive energy consumption will cause energy shortages and insufficient energy supply, which becomes a bottleneck restricting economic development and forming a negative feedback loop. GDP → + energy consumption → − energy supply → − GDP.
9) Ecological environment system: space platform of CEGSS. GDP growth promotes investment in environmental governance, improving environmental quality, and promoting sustainable development, which forms a positive feedback loop: GDP → + environmental governance investment → + GDP.
10) Ecological footprint system: barometer of CEGSS. GDP growth promotes per capita GDP growth, the per capita ecological footprint increases correspondingly, the per capita biological carrying capacity decreases, and the per capita ecological deficit increases, which constrains economic development to a certain extent, forming a negative feedback loop: GDP → + per capita GDP → + per capita ecological footprint → − per capita biological carrying capacity → + per capita ecological deficit → − GDP. Ecological footprint is the barometer of the quality of economic development. It reveals the relationship between economic development and the ecological environment.
11) Industrial system: the symbol of development of CEGSS. From the perspective of production, the symbol of GDP growth is industry, and the industrial system is the development foundation of the GDP growth supporting system. GDP growth promotes industrial development, which in turn promotes GDP growth, forming a positive feedback loop: GDP → + industrial development → + GDP.
It should be noted that: 1) As per the use of foreign capital and foreign investment, import and export trade can reflect the systematic effect of international environment-geopolitical economy. It is more appropriate to consider import and export trade in the configuration platform-market system, and consider the use of foreign capital and foreign investment in the international environment-geopolitical economic system. 2) There is an impact of the non-quantitative international environment-geopolitical economic system (e.g., international political and economic deterioration, trade wars, and civil conflicts) and control center-government system on economic growth. We will use relevant modeling methods to conduct qualitative analysis and scientific diagnosis, to make the prediction closer to reality.
Through the description of the subsystem modules and their causal feedbacks, we used Vensim PLE® software, developed by Ventana Systems, Inc. in the U.S.A., to draw the causality diagram of the EG-SD integrated prediction model of China’s medium- and long-term economic growth system (Fig. 4).
Figure 4. Causality diagram of the economic geography-system dynamics integrated prediction model. ‘GDP’ means ‘gross domestic product’; ‘R & D’ means ‘research and development’
(2) Flow chart of the EG-SD integrated prediction model
Based on the causality analysis and subsystem design of the above main variables, a flow chart of the EG-SD integrated prediction model of China’s medium- and long-term economic growth system was drawn using Vensim PLE ( Fig. 5). The number of variables involved in this model was large (nearly 400 variable indexes including the initial value). Excel, SPSS, and Vensim PLE were used to simulate and predict some variables, which not only reduced the number of variables in the flow diagram of the prediction model, but also simplified the simulation and prediction process, and at the same time ensured prediction accuracy. The simplified model involves 232 variables, which can be divided into six categories: state (level) variable (L), rate variable (R), auxiliary variable (R), constant (C), initial value (N), and time variable (T).
Due to the long time-span of collecting relevant data, some variable indicators were not consistent in statistics. The relevant data were unified. Year data of some variable indicators were missing and the missing value analysis function in SPSS was used for interpolation.
The collected data were processed and fitted to determine the relationship between related variables, and SD formula variables in the model were assigned. The main assignment methods are as follows: 1) use SPSS and Excel to determine the relationship between different variables through curve fitting; 2) use the entropy method to determine the relationship between the two related variables; 3) use the Vensim PLE to directly assign values to related variables with the table function method; 4) for some auxiliary variables or parameters that are difficult to determine, use the empirical estimation method or average value method to take their approximate values.
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China’s economic growth in the medium and long term will be affected not only by quantifiable factors but also by non-quantifiable factors, which will promote, delay, and even block China’s economic development. China’s GDP growth rate was 6.6% in 2018 and 6.1% in 2019, which was 0.5% lower than that in 2018 (National Bureau of Statistics, 2020). Further, the trade war launched by the United States has generated profound negative impacts on China’s economic growth (Li and Liu, 2019). On the basis of SWOT (Strengths, Weaknesses, Opportunities, and Threats, Lou, 2012), combining scenario analysis with the Delphi method, a qualitative prediction simulation model (the S-D compound prediction model) was established to make up for the deficiency of quantitative simulation and prediction.
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Based on the 11 subsystem modules of China’s economic growth supporting system, and referring to Zeng and Wang (2007), Habermann and Padrutt (2011), Banister et al., (2012) and Ke (2015), etc., we comprehensively considered the main factors affecting economic growth, and used the SWOT matrix to evaluate and analyze China’s economic growth in the future, so as to lay the foundation for the situation scenario design of China’s economic growth in the medium and long term (Table 1).
Table 1. ‘Strengths, Weaknesses, Opportunities, and Threats’ analysis of China’s economic growth in the medium and long term
Aspects Factors affecting China’s economic growth in the medium and long term Strengths 1) Superior geographical location
2) Complete range of natural resources
3) Rich Human resources
4) Strong leadership of the party and government
5) Rapid urbanization
6) Large economy
7) Complete categories in manufacturing system
8) Broad market resources
9) Great potential for domestic investment
10) Large number of researchers
11) Large R & D investment
12) Increasing geopolitical and economic statusWeaknesses 1) Relatively low per capita resources
2) Increasingly scarce resources and energy
3) Serious environmental pollution
4) Large gap between urban and rural areas
5) Employment shortage due to rapid urbanization
6) Not-in-place supply-side structural reform
7) Relatively unreasonable industrial structure
8) Relatively blind, lagging and volatile market regulation
9) Weak ability to transform scientific achievements
10) Relatively slow development of ‘Internet+’
11) Trade protectionism hindering economic development
12) Increasingly complex international geopoliticsOpportunities 1) Great reform and adjustment
2) Great consumption and market and ‘economic effects of great powers’ construction
3) ‘Great depth’ and multiple growth pole construction
4) ‘Great talent’ and second demographic dividend construction
5) ‘Great innovation’ and technology dividend construction
6) ‘Great upgrade’ and upgraded china’s economy construction
7) ‘Great open’ and global layout of china’s economy
8) ‘Great scale’ and new urbanization
9) 5G era and the fourth industrial revolution (big data)
10) Environmental protection and green economic development
11) World geopolitical and economic relations reconstruction
12) Opportunities presented by the trade war between china and usThreats 1) Aging population
2) Vanishing demographic dividend and labor advantage
3) Resource shortage
4) Arduous task of improving the ecological environment
5) Long-standing gap between urban and rural areas
6) Enormous employment pressure
7) Supply-side structural reform
8) Goals set at the 19th national congress of the Communist Party of China
9) Increasingly fierce international innovation competition
10) Reconstruction of the international industrial division of labor pattern
11) China-us relations and taiwan issue
12) Increasingly complex international geopolitical and economic environmentSO (Strengths-opportunities) Strategy Make use of advantages, seize all kinds of opportunities, and achieve efficient economic development with low cost of input WO (Weaknesses-opportunities) Strategy Transform development mode, turn weaknesses into strengths, and promote economic development ST (Strengths-threats) Strategy Give full play to advantages and stem challenges, use our strengths to overcome others’ weaknesses, and achieve economic development through competition WT (Weaknesses-threats) Strategy Overcome disadvantages, avoid challenges, promote self-innovation and self-improvement, and boost economic development -
After China’s economic growth reaches a certain scale in the future, it is inevitable that the economic growth will continue to slow down. The reasons are complex and diverse. Considering the 11 subsystem modules of China’s economic growth supporting system, there are 12 main factors that will affect China’s economic growth in the future: 1) economic and institutional reform; 2) technological innovation and efficiency; 3) conversion of the new and old kinetic energy; 4) economic structure; 5) urbanization quality; 6) total factor productivity; 7) economic growth potential; 8) comprehensive resource utilization; 9) ecological environment protection; 10) Taiwan issue; 11) China-US relations; 12) international geopolitical and economic environment (Yu, 2014; Zhang et al., 2015; Ma, 2018; Randers, 2018; Fan et al., 2019; Lee and Xuan, 2019; Liang and Yang, 2019; Zhang and Wang, 2019; Zhou et al., 2020) (Table 2).The development and changes of each factor are uncertain, and there are three scenarios (optimistic, normal, and conservative) of China’s economic growth in the medium and long term. The reality could be among the three.
Table 2. Scenario analysis of China’s economic development in the medium and long term
Situational supporting system Optimistic scenario Normal scenario Conservative scenario Economic and institutional reform Overall success Basic success Lack of success Technological innovation and efficiency Rapid rise Medium rise Slow rise Conversion of the new and old kinetic energy Smooth Basic smooth Not smooth Economic structure Optimized Relatively optimized Unreasonable Urbanization quality High Medium Low Total factor productivity High Medium Low Economic growth potential Full release Successful release Slow release Comprehensive resource utilization Intensive and efficient Relatively good Common Ecological environment protection Good Relatively good Common Taiwan issue Peaceful reunification Unification by force No unification China-US relations Competition and cooperation Competition Vicious competition International geopolitical and economic environment Optimization Normality Deterioration -
Based on the situation and scenario analysis of China’s medium- and long-term economic development, combined with other countries’ economic development history and lessons (Kuznets, 1988; Pike and Tomaney, 2009; Aoki, 2012), as well as the cycle law of China’s economic development evolution, an expert questionnaire was designed on China’s economic growth rate in the medium and long term. The growth rate of China’s economy in different historical stages and scenarios in the future was finally determined after several rounds of solicitation and feedback by way of the Delphi method.
We conducted qualitative evaluation and prediction on the relative and main non-quantifiable factors of quantitative simulation and prediction from theory and practice, to achieve the combination of qualitative and quantitative prediction, and improve accuracy. The S-D compound prediction model is shown in Fig. 6. It can be seen that the simulation process of the S-D compound prediction model is actually a process of logical thinking, reasoning, and judgment. In addition, for the impact of some non-quantifiable factors on China’s economic growth in the future, such as the effect of international geopolitical and economic environment and government work efficiency, we can also use the S-D model to make fuzzy simulation and prediction to improve the accuracy of qualitative analysis.
A New Paradigm for Simulating and Forecasting China’s Economic Growth in the Medium and Long Term
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Abstract:
Taking the system philosophy of human-earth relationship as the theoretical axis, and under the three-dimensional goals of economic growth, social development, and protection of the ecological environment, this paper constructs the supporting system of China’s economic development. On this basis, guided by the basic principles of system theory and system dynamics, and combined with the theories of other related disciplines, we constructed an economic geography-system dynamics (EG-SD) integrated forecasting model to simulate and quantitatively forecast China’s economic growth in the medium and long term. China’s economic growth will be affected by quantifiable and unquantifiable factors. If the main unquantifiable factors are not taken into account in the simulation and prediction of China’s economic growth in the medium and long term, the accuracy and objectivity of the prediction results will be diminished. Therefore, based on situation analysis (Strengths, Weaknesses, Opportunities, and Threats, SWOT), we combined scenario analysis with the Delphi method, and established a qualitative prediction simulation model (referred to as the S-D compound prediction model) to make up for the shortcomings associated with quantitative simulation predictions. EG-SD and S-D are organically combined to construct a simulation and prediction paradigm of China’s economic growth in the medium and long term. This paradigm not only realizes the integration of various forecasting methods and the combination of qualitative and quantitative measures, but also realizes the organic combination of unquantifiable and quantifiable elements by innovatively introducing fuzzy simulation of system dynamics, which renders the simulation and prediction results more objective and accurate.
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Key words:
- economic growth /
- simulation and prediction /
- prediction model /
- fuzzy simulation /
- paradigm
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Figure 1. Paradigm of simulating and forecasting China’s economic growth in the medium and long term. ‘S-D compound prediction model’ means prediction model combining scenario analysis with the Delphi method; ‘SD fuzzy prediction’ means fuzzy simulation based on system dynamics modelling; ‘EG-SD prediction model’ represents economic geography-system dynamics integrated prediction model
Table 1. ‘Strengths, Weaknesses, Opportunities, and Threats’ analysis of China’s economic growth in the medium and long term
Aspects Factors affecting China’s economic growth in the medium and long term Strengths 1) Superior geographical location
2) Complete range of natural resources
3) Rich Human resources
4) Strong leadership of the party and government
5) Rapid urbanization
6) Large economy
7) Complete categories in manufacturing system
8) Broad market resources
9) Great potential for domestic investment
10) Large number of researchers
11) Large R & D investment
12) Increasing geopolitical and economic statusWeaknesses 1) Relatively low per capita resources
2) Increasingly scarce resources and energy
3) Serious environmental pollution
4) Large gap between urban and rural areas
5) Employment shortage due to rapid urbanization
6) Not-in-place supply-side structural reform
7) Relatively unreasonable industrial structure
8) Relatively blind, lagging and volatile market regulation
9) Weak ability to transform scientific achievements
10) Relatively slow development of ‘Internet+’
11) Trade protectionism hindering economic development
12) Increasingly complex international geopoliticsOpportunities 1) Great reform and adjustment
2) Great consumption and market and ‘economic effects of great powers’ construction
3) ‘Great depth’ and multiple growth pole construction
4) ‘Great talent’ and second demographic dividend construction
5) ‘Great innovation’ and technology dividend construction
6) ‘Great upgrade’ and upgraded china’s economy construction
7) ‘Great open’ and global layout of china’s economy
8) ‘Great scale’ and new urbanization
9) 5G era and the fourth industrial revolution (big data)
10) Environmental protection and green economic development
11) World geopolitical and economic relations reconstruction
12) Opportunities presented by the trade war between china and usThreats 1) Aging population
2) Vanishing demographic dividend and labor advantage
3) Resource shortage
4) Arduous task of improving the ecological environment
5) Long-standing gap between urban and rural areas
6) Enormous employment pressure
7) Supply-side structural reform
8) Goals set at the 19th national congress of the Communist Party of China
9) Increasingly fierce international innovation competition
10) Reconstruction of the international industrial division of labor pattern
11) China-us relations and taiwan issue
12) Increasingly complex international geopolitical and economic environmentSO (Strengths-opportunities) Strategy Make use of advantages, seize all kinds of opportunities, and achieve efficient economic development with low cost of input WO (Weaknesses-opportunities) Strategy Transform development mode, turn weaknesses into strengths, and promote economic development ST (Strengths-threats) Strategy Give full play to advantages and stem challenges, use our strengths to overcome others’ weaknesses, and achieve economic development through competition WT (Weaknesses-threats) Strategy Overcome disadvantages, avoid challenges, promote self-innovation and self-improvement, and boost economic development Table 2. Scenario analysis of China’s economic development in the medium and long term
Situational supporting system Optimistic scenario Normal scenario Conservative scenario Economic and institutional reform Overall success Basic success Lack of success Technological innovation and efficiency Rapid rise Medium rise Slow rise Conversion of the new and old kinetic energy Smooth Basic smooth Not smooth Economic structure Optimized Relatively optimized Unreasonable Urbanization quality High Medium Low Total factor productivity High Medium Low Economic growth potential Full release Successful release Slow release Comprehensive resource utilization Intensive and efficient Relatively good Common Ecological environment protection Good Relatively good Common Taiwan issue Peaceful reunification Unification by force No unification China-US relations Competition and cooperation Competition Vicious competition International geopolitical and economic environment Optimization Normality Deterioration -
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