Tuesday, 10 July 2012

The vertical movement

China's economic future will increasingly be shaped by high-rise factories that will produce knowledge-based products, says SHAHID JAVED BURKI

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Guanyu 道 said...

The vertical movement

China's economic future will increasingly be shaped by high-rise factories that will produce knowledge-based products, says SHAHID JAVED BURKI

09 July 2012

Demography and land are China's twin destinies. The first could be - and indeed was - handled by dramatic changes in public policy in the 1980s and the 1990s. The second is being left to economic forces to find a solution but with a little bit of assistance from the state.

First let us look at the way Beijing handled its worry about the demographic situation.

The authorities then believed that the country will ultimately have more people than its economy or its limited space could handle. In decades after the 1979 opening of the economy, the state came up with the "one child" policy which it enforced with the kind of rigour and determination that can be mustered by only a strong and highly centralised state.

The result was a sharp drop in the rate of fertility, a rapidly ageing population and the eventual move towards a demographic situation when the size of the population will first stabilise and then begin to decline.

If this trend is sustained, we will see one of the most dramatic demographic transformations in human history. Within one generation, the Chinese authorities have turned around their population situation from one of abundance to relative scarcity. They may have overshot the goal. Could the same kind of public policy attention be applied to China's other big problem - the scarcity of land?

China is geographically vast with a land mass that matches that of other large continental economies such as the United States, Canada, Brazil, South Africa and India. But there is one important difference between China and other large countries. Most of Chinese space is taken up by vast deserts and equally vast mountain ranges.

With about a fifth of the world's population, China has only 11 per cent of the world's cultivable area. Not only that, most of the land that can be put to use for agriculture is close to the eastern seaboard. It is being encroached upon from both sides.

Strong winds from the west bring large amounts of sand to the eastern part, making it, inch by an advancing inch, into a wasteland. This is not a new development. The Loess plateau that covers most of the province of Gansu and some of the provinces in its neighbourhood in the north-central part of the country are made up of sand brought over millions of years by the winds from the Gobi desert. This phenomenon is being repeated further east.

There is a different kind of encroachment of this precious land by industries expanding into new land to establish new plants.

Greenfields are being converted into urban and industrial space. The most interesting example of this land- consuming economic development is Pudong, now a suburb of Shanghai.

This area was mostly agricultural land producing vegetables and other high-value added crops for the rapidly growing Shanghai market. That was a quarter century ago. Now Pudong is Shanghai's most modern part with high-rise buildings competing for the sun in the stratosphere. In fact, it is the development of Pudong in the country's centre, of Tianjin, Beijing and Dalian in the north and of Shenzhen and Hong Kong in the south that gives some idea where China is likely to go in the next phase of its development. It will go vertical.

Increasingly, new production facilities are being accommodated in vertical space rather than in horizontal, low-roofed factories that stretch for miles and eat up a lot of land.

An example of this is the huge plant that assembles most of Apple's products. The factory employs more than 100,00 people. This kind of factory space is needed by the firms that do a great deal of assembly work in which part-finished products move along a belt from one station to another. Such a factory will be hard to accommodate in the new China.

Guanyu 道 said...

When production facilities move into high-rise buildings, elevators rather that conveyor belts will move the products from one stage of production to another.

This kind of pattern of production will suit some industries but not others. An automobile manufacturing plant would be hard to place in a vertical environment while knowledge-intensive industries can do well in this kind of spatial arrangement.

This means significant changes in the structure of the Chinese production sector as it goes vertical. Industries producing heavy output - cars, trucks, aeroplane parts, heavy earth- moving machinery - will have to yield space to activities such as electronics, pharmaceuticals, medical research, entertainment, IT and research of all kinds.

The need for horizontal space could be taken care of by moving west and some of that has already begun to happen. But mostly China's economic future will be shaped by vertical factories that will produce knowledge-based products.

These will stretch along a narrow slice of land stretching from Dalian to Hong Kong-Shenzhen. Ultimately, say by the year 2050, this strip will accommodate 500 million people, more than one-third of by then a stabilised Chinese population of 1.5 billion people. Together their output will be valued at US$20 trillion, two-thirds the size of all China and almost equal to that of the United States.

How will this many people crowded in high-rise buildings with more than a hundred floors each work, live and interact with one another?

The answer to this question brings us into the realm of science fiction. But the Chinese, realising what is coming, have begun to invest in futurist technologies. They are already the world's largest producers of solar energy cells.

Turning high-rise buildings into power-producing plants makes a great deal of sense to serve a very tightly packed population. It will be extremely costly to have electricity transmitted over long distances from the places that have the resources (currently coal and water) for generating it. Making large and high-rise buildings self-sufficient in power makes a great deal of economic sense and is increasingly technologically possible.

It is not fanciful to suggest that what we are seeing in China will shape the future - influencing the way people live, work and interact; the way they will consume resources; the types of products they will produce and consume; how they will deal with the nations outside their immediate borders.

Looking at the way China is developing, the future is already here. It will not be confined to China. It will encompass the rest of the world.

The author is senior research fellow at the Institute of South Asian Studies. He was former Vice-President of the World Bank and has worked extensively on the Chinese economy since the 1960s. He is also a former Finance Minister of Pakistan