Empty build­ings can power growth

Au­thor Jeremy Rifkin, known for his much-dis­cussed the­o­ries, says China could turn a ma­jor eco­nomic drag into an en­gine, Sun Ye re­ports.

China Daily (Canada) - - EXPATS -

Jeremy Rifkin, the cel­e­brated Amer­i­can eco­nomic and so­cial the­o­rist, thinks he has the cure for China’s real es­tate prob­lem, say­ing that the na­tion’s ghost cities and sur­plus apart­ments, when tweaked, might stoke the coun­try to un­prece­dented growth.

Rifkin, 69, founder and pres­i­dent of the Foun­da­tion on Eco­nomic Trends, has ad­vised the Euro­pean Union in the past decade and penned the New York Times best-seller The Third In­dus­trial Revo­lu­tion as well as 19 other books on his eco­nomic ideas. He also teaches at Whar­ton, the pres­ti­gious busi­ness school at the Univer­sity of Penn­syl­va­nia.

Now he has his eyes on China, and said its real es­tate bub­ble also car­ries a rare op­por­tu­nity for the coun­try to ex­cel in the third in­dus­trial revo­lu­tion, the one where the coun­try’s In­ter­net Plus goal of in­cor­po­rat­ing the In­ter­net into the econ­omy tri­umphs.

“What you think of as li­a­bil­ity is ac­tu­ally your as­set,” he said dur­ing a re­cent trip to Bei­jing. “If you re­for­mu­late, it can move the econ­omy and make a new page for China and the world.”

China’s real es­tate mar­ket has taken a down­turn in the past cou­ple of years due to weak de­mand and an ex­cess of un­sold homes.

In some cases, whole ar­eas were built but have been slow to fill up, caus­ing some to dub them “ghost cities”.

The cool­ing has con­tin­ued, de­spite var­i­ous poli­cies an­nounced to com­bat the slow­down, such as four cuts to bench­mark in­ter­est rates since Novem­ber, ac­cord­ing to a Xin­hua News Agency re­port.

But for Rifkin, who has been li­on­ized and some­times lam­basted for his fu­tur­is­tic con­cepts, the prob­lem­atic real es­tate in­dus­try, which by his ac­count takes up as much as 30 per­cent of the coun­try’s GDP, can again be­come the en­gine to un­stop­pable de­vel­op­ment. That could hap­pen, he said, if the idle houses are retro­fit­ted to be­come mul­ti­func­tional “nodes”.

By nodes, he means up­dated, all- in- one houses that func­tion in­di­vid­u­ally and si­mul­ta­ne­ously as data cen­ters, green power plants and stor­age sites, as well as trans­port and lo­gis­tics hubs. The nodes would all be con­nected, too, in a ma­trix where ev­ery­thing flows freely.

It’s all part of what Rifkin has called the “de­moc­ra­ti­za­tion of energy” and “dis­trib­uted cap­i­tal­ism” that he said are hall­marks of the third in­dus­trial revo­lu­tion’s move away from a car­bon-based, top-down econ­omy.

Be­cause node own­ers have ac­cess to big data, they can use it to make im­me­di­ate de­ci­sions to tai­lor the en­tire ex­change process — say, de­velop an ap­pli­ca­tion that caters to its ex­act niche mar­ket, or turn off pro­duc­tion the very minute they sniff ex­cess.

“They can make use of the data and in­crease ag­gre­gate ef­fi­ciency ev­ery step on the value chain,” Rifkin said. “(By be­com­ing nodes), they dra­mat­i­cally in­crease the pro­duc­tiv­ity and lower mar­ginal costs.”

At the cen­ter of his pro­posal is the con­cept of ag­gre­gate energy ef­fi­ciency, a ther­mo­dy­nam­ics term that deals with the amount of energy that is used and not wasted.

Rifkin be­lieves that it’s the same law — which states that the to­tal sum of energy is con­stant, only chang­ing in form — that gov­erns eco­nomic ac­tiv­i­ties. A large share of energy in the eco­nomic process also is wasted.

That is, un­less a par­a­digm shift — a fun­da­men­tal change in ap­proach or un­der­ly­ing as­sump­tions — comes along to im­prove ef­fi­ciency. Or, for ex­am­ple, if petroleum-based energy is un­able to pro­pel any fur­ther growth.

“Eighty- six per­cent of growth is de­ter­mined by ag­gre­gate ef­fi­ciency, the rest by cap­i­tal and pro­duc­tiv­ity,” he said. “GDP is slow­ing ev­ery­where be­cause ef­fi­ciency can­not go up.”

For Rifkin, the way to amp up growth is to em­brace the new age where “the com­mu­ni­ca­tion In­ter­net, re­new­able energy In­ter­net, and au­to­mated trans­porta­tion In­ter­net con­verge”. “Great eco­nomic par­a­digm shifts in history oc­cur when new com­mu­ni­ca­tion tech­nolo­gies, energy sources or modes of trans­porta­tion emerge to cre­ate a new plat­form for eco­nomic ac­tiv­ity,” he said.

While telecom­mu­ni­ca­tions, oil, rail­ways and highways fu­eled the last in­dus­trial revo­lu­tion, Rifkin said the com­bined force of the In­ter­net, wind and so­lar power, and au­to­mated trans­porta­tion would do the same in the next few decades.

That’s why, he said, he en­vi­sions the retrofitting of empty build­ings in China to be part of the ground­work for what the fu­ture needs. “What China needs to do right now is con­nect the dots,” he said.

The coun­try pro­posed its In­ter­net Plus strat­egy in July in or­der to en­cour­age the in­te­gra­tion of the In­ter­net into tra­di­tional sec­tors.

China al­ready is the world’s largest pro­ducer of so­lar and wind power, and it also is a leader in re­search and tech­nol­ogy in that area.

The State Grid has an­nounced plans to equip the coun­try with a smart power grid. It also pledges to es­tab­lish a Global Energy Net­work through ul­tra­high volt­age to trans­fer re­new­able energy.

A na­tional five-year plan to re­fur­bish and up­date ex­ist­ing build­ings is al­ready un­der­way.

Rifkin also notes that some of the coun­try’s pi­o­neer­ing de­vel­op­men­tal zones are al­ready try­ing out things sim­i­lar to his vi­sion, as the coun­try has po­si­tioned these zones as con­verg­ing points of energy, com­mu­ni­ca­tions and trans­porta­tion.

From his pre­vi­ous meet­ings with Chi­nese of­fi­cials, in­clud­ing Vice-Premier Wang Yang, Rifkin said he be­lieves the coun­try is in­deed con­nect­ing the dots. Apart from hard­ware is­sues, Rifkin con­sid­ers China cul­tur­ally wired for the new eco­nomic era, too.

The “shar­ing econ­omy”, ubiq­ui­tous now with Uber, Airbnb and their Chi­nese coun­ter­parts, is one fea­ture of the new eco­nomic par­a­digm, ac­cord­ing to Rifkin. Providers of goods in this econ­omy of­ten pay min­i­mal mar­ginal cost, work for a greater good and don’t have to play the zero-sum game of the com­pet­i­tive cap­i­tal­ist econ­omy.

“The shar­ing econ­omy is the baby that cap­i­tal­ism gives birth to,” Rifkin said. “Cap­i­tal­ism in the next 25 years will not be the ex­clu­sive, ar­bi­trary sys­tem (it has been). It will share cen­ter stage with the shar­ing econ­omy.”

And this cli­mate, one that en­cour­ages shar­ing and think­ing of the com­mu­nity good, is what Chi­nese are used to, Rifkin said.

“In China, Con­fu­cius said in­di­vid­ual iden­tity is bound with how they share and serve the larger com­mu­nity. One’s sense of self is al­ways mea­sured with his re­la­tion­ship with oth­ers,” he said.

“With the Con­fu­cian and Bud­dhist tra­di­tions, you have the shar­ing econ­omy’s cul­tural DNA.”

A 2014 Nel­son sur­vey in 60 coun­tries on peo­ple’s will­ing­ness to share or rent per­sonal items also con­firmed his ob­ser­va­tion, with 94 per­cent of sur­veyed Chi­nese will­ing to share their own goods and rent from oth­ers. The global av­er­age is 68 per­cent.

“In the West, es­pe­cially in Bri­tain and the US, we tend to think of peo­ple as in­di­vid­ual … agents, an is­land for them­selves,” Rifkin said. “But the younger gen­er­a­tion now think of free­dom not as ex­clu­siv­ity but in­clu­sive­ness, not as au­ton­omy but with a sense of be­long­ing.”

Rifkin said he is hope­ful that spirit will be ex­tended through de­vel­op­ments like China’s Belt and Road Ini­tia­tive, which refers to the Silk Road Eco­nomic Belt and 21st Cen­tury Mar­itime Silk Road, which would use trade and in­vest­ment to boost ties to China along an­cient trade routes and else­where. It would con­nect 3 bil­lion peo­ple and scores of coun­tries.

“China now has the op­por­tu­nity to draft a new jour­ney for the en­tire world, to bring a (bet­ter) qual­ity life to ev­ery­one in­volved,” he said.

Con­tact the writer at sunye@chi­nadaily.com.cn

SUN YE / CHINA DAILY

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